<PAGE>
As filed with the Securities and Exchange Commission on March 31, 2000
Registration No. 333-30708
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
Amendment No. 3 to FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
Evoke Incorporated
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7375 84-1407805
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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1157 Century Drive
Louisville, CO 80027
(800) 878-7326
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------
Paul A. Berberian
Chairman of the Board, Chief Executive Officer and President
Evoke Incorporated
1157 Century Drive
Louisville, CO 80027
(800) 878-7326
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
<TABLE>
<S> <C>
Michael L. Platt, Esq. Julie T. Spellman, Esq.
Stephanie A. Anagnostou, Esq. Cravath, Swaine & Moore
Cooley Godward LLP Worldwide Plaza
2595 Canyon Boulevard, Suite 250 825 Eighth Avenue
Boulder, CO 80302-6737 New York, NY 10019
(303) 546-4000 (212) 474-1000
</TABLE>
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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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 31, 2000
PROSPECTUS
[LOGO]
10,000,000 Shares
Evoke Incorporated
Common Stock
$ per share
--------
We are selling 10,000,000 shares of our common stock. The underwriters named
in this prospectus may purchase up to 1,500,000 additional shares of our common
stock to cover over-allotments.
This is an initial public offering of shares of our common stock. Evoke
Incorporated currently expects the initial public offering price to be between
$8.00 and $10.00 per share. We have applied to have our common stock included
for quotation on the Nasdaq National Market under the symbol "EVOK."
--------
Investing in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to Evoke Incorporated (before expenses) $ $
</TABLE>
The underwriters expect to deliver the shares to purchasers on or about ,
2000.
--------
Salomon Smith Barney
Robertson Stephens
Thomas Weisel Partners LLC
CIBC World Markets
, 2000
<PAGE>
Depicted on the inside front cover page of the prospectus are two panel
displays overlayed on a large picture of our logo in the background. The top
left panel contains a picture of a computer screen showing our web site and
along with pictures of a speaker phone, a cell phone and a personal digital
assistant. This page contains a title, "Evoke a Response," a subtitle, "A
Leading Internet Communication Services Provider," followed by the words "Evoke
is the place on the Internet where business can go to communicate and exchange
voice, video and visuals through web-based applications and technologies. We
offer business-to-business communication services based on our proprietary
systems that integrate traditional telephony with powerful streaming media and
web collaboration tools." Below and to the left of the words are the phrases
"Easy-to-Use, Powerful Communication Tools," "Enhanced Functionality,"
"Automated Services," "Significant Cost Saving Opportunities," and "Reliable
and Scalable Infrastructure." Our logo appears at the bottom of this page along
with the words "Evoke" and "www.evoke.com."
On the inside gatefold appear the titles "Revolutionize and Enrich..." in
the top left corner and "...Your Communication Experience" at the bottom right
corner. This page also contains three computer screen shots each depicting one
of our services. On the left of the page are the words "evoke Webcasting"
beside a computer screen showing a streaming video along the words "Video On
Demand" and "Intelligent Contact Manager Solution 4.0." Next to this screen
shot are the words "Evoke Webcasting provides customers with a complete
solution for controlled delivery of voice, video, and visuals over the Internet
or corporate intranets." Below this are the words "evoke Talking Email" next to
a computer screen depicting our Evoke Talking Email web interface. Beside this
screen are the words "Evoke Talking Email allows users to record a free voice
message up to 30 seconds long and send it as an email message." On the top
right side of the gatefold is our logo and the word "evoke." Below this appear
the words "evoke Webconferencing" leverages the power, reach and visuals of the
Internet with the reliability and universal availability of traditional
conferencing, allowing users to conference and collaborate in real-time."
<PAGE>
You should rely only on the information contained in this prospectus.
Evoke has not authorized anyone to provide you with different information.
Evoke is not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
------------
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary................................................. 1
Risk Factors....................................................... 6
Forward-Looking Statements; Market Data............................ 18
Use of Proceeds.................................................... 19
Dividend Policy.................................................... 19
Dilution........................................................... 20
Capitalization..................................................... 21
Selected Financial Data............................................ 23
Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations............................................... 25
Business........................................................... 31
Recent Developments................................................ 45
Management......................................................... 47
Certain Relationships and Related Transactions..................... 61
Principal Stockholders............................................. 63
Description of Capital Stock....................................... 65
Shares Eligible for Future Sale.................................... 69
United States Tax Consequences to Non-United States Holders........ 71
Underwriting....................................................... 74
Legal Matters...................................................... 76
Experts............................................................ 76
Where You Can Find Additional Information.......................... 76
Index to Financial Statements...................................... F-1
</TABLE>
------------
Until , 2000 (25 days after the date of this prospectus), all
dealers selling shares of our common stock, whether or not participating in
this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our
common stock discussed under "Risk Factors" and the financial statements,
before you decide to buy our common stock.
Our Company
We are a leading provider of Internet communication services that allow
users to communicate and exchange voice, video and visuals in a simple, cost-
effective manner through web-based applications and technologies. We offer
business-to-business communication services based on our proprietary systems
that integrate traditional telephony technology with powerful streaming media
and web collaboration tools. Streaming media tools allow audio and video
content to be played in real-time over the Internet, without downloading the
content onto their computers. Web collaboration tools enable groups of people
in diverse geographic locations to interact in real-time over the Internet
using shared visuals and other applications. We currently offer three easy-to-
use, highly functional Internet communication services:
. Evoke Webconferencing is an automated conferencing service that
leverages the power, reach and visual support of the Internet and the
reliability and universal availability of traditional telephone
conferencing services. Evoke Webconferencing users can instantly
establish a meeting without operator intervention, join participants on
the phone and web to share visuals and present an event as a live or
recorded web cast.
. Evoke Webcasting provides customers with a complete solution for
controlled delivery of voice, video and visuals over the Internet or
corporate intranets. We capture content from our customers' live and
recorded events, encode, track and manage it, providing an end-to-end,
cost-effective streaming solution.
. Evoke Talking Email allows users to record a free voice message up to 30
seconds long and send it as an email message. The service has the
capability to deliver the message to thousands of users simultaneously.
Additionally, users can post their voice message as a link embedded on a
web page.
We market our services to large and medium-sized corporations and high
growth Internet-centric companies through our direct sales force. Through the
end of 1999, we provided Evoke Webcasting and Evoke Webconferencing services to
over 550 business customers. We also partner with leading Internet sites, such
as Excite@Home and Blue Mountain Arts, to offer our proprietary systems as co-
branded services to extend our reach to small businesses, home offices and
consumers.
We have a limited operating history and have incurred net losses of
approximately $15 million from our inception in April 1997 to December 31,
1999. We expect to continue to incur significant operating losses for the
forseeable future as we expect to significantly increase our research and
development, sales and marketing, and general and administrative expenses as
compared to prior periods.
Our Solution
The demand for Internet communication services is driven by the increasing
globalization of operations, geographically-dispersed work teams, shared
decision making, accelerated workforce training and increasing pressure to
reduce operating costs. Currently our competitors offer standalone
communication services, such as traditional conferencing, web collaboration or
streaming services, without combining these services around a common interface.
We believe there is a significant opportunity for an integrated Internet
communication solution that combines these standalone applications into simple,
cost-effective and reliable tools for business-to-business communication.
1
<PAGE>
The key benefits of our solution include:
. Easy-to-Use, Powerful Communication Tools. Our services offer simple yet
powerful functions to appeal to the broadest customer base.
. Superior Functionality. Our communication services leverage the power of
the Internet to increase a user's flexibility, interactivity and control
as compared to more traditional methods of communication.
. Automated Services. Most of our services are fully automated and require
no human intervention, while customer support is available upon request.
. Significant Cost Saving Opportunities. Our customers reduce cost by
minimizing the need for expensive and time intensive business travel or
specialized conferencing software or equipment.
. Reliable and Scalable Infrastructure. We have designed our
infrastructure to meet stringent telecommunication-grade reliability
requirements and to be scalable with the growth of our business.
Our Strategy
We have developed the following strategies to meet the diverse communication
needs of businesses and consumers:
. Leverage proprietary systems to quickly develop innovative services;
. Aggressively market through multiple distribution channels;
. Migrate our basic-service users to our more sophisticated services;
. Increase brand awareness;
. Aggressively expand our infrastructure and capacity; and
. Expand through acquisitions and international joint ventures.
Recent Developments
On March 24, 2000, we entered into a merger agreement to acquire Contigo
Software, Inc., a California corporation that is based in San Diego, California
with approximately 50 employees. Contigo offers web collaboration software to
business customers, enabling real-time interaction among participants in a web
conference. Contigo's advanced web collaboration tools include:
. Whiteboarding, which enables participants to annotate shared visuals or
documents with highlighting or drawing tools;
. Text chat, which enables participants to type messages to each other
during a conference;
. Application viewing, which enables participants in a conference to view
the same application on the Internet and view the user's presentation or
changes to the application's content;
. Web touring, which enables the user, by typing a web site address, to
take multiple participants in a conference to the same Internet site in
real-time; and
. Polling, which enables the user to take a vote among multiple
participants and display the results.
We have agreed to issue in exchange for all outstanding Contigo capital
stock, and reserve for issuance upon the exercise of Contigo options, an
aggregate of 9,000,000 shares of our common stock upon completion of the
acquisition. Upon completion of this offering, these shares would represent
approximately 14.6% of our outstanding common stock. We will also pay to
certain preferred shareholders of Contigo an aggregate amount
2
<PAGE>
of approximately $1.1 million in respect of a liquidation preference. In
addition, at the closing, we will pay Contigo $5.0 million to satisfy an
obligation of Contigo to one of its founders arising in connection with the
acquisition. We may also be obligated to pay up to an additional $1.0 million
for specified tax obligations in connection with this $5.0 million payment. We
intend to fund the cash payments required in connection with this acquisition
from our working capital. We anticipate that the Contigo acquisition will close
by the end of July 2000. However, the acquisition is subject to closing
conditions specified in the merger agreement, including government approvals,
approval of the merger by the shareholders of Contigo and other customary
closing conditions. As a result, the Contigo acquisition may not be completed.
For more information on the risks associated with this acquisition and the
various conditions to closing, please see "Risk Factors--We have a history
losses, we except significant continuing losses and we may never obtain
profitability," and "Risk Factors--We may not achieve any benefits from the
proposed Contigo acquisition."
On March 29, 2000, we issued 686,813 shares of our Series E preferred stock,
which will convert into common stock upon the closing of this offering, to
Microsoft Corporation at a purchase price of $7.28 per share for an aggregate
amount of approximately $5.0 million. Assuming an initial offering price of
$9.00 per share, we will record a preferred stock dividend of approximately
$0.9 million for this sale of preferred stock in the first quarter of 2000. We
also granted to Microsoft a warrant to purchase 858,416 shares of our Series E
preferred stock at an exercise price equal to the lesser of $10.00 per share or
the initial public offering price of the shares of common stock to be sold in
this offering. This warrant is immediately exercisable and will expire in three
years. In connection with Microsoft's purchase of our preferred stock, we
entered into an agreement with Microsoft under which we will receive access to
Microsoft's streaming media software, developmental support for our streaming
media offerings and additional subsidies for third-party use of our streaming
services. In exchange, we have agreed to feature Microsoft's streaming media
technology as our preferred streaming media format.
On March 30, 2000, we expanded our executive management team to include a
new executive vice president and chief financial officer, Terence G. Kawaja. We
expect to recognize an expense of $2.3 million in the first quarter of 2000 and
deferred compensation of $3.4 million, which will be recognized over four years
in connection with common stock that we will sell and stock options that we are
issuing to Mr. Kawaja.
3
<PAGE>
The Offering
Common stock offered........
10,000,000 shares
Common stock outstanding
after this offering........
61,640,219 shares
Use of proceeds............. We intend to use the net proceeds of this
offering to expand our sales force and marketing
activities, further develop our services and
systems, increase our operational capacity,
finance potential acquisitions, joint ventures or
investments and for general corporate purposes.
Proposed Nasdaq National
Market Symbol..............
EVOK
Throughout this prospectus, the number of shares of common stock to be
outstanding after this offering is based on the number of shares outstanding as
of February 29, 2000, unless otherwise indicated. It also reflects the
automatic conversion of all then outstanding series of preferred stock into
common stock. This information excludes:
. 1,500,000 shares that could be sold to the underwriters upon the
exercise of their option to purchase additional shares;
. 686,813 shares issued to Microsoft Corporation on March 29, 2000 at a
purchase price of $7.28 per share;
. 858,416 shares that could be issued to Microsoft upon the exercise of a
warrant outstanding as of March 29, 2000 at an exercise price equal to
the lesser of $10.00 per share or the initial public offering price of
the shares offered in this prospectus; and
. an aggregate of 9,000,000 shares to be issued in exchange for all
outstanding shares of Contigo capital stock or to be reserved for
issuance upon exercise of assumed Contigo options in connection with the
proposed Contigo acquisition;
. 3,318,100 shares that could be issued upon the exercise of options
outstanding as of February 29, 2000 at a weighted average exercise price
of $1.40 per share;
. 123,343 shares that could be issued upon the exercise of warrants
outstanding as of February 29, 2000 at a weighted average exercise price
of $1.37 per share.
------------
We were incorporated in Delaware in April 1997 under the name Intellistat
Media Research, Inc. In July 1997, we changed our name to VStream Incorporated
and in February 2000 we changed our name to Evoke Incorporated. Our principal
executive office is located at 1157 Century Drive, Louisville, Colorado 80027
and our telephone number is (800) 878-7326. Our web site adress is
www.evoke.com. Information contained on our web site or any other web site does
not constitute part of this prospectus.
4
<PAGE>
Summary Financial Data
The following table sets forth summary financial data for our business. You
should read this information together with the financial statements and the
notes to those statements and "Unaudited Pro Forma Condensed Combined Financial
Information" included elsewhere in this prospectus.
The statement of operations data displayed in the "Pro Forma Contigo
Acquisition 1999" column gives effect to the Contigo acquisition as if it had
taken place on January 1, 1999. If completed, we expect the Contigo acquisition
to occur by the end of July 2000. Pro forma basic and diluted loss per share is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of all outstanding
series of preferred stock into common stock upon completion of this offering as
if the conversion occurred on January 1, 1999, or at the date the preferred
stock was actually issued, if later. Assuming the Contigo acquisition had taken
place on January 1, 1999, the pro forma basic and diluted loss per share for
1999 would have been $1.39. Pro forma basic and diluted loss per share does not
give effect to the issuance of Series E preferred stock in March 2000.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
Period from
Inception Pro Forma
(April 17, 1997) Contigo
to December 31, Acquisition
1997 1998 1999 1999
---------------- -------- ------------ ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue............... $ -- $ 675 $ 2,246 $ 5,440
Gross profit (loss)... (106) (121) (1,122) 1,908
Loss from operations.. (764) (3,494) (11,253) (38,969)
Net loss.............. (749) (3,272) (10,854) (38,837)
Basic and diluted loss
per share............ $ (2.95) $ (6.86) $ (16.61) $ (5.35)
Shares used in
computing loss per
share--basic and
diluted.............. 254,264 477,123 653,594 7,253,105
Pro forma basic and
diluted loss per
share................ $ (0.51)
Shares used in comput-
ing pro forma loss
per share--basic and
diluted.............. 21,330,732
The following table is a summary of our balance sheet as of December 31,
1999. The balance sheet data displayed in the "As Adjusted" column gives effect
to the net proceeds of $5.0 million from our sale of 686,813 shares of Series E
preferred stock and a warrant to purchase 858,416 shares of Series E preferred
stock in March 2000, the automatic conversion of all outstanding series of
preferred stock into our common stock upon completion of this offering and the
sale of 10,000,000 shares of common stock offered in this offering at an
assumed initial public offering price of $9.00 per share (after deducting the
estimated underwriting discounts and offering expenses) and the application of
the net proceeds. The balance sheet data displayed in the "Contigo Acquisition
As Adjusted" column also reflects the pro forma effects of the proposed
acquisition of Contigo.
<CAPTION>
December 31, 1999
---------------------------------------
Contigo
As Acquisition
Actual Adjusted as Adjusted
---------------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equiva-
lents................ $ 89,234 $176,734 $173,558
Working capital....... 79,920 167,420 163,821
Total assets.......... 110,338 197,838 275,688
Long-term debt, less
current portion...... 2,260 2,260 2,260
Redeemable convertible
preferred stock and
warrants............. 111,247 -- --
Total stockholders'
equity (deficit)..... (13,927) 184,820 261,557
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risks, together with information contained
elsewhere in this prospectus, before you decide whether to buy our common
stock.
Risks Relating to Our Business
We have a history of losses, we expect significant continuing losses and we
may never attain profitability
If we do not achieve or sustain profitability in the future, we may be
unable to continue our operations. Our operating costs have exceeded our
revenues in each quarter since our inception in April 1997. We have incurred
cumulative net losses of approximately $15 million from our inception through
December 31, 1999, and we anticipate significant net losses through at least
2002. Our revenues may not continue to grow and we may not achieve or maintain
profitability in the future. In addition, we expect that our sales and
marketing, research and development, and general and administrative expenses
will increase significantly in the future as compared to prior periods.
Accordingly, we must significantly increase our revenue to achieve and maintain
profitability and to continue our operations.
In addition, if the Contigo acquisition is completed, we expect that our
losses will increase significantly because of additional costs and expenses
related to:
. an increase in the number of our employees;
. an increase in sales and marketing activities;
. additional facilities and infrastructure; and
. assimilation of operations and personnel.
If the Contigo acquisition is completed, we will record a significant amount
of goodwill, the amortization of which will significantly reduce our earnings
and profitability for the foreseeable future. We expect to record goodwill of
approximately $80.1 million, to be amortized over a three year period. To the
extent we do not generate sufficient cash flow to recover the amount of the
investment recorded, the investment may be considered impaired and could be
subject to earlier write-off. In this event, our net loss in any given period
could be greater than anticipated and the market price of our stock could
decline.
We have a limited operating history, which makes it difficult to evaluate
our business
We have a limited operating history, and you should not rely on our recent
results as an indication of our future performance. We were incorporated in
April 1997 and first recorded revenue from Evoke Webcasting in January 1998. We
only began commercially offering our flagship service, Evoke Webconferencing,
in April 1999. Due to our limited operating history and the rapidly changing
nature of the Internet communication services market, it is difficult or
impossible for us to predict future results, and you should not expect our
future revenue growth to equal or exceed our recent growth rates. You should
consider our business and prospects in light of the risks, expenses and
difficulties frequently encountered by growing companies in rapidly evolving
markets, such as the markets for web conferencing, web collaboration and
streaming services. Our business strategy may be unsuccessful and we may be
unable to address the risks we face in a cost-effective manner, if at all.
Before investing, you should evaluate the risks, uncertainties, expenses and
difficulties frequently encountered by early-stage companies, particularly
companies that are seeking to significantly expand their presence in new and
rapidly evolving markets.
6
<PAGE>
We may fail to meet market expectations because of fluctuations in our
quarterly operating results, which would cause our stock price to decline
As a result of our limited operating history, the rapidly changing nature of
the markets in which we compete and the other risks described in this section,
our quarterly operating results have varied significantly from period to period
in the past and are likely to continue to vary significantly in future periods.
For example, our quarterly net loss ranged between $1.7 million and $5.3
million in the four quarters of the year ended December 31, 1999. Variations in
our quarterly operating results may be caused by a number of factors, many of
which are beyond our control. Accordingly, our quarterly operating results are
difficult to predict and may not meet the expectations of securities analysts
or investors. If this occurs, the price of our common stock would decline.
Additionally, we expect our results will fluctuate based on seasonal sales
patterns. Our operating results for 1999, for example, show decreases in the
use of Evoke Webconferencing around the Thanksgiving, Christmas and New Year
holidays. We expect that our revenues during these holiday seasons and others,
including the summer holiday period, will decrease as compared to other periods
of the year.
Sales of our services will suffer if use of the Internet as a communication
medium fails to grow
Sales of our services will be less than we expect if use of the Internet as
a communication medium does not continue to develop, or if it develops more
slowly than we expect. Our success depends on the adoption of our Internet
communication services by current and future customers as an integral part of
their businesses. Our current and planned services are very different from the
traditional communication solutions that our customers have historically used.
Growth in profitability from Evoke Webconferencing will depend in part on
significantly more customers using Evoke Webconferencing's web-based features
in addition to our traditional conferencing features. In the fourth quarter of
1999, only a small percentage of Evoke Webconferencing users proactively used
the web in this way. Businesses that have already invested substantial
resources in traditional or other methods of communication may be reluctant to
adopt new Internet communication services. If sufficient demand for our
services does not develop, our sales results will be harmed. As a result, the
price of our common stock would decline.
Our recent name change may confuse our customers and business partners,
which could adversely affect our sales and marketing efforts and harm our brand
In February 2000, we changed our name from VStream Incorporated to Evoke
Incorporated and our web site address from www.vstream.com to www.evoke.com. We
also changed the name of each of our services to reflect our new Evoke brand.
These changes may confuse our customers, business partners and investors, which
could harm our brand. We have invested significant resources in sales and
marketing efforts focused on developing the VStream brand and the names of our
services associated with it. We may be unsuccessful in transferring any or all
of the brand equity that we have created in the VStream brand to our new brand.
We plan to incur significant sales and marketing expense in an attempt to build
a strong brand identity centered around our new name and confusion surrounding
our recent name change may hamper these efforts. In addition, a trademark
infringement suit has been filed against us in district court in California,
alleging, among other things, that our new name infringes the trademarks and
service marks of the company filing this suit. For more information on this
suit, please see "Business - Legal Proceedings."
We depend on single source suppliers for key components of our
infrastructure, the loss of which could cause significant delays and costs in
providing services to our existing and prospective customers
We purchase key components of our telephony infrastructure from a single
supplier. Any extended reduction, interruption or discontinuation in the supply
of these key components would cause significant delays and costs in providing
services to our existing and prospective customers. These components, called
multipoint control units, form the basis of our audio conferencing
infrastructure, upon which the majority of our services rely. In order to
continue to expand our infrastructure capacity, we must be able to purchase
additional multipoint control units from this supplier. Because we do not have
any guaranteed supply arrangements with
7
<PAGE>
this supplier, it may unilaterally increase its prices for these components,
and as a result, we could face higher than expected operating costs and
impaired operating results. We could also experience difficulties in obtaining
alternative sources on commercially reasonable terms, if at all, or in
integrating alternative components into our technology platform. We also rely
on a single supplier for storage hardware, which stores critical operations
data and maintains the reliability of our services.
If any of the third party technologies and services that we use become
unavailable to us, our ability to offer our services will be substantially
harmed
We are highly dependent on the streaming software that we license from two
suppliers in order to deliver our streaming services. If these vendors change
their streaming software, our software may become inoperable, the functionality
of our services would decline and we would suffer significant delays and costs
in attempting to reengineer our services. We also rely on third party services,
such as Internet access, transport and long distance providers. These companies
may not continue to provide services to us without disruptions, at the current
cost, or at all, and the costs associated with a transition to a new service
provider would be substantial. We may be required to reengineer our systems and
infrastructure to accommodate a new service provider, which would be both
expensive and time-consuming. In addition, in the past, we have experienced
disruptions and delays in our services due to service disruptions from these
providers. Any interruption in the delivery of our services would likely cause
a loss of revenue and a loss of customers.
A small number of our customers account for a high percentage of our revenue
and the loss of a major customer could harm our operating results and cause our
stock price to decline
The loss of any of our major customers could result in lower than expected
revenue and cause our stock price to decline. Additionally, most customers do
not have any obligation to purchase additional services from us or to continue
to use our current services. As a result, we may face increased downward
pricing pressure that could cause a decrease in our gross margins. For the year
ended December 31, 1999, Microsoft accounted for 21% of our revenue by
subsidizing third-party use of our services in conjunction with the adoption of
its technologies. During 1999, Cisco Systems accounted for 9% of our revenue.
We expect that a small number of customers will continue to account for a high
percentage of our revenue. Our customers depend on the reliability of our
services and we may lose a customer if we fail to provide reliable services for
even a single communication event.
The growth of our business substantially depends on our ability to
successfully develop and introduce new services in a timely manner
Our growth depends on our ability to continue developing leading-edge
Internet communication services. For example, we have several services
currently in the development stage, such as voice chat, a service that allows
users to talk with each other over the Internet, and a wireless Evoke
Webconferencing platform. We may not successfully identify, develop and market
these and other new services in a timely and cost-effective manner. If we
develop services that fail to achieve widespread market acceptance or that fail
to generate significant revenues to offset development costs, our net losses
will increase.
We have experienced development delays and cost overruns in our development
efforts in the past and we may encounter these problems in the future. Delays
and cost overruns could affect our ability to timely respond to technological
changes, evolving industry standards, competitive developments or customer
requirements. In addition, some of these offerings may require us to acquire
technologies or form relationships with third parties and we may be unable to
identify suitable candidates or come to terms acceptable to us for any such
acquisition or relationship. In addition, we may not successfully alter the
design of our systems to quickly integrate new technologies.
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Competition in the Internet communication services market is intense and we
may be unable to compete successfully
The market for Internet communication services is relatively new, rapidly
evolving and intensely competitive. Competition in our market will continue to
intensify and may force us to reduce our prices, or cause us to experience
reduced sales and margins, loss of market share and reduced acceptance of our
services.
Many of our current and potential competitors have larger customer bases,
longer operating histories, greater name recognition, more employees and
significantly greater financial, technical, marketing, public relations and
distribution resources than we do. We expect that many more companies will
enter this market and invest significant resources to develop Internet
communication services. These competitors may offer or develop products or
services that perform better than ours. See "Business - Competition" for a more
detailed discussion of the competition that we face.
In addition, the Internet industry has recently experienced substantial
consolidation and a proliferation of strategic transactions. We expect this
consolidation and strategic partnering to continue. Acquisitions or strategic
partnerships involving our current and potential competitors could harm us in a
number of ways. For example:
. competitors could acquire or partner with companies with which we have
strategic partnerships and discontinue our partnership, resulting in the
loss of distribution opportunities for our services or the loss of
certain enhancements or value-added features to our services;
. a competitor could be acquired by or enter into a strategic relationship
with a party that has greater resources and experience than we do,
thereby increasing the ability of the competitor to compete with our
services; or
. a competitor could acquire or partner with one of our key suppliers.
We could lose or fail to form strategic partnerships that are important to
our business, including Excite@Home and Blue Mountain Arts
Our strategic partnerships are critical to our success because they help us
strengthen our brand awareness and reach a broader customer base. The loss of
current strategic partnerships or our failure to find other strategic partners
in a timely manner could harm our business. For example, Excite@Home may
terminate our strategic partnership under various circumstances, some of which
may be beyond our control. Our agreement requires us to satisfy specific
performance and functionality requirements. Early termination of our
partnership with Excite@Home may harm our reputation, decrease the size of our
user base and cause our stock price to decline. Moreover, Excite@Home is
controlled by AT&T. AT&T's teleconferencing services currently compete with
Evoke Webconferencing, and AT&T may seek to expand its product offerings into
Internet communication in the future. Additionally, the loss of our strategic
relationship with Blue Mountain Arts would significantly harm our strategy to
increase brand awareness using Evoke Talking Email. Our strategic partnerships
with Blue Mountain Arts and Excite@Home accounted for a substantial majority of
the Evoke Talking Email messages processed by our systems in March 2000. We may
become more reliant on strategic partners in the future, which would increase
the risk to our business of losing these partnerships. Additionally, we may not
be successful in forming strategic partnerships and the efforts of our
strategic partners may not be successful.
Our failure to manage our planned rapid growth could cause our business to
suffer
We plan to expand our operations rapidly and to significantly add to our
infrastructure. This expansion is expected to place a significant strain on our
managerial, operational and financial resources, and we may not effectively
manage this future growth. In addition, if the Contigo acquisition is
completed, we will add approximately 50 new employees, including managerial,
sales, technical and operational personnel, and will need to assimilate
substantially all of Contigo's operations into our operations. Expanding our
business will require us to invest significant amounts of capital to compete
with other providers that may have more experience and greater resources than
we do. Also, our management may have to divert a disproportionate
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amount of its attention away from our day-to-day activities and devote a
substantial amount of time expanding into new areas. Our failure to manage our
growth effectively could cause substantial increases in our operating costs
without corresponding increases in our revenue.
Additionally, our planned rapid growth requires us to order equipment, some
of which has substantial development and manufacturing lead times. If we do not
order equipment in a timely and efficient manner in order to support our
growth, we may not have enough capacity to support the demand for our services
and the delivery of our services may be interrupted.
We face risks associated with international operations, such as our
potential joint venture with @viso Limited, that may harm our business
We intend to expand into international markets and to spend significant
financial and managerial resources to do so. We have no experience in
international operations and may not be able to compete effectively in
international markets. We face certain risks inherent in conducting business
internationally, such as:
. varying technology standards from country to country;
. uncertain protection of intellectual property rights;
. inconsistent regulations and unexpected changes in regulatory
requirements;
. difficulties and costs of staffing and managing international
operations;
. political and economic instability;
. wage and price controls;
. fluctuations in currency exchange rates;
. linguistic and cultural differences;
. difficulties in collecting accounts receivable and longer collection
periods;
. imposition of currency exchange controls; and
. potentially adverse tax consequences.
In particular, we are currently in negotiations to form a joint venture with
@viso Limited, a European-based venture capital firm, which, if successful,
will expand our operations to continental Europe and the United Kingdom. If we
fail to form this joint venture, we would need to identify other strategic
partners and agree on terms in order to expand internationally, which we may be
unable to accomplish. In addition, even if the European joint venture is
formed, the venture may not be successful. If our revenues from this and other
international operations do not exceed the expense of establishing and
maintaining these operations, our operating losses will further increase.
In addition, our expansion into international markets will require us to
develop specific technology that will allow our current systems to work with
international telephony systems. We may not develop this technology in a timely
manner, in a way to prevent service disruptions or at all.
We may not achieve any benefits from the proposed Contigo acquisition
There are risks associated with the Contigo acquisition that we may not
effectively address. As a result, we may not achieve any benefits from the
proposed Contigo acquisition, and, if the acquisition is not completed, our
stock price may decline. The proposed Contigo acquisition is subject to a
number of contingencies, including approval of the acquisition by Contigo's
shareholders and governmental authorities and other customary closing
conditions. As a result, the acquisition may not be completed.
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If the Contigo acquisition is completed, we may not realize the anticipated
benefits from the acquisition. We have limited experience in acquisition
activities and will have to devote substantial time and resources in order to
complete the Contigo acquisition. We may not be able to successfully integrate
the acquired operations, technologies, products and services, information
systems and personnel into our business. The proposed acquisition may further
strain our existing financial and managerial controls, and divert management's
attention away from our other business concerns. There may also be
unanticipated costs associated with the acquisition that may harm our operating
results and key Contigo personnel may decide not to work for us. In addition,
if the Contigo acquisition is completed, we will have operations in multiple
facilities in geographically diverse areas. We are not experienced in managing
facilities and operations in geographically distant areas.
We may not sustain the financial results that Contigo has achieved in the
past because of integration problems, changes that we may make to Contigo's
operations and the potential loss of customers who may decide not to continue
their relationship with Contigo after the acquisition. If the proposed
acquisition is completed, an aggregate of 9,000,000 shares of our common stock
will be issued in exchange for all outstanding shares of Contigo capital stock
or reserved for issuance upon the exercise of assumed Contigo options. The
issuance of these securities will dilute our existing stockholders.
We may acquire other businesses, form joint ventures and make investments in
other companies that could negatively affect our operations and financial
results and dilute existing stockholders
We may use a portion of the net proceeds of this offering for other
acquisition, joint venture and investment prospects that would complement our
current services, enhance our technical capabilities or offer growth
opportunities. We may not identify or complete these acquisitions in a timely
manner, on a cost effective basis or at all, and we may not realize the
benefits of any acquisition, joint venture, or other investment. We have
limited experience in acquisition activities and may have to devote substantial
time and resources in order to complete acquisitions. There may also be risks
of entering markets in which we have no or limited prior experience. Further,
these potential transactions entail the same risks, uncertainties and potential
disruptions to our business as discussed above with respect to the proposed
Contigo merger, which could harm our operating results and cause our stock
price to decline.
In addition, if we were to make any acquisitions, we could:
. issue equity securities that would dilute our stockholders;
. incur debt;
. assume unknown or contingent liabilities; or
. experience negative effects on our reported results of operations from
acquisition-related charges and of amortization of acquired technology,
goodwill and other intangibles.
We may not be able to obtain additional capital to fund our operations when
needed
We will need to raise additional funds in the future. Any future financing
we require may not be available on a timely basis, in sufficient amounts or on
terms acceptable to us. If we cannot obtain adequate funds on acceptable terms,
our operations may be harmed because we may be unable to:
. fund our capital requirements;
. take advantage of strategic opportunities;
. respond to competitive pressures; and
. develop or enhance our services.
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If we raise additional funds by issuing additional equity securities, our
existing stockholders will experience dilution, and, if approved by our
stockholders, the newly issued securities could have rights superior to those
of the shares of common stock sold in this offering. If we raise additional
funds by issuing debt securities, we may also become subject to significant
limitations on our operations.
We depend on key executives who may leave us at any time
Our success substantially depends on the continued employment of our
executive officers, particularly our founders: Paul Berberian, our chairman of
the board, chief executive officer and president; James LeJeal, our chief
operating officer; and Todd Vernon, our chief technology officer, whose
knowledge of our company and technical expertise would be difficult to replace.
We also recently hired Terence Kawaja as our executive vice president and chief
financial officer whose expertise is valuable to us and who would be difficult
to replace. The loss of the services of any of these executives or any of our
other key employees could significantly disrupt our operations. We maintain $2
million "key person" life insurance policies on each of Messrs. Berberian,
LeJeal and Vernon. We only have employment agreements with Mr. Berberian, Mr.
LeJeal and Mr. Kawaja.
We must attract and retain additional highly skilled personnel to grow our
business
We plan to significantly expand our operations, and to do so, we must
identify, attract, retain and motivate highly skilled sales and marketing,
technical and managerial personnel. We have experienced difficulties in hiring
highly skilled technical personnel in the past and expect to continue to
experience these difficulties in the future due to significant competition for
such experienced personnel in our market. Revenues from our business-to-
business services, such as our flagship Evoke Webconferencing service, are
substantially driven by our ability to attract, train and retain highly
qualified sales personnel. We plan to increase the number of our direct sales
representatives from 64, as of February 29, 2000, to at least 140
representatives by the end of 2000. A failure to attract this number of direct
sales representatives would have a significant effect on the sales of our
services and could cause our stock price to decline. In addition, if we
complete the Contigo acquisition, our success will also depend on the
successful integration of Contigo's management and other personnel with our
senior management team and other personnel.
Our Evoke Webconferencing services may become subject to traditional
telecommunications carrier regulation by federal and state authorities, which
would increase the cost of providing our services and may subject us to
penalties
We believe our Evoke Webconferencing services are not subject to regulation
by the Federal Communications Commission or any state public service commission
because the services integrate traditional voice teleconferencing and added
value Internet services. The FCC and state public service commissions, however,
may require us to submit to traditional telecommunications carrier regulations
for our Evoke Webconferencing services under the Communications Act of 1934, as
amended, and various state laws or regulations as a provider of
telecommunications services. If the FCC or any state public service commission
seeks to enforce any of these laws or regulations against us, we could be
prohibited from providing the voice aspect of our Evoke Webconferencing
services until we have obtained various federal and state licenses and filed
tariffs. We believe we would be able to obtain those licenses, although in some
states, doing so could significantly delay our ability to provide services. We
also would be required to comply with other aspects of federal and state laws
and regulations. Subjecting our Evoke Webconferencing services to these laws
and regulations would increase our operating costs, could require restructuring
of those services to charge separately for the voice and Internet components,
and would involve on-going reporting and other compliance obligations. We also
might be subject to fines or forfeitures and civil or criminal penalties for
non-compliance.
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Risks Relating to Our Technology
Our business will suffer if our systems fail or become unavailable
A reduction in the performance, reliability or availability of our systems
will harm our ability to distribute our services to our users, as well as our
reputation. Some of our customers have experienced interruptions in our
services in the past due to network outages, periodic system upgrades and
internal system failures. Similar interruptions may occur from time to time in
the future. Because our revenue depends largely on the number of users and the
amount of minutes consumed by users, our business will suffer if we experience
frequent or extended system interruptions.
We maintain our primary data facility and hosting servers at our
headquarters in Louisville, Colorado, and a secondary data facility in Boulder,
Colorado. Our operations depend on our ability to protect these facilities and
our systems against damage or interruption from fire, power loss, water,
telecommunications failure, vandalism, sabotage and similar unexpected events.
The occurrence of any of the foregoing risks could cause service interruptions
and, as a result, materially harm our reputation and negatively affect our
revenue.
A sudden and significant increase in traffic on our systems or
infrastructure could strain the capacity of the software, hardware and systems
that we use. This could lead to slower response times or system failures.
Moreover, our customers depend on Internet service providers and other web site
operators for access to our services. These providers have had interruptions in
their services for hours and, in some cases, days, due to system failures
unrelated to our systems. These interruptions could cause an extended
interruption in our services and, as a result, materially harm our reputation
and negatively affect our revenue.
Unknown software defects could disrupt our services, which could harm our
business and reputation
We may not discover software defects that affect current or planned services
or enhancements until after they are deployed. Our service offerings depend on
complex software, both internally developed and licensed from third parties.
Complex software often contains defects, particularly when first introduced or
when new versions are released. In the past, we have experienced disruptions in
service due to defects in software developed by us. Future defects could cause
service interruptions, which could damage our reputation, increase our service
costs, cause us to lose revenue, delay market acceptance and divert our
development resources.
If our security system is breached, our business and reputation could suffer
We must securely receive and transmit confidential information over public
networks and maintain that information on internal systems. Our failure to
prevent security breaches could damage our reputation, and expose us to risk of
loss or liability. Our internal systems are accessible to a number of our
employees. Although each of these employees is subject to a confidentiality
agreement, we may be unable to prevent the misappropriation of this
information. Our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to license encryption technology and additional
technologies to protect against security breaches or to alleviate problems
caused by any breach.
Our competitors may be able to create systems with similar functionality to
ours and third-parties may obtain unauthorized use of our intellectual
property, which could harm the success of our business
The success of our business is substantially dependent on the proprietary
systems that we have developed. To protect our intellectual property rights, we
currently rely on a combination of trademarks, service marks, trade secrets,
copyrights, confidentiality agreements with our employees and third parties,
and protective contractual provisions. These measures may not be adequate to
safeguard the technology underlying our Internet communication services and
other intellectual property. Unauthorized third-parties may copy or infringe
upon aspects of our technology, services or other intellectual property. Our
proprietary systems are not currently protected by any patents and we may not
be successful in our efforts to secure patents for our proprietary systems.
Regardless of our efforts to protect our intellectual property, our competitors
and others may be able to
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develop similar systems and services without infringing on any of our
intellectual property rights. In addition, employees, consultants and others
who participate in the development of our proprietary systems and services may
breach their agreements with us regarding our intellectual property and we may
not have any adequate remedies. Furthermore, the validity, enforceability and
scope of protection for intellectual property such as ours in Internet-related
industries is uncertain and still evolving. We also may not be able to
effectively protect our intellectual property rights in certain countries. In
addition, our trade secrets may become known through other means not currently
foreseen by us. If we resort to legal proceedings to enforce our intellectual
property rights, the proceedings could be burdensome and expensive and the
outcome could be uncertain. For further information on our intellectual
property and the difficulties in protecting it, see "Business - Intellectual
Property."
We may be subject to claims alleging intellectual property infringement
We may be subject to claims alleging that we have infringed upon third party
intellectual property rights. Claims of this nature could require us to spend
significant amounts of time and money to defend ourselves, regardless of their
merit. If any of these claims were to prevail, we could be forced to pay
damages, comply with injunctions, or halt distribution of our services while we
re-engineer them or seek licenses to necessary intellectual property, which
might not be available on commercially reasonable terms or at all. In March
2000, a trademark infringement suit was filed against us in federal district
court in California, alleging, among other things, that our new name infringes
the trademarks and service marks of the company filing this suit. For more
information on this suit, please see "Business - Legal Proceedings". We could
also be subject to claims for indemnification resulting from infringement
claims made against our customers and strategic partners, which could increase
our defense costs and potential damages. Any of these events could harm our
business.
We license and may continue to license third party technologies and we face
risks in doing so
The market for Internet communication services is rapidly evolving and we
may need to license additional technologies to remain competitive. Our
inability to obtain any of these licenses could delay the development of our
services until equivalent technology can be identified, licensed and
integrated. We are dependent on technology that we license from AudioTalk
Networks to develop voice chat services over the Internet. AudioTalk may grant
identical or similar licenses to others. If this license is terminated, we
would be required to remove the licensed technology from any of these services
that we develop. In March 2000, HearMe, a provider of voice communication
services over the Internet, entered into a merger agreement with AudioTalk. If
this proposed merger is completed, the combined company may decide to breach
our license with AudioTalk. As a result, we would have to expend significant
resources to develop comparable technology or license similar technology, if
available on a timely basis, commercially reasonable terms or at all.
If we do not increase the capacity of our infrastructure in excess of
customer demand, customers may experience service problems and choose not to
use our services
We must continually increase our capacity in excess of customer demand. Our
plans to rapidly expand our operations and to add customers also requires a
significant increase in the capacity of our infrastructure. If we fail to
increase our capacity, customers may experience service problems, such as busy
signals, improperly routed calls and messages, and slower-than-expected
download times. Service problems such as these would harm our reputation, cause
us to lose customers and decrease our revenue. Conversely, if we overestimate
our capacity needs, we will pay for more capacity than we actually use,
resulting in increased costs without a corresponding increase in revenue, which
would harm our operating results.
We rely on the adoption of multimedia technology by corporations and our
ability to transmit our services through corporate security measures
In order to receive streamed media adequately, our users generally must have
multimedia personal computers with certain microprocessor requirements, at
least 28.8 kbps Internet access, a standard media player and a sound card. If
streaming media technology fails to achieve broad commercial acceptance or
acceptance is delayed, customers may not purchase our Internet communication
services. Installing and configuring the
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necessary streaming media components may require technical expertise that some
users do not possess. Furthermore, because of bandwidth constraints on
corporate intranets and concerns about security, some information systems
managers may block reception of streamed media within their corporate
environments. In order for users to receive streaming media over corporate
intranets and corporate firewalls, information systems managers may need to
reconfigure these intranets and firewalls. Widespread adoption of streaming
media technology depends on overcoming these obstacles, improving voice and
video quality and educating customers and users in the use of streaming media
technology.
Risks Relating to Our Industry
We are subject to risks associated with governmental regulation and legal
uncertainties
It is likely that a number of laws and regulations may be adopted in the
United States and other countries with respect to the Internet that might
affect us. These laws may relate to areas such as:
. changes in telecommunications regulations;
. copyright and other intellectual property rights;
. encryption;
. personal privacy concerns, including the use of "cookies" and individual
user information;
. e-commerce liability; and
. email, network and information security.
Changes in telecommunications regulations could substantially increase the
costs of communicating on the Internet. This, in turn, could slow the growth in
Internet use and thereby decrease the demand for our services. Several
telecommunications carriers are advocating that the Federal Communications
Commission regulate the Internet in the same manner as other telecommunications
services by imposing access fees on Internet service providers. Recent events
suggest that the FCC may begin regulating the Internet in such a way. In
addition, we operate our services throughout the United States and state
regulatory authorities may seek to regulate aspects of our services as
telecommunication activities.
Other countries and political organizations are likely to impose or favor
more and different regulations than those which have been proposed in the
United States, thus furthering the complexity of regulation. The adoption of
such laws or regulations, and uncertainties associated with their validity and
enforcement, may affect the available distribution channels for and costs
associated with our services, and may affect the growth of the Internet. Such
laws or regulations may therefore harm our business.
We may be subject to assessment of sales and other taxes for the sale of our
services, license of technology or provision of services, for which we have not
accounted
We may have to pay past sales or other taxes that we have not collected from
our customers. We do not currently collect sales or other taxes on the sale of
our services. Our business would be harmed if one or more states or any foreign
country were to require us to collect sales or other taxes from current or past
sales of services, particularly because we would be unable to go back to
customers to collect sales taxes for past sales and may have to pay such taxes
out of our own funds.
Risks Associated with This Offering
Control by existing stockholders may limit your ability to influence the
outcome of director elections and other matters requiring stockholder approval
Following the offering, our executive officers, directors and our
stockholders who currently own over five percent of our common stock will, in
the aggregate, beneficially own approximately 41.5% of our outstanding common
stock. These stockholders, if they vote together, will be able to significantly
influence matters that we
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require our stockholders to approve, including electing directors and
approving significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in our control,
which could result in a lower stock price.
Future sales of our common stock in the public market could cause our stock
price to fall and decrease the value of your investment
The market price of our common stock could fall if our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options and warrants, in the public market following this
offering. Such sales might also make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate. After
this offering, there will be 61,640,219 shares of our common stock
outstanding. In addition, if we complete the Contigo acquisition, an aggregate
of 9,000,000 shares of our common stock to be issued or reserved for issuance
in connection with the acquisition will be eligible for sale in the public
market. Restrictions under the securities laws and certain lock-up agreements
limit the number of shares of common stock that may be sold in the public
market. However, Salomon Smith Barney, in its sole discretion, may release all
or some portion of the securities subject to lock-up agreements. Some stock
and warrant holders are entitled to certain registration rights. The exercise
of such rights could adversely affect the market price of our common stock.
Certain provisions in our corporate documents may discourage our
acquisition by others and thus depress our stock price
Our corporate documents and Delaware law could make it more difficult for a
third party to acquire us, even if a change in control would be beneficial to
our stockholders. These provisions might discourage, delay or prevent a change
in our control or a change in our management. These provisions could also
limit the price that investors might be willing to pay in the future for
shares of our common stock.
Internet-related stock prices are especially volatile and this volatility
may depress our stock price
The stock market in general, and the stock prices of Internet-related
companies in particular, have experienced extreme price and volume
fluctuations. This volatility is often unrelated or disproportionate to the
operating performance of these companies. Because we are an Internet-related
company, we expect our stock price to be similarly volatile. These broad
market and industry factors may reduce our stock price, regardless of our
operating performance.
If our stock price is volatile, we may become subject to securities
litigation which is expensive and could result in a diversion of resources
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in the Internet industry
have been subject to this type of litigation in the past. We may also become
involved in this type of litigation. Litigation is often expensive and diverts
management's attention and resources, which could harm our business.
We have broad discretion in spending the offering proceeds
Investments we make with the net proceeds may not yield favorable returns
and our accumulated deficit may increase. We expect to use the net proceeds
from this offering for general corporate purposes, such as working capital and
capital expenditures. We may use a portion of the net proceeds to acquire or
invest in other complementary technologies and businesses. Consequently, our
management will have the discretion to allocate the net proceeds to uses that
shareholders may not deem desirable.
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We do not plan to pay dividends in the foreseeable future, and, as a result,
stockholders will need to sell shares to realize a return on their investment
We have not declared or paid any cash dividends on our capital stock since
inception. We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Consequently, you will need to sell your shares of
common stock in order to realize a return on your investment and you may not be
able to sell your shares at or above the price you paid for them.
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FORWARD-LOOKING STATEMENTS; MARKET DATA
This prospectus may contain forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of factors more fully described in the "Risk Factors"
section and elsewhere in this prospectus. We are not obligated to update or
revise these forward-looking statements to reflect new events or circumstances,
except as required under the federal securities laws.
This prospectus contains market data related to us and our industry. This
data has been included in the studies published by the market research firms
International Data Communications and PEREY Research and Consulting. These
market research firms assume that certain events, trends and activities will
occur and they project information on those assumptions. Some of these
assumptions are that:
. no catastrophic failure of the Internet will occur;
. international calling and enhanced applications will drive Internet
telephony growth;
. Internet telephony service providers will experience dramatic growth
over the next 18-24 months;
. Internet service providers will enhance real-time communication features
and enable computer-to-phone calling by mid-2000;
. there will be widespread deployment of Internet telephony devices;
. the number of people online and the total number of hours spent online
will increase significantly over the next few years; and
. Internet security and privacy concerns will be adequately addressed.
If the market research firms are wrong about any of their assumptions, then
their projections may also be wrong. For example, the Internet-related markets
may not grow over the next few years at the rates International Data
Communications and PEREY Research & Consulting project, if at all. If these
markets do not grow at these projected rates, it may harm our business.
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USE OF PROCEEDS
We estimate that we will receive approximately $82.5 million, based on an
assumed offering price of $9.00 per share, in net proceeds from this offering,
after deducting the estimated underwriting discounts and estimated offering
expenses payable by us. If the underwriters' over-allotment option is exercised
in full, we estimate that we will receive approximately $95.1 million in net
proceeds from this offering, after deducting the estimated underwriting
discounts and estimated offering expenses payable by us.
The principal reason for this offering is to raise funds for working capital
and other general corporate purposes. We have not identified specific uses for
the net proceeds from this offering. We generally intend to use the proceeds of
this offering to:
. expand our sales force and marketing activities;
. further develop our services and systems;
. increase our operational capacity;
. finance potential acquisitions, joint ventures or investments in
complementary businesses or technologies; and
. fund other general corporate purposes.
The amounts we actually expend in such areas may vary significantly and will
depend on a number of contingencies. Among the factors relevant to the use of
the net proceeds from this offering are the following:
. our ability to attract and retain qualified employees;
. the cost of additional research and development;
. the cost of overhead related to our anticipated growth; and
. our ability to identify and enter into strategic acquisition, investment
and joint venture opportunities.
Accordingly, management will retain broad discretion in the allocation of
the net proceeds of this offering. To the extent we do not use proceeds from
this offering for one of the purposes outlined above, we anticipate that we
will allocate such funds to one of the other purposes outlined above. You will
not have the opportunity to evaluate the economic, financial or other
information on which we base our decisions on how to use the proceeds. We have
no current plans, agreements or commitments with respect to any acquisitions,
joint ventures or investments, other than the proposed Contigo acquisition, and
we are not currently engaged in any negotiations with respect to any such
transaction, other than our potential joint venture with @viso Limited. Pending
such uses, the estimated net proceeds of this offering will be invested in
short term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will be
dependent on our financial condition, operating results, capital requirements
and such other factors as the board of directors deems relevant.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $102.3
million, or approximately $1.97 per share. Pro forma net tangible book value
per share includes our receipt of approximately $5.0 million upon the issuance
of 686,813 shares of our preferred stock on March 29, 2000 at a purchase price
of $7.28 per share, and represents the amount of total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding,
assuming the conversion of all outstanding series of preferred stock into
common stock. Without taking into account any other changes in the pro forma
net tangible book value after December 31, 1999, other than to give effect to
our receipt of the net proceeds from the sale of the 10,000,000 shares of
common stock in this offering at an assumed initial public offering price of
$9.00 per share, our pro forma net tangible book value as of December 31, 1999
would have been approximately $184.8 million, or $2.99 per share. This
represents an immediate increase in net tangible book value of $1.02 per share
to existing stockholders and an immediate dilution of $6.01 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Pro forma net tangible book value per share before this offering $1.97
Increase per share attributable to new investors .................. 1.02
-----
Pro forma net tangible book value per share after this offering...... 2.99
-----
Dilution per share to new investors.................................. $6.01
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares of common stock in this
offering. These amounts assume conversion of all outstanding series of
preferred stock into common stock. The information presented is based upon an
assumed initial public offering price of $9.00 per share, before deducting
estimated underwriting discounts and commissions and estimated offering
expenses of this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 51,907,982 84% $118,521,363 57% $2.28
New investors ............ 10,000,000 16 90,000,000 43 9.00
---------- --- ------------ ---
Total................... 61,907,982 100% $208,521,630 100%
========== === ============ ===
</TABLE>
The table above does not include:
. 1,500,000 that may be issued if the underwriters exercise their option
to purchase additional shares in this offering;
. 858,416 shares that could be issued to Microsoft upon the exercise of a
warrant outstanding as of March 29, 2000 at an exercise price equal to
the lesser of $10.00 per share or the initial public offering price per
share of the shares offered in this prospectus; and
. an aggregate of 9,000,000 shares to be issued in exchange for all
outstanding shares of Contigo capital stock or to be reserved for
issuance upon exercise of assumed Contigo options in connection with the
proposed Contigo acquisition;
. 2,367,685 shares that could be issued upon the exercise of options
outstanding as of December 31, 1999 at a weighted average exercise price
of $0.65 per share;
. 117,788 shares that may be issued upon the exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $1.29 per share.
There will be further dilution to the extent any of these options or
warrants are exercised. Please see "Management--Stock Plans" for a discussion
of our employee benefit plans and "Description of Securities" for a discussion
of our outstanding warrants.
20
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 1999. This information is presented:
. on an actual basis;
. on an as adjusted basis to give effect to:
. the net proceeds of $5.0 million from our sale of 686,813 shares of
Series E preferred stock and a warrant to purchase 858,416 shares of
Series E preferred stock in March 2000;
. the automatic conversion of all outstanding series of preferred
stock into our common stock upon the completion of this offering;
and
. the sale of 10,000,000 shares of common stock offered in this
offering at an assumed initial public offering price of $9.00 per
share (after deducting the estimated underwriting discounts and
offering expenses) and the application of the net proceeds
therefrom;
. on a Contigo acquisition as adjusted basis to also reflect the pro forma
effects of the proposed acquisition of Contigo.
This table should be read together with the "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition," and the
financial statements and notes to those statements and "Unaudited Pro Forma
Condensed Combined Financial Infomation" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
CONTIGO
ACQUISITION
ACTUAL AS ADJUSTED AS ADJUSTED
-------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $ 89,234 $176,734 $173,558
======== ======== ========
Long-term debt, less current portion..... $ 2,260 $ 2,260 $ 2,260
-------- -------- --------
Redeemable preferred stock: -- --
Series B preferred stock, par value $0.01
per share; 10,635 shares authorized;
10,635 shares outstanding............... 1,064 -- --
Series C preferred stock, par value $0.01
per share; 10,000,000 shares authorized;
9,953,935 shares outstanding............ 10,284 -- --
Series D preferred stock, par value $0.01
per share; 34,000,000 shares authorized;
33,333,333 shares outstanding........... 99,794 -- --
Warrants for the purchase of 117,788
shares of redeemable preferred stock.... 105 -- --
-------- -------- --------
111,247 -- --
-------- -------- --------
Stockholders' equity (deficit):
Undesignated preferred stock, 964,365
shares authorized, none outstanding..... -- -- --
Preferred stock, Series A, par value
$0.01 per share; 5,025,000 shares autho-
rized and outstanding................... 503 -- --
Common stock, par value $0.001 per share;
57,000,000 shares authorized; 863,709
shares outstanding (61,907,982 shares as
adjusted)............................... 1 62 69
Additional paid-in capital, net of un-
earned stock option compensation........ 445 199,634 276,364
Accumulated deficit...................... (14,876) (14,876) (14,876)
-------- -------- --------
Total stockholders' equity (deficit)..... (13,927) 184,820 261,557
-------- -------- --------
Total capitalization..................... $ 99,580 $187,080 $263,817
======== ======== ========
</TABLE>
21
<PAGE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999 and does
not include the following:
. 1,500,000 shares that may be issued if the underwriters exercise their
option to purchase additional shares in this offering;
. 858,416 shares that could be issued to Microsoft upon the exercise of a
warrant outstanding as of March 29, 2000 at an exercise price equal to
the lesser of $10.00 per share or the initial public offering price per
share of the shares offered in this prospectus; and
. 2,400,489 shares to be reserved, as of the date of the merger agreement,
for issuance upon exercise of assumed Contigo options in connection with
the proposed Contigo acquisition;
. 2,367,685 shares that could be issued upon the exercise of options
outstanding as of December 31, 1999 at a weighted average exercise price
of $0.65 per share; and
. 117,788 shares that may be issued upon the exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $1.29 per share.
22
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Unaudited
Pro Forma Condensed Combined Financial Information" included elsewhere in this
prospectus. The statement of operations data for the period from inception
(April 17, 1997) to December 31, 1997 and the years ended December 31, 1998 and
1999, and the balance sheet data at December 31, 1998 and 1999 are derived from
our financial statements which have been audited by KPMG LLP, independent
auditors, and are included elsewhere in this prospectus. The balance sheet data
at December 31, 1997 is derived from our financial statements, which have been
audited by KPMG LLP and are not included in this prospectus. Historical results
are not necessarily indicative of the results to be expected in the future.
The statement of operations data displayed in the "Pro Forma Contigo
Acquisition 1999" column for the year ended December 31, 1999 gives effect to
the Contigo acquisition as if it had taken place on January 1, 1999. The pro
forma information is not necessarily indicative of what the actual financial
results would have been had the acquisition taken place on January 1, 1999 and
does not purport to indicate the results of future operations.
Pro forma basic and diluted loss per share is computed using the weighted
average number of common shares outstanding, including the pro forma effects of
the automatic conversion of all outstanding series of preferred stock into
common stock upon completion of this offering, as if the conversion occurred on
January 1, 1999, or at the date the preferred stock was actually issued, if
later. Assuming the Contigo acquisition had taken place on January 1, 1999, the
pro forma basic and diluted loss per share for 1999 would have been $1.39. Pro
forma basic and diluted loss per share does not give effect to the issuance of
Series E preferred stock in March 2000.
<TABLE>
<CAPTION>
Years Ended December 31,
Period from ----------------------------------
Inception Pro Forma
(April 17, 1997) Contigo
to December 31, Acquisition
1997 1998 1999 1999
---------------- --------- ---------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................... $ -- $ 675 $ 2,246 $ 5,440
Cost of revenue........... 106 796 3,368 3,532
--------- --------- ---------- ---------
Gross profit (loss)....... (106) (121) (1,122) 1,908
--------- --------- ---------- ---------
Operating expenses:
Sales and marketing..... 69 1,804 7,007 8,618
Research and
development............ 363 780 1,006 2,096
General and
administrative,
exclusive of stock
option compensation
expense................ 226 789 1,822 3,183
Stock option
compensation expense... -- -- 296 296
Goodwill amortization... -- -- -- 26,684
--------- --------- ---------- ---------
Total operating
expenses............. 658 3,373 10,131 40,877
--------- --------- ---------- ---------
Loss from operations.. (764) (3,494) (11,253) (38,969)
Interest income, net...... 15 221 405 136
Other income (expense),
net...................... -- 1 (6) (4)
--------- --------- ---------- ---------
Net loss.............. $ (749) $ (3,272) $ (10,854) $ (38,837)
========= ========= ========== =========
Basic and diluted loss per
share.................... $ (2.95) $ (6.86) $ (16.61) $ (5.35)
========= ========= ========== =========
Shares used in computing
loss per share--basic and
diluted.................. 254,264 477,123 653,594 7,253,105
Pro forma basic and
diluted loss per share... $ (0.51)
==========
Shares used in computing
pro forma loss per
share--basic and
diluted.................. 21,330,732
</TABLE>
23
<PAGE>
The balance sheet data displayed in the "As Adjusted" column gives effect to
the net proceeds of $5.0 million from our sale of 686,813 shares of Series E
preferred stock and a warrant to purchase 858,416 shares of Series E preferred
stock in March 2000, the automatic conversion of all outstanding series of
preferred stock into our common stock upon completion of this offering and the
sale of 10,000,000 shares of common stock offered in this offering at an
assumed initial public offering price of $9.00 per share (after deducting the
estimated underwriting discounts and offering expenses) and the application of
the net proceeds. The balance sheet data displayed in the "Contigo Acquisition
as Adjusted" column also reflects the pro forma effects of the proposed
acquisition of Contigo as if it had taken place on December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
CONTIGO ACQUISITION
AS ADJUSTED AS ADJUSTED
1997 1998 1999 1999 1999
------ ------- -------- ----------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 434 $ 1,222 $ 89,234 $176,784 $173,558
Investment securities... -- 4,951 -- -- --
Working capital......... 335 5,631 79,920 167,420 163,821
Total assets............ 1,054 8,755 110,338 197,838 275,688
Long-term debt, less
current portion........ -- -- 2,260 2,260 2,260
Redeemable convertible
preferred stock and
warrants 1,064 11,347 111,247 -- --
Total stockholders'
equity (deficit)....... (199) (3,469) (13,927) 184,820 261,557
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and the financial statements and notes to those
statements included elsewhere in this prospectus.
OVERVIEW
We are a leading Internet communication services provider. We offer a suite
of services that currently consists of Evoke Webconferencing, Live and On-
Demand Evoke Webcasting and Evoke Talking Email. We market our services to
large and medium-sized corporations and high growth Internet-centric businesses
through our direct sales force, and to small businesses, home offices, and
personal users through our web site and our indirect sales channels, including
co-branding with leading Internet sites.
Since our inception in April 1997, our primary activities have consisted of
the following:
. assembling an experienced management team;
. creating and expanding our telephony and Internet infrastructure;
. acquiring and integrating various communication technologies;
. developing our various services, including Evoke Webconferencing, Evoke
Webcasting and Evoke Talking Email;
. establishing strategic partnerships with leading Internet companies; and
. expanding our direct sales force.
We have incurred losses since commencing operations and as of December 31,
1999, we had an accumulated deficit of $14.9 million. We have not achieved
profitability on a quarterly or annual basis. We intend to invest significantly
in developing our proprietary systems and services, expanding our
infrastructure, building our direct sales force and account development team,
and developing our brand. As a result we expect to continue to incur losses at
least through the end of 2001. We will need to generate significantly higher
revenues to support expected increases in expenses and to achieve and maintain
profitability.
We derive revenue from the sale of our Evoke Webconferencing and Evoke
Webcasting services. We use Evoke Talking Email to promote brand awareness. At
this time, we do not generate revenue from Evoke Talking Email.
. Evoke Webconferencing Revenue. We first recorded revenue from Evoke
Webconferencing in April 1999. Billing for Evoke Webconferencing is
based upon the actual time that each participant is logged onto the
conference. Similarly, a customer is charged a per-minute, per-user fee
for each participant listening and viewing a live or recorded web cast.
In addition, we charge customers a one-time fee to upload visuals for a
web conference or a recorded web cast. We recognize revenue on our Evoke
Webconferencing services as soon as a call or web cast is completed.
. Evoke Webcasting Revenue. We first recorded revenue from our Evoke
Webcasting services in January 1998. Prices and specific service terms
are usually negotiated in advance of service delivery. We recognize
revenue from live event streaming when the content is broadcast over the
Internet. We recognize revenue from encoding recorded content when the
content becomes available for viewing over the Internet. We recognize
revenue from pre-recorded content hosting ratably over the hosting
period.
Our cost of revenue consists primarily of telecommunication expenses,
depreciation charges, Internet access fees, compensation and benefits for
operations personnel and allocated overhead. Our telecommunication expenses are
variable and directly correlate to the use of our services. Our depreciation,
Internet access and compensation expenses generally increase as we increase our
capacity and build our infrastructure. We expect
25
<PAGE>
to see significant increases in depreciation and Internet access expense as we
continue to build our infrastructure in anticipation of increased demand for
our services. Our strategic partners and affiliates are paid commissions on
revenue generated by users who access our services through their web sites. We
expect to incur increasing commission expenses in connection with our affiliate
program and strategic partnerships as these programs increase in scope.
We incur sales and marketing expenses that consist primarily of the salaries
and benefits of our sales and marketing personnel, commissions, consulting
fees, tradeshow expenses, advertising, marketing expenses and allocated
overhead. We intend to substantially increase our sales and marketing
expenditures as we expand strategic partnerships, add sales and marketing
personnel and increase marketing programs. In connection with our strategic
partnership with Excite@Home, we will purchase a significant amount of our
advertising and other media services from Excite@Home and its affiliates. We
intend to enter into additional strategic partnerships that may involve
additional sales and marketing expenses.
We incur research and development expenses that consist primarily of
salaries and benefits for research and development personnel, consulting fees
and allocated overhead. We expense research and development costs as they are
incurred, except for certain capitalized costs associated with internally
developed software. We expect to continue to make substantial investments in
research and development and anticipate that these expenses will continue to
increase.
We incur general and administrative expenses that consist primarily of
expenses for finance, human resources, office operations, administrative and
general management activities, including legal, accounting and other
professional fees, travel expenses and other general corporate expenses. We
expect increases in general and administrative expenses as we expand executive
management, finance, human resources and other administrative functions
required to support operations and incur the costs associated with being a
publicly-held company.
Since our inception, we have used stock option programs for employees and
members of our board of directors to attract and retain strong business and
technical personnel. During 1999, we recorded deferred stock option
compensation of $1.7 million. This amount is equal to the excess of the fair
value of our common stock on the date of grant or sale over the option exercise
price and amortized over the vesting period of the options, which range from
one to four years. Of the total deferred compensation, approximately $0.3
million was expensed in 1999.
CONTIGO ACQUISITION
On March 24, 2000, we entered into a merger agreement with Contigo Software,
Inc., pursuant to which a newly formed subsidiary of ours will merge into
Contigo so that Contigo becomes our wholly-owned subsidiary. Contigo offers web
collaboration software to business customers, enabling real-time interaction
among participants in a web conference. Contigo's advanced web collaboration
tools include whiteboarding, text chat, application viewing, web touring and
polling. Contigo is a California corporation that is based in San Diego,
California, with approximately 50 employees. We anticipate that the Contigo
acquisition will close by the end of July 2000. The Contigo acquisition is
subject to a number of conditions, including the receipt of governmental
approvals, approval of the acquisition by the shareholders of Contigo and other
customary closing conditions. As a result, the Contigo acquisition may not be
completed.
Upon the completion of this acquisition, an aggregate of 9,000,000 shares of
our common stock will be issued in exchange for all outstanding shares of
Contigo capital stock or reserved for issuance upon the exercise of Contigo
options we assume in connection with the proposed acquisition. We will account
for the acquisition using the purchase method of accounting. Accordingly, if
the Contigo acquisition is completed, we will record a significant amount of
goodwill that will significantly reduce our earnings and profitability for the
foreseeable future. We expect to record goodwill of approximately $80.1
million, to be amortized over a three year period. To the extent we do not
generate sufficient cash flow to recover the amount of the investment recorded,
the
26
<PAGE>
investment may be considered impaired and could be subject to earlier write-
off. We further expect our general and administrative expenses to increase if
the Contigo acquisition is completed due to the associated increase in
personnel and expenses related to the integration of Contigo's operations with
our operations.
Since its inception in 1996, Contigo has incurred significant operating
losses. During the year ended December 31, 1999, Contigo recorded total revenue
of $3.2 million, and recorded a net loss of $1.0 million. During this time, one
customer, Telepost, accounted for 50% of Contigo's revenues. During 1999,
Contigo incurred total operating expenses of $4.2 million, which consisted
primarily of selling and marketing, general and administrative and research and
development expenses. At December 31, 1999, Contigo had working capital of $3.0
million and a total accumulated deficit of $3.8 million. Due to the risks,
difficulties and uncertainties surrounding the integration of Contigo into our
business if the acquisition occurs, we do not expect Contigo's historical
financial results to be indicative of Contigo's future financial results.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Revenue increased $1.5 million from $0.7 million in 1998 to $2.2
million in 1999. The increase was primarily due to the introduction of Evoke
Webconferencing and the increased use of Evoke Webcasting. In 1999, Microsoft
accounted for 21% and Cisco Systems accounted for 9% of our revenues.
Cost of Revenue. Cost of revenue increased $2.6 million from $0.8 million in
1998 to $3.4 million in 1999. Depreciation and amortization expense increased
$1.3 million as we built out our data operation centers in both Boulder and
Louisville, Colorado. Telecommunication and Internet access costs increased
$0.9 million as we incurred telephony expenses consistent with the launch of
Evoke Webconferencing and also increased our Internet access to accommodate
additional growth in our business.
Sales and Marketing. Sales and marketing expense increased $5.2 million from
$1.8 million in 1998 to $7.0 million in 1999. This increase was primarily
attributable to additional sales, marketing and business development personnel
that we hired to expand our sales and distribution network and an increase in
advertising and promotion, as we focused on creating brand awareness and
launching Evoke Webconferencing.
Research and Development. Research and development expense increased $0.2
million from $0.8 million in 1998 to $1.0 million in 1999. The increase was
associated with new hires and related benefits. Additionally, we capitalized
$0.2 million of our research and development expenses associated with our
development of internal software.
General and Administrative. General and administrative expense increased
$1.0 million from $0.8 million in 1998 to $1.8 million in 1999. The increase
was primarily due to a $0.4 million increase in compensation expense. General
and administrative expenses are expected to continue to increase as we support
a larger employee base and the requirements of being a public company.
Stock Option Compensation Expense. Stock option compensation expense was
$0.3 million in 1999. In the fourth quarter of 1999, options to purchase
881,500 common shares were granted with exercise prices less than the fair
value resulting in a charge to unearned stock option compensation of $1.7
million, which is being expensed over the vesting period of the options.
Other Income (Expense). Interest income increased $0.5 million, from $0.2
million in 1998 to $0.7 million in 1999. The increase was primarily related to
income earned on the $100 million we raised in venture capital financing in the
fourth quarter of 1999. Interest expense increased $0.3 million in 1999 as a
result of an increase in our debt in 1999.
27
<PAGE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD FROM INCEPTION (APRIL 1, 1997)
TO DECEMBER 31, 1997
Revenue. Revenue increased to $0.7 million in 1998. We did not record any
revenue in the period from inception to December 31, 1997. The increase in
revenue was due to the introduction of our Evoke Webcasting services. In 1998,
Cisco Systems accounted for 52% and Microsoft accounted for 19% of our
revenues.
Cost of Revenue. Cost of revenue increased $0.7 million from $0.1 million in
the period from inception to December 31, 1997 to $0.8 million in 1998. The
increase was due to increases in compensation expense, depreciation expense and
Internet access fees.
Sales and Marketing. Sales and marketing expense increased $1.7 million from
$0.1 million in the period from inception to December 31, 1997 to $1.8 million
in 1998. The increase was due to expanding the sales and marketing department
as we moved beyond the development stage and increased salaries and other
personnel costs and marketing expenses, such as public relations and trade
shows.
Research and Development. Research and development expense increased $0.4
million from $0.4 million in the period from inception to December 31, 1997 to
$0.8 million in 1998. The increase was primarily due to increased salaries and
other personnel costs as we expanded our operations in 1998.
General and Administrative. General and administrative expense increased
$0.6 million from $0.2 million in the period from inception to December 31,
1997 to $0.8 million in 1998. The increase was due to increased personnel
costs, occupancy and other general office costs in 1998 as we expanded our
business beyond the development stage.
Other Income (Expense). Interest income increased $0.2 million in 1998
primarily related to income earned on the $10.4 million we raised in our Series
C Preferred Stock financing round.
INCOME TAXES
We use the asset and liability method of accounting for income taxes as
prescribed by Statement of Financial Accounting Standard No. 109, Accounting
for Income Taxes. At December 31, 1999, we had a net operating loss
carryforward for federal income tax purposes of approximately $15.1 million,
which is available to offset future taxable income, if any, through 2019. We
believe the utilization of the carryforwards may be limited by Internal Revenue
Code Section 382 relating to certain changes in ownership that occurred in 1998
and 1999 and that may occur as a result of this offering. We have not recorded
a deferred tax benefit for the net operating loss carryforward.
28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our historical unaudited quarterly
information for our most recent four quarters. This quarterly information has
been prepared on a basis consistent with our audited financial statements and,
we believe, includes all normal recurring adjustments necessary for a fair
presentation of the information shown.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
JUNE
MARCH 31, 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
--------- ------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.......................... $ 220 $ 414 $ 589 $ 1,023
Cost of revenue.................. 487 702 676 1,503
------- ------- ------- -------
Gross profit (loss).............. (267) (288) (87) (480)
------- ------- ------- -------
Operating expenses:
Sales and marketing............ 1,047 906 1,356 3,698
Research and development....... 148 152 216 490
General and administrative,
exclusive of stock option
compensation expense.......... 256 342 430 794
Stock option compensation
expense....................... -- -- -- 296
------- ------- ------- -------
Total operating expenses..... 1,451 1,400 2,002 5,278
------- ------- ------- -------
Loss from operations......... (1,718) (1,688) (2,089) (5,758)
Interest income (expense) and
other, net...................... 48 (23) (49) 423
------- ------- ------- -------
Net loss......................... $(1,670) $(1,711) $(2,138) $(5,335)
======= ======= ======= =======
</TABLE>
As a result of our limited operating history and the rapidly changing nature
of the markets in which we compete, our operating results have varied
significantly from period to period in the past and are likely to continue to
vary significantly in future periods. For example, we expect our results will
fluctuate based on seasonal sales patterns. Accordingly, our operating results
are difficult to predict. For these reasons, you should not rely on period-to-
period comparisons of our financial results as indications of future
performance. Our prospects must be considered in light of the risks, costs and
difficulties frequently encountered by growing companies in new and rapidly
evolving markets, such as the markets for web conferencing, collaboration and
streaming services.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from sales of our
preferred stock and, to a lesser extent, proceeds from loans. Net cash used by
operating activities was $0.6 million in 1997, $3.0 million in 1998 and $6.2
million in 1999.
In 1999, we incurred depreciation and amortization expense of $1.6 million,
consisting primarily of depreciation of equipment, purchased software and
furniture and amortization of leasehold improvements. Fixed assets are recorded
at cost and depreciated over the estimated useful lives of the assets which
range from three to ten years. The depreciation and amortization expense was
primarily due to the purchase of $18.9 million of computer hardware and
software, office equipment, furniture, fixtures and leasehold improvements as
we built out our data operation centers in both Louisville and Boulder,
Colorado.
Net cash used by investing activities was $0.6 million in 1997, $6.5 million
in 1998 and $9.3 million in 1999. In each period, net cash used by investing
activities related primarily to capital expenditures for equipment and software
used in our data operations center from which we operate our Internet
communication platform and net purchases and sales of investments.
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Net cash provided by financing activities was $1.6 million in 1997, $10.3
million in 1998 and $103.5 million in 1999. In each period, proceeds from the
sale of preferred stock were the primary source of the net cash provided by
financing activities. Specifically, we issued $10.4 million of our Series C
preferred stock in 1998 and $100.0 million of our Series D preferred stock in
1999.
In 1999, we also entered into agreements to borrow approximately $4.5
million. As of December 31, 1999, we had approximately $3.6 million in total
debt obligations outstanding, of which approximately $1.3 million was current.
In connection with our entering into these loan agreements, we issued to the
lenders warrants to purchase 101,564 shares of our preferred stock. The
aggregate fair value of the warrants was $105,000.
We also receive funds from time to time from the exercise of options or
similar rights to purchase shares of our common stock. We have no other
material external sources of liquidity.
At December 31, 1999, we had $89.2 million in cash and cash equivalents. We
plan to increase our general level of spending in the future and plan to expend
significant resources on capital expenditures in 2000 for equipment, software,
furniture and leasehold improvements. As of December 31, 1999, our purchase
commitments, including capital expenditures, software licenses and sales and
marketing expenses, totaled $35.8 million.
If the Contigo acquisition is completed, we will pay to certain preferred
shareholders of Contigo approximately $1.1 million in respect of a liquidation
preference. In addition, at the closing of the acquisition, we will pay
approximately $5.0 million to satisfy an obligation of Contigo to one of its
founders arising in connection with the acquisition. We may also be obligated
to pay up to an additional $1.0 million for specified tax obligations, if
assessed, in connection with this $5.0 million payment. We intend to fund the
cash payments required in connection with this acquisition from our working
capital.
In March 1999, we exercised a warrant to purchase 1,000,000 shares of
AudioTalk preferred stock for an aggregate purchase price of $2.0 million.
We expect that existing cash resources and the net proceeds of this offering
will be sufficient to fund our anticipated working capital and capital
expenditure needs at least through 2000. Thereafter, we may require additional
funds to support our working capital requirements or for other purposes. If we
are not successful in raising capital when we need it and on terms acceptable
to us, it could harm our business.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1999, we had long term debt, including current portion, in
the aggregate amount of $3.6 million with interest rates ranging from 7.41% to
13.33% with payments due through 2004. We may incur additional debt in the
future. A change in interest rates would not affect our obligations related to
long-term debt existing as of December 31, 1999, as the interest payments
related to that debt are fixed over the term of the debt. Increases in interest
rates could, however, increase the interest expense associated with future
borrowings. Additionally, we may invest a portion of the net proceeds from this
offering in short-term investments. The value of these investments may decline
as a result of changes in equity markets and interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective, as amended, for all fiscal
quarters of fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments embedded in other contracts, and for
hedging securities. To the extent we begin to enter into such transactions in
the future, we will adopt the statement's accounting and disclosure
requirements in our financial statements for the year ending December 31, 2000.
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BUSINESS
OVERVIEW
We are a leading provider of Internet communication services that allow
users to communicate and exchange voice, video and visuals in a simple, cost-
effective manner through web-based applications and technologies. We offer
business-to-business communication services based on our proprietary systems
that integrate traditional telephony technology with powerful streaming media
and web collaboration tools. Our suite of application services currently
consists of our flagship Evoke Webconferencing service, live and on-demand
streaming through our Evoke Webcasting services and voice-to-email messaging
through our Evoke Talking Email service. With Evoke Webconferencing and Evoke
Webcasting, users initiate, control and monitor live and recorded one-to-one,
one-to-many and many-to-many communication events including business meetings,
sales presentations, employee training sessions and team strategy sessions. Our
proprietary automated systems allow Evoke Webconferencing users to instantly
establish a meeting without operator intervention, join participants on the
phone and web to share visuals and present the event as a live or recorded web
cast. We market these services to large and medium-sized corporations and high
growth Internet-centric companies through our direct sales force. We also
partner with leading Internet sites, such as Excite@Home and Blue Mountain
Arts, to offer our proprietary systems as co-branded services to extend our
reach to small businesses, home offices and consumers.
We were incorporated in Delaware in April 1997. We first recorded revenues
in 1998, but have incurred net losses since inception. We began offering our
flagship service, Evoke Webconferencing, in April 1999. Since our inception in
April 1997, we have raised approximately $115 million from strategic and
venture capital investors including Centennial Ventures, EMC, Excite@Home,
Microsoft, Panasonic, Pequot Capital and SOFTBANK Technology Ventures. Through
the end of 1999, we provided Evoke Webconferencing and Evoke Webcasting
services to over 550 business customers including Cisco Systems, Excite@Home,
MessageMedia, Microsoft and Wells Fargo Bank.
MARKET OPPORTUNITY
The Internet has emerged as a global medium for communication and commerce,
enabling millions of individuals to communicate and conduct business
electronically. Recent advances in voice over the Internet, streaming media and
content delivery technologies, as well as an improved Internet infrastructure,
are contributing to the rapid evolution of the Internet into a dynamic
communication medium that combines voice, video and data. According to
International Data Corporation, the Internet telephony market is expected to
grow from approximately $500 million in 1999 to approximately $12 billion in
2003. The Internet telephony market includes Internet long distance, voice-
enabled e-commerce applications such as web conferencing, and other enhanced
services. Businesses seek to utilize the capabilities of the Internet to
increase the efficiency of operations and enhance business interactions. The
demand for Internet communication services is driven by the increasing
globalization of operations, geographically-dispersed work teams, shared
decision making, accelerated workforce training and increasing pressure to
reduce operating costs. In addition, companies need simple and cost-effective
services that facilitate the numerous ways businesses and their employees,
customers and partners communicate and share information.
Traditional Conferencing Services. In order to develop and maintain business
relationships and expedite decision-making, companies have historically relied
on in-person meetings and traditional conferencing technologies, such as
telephone and video conferencing. The time and expense associated with business
travel limit the frequency of in-person meetings and the associated
opportunities to strengthen relationships and increase productivity.
Traditional conferencing solutions often require advance scheduling, multiple
operator interventions and, in some cases, the purchase of specialized software
or equipment. Furthermore, current conferencing solutions generally do not
incorporate the dynamic power and capabilities of the Internet to exchange
voice, video and data. As a result, traditional conferencing solutions do not
provide the same level of interaction as in-person meetings, and, therefore,
their applications are limited.
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Collaboration Services. Collaboration services enhance business
communication through applications that facilitate interaction among
participants, such as text chat, shared visuals, whiteboarding and web touring.
International Data Corporation estimates that the market for collaborative
services and support technologies will grow from $14.5 billion in 1999 to $42.8
billion in 2003. However, most current collaboration applications require a
complex, proprietary software interface that is not available to all users.
Industry analysts cite product complexity and the lack of a universal interface
as major obstacles to the broader adoption of collaboration tools for Internet
communication. In addition, these emerging web collaboration services are not
fully integrated with existing communication technologies, such as
teleconferencing, further limiting user adoption.
Streaming Services. Streaming services enable businesses to communicate
simultaneously with thousands of viewers through the delivery of live and
recorded voice, video and data via the Internet. PEREY Research & Consulting
estimates that the U.S. market for managed video services, including all
segments of a multimedia delivery system necessary to deliver streaming,
broadcast and interactive video sessions, will grow from $6.6 billion in 1999
to $22 billion by 2003. The cost and complexity of current streaming services
has limited the widespread adoption of this technology. Furthermore, providers
of web and satellite broadcasts generally do not offer personalization and
interactivity with broadcast participants.
Need for Integrated Communication Services. Existing providers of standalone
teleconferencing, web collaboration and streaming services each address a
discrete segment of the Internet communication services market. By failing to
combine these technologies with others around a common interface to create a
simple, cost-effective, reliable communication tool, these standalone providers
limit the use and broader adoption of their products and services. We believe
there is a significant opportunity for an integrated Internet communication
solution to capitalize on the anticipated growth in demand for business-to-
business Internet communication services.
OUR SOLUTION
We are a leading Internet communication services provider. We have developed
an integrated solution that allows users to communicate and exchange voice,
video and visuals in a simple, cost-effective manner through web-based
applications and technologies. We currently offer three services, Evoke
Webconferencing, Evoke Webcasting and Evoke Talking Email. Each of these
services integrates emerging communication technologies, such as web
collaboration, web conferencing and streaming media, with traditional telephony
and other communication technologies. We also offer our proprietary systems to
our strategic partners as co-branded services that power business and consumer
communication events over the Internet. The key benefits of our solution
include:
Easy-to-Use, Powerful Communication Tools. Our services offer simple yet
powerful functions to appeal to the broadest customer base. They are generally
designed to reflect input received from customer feedback and focus groups.
Users of our services can initiate and control their communication experience
via a standard web browser. Our services do not require the implementation of
specialized hardware or software, other than a standard media player and a
sound card. Accordingly, most Internet users can use our services even if they
are behind a corporate firewall. Through the click of a mouse a user can record
an Evoke Webconference engaging multiple servers on our Internet and telephony
networks.
Enhanced Functionality. Our communication services leverage the power of the
Internet to increase a user's flexibility, interactivity and control as
compared to more traditional methods of communication. Our proprietary systems
provide the flexibility to execute many communication events, including voice-
to-email messages, collaborative presentations with multiple phone and web
participants and live or recorded web cast presentations to thousands of
viewers online. An Evoke Webconferencing user, for example, has the ability to
record a voice and visual presentation, store the presentation, distribute it
via email to a wide group and play back the presentation using advanced, yet
easy-to-use, streaming technologies. Our systems also enable the user to
control participant access and monitor participant behavior on the Internet for
each communication event. For example, users can call and add participants,
mute individuals or the whole group, disconnect participants,
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lock the conference once all participants have joined, and view lists of both
phone and web participants. We provide our customers with real-time
information, such as the number and identity of participants and the length of
their participation, which is valuable for corporate training events and
business meetings.
Automated Services. Most of our services are fully automated and require no
human intervention, although customer support is available upon request. In the
fourth quarter of 1999, our Evoke Webconferencing service averaged one human
interaction per 200 communication events. In comparison, most competitive
service offerings require at least two human interactions for each
communication event, such as an advance reservation and operator assistance.
Our automated services allow us to handle high user volume, reduce human error
and ultimately make the service easier to use, more reliable and cost-effective
for our customers. Our billing system is e-commerce enabled and can
automatically charge a user after every Evoke Webconference. Additionally,
Evoke Webconferencing customers are automatically emailed an activity summary
after every communication event. We believe that the automation of our services
provides us with a structural cost advantage over our competitors.
Significant Cost Saving Opportunities and Enhanced Productivity. Our
services enable our business customers to achieve significant cost savings by
reducing the need for expensive and time consuming business travel or the
purchase of complex and specialized software or equipment. We believe our
customers can increase the quality and frequency of their business meetings and
sales presentations using Evoke Webconferencing, thereby increasing
productivity and strengthening business relationships. Additionally, business
customers using our Live or On-Demand Evoke Webcasting services can train their
employees more efficiently and cost-effectively than they could with in-person
meetings or other traditional conferencing solutions.
Reliable and Scalable Infrastructure. Since our services integrate
traditional telephony technology with Internet communication technologies, we
have designed our infrastructure to meet stringent telecommunication-grade
reliability requirements. By designing our infrastructure in such a reliable
fashion, our customers are able to depend on our services for their critical
communication needs. We host our proprietary systems and services on our own
servers located in our highly fault-tolerant data facilities. Our systems are
designed with large-scale capacity to meet the varying communication needs of
our customers. We have implemented alternative back-up systems to support the
critical elements of our infrastructure, thereby minimizing service outages.
Our dynamic load balancing systems, which allow us to evenly distribute traffic
across hundreds of Internet communication servers and telephony switches,
enable us to increase capacity and meet growing customer demand.
STRATEGY
Our objective is to become a global leader in Internet communication
services by developing a broad range of services to meet the diverse
communication needs of businesses and consumers. To achieve this objective, we
have developed the following strategies:
Leverage Proprietary Systems to Quickly Develop Innovative Services. Over
the last three years, we have invested substantial resources to develop
proprietary systems and applications that integrate disparate telephony and
Internet communication technologies. Our approach to building applications
allows us to effectively leverage our existing infrastructure, technologies and
proprietary systems to accommodate changes in the marketplace. We believe this
gives us a significant competitive advantage by allowing us to quickly and
reliably develop new services and improve upon our existing services. As new
technologies emerge, we intend to integrate them into our services by utilizing
our underlying proprietary systems. For example, we are in the process of
developing a wireless platform that will allow users to initiate, control and
monitor an Evoke Webconference from a wireless device.
Aggressively Market Through Multiple Distribution Channels. We intend to
aggressively market our services through multiple distribution channels:
. Direct sales--Our direct sales force targets large and medium-sized
businesses and high-growth, Internet-centric companies. We intend to
increase our direct sales force from 64 as of February 29, 2000 to over
140 by the end of 2000.
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. Co-branding--We intend to partner with additional leading Internet
companies to offer our proprietary systems as co-branded services to
extend our reach to small businesses, home offices and millions of
consumers.
. Affiliate programs--We have over 3,200 affiliates who receive a
commission for selling our services through their web sites.
. Indirect sales--We partner with resellers and third party technology
providers to resell our services.
Our sales strategy is reinforced by the viral nature of our services. New
users are exposed to our services through their participation in an Evoke
Webconference or by receiving an Evoke Talking Email.
Migrate Users to More Sophisticated Services. Our current services range
from simple voice-to-email messaging to advanced web conferencing. We intend to
attract users with our basic services and migrate them to more advanced web-
based services as their communication needs and levels of sophistication
change. Additionally, our account development group tracks the usage patterns
of our user base to identify opportunities to convert inactive users into
active users.
Increase Brand Awareness. We intend to establish Evoke as a leading Internet
communication services brand. We expect to invest in the promotion of our brand
through Internet, print and broadcast advertising. We also plan to form
additional strategic partnerships with leading Internet companies to offer co-
branded services. These co-branded services would provide us with access to
millions of potential users at a significantly lower cost than we could achieve
through traditional marketing programs.
Aggressively Expand Our Infrastructure and Capacity. Our current technology
platform integrates telephony and Internet services to support thousands of
simultaneous communication events. We plan to aggressively expand our
telephony, Internet and hardware infrastructure and capacity in advance of
customer demand and in anticipation of new service offerings. This strategy
will enable our sales and business development staff to rapidly grow our
customer and strategic partner base without the constraints of operational
limitations. In addition, by maintaining redundant systems, we minimize the
likelihood of a service outage that could adversely impact our customer base.
Expand through Acquisitions and International Joint Ventures. We intend to
pursue acquisitions of complementary businesses, technologies, services or
products to expand our leadership position in the Internet communication
services market. We also believe there are significant international market
opportunities for our services. We plan to enter these markets through
strategic joint ventures with international partners that can provide us with
experience, resources and a local presence to develop and market our services
in foreign countries. We are currently in negotiations with @viso Limited, a
European-based venture capital firm, to form a European joint venture. As part
of this joint venture, we are also developing technology that will allow us to
deliver our services in continental Europe and the United Kingdom.
STRATEGIC PARTNERSHIPS
We have entered into several strategic partnerships to strengthen our brand
awareness and broaden our customer base. Our strategic partners include:
Excite@Home. In November 1999, we entered into a strategic partnership with
Excite@Home in connection with their investment in our company. According to
Media Metrix, www.excite.com averaged 14 million unique users per month over
the last six months of 1999. Under the terms of the partnership, we are the
exclusive service provider of conferencing, collaboration and streaming
services for Excite@Home's business portal, Work.com. Work.com offers a co-
branded version of Evoke Webconferencing. Excite@Home shares a portion of our
revenue for the sale of our services through this site. Excite@Home will also
offer our voice-to-email messaging service, Evoke Talking Email, across several
major segments of their web properties including their web-based email,
personals, clubs and discussion groups. We believe this partnership will
provide us with
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access to a much broader customer base, including small offices, home offices
and individual users. This partnership has a term of two years, over which time
we will purchase a significant amount of our advertising and other media
services from Excite@Home and its affiliates.
@viso Limited. We are currently in negotiations with @viso Limited, a
European-based venture capital firm owned by a SOFTBANK Corporation affiliate
and Vivendi Corporation, headquartered in Paris, France, to form a European
joint venture. Through our intended joint venture, we would establish a
majority-owned subsidiary that will deploy our services in continental Europe
and the United Kingdom. Additionally, Vivendi's telecommunications subsidiary,
Cegetel, would be the exclusive sales force for our services in France. We are
developing specific technology that will allow our current systems and services
to operate with telephony systems in continental Europe and the United Kingdom.
If we successfully develop this technology on our planned schedule, we
anticipate that Evoke Europe will commence operations in 2000.
Blue Mountain Arts. Since November 1999, we have enabled Blue Mountain Arts
to provide Evoke Talking Email as a co-branded component of their electronic
greeting cards to enhance the user experience. According to Media Metrix,
www.bluemountain.com averaged 12 million unique users per month over the last
six months of 1999. Our agreement has a one-year initial term and grants us the
right to provide at least 75% of Blue Mountain Arts' voice-to-email messaging
services. Blue Mountain Arts was acquired by Excite@Home in December 1999.
Microsoft Corporation. In connection with its investment in our company in
March 2000, we entered into a strategic partnership with Microsoft to promote
the increased use of our services in conjunction with Windows Media Player, a
standard media player offered by Microsoft. Under the terms of this
relationship, we receive access to Microsoft's streaming media software,
developmental support for our current and future streaming media services and
subsidies that help pay for third-party use of our streaming services using
Microsoft's streaming media player. In exchange, we have designated Microsoft's
streaming media technology as our preferred streaming media format.
In addition, we have developed relationships with various companies to
resell our Internet communication services through their web sites or as a
value-added service included in their product offerings. Generally, we share
revenue received from these sales with the reseller. Current resale partners
include Computer Town, Cypress Communications, OfficeClick.com and PeoplePC.
CURRENT SERVICE OFFERINGS
EVOKE WEBCONFERENCING
Our flagship service, Evoke Webconferencing, is an automated web
conferencing service that combines the power, reach and visual support of the
web with the reliability and universal availability of traditional telephone
conferencing services. We offer Evoke Webconferencing users competitively
priced services with superior functionality and reliability to support their
daily communication requirements. Our Evoke Webconferencing services range from
web conferencing and web casts to traditional teleconferences and allow up to
three types of participants:
. phone only participants who listen and talk via the phone;
. phone and web participants who listen and talk via the phone and view
visuals and interact via a web browser; and
. web only participants who listen via streaming audio, and view visuals
and interact via a web browser.
We charge Evoke Webconferencing customers a per-minute fee based on each
phone participant's actual time on the conference. Similarly, a customer is
charged a per-minute fee for each web participant listening to and viewing a
live or recorded web cast. Additionally, customers are charged a one-time fee
to upload visuals for a web conference or a recorded web cast. Evoke
Webconferencing offers users the following benefits:
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. Instant Automated Access. Users can initiate a conference at any time.
Each user receives a unique conference ID and PIN number. To establish a
conference, a user simply gives their participants our web address and
toll-free telephone number and their conference ID number. No
reservation or operator assistance is required for conferences with less
than 95 phone only participants, although operator assistance is
available upon request. In the fourth quarter of 1999, our Evoke
Webconferencing service averaged approximately one operator interaction
per 200 conferences. By removing the reservation and operator-intensive
process of traditional conferencing services, Evoke Webconferencing
gives users complete control of their communication event.
. Enhanced Functionality through Web-Enabled Interface. Evoke
Webconferencing users perform standard conference functions via Evoke
Webconferencing's web interface. They can call and add participants,
mute individuals or the whole group, disconnect participants, lock the
conference once all participants have joined, and view lists of both
phone and web participants. Immediately after their conference has
ended, users receive an email summary outlining their conference
activity and receive a link to view Evoke Webconferencing's online
reporting, which can be customized for each customer's requirements.
. Shared Online Visuals. Evoke Webconferencing users can conveniently
upload and share visual presentations, such as PowerPoint slides, online
with conference participants. Evoke Webconferencing users can show
charts and graphs without having to email their presentations in advance
and rely on participants to follow along. Our interface allows users to
move through presentations at their own pace, skipping or returning to
specific slides from the current or previously uploaded presentations.
. Live and Recorded Web Casting. Evoke Webconferencing's live and recorded
web casting lets users extend the reach of their conference by streaming
their voice and visuals over the web. Web casts can be executed live for
press conferences or announcements, or can be recorded and made
available to an unlimited number of participants. Thousands of
individuals can listen to the conference and view online presentations
using a standard media player from most standard Internet connections.
Businesses may record training presentations to view over time or may
make presentations of new products, services or policies to a global
workforce that may be reviewed during the local business day of each
geographic area. This one-time recording process saves businesses the
time and expense associated with the mass production and distribution of
videotapes.
. Universal Billing. Evoke Webconferencing customers receive a single bill
that aggregates all account activity, regardless of the features used,
and can request customized invoices based on user, features or location.
Additionally, because our billing system is e-commerce enabled,
customers can automatically charge each Evoke Webconference to their
credit card.
. Affordability. Evoke Webconferencing customers pay only for the time
that they and their participants actually use, at a price per minute
that we believe, based on internal research, is generally lower than
competitive services. Evoke Webconferencing users can also take
advantage of our web casting service to enable events with large numbers
of participants with greater functionality than traditional telephone
conferencing services. In addition, we believe that we enjoy a
structural cost advantage over our competitors by automating our
services. Evoke Webconferencing's automation eliminates traditional
conferencing expenses such as operator assistance and advance
reservations.
. Reliability. We have designed our facilities and infrastructure to
incorporate the scalability and reliability required to meet the
critical communication needs of our customers. We incorporate
telecommunication-grade reliability standards into our Internet
communication technologies and design our infrastructure to accommodate
more participants and usage than we expect. Additionally, we offer Evoke
Webconferencing users operator assistance and customer support 24 hours
a day and seven days a week.
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LIVE AND ON-DEMAND EVOKE WEBCASTING
Our Live and On-Demand Evoke Webcasting services are designed to provide
businesses of all sizes with a complete solution for controlled delivery of
voice, video and visuals over the Internet or corporate intranets. We capture
content from live and recorded events, encode, track and manage it, providing
our customers with an end-to-end streaming solution. Customers are charged a
fee based on the length of their streamed broadcast and additional fees for
conversion, indexing and archiving of streamed content in a hosted environment.
Live Evoke Webcasting. Our Live Evoke Webcasting service delivers voice,
video and visuals over the Internet. Our customers can either provide content
that is already in an Internet streaming format or have us convert it for them.
For example, we have converted the broadcast signals of auto races for
country.com and concerts for VH1.com into a streaming format for real-time
viewing over the Internet. Evoke Webcasting offers the following benefits:
. Outsourced Streaming Solution. Our staff of specially trained employees
provide a turnkey streaming solution to our customers by capturing
content from satellite or broadcast transmissions, encoding content into
an Internet streaming format and hosting the content in our secure
servers.
. Hosted Network Infrastructure. Customers can substantially increase
their available bandwidth and eliminate costs and resources associated
with running their own server system to host streamed content. With
access to our high-speed network and specialized servers, customers can
deliver their content at competitive prices.
On-Demand Evoke Webcasting. Our On-Demand Evoke Webcasting service allows
our customers to track usage, control access and manage large libraries of
streamed content. Our customers can either provide content that is already in
an Internet streaming format or have us convert it for them, which can be
indexed and managed to create streamed video libraries that are available
online. For example, we have converted Cisco's in-house sales training and
management videos into an indexed streaming library that is available to
specified employees. Our On-Demand Evoke Webcasting service provides customers
all of the benefits of Live Evoke Webcasting as well as the following benefits:
. Indexing and Dynamic Search Capabilities. On-Demand Evoke Webcasting
allows customers to index content based upon pre-defined criteria and
dynamically search their libraries of content to quickly retrieve
desired content from anywhere in the world.
. Allocation Reporting and Monitoring. On-Demand Evoke Webcasting provides
customers with access to detailed real-time reports that identify the
time and duration of participant access to each specific unit of
content. Detailed billing and tracking features generated from On-Demand
Evoke Webcasting help customers monitor their streaming usage and costs
and gauge viewer response and content success.
. Location-based Bandwidth Control. On-Demand Evoke Webcasting allows
customers to manage the number of simultaneous users and define the
available bandwidth from each location, thereby optimizing the amount of
bandwidth used by the customer.
. Security. On-Demand Evoke Webcasting verifies participants and restricts
access to all or any portion of each customer's library of streamed
content. In addition, On-Demand Evoke Webcasting can prevent
participants from accessing streaming content based on the Internet
address of the user requesting access.
EVOKE TALKING EMAIL
Our Evoke Talking Email service currently allows users to send a free voice-
to-email message up to 30 seconds long. Although our free service currently
allows delivery of an Evoke Talking Email message to 10 email addresses, we
have the capability to deliver a message to thousands of recipients
simultaneously. Users can also post their voice message as a link embedded on a
web page. Evoke Talking Email is initiated on our
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home page or by accessing the web sites of our partners, such as Blue Mountain
Arts. When a user inputs her email address and those of the recipients, the
Evoke Talking Email interface provides the user with a unique message ID number
and a toll-free telephone number to call and record her voice message. The
message is recorded in a streamable format and hosted on our servers. Once the
message has been recorded, the recipient receives an email containing a link to
the streamed message. The recipient then clicks on the link, which opens a web
browser and plays the message using RealPlayer, a standard media player offered
by RealNetworks.
FUTURE SERVICE OFFERINGS
We intend to leverage the infrastructure, technologies, and proprietary
systems that we have developed for our existing services to facilitate the
rapid deployment of service enhancements and future Internet communication
services. Although we intend to maintain easy-to-use, functional communication
tools, we also recognize that the needs of our customers vary widely. By
developing and offering a range of services, we will have an opportunity to
migrate users of our basic services to more advanced services as their needs
and levels of sophistication change. We plan to pursue the following service
offerings:
. Voice Chat Service. We are developing the ability to provide two-way
voice communication services over the Internet, or voice chat, as a
standalone service and as an enhancement to our Evoke Webconferencing
service.
. Wireless Platform. We are developing a wireless platform that would
allow users to initiate, control and monitor an Evoke Webconference from
a wireless device.
. Quickcall Service. We are developing a scaled-down version of Evoke
Webconferencing that would enable new users to enter a credit card
number and establish an Evoke Webconference without a prexisting
account.
. Web and Desktop Application Integration. We are working on web and
desktop integration of Evoke Webconferencing that would enable users to
schedule and initiate a conference through standard organizer
applications, such as address books or calendars.
. Advanced Web Collaboration. We intend to integrate advanced
collaboration technologies, such as whiteboarding, text chat,
application sharing, web touring and polling, into a high-end version of
Evoke Webconferencing targeted to the advanced user.
We have not yet begun the development or integration of all of these
services, and we do not currently know if or when any of these services will be
offered.
CUSTOMERS
We have a diverse base of customers across numerous vertical markets. We
have historically targeted large and medium-sized corporations and high-growth
Internet-centric businesses. We expect that in the future a significant portion
of our customers will consist of smaller businesses, home office users and
other consumers that are introduced to our services through our strategic
partners and affiliate resellers. Our top customers based on revenue in 1999
included the following:
<TABLE>
<S> <C>
Cisco Systems Microsoft
country.com Moreson Info Systems
Excite@Home Radiowave
Launch.com Veracast
MessageMedia Wells Fargo
</TABLE>
TECHNOLOGY
Our reliable and scalable telephony and Internet infrastructure forms the
basis of our suite of Internet communication services. Over the last three
years, we have invested substantial resources to develop proprietary systems
and applications that integrate disparate telephony and Internet communication
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technologies. Our layered approach to building applications allows us to
effectively leverage our existing infrastructure, technologies and proprietary
systems to accommodate changes in the marketplace. We believe this gives us a
significant competitive advantage by allowing us to quickly and reliably
develop new services and improve upon our existing services. We believe that
our technological resources give us the following competitive advantages:
. the ability to identify new and enhance existing Internet communication
services;
. the ability to build integrated applications by combining traditional
telephony and Internet communication technologies; and
. the ability to build a reliable and scalable communication
infrastructure.
The following chart illustrates our layered approach to building and
integrating applications:
[Pictured here is a graphic with four rows. The bottom row is titled
"Infrastructure" and contains the words "Telephony," "Fiber," "Internet
Access," "Storage," "Servers," and "Facilities." The next row is titled
"Technologies" and contains the words "Video Streaming," "Audio Streaming,"
"Web Collaboration," "Unified Messaging," "Wireless Web" and "Internet Voice
Chat." The next row is titled "Proprietary Systems" and contains the words
"Automated Billing," "Fraud Detection," "Automated Reporting," "Content
Management," "Automated Transaction Management," "Call Routing," "Telephony and
Internet Integration," and "Dynamic Load Balancing." The top row is entitled
"Proprietary Applications" and containes the words "Evoke Webconferencing,"
"Evoke Webcasting" and "Evoke Talking Email."]
Infrastructure. Each of our services resides on a common infrastructure that
is built to a high level of fault tolerance and reliability. We maintain our
own telecommunication-grade data facilities and production servers in
Louisville and Boulder, Colorado. These facilities are interconnected to each
other and to our telephony and Internet service providers through three
independent fiber optic providers on four diverse routes. Our connection to the
public telephony network and to our Internet service providers occur in
geographically diverse cities to provide maximum fault tolerance to network
outages. Our high-speed data centers are based on a fully-switched, high
bandwidth network comprised of Foundry Networks hardware. Our services are
built on a complement of servers running Linux, Solaris and Microsoft operating
systems. Telephony connectivity is provided through hardware purchased from
various vendors. Data related to the execution of our services is generally
stored on fault tolerant EMC enterprise storage systems and is backed up using
enterprise tape systems from Sun Microsystems. Our data facilities have backup
power systems, redundant cooling systems, computer room fire suppression
systems and sophisticated security systems.
Technologies. We continuously evaluate new technologies, determine if they
will be beneficial to our users and build systems and software that assist us
in their management and integration into web-based applications. In cases where
no existing technology meets our needs, we develop our own solution or modify
an existing technology. We believe that by developing proprietary systems and
applications on top of new and existing technologies, we can leverage the
benefits of emerging technologies and rapidly integrate these technologies into
our services. We license streaming audio and video technologies from Microsoft
and RealNetworks. We purchase multipoint control units that allow us to bridge
multiple telephone lines onto a single call. We purchase other telephony
hardware to provide customized telephony applications. We will incorporate
technologies that we license from a third party to develop voice chat services
over the Internet. Our wireless web applications will be built on technologies
readily available from certain vendors. Our web collaboration technologies are
built in-house. Our multi-site database architecture is based on the Oracle 8i
database that provides us with standby database access in the event of system
failure.
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Proprietary Systems. Our systems are the central hub of our services,
linking together disparate communication technologies with applications in an
integrated manner. This enables us to share technologies across multiple
services to quickly develop and enhance applications. Universal functions like
our billing system need only be created once, yet all applications can operate
using the same billing structure. This layer of our chart represents the
majority of our proprietary software development and consists of functions such
as automated billing and reporting, security, transaction management, content
management, call routing, fraud detection and the integration of our services
on a web interface. Our dynamic load balancing systems evenly distribute
traffic across hundreds of Internet communication servers and telephony
switches, enabling us to increase capacity and meet growing customer demand. We
believe our proprietary systems make otherwise incompatible emerging
technologies work together by allowing us to manage them effectively.
RESEARCH AND DEVELOPMENT
Our research and development efforts are currently focused on improving the
functionality and performance of our existing services as well as developing
new services to meet the changing needs of our diverse customer base. Our
research and development organization is comprised of the following groups:
. The database and transaction group focuses on billing and reporting
systems as well as maintaining a record of every communication event
that happens within our systems.
. The server group focuses on developing, integrating and implementing
server-based technologies used in our solutions.
. The application group focuses on building easy-to-use interfaces for
users to control our services.
. The advanced technology group researches new technologies for potential
integration into our service offerings.
. The operations group is responsible for testing and maintaining all
deployed systems as well as performing routine upgrades and bug fixes.
We devote a substantial portion of our resources to developing new services,
enhancing existing services, expanding and improving the Internet and telephony
technologies we use and strengthening our technological expertise. We believe
our success will depend, in part, on our ability to develop and introduce new
services and enhancements to our existing services. We have made, and expect to
continue to make, significant investments in research and development. We
expensed approximately $0.4 million, $0.8 million and $0.9 million related to
research and development activities in the years ended December 31, 1997,
December 31, 1998 and December 31, 1999, respectively. We intend to devote
substantial resources to research and development for the next several years.
As of February 29, 2000, we had 32 full-time engineers and developers engaged
in research and development activities.
SALES AND MARKETING
Sales. We currently sell our services through a direct sales force and
indirect sales channels. As of February 29, 2000, we had 91 full-time employees
engaged in sales and marketing. The following segments outline our direct and
indirect sales initiatives:
. Direct Sales Force. Our direct sales force sells our services primarily
to large and medium-sized corporations and high-growth, Internet-centric
businesses. Our direct sales force is geographically based and as of
February 29, 2000 consisted of 64 employees operating in thirteen
states. A significant percentage of our sales compensation is commission
based. Sales is our fastest growing department and we anticipate our
direct sales staff will exceed 140 employees by the end of 2000.
. Co-Branded Partnerships. Our business development team is focused on
establishing strategic partnerships with leading Internet companies that
have a broad user base. Our agreements with popular web sites allow us
to distribute our services through a link on their sites or bundle our
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services as part of a co-branded offering. We expect that these
partnerships will help us extend the reach of our services to attract
small businesses, home office users and other consumers. We plan to
expand our business development team from 7 individuals as of February
29, 2000 to over 10 individuals by the end of 2000.
. Affiliates. In November 1999, we launched an affiliate program with a
third-party service company. An affiliate is a web site owner that
agrees to promote our services by advertising them on their web site.
Affiliates receive a commission on our services sold through their web
site. As of February 29, 2000, we had over 3,200 affiliates signed up to
resell Evoke Webconferencing.
. Indirect Sales. We partner with resellers and third-party technology
providers to resell our services. These indirect sales channels allow us
to extend our reach to businesses of all sizes.
. E-commerce. The majority of our services can be purchased and delivered
directly though our web site. Our web site provides us with a low-cost,
globally accessible sales channel that is available 24 hours a day,
seven days a week.
Marketing. We focus our marketing efforts on communicating the benefits of
our services to increase and enhance usage. We seek to increase brand
awareness, stimulate market demand and educate potential customers about the
advantages of using Internet communication services. Our marketing programs
include:
. Advertising. We use Internet, print and broadcast advertising campaigns
targeted toward business and consumer users to communicate the power of
our services.
. Co-Branding. We offer our services as co-branded engines to strategic
partners, such as web portals and other high-traffic web sites. This
allows us to reach a much larger audience than could be reached through
our web site alone. We believe this increases brand awareness and
ultimately achieves greater market penetration. We also enhance our
brand through our associations with prominent Internet companies whose
brand equity and corporate identity we believe reflect favorably upon
our services.
. Public Relations. Our public relations initiatives aim to widen public
recognition of our brand by highlighting important technical
developments, service offerings, awards, strategic partnerships and
company milestones. We seek to enhance our position in our industry
through active participation in industry trade shows, conferences and
speaking engagements.
. Viral Marketing. Our sales and marketing strategy is reinforced by the
viral nature of our services as new users are exposed to our services
through their participation in an Evoke Webconference or receiving an
Evoke Talking Email. This enables our Internet communication services to
reach a broad base of Internet users in a manner more cost-effective
than typical advertising.
. Product Management. Our product management group is responsible for
managing the product life cycle from conception to launch. They conduct
market and competitive analyses to strategically develop our services.
This group oversees product launches and translates our technical
service capabilities into marketable Internet communication tools.
. Customer Relationship Management. Our communication initiatives are
aimed at maintaining positive relationships with our customer base. This
includes maintaining contact with customers through opt-in email
newsletters, training initiatives, promotions and incentives to increase
the use of our services. In addition, we incorporate customer feedback
from emails and focus groups into our services.
CUSTOMER SERVICE
We offer customer support and operator assistance 24 hours a day, seven days
a week. Technical and customer support is available through a toll-free
telephone number and email request system. In addition, Evoke Webconferencing
users can request operator help with the click of a mouse. We also offer
substantial self-serve information databases in the form of frequently asked
questions hosted on our web site. As of February 29, 2000, we had 26 full-time
technical and customer support representatives to respond to customer requests
for support.
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<PAGE>
Most of our requests for customer support involve browser settings or user
error and can be addressed during an operations technician's initial contact
with a customer. If the problem cannot be solved immediately, our development
operations group addresses the technical issues and informs the account
development representative of the customer's difficulties. Once a solution is
discovered, or the problem and timeline for solution are determined, our
account development representative contacts the customer.
We are currently integrating an automated email response system to
efficiently handle email requests. This automated system will use keywords to
identify the customer's request and send a personalized, specific response to
the customer's query. If the email system cannot handle the particular request,
it will automatically contact an operations technician to initiate the problem
resolution process.
COMPETITION
The market for Internet communication services is relatively new, rapidly
evolving and intensely competitive. As the market for Internet communication
services evolves, more companies will enter this market and invest significant
resources to develop Internet communication services. As a result, we expect
that competition will continue to intensify and may result in price reductions,
reduced sales and margins, loss of market share and reduced acceptance of our
services.
We believe that the primary competitive factors in the Internet
communication services market include:
. ease of use of services and breadth of service offerings;
. quality and reliability of communication services;
. pricing;
. brand identity;
. quality of customer service;
. compatibility with new and existing communication formats;
. access to and penetration of distribution channels necessary to achieve
broad distribution;
. ability to develop and support secure formats for communication
delivery;
. demand for Internet communication services;
. scalability of streaming voice and video and delivery technology; and
. challenges caused by bandwidth constraints and other limitations of the
Internet infrastructure.
Our failure to adequately address any of the above factors could harm our
business.
We are an integrated provider of Internet communication services. As such,
we compete with standalone providers of traditional teleconferencing, web
collaboration and streaming services. We estimate that we compete with over 30
competitors that provide one or more of these services. We believe that none of
our competitors currently combine these services as an integrated offering
other than by using at least one other vendor. However, our current and
potential competitors may enter or expand their positions in the Internet
communication services market by acquiring one of our existing competitors or
by forming strategic alliances with these competitors.
In the traditional teleconferencing market, our principal competitors
include AT&T, Global Crossing and MCI WorldCom. These companies currently offer
teleconferencing services as part of a bundled telecommunications offering,
which may include video and data conferencing services and other Internet
collaboration services. In the collaboration services market our principal
competitors include Centra Software, PlaceWare, and WebEx. Some of these
competitors offer collaboration services and software with a broader set
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<PAGE>
of features than we currently offer. Enterprise software vendors, such as
Oracle and SAP, may choose to extend their applications with similar
collaboration features in the future. In the streaming content delivery market
our principal competitors include iBeam Broadcasting, InterVU and
Broadcast.com, a division of Yahoo!.
Many of our current and potential competitors have larger customer bases,
longer operating histories, greater name recognition, more employees and
significantly greater financial, technical, marketing, public relations and
distribution resources than we do. Telecommunication providers, for example,
enjoy lower per-minute long distance costs as a result of their ownership of
the underlying telecommunication networks. In addition, these potential
competitors may choose to enter or expand their positions in the Internet
communication services market by acquiring one of our existing competitors or
by forming strategic alliances with these competitors. Any of these occurrences
could harm our ability to compete effectively.
Intellectual Property
The success of our business is substantially dependent on the proprietary
systems that we have developed. These proprietary systems are not currently
protected by any patents. To date, we have filed one U.S. provisional patent
application and intend to file additional patent applications in the future for
our proprietary systems. Our current and future patent applications may fail to
result in any patents being issued. If they are issued, any patent claims
allowed may not be sufficiently broad to protect our technology. In addition,
any future patents may be challenged, invalidated or circumvented and any right
granted thereunder may not provide meaningful protection to us. The failure of
any patent to provide protection for our technology would make it easier for
other companies or individuals to develop and market similar systems and
services without infringing any of our intellectual property rights.
To protect our proprietary rights, we currently rely on a combination of
trademarks, service marks, trade secrets, copyrights, confidentiality
agreements with our employees and third parties, and protective contractual
provisions. Our protection efforts may prove to be unsuccessful, and
unauthorized parties may copy or infringe upon aspects of our technology,
services or other intellectual property rights. In addition, these parties may
develop similar technology independently. Existing trade secret, copyright and
trademark laws offer only limited protection and may not be available in every
country in which we will offer our services. Policing unauthorized use of our
proprietary information is difficult. Our trademarks and service marks include
"Evoke," "Until There's Telepathy, There's Evoke," and our logo. Each other
trademark, trade name or service mark appearing in this prospectus belongs to
its holder.
On March 17, 2000, Evoke Software Corporation, a California corporation,
filed a complaint against us in the United States District Court, Northern
District of California, alleging trademark and service mark infringement, among
other claims, such as trademark and service mark dilution, and unfair
competition. Evoke Software seeks punitive and compensatory damages, injunctive
relief and attorneys fees and costs. We believe that we have meritorious
defenses to these claims and intend to defend against them. We have until April
10, 2000 to file our response. This matter is at an early stage and it is not
possible to predict its outcome.
In December 1999, we licensed the source and object code of specific
technologies from AudioTalk Networks which we are using to develop voice chat
services over the Internet. We licensed this technology, subject to certain
installation requirements and will pay royalties and software maintenance
through December 2001, after which we will have no further payment obligations.
AudioTalk may grant identical or similar licenses to others. Generally, we are
not permitted to transfer these license rights to others except in connection
with the sale and distribution of our services. The AudioTalk license is
perpetual and the agreement can be terminated by AudioTalk only if we
materially breach provisions relating to restricted third party access or our
payment or indemnification obligations. If this license is terminated, we would
be forced to remove such technology from any service that incorporates this
technology. As a result, we would be required to expend extensive engineering
efforts to develop comparable technology or pay additional license fees if
similar technologies were available. In March 2000, HearMe, a provider of voice
communication services over the Internet, entered into a merger agreement with
AudioTalk. If this proposed merger is completed, the combined company may
decide to breach our license with AudioTalk. We may be required to license
technologies from third parties to develop, market and deliver new services in
the
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future. We may be unable to obtain any such licenses on a timely basis, on
commercially reasonable terms or at all and the rights granted under such
licenses may not be valid or enforceable.
EMPLOYEES
As of February 29, 2000, we employed 170 people. The employees included 21
in general and administrative functions, 26 in operations, 91 in sales and
marketing, and 32 in research and development. Our future success depends in
part on our ability to attract, retain and motivate highly qualified technical
and management personnel, for whom competition is intense. Our employees are
not represented by a labor union or covered by any collective bargaining
agreements. We consider our employee relations to be good.
FACILITIES
Our principal executive office is located in Louisville, Colorado where we
lease 40,000 square feet of space from a company controlled by Paul Berberian,
our chairman of the board, chief executive officer and president, James LeJeal,
our chief operating officer and chief financial officer, and Byron Chrisman,
one of our former directors. See "Certain Transactions--Lease" for more
information on this lease. We also lease 4,000 square feet of space in Boulder,
Colorado under a lease that expires in May 2002. Additionally, the company
leases office space for satellite sales offices that are typically less than
1,000 square feet in Atlanta, Bethesda, Boston, Chicago, Denver, Los Angeles,
New York, Minneapolis and San Francisco. We believe that these existing
facilities are adequate to meet current foreseeable requirements or that
suitable additional or substitute space will be available on commercially
reasonable terms.
LEGAL PROCEEDINGS
From time to time, we have been subject to legal proceedings and claims in
the ordinary course of business. On March 17, 2000, Evoke Software Corporation,
a California corporation, filed a claim against us in the United States
District Court, Northern District of California, alleging trademark and service
mark infringement, among other claims, such as trademark and service mark
dilution, and unfair competition. Evoke Software seeks punitive and
compensatory damages, injunctive relief and attorneys fees and costs. We
believe that we have meritorious defenses to these claims and intend to defend
against them. We have until April 10, 2000 to file our response. This matter is
at an early stage and it is not possible to predict its outcome. Other than
this matter, we are not currently involved in any material legal proceedings.
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RECENT DEVELOPMENTS
The Contigo Acquisition
On March 24, 2000, we entered into a merger agreement to acquire Contigo
Software, Inc. Under the merger agreement, a newly formed subsidiary of ours
will merge with Contigo so that Contigo becomes our wholly-owned subsidiary.
Contigo offers web collaboration software to business customers, enabling real-
time interaction among participants in a web conference. Contigo's advanced web
collaboration tools include whiteboarding, text chat, application viewing, web
touring and polling. The following description sets forth the material terms of
the merger agreement, the acquisition and related transactions. The description
is qualified in its entirety by the merger agreement and related agreements,
which are included as exhibits to the registration statement of which this
prospectus forms a part.
We will account for the acquisition using the purchase method of accounting.
The acquisition is intended to qualify as a tax-free reorganization under
Section 368 of the Internal Revenue Code. At the closing of the acquisition, an
aggregate of 9,000,000 shares of our common stock will be issued in exchange
for all of the outstanding shares of Contigo capital stock or reserved for
issuance upon exercise of the Contigo options we assume in the proposed
acquisition. We will also pay approximately $1.1 million to the holders of
Contigo Series A, Series B, and Series C preferred stock in respect of
liquidation preferences. In addition, we will pay Contigo, at the closing, $5.0
million to satisfy an obligation of Contigo to one of its founders arising in
connection with the acquisition. We may also be obligated to pay up to an
additional $1.0 million for specified tax obligations, if assessed, in
connection with the $5.0 million payment. We intend to fund the cash payments
required in connection with this acquisition from our working capital. The
aggregate estimated purchase price is approximately $83.3 million. The purchase
price is based on the assumed initial public offering price of our common stock
of $9.00 per share. Upon completion of this offering, the shares of our common
stock to be issued and reserved for issuance in connection with the acquisition
will constitute approximately 14.6% of our common stock.
Each Contigo option we assume will continue to have, and be subject to the
same terms and conditions as set forth in the stock option plans of Contigo and
the respective option agreements governing the options immediately prior to the
acquisition, except that the options will be exercisable for shares of our
common stock and the number of shares subject to the options and the exercise
price will be adjusted to reflect the exchange ratio in the acquisition. As of
the date of the merger agreement, Contigo had 3,416,480 options outstanding.
The Contigo options that we will assume generally vest over three years at a
rate of 1/12 of the total number of shares vesting each quarter.
Under the merger agreement, Contigo made customary representations and
warranties regarding such matters as its corporate good standing, capital
structure, intellectual property ownership, pending litigation, assets and
liabilities, employee relations, material contracts, good standing, and
compliance with laws and regulations. We also made customary representations
and warranties to Contigo regarding such matters as our corporate good
standing, our authority to enter into the merger, the disclosures set forth in
the registration statement of which this prospectus forms a part, and our
compliance with laws and regulations.
Contigo has agreed to indemnify us and each of our officers, directors and
affiliates with respect to breaches of any representation warranties, covenants
or other agreements made by Contigo in the merger agreement. These
indemnification obligations are subject to minimum threshold limitations
specified in the merger agreement. To secure these indemnification obligations,
10% of the shares of our common stock to be issued to Contigo shareholders will
be held in escrow for a period of one year after closing of the acquisition.
Upon consummation of the merger, Dr. Massih Tayebi, currently the chief
executive officer of Wireless Facilities, Inc., will be appointed to our board
of directors.
The Contigo acquisition is subject to a number of closing conditions
specified in the merger agreement, including governmental approval, approval of
the merger by Contigo shareholders and other customary closing conditions. As a
result, the Contigo acquisition may not be completed.
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Contigo has agreed that its shareholders holding at least 80% of the shares
of our common stock to be issued in the merger as well as Contigo optionees
holding at least 80% of the shares to be issued upon exercise of Contigo
options we assume in the acquisition will enter into lock-up agreements similar
to those entered into by our directors, officers and securityholders. As a
result, upon the closing of the acquisition, an aggregate of up to
approximately 1,800,000 shares of our common stock to be issued in exchange for
outstanding shares of Contigo capital stock and issuable upon exercise of
Contigo options we assume could be immediately eligible for sale in the public
market in accordance with the restrictions of Rule 144 under the Securities
Act. At least 7,200,000 shares of our common stock to be issued in exchange for
outstanding shares of Contigo capital stock or issuable upon exercise of
Contigo options we assume in connection with the acquisition will be eligible
for public sale in the public market beginning 180 days after the date of this
prospectus, subject to the volume and other restrictions of Rule 144. See
"Shares Eligible for Future Sale".
Sale of Series E Preferred Stock
On March 29, 2000, we issued 686,813 shares of our preferred stock to
Microsoft Corporation at a purchase price of $7.28 per share for an aggregate
purchase price of approximately $5.0 million. Assuming an initial offering
price of $9.00 per share, we will record a preferred stock dividend of
approximately $0.9 million for this sale of preferred stock in the first
quarter of 2000. We also granted to Microsoft a warrant to purchase 858,416
shares of our preferred stock at an exercise price equal to the lesser of
$10.00 per share or the initial public offering price of the shares of common
stock to be sold in this offering. In connection with Microsoft's purchase of
our preferred stock, we entered into an agreement with Microsoft under which we
will receive access to Microsoft's streaming media software, developmental
support for our streaming media offerings and additional subsidies for third-
party use of our streaming services. In exchange, we have agreed to feature
Microsoft's streaming media technology as our preferred streaming media format.
Executive Hire
On March 30, 2000, we expanded our executive management team to include a
new executive vice president and chief financial officer, Terence G. Kawaja. We
expect to recognize an expense of $2.3 million in the first quarter of 2000 and
deferred compensation of $3.4 million, which will be recognized over four years
in connection with common stock that we will sell and stock options that we are
issuing to Mr. Kawaja.
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MANAGEMENT
Our executive officers, key employees and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH US
- ---- --- ----------------
<S> <C> <C>
Paul A. Berberian....... 34 Chairman of the Board, Chief Executive Officer and
President
James M. LeJeal......... 35 Chief Operating Officer and Director
Terence G. Kawaja....... 37 Executive Vice President and Chief Financial Officer
Todd Vernon............. 35 Chief Technology Officer
Mhaer Alahydoian........ 36 Vice President International Business Development
Bryce Ambraziunas....... 29 Vice President Operations
Brad Dupee.............. 30 Vice President Business Development
Dan Fuller.............. 33 Senior Vice President Sales
Kenneth Mesikapp........ 36 Vice President Finance and Accounting, Assistant Treasurer
Alison Seccombe......... 29 Vice President Marketing
Bradley A. Feld......... 34 Director
Donald Hutchison........ 43 Director
Donald H. Parsons, Jr... 37 Director
Andre Meyer............. 53 Director
Carol deB. Whitaker..... 46 Director
</TABLE>
EXECUTIVE OFFICERS
Paul A. Berberian has served as our chairman of the board, chief executive
officer and president since co-founding our company in April 1997. From
November 1995 to April 1997, Mr. Berberian was director of ConferLink, a
division of ConferTech International, now Global Crossing, focusing on revenue
call management information systems. In June 1993, Mr. Berberian co-founded
LINK-VTC, a videoconferencing service provider, and served as its president and
a member of its board of directors, which was acquired by ConferTech
International in November 1995. He holds a B.S. degree in management and is a
distinguished graduate from the U.S. Air Force Academy.
James M. LeJeal has served as our chief operating officer and as a member of
our board of directors since co-founding our company in April 1997. Mr. LeJeal
also served as our chief financial officer from our inception until March 2000.
From December 1995 to April 1997, Mr. LeJeal served as the corporate vice
president of finance of ConferTech International, where he was responsible for
managing the accounting and billing functions, human resources and financial
planning and analysis of a $100 million business unit. From September 1994 to
December 1995, Mr. LeJeal served as vice president of finance and
administration of LINK-VTC, which was later acquired by ConferTech
International. He holds a MBA degree from Loyola Marymount University and a
B.S. degree in management and is a distinguished graduate from the U.S. Air
Force Academy.
Terence G. Kawaja has served as our executive vice president and chief
financial officer since March 2000. From July 1989 to March 2000, Mr. Kawaja
served in a variety of capacities at Salomon Smith Barney, most recently as
managing director in the mergers and acquisitions department, focusing on the
Internet, communications and media sectors. In his eleven years at Salomon, Mr.
Kawaja has worked on over 100 transactions valued at over $400 billion,
including the AOL/Time Warner proposed merger. He holds an M.B.A. degree from
the Schulich School of Business, an LL.B. degree from Osgoode Hall Law School
at York University in Toronto, Canada and a B.A. degree from the University of
Western Ontario in London, Canada.
Todd Vernon has served as our chief technology officer since our inception
in April 1997. From August 1996 to April 1997, Mr. Vernon served as senior
software engineer for ConferLink, a division of ConferTech International. From
January 1996 until August 1996, Mr. Vernon served as product architect and lead
developer
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for Rogue Wave Software. From August 1994 to January 1996, Mr. Vernon served as
senior software engineer at Evolving Systems, Inc., a software company. From
February 1987 to August 1994, Mr. Vernon served as senior electronic engineer
at NASA Dryden Flight Research Facility. He holds a B.S. degree in electrical
engineering from Central Missouri State University.
KEY EMPLOYEES
Mhaer Alahydoian has served as our vice president international business
development since January 2000. From May 1998 to July 1999, Mr. Alahydoian
served as senior partner of The Investment Law Group Ltd., a law firm located
in Yerevan, Armenia. From January 1997 to May 1998, he served as the project
director of judicial and legal training programs for ARDI/Checchi Rule of Law
Consortium. From January 1997 to May 1998, Mr. Alahydoian served as associate
director of the American University of Armenia's LL.M. program. From August
1995 to July 1996, he was a Fulbright scholar lecturing at Yerevan State
University. From November 1994 to April 1995, Mr. Alahydoian served as an
attorney and project manager for the World Bank in Yerevan, Armenia. He holds a
B.A. degree in psycho-biology from Occidental College, a Certificat d'etudes
internationales and a J.D. degree from Loyola Law School in Los Angeles,
California.
Bryce L. Ambraziunas has served as our vice president operations since
November 1998. From October 1997 to November 1998, Mr. Ambraziunas served as
executive manager of U.K. operations for Frontier Videoconferencing, a division
of Frontier ConferTech. From January 1996 to October 1997, Mr. Ambraziunas held
various positions in the operations and sales departments of LINK-VTC,
including technical account executive for its videoconferencing offering. He
received a B.A. degree in economics from the University of California at Santa
Cruz.
Brad Dupee has served as our vice president business development since June
1999. From July 1998 to June 1999, Mr. Dupee served as manager of business
development for Hill/Holiday Interactive, an Internet business consulting firm.
From March 1996 to July 1998, Mr. Dupee served as director of sales and
marketing for General Interactive, Inc., an interactive relationship marketing
firm that he co-founded. From November 1992 to March 1996, Mr. Dupee held a
sales position with Network Plus, Inc., an aggregator of telecommunication
services for small and medium-sized business markets. He holds a B.S. degree in
finance from Bentley College.
Dan Fuller has served as our senior vice president sales since January 2000.
From August 1998 to January 2000, Mr. Fuller served as vice president of sales
for CRN Broadcasting, a radio broadcasting company. From March 1989 to July
1998, Mr. Fuller held various sales manager positions with Noble Broadcasting,
including general sales manager of KBCO, KHIH and KHOW radio in Denver,
Colorado. Noble Broadcasting was acquired by Jacor Broadcasting in May 1996.
Mr. Fuller holds B.A. in marketing from Arizona State University.
Kenneth Mesikapp has served as our vice president finance and accounting and
assistant treasurer since October 1999 and as our corporate controller from
December 1997 to October 1999. From November 1994 to December 1997, Mr.
Mesikapp served as audit manager of Brock and Company, CPAs, P.C., an
accounting firm located in Boulder, Colorado. From June 1986 to November 1994,
Mr. Mesikapp held a variety of positions and most recently was a manager at
Nykiel, Carlin and Company, an accounting firm located in Schaumburg, Illinois.
Mr. Mesikapp holds a B.S. in accounting from the University of Illinois at
Chicago and is a certified public accountant.
Alison Seccombe has served as our vice president marketing since September
1999 and has been employed by us since May 1999. From February 1997 to May
1999, Ms. Seccombe served as account supervisor for Alexander Ogilvy Public
Relations Worldwide. From October 1995 to November 1996, Ms. Seccombe was
employed in the advertising department of JGF Communications. From March 1995
to October 1995, Ms. Seccombe held a sales position with Chroma Copy Imaging.
She holds a B.A. degree in political science from Saint Mary's College.
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DIRECTORS
Bradley A. Feld has served as a member of our board of directors since May
1998. Since June 1996, Mr. Feld has served as managing director of Softbank
Technology Ventures. Since 1995, Mr. Feld has been the President of Intensity
Ventures Inc., a company that helps to establish, advise and operate software
companies. From 1994 to 1995, Mr. Feld served as chief technology officer of
AmeriData Technologies, a publicly-traded company that was acquired by GE
Capital in 1996. From 1985 to 1993, Mr. Feld was the President of Feld
Technologies, a software consulting firm that he founded and that was acquired
by AmeriData in 1993. Mr. Feld is a director and co-chairman of Interliant,
Inc. and MessageMedia, Inc. and a director of a number of privately held
companies. Mr. Feld holds S.B. and S.M. degrees from the Massachusetts
Institute of Technology.
Donald Hutchison has served as a member of our board of directors since
January 2000. Since February 1997, Mr. Hutchison has served as senior vice
president and general manager of Excite@Home, focusing on building their
business division, @Work. Since February 1997, Mr. Hutchison has served as
director of sales and marketing for TAU Corporation, a digital image computing
company. From May 1994 to January 1997, Mr. Hutchison served as senior vice
president for sales and marketing of NETCOM. From January 1987 to July 1989,
Mr. Hutchison served as director of sales and business planning for Pixar, a
digital animation company. Mr. Hutchison holds a B.A. degree in economics from
the University of California at Santa Barbara, and a MBA degree in finance and
organizational development from Loyola Marymount University.
Andre Meyer has served as a member of our board of directors since March
2000. Since June 1997, Mr. Meyer has worked with various companies controlled
by Vivendi Group, a French holding company with primary investments in
telecommunications. Since June 1997, Mr. Meyer has held various positions with
Vivendi Group entities, including: chief technical officer of @viso; president
of CEGETEL Entreprises; director of the development center for Innovative
Services for INOVATEL; and general manager of CEGETEL Entreprises. From August
1985 to June 1997, Mr. Meyer held various positions with Hewlett Packard Corp.
including general manager of the Telecom Systems Business Unit from 1992 to
1997. Mr. Meyer holds degrees in electromechanics and in electronic and
automation engineering.
Donald H. Parsons, Jr. has served as a member of board of directors since
April 1997. Mr. Parsons initially joined Centennial Ventures in 1989. He has
been a special limited partner of Centennial Holdings III and is currently a
general partner of Centennial Holdings IV and Centennial Holdings V and a
managing principal of Centennial Holdings VI. Additionally, he serves as a
senior vice president of Centennial Holdings, Inc. From 1982 to 1987, Mr.
Parsons was a video graphics engineer for IBM Corporation in Boca Raton,
Florida. Mr. Parsons is a member of the board of directors of Ecrix
Corporation, HighGround Systems, Inc., UMONGO, Inc. and iVAST Inc., each a
privately-held company. Mr. Parsons is the former chairman and president of the
Venture Capital Association of Colorado. Mr. Parsons holds a B.S. degree in
electrical engineering from Northwestern University and a MBA degree from the
University of Michigan Business School.
Carol deB. Whitaker has served as a member of our board of directors since
June 1999. Ms. Whitaker has over 20 years of investment banking experience with
both corporations and Wall Street firms. Since 1990, Ms. Whitaker has served as
President of Whitko & Company, a Denver-based corporate finance consulting
firm. From January 1996 to July 1996, Ms. Whitaker served as chief executive
officer of W.W. Comm, Inc., a start-up company pursuing wireless communication
opportunities in Latin America. Ms. Whitaker was a member of the board of
directors of Brooks Fiber Properties, Inc. from October 1996 until the sale of
the company in January 1998 to MCI WorldCom. Ms. Whitaker is also a member of
the board of directors of Yipes Communications, Inc. and Optiglobe, Inc., both
privately held companies. Ms. Whitaker holds a B.A. degree in economics from
Colorado College and a MBA degree from the University of Chicago.
If the Contigo merger is completed, Dr. Massih Tayebi will be appointed to
our board of directors. Dr. Tayebi co-founded Wireless Facilities, Inc. in 1994
and has served as its chief executive officer and one of its directors since
its inception. Since 1995, Dr. Tayebi has served as a technical manager for
Computer Integrated Management Systems, an Internet-based business exchange
company. From 1989 to 1994, he was a senior
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faculty member of the Engineering Department of the University of Paisley,
Great Britain, and served as its Director of Computer Integrated Product Life
Cycle Research. Dr. Tayebi received an M.S. in computer integrated
manufacturing and a Ph.D. in the integration of design and process planning
from the University of Strathclyde, United Kingdom. He performed post-doctorate
work on the integration of design and inspection at the University of Brunel,
London.
BOARD COMPOSITION
We currently have seven directors. In February 2000, our board of directors
approved, subject to stockholder approval, a classified board of directors as
follows:
.Class I consists of Mr. Berberian and Ms. Whitaker;
.Class II consists of Mr. Feld, Mr. Parsons and Mr. Meyer; and
.Class III consists of Mr. LeJeal and Mr. Hutchison.
BOARD COMMITTEES
Our audit committee consists of Mr. Feld, Mr. Meyer and Ms. Whitaker. The
audit committee makes recommendations to the board of directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors and evaluates our
internal accounting procedures.
Our compensation committee consists of Mr. Feld, Mr. Meyer and Ms. Whitaker.
The compensation committee reviews and approves compensation and benefits for
our executive officers. The compensation committee also administers our
compensation and stock plans and makes recommendations to the board of
directors regarding such matters. No member of the compensation committee has
been an officer or employee of Evoke at any time. None of our executive
officers serves as a member of the board of directors or compensation committee
of any other company that has one or more executive officers serving as a
member of our board of directors or compensation committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation for their service
as directors, but are reimbursed for customary and reasonable expenses incurred
in attending board of directors and committee meetings. Non-employee directors
are eligible to receive options and stock issuances under our 2000 equity
incentive plan and have been granted the following options and issuances under
the plan:
. On January 25, 2000, Mr. Hutchison received an option to purchase 40,000
shares of our common stock at an exercise price of $3.00 per share, with
a vesting period of three years commencing on that date at a rate of
1/36th of the shares underlying the options vesting each month;
. On January 25, 2000, Mr. Hutchison purchased 150,000 shares of our
common stock at $3.00 per share;
. On December 1, 1999, Messrs. Chrisman and Tankersley, our former
directors, and Messrs. Feld and Parsons each received an option to
purchase 40,000 shares of our common stock at an exercise price of $1.04
per share, with a vesting period of three years commencing retroactively
on January 1, 1998 at a rate of 1/36th of the shares underlying the
options vesting each month. Upon his resignation from our board, Mr.
Tankersley's options became fully-vested;
. On December 1, 1999, Ms. Whitaker received an option to purchase 50,000
shares of our common stock at an exercise price of $1.04 per share, with
a vesting period of one year commencing retroactively on July 1, 1999 at
a rate of 1/12th of the shares underlying the option vesting each month;
. On July 15, 1999, Whitko & Company for Ms. Whitaker, purchased 50,000
shares of our common stock at $1.04 per share; and
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. On June 16, 1999, Ms. Whitaker received an option to purchase 40,000
shares of our common stock at an exercise price of $.85 per share, with
a vesting period of three years at a rate of 1/36th of the shares
underlying the option vesting each month commencing on that date.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our chief executive officer and our other executive officers whose
annual salary and bonus exceeded $100,000 for services rendered in all
capacities to us during 1999. Throughout this prospectus we refer to these
individuals as our named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Paul A. Berberian,
Chairman of the Board, Chief Executive Officer
and President.................................. $131,515 $ 5,000 200,000
James M. LeJeal
Chief Operating Officer and Director............ 131,515 5,000 200,000
Todd Vernon
Chief Technology Officer........................ 119,697 12,000 50,000
</TABLE>
OPTION GRANTS IN 1999
The following table sets forth information regarding options granted to the
named executive officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
PERCENT OF STOCK PRICE APPRECIATION FOR
NUMBER OF TOTAL OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED IN PRICE EXPIRATION -----------------------------
NAME GRANTED 1999 ($/SHARE) DATE 5% 10%
- ---- --------- ------------- --------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Berberian....... 200,000 9.7% $1.04 Nov. 17, 2009 $2,724,010 $ 4,460,736
James M. LeJeal......... 200,000 9.7 1.04 Nov. 17, 2009 2,724,010 4,460,736
Todd Vernon............. 50,000 2.4 0.85 May 31, 2009 690,503 1,124,684
</TABLE>
The percent of total options granted in 1999 in the above table is based on
2,059,750 total options granted to employees, directors and consultants. Our
board of directors may reprice options under the terms of our stock option
plans.
Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our board of directors on the date of grant.
In making this determination, the board of directors considered a number of
factors, including:
. our historical and prospective revenue and profitability;
. our cash balance and rate of cash consumption;
. the development and size of the market for our services;
. the status of our financing activities;
. the stability of our management team; and
. the breadth of our services.
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The amounts reflected in the "Potential Realizable Value" column of the
foregoing table are calculated assuming that the assumed initial public
offering price of $9.00 per share appreciates at the indicated annual rate
compounded annually for the entire term of the option, and that the option is
exercised and the common stock received therefor is sold on the last day of the
term of the option for the appreciated price. The 5% and 10% rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of future increases
in the price of the common stock.
1999 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during 1999 and the number and value of unexercised
options held by each of the named executive officers at January 31, 2000.
Amounts under "Unexercisable" in the table below include unvested options
notwithstanding the fact that they are immediately exercisable upon grant
because unvested shares are subject to repurchase by us at the original
exercise price upon the employees cessation of service. The value of the
unexercised in-the-money options is based on the assumed initial public
offering price of $9.00 per share minus the per share exercise price,
multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
NUMBER OF UNEXERCISED MONEY OPTIONS AT JANUARY 31,
SHARES OPTIONS AT JANUARY 31, 2000 2000
ACQUIRED ON VALUE ------------------------------ ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Berberian....... -- -- -- 200,000 $ -- $1,592,000
James M. LeJeal......... -- -- -- 200,000 -- 1,592,000
Todd Vernon............. -- -- 187,500 112,500 1,668,750 963,750
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
In November 1999, we entered into personal services agreements with Mr.
Berberian, our chairman of the board, chief executive officer and president,
and Mr. LeJeal, our chief operating officer. In March 2000, we entered into a
personal services agreement with Mr. Kawaja, our executive vice president and
chief financial officer. Each of the agreements is for an initial two year term
and continues indefinitely thereafter until notice of termination by either
party. Under the terms of the agreements, Messrs. Berberian, LeJeal and Kawaja
will each receive an annual base salary of $215,000 beginning in 2000 plus
performance-based bonuses as determined by the compensation committee.
Furthermore, under the terms of the agreement with Mr. Kawaja, we granted to
Mr. Kawaja options to purchase 1,200,000 shares of our common stock at an
exercise price of $6.20 per share and the right to purchase an additional
375,000 shares of our common stock at a purchase price of $3.00 per share. In
December 1999, Messrs. Berberian and LeJeal each received an initial stock
option grant for options to purchase 200,000 shares of our common stock.
If any of Mr. Berberian, Mr. LeJeal or Mr. Kawaja is terminated without
cause or terminates his own employment "for good reason," then the terminated
executive will receive his base salary through the end of the initial term or
for a period of 18 months, whichever is longer, plus any accrued bonuses, and
all unexercised stock options shall vest. If any such executive is terminated
"for cause," by mutual agreement or voluntarily, then the executive will be
entitled to accrued compensation and unreimbursed expenses. "For good reason"
is generally defined as a material change in the executive's job duties
inconsistent with his position, a reduction in salary inconsistent with a
general reduction of the salaries of similarly situated employees, a required
relocation more than 50 miles from our current location, or our material breach
of the applicable employment period. "For cause" is generally defined as a
material breach of the employment agreement by the executive, dishonesty with
respect to the company, willful misfeasance intended to materially damage the
company, conviction of a crime of moral turpitude or crime, other than a
vehicle offense, that could materially damage our reputation or willful or
prolonged absence, other than due to illness, or failure to perform his duties
for 20 days following written notice.
If any of Mr. Berberian, Mr. LeJeal or Mr. Kawaja is terminated following a
"change of control," then the terminated executive will receive his base salary
through the end of the initial term or for a period of 18
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months, whichever is longer, plus bonuses that would have been paid to that
executive had he remained employed during such period and the initial grant of
stock options shall vest. A "change of control" is generally defined as a
liquidation or dissolution of the company, the sale of all or substantially all
of our assets, and a merger or consolidation of the company where after the
merger or consolidation our shareholders hold less than 50% of the stock of the
surviving corporation.
The agreements also contain non-competition and confidentiality provisions.
Under the terms of the agreements, each executive has agreed not to compete
with us in the United States, hire or attempt to hire any of our employees for
a period of 12 months following termination or at any time payments are being
made to the executive.
401(K) PLAN
Our employees are eligible to participate in our 401(k) Plan. Pursuant to
the 401(k) Plan, employees may elect to reduce their current compensation by up
to the lesser of 15% of eligible compensation or the statutorily prescribed
annual limit ($10,500 in 2000). Employees may contribute this amount to the
401(k) Plan. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code so that contributions by employees to the 401(k) Plan,
and income earned on plan contributions, are not taxable to employees until
withdrawn, and so that the contributions by employees will be deductible when
made. We may make discretionary matching contributions to the 401(k) Plan.
Additionally, we may make discretionary contributions in amounts to be
determined by the board of directors. Since the 401(k) Plan's inception, we
have made $13,072 in matching or profit sharing contributions.
2000 EQUITY INCENTIVE PLAN
Our board of directors adopted our 2000 Equity Incentive Plan on February
15, 2000, subject to stockholder approval. The incentive plan is an amendment
and restatement of our 1997 Stock Option/Stock Issuance Plan.
Administration. The board administers the incentive plan unless it delegates
administration to a committee. The board has the authority to construe,
interpret and amend the incentive plan as well as to determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the award;
. the exercisability and vesting of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Share Reserve. We have reserved a total of 17,500,000 shares of our common
stock for issuance under the incentive plan. On January 1 of each year for 10
years, beginning on January 1, 2001, the number of shares in the reserve
automatically will be increased by 3.0% of the lesser of:
. our outstanding stock on the effective date of this offering, or
. our outstanding shares as of such January 1.
However, the automatic increase is subject to reduction by the board. If the
recipient of a stock award does not purchase the shares subject to his or her
stock award before the stock award expires or otherwise terminates, the shares
that are not purchased again become available for issuance under the incentive
plan.
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Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to our employees and to the employees
of our affiliates. The board also may grant nonstatutory stock options, stock
bonuses and restricted stock purchase awards to our employees, directors and
consultants as well as to the employees, directors and consultants of our
affiliates.
. A stock option is a contractual right to purchase a specified number of
our shares at a specified price (exercise price) for a specified period
of time.
. An incentive stock option is a stock option that has met the
requirements of Section 422 of the Internal Revenue Code. This type
of option is free from regular tax at both the date of grant and the
date of exercise. However, the difference between the fair market
value on the date of exercise and the exercise price is an item of
alternative minimum tax unless there is a disqualifying disposition
in the year of exercise. If two years pass between grant date and
sale date and one year passes between exercise date and sale date,
all profit on the sale of our shares acquired by exercising the
incentive stock option is long-term capital gain income. However, if
either of the holding periods is not met, there has been a
disqualifying disposition, and a portion of any profit will be taxed
at ordinary income rates.
. A nonstatutory stock option is a stock option that either does not
meet the Internal Revenue Code criteria for qualifying incentive
stock options or is not intended to be an incentive stock option. It
triggers a tax upon exercise. This type of option requires payment
of state and federal income tax and, if applicable, FICA/FUTA on the
difference between the exercise price and the fair market value on
the exercise date.
. A restricted stock purchase award is our offer to sell our shares at a
price either at or near the fair market value of the shares. A stock
bonus, on the other hand, is a grant of our shares at no cost to the
recipient in consideration for past services rendered.
Under certain conditions the board may grant an incentive stock option to a
person who owns or is deemed to own stock possessing more than 10% of our total
combined voting power or the total combined voting power of an affiliate of
ours. The exercise price of an incentive stock option in such cases must be at
least 110% of the fair market value of the stock on the grant date and the
option term must be five years or less.
Limits on Option Grants. There are limits on the number of shares that the
board may grant under an option.
. Section 162(m) of the Internal Revenue Code, among other things, denies
a deduction to publicly held corporations for compensation paid to the
chief executive officer and the four highest compensated officers in a
taxable year to the extent that the compensation for each officer
exceeds $1,000,000. When we become subject to Section 162(m), in order
to prevent options granted under the incentive plan from being included
in compensation, the board may not grant options under the incentive
plan to an employee covering an aggregate of more than 2,000,000 shares
in any calendar year.
. In addition, an employee may not receive incentive stock options that
exceed the $100,000 per year limitation set forth in Section 422(d) of
the Internal Revenue Code. In calculating the $100,000 per year
limitation, we determine the aggregate number of shares under all
incentive stock options granted to that employee that will become
exercisable for the first time during a calendar year. For this purpose,
we include incentive stock options granted under the incentive plan as
well as under any other stock plans that our affiliates or we maintain.
We then determine the aggregate fair market value of the stock as of the
grant date of the option. Taking the options into account in the order
in which they were granted, we treat only the options covering the first
$100,000 worth of stock as incentive stock options. We treat any options
covering stock in excess of $100,000 as nonstatutory stock options.
Option Terms. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date. The exercise price of nonstatutory
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stock options may be 85% or more of fair market value. If the value of our
shares declines thereafter, the board may offer optionholders the opportunity
to replace their outstanding higher-priced options with new lower-priced
options. To the extent required by Section 162(m) of the Internal Revenue Code,
the old repriced option is deemed to be canceled and a new option granted, but
both options will be counted against the Section 162(m) limit discussed above.
The maximum option term is 10 years. Subject to this limitation, the board
may provide for exercise periods of any length in individual option grants.
However, generally an option terminates three months after the optionholder's
service to our affiliates and to us terminates. If this termination is due to
the optionholder's disability, the exercise period generally is extended to 12
months. If this termination is due to the optionholder's death or if the
optionholder dies within three months after his or her service terminates, the
exercise period generally is extended to 18 months following the optionholder's
death.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate a
beneficiary to exercise either type of option following the optionholder's
death. If the optionholder does not designate a beneficiary, the optionholder's
option rights will pass by his or her will or by the laws of descent and
distribution.
Terms of Other Stock Awards. The board determines the purchase price of
other stock awards. However, the board may award stock bonuses in consideration
of past services without a purchase payment. Shares that we sell or award under
the incentive plan may, but need not be, restricted and subject to a repurchase
option in our favor in accordance with a vesting schedule that the board
determines. The board, however, may accelerate the vesting of the restricted
stock.
Other Provisions. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, and stock
split, may change the class and number of shares subject to the incentive plan
and to outstanding awards. In that event, the board will appropriately adjust
the incentive plan as to the class and the maximum number of shares subject to
the incentive plan, to the cap on the number of shares available for incentive
stock options, and to the Section 162(m) limit. It also will adjust outstanding
awards as to the class, number of shares and price per share subject to the
awards.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately prior to this event. However, we treat outstanding stock awards
differently in the following situations:
. a sale of substantially all of our assets;
. a merger or consolidation in which we are not the surviving corporation
(other than a merger or consolidation in which stockholders immediately
before the merger or consolidation have, immediately after the merger or
consolidation, greater stock voting power);
. a reverse merger in which we are the surviving corporation but the
shares of our common stock outstanding immediately preceding the merger
are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise (other than a reverse merger
in which stockholders immediately before the merger have, immediately
after the merger, greater stock voting power); or
. any transaction or series of related transactions in which in excess of
50% of our voting power is transferred.
In these situations, the surviving entity will either assume or replace all
outstanding awards under the incentive plan. If it declines to do so, then
generally the vesting and exercisability of the awards will accelerate.
In addition, if a participant's service either is involuntarily terminated
without cause or is voluntarily terminated for good reason within 12 months
after one of the listed transactions, then a portion of vesting of an award
(and, if applicable, the exercisability of the award) will accelerate.
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Stock Awards Granted. As of January 31, 2000, options to purchase 2,681,540
shares at a weighted average exercise price of $1.19 per share were
outstanding. As of January 31, 2000, we have issued 375,000 shares pursuant to
restricted stock purchase awards under the incentive plan.
Plan Termination. The incentive plan will terminate in 2010 unless the board
terminates it sooner.
2000 EMPLOYEE STOCK PURCHASE PLAN
On February 15, 2000, the board adopted, subject to stockholder approval,
the 2000 Employee Stock Purchase Plan, authorizing the issuance of 600,000
shares of common stock pursuant to purchase rights granted to our employees or
to employees of any affiliate of ours. The Purchase Plan is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Code. As of the date hereof, no shares of common stock had been purchased under
the Purchase Plan. The share reserve for the plan is scheduled to increase each
January 1 during the term of the Purchase Plan by 3% of the lesser of the total
number of shares of our common stock outstanding on:
. such January 1, or
. the effective date of this offering.
The Purchase Plan is administered by the Board, but such administration may
be delegated to the compensation committee. The Purchase Plan provides a means
by which employees may purchase our common stock through payroll deductions.
The Purchase Plan is implemented by offerings of rights to eligible employees.
Generally, all regular employees, including executive officers, who work at
least 20 hours per week and are customarily employed by us or by an affiliate
of ours for at least five months per calendar year may participate in the
Purchase Plan and may authorize payroll deductions of up to 15% of their
earnings for the purchase of stock under the Purchase Plan. Under the plan, we
may specify offerings with a duration of not more than 27 months, and may
specify shorter purchase periods within each offering. The first offering will
begin on the effective date of this offering and be approximately 26 months in
duration with purchases occurring every six months. Unless otherwise determined
by the Board, common stock is purchased for accounts of employees participating
in the Purchase Plan at a price per share equal to the lower of:
. 85% of the fair market value of a share of our common stock on the date
of commencement of participation in this offering; or
. 85% of the fair market value of a share of our common stock on the date
of purchase.
Eligible employees may be granted rights only if the rights, together with
any other rights granted under employee stock purchase plans, do not permit
such employees' rights to purchase stock to accrue at a rate which exceeds
$25,000 of the fair market value of such stock for each calendar year in which
such rights are outstanding. No employee is eligible for the grant of any
rights under the Purchase Plan if immediately after such rights are granted,
such employee has voting power over 5% or more of our outstanding capital stock
(measured by vote or value).
CONTIGO 1999 STOCK OPTION PLAN.
In connection with the Contigo merger, we will assume the outstanding
options issued under the Contigo 1999 Stock Option Plan. As of the date of the
merger agreement, there were 3,416,480 outstanding options under this option
plan, which will become options to purchase approximately 2,400,489 shares of
our common stock. The terms of this plan are discussed below. We do not
anticipate granting any options under this plan if the merger is completed.
Administration. The board administers the option plan. The board has the
authority to construe, interpret and amend the option plan as well as to
determine:
. the grant recipients;
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<PAGE>
. the grant dates;
. the number of shares subject to the award;
. the exercisability and vesting of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Share Reserve. If the recipient of a stock award does not purchase the
shares subject to his or her stock award before the stock award expires or
otherwise terminates, the shares that are not purchased become available again
for issuance under the option plan.
Eligibility. The board may grant nonstatutory stock options to employees,
directors and consultants. A stock option is a contractual right to purchase a
specified number of shares at a specified price (exercise price) for a
specified period of time. A nonstatutory stock option is a stock option that
either does not meet the Internal Revenue Code criteria for qualifying
incentive stock options or is not intended to be an incentive stock option. It
triggers a tax upon exercise. This type of option requires payment of state and
federal income tax and, if applicable, FICA/FUTA on the difference between the
exercise price and the fair market value on the exercise date.
Automatic Grants for Directors. The option plan provides for automatic
grants on January 31 of each year to each director of a fully-vested option to
purchase 20,000 shares of common stock, with an exercise price per share of
fair market value as last determined before the January 31 grant. The automatic
grants will expire 10 years after their grant date. These options are not
subject to repurchase rights.
Limits on Option Grants. There are limits on the number of shares that the
board may grant under an option. Section 162(m) of the Internal Revenue Code,
among other things, denies a deduction to publicly held corporations for
compensation paid to the chief executive officer and the four highest
compensated officers in a taxable year to the extent that the compensation for
each officer exceeds $1,000,000. Subject to Section 162(m), in order to prevent
options granted under the option plan from being included in compensation, the
board may not grant options under the option plan to an employee covering an
aggregate of more than 260,000 shares in any calendar year.
Option Terms. The board may grant nonstatutory stock options with an
exercise price fixed by the board in its sole discretion. The board may provide
for exercise periods of any length in individual option grants, and it may
extend the period of time for which an option remains exercisable following an
optionee's termination of service. Shares that are granted under the option
plan may, but need not be, restricted and subject to repurchase in accordance
with a vesting schedule that the board determines. The board, however, may
accelerate the vesting of the stock.
Other Provisions. Transactions not involving the receipt of consideration,
including a recapitalization, stock dividend, stock split, combination of
shares and exchange of shares may change the class and number of shares subject
to the option plan and to outstanding awards. In that event, the board will
appropriately adjust the option plan as to the class and the maximum number of
shares subject to the option plan, and to the Section 162(m) limit. It also
will adjust outstanding awards as to the class, number of shares and price per
share subject to the awards.
Outstanding stock awards are treated differently in the following
situations:
. a sale of substantially all of the company's assets in liquidation or
dissolution;
. a merger or consolidation in which the company is not the surviving
corporation;
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<PAGE>
. a reverse merger in which the company is the surviving entity but in
which shares of more than 50% of the combined voting power are
transferred to holders different from those who held such shares
immediately before such merger.
In these situations, the surviving entity will either assume or replace all
outstanding awards under the option plan. If it declines to do so, then
generally the vesting and exercisability of the awards will accelerate.
In addition, if a participant's service either is involuntarily terminated
for reasons other than misconduct or is voluntarily terminated for good reason
within 18 months after one of the listed transactions, then any vesting of an
award (and, if applicable, the exercisability of the award) will accelerate.
Plan Termination. The incentive plan will terminate in 2007 unless the board
terminates it sooner.
CONTIGO 1999 SECTION 25102(O) STOCK OPTION/STOCK ISSUANCE PLAN.
In connection with the Contigo acquisition, we will assume the outstanding
options issued under the Contigo 1999 Section 25102(0) Stock Option/Stock
Issuance Plan. As of the date of the merger agreement, there were 359,084
options outstanding under this plan, which will become options to purchase
approximately 250,000 shares of our common stock. The terms of this plan are
discussed below. We do not anticipate granting any stock options or other stock
issuance awards under this plan if the merger is completed.
Administration. The board administers the plan unless it delegates
administration to a committee. The board has the authority to construe,
interpret and amend the plan as well as to determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the award;
. the exercisability and vesting of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Share Reserve. If the recipient of a stock award does not purchase the
shares subject to his or her stock award before the stock award expires or
otherwise terminates, the shares that are not purchased again become available
for issuance under the incentive plan.
Eligibility. The board may grant stock options that qualify under Section
422 of the Internal Revenue Code to employees and to the employees of
affiliates. The board also may grant nonstatutory stock options, stock bonuses
and restricted stock purchase awards to employees, directors and consultants as
well as to the employees, directors and consultants of affiliates.
. An incentive stock option is a stock option that has met the
requirements of Section 422 of the Internal Revenue Code. This type of
option is free from regular tax at both the date of grant and the date
of exercise. However, the difference between the fair market value on
date of exercise and the exercise price is an item of alternative
minimum tax unless there is a disqualifying disposition in the year of
exercise. If two holding period tests are met -- two years between grant
date and sale date and one year between exercise date and sale date--all
profit on the sale of shares acquired by exercising the incentive stock
option is long-term capital gain income. However, if either of the
holding periods is not met, there has been a disqualifying disposition,
and a portion of any profit will be taxed at ordinary income rates.
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<PAGE>
. A nonstatutory stock option is a stock option that either does not meet
the Internal Revenue Code criteria for qualifying incentive stock
options or is not intended to be an incentive stock option. It triggers
a tax upon exercise. This type of option requires payment of state and
federal income tax and, if applicable, FICA/FUTA on the difference
between the exercise price and the fair market value on the exercise
date.
. A restricted stock purchase award is an offer to sell shares at a price
either at or near the fair market value of the shares. A stock bonus, on
the other hand, is a grant of shares at no cost to the recipient in
consideration for past services rendered.
Under certain conditions the board may grant an incentive stock option to a
person who owns or is deemed to own stock possessing more than 10% of the total
combined voting power or the total combined voting power of an affiliate. The
exercise price of an incentive stock option in these cases must be at least
110% of the fair market value of the stock on the grant date, and the option
term must be five years or less.
Limits on Option Grants. There are limits on the number of shares that the
board may grant under an option.
. Section 162(m) of the Internal Revenue Code, among other things, denies
a deduction to publicly held corporations for compensation paid to the
chief executive officer and the four highest compensated officers in a
taxable year to the extent that the compensation for each the officer
exceeds $1,000,000. When subject to Section 162(m), in order to prevent
options granted under the incentive plan from being included in
compensation, the board may not grant options under the incentive plan
to an employee covering an aggregate of more than 240,000 shares in any
calendar year.
. In addition, an employee may not receive incentive stock options that
exceed the $100,000 per year limitation set forth in Section 422(d) of
the Internal Revenue Code. In calculating the $100,000 per year
limitation, the aggregate number of shares under all incentive stock
options granted to that employee that will become exercisable for the
first time during a calendar year is determined. For this purpose,
incentive stock options granted under the incentive plan as well as
under any other stock plans that are maintained by affiliates or the
company are included. The aggregate fair market value of the stock as of
the grant date of the option is then determined. Taking the options into
account in the order in which they were granted, only the options
covering the first $100,000 worth of stock is treated as incentive stock
options. Any options covering stock in excess of $100,000 are treated as
nonstatutory stock options.
Option Terms. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date. The exercise price of nonstatutory stock options may be 85%
or more of fair market value.
The maximum option term is 10 years. Subject to this limitation, the board
may provide for exercise periods of any length in individual option grants.
However, generally an option terminates three months after the optionholder's
service to affiliates and to the company terminates. If this termination is due
to the optionholder's death or disability, the exercise period generally is
extended to 12 months.
The option is exercisable only by the optionee and is not assignable or
transferable other than by will or law of descent and distribution.
Terms of Other Stock Issuance Awards. The board determines the purchase
price of other stock awards. However, the board may award stock bonuses in
consideration of past services without a purchase payment. Shares that are sold
or awarded under the plan may, but need not be, subject to a right of
repurchase and a vesting schedule that the board determines. The board may not
impose a vesting schedule that is more restrictive than 20% per year vesting,
with initial vesting occurring not later than one year after issuance. The
board may accelerate the vesting of the restricted stock.
Other Provisions. Transactions not involving receipt of consideration,
including a recapitalization, stock dividend, stock split, combination of
shares, and exchange of shares may change the class and number of
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<PAGE>
shares subject to the incentive plan and to outstanding awards. In that event,
the board will appropriately adjust the plan as to the class and the maximum
number of shares subject to the incentive plan, to the cap on the number of
shares available for incentive stock options, and to the Section 162(m) limit.
It also will adjust outstanding awards as to the class, number of shares and
price per share subject to the awards.
Outstanding stock awards are treated differently in the following
situations:
. a sale of substantially all of the company's assets in complete
liquidation or dissolution;
. a merger or consolidation in which shares of more than 50% of the
combined voting power are transferred to holders different from those
who held such shares immediately before such transaction.
In these situations, the surviving entity will either assume or replace all
outstanding awards under the plan. If it declines to do so, then generally the
vesting and exercisability of the awards will accelerate.
In addition, if a participant's service either is involuntarily terminated
for reasons other than misconduct or is voluntarily terminated for good reason
within 18 months after one of the listed transactions, then any vesting of an
award (and, if applicable, the exercisability of the award) will accelerate.
Plan Termination. The incentive plan will terminate in 2009 unless the board
terminates it sooner.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stock option grants and stock issuances under our executive compensation
plan to our executive officers and directors are described in this prospectus
under the heading "Management--Compensation of Directors and--Executive
Compensation."
Purchases of Capital Stock
From April 1997 through December 1999, the following executive officers,
directors and holders of more than 5% of our voting securities purchased
securities in the amounts, on an as converted to common stock basis, and as of
the dates shown.
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Common Preferred Preferred Preferred Preferred
Purchaser Stock Stock (1) Stock Stock Stock
- --------- ---------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers
Paul A. Berberian (2)... 30,000 2,970,000 -- 40,000 --
James M. LeJeal......... 20,000 1,980,000 -- -- --
Todd Vernon............. -- 75,000 -- -- --
Byron R. Chrisman (3)... 250,000 -- -- -- 100,000
Carol deB. Whitaker
(4).................... 50,000 -- -- -- 17,000
5% or Greater
Shareholders -- -- -- -- --
Centennial Ventures,
(5).................... -- -- 1,442,307 3,846,154 6,550,000
SOFTBANK Technology
Ventures (6)........... -- -- 480,769 2,884,616 4,658,334
Highland Capital
Partners III Limited
Partners (7)........... -- -- -- 2,884,614 833,333
Intel Corporation....... -- -- -- -- 3,666,667
Pequot Private Equity
Fund II, L.P........... -- -- -- -- 4,666,667
Price per share......... $ 0.10 $ 0.10 $ 0.52 $ 1.04 $ 3.00
Date(s) of purchase..... 4/97, 5/97, 7/99 4/97, 5/97 9/97, 10/97 5/98, 6/98 11/99, 12/99
</TABLE>
- --------
(1) The Series A preferred stock was issued at the closing of the Series B
preferred financing upon the terms of convertible promissory notes issued
on the dates shown.
(2) Includes shares of Series B preferred stock purchased by the Berberian
Family Trust, Ani Berberian and Lori Pelantay.
(3) Includes shares of common stock purchased by BMC Properties, LLC of which
Mr. Chrisman is a managing member. Mr. Chrisman is a former member of our
board of directors.
(4) Includes shares of common stock purchased by Whitco & Company, of which Ms.
Whitaker, one of our directors, is the founder and president.
(5) Includes shares purchased by the following entities: Centennial Fund V,
L.P., Centennial Entrepreneurs Fund V, L.P., Centennial Entrepreneurs Fund
VI, L.P., Centennial Fund VI, L.P., and Centennial Holdings I, LLC. Mr.
Parsons, one of our directors, is a general partner of certain Centennial
Ventures entities.
(6) Includes shares purchased by the following entities affiliated with
SOFTBANK Technology Ventures: SOFTBANK Technology Ventures IV, L.P.,
SOFTBANK Technology Ventures V, L.P., SOFTBANK Technology Ventures Advisors
Fund V, L.P., SOFTBANK Technology Ventures Entrepreneurs' Fund V, L.P. and
SOFTBANK Technology Advisors Fund, L.P. Mr. Feld, one of our directors, is
a managing director of SOFTBANK Technology Ventures.
(7) Includes shares purchased by Highland Entrepreneurs' Fund Limited Partners.
We have entered into an amended and restated stockholders' agreement with
each of the purchasers of preferred stock shown above. This agreement provides
that these and other stockholders will have registration rights with respect to
their shares of common stock issuable upon conversion of their preferred stock
upon the consummation of this offering. Please see "Description of Capital
Stock--Registration Rights" for a more detailed discussion of these rights.
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<PAGE>
BRIDGE LOANS
On March 31, 1998, we borrowed $250,000 from certain Centennial Ventures
entities and $250,000 from affiliates of SOFTBANK Technology Ventures under the
terms of convertible promissory notes. The promissory notes accrued interest at
a rate of 10% per annum and converted into an aggregate of 487,355 shares of
our Series C Preferred Stock on May 27, 1998. In connection with our issuance
of the convertible promissory notes, we issued warrants to purchase an
aggregate of 12,018 shares of our Series C preferred to these entities. These
warrants have an exercise price of $1.04 and are currently outstanding. Mr.
Parsons, one of our directors, is a general partner of certain Centennial
Ventures entities and Mr. Feld, another of our directors, is a managing
director of SOFTBANK Technology Ventures.
LEASES
In March 1997, we entered into a contract with BMC Properties, LLC for the
lease of 4,295 square feet of office space at 5777 Central Avenue, Boulder,
Colorado 80301. This lease commenced in June 1997 and expires in May 2002. In
1997, 1998 and 1999, we paid an aggregate of $54,908, $103,635 and $118,273 to
BMC Properties, LLC and expect to pay an aggregate of $111,108 in 2000,
$111,108 in 2001 and $46,295 in 2002. Byron Chrisman, a former director of
ours, is a managing member of BMC Properties LLC.
In June 1999, we entered into a contract with BLC Properties, LLC for the
lease of our principal executive offices at 1157 Century Drive, Louisville,
Colorado 80027. This lease commenced in October 1999 and has a term of 10
years. Under this lease, we have agreed to pay rent of $50,110 per month
subject to an annual adjustment for inflation based on the consumer price
index. We also pay the operating expenses related to this building which vary
on a monthly basis. Messrs. Berberian, Chrisman, and LeJeal are members of BLC
Properties, LLC.
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been
obtained from unaffiliated third parties. Any future transactions between us
and any of our directors, officers or principal stockholders will be on terms
no less favorable to us than could be obtained from unaffiliated third parties
and will be approved by a majority of the independent and disinterested members
of the board of directors.
For information concerning indemnification of directors and officers see
"Description of Securities--Limitation of Liability and Indemnification
Matters."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of February 29, 2000 for:
. each person, or group of affiliated persons, known to us to own
beneficially more than five percent of the common stock;
. each of our directors and named executive officers; and
. all of our directors and executive officers as a group.
The information has been adjusted to reflect the sale of the common stock in
this offering, the automatic conversion of all outstanding shares of preferred
stock into common stock upon this offering.
The information assumes no exercise of the underwriter's over-allotment
option and does not include the aggregate of 9,000,000 shares of our common
stock that will be issued in exchange for all outstanding shares of Contigo
capital stock or reserved for issuance upon the exercise of options we are
assuming in connection with the proposed Contigo acquistion. Additionally, the
information does not include 686,813 shares of preferred stock that were issued
in March 2000.
In accordance with the rules of the Securities and Exchange Commission, the
following table gives effect to the shares of common stock that could be issued
upon the exercise of outstanding options within 60 days of February 29, 2000.
In computing the number of shares beneficially owned by a person, shares of
common stock that are subject to our right of repurchase at the original
exercise price paid per share, or such shares that are subject to exercisable
but unvested options, are not included. Unvested options are immediately
exercisable upon grant, provided that upon the optionee's cessation of service,
any unvested shares are subject to repurchase by us at the original exercise
price per share. Unless otherwise noted in the footnotes to the table and
subject to community property laws where applicable, the following individuals
have sole voting and investment control with respect to the shares beneficially
owned by them.
The address of each individual listed in the table is Evoke Incorporated
1157 Century Drive, Louisville, Colorado 80027. As of February 29, 2000, we had
94 stockholders of record and 51,640,219 shares of our common stock and
preferred stock convertible into common stock outstanding. An asterisk
indicates ownership of less than one percent.
<TABLE>
<CAPTION>
Percent of Shares
Beneficially Owned
Number of Shares ------------------------------
Beneficial Owners Beneficially Owned Before Offering After Offering
- ----------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Paul A. Berberian (1)....... 3,040,000 5.9 4.9
James M. LeJeal (2)......... 2,000,000 3.9 3.2
Todd Vernon (3)............. 288,542 * *
Centennial Fund V, L.P.
(4)........................ 6,468,970 12.5 10.5
Centennial Fund VI, L.P.
(5)........................ 4,742,423 9.2 7.7
SOFTBANK Technology Ventures
IV L.P. (6)................ 8,029,728 15.6 13.0
Highland Capital Partners
III Limited Partners (7)... 3,717,947 7.2 6.0
Intel Corporation (8)....... 3,666,667 7.1 5.9
Pequot Private Equity Fund
II, L.P. (9)............... 4,666,667 9.1 7.6
Donald Hutchison (10)....... 155,556 * *
Bradley A. Feld (11)........ 8,063,061 15.6 13.1
Andre Meyer................. 0 * *
Donald H. Parsons, Jr.
(12)....................... 11,876,692 23.0 19.3
Carol deB. Whitaker (13).... 130,333 * *
All executive officer and
directors
as a group (8 persons)
(14)....................... 25,554,184 49.5 41.2
</TABLE>
- --------
(1) Includes 28,000 shares held by the Berberian Family Trust, 8,000 shares
held by Ani Berberian and 8,000 shares held by Lori Pelantay. Excludes
200,000 shares that are subject to options that are unvested but
exercisable within 60 days of February 29, 2000.
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<PAGE>
(2) Excludes 200,000 shares that are subject to options that are unvested but
exercisable within 60 days of February 29, 2000.
(3) Includes 213,542 shares subject to options exercisable within 60 days of
February 29, 2000. Excludes 121,458 shares that are subject to options
that are unvested but exercisable within 60 days of February 29, 2000.
(4) Includes 5,829 shares subject to a warrant held by Centennial Fund V,
L.P.. Excludes 158,653 shares and 180 shares subject to a warrant held by
Centennial Entrepreneurs Fund V, L.P., 4,742,423 shares held by Centennial
Fund VI, L.P., 124,801 shares held by Centennial Entrepreneurs Fund VI,
L.P., 99,841 shares held by Centennial Holdings I, LLC and 249,602 shares
held by Centennial Strategic Partners VI, L.P. Centennial Fund V has no
voting or investment power over the excluded shares and disclaims
beneficial ownership of them. Centennial Entrepreneurs Fund V, LP
disclaims beneficial ownership of the shares held by Centennial Fund V.
Centennial Holdings V, LLC is the sole general partner of Centennial Fund
V and Centennial Entrepreneurs Fund V, and, accordingly, may be deemed to
be the indirect beneficial owner of the shares of common stock they hold
by virtue of its authority to make decisions regarding the voting and
disposition of such shares. Mr. Parsons, one of our directors, is one of
five general partners of Centennial Holdings V, has no voting or
investment over any of these shares and disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein. The
address of Centennial Fund V is 1428 Fifteenth Street, Denver, Colorado
80202.
(5) Excludes 6,463,141 shares and 5,829 shares subject to a warrant held by
Centennial Fund V, L.P. and 158,653 shares and 180 shares subject to a
warrant held by Centennial Entrepreneurs Fund V, L.P., 124,801 shares held
by Centennial Entrepreneurs Fund VI, L.P., 99,841 shares held by
Centennial Holdings I, LLC and 249,602 shares held by Centennial Strategic
Partners VI, L.P. Centennial Fund VI has no voting or investment power
over the excluded shares and disclaims beneficial ownership of them.
Centennial Entrepreneurs Fund VI, LP disclaims beneficial ownership of the
shares held by Centennial Fund VI. Centennial Holdings VI, LLC is the sole
general partner of Centennial Fund VI and Centennial Entrepreneurs Fund
VI, and, accordingly, may be deemed to be the indirect beneficial owner of
the shares of common stock they hold by virtue of its authority to make
decisions regarding the voting and disposition of such shares. Mr.
Parsons, one of our directors, is one of five general partners of
Centennial Holdings VI, has no voting or investment over any of these
shares and disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein. The address of Centennial Fund
VI is 1428 Fifteenth Street, Denver, Colorado 80202.
(6) Consists of 5,583,457 shares and 5,889 shares subject to a warrant held by
SOFTBANK Technology Ventures IV, L.P., 2,228,811 shares held by SOFTBANK
Technology Ventures V, L.P., 60,294 shares held by SOFTBANK Technology
Ventures Advisors Fund V, L.P., 40,602 shares held by SOFTBANK Technology
Ventures Entrepreneurs Fund V, L.P. and 111,095 shares and 120 shares
subject to a warrant held by SOFTBANK Technology Advisors Fund L.P. The
address of SOFTBANK Technology Ventures IV L.P. is 200 W. Evelyn Avenue,
Suite 200, Mountain View, California 94043.
(7) Includes 148,717 shares held by Highland Entrepreneurs' Fund Limited
Partners. Highland Management Partners III, L.P. is the general partner of
Highland Capital Partners III Limited Partnership. Messrs. Daniel Nova,
Robert Higgins, Paul Maeder and Wycliffe Grousbeck are the general
partners of Highland Management Partners III, L.P. and may be considered
to share the beneficial ownership of the shares owned by Highland Capital
Partners III Limited Partnership. Messrs. Nova, Higgins, Maeder and
Grousbeck disclaim beneficial ownership of these shares except to the
extent of their pecuniary interest therein if any. The address of Highland
Capital Partners III Limited Partners is Two International Place, Boston,
Massachusetts 02110.
(8) The address of Intel Corporation is 2200 Mission College Boulevard, Santa
Clara, California 95052.
(9) Pequot Capital Management, Inc. may be considered a beneficial owner of
these shares as a result of its power to control Pequot Private Equity
Fund II, L.P. The address of Pequot Private Equity Fund II, L.P. is 500
Nyala Farm Road, Westport, Connecticut 06880.
(10) Includes 5,556 shares subject to options exercisable within 60 days of
February 29, 2000. Excludes 34,444 shares that are subject to options that
are unvested but exercisable within 60 days of February 29, 2000.
(11) Includes 5,583,457 shares and 5,889 shares subject to a warrant held by
SOFTBANK Technology Ventures IV, L.P., 2,228,811 shares held by SOFTBANK
Technology Ventures V, L.P., 60,294 shares held by SOFTBANK Technology
Ventures Advisors Fund V, L.P., 40,602 shares held by SOFTBANK Technology
Ventures Entrepreneurs Fund V, L.P. and 111,095 shares and 120 shares
subject to a warrant held by SOFTBANK Technology Advisors Fund L.P. Mr.
Feld, one of our directors, is a managing director of SOFTBANK Technology
Ventures and disclaims beneficial ownership of the shares held by these
entities except to the extent of his pecuniary interest therein. Also
includes 33,333 shares subject to options exercisable within 60 days of
February 29, 2000. Excludes 15,555 shares that are subject to options that
are unvested but exercisable within 60 days of February 29, 2000.
(12) Includes 6,463,141 shares and 5,829 shares subject to a warrant held by
Centennial Fund V, L.P., 158,653 shares and 180 shares subject to a
warrant held by Centennial Entrepreneurs Fund V, L.P., 4,742,423 shares
held by Centennial Fund VI, L.P., 124,801 shares held by Centennial
Entrepreneurs Fund VI, L.P. and 99,841 shares held by Centennial Holdings
I, LLC and 249,602 shares held by Centennial Strategic Partners VI, L.P.
Mr. Parsons, one of our directors, is a general partner or managing
principal of certain Centennial Ventures entities, but disclaims
beneficial ownership of the shares held by these entities except to the
extent of his indirect pecuniary interest therein. Also includes 33,333
shares subject to options exercisable within 60 days of February 29, 2000.
Excludes 15,555 shares that are subject to options that are unvested but
exercisable within 60 days of February 29, 2000. Mr. Parsons holds such
options for the benefit of certain Centennial Ventures entities.
(13) Includes 17,000 shares held by Whitco & Company and 63,333 shares subject
to options exercisable within 60 days of February 29, 2000. Excludes
26,667 shares that are subject to options that are unvested but
exercisable within 60 days of February 29, 2000.
(14) Includes shares described in the notes above, as applicable.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part. Upon the effectiveness of this offering, our authorized
capital stock will consist of 200 million shares of common stock, par value
$.001 per share, and 10 million shares of preferred stock, par value $.01 per
share.
COMMON STOCK
As of February 29, 2000, there are 51,640,219 shares of common stock
outstanding assuming the conversion of all outstanding shares of preferred
stock and held of record by 94 stockholders. Upon the closing of this offering,
there will be 61,640,219 shares of common stock outstanding assuming no
exercise of the underwriters' over-allotment option.
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors, which means
that the holders of a majority of the outstanding common stock voting for the
election of directors can elect all directors then being elected. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any then-
outstanding shares of preferred stock, holders of common stock are entitled to
receive ratably dividends as may be declared by our board of directors. In the
event we liquidate, dissolve or wind up our affairs, holders of common stock
are entitled to share ratably in all of our assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of 10,000,000 shares of preferred stock in one or
more series. The board of directors may fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series, and the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption price or prices and
liquidation preferences. The issuance of preferred stock could:
. adversely affect the voting power of holders of common stock;
. adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
. delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
WARRANTS
As of February 29, 2000, we had outstanding warrants to purchase an
aggregate of 123,343 shares of common stock at weighted average exercise price
of $1.37 per share to certain principal stockholders and certain other
investors. Warrants to purchase 12,018 shares of our common stock expire upon
the closing of this offering, warrants to purchase 86,538 shares expire on the
date five years from the closing of this offering, warrants to purchase 5,555
shares expire on January 15, 2001, warrants to purchase 15,026 shares expire on
September 29, 2004 and the remaining warrants to purchase 4,206 shares expire
on May 20, 2008. 117,788 shares of common stock issuable upon exercise of the
warrants carry registration rights, as discussed in the next section.
On March 29, 2000, we issued Microsoft Corporation a warrant to purchase
858,416 shares of our preferred stock of an exercise price equal to the lesser
of $10.00 per share or the initial public offering price of the shares offered
hereby. This warrant is immediately exercisable and has a term of three years.
The warrant
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contains anti-dilution provisions providing for adjustments of the exercise
price and the number of shares of common stock underlying the warrant upon the
occurrence of any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction. The shares issuable upon
exercise of this warrant carry registration rights, as discussed below.
REGISTRATION RIGHTS
After this offering, the holders of at least 33% of 46,995,477 shares of
common stock (including shares issuable upon exercise of the warrants described
above) have the right to demand that we register their shares, subject to
certain limitations, up to four times under the Securities Act of 1933 on Form
S-1 or any similar form, and an unlimited number of times on Form S-3 or any
similar form. In addition, holders of 51,952,689 shares of our common stock are
entitled to piggyback registration rights with respect to any public offering
registration statement we file under the Securities Act following this offering
for our own account or for the account of holders exercising demand
registration rights, with certain limitations. We are generally required to
bear all of the expenses of these registrations, except underwriting discounts
and commissions. Registration of any of the shares of common stock entitled to
these registration rights would result in such shares becoming freely tradable
without restriction under the Securities Act. Upon completion of this offering,
the registration rights with respect to the shares held by any stockholder will
terminate if the stockholder holds less than 5% of the then-outstanding shares
of common stock and the stockholder's shares are entitled to be resold without
restriction under Rule 144 promulgated under the Securities Act.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR
CERTIFICATE OF INCORPORATION AND BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
that status with the approval of the corporation's board of directors or unless
the business combination is approved in a prescribed manner. "Business
combinations" include mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. With certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
Classified Board of Directors. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering, and the directors in class III will hold office until the third
annual meeting of stockholders following this offering. After each such
election, the directors in that class will serve for terms of three years. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us and may maintain the incumbency of the board of directors, since such
classification generally increases the difficulty of replacing a majority of
the directors.
Board of Director Vacancies. The board of directors is authorized to fill
vacant directorships and to increase the size of the board of directors. This
may deter a stockholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the resulting vacancies
with its own nominees.
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Stockholder Action; Special Meetings of Stockholders. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval, subject to limitations imposed by the Nasdaq National Market. We may
use these additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, acquisitions and employee
benefit plans. The existence of authorized but unissued and unreserved common
stock and preferred stock could render more difficult or discourage an attempt
to obtain control of us by means of a proxy contest, tender offer, merger or
otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and agents to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation provides that, to the fullest extent permitted by Delaware law,
our directors will not be liable for monetary damages for breach of the
directors' fiduciary duty to us and our stockholders. This provision of the
certificate of incorporation does not eliminate the duty of care. In
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief are available under Delaware law. This provision
also does not affect a director's responsibilities under any other laws, such
as the federal securities laws.
Each director will continue to be subject to liability for:
. breach of the director's duty of loyalty to Evoke and its
stockholders;
. acts or omissions not in good faith or involving intentional
misconduct;
. knowing violations of law;
. any transaction from which the director derived an improper personal
benefit;
. improper transactions between the director and Evoke; and
. improper distributions to stockholders and improper loans to
directors and officers.
We intend to enter into indemnity agreements with each of our directors and
executive officers under which each director and executive officer will be
indemnified against expenses and losses incurred for claims brought against
them by reason of their being a director or executive officer of Evoke. Our
board of directors has authorized the officers of Evoke to investigate and
obtain directors' and officers' liability insurance.
There is no pending litigation or proceeding involving a director or officer
of Evoke as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and control
persons of Evoke pursuant to the foregoing provisions, or otherwise, Evoke has
been advised that in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable.
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LISTING
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol "EVOK."
TRANSFER AGENT AND REGISTRAR
We have appointed Norwest Shareowner Services to serve as the transfer agent
and registrar for the common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of 61,640,219 shares
of common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of options or warrants. Of the outstanding
shares, the 10,000,000 shares being sold in this offering will be freely
tradable, except that any shares held by our "affiliates" may only be sold in
compliance with the limitations described below. The remaining 51,640,219
shares of common stock will be "restricted securities" that may be sold in the
public market only if they are registered under the Securities Act or if they
qualify for an exemption from registration under Rule 144, 144(k) or 701
promulgated under the Securities Act.
Subject to the lock-up agreements described below and the provisions of
Rules 144, 144(k) and 701, additional shares will become available for sale in
the public market as follows:
. no shares may be sold prior to 180 days from the date of this prospectus;
. 34,019,646 shares will have been held long enough to be sold under Rule 144
or Rule 701 beginning 181 days after the date of this prospectus; and
. the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
In general, under Rule 144, a person (or persons whose shares are required
to be aggregated), including an affiliate, who has beneficially owned shares
for at least one year is entitled to sell, within any three-month period
commencing 90 days after the date of this prospectus, a number of shares that
does not exceed the greater of:
. 1% of the then-outstanding shares of common stock (approximately
6,200,000 shares immediately after this offering) or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed.
In addition, a person who is not considered an affiliate of ours 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 such shares
under Rule 144(k) without regard to the volume limitations described above.
In addition, following the closing of this offering, we intend to file a
registration statement to register for resale the 17,500,000 shares of common
stock available for issuance under our stock plans. Accordingly, shares issued
under those plans will become eligible for resale in the public market from
time to time, subject to the lock-up agreements described below and, in the
case of our affiliates, the volume limitations of Rule 144 described above. As
of the date of this prospectus, options and purchase rights to acquire a total
of shares of common stock are outstanding under our stock plans, of
which 790,725 are vested and currently exercisable.
Our directors, officers and substantially all of our stockholders have
agreed that they will not sell any shares of common stock without the prior
written consent of Salomon Smith Barney for a period of 180 days from the date
of this prospectus. Please refer to our discussion in "Underwriting" for
further discussion of these agreements.
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In connection with the Contigo acquisition Contigo has agreed that its
stockholders holding at least 80% of the shares of our common stock to be
issued in the merger as well its optionees holding at least 80% of the shares
of our common stock to be issued upon exercise of Contigo options will enter
into lock-up agreements with Salomon Smith Barney similar to those entered into
by our existing directors, executive officers and security holders. As a
result, upon completion of the acquisition, at least an aggregate of 7,200,000
shares of our common stock to be issued in exchange for the outstanding shares
of Contigo capital stock and issuable upon exercise of Contigo options that we
will assume in connection with the merger will be eligible for public sale in
the public market beginning 180 days after the closing of this offering,
subject to the volume and other restrictions of Rule 144. Up to 1,800,000
shares of our common stock to be issued in the exchange for outstanding shares
of Contigo capital stock and issuable upon exercised of Contigo options we
assume in connection with the acquisition may be eligible for public sale in
the public market beginning 180 days after the date of this prospectus, subject
to volume and other restriction of Rule 144.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, other
than the grant of options and purchase rights under our stock plans and the
issuance of common stock pursuant thereto.
Following this offering, certain of our stockholders will have rights to
have their shares of common stock registered for resale under the Securities
Act. Please refer to our discussion in "Description of Securities--Registration
Rights" for further discussion of these registration rights.
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UNITED STATES TAX CONSEQUENCES TO
NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of our
common stock applicable to Non-United States Holders of this common stock. For
the purpose of this discussion, a Non-United States Holder is any holder that
for U.S. federal income tax purposes is:
. an individual that is a non-resident alien;
. a corporation or other entity taxable as a corporation created or
organized under non-U.S. law; or
. an estate or trust that is not taxable in the United States on its
worldwide income.
If a partnership holds our common stock, the tax treatment of each partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner of a partnership holding our common stock,
you should consult your tax advisor.
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant in light of your particular facts and
circumstances, such as being a U.S. expatriate, and does not address any tax
consequences arising under the laws of any state, local or non-U.S. taxing
jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and
all of which are subject to change, possibly with retroactive effect. We have
not and will not seek a ruling from the Internal Revenue Service with respect
to the U.S. federal income and estate tax consequences described below, and as
a result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions set forth in this discussion.
DIVIDENDS
Any dividends we pay to a Non-United States Holder generally will be subject
to U.S. withholding tax either at a rate of 30% of the gross amount of the
dividends or such lower rate as may be specified by an applicable tax treaty.
Dividends received by a Non-United States Holder that are effectively connected
with a U.S. trade or business conducted by the Non-United States Holder (or, if
a tax treaty applies, are attributable to a U.S. permanent establishment of the
Non-United States Holder) are exempt from such withholding tax, provided that
the Non-United States Holder furnishes to us or our paying agent a duly
completed Form 4224 or W-8ECI (or substitute form). However, those effectively
connected dividends, net of certain deductions and credits, are taxed at the
same graduated rates applicable to U.S. persons.
In addition to the graduated tax described above, dividends received by a
corporate Non-United States Holder that are effectively connected with a U.S.
trade or business of such Non-United States Holder may also be subject to a
branch profits tax at a rate of 30% or such lower rate as may be specified by
an applicable tax treaty.
A Non-United States Holder of our common stock that is eligible for a
reduced rate of withholding tax pursuant to a tax treaty must furnish to us or
our paying agent a duly completed Form 1001 or Form W-8BEN (or substitute form)
certifying to its qualification for such rate.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-United States Holder generally will not be subject to U.S. federal
income tax on any gain realized upon the sale or other disposition of our
common stock unless:
. the gain is effectively connected with a U.S. trade or business of the
Non-United States Holder or, if a tax treaty applies, is attributable to
a U.S. permanent establishment maintained by the Non-United States
Holder (which gain, in the case of a corporate Non-United States Holder,
must also be taken into account for branch profits tax purposes);
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. the Non-United States Holder is an individual who holds his or her
common stock as a capital asset (generally, an asset held for investment
purposes) and is present in the United States for a period or periods
aggregating 183 days or more during the calendar year in which the sale
or disposition occurs and certain other conditions are met; or
. we are or have been a "United States real property holding corporation"
for United States federal income tax purposes at any time within the
shorter of the five-year period preceding the disposition or the
holder's holding period for its common stock. We believe that we are not
currently and will not become a "United States real property holding
corporation" for United States federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or other agreements, the Internal Revenue Service may
make its reports available to tax authorities in the recipient's country of
residence.
Dividends paid to a Non-United States Holder at an address within the U.S.
may be subject to backup withholding at a rate of 31% if the Non-United States
Holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and other information to the payer.
Backup withholding will generally not apply to dividends paid to Non-United
States Holders at an address outside the U.S. on or prior to December 31, 2000,
unless the payer has knowledge that the payee is a United States person. Under
new Treasury Regulations regarding withholding and information reporting,
payment of dividends to Non-United States Holders at an address outside the
U.S. after December 31, 2000 may be subject to backup withholding at a rate of
31% unless such Non-United States Holder satisfies various certification
requirements.
Under current Treasury Regulations, the payment of proceeds from the
disposition of common stock to or through the U.S. office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the holder certifies its non-U.S. status under penalties of perjury or
otherwise establishes an exemption. Generally, the payment of proceeds from the
disposition by a Non-United States Holder of common stock outside the U.S. to
or through a foreign office of a broker will not be subject to backup
withholding but will be subject to information reporting requirements if the
broker is:
. a U.S. person;
. a "controlled foreign corporation" for U.S. federal income tax purposes;
. a foreign person 50% or more of whose gross income for certain periods
is from the conduct of a U.S. trade or business; or
. after December 31, 2000, a foreign partnership with certain connections
to the United States,
unless the broker has documentary evidence in its files of the holder's non-
U.S. status and certain other conditions are met, or the holder otherwise
establishes an exemption. Neither backup withholding nor information reporting
generally will apply to a payment of proceeds from the disposition of common
stock by or through a foreign office of a foreign broker not subject to the
preceding sentence.
In general, the final Treasury Regulations, described above, do not
significantly alter the substantive withholding and information reporting
requirements but would alter the procedures for claiming benefits of an income
tax treaty and change the certifications procedures relating to the receipt by
intermediaries of payments on behalf of the beneficial owner of shares of
common stock. Non-United States Holders should consult their tax advisors
regarding the effect, if any, of those final Treasury Regulations on an
investment in common stock. Those final Treasury Regulations are generally
effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the regular tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the Internal Revenue Service.
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ESTATE TAX
An individual Non-United States Holder who owns common stock at the time of
his or her death or has made certain lifetime transfer of an interest in common
stock will be required to include the value of that common stock in such
holder's gross estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
The foregoing discussion is a summary of the principal federal income and
estate tax consequences of the ownership, sale or other disposition of common
stock by Non-United States Holders. This discussion is not exhaustive, and does
not address the tax consequences of ownership, sale or other disposition for
all types of Non-United States Holders. Accordingly, investors are urged to
consult their own tax advisors with respect to the income tax consequences of
the ownership and disposition of common stock, including the application and
effect of the laws of any state, local, foreign or other taxing jurisdiction.
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UNDERWRITING
GENERAL
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus, each underwriter named below has severally
agreed to purchase, and we have agreed to sell to each underwriter, the number
of shares set forth opposite the name of that underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ----------
<S> <C>
Salomon Smith Barney Inc......................................
FleetBoston Robertson Stephens Inc............................
Thomas Weisel Partners LLC....................................
CIBC World Markets Corp.......................................
-------
Total.......................................................
-------
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of particular legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares, other than those covered
by their over-allotment option described below, if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., FleetBoston Robertson
Stephens Inc., Thomas Weisel Partners LLC and CIBC World Markets Corp. are
acting as representatives, propose to offer some of the shares directly to the
public at the public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per share
on sales to certain other dealers. If all the shares are not sold at the
initial offering price, the underwriters may change the public offering price
and other selling terms. The representatives have advised us that the
underwriters do not intend to confirm any sales to any accounts over which they
exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to 1,500,000 additional shares of
our common stock at the public offering price less the underwriting discount.
The underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent this
option is exercised, each underwriter will be obligated, subject to some
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
At our request, the underwriters will reserve up to 700,000 shares of our
common stock to be sold, at the initial public offering price, to our
directors, officers and employees, as well as to some of our customers and
suppliers and individuals associated or affiliated with our directors,
customers and suppliers. This directed share program will be administered by
Salomon Smith Barney Inc. The number of shares of common stock available for
sale to the general public will be reduced to the extent these individuals
purchase any reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act of 1933 in connection with sales of the directed
shares.
We, our officers and directors and holders of most of our stock have agreed
that, for a period of 180 days from the date of this prospectus, we will not,
without the prior written consent of Salomon Smith Barney Inc., dispose of or
hedge, any shares of our common stock or any securities convertible into, or
exercisable or exchangeable for, our common stock. Salomon Smith Barney Inc.,
in its sole discretion, may release any of the securities subject to these
lock-up agreements at any time without notice.
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Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the shares was determined
by negotiation among us and the representatives. Among the factors considered
in determining the initial public offering price were:
. our record of operation;
. our current financial condition;
. our future prospects;
. our markets;
. the economic conditions in and future prospects for the industry in which
we compete;
. our management; and
. currently prevailing general conditions in the equity securities markets,
including current market valuations of publicly traded companies
considered comparable to us.
The prices at which the shares will sell in the public market after this
offering may, however, be lower than the price at which they are sold by the
underwriters. Additionally, an active trading market in our common stock may
not develop and continue after this offering.
We have applied to have our common stock included for quotation on the
Nasdaq National Market under the symbol "EVOK".
The following table shows the underwriting discounts and commissions that we
will pay to the underwriters in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock to cover overallotments.
<TABLE>
<CAPTION>
PAID BY EVOKE
-------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share............................................. $ $
Total................................................. $ $
</TABLE>
In connection with this offering Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include over-allotment, syndicate covering transactions
and stabilizing transactions. Over-allotment involves syndicate sales of common
stock in excess of the number of shares to be purchased by the underwriters in
this offering, which creates a syndicate short position. 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.
Stabilizing transactions consist of certain bids for or purchases of common
stock made to prevent or retard a decline in the market price of the shares
while this offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be higher
than it would otherwise be in the open market in the absence of such
transactions. Salomon Smith Barney Inc. may effect these transactions on the
Nasdaq National Market or in the over-the-counter market, or otherwise and, if
commenced may discontinue them at any time.
In February 2000, Salomon Smith Barney Inc. became a user of our Evoke
Webconferencing service.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead
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or co-manager on 120 filed public offerings of equity securities, of which 88
have been completed, and has acted as a syndicate member in an additional 57
public offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
We estimate that our total expenses for this offering will be $1,200,000.
The representatives or their respective affiliates may in the future perform
various investment banking and advisory services for us from time to time, for
which they will receive customary fees. The representatives may, from time to
time, engage in transactions with and perform services for us in the ordinary
course of business.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Certain legal matters in connection with
the offering will be passed upon for the underwriters by Cravath, Swaine &
Moore, New York, New York.
EXPERTS
Our financial statements as of December 31, 1998 and 1999 and for the period
from inception (April 17, 1997) to December 31, 1997 and the years ended
December 31, 1998 and 1999 and the financial statements of Contigo Software,
Inc. as of December 31, 1998 and 1999 and for each of the years in the three-
year period ended December 31, 1999, have been included in this prospectus and
in the registration statement in reliance upon the reports of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits, schedules and amendments) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus does not contain all of the information in the registration
statement. For further information about us and our common stock, please refer
to the registration statement. For further information regarding statements
contained in this prospectus as to the contents of any contract, agreement or
other document, please refer to the copy of that contract, agreement or
document filed as an exhibit to the registration statement.
You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC. You may also inspect these
reports, proxy statements and other information at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing interim financial information.
76
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Evoke Incorporated
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1998 and 1999........................... F-3
Statements of Operations for the period from inception (April 17, 1997) to
December 31, 1997 and the years ended December 31, 1998 and 1999......... F-4
Statements of Stockholders' Deficit for the period from inception (April
17, 1997) to
December 31, 1997 and the years ended December 31, 1998 and 1999......... F-5
Statements of Cash Flows for the period from inception (April 17, 1997) to
December 31, 1997 and the years ended December 31, 1998 and 1999......... F-6
Notes to Financial Statements............................................. F-7
Unaudited Pro Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31,
1999..................................................................... F-17
Unaudited Pro Forma Condensed Combined Statement of Operations for the
year
ended December 31, 1999.................................................. F-18
Notes to Unaudited Pro Forma Condensed Combined Financial Information..... F-19
</TABLE>
Contigo Software, Inc.
<TABLE>
<S> <C>
Independent Auditors' Report............................................. F-21
Balance Sheets as of December 31, 1998 and 1999.......................... F-22
Statements of Operations for the years ended December 31, 1997, 1998 and
1999.................................................................... F-23
Statements of Equity for the years ended December 31, 1997, 1998 and
1999.................................................................... F-24
Statements of Cash Flows for the years ended December 31, 1997, 1998 and
1999.................................................................... F-25
Notes to Financial Statements............................................ F-26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evoke Incorporated:
We have audited the accompanying balance sheets of Evoke Incorporated
(formerly VStream Incorporated) as of December 31, 1998 and 1999, and the
related statements of operations, stockholders' deficit and cash flows for the
period from inception (April 17, 1997) to December 31, 1997 and the years ended
December 31, 1998 and 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Evoke Incorporated as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for the period from inception (April 17, 1997) to December 31, 1997 and
the years ended December 31, 1998 and 1999 in conformity with generally
accepted accounting principles.
KPMG LLP
Boulder, Colorado
February 4, 2000, except as to note 10, which is as of March 29, 2000
F-2
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
ASSETS ---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $1,221,544 $ 89,234,044
Investment securities............................... 4,950,848 --
Accounts receivable, net of allowance for doubtful
accounts of $20,000 in 1998 and $35,000 in 1999.... 202,787 804,959
Prepaid expenses and other current assets........... 127,140 638,957
---------- ------------
Total current assets............................... 6,502,319 90,677,960
Property and equipment, net.......................... 2,231,377 19,539,258
Other assets......................................... 21,675 121,232
---------- ------------
TOTAL ASSETS....................................... $8,755,371 $110,338,450
========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................... $ 598,724 $ 8,519,275
Current portion of long term debt................... -- 1,335,901
Accrued expenses.................................... 259,981 585,694
Deferred revenue.................................... 12,450 317,394
---------- ------------
Total current liabilities.......................... 871,155 10,758,264
Long term debt, less current portion................ -- 2,260,243
Other............................................... 5,557 --
---------- ------------
TOTAL LIABILITIES.................................. 876,712 13,018,507
---------- ------------
MANDATORILY REDEEMABLE PREFERRED STOCK:
Series B, par value $.01, authorized, issued and
outstanding 10,635 shares; aggregate liquidation
preference of $1,063,500........................... 1,063,500 1,063,500
Series C, par value $.01, authorized 10,000,000
shares; issued and outstanding 9,953,935 shares;
aggregate liquidation preference of $10,352,092.... 10,283,999 10,283,999
Series D, par value $.01, authorized 34,000,000
shares; issued and outstanding 33,333,333 shares;
aggregate liquidation preference of $99,999,999.... -- 99,794,138
Warrants for the purchase of mandatorily redeemable
preferred stock.................................... -- 105,000
---------- ------------
11,347,499 111,246,637
---------- ------------
STOCKHOLDERS' DEFICIT:
Undesignated preferred stock, 964,365 shares
authorized in 1999; none issued or outstanding..... -- --
Series A preferred stock, par value $.01,
authorized, issued and outstanding
5,025,000 shares; aggregate liquidation preference
of $502,500........................................ 502,500 502,500
Common stock, par value $.001, 20,000,000 shares
authorized in 1998; 57,000,000 shares authorized in
1999; issued and outstanding 500,000 shares in 1998
and 863,709 shares in 1999......................... 500 864
Additional paid-in capital.......................... 49,500 1,876,362
Unearned stock option compensation.................. -- (1,431,453)
Accumulated deficit................................. (4,021,340) (14,874,967)
---------- ------------
Total stockholders' deficit........................ (3,468,840) (13,926,694)
---------- ------------
Commitments and contingencies
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT........ $8,755,371 $110,338,450
========== ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
STATEMENTS OF OPERATIONS
Period from inception (April 17, 1997) to December 1997 and
years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- ----------- ------------
<S> <C> <C> <C>
Revenue.................................. $ -- $ 674,887 $ 2,246,054
Cost of revenue.......................... 105,505 795,987 3,368,129
--------- ----------- ------------
Gross profit (loss).................. (105,505) (121,100) (1,122,075)
--------- ----------- ------------
Operating expenses:
Sales and marketing..................... 69,060 1,803,887 7,006,819
Research and development................ 362,584 779,811 1,005,864
General and administrative, exclusive of
stock option compensation expense...... 226,584 789,045 1,821,723
Stock option compensation expense....... -- -- 296,287
--------- ----------- ------------
Total operating expenses............. 658,228 3,372,743 10,130,693
--------- ----------- ------------
Loss from operations................. (763,733) (3,493,843) (11,252,768)
--------- ----------- ------------
Other income (expense):
Interest income......................... 15,219 249,867 715,885
Interest expense........................ (337) (29,107) (310,443)
Other, net.............................. -- 594 (6,301)
--------- ----------- ------------
Total other income................... 14,882 221,354 399,141
--------- ----------- ------------
Net loss............................. $(748,851) $(3,272,489) $(10,853,627)
========= =========== ============
Loss per share--basic and diluted........ $ (2.95) $ (6.86) $ (16.61)
========= =========== ============
Weighted average number of common shares
outstanding--basic and diluted.......... 254,264 477,123 653,594
========= =========== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
STATEMENTS OF STOCKHOLDERS' DEFICIT
Period from inception (April 17, 1997) to December 31, 1997 and
years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
Preferred Stock Unearned
Series A Common Stock Additional stock
------------------ -------------- paid-in option Accumulated
Shares Amount Shares Amount capital compensation deficit Total
--------- -------- ------- ------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at inception... -- $ -- -- $-- $ -- $ -- $ -- $ --
Issuance of common
stock for cash........ -- -- 225,000 225 22,275 -- -- 22,500
Issuance of common
stock for rent
abatement............. -- -- 250,000 250 24,750 -- -- 25,000
Short-term debt
converted to Series A
preferred stock....... 4,950,000 495,000 -- -- -- -- -- 495,000
Issuance of Series A
preferred stock for
services.............. 75,000 7,500 -- -- -- -- -- 7,500
Net loss............... -- -- -- -- -- -- (748,851) (748,851)
--------- -------- ------- ---- ---------- ----------- ------------ ------------
Balances at December 31,
1997................... 5,025,000 502,500 475,000 475 47,025 -- (748,851) (198,851)
Exercise of common
stock options......... -- -- 25,000 25 2,475 -- -- 2,500
Net loss............... -- -- -- -- -- -- (3,272,489) (3,272,489)
--------- -------- ------- ---- ---------- ----------- ------------ ------------
Balances at December 31,
1998................... 5,025,000 502,500 500,000 500 49,500 -- (4,021,340) (3,468,840)
Exercise of common
stock options......... -- -- 313,709 314 47,172 -- -- 47,486
Common stock issued for
cash.................. -- -- 50,000 50 51,950 -- -- 52,000
Issuance of common
stock options at less
than fair value....... -- -- -- -- 1,727,740 (1,727,740) -- --
Amortization of
unearned stock option
compensation.......... -- -- -- -- -- 296,287 -- 296,287
Net loss............... -- -- -- -- -- -- (10,853,627) (10,853,627)
--------- -------- ------- ---- ---------- ----------- ------------ ------------
Balances at December 31,
1999................... 5,025,000 $502,500 863,709 $864 $1,876,362 $(1,431,453) $(14,874,967) $(13,926,694)
========= ======== ======= ==== ========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
STATEMENTS OF CASH FLOWS
For the period from inception (April 17, 1997) to December 31, 1997 and
years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $ (748,851) $(3,272,489) $(10,853,627)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization......... 40,620 263,521 1,608,132
Loss on disposition of equipment...... -- 1,413 4,926
Preferred stock issued for services... 7,500 -- --
Common stock issued for rent
concessions.......................... 25,000 -- --
Amortization of unearned stock option
compensation......................... -- -- 296,287
Changes in operating assets and
liabilities:
Accounts receivable................... -- (202,787) (602,172)
Prepaid expenses and other current
assets............................... (69,417) (56,473) (406,817)
Other assets.......................... (5,727) (13,937) (100,175)
Accounts payable and accrued
expenses............................. 187,683 300,839 3,876,126
---------- ----------- ------------
Net cash used by operating
activities......................... (563,192) (2,979,913) (6,177,320)
---------- ----------- ------------
Cash flows from investing activities:
Purchase of equipment, furniture and
fixtures.............................. (580,642) (1,567,086) (14,264,228)
Proceeds from disposition of
equipment............................. -- 6,920 13,432
Proceeds from maturity of investment
securities held-to-maturity........... -- 2,543,125 7,511,479
Purchase of investment securities held-
to-maturity........................... -- (7,493,973) (2,560,631)
Other.................................. (3,094) -- --
---------- ----------- ------------
Net cash used by investing
activities......................... (583,736) (6,511,014) (9,299,948)
---------- ----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of preferred
stock................................. 1,063,500 9,777,149 99,794,138
Proceeds from issuance of common
stock................................. 22,500 2,500 99,486
Proceeds from debt..................... 495,000 852,250 4,458,153
Payments on debt....................... -- (353,500) (862,009)
---------- ----------- ------------
Net cash provided by financing
activities......................... 1,581,000 10,278,399 103,489,768
---------- ----------- ------------
Increase in cash and cash
equivalents........................ 434,072 787,472 88,012,500
Cash and cash equivalents at beginning
of period.............................. -- 434,072 1,221,544
---------- ----------- ------------
Cash and cash equivalents at end of
period................................. $ 434,072 $ 1,221,544 $ 89,234,044
========== =========== ============
Supplemental cash flow information:
Interest paid in cash.................. $ 337 $ 22,258 $ 195,429
========== =========== ============
Supplemental noncash investing and
financing activities:
Short-term debt and accrued interest
converted to preferred stock.......... $ 495,000 $ 506,849 $ --
========== =========== ============
Redeemable preferred stock warrants
issued for financing costs............ $ -- $ -- $ 105,000
========== =========== ============
Accounts payable incurred for purchases
of fixed assets....................... $ -- $ 395,038 $ 5,064,563
========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(1)Summary of Significant Accounting Policies
(a) Business and Basis of Financial Statement Presentation
Evoke Incorporated, formerly VStream Incorporated, (the Company), was
incorporated under the laws of the State of Delaware on April 17, 1997. The
Company is an Internet communication services provider that allows users to
communicate and exchange voice, video and visuals in a simple, cost-effective
manner through web-based applications and technologies. The Company operates in
a single segment.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year balances have been reclassified to conform with the
current year presentation.
(b) Cash Equivalents
All highly liquid investments purchased with maturities of three months or
less are considered to be cash equivalents. Cash equivalents consist of money
market accounts at two financial institutions.
(c) Equipment, Furniture and Fixtures, and Leasehold Improvements
Equipment, furniture and fixtures, and leasehold improvements are recorded
at cost. Depreciation and amortization are calculated using the straight-line
method over the estimated useful lives of the assets which range from three to
ten years.
(d) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes as prescribed by Statement of Financial Accounting Standard No. 109,
Accounting for Income Taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The resulting deferred tax assets and liabilities are adjusted to
reflect changes in tax laws or rates in the period of enactment.
The Company's stockholders elected to be taxed as a subchapter S Corporation
at inception. Accordingly, taxable income or loss was reported in the tax
returns of the stockholders until the subchapter S election was terminated on
September 2, 1997.
(e) Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments,
including accounts receivable and accounts payable and accrued expenses,
approximate fair value because of their short maturities. Because the interest
rates on the Company's note payable obligations reflect market rates and terms,
the fair values of these instruments approximate carrying amounts.
F-7
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(f) Revenue Recognition
Web conferencing customers are charged a per-minute fee based on each phone
participant's actual time on the conference, which is recognized as revenue
upon completion of the conference. Customers are charged a fee to upload
visuals for web conferences, which is also recognized as revenue upon
completion of the conference.
Web streaming customers are charged for content encoding and hosting.
Content encoding is the conversion of the customer's media into formats which
can be accessed over the internet using widely available media players and, for
some customers, indexing the media to facilitate search and reporting
capabilities. Revenue from content encoding is recognized when the content is
available for viewing over the internet. Hosting is the maintenance of the
content on the Company's servers and, for some customers, providing access to
information about content usage. Revenue related to content hosting is
recognized ratably over the hosting period, generally ranging from one to six
months.
In 1997 and 1998 all of the Company's revenue was attributable to web
streaming. In 1999 web conferencing and web streaming represented 41% and 59%,
respectively, of total revenue.
(g) Impairment of Long-Lived Assets and Assets to Be Disposed Of
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, the Company periodically
evaluates the carrying value of long-term assets when events and circumstances
warrant such review. The carrying value of a long lived asset is considered
impaired when the anticipated undiscounted cash flows from such asset is
separately identifiable and is less than the carrying value. In that event a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined by
reference to quoted market prices, if available, or the utilization of certain
valuation techniques such as using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Assets to be disposed of are reported
at the lower of the carrying amount or fair value, less costs to sell. No
impairment was recognized in 1997, 1998 or 1999.
(h) Stock Based Compensation
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. Under SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS 123), entities are permitted to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net income
disclosures for employee stock option grants as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures required by SFAS No. 123.
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
(i) Product Development Costs
F-8
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
The Company capitalizes certain qualifying computer software costs incurred
during the application development stage in accordance with Statement of
Position No. 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1) issued by the American Institute of
Certified Public Accountants, which was adopted by the Company as of January 1,
1999. These costs are amortized over the software's estimated useful life.
Other research and development costs are expensed as incurred.
(j) Loss Per Share
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128). Under
SFAS 128, basic earnings (loss) per share (EPS) excludes dilution for potential
common stock and is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issued common stock were exercised or
converted into common stock. Basic and diluted EPS are the same in 1997, 1998
and 1999, as all potential common stock instruments are antidilutive.
(2)INVESTMENT SECURITIES
At December 31, 1998, all investment securities consisted of short-term
investments carried at amortized cost (which approximates market value), and
consisted of the following:
<TABLE>
<S> <C>
U.S. Government securities................................... $ 510,590
U.S. Government agencies..................................... 2,950,191
Commercial paper............................................. 1,490,067
-----------
$ 4,950,848
===========
</TABLE>
At December 31, 1999, the Company did not hold any investment securities.
(3)PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Computers and office equipment......................... $2,239,840 $18,642,894
Computer software...................................... 206,382 1,463,608
Furniture and fixtures................................. 87,650 1,153,430
Leasehold improvements................................. -- 184,884
---------- -----------
2,533,872 21,444,816
Less accumulated depreciation and amortization......... (302,495) (1,905,558)
---------- -----------
$2,231,377 $19,539,258
========== ===========
</TABLE>
In 1999, the Company capitalized $242,961 of software application
development costs in accordance with SOP 98-1. These costs are being amortized
over 18 months from the time the software is ready for its intended use.
Amortization of these costs totalled $119,135 in 1999.
F-9
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(4)DEBT
On January 7, 1999, the Company entered into a loan and security agreement
with a total commitment of $3,000,000. In connection with obtaining this
commitment, the Company issued warrants to purchase 86,538 shares of Series C
Preferred stock to the lender. The exercise price of the warrants is $1.04 per
share and the warrants expire upon the earlier of January 6, 2009 or 5 years
from the closing of an initial public offering. Draws under this agreement are
repaid over 37 months, with interest at the 36 month Treasury note rate, plus
275 basis points. An additional payment of 9% of the amount financed is payable
at the end of the term of the loan. This additional amount will be included in
interest expense over the term of the agreement. The fair value of the warrants
was $75,000 and will be included in interest expense over the term of the
agreement. During 1999, the Company borrowed, in four separate draws, the
entire commitment of $3,000,000. The interest rate ranges from 7.41% to 8.40%.
The loan and security agreement is secured by substantially all business assets
except those specifically secured by the debt facility described below. At
December 31, 1999, the balance due under this agreement is $2,237,488, of which
$976,692 is current.
On September 30, 1999, the Company entered into a promissory note and its
related master loan and security agreement dated September 10, 1999, for
$1,502,623. In connection with obtaining this commitment, the Company issued
warrants to purchase 15,026 shares of Series D Preferred stock to the lender.
The exercise price of the warrants is $3.00 per share and the warrants expire
on September 29, 2004. The draw under this agreement is repaid over 42 months,
with interest at 13.33%. The promissory note is secured by the equipment that
was financed. The fair value of the warrants was $30,000 and will be included
in interest expense over the term of the agreement. At December 31, 1999, the
balance due under this agreement is $1,358,656, of which $359,209 is current.
Long-term debt, all of which was incurred in 1999, consists of the
following:
<TABLE>
<S> <C>
Balance at December 31, 1999................................. $ 3,596,144
Less current portion......................................... (1,335,901)
-----------
Long-term debt, excluding current portion.................... $ 2,260,243
===========
</TABLE>
The aggregate maturities for long-term debt for each of the years subsequent
to December 31, 1999 are as follows: 2000--$1,335,901; 2001--$1,481,487; 2002--
$691,263; 2003--$87,493.
(5)INCOME TAXES
Income tax benefit relating to losses incurred differs from the amounts that
would result from applying the federal statutory rate of 34% as follows:
<TABLE>
<CAPTION>
Period from
Inception to Year ended December 31,
December 31, ------------------------
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Expected tax benefit................... $(254,609) $(1,112,646) $(3,690,233)
State income taxes, net of federal
benefit............................... (27,830) (179,673) (542,681)
Change in valuation allowance for
deferred tax assets................... 224,883 1,321,913 4,154,871
S corporation loss..................... 64,263 -- --
Other, net............................. (6,707) (29,594) 78,043
--------- ----------- -----------
Actual income tax benefit............ $ -- $ -- $ --
========= =========== ===========
</TABLE>
F-10
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
Temporary differences that give rise to the components of deferred tax
assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Net operating loss carryforwards........................ $1,437,015 $5,958,745
Depreciation and amortization........................... 48,684 (389,790)
Other, net.............................................. 61,097 132,712
---------- ----------
Gross deferred tax asset.............................. 1,546,796 5,701,667
Valuation allowance..................................... (1,546,796) (5,701,667)
---------- ----------
Net deferred tax asset................................ $ -- $ --
========== ==========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $15,100,000, which are available
to offset future federal taxable income, if any, through 2019. Management
believes the utilization of the carryforwards will be limited by Internal
Revenue Code Section 382 relating to changes in ownership, as defined.
Due to the uncertainty regarding the realization of the deferred tax assets
relating to the net operating loss carryforwards and other temporary
differences, a valuation allowance has been recorded for the entire amount of
the Company's deferred tax assets at December 31, 1998 and 1999.
(6)PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(a)Mandatorily Redeemable Convertible and Convertible Preferred Stock
The Company has four classes of preferred stock (Series A, Series B, Series
C and Series D) outstanding. Series A, Series B, Series C and Series D are
convertible at any time, at the option of the holder, into 5,025,000,
2,045,192, 9,953,935 and 33,333,333 shares of common stock, respectively, and
Series B, C and D shares are mandatorily redeemable. All preferred stock has
voting rights on an as converted basis and have liquidation preferences equal
to the stated amount of preferred shares issued.
Each share of preferred stock is automatically converted to common stock at
the time of an initial public offering, provided certain offering parameters
are met. Each holder of preferred stock is entitled to cash dividends, when
and if declared by the Board of Directors. In the event dividends are paid on
any shares of common stock, an additional dividend shall be paid with respect
to all outstanding shares of preferred stock in an equal amount per share (on
an as-converted basis) to the amount paid for each share of common stock.
Series B, Series C and Series D preferred stock were issued in 1997, 1998
and 1999 for $100, $1.04 and $3.00 per share, respectively. All issuances were
for cash, except for 487,355 shares of Series C Preferred stock issued upon
conversion of $506,861 of convertible debt and related accrued interest. The
Company is required to redeem a number of shares of Series B, Series C and
Series D preferred stock equal to 33 1/3% of the total number of shares issued
under the applicable purchase agreement (or such lesser number than
outstanding) in three annual installments commencing on May 27, 2004. The
price per share is the applicable liquidation value.
(b)Stock Options
In 1997, the Company adopted a stock option/stock issuance plan (the Plan)
pursuant to which the Company's Board of Directors may issue common shares and
grant incentive stock options and non-statutory stock options to employees,
directors and consultants. The Plan authorizes common stock issuances and
grants of options to purchase up to 4,150,000 shares of authorized but
unissued common stock. Stock options are
F-11
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
granted with an exercise price equal to the fair market value of the common
shares at the date of grant as determined by the Compensation Committee of the
Company's Board of Directors. Incentive and non-statutory stock options
generally have ten-year terms and vest over one to four years. The options are
exercisable upon grant; however, shares issued upon exercise are restricted and
subject to repurchase at the exercise price if employees terminate prior to the
vesting of their shares.
At December 31, 1999, there were 1,218,606 additional shares available for
grant or issuance under the Plan. The per share weighted-average fair value of
stock options granted during 1997, 1998 and 1999 was $.03, $.07 and $.23,
respectively, using the Black Scholes option-pricing model with the following
weighted-average assumptions: no expected dividends, zero volatility, risk-free
interest rate of 6%, and an expected life of 6 years.
The Company utilizes APB Opinion No. 25 in accounting for its Plan and,
accordingly, because the Company generally grants options at fair value, no
compensation cost has been recognized in the accompanying financial statements
for stock options granted in 1997 and 1998. In 1999, a total of 881,500 options
were granted with exercise prices less than fair value, resulting in total
compensation to be recognized over the vesting period of $1,727,740, of which
$296,287 was recognized in 1999. If the Company determined compensation cost
based on the fair value of the options at the grant date under SFAS No. 123,
the Company's 1998 and 1999 net loss would have been approximately $3,301,489
and $10,901,877, respectively, and the net loss per share would have been
approximately $6.92 and $16.68, respectively. The effect on 1997 would not have
been significant.
Stock option activity during 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Number of Weighted-average
shares exercise price
--------- ----------------
<S> <C> <C>
Balance at inception (April 17, 1997)............... -- $ --
Granted........................................... 830,000 0.10
---------
Balance at December 31, 1997........................ 830,000 0.10
Granted........................................... 728,500 0.16
Exercised......................................... (25,000) 0.10
Cancelled......................................... (253,500) 0.10
---------
Balance at December 31, 1998........................ 1,280,000 0.13
Granted........................................... 2,059,750 0.77
Exercised......................................... (313,709) 0.15
Cancelled......................................... (658,356) 0.27
---------
Balance at December 31, 1999........................ 2,367,685 0.65
=========
</TABLE>
At December 31, 1999, the weighted-average remaining contractual life of
outstanding options was approximately 9.16 years, with exercise prices ranging
from $0.10 to $1.04 per share. All of the Company's outstanding options are
exercisable at December 31, 1999. Restricted shares issued for options
exercised which are subject to repurchase totalled 70,065 shares at December
31, 1999.
F-12
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding
----------------------------------------------------------------------------
Range of Weighted average
exercise Number remaining Weighted average
prices outstanding contractual life exercise price
-------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$0.10 -- 0.25 970,000 8.27 $0.15
0.52 -- 0.85 307,500 9.39 0.84
1.04 1,090,185 9.88 1.04
---------
2,367,685
=========
</TABLE>
(c)Stock Purchase Warrants
In March 1998, the Company issued $500,000 in convertible subordinated
promissory notes. These notes were subsequently converted to Series C Preferred
stock. Warrants to purchase 12,018 shares of Series C Preferred stock at $1.04
per share were issued to the lenders in connection with issuance of the
convertible subordinated promissory notes. The warrants are exercisable and
must be exercised by March 31, 2002 or earlier, upon an initial public offering
or change in ownership of the Company.
In April 1998, the Company amended a line of credit agreement. As a result,
on May 31, 1998 the Company issued 4,206 warrants to purchase Series C
Preferred stock. The warrants are exercisable at $1.04 per share and expire on
May 30, 2008. The estimated fair value of all warrants issued in 1998 was not
significant.
In January 1999, in the connection with obtaining a $3.0 million loan, the
Company issued warrants to purchase 86,538 shares of Series C Preferred stock.
The warrants are exercisable at $1.04 per share and will expire upon the
earlier of January 6, 2009 or 5 years from the closing of an initial public
offering. The fair value of the warrants was $75,000, as determined using the
Black-Scholes option pricing model with the following assumptions: no expected
dividends, 75% volatility, risk-free interest rate of 6% and an expected life
of 10 years. The fair value of the warrants will be included in interest
expense over the term of the agreement.
In September 1999, in connection with obtaining a $1.5 million master loan
and security agreement, the Company issued warrants to purchase 15,026 shares
of Series D Preferred stock. The warrants are exercisable at $3.00 per share
and will expire on September 29, 2004. The fair value of the warrants was
$30,000, as determined using the Black-Scholes option pricing model with the
following assumptions: no expected dividends, 75% volatility, risk-free
interest rate of 6% and an expected life of 5 years. The fair value of the
warrants will be included in interest expense over the term of the agreement.
In 2000, the Company issued a warrant to purchase 5,555 shares of common
stock. The warrant is in exchange for certain marketing costs. The fair value
of the warrant was $18,200 as determined using the Black-Scholes option pricing
model with the following assumptions: no expected dividends, 75% volatility,
risk-free interest rate of 6.5% and a term of one year.
(7) COMMITMENTS AND CONTINGENCIES
(a)Leases
The Company leases office facilities under various operating lease
agreements that expire through 2009. Two of the office facilities are leased
from entities who are controlled by either directors or former directors of
F-13
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
the Company. Rent expense related to these leases was $54,908, $103,635 and
$305,049 for the years ended December 31, 1997, 1998 and 1999, respectively.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Portion
attributable
to related
Total parties
---------- ------------
<S> <C> <C>
2000............................................... $1,098,918 $ 858,210
2001............................................... 950,961 858,210
2002............................................... 854,119 793,397
2003............................................... 797,654 747,102
2004............................................... 798,918 747,102
Thereafter......................................... 3,654,957 3,548,735
---------- ----------
Total future minimum lease payments................ $8,155,527 $7,552,756
========== ==========
</TABLE>
Total rent expense for the years ended December 31, 1997, 1998 and 1999 was
$54,908, $132,183 and $529,872, respectively.
On January 21, 2000, the Company executed a letter of interest for
additional office space. Rent expense under this lease will be approximately
$5,600 per month from April 2000 through December 2006. The space is contiguous
to office space currently under lease.
(b) Purchase Commitments
At December 31, 1999, the Company had commitments outstanding for capital
expenditures under purchase orders and contracts of approximately $11,600,000,
all of which are expected to be incurred in 2000.
At December 31, 1999, the Company had commitments outstanding for software
licenses and associated maintenance and royalties of approximately $4.2
million, all of which will be expended through December 2001. In connection
with the commitments, the Company received a warrant to purchase 1,000,000
shares of Series B Preferred stock. The warrant has an exercise price of $2.00
a share and expires on June 30, 2001. Due to the lack of a readily determinable
fair market value for securities of the issuer, no value has been attributed to
the warrant.
In 1999, the Company entered into arrangements for sales and marketing
services totaling $20 million to be expended over the next two years.
(c)Employment Contract
The Company has employment agreements with two of its executive officers.
The agreements continue until terminated by the executive or the Company, and
provides for a termination payment under certain circumstances. As of December
31, 1999, the Company's liability would be approximately $645,000 if the
officers were terminated without cause (as defined in the agreement).
(d)Litigation
From time to time, the Company has been subject to litigation and claims in
the ordinary course of business. While it is not possible to predict or
determine the financial outcome of these matters, management does not believe
they should result in a materially adverse effect on the Company's financial
position, results of operations or liquidity.
F-14
<PAGE>
EVOKE INCORPORATED
(formerly VStream Incorporated)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and 1999
(8)EMPLOYEE BENEFIT PLAN
The Company adopted, effective January 1, 1998, a defined contribution
401(k) plan that allows eligible employees to contribute up to 15% of their
compensation up to the maximum allowable amount under the Internal Revenue
Code. In 1999, the Company made a discretionary employer matching contribution
of $13,072 and did not make a discretionary employer profit sharing
contribution. The Company did not make a discretionary employer matching or
profit sharing contribution to the plan in 1998.
(9)SIGNIFICANT CUSTOMERS AND SUPPLIERS
In 1999, the Company had sales to two customers representing 21% and 9% of
total revenue, respectively. The receivables due from these customers at
December 31, 1999 were $250,000 and $42,837, respectively. In 1998, the
Company's sales to these two customers represented 19% and 52% of total
revenue, respectively. The receivable due from one of these customers at
December 31, 1998 totaled $120,640.
The Company purchases key components of its telephony technology platform
from a single supplier. These components are referred to as multipoint control
units and form the basis of the Company's telephony technology platform, upon
which the majority of offered services rely. The Company has no guaranteed
supply arrangements nor a contract with the supplier of these components. In
1999, the Company purchased $5,990,000 in equipment from this key supplier.
(10) SUBSEQUENT EVENTS
On March 24, 2000, the Company entered into a merger agreement to acquire
Contigo Software, Inc. (Contigo) for cash of $6.1 million and a total of
9,000,000 shares of common stock to be issued in exchange for all the
outstanding shares of Contigo capital stock or reserved for issuance upon
exercise of assumed Contigo options. In addition, the Company may be required
to pay additional consideration of up to $1.0 million for potential taxes, if
assessed, related to the acquisition.
On March 29, 2000, the Company issued 686,813 shares of Series E preferred
stock at $7.28 per share and a warrant to purchase 858,416 shares of Series E
preferred stock for an aggregate purchase price of $5.0 million. The warrant is
exercisable upon issuance at the lesser of $10 per share or the initial public
offering price of the Company's common stock and expires in March 2003. The
fair value of the warrant is estimated to be $4.1 million, as determined using
the Black-Scholes option pricing model with the following assumptions: no
expected dividends, 75% volatility, risk-free interest rate of 6.5% and a term
of 3 years. The fair value of the warrant will be separately recorded as
warrants for the purchase of mandatorily redeemable preferred stock and as a
reduction in the Series E preferred stock. The preferred stock will be accreted
to its issuance price over the period from issuance to redemption in March
2003. Based on the beneficial conversion terms of the preferred stock, assuming
an initial public offering price of $9.00 per share, the Company will record an
increase to net loss applicable to common stockholders of approximately
$900,000 at the date of issuance which will be accounted for as a beneficial
conversion feature in accordance with Emerging Issues Task Force Bulletin 98-5
Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios.
F-15
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On March 24, 2000, Evoke entered into a merger agreement to acquire Contigo
in exchange for $6.1 million in cash and 9,000,000 shares of Evoke Common Stock
that will be issued or reserved for issuance upon the closing of the proposed
acquisition.
The unaudited pro forma condensed combined balance sheet assumes that the
Contigo acquisition occurred on December 31, 1999 and includes the December 31,
1999 historical balance sheets of Evoke and Contigo adjusted for the pro forma
effects of the acquisition. The unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1999 assumes that the
Contigo acquisition had occurred on January 1, 1999, and includes the
historical statements of operations of Evoke and Contigo for the year ended
December 31, 1999 adjusted for the pro forma effects of the acquisition.
The acquisition will be accounted for using the purchase method of
accounting. The actual purchase accounting adjustments may be revised upon
completion of the acquisition.
The unaudited pro forma condensed combined statement of operations is not
necessarily indicative of the results of operations that would actually have
occurred if the transactions had been consummated as of January 1, 1999 and is
not intended to indicate the expected results for any future period. These
statements should be read in conjunction with the historical consolidated
financial statements and related notes thereto of Evoke and Contigo included in
this prospectus and "Management's Discussion and Analysis of Financial
Condition and the Results of Operations." Due to the risks, difficulties and
uncertainties surrounding the integration of Contigo if the acquisition occurs,
Contigo's historical financial results may not be indicative of Contigo's
future financial results.
F-16
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Evoke Contigo Adjustments Total
ASSETS ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $89,234,044 $3,424,000 $(6,600,000)(1) $ 86,058,044
Accounts receivable..... 804,959 584,000 -- 1,388,959
Prepaid expenses and
other current assets... 638,957 54,000 -- 692,957
------------ ---------- ----------- ------------
Total current assets.. 90,677,960 4,062,000 (6,600,000) 88,139,960
Property and equipment,
net...................... 19,539,258 320,000 -- 19,859,258
Goodwill.................. -- -- 80,053,475 (2) 80,053,475
Other assets.............. 121,232 15,000 -- 136,232
------------ ---------- ----------- ------------
Total assets.......... $110,338,450 $4,397,000 $73,453,475 $188,188,925
============ ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........ $ 8,519,275 $ 195,000 $ -- $ 8,714,275
Current portion of long
term debt.............. 1,335,901 -- -- 1,335,901
Accrued expenses and
other.................. 585,694 786,000 -- 1,371,694
Deferred revenue........ 317,394 80,000 -- 397,394
------------ ---------- ----------- ------------
Total current
liabilities.......... 10,758,264 1,061,000 -- 11,819,264
Long term debt, less
current portion.......... 2,260,243 -- -- 2,260,243
Other..................... -- 53,000 -- 53,000
------------ ---------- ----------- ------------
Total liabilities..... 13,018,507 1,114,000 -- 14,132,507
Mandatorily redeemable
preferred stock.......... 111,246,637 -- -- 111,246,637
Stockholders' equity
(deficit)................ (13,926,694) 3,283,000 73,453,475 (3) 62,809,781
------------ ---------- ----------- ------------
Total liabilities and
stockholders' equity
(deficit)................ $110,338,450 $4,397,000 $73,453,475 $188,188,925
============ ========== =========== ============
<CAPTION>
ASSETS
<S> <C> <C>
Current assets:
Cash and cash
equivalents............
Accounts receivable.....
Prepaid expenses and
other current assets...
Total current assets..
Property and equipment,
net......................
Goodwill..................
Other assets..............
Total assets..........
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........
Current portion of long
term debt..............
Accrued expenses and
other..................
Deferred revenue........
Total current
liabilities..........
Long term debt, less
current portion..........
Other.....................
Total liabilities.....
Mandatorily redeemable
preferred stock..........
Stockholders' equity
(deficit)................
Total liabilities and
stockholders' equity
(deficit)................
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
F-17
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Evoke Contigo Adjustments Total
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue................. $ 2,246,054 $ 3,194,000 $ -- $ 5,440,054
Cost of revenue......... 3,368,129 164,000 -- 3,532,129
------------ ----------- ------------ ------------
Gross profit
(loss)............. (1,122,075) 3,030,000 -- 1,907,925
------------ ----------- ------------ ------------
Operating expenses:
Sales and marketing... 7,006,819 1,611,000 -- 8,617,819
Research and
development.......... 1,005,864 1,090,000 -- 2,095,864
General and
administrative,
exclusive of stock
option option
compensation
expense.............. 1,821,723 1,361,000 -- 3,182,723
Stock option
compensation
expense.............. 296,287 -- -- 296,287
Amortization of
goodwill ............ -- -- 26,684,492 (4) 26,684,492
------------ ----------- ------------ ------------
Total operating
expenses........... 10,130,693 4,062,000 26,684,492 40,877,185
------------ ----------- ------------ ------------
Loss from
operations......... (11,252,768) (1,032,000) (26,684,492) (38,969,260)
------------ ----------- ------------ ------------
Other income (expense):
Interest income....... 715,885 66,000 (335,500)(5) 446,385
Interest expense...... (310,443) -- -- (310,443)
Other, net............ (6,301) 3,000 -- (3,301)
------------ ----------- ------------ ------------
Total other income.. 399,141 69,000 (335,500) 132,641
------------ ----------- ------------ ------------
Net Loss................ $(10,853,627) $ (963,000) $(27,019,992) $(38,836,619)
============ =========== ============ ============
Loss per share--basic
and diluted............ $ (16.61) $ (5.35)
============ ============
Weighted average number
of common shares
outstanding--basic and
diluted................ 653,594 6,599,511 (6) 7,253,105
============ ============ ============
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
F-18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The Contigo acquisition will be accounted for using the purchase method of
accounting. The pro forma financial information has been prepared on the basis
of assumptions described in the following notes and includes assumptions
relating to the allocation of the consideration paid for the assets and
liabilities of Contigo based on preliminary estimates of their fair values. The
actual allocation of such consideration may differ from that reflected in the
pro forma financial information after valuations and other procedures to be
performed subsequent to the closing of the Contigo acquisition. In the opinion
of Evoke's management, all adjustments necessary to present fairly such pro
forma financial information have been made based on the proposed terms and
structure of the Contigo merger.
The pro forma financial information gives effect to the following pro forma
adjustments:
(1) To reflect the purchase price based on the cash to be paid and assuming an
estimated fair value of $9.00 per share of Evoke common stock to be issued
or reserved for issuance, as follows:
<TABLE>
<CAPTION>
Outstanding Evoke Shares
Contigo or Options
Shares to be Issued Fair Value
----------- ------------ -----------
<S> <C> <C> <C>
Cash................................... $6,100,000
Shares................................. 9,392,712 6,599,511 59,395,599
Stock options.......................... 3,416,480 2,400,489 17,340,876
Estimated cash acquisition costs....... 500,000
---------- --------- -----------
Total acquisition cost............... 12,809,192 9,000,000 $83,336,475
========== ========= ===========
</TABLE>
With respect to stock options exchanged as part of the Contigo acquisition,
all vested and unvested Contigo options exchanged for Evoke options are
included in the purchase price based on their fair values. The fair values of
the options were calculated by taking the vested and unvested options to
purchase Evoke shares to be issued (2,400,489 options) times the assumed fair
value of the Evoke common stock ($9.00 per share), less the proceeds which will
be received from the option holders upon exercise.
F-19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION--(Continued)
(2) To record goodwill of $80.1 million, based on total consideration
(including acquisition costs) at $83.3 million, less fair value of net tangible
assets acquired of $3.2 million.
(3) To eliminate Contigo's stockholders' equity of ($3.3 million) and to
reflect the issuance of Evoke common stock and options of $76.7 million as the
stock portion of the purchase price.
(4) To record additional amortization expense related to goodwill using an
amortization period of 3 years.
(5) To decrease interest income for the effect of cash paid for the
acquisition.
(6) To reflect additional shares of Evoke common stock to be issued in
connection with the acquisition.
(7) Dividends on Contigo's preferred stock are not reflected in the pro forma
condensed combined statement of operations as all series of outstanding Contigo
preferred stock will be converted to common stock in connection the
acquisition.
F-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Contigo Software, Inc.:
We have audited the accompanying balance sheets of Contigo Software, Inc.
(the Company) (Note 1) as of December 31, 1998 and 1999, and the related
statements of operations, equity, and cash flows for each of the years in the
three-year period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Contigo Software, Inc. as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999,
in conformity with generally accepted accounting principles.
KPMG LLP
San Diego, California
February 11, 2000, except as to
Note 8, which is as of March 15, 2000
F-21
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,765,000 3,424,000
Accounts receivable, net of allowance for doubtful
accounts of $55,000 and $82,000 at December 31,
1998 and 1999, respectively........................ 223,000 584,000
Other current assets................................ 5,000 54,000
----------- -----------
Total current assets............................. 1,993,000 4,062,000
Property and equipment, net.......................... 173,000 320,000
Other assets......................................... 16,000 15,000
----------- -----------
$ 2,182,000 4,397,000
=========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................................... $ 62,000 195,000
Accrued expenses.................................... 95,000 155,000
Accrued compensation................................ 305,000 140,000
Current portion of obligations under capital
leases............................................. -- 18,000
Deferred revenue.................................... 1,000,000 80,000
Preferred stock dividends payable................... 152,000 473,000
----------- -----------
Total current liabilities........................ 1,614,000 1,061,000
Obligations under capital leases, excluding current
portion............................................. -- 53,000
----------- -----------
Total liabilities................................ 1,614,000 1,114,000
----------- -----------
Equity:
Stockholders' equity:
Common stock, no par value; 15,000,000 shares
authorized; 3,055,180 shares issued and
outstanding at December 31, 1999.................. -- 541,000
Convertible preferred stock--all series, no par
value; 5,000,000 shares authorized, 1,241,850
shares issued and outstanding at December 31,
1999.............................................. -- 6,374,000
Additional paid-in capital......................... -- 150,000
Notes receivable from stockholders................. -- (1,000)
Accumulated deficit................................ -- (3,781,000)
Members' equity:
Contributed capital:
Common............................................ 381,000 --
Preferred......................................... 2,824,000 --
Notes receivable from members...................... (140,000) --
Accumulated deficit................................ (2,497,000) --
----------- -----------
Total equity..................................... 568,000 3,283,000
Commitments and contingencies........................
----------- -----------
$ 2,182,000 4,397,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
License fees............................. $ 176,000 715,000 894,000
Royalty revenue.......................... -- 50,000 1,600,000
Event fees............................... -- -- 224,000
Hosting fees............................. 15,000 46,000 212,000
Other service revenue.................... -- 11,000 264,000
----------- ---------- ----------
Total revenues........................ 191,000 822,000 3,194,000
Operating expenses:
Cost of revenues......................... 12,000 70,000 164,000
Selling and marketing.................... 330,000 776,000 1,611,000
Research and development................. 244,000 549,000 1,090,000
General and administrative............... 602,000 780,000 1,361,000
----------- ---------- ----------
Operating loss........................ (997,000) (1,353,000) (1,032,000)
----------- ---------- ----------
Other income:
Interest income, net..................... -- 21,000 66,000
Other income............................. -- 2,000 3,000
----------- ---------- ----------
Total other income.................... -- 23,000 69,000
----------- ---------- ----------
Loss before income taxes.............. (997,000) (1,330,000) (963,000)
Provision for income taxes................ -- -- --
----------- ---------- ----------
Net loss.............................. (997,000) (1,330,000) (963,000)
Preferred dividends....................... (40,000) (112,000) (321,000)
----------- ---------- ----------
Net loss available to common
stockholders......................... $(1,037,000) (1,442,000) (1,284,000)
=========== ========== ==========
Pro forma information (unaudited):
Historical loss before provision for
income taxes............................ $ (997,000) (1,330,000) (963,000)
Pro forma provision for income taxes..... -- -- --
----------- ---------- ----------
Pro forma net loss.................... (997,000) (1,330,000) (963,000)
Preferred dividends...................... (40,000) (112,000) (321,000)
----------- ---------- ----------
Pro forma net loss available to common
stockholders......................... $(1,037,000) (1,442,000) (1,284,000)
=========== ========== ==========
Pro forma basic and diluted net loss per
common share............................ $ 0.38 0.50 0.43
=========== ========== ==========
Weighted-average common shares
outstanding............................. 2,712,283 2,862,708 2,953,663
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
STATEMENTS OF EQUITY
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Members' Equity
---------------------------------------------
Notes
receivable
Common Preferred from Accumulated
Capital Capital members deficit
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at
December 31,
1996........... $ 46,000 -- -- (18,000)
Issuance of
common stock... 303,000 -- -- --
Issuance of
options for
services....... 32,000 -- -- --
Issuance of
Preferred Stock
Series A for
services....... -- 300,000 -- --
Issuance of
Preferred Stock
Series B....... -- 300,000 -- --
Issuance of
Preferred Stock
Series C....... -- 500,000 -- --
Cumulative
preferred
dividends...... -- -- -- (40,000)
Net loss........ -- -- -- (997,000)
--------- ---------- -------- ----------
Balance at
December 31,
1997........... 381,000 1,100,000 -- (1,055,000)
Issuance of
Preferred Stock
Series D....... -- 400,000 -- --
Issuance of
Preferred Stock
Series E....... -- 524,000 -- --
Issuance of
Preferred Stock
Series F....... -- 800,000 -- --
Notes receivable
from members... -- -- (140,000) --
Cumulative
preferred
dividends...... -- -- -- (112,000)
Net loss........ -- -- -- (1,330,000)
--------- ---------- -------- ----------
Balance at
December 31,
1998........... 381,000 2,824,000 (140,000) (2,497,000)
Issuance of
Preferred Stock
Series F....... -- 700,000 -- --
Net loss from
January 1, 1999
through January
20, 1999....... -- -- -- (130,000)
Reorganization
as a C-
Corporation.... (381,000) (3,524,000) 140,000 2,627,000
Issuance of
Preferred Stock
Series G....... -- -- -- --
Issuance of
warrants in
conjunction
with the
issuance of
Preferred Stock
Series G....... -- -- -- --
Exercise of
stock options.. -- -- -- --
Payment on notes
receivable from
stockholders... -- -- -- --
Cumulative
preferred
dividends...... -- -- -- --
Net loss from
January 21,
1999 through
December 31,
1999........... -- -- -- --
--------- ---------- -------- ----------
Balance at
December 31,
1999........... $ -- -- -- --
========= ========== ======== ==========
<CAPTION>
Stockholders' Equity
--------------------------------------------------------------------------------
Convertible Notes
Common stock preferred stock receivable
----------------- -------------------- Additional from Accumulated
Shares Amount Shares Amount paid-in capital stockholders deficit Total
--------- ------- --------- ---------- --------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1996........... -- -- -- -- -- -- -- 28,000
Issuance of
common stock... -- -- -- -- -- -- -- 303,000
Issuance of
options for
services....... -- -- -- -- -- -- -- 32,000
Issuance of
Preferred Stock
Series A for
services....... -- -- -- -- -- -- -- 300,000
Issuance of
Preferred Stock
Series B....... -- -- -- -- -- -- -- 300,000
Issuance of
Preferred Stock
Series C....... -- -- -- -- -- -- -- 500,000
Cumulative
preferred
dividends...... -- -- -- -- -- -- -- (40,000)
Net loss........ -- -- -- -- -- -- -- (997,000)
--------- ------- --------- ---------- --------------- ------------ ------------ -----------
Balance at
December 31,
1997........... -- -- -- -- -- -- -- 426,000
Issuance of
Preferred Stock
Series D....... -- -- -- -- -- -- -- 400,000
Issuance of
Preferred Stock
Series E....... -- -- -- -- -- -- -- 524,000
Issuance of
Preferred Stock
Series F....... -- -- -- -- -- -- -- 800,000
Notes receivable
from members... -- -- -- -- -- -- -- (140,000)
Cumulative
preferred
dividends...... -- -- -- -- -- -- -- (112,000)
Net loss........ -- -- -- -- -- -- -- (1,330,000)
--------- ------- --------- ---------- --------------- ------------ ------------ -----------
Balance at
December 31,
1998........... -- -- -- -- -- -- -- 568,000
Issuance of
Preferred Stock
Series F....... -- -- -- -- -- -- -- 700,000
Net loss from
January 1, 1999
through January
20, 1999....... -- -- -- -- -- -- -- (130,000)
Reorganization
as a C-
Corporation.... 2,862,708 381,000 972,066 3,524,000 -- (140,000) (2,627,000) --
Issuance of
Preferred Stock
Series G....... -- -- 269,784 3,000,000 -- -- -- 3,000,000
Issuance of
warrants in
conjunction
with the
issuance of
Preferred Stock
Series G....... -- -- -- (150,000) 150,000 -- -- --
Exercise of
stock options.. 192,472 160,000 -- -- -- -- -- 160,000
Payment on notes
receivable from
stockholders... -- -- -- -- -- 139,000 -- 139,000
Cumulative
preferred
dividends...... -- -- -- -- -- -- (321,000) (321,000)
Net loss from
January 21,
1999 through
December 31,
1999........... -- -- -- -- -- -- (833,000) (833,000)
--------- ------- --------- ---------- --------------- ------------ ------------ -----------
Balance at
December 31,
1999........... 3,055,180 541,000 1,241,850 6,374,000 150,000 (1,000) (3,781,000) 3,283,000
========= ======= ========= ========== =============== ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $(997,000) (1,330,000) (963,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 13,000 32,000 64,000
Provision for doubtful accounts........... -- 95,000 54,000
Non-cash compensation expense............. 332,000 -- --
Changes in assets and liabilities:
Accounts receivable...................... (45,000) (275,000) (415,000)
Other current assets..................... 8,000 114,000 (49,000)
Other assets............................. -- (16,000) 1,000
Accounts payable......................... 77,000 (15,000) 133,000
Accrued expenses......................... 126,000 83,000 60,000
Accrued compensation..................... -- 192,000 (165,000)
Deferred revenue......................... -- 1,000,000 (920,000)
--------- ---------- ----------
Net cash used in operating activities.. (486,000) (120,000) (2,200,000)
--------- ---------- ----------
Cash flows from investing activities--
purchase of property and equipment......... (123,000) (78,000) (131,000)
--------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock for cash.......... 303,000 -- --
Issuance of preferred stock for cash....... 682,000 1,724,000 3,700,000
Cash received from the exercise of
options................................... 800 -- 160,000
Principal payments on obligations under
capital leases............................ -- -- (9,000)
Notes receivable from
members/stockholders...................... -- (140,000) --
Payments on notes receivable from
members/stockholders...................... -- -- 139,000
--------- ---------- ----------
Net cash provided by financing
activities............................ 985,800 1,584,000 3,990,000
--------- ---------- ----------
Net increase in cash and cash
equivalents........................... 376,800 1,386,000 1,659,000
Cash and cash equivalents, beginning of
year....................................... 3,000 379,000 1,765,000
--------- ---------- ----------
Cash and cash equivalents, end of year...... $ 379,800 1,765,000 3,424,000
========= ========== ==========
Supplemental disclosure of noncash investing
and financing activities:
Cumulative preferred dividends............. $ 40,000 112,000 321,000
Property and equipment acquired under
capital leases............................ $ -- -- 80,000
Interest paid on capital leases............ $ -- -- 8,000
Issuance of preferred stock for short-term
receivable................................ $ 118,000 -- --
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
(1)DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)Description of Business
Contigo Software, Inc. (the Company), formerly Contigo Software, LLC,
develops and markets web collaboration solutions for global enterprises and the
technology industry. The Company was founded in 1996 and is headquartered in
San Diego, California. The Company operates in a single segment. In January
1999, the Company reorganized as a C-Corporation. The reorganization was
accounted for as a combination of entities under common control in a manner
similar to a pooling-of-interests. Under this method, the assets, liabilities,
and equity were carried over at their historical book values and their
operations have been recorded on a combined historical basis.
(b)Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of 90 days or less to be cash equivalents. As of December 31, 1998 and
1999, cash equivalents consist of money market funds in the amount of $335,000
and $57,000, respectively.
(c)Financial Instruments and Concentration of Credit Risk
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses,
accrued compensation and preferred stock dividends payable approximates fair
market value because of their short-term nature. Financial instruments that
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable.
The Company's customer base consists of businesses throughout the United
States. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on accounts receivable, as the Company's
customers are large, well-established companies. To date, the Company has had
no significant write-offs of accounts receivable.
During 1998, revenues from two customers comprised 32% of total revenues and
represented 44% of accounts receivable as of December 31, 1998. During 1999,
revenues from one customer comprised 50% of total revenues and represented 26%
of accounts receivable as of December 31, 1999.
(d)Capitalized Software
Costs related to the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility of the product has been established, at which time
such costs are capitalized, subject to expected recoverability. To date, the
Company has not capitalized any development costs related to software products.
(e)Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Property and equipment under capital leases are recorded at the present value
of minimum future payments.
F-26
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Depreciation on property and equipment is calculated using the straight-line
method over the estimated useful lives of the equipment, generally five years.
Property and equipment under capital leases is amortized using the straight-
line method over the shorter of the lease term or the estimated useful life of
the asset.
(f)Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-9. SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements such as software products, upgrades, enhancements,
post-contract customer support, installation, and training to be allocated to
each element based on the relative fair values of the elements. The fair value
of the element must be based on evidence that is specific to the vendor.
Licensing fees represent revenues recorded related to licenses for software
delivered to customers for in-house applications. Revenues from software
license agreements are recognized upon shipment of the software when all of the
following criteria have been met: persuasive evidence of an arrangement exists;
delivery has occurred; the fee is fixed or determinable; collectibility is
probable; and evidence is available of the fair value of all undelivered
elements. Hosting fees represent revenues from post-contract customer support
services and from hosting arrangements where the Company's software is resident
on a company server and are recognized ratably over the hosting period. Event
fees are recognized as the events take place. Royalty revenue is recognized as
earned based on specific contract provisions.
(g)Research and Development and Advertising
Research and development and advertising costs are expensed as incurred.
Research and development expenses amounted to $244,000, $549,000 and $1,090,000
in 1997, 1998 and 1997, respectively. Advertising expenses amounted to $37,000,
$5,000 and $12,000 in 1997, 1998 and $1999, respectively.
(h)Income Taxes
Prior to February 1999, the Company had elected Limited Liability Company
(LLC) status under the Internal Revenue Code and the corresponding tax laws of
the state of California. In February 1999, the Company reorganized as a C-
corporation. Common and preferred stockholders exchanged shares in the LLC for
equivalent shares of the newly formed C-corporation with identical rights.
Common stock options were also exchanged for identical shares, vesting terms
and exercise prices.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i)Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, in accounting for its
fixed plan stock options. As such, compensation expense would be recorded on
the date of
F-27
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
grant only if the current market price of the underlying stock exceeded the
exercise price. SFAS No. 123, Accounting for Stock-Based Compensation,
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed by
SFAS No. 123, the Company has elected to continue to apply the intrinsic value-
based method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.
(j)Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and revenues and expenses
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(k)Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of carrying amount or fair value less
costs to sell.
(l)Comprehensive Loss
The Company did not have any significant components of other comprehensive
loss for the years ended December 31, 1997, 1998 and 1999.
(m)Earnings (Loss) Per Share
Loss per share for 1997, 1998, and 1999 is presented in accordance with SFAS
128, Earnings per Share. Stock options and warrants totaling 1,327,040,
1,596,372 and 3,916,508 shares were not included in the computation of diluted
net loss per share for 1997, 1998 and 1999, respectively, because the effect
would have been antidilutive.
(n)Reclassifications
Certain amounts in the 1997 and 1998 financial statements have been
reclassified to conform with the 1999 presentation.
F-28
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
(2)PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1998
and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Equipment................................................... $188,000 398,000
Software.................................................... 4,000 4,000
Furniture and fixtures...................................... 25,000 27,000
-------- --------
Total..................................................... 217,000 429,000
Accumulated depreciation and amortization................... (45,000) (109,000)
-------- --------
Property and equipment, net............................... $173,000 320,000
======== ========
</TABLE>
(3)NOTES RECEIVABLE FROM STOCKHOLDERS
During 1998, the Company advanced $110,000 to a member at an annual interest
rate of 10%. The advance was paid in full in May 1999.
During 1998, the Company advanced $30,000 to the Company's Chief Executive
Officer, who is a majority stockholder in a company which owns preferred shares
of the Company. This unsecured advance has no specified interest rate or
maturity. The remaining balance of this receivable of $1,000 is classified as
contra equity.
(4)CONVERTIBLE PREFERRED STOCK
The Company has issued the following series of preferred stock:
<TABLE>
<CAPTION>
Number of Annual
Series Issue date shares Share price Amount dividend
- ------ ------------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
A July 1997 133,500 $2.247 $ 300,000 0.18
B March 1997 133,500 2.247 300,000 0.18
C November 1997 166,667 3.000 500,000 0.24
D March 1998 133,333 3.000 400,000 0.24
E November 1998 105,066 4.987 524,000 0.40
F December 1998 160,000 5.000 800,000 0.40
F January 1999 140,000 5.000 700,000 0.40
G October 1999 269,784 11.120 3,000,000 0.89
--------- ----------
1,241,850 $6,524,000
========= ==========
</TABLE>
The preferred stock is convertible at the option of the holder, subject to
certain antidilutive adjustments, for shares of common stock, at a one-to-four
ratio. Automatic conversion occurs at the date of a qualified initial public
offering or upon the agreement of the majority of the stockholders of each
series of preferred stock. Each holder of preferred stock is entitled to one
vote for each share of common stock into which such preferred share would
convert.
In the event of any liquidation or winding down of the Company, the
preferred stock has liquidation preferences in the amount of the share price
plus any unpaid dividends. The holders of Series A preferred stock have certain
liquidation preferences over the Series B, C, D, E, F and G preferred stock
under the terms of the Company's operating agreement. The holders of Series B
preferred stock have certain liquidation preferences
F-29
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
over the Series C, D, E, F and G preferred stock under the terms of the
Company's operating agreement. The holders of Series C preferred stock have
certain liquidation preferences over the Series D, E, F and G preferred stock
under the terms of the Company's operating agreement. The holders of Series D
preferred stock have certain liquidation preferences over the Series E, F and G
preferred stock under the terms of the Company's operating agreement. The
holders of Series E preferred stock have certain liquidation preferences over
the Series F and G preferred stock under the terms of the Company's operating
agreement. The holders of Series F preferred stock have certain liquidation
preferences over the Series G preferred stock under the terms of the Company's
operating agreement. Series A, B, and C preferred stock are participating with
common stock. Preferred dividends are cumulative and non-interest bearing.
The Company has 4,967,400 common shares reserved to effect the conversion of
all outstanding preferred stock.
(5)Stock Split Effected in the Form of a Stock Dividend
In December 1999, the Company's Board of Directors approved a 4-for-1 stock
split effected in the form of a stock dividend of three shares of common stock
on each share of common stock of the Company. All common stock share numbers in
these financial statements and notes thereto for all periods presented have
been adjusted to reflect the stock split.
(6)Income Taxes
Income tax expense (benefit) differed from the amount computed by applying
the U.S. federal income tax rate of 34% to pretax loss for the year ended
December 31, 1999 as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax benefit................................. $(328,000)
Operations prior to election of a C-corporation status.......... 68,000
State and local taxes, net of federal benefit................... (46,000)
Establishment of deferred income tax upon reorganization to a C
Corporation.................................................... 290,000
Valuation allowance............................................. 207,000
Other, net...................................................... (191,000)
---------
$ --
=========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net loss operating loss carryforward............................ $ 281,000
Accruals........................................................ 217,000
Other........................................................... 1,000
---------
Gross deferred tax assets..................................... 499,000
Deferred tax liabilities--depreciation............................ (2,000)
---------
Net deferred tax asset before valuation allowance............... 497,000
Valuation allowance............................................... (497,000)
---------
Net deferred tax asset........................................ $ --
=========
</TABLE>
F-30
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
During the year ended December 31, 1999, the valuation allowance increased
$207,000 from the valuation allowance balance of $290,000 on January 19, 2000,
the date of the reorganization to a C Corporation, to $497,000 on December 31,
1999. The valuation allowance of $497,000 at December 31, 1999, represents
deferred tax assets that more likely than not will not be realized through the
reversal of future taxable temporary differences.
The Company has net operating loss carryforwards for federal tax reporting
purposes of approximately $249,000 as of December 31, 1999, which begin to
expire in 2011. Net operating loss carryforwards for state income tax purposes
total approximately $32,000 and begin to expire in 2002.
(7)Stock Options and Warrants
(a)Options
The Company's 1999 Stock Option Plan authorizes the granting of up to
4,800,000 nonstatutory common stock options to employees, directors, and
consultants at exercise prices determined by the Board of Directors. Stock
options generally vest ratably over 3 years of service and generally have a
term of 10 years.
The Company's 1999 Stock Option/Issuance Plan authorizes the granting of up
to 400,000 common stock options to employees, directors, and consultants at
exercise prices determined by the Board of Directors. Stock options generally
vest ratably over 3 years of service and generally have a term of 10 years.
The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plan. Accordingly, no compensation cost has been
recognized for any of its stock options because the exercise price of each
option equaled or exceeded the fair value of the underlying common stock at the
grant date. Had compensation cost been determined in accordance with SFAS No.
123 for all of the Company's stock-based compensation plans, net loss would
have been increased to the amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Net loss:
As reported.................................... $ 997,000 1,330,000 963,000
Pro forma...................................... 1,095,000 1,359,000 1,254,000
========== ========= =========
</TABLE>
The per share weighted-average fair value of stock options granted during
1997, 1998 and 1999 was $0.58, $0.15 and $0.43, respectively, on the date of
grant using the minimum value method with the following weighted-average
assumptions: 1997--dividend yield of zero, expected life of three years and a
risk-free interest rate of 7%; 1998--dividend yield of zero, expected life of
two years and a risk-free interest rate of 7%; 1999--dividend yield of zero,
expected life of two years and a risk-free interest rate of 6.0%.
F-31
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
A summary of the Company's stock option plans are as follows:
<TABLE>
<CAPTION>
Weighted-
Number of average
shares exercise price
--------- --------------
<S> <C> <C>
Balance at December 31, 1996........................... -- --
Granted.............................................. 1,327,040 $0.688
---------
Balance at December 31, 1997........................... 1,327,040 0.688
Granted.............................................. 269,332 0.781
---------
Balance at December 31, 1998........................... 1,596,372 0.704
Granted.............................................. 2,532,000 0.892
Exercised............................................ 192,472 0.831
Forfeited............................................ 701,504 0.724
---------
Balance at December 31, 1999........................... 3,234,396 0.839
=========
</TABLE>
At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.781--$1.25 and nine
years, respectively.
(b)Options Granted to Non-employees
In 1997, the Company granted 242,396 options to purchase common stock to
non-employees at exercise prices ranging from $0.20 per share to $0.78 per
share. The options had varying vesting dates. The fair value of the option
issuances was calculated using the Black-Scholes option pricing model with the
following weighted-average assumptions: dividend yield of zero, expected life
of 3 years, volatility of 80% and a risk-free interest rate of 7%. The fair
value of these options was determined to be $32,000 and was recorded as
compensation expense. There were no options granted to non-employees in 1998 or
1999.
(c)Warrants
In 1999, in conjunction with the issuance of the Series G preferred stock,
each share of Series G preferred stock was issued with 1.332 detachable
warrants, with one Series G investor receiving an additional 80,048 warrants,
for a total of 439,716 warrants. The warrants have an exercise price of $2.78,
immediately vest and expire on October 29, 2004. The fair value of each warrant
of $0.34 was estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions: dividend yield of zero, expected
volatility of 85%, risk-free interest rate of 6.0%, and expected life of two
years. The fair value of the warrants of $150,000 was offset against the
proceeds raised. At December 31, 1999, the remaining contractual life of
outstanding warrants was 4.75 years.
(8)Lease Commitments
The Company leases certain equipment and its facilities under various
noncancelable operating leases. The leases expire at various dates ranging over
the next six years. In March 2000, the Company entered into a lease for new
office space through 2005. The lease requires a letter of credit in the amount
of $204,000. Rental expense was approximately $19,000, $50,000, and $164,000
for the years ended December 31, 1997, 1998 and 1999, respectively.
The Company is obligated under capital leases for certain property and
equipment that expire in 2002 and 2003. At December 31, 1999, assets held under
capital leases totaled $71,000, net of accumulated amortization of $9,000.
F-32
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and capital leases as
of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ----------
<S> <C> <C>
Year ending December 31:
2000.................................................. $33,000 $ 459,000
2001.................................................. 33,000 617,000
2002.................................................. 27,000 615,000
2003.................................................. 7,000 613,000
2004.................................................. -- 612,000
Thereafter............................................ -- 307,000
------- ----------
Total minimum lease payments........................ 100,000 $3,223,000
==========
Less amount representing interest (at rates ranging
from 10.9% to 29.2%)................................. 29,000
-------
Present value of minimum lease payments............. 71,000
Less current installments of obligations under capital
leases............................................... 18,000
-------
Obligations under capital leases, excluding current
installments....................................... $53,000
=======
</TABLE>
(9)Related Party Transactions
In 1998, Telepost Incorporated (Telepost) purchased 238,399 shares of the
Company's Series D and Series E preferred stock. In September 1998, the Company
signed a royalty fee agreement with Telepost, which provided for Telepost to
pay the Company a nonrefundable prepaid royalty fee of $1,000,000 in exchange
for the right to use, make, or sub-license to end-users the Company's products
over the 12 month period ending December 31, 1999. In addition, the agreement
provided for Telepost to pay the Company the greater of $50,000 or 10% of
Telepost's monthly sales of the Company's product. Any amount in excess of
$50,000 was to reduce the $1,000,000 prepaid royalty. As the royalty fee
agreement with Telepost expired on December 31, 1999, and the Company has no
continuing obligation to Telepost under the agreement, the $1,000,000 was
recognized as royalty revenue in 1999.
During 1997, 1998 and 1999, the Company paid legal expenses of approximately
$7,000, $98,000 and $344,000, respectively, to a legal firm that is also a
Preferred Series F stockholder.
(10)Employee Benefit Plan
In June 1999, the Company implemented a 401(k) plan for the benefit of
substantially all employees. The Company matches 25% of employee contributions,
up to a maximum of 6% of the employee's compensation. The Company contributed
approximately $70,000 to the plan during the year ended December 31, 1999.
(11)Litigation
Prior to his departure from the Company in December 1998, the Company's
former president held 686,312 options for stock at an average exercise price of
$0.72 per share. The Company asserts that these options terminated after his
service on the Company's Board of Directors ceased. The former president filed
suit against the Company in May 1999 in San Diego County Superior Court for a
judicial declaration that the 686,312
F-33
<PAGE>
CONTIGO SOFTWARE, INC. (Note 1)
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1997, 1998 and 1999
options remain exercisable by him. The Company believes, based in part on the
advice of legal counsel, that the suit is without merit and intends to
vigorously defend its position.
(12)Pro Forma Income Taxes (Unaudited)
Proforma income taxes are computed assuming an effective rate of 40%, which
includes state income taxes, in accordance with C-Corporation tax rates to show
the effect if the Company had been a C-Corporation for 1997, 1998 and 1999.
Pro forma income tax expense (benefit) differs from the amount computed by
applying the U.S. federal income tax rate of 34% to pro forma pretax loss for
the years ended December 31, 1997, 1998 and 1999 as a result of the following:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit................. $(339,000) (452,000) (327,000)
State and local taxes, net of federal benefit... (58,000) (77,000) (56,000)
Valuation allowance............................. 396,000 497,000 299,000
Other........................................... 1,000 32,000 84,000
--------- -------- --------
Proforma income tax expense..................... $ -- -- --
========= ======== ========
</TABLE>
The pro forma tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at December 31, 1998 and 1999
are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Deferred tax assets:
Net loss operating carryforward......................... $601,000 983,000
Accruals................................................ 299,000 217,000
Other................................................... -- 1,000
-------- ----------
Gross deferred tax assets............................. 900,000 1,201,000
Deferred tax liabilities--depreciation.................... -- (2,000)
-------- ----------
Net deferred tax asset before valuation allowance..... 900,000 1,199,000
Valuation allowance....................................... (900,000) (1,199,000)
-------- ----------
Net deferred tax asset................................ $ -- --
======== ==========
</TABLE>
F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000 Shares
Evoke Incorporated
Common Stock
[LOGO]
--------
P R O S P E C T U S
, 2000
--------
Salomon Smith Barney
Robertson Stephens
Thomas Weisel Partners LLC
CIBC World Markets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
At the top of the inside back cover page to the prospectus is the title
"Strategic Partnerships" followed by the words "Evoke services integrate
emerging communication technologies with traditional telephony and other
communication technologies. We also offer our proprietary systems to our
partners as co-branded services that power business communication events over
the Internet." In the background on this page there are two overlapping
computer screen shots. The screen shot depicts our co-branded web page with
Excite@Home's @Work division. Partially on top of this picture, is a computer
screen depicting a Blue Mountain Arts web page co-branded with Evoke. At the
bottom of the page is our logo with words "evoke" and "www.evoke.com."
1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 30,360
NASD filing fee................................................ 12,000
Nasdaq National Market listing application fee................. 70,000
Blue Sky fees and expenses..................................... 5,000
Printing and engraving expenses................................ 180,000
Legal fees and expenses........................................ 500,000
Accounting fees and expenses................................... 200,000
Transfer agent and registrar fees.............................. 5,000
Miscellaneous expenses......................................... 197,640
---------
Total........................................................ 1,200,000
=========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Our bylaws provide that we will indemnify our directors and executive
officers and may indemify our other officers, employees and agents to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation provides that, to the fullest extent permitted by Delaware law,
our directors and executive officers will not be liable for monetary damages
for breach of the directors' fiduciary duty to us and our stockholders. This
provision of the certificate of incorporation does not eliminate the duty of
care. In appropriate circumstances equitable remedies such as an injunction or
other forms of non-monetary relief are available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws.
Each director will continue to be subject to liability for:
. breach of the director's duty of loyalty to Evoke and its stockholders;
. acts or omissions not in good faith or involving intentional misconduct;
. knowing violations of law;
. any transaction from which the director derived an improper personal
benefit;
. improper transactions between the director and Evoke; and
. improper distributions to stockholders and improper loans to directors
and officers.
We intend to enter into indemnity agreements with each of its directors and
executive officers under which each director and executive officer will be
indemnified against expenses and losses incurred for claims brought against
them by reason of their being a director or executive officer of Evoke. Our
board of directors has authorized our officers to investigate and obtain
directors' and officers' liability insurance.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of
any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to our directors, officers and control
persons pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Described below is information regarding all securities that have been
issued by Evoke since its inception.
(a) On March 29, 2000, we issued an aggregate of 686,813 shares of our
Series E Preferred Stock to Microsoft Corporation at a purchase price of
$7.28 per share for cash payment in the amount of $5,000,000.
(b) From November 17, 1999 to December 15, 1999, we issued an aggregate
of 33,333,333 shares of our Series D Preferred Stock to forty-two
accredited investors at a purchase price of $3.00 per share for cash
proceeds in the amount of $100.0 million.
(c) From May 28, 1998 to June 30, 1998, we issued an aggregate of
9,953,935 shares of our Series C Preferred Stock to twenty accredited
investors at a purchase price of $1.04 per share for cash proceeds in the
amount of $9,845,243 and in exchange for an aggregate of $506,849 in
outstanding convertible promissory notes.
(d) On September 2, 1997, we issued an aggregate of 10,135 shares of our
Series B Preferred Stock to eight accredited investors at a purchase price
of $100.00 per share for cash proceeds in the amount of $1,013,500.
(e) On September 2, 1997, we issued an aggregate of 5,025,000 shares of
our Series A Preferred Stock to Messrs. Berberian, LeJeal and Vernon at
$0.10 per share in exchange for an aggregate of $525,000 in outstanding
convertible promissory notes. Mr. Berberian is our chief executive officer,
Mr. LeJeal is our chief operating officer, and Mr. Vernon is our chief
technology officer.
(f) On August 29, 1997, we issued an aggregate of 250,000 shares of our
common stock to our landlord, BMC Properties, LLC at $0.10 per share in
exchange for an aggregate of $25,000 in rental payments. Mr. Chrisman, one
of our former directors, is a managing member of BMC Properties, LLC.
(g) On April 18, 1997, we issued an aggregate of 50,000 shares of our
common stock to Messrs. Berberian and LeJeal at $0.10 per share for cash
proceeds in the amount of $5,000.
(h) As of February 29, 2000, an aggregate of 982,759 shares of common
stock had been issued upon exercise of options and stock issuance rights
under our 1997 Stock Option/Stock Issuance Plan.
The issuances of the securities described in (a) - (g) above were deemed to
be exempt from registration under the Securities Act of 1933, as amended, in
reliance on Section 4(2) of the Securities Act as transactions by an issuer
not involving any public offering. The issuances of the securities described
in (h) above were deemed to be exempt from registration under the Securities
Act in reliance on Rule 701 under the Securities Act as transactions by an
issuer in compensatory circumstances. The recipients of the above-described
securities represented their intention to acquire the securities for
investment only and not with a view for distribution thereof. In each
instance, the recipients were sophisticated investors or employees of ours,
the offer and sales were made without any public solicitation, and all the
stock certificates bear restrictive legends. No underwriter was involved in
the transaction and no commissions were paid. All recipients had adequate
access, through employment or other relationships, to information about Evoke.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization by and among Registrant,
Contigo Software, Inc. and CSI Acquisition Coporation dated as of
March 24, 2000.
3.1 Restated Certificate of Incorporation.
3.2** Form of Restated Certificate of Incorporation to become effective
upon the closing of this offering.
3.3** Bylaws.
3.4** Amended and Restated Bylaws to become effective upon the closing of
this offering.
4.1** Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen stock certificate representing shares of common stock.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1 2000 Equity Incentive Plan.
10.2 2000 Employee Stock Purchase Plan.
10.3 Amended and Restated Stockholders' Agreement, among the Registrant,
certain of its stockholders and certain of its management, dated
March 29, 1999.
10.4** Amended and Restated Investors' Agreement, among the Registrant and
certain of its stockholders, dated November 17, 1999.
10.5** First Amendment to Amended and Restated Investors' Agreement, dated
as of November 17, 1999, among the Registrant and certain of its
stockholders, dated December 15, 1999.
10.6** Form of Indemnity Agreement to be entered into between Registrant
and each of its directors and executive officers.
10.7** Series B Preferred Stock Purchase Agreement, among Registrant and
the parties named therein, as amended, dated September 2, 1997.
10.8** Series C Preferred Stock Purchase Agreement, among Registrant and
the parties named therein, as amended, dated May 27, 1998.
10.9** Series D Preferred Stock Purchase Agreement, among Registrant and
the parties named therein, as amended, dated November 17, 1999.
10.10** First Amendment to Series D Preferred Stock Purchase Agreement,
dated as of November 17, 1999 between Registrant and the parties
named therein, dated December 15, 1999.
10.11** Note and Warrant Purchase Agreement, dated March 31, 1998, among
Registrant and the partners named therein.
10.12** Lease, dated March 3, 1997, between BMC Properties, LLC and
Registrant.
10.13** Lease, dated June 6, 1999, between BLC Properties, LLC and
Registrant.
10.14+** Source Code and Object Code License Agreement, dated December 29,
1999, between Registrant and AudioTalk Networks, Inc.
10.15** Personal Services Agreement, dated November 17, 1999, between
Registrant and Jim LeJeal.
10.16** Personal Services Agreement, dated November 17, 1999, between
Registrant and Paul Berberian.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment to be requested with respect to portions of these
exhibits.
** Previously filed.
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.17+** Services Agreement, date November 17, 1999, between the Registrant
and At Home Corporation d.b.a Excite@Home.
10.18 Series E Preferred Stock Purchase Agreement, dated as of March 29,
2000, between Registrant and Microsoft Corporation.
10.19 Personal Services Agreement, dated March 30, 2000, between the
Registrant and Terence G. Kawaja.
23.1** Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of KPMG LLP for Evoke, Inc.
23.3 Consent of KPMG LLP for Contigo Software, Inc.
24.1** Powers of attorney (included on Page II-5).
24.2 Power of attorney for Terence Kawaja and Andre Meyer.
27** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment to be requested with respect to portions of these
exhibits.
** Previously filed.
(b) Financial Statement Schedules.
Not applicable.
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
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, 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 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 of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Louisville, County of Boulder, State of Colorado, on March 30, 2000.
/s/ Paul A. Berberian
By:
----------------------------------
Paul A. Berberian
Chairman of the Board,
Chief Executive Officer
and President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul A. Berberian Chairman of the Board, March 30, 2000
___________________________________________ Chief Executive Officer
Paul A. Berberian and President (Principal
Executive Officer)
/s/ * Chief Operating Officer, March 30, 2000
___________________________________________ Secretary, Treasurer and
James M. LeJeal Director (Principal
Accounting Officer)
/s/ Terence G. Kawaja Executive Vice President March 30, 2000
___________________________________________ and Chief Financial
Terence G. Kawaja Officer (Principal
Financial Officer)
/s/ Andre Meyer Director March 30, 2000
___________________________________________
Andre Meyer
/s/ * Director March 30, 2000
___________________________________________
Don Hutchison
/s/ * Director March 30, 2000
___________________________________________
Bradley A. Feld
/s/ * Director March 30, 2000
___________________________________________
Donald H. Parsons, Jr.
/s/ * Director March 30, 2000
___________________________________________
</TABLE> Carol deB. Whitaker
/S/ Paul A. Berberian
*By--__________________________
Paul A. Berberian
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization by and among Registrant, Contigo
Software, Inc. and CSI Acquisition Coporation dated as of March 24,
2000.
3.1 Restated Certificate of Incorporation.
3.2** Form of Restated Certificate of Incorporation to become effective
upon the closing of this offering.
3.3** Bylaws.
3.4** Amended and Restated Bylaws to become effective upon the closing of
this offering.
4.1** Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen stock certificate representing shares of common stock.
5.1* Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1 2000 Equity Incentive Plan.
10.2 2000 Employee Stock Purchase Plan.
10.3 Amended and Restated Stockholders' Agreement, among the Registrant,
certain of its stockholders and certain of its management, dated
March 29, 1999.
10.4** Amended and Restated Investors' Agreement, among the Registrant and
certain of its stockholders, dated November 17, 1999.
10.5** First Amendment to Amended and Restated Investors' Agreement, dated
as of November 17, 1999, among the Registrant and certain of its
stockholders, dated December 15, 1999.
10.6** Form of Indemnity Agreement to be entered into between Registrant and
each of its directors and executive officers.
10.7** Series B Preferred Stock Purchase Agreement, among Registrant and the
parties named therein, as amended, dated September 2, 1997.
10.8** Series C Preferred Stock Purchase Agreement, among Registrant and the
parties named therein, as amended, dated May 27, 1998.
10.9** Series D Preferred Stock Purchase Agreement, among Registrant and the
parties named therein, as amended, dated November 17, 1999.
10.10** First Amendment to Series D Preferred Stock Purchase Agreement, dated
as of November 17, 1999 between Registrant and the parties named
therein, dated December 15, 1999.
10.11** Note and Warrant Purchase Agreement, dated March 31, 1998, among
Registrant and the partners named therein.
10.12** Lease, dated March 3, 1997, between BMC Properties, LLC and
Registrant.
10.13** Lease, dated June 6, 1999, between BLC Properties, LLC and
Registrant.
10.14+** Source Code and Object Code License Agreement, dated December 29,
1999, between Registrant and AudioTalk Networks, Inc.
10.15** Personal Services Agreement, dated November 17, 1999, between
Registrant and Jim LeJeal.
10.16** Personal Services Agreement, dated November 17, 1999, between
Registrant and Paul Berberian.
10.17+** Services Agreement, dated November 17, 1999, between Registrant and
At Home Corporation d.b.a. Excite@Home.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment to be requested with respect to portions of these
exhibits.
** Previously filed.
I-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.18 Series E Preferred Stock Purchase Agreement, dated as of March 29,
2000, between Registrant and Microsoft Corporation.
10.19 Personal Services Agreement, dated March 30, 2000, between the
Registrant and Terence G. Kawaja.
23.1** Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 Consent of KPMG LLP for Evoke, Inc.
23.3 Consent of KPMG LLP for Contigo Software, Inc.
24.1** Powers of attorney (included on Page II-5).
24.2 Power of attorney for Terence Kawaja and Andre Meyer.
27** Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment to be requested with respect to portions of these
exhibits.
I-2
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
EVOKE INCORPORATED
CONTIGO SOFTWARE, INC.,
AND
CSI ACQUISITION CORPORATION
DATED AS OF MARCH 24, 2000
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made and
entered into as of March 24, 2000 by and among Evoke Incorporated, a Delaware
corporation ("Buyer"), Contigo Software, Inc., a California corporation (the
"Company"), and CSI Acquisition Corporation, a California corporation ("Merger
Sub").
Recitals
Whereas, the Boards of Directors of each of the Company and Buyer believe
it is in the best interests of each company and their respective Shareholders
that Buyer acquire the Company through the statutory merger of a wholly owned
subsidiary of Buyer with and into the Company (the "Merger") and, in furtherance
thereof, have approved the Merger.
Whereas, pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company shall be converted into the
right to receive shares of common stock of Buyer and, in the case of the Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock of the
Company, the right to receive cash.
Whereas, a portion of the shares of common stock of Buyer otherwise
issuable by Buyer in connection with the Merger shall be placed in escrow by
Buyer for purposes of satisfying damages, losses, expenses and other similar
charges which result from breaches of the representations, warranties and
covenants of the Company contained herein.
Whereas, the parties intend that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code") and that this Agreement shall constitute a plan
of reorganization.
Whereas, the Company and Buyer desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
Now, Therefore, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 Merger Subsidiary.
1.1.1 On or prior to the execution of this Agreement, Buyer has
caused CSI Acquisition Company, a California corporation ("Merger Sub"), to be
organized for the sole purpose of effectuating the Merger contemplated hereby.
1.1.2 The Articles of Incorporation and Bylaws of Merger Sub are in
such forms as determined by Buyer.
1.
<PAGE>
1.1.3 The unauthorized capital stock of Merger Sub initially consists
of 100 shares of common stock, no par value, which have been issued to Buyer at
a price of $1.00 per share.
1.1.4 Buyer has (i) elected the directors of Merger Sub, (ii) caused
the directors of Merger Sub to elect the officers of Merger Sub, and (iii) cause
the directors of Merger Sub to ratify and approve this Agreement and to approve
the form of the Merger Agreement (as defined below).
1.2 The Merger. At the Effective Time (as defined in Section 1.3) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California Corporations Code ("CCC"), Merger Sub
shall be merged with and into the Company, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation and as a wholly-owned subsidiary of Buyer. The surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.3 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than two (2) business days following the
approval of the Merger by either (i) written consent of the Company's
Shareholders or (ii) consent of the Company's Shareholders at the Company
Shareholders Meeting (as described in Section 5.1) and the satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Cooley
Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder, Colorado 80302 unless
another place or time is agreed to in writing by Buyer and the Company. The date
upon which the Closing actually occurs is herein referred to as the "Closing
Date." On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing an Agreement of Merger (or like instrument) substantially
in the form attached hereto as Exhibit A with the Secretary of State of the
State of California (the "Merger Agreement"), in accordance with the applicable
provisions of the CCC (the time of acceptance by such Secretary of State of such
filing being referred to herein as the "Effective Time").
1.4 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of CCC. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws.
1.5.1 Unless otherwise determined by Buyer prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of Merger Sub shall
be the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Articles of Incorporation.
2.
<PAGE>
1.5.2 Unless otherwise determined by Buyer prior to the Effective
Time, the Bylaws of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.
1.6 Directors and Officers. The directors of Merger Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time, each to hold the office of director of the
Surviving Corporation in accordance with the provisions of the applicable laws
of the State of California and the Articles of Incorporation and Bylaws of the
Surviving Corporation until their successors are duly qualified and elected. The
officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation immediately after the Effective Time, each
to hold office in accordance with the provisions of the Bylaws of the Surviving
Corporation.
1.7 Certain Definitions. For all purposes of this Agreement, the following
terms shall have the following meanings:
"Buyer Common Stock" shall mean shares of the common stock, $.001 par value
per share, of Buyer.
"Buyer IPO" shall mean the initial public offering of Buyer Common Stock to
be made pursuant to the Buyer Registration Statement.
"Buyer Registration Statement" means the Registration Statement on Form S-1
of Buyer pertaining to the Buyer IPO, Amendment No. 1 to which was filed with
the SEC on February 18, 2000, including amendments thereto from time to time.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Capital Stock" shall mean all shares of Company Common Stock,
Company Preferred Stock and any other capital stock of the Company.
"Company Common Stock" shall mean shares of the Common Stock of the
Company.
"Company Option Plans" shall mean the Company's 1999 Stock Option Plan and
1999 25102(o) Stock Option/Stock Issuance Plan.
"Company Options" shall mean all issued and outstanding options, warrants
and other rights to acquire or receive Company Capital Stock (whether or not
vested).
"Company Preferred Stock" shall mean shares of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock, the
Series G Preferred Stock and any other Series of preferred stock of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Ratio" shall equal the quotient obtained by dividing (i)
9,000,000 by (ii) the sum of: (x) the aggregate number of Total Outstanding
Company Shares and (y) the aggregate
3.
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number of shares of Company Capital Stock subject to Company Options (in the
case of Company Options, if any, exercisable for convertible securities,
computed on a Company Common Stock equivalent basis, giving effect to the
conversion ratio governing each such convertible security but without giving
effect to any and all declared or accumulated and unpaid dividends) outstanding
immediately prior to the Effective Time, minus the shares of Company Capital
Stock attributable to outstanding unexercised Company Options which by their
terms can never be exercised after the Merger.
"GAAP" shall mean generally accepted accounting principles in effect from
time to time in the United States, applied on a consistent basis for the
relevant entity.
"Knowledge" of a person shall mean the actual knowledge of the person, and
knowledge of a corporation shall mean the actual knowledge of an officer or
director of the corporation, in each case following reasonable investigation.
"Material Adverse Effect" shall mean any change, event or effect that is
materially adverse to the business, assets (including intangible assets),
financial condition, results of operations or prospects of the entity referred
to.
"Related Agreements" shall mean all such ancillary agreements required in
this Agreement to be executed and delivered in connection with the transactions
contemplated hereby.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholder" shall mean each holder of any Company Capital Stock
immediately prior to the Effective Time.
"Total Outstanding Company Shares" shall be the aggregate number of shares
of Company Capital Stock outstanding immediately prior to the Effective Time (in
the case of convertible securities, computed on a Company Common Stock
equivalent basis, giving effect to the conversion ratio governing each such
convertible security but without giving effect to any and all declared or
accumulated and unpaid dividends).
1.8 Effect of the Merger on the Capital Stock of the Constituent
Corporations.
1.8.1 Effect On Company Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Merger Sub, the
Company or the Shareholders, each share of Company Capital Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares (as defined in Section 1.8.6)) will be canceled and extinguished and be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of Company Capital Stock in the manner
provided for in this Section 1.8.1, a fraction of a share of Buyer Common Stock
(subject to Section 1.8.5) equal to the Exchange Ratio. In the case of Company
Capital Stock consisting of convertible securities (including, without
limitation, shares of Company Preferred Stock that remain outstanding
immediately prior to the Effective Time), the Exchange Ratio shall be applied to
such shares on a
4.
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Company Common Stock equivalent basis, giving effect to the conversion ratio
governing each such convertible security but constituting a forgiveness and
cancellation, in effect, of any and all declared or accumulated and unpaid
dividends. In addition, at the Effective Time, in respect of the terms of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
set forth in Article III.B.2 of the Company's Articles of Incorporation with
respect to a right to receive a liquidation preference (the "Liquidation
Preference"), Buyer shall make a cash payment in the amount of $2.2472 per share
of Series A Preferred Stock upon surrender of the certificate representing such
share of Series A Preferred Stock in the manner provided for in this Section
1.8.1 (such cash amount to be received by all holders of Series A Preferred
Stock shall in no event exceed $300,001.20 in the aggregate), $2.2472 per share
of Series B Preferred Stock upon surrender of the certificate representing such
share of Series B Preferred Stock in the manner provided for in this Section
1.8.1 (such cash amount to be received by all holders of Series B Preferred
Stock shall in no event exceed $300,001.20 in the aggregate), and $3.00 per
share of Series C Preferred Stock upon surrender of the certificate representing
such share of Series C Preferred Stock in the manner provided for in this
Section 1.8.1 (such cash amount to be received by all holders of Series C
Preferred Stock shall in no event exceed $500,001.00 in the aggregate), and such
cash payment and Buyer Common Stock shall satisfy all rights of such Preferred
Stock with respect to such Liquidation Preference. All shares of Buyer Common
Stock issued in exchange for shares of Company Capital Stock subject to Company
repurchase rights or vesting schedules shall be subject to the same repurchase
rights and/or vesting schedules and other terms as applicable to such shares of
Company Capital Stock, with Buyer succeeding to the rights of the Company
thereunder and with a proportionate adjustment to any per share repurchase price
applicable to such shares to reflect the Exchange Ratio.
Notwithstanding anything contained in this Section 1.8.1 to the contrary,
each share of Company Capital Stock issued and held in the Company's treasury
immediately prior to the Effective Time shall, by virtue of the Merger, cease to
be outstanding and shall be canceled and retired without payment of any
consideration therefor.
1.8.2 Effect on Company Options; Agreement Concerning Warrants.
(a) At the Effective Time, Buyer shall, in connection with the
Merger, assume the Company Option Plans and each outstanding Company Option, as
adjusted pursuant to Section 1.8.2(b) below, except for Company Options which by
their terms can never be exercisable after the Merger.
(b) On or as soon as practicable following the date of this
Agreement, the Board of Directors of the Company (or, if appropriate, any
committee thereof administering the Company Option Plans) shall adopt any
resolutions or take any other actions as may be required to effect the
following:
(i) adjust the terms of all outstanding Company Options
(each, as so adjusted, an "Adjusted Option"), whether vested or unvested, as
necessary to provide that, at the Effective Time, each Company Option
outstanding immediately prior to the Effective Time shall be amended and
converted into an option to acquire, on the same terms and conditions as were
applicable under such Company Option that number of whole shares of Buyer Common
Stock equal to the product obtained by multiplying the number of shares of
Company
5.
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Capital Stock that were issuable upon exercise in full of such assumed Company
Option immediately prior to the Effective Time (in the case of Company Options,
if any, exercisable for convertible securities, computed on a Company Common
Stock equivalent basis, giving effect to the conversion ratio governing each
such convertible security) by the Exchange Ratio, rounded down to the nearest
whole number of shares of Buyer Common Stock, at an exercise price equal to the
quotient obtained by dividing the exercise price per share of Company Capital
Stock at which such Company Option was exercisable immediately prior to the
Effective Time (in the case of Company Options, if any, exercisable for
convertible securities, computed on a Company Common Stock equivalent basis,
giving effect to the conversion ratio governing each such convertible security)
by the Exchange Ratio, rounded up to the nearest whole cent; and
(ii) make such other changes to the Company Option Plans
as the Company and Buyer may agree are appropriate to give effect to the Merger.
(c) The adjustments provided in this Section 1.8.2 with
respect to any Company Option to which Section 421(a) of the Code applies shall
be and are intended to be effected in a manner which is consistent with Section
424(a) of the Code so that no such adjustment shall cause (other than de minimis
changes resulting from mathematical rounding) (i) the ratio of the exercise
price of each Adjusted Option to the fair market value of the Buyer Common Stock
subject to such Adjusted Option immediately following the Effective Time to be
more favorable to the optionee than the ratio of the corresponding Company
Option exercise price to the fair market value of the Company Capital Stock
subject to such corresponding Company Option immediately prior to the Effective
Time or (ii) the excess of the aggregate fair market value of all shares of
Buyer Common Stock subject to each Adjusted Option immediately following the
Effective Time over the aggregate exercise price of such Adjusted Option to be
more than the excess of the aggregate fair market value of all shares of Company
Capital Stock subject to the corresponding Company Option immediately prior to
the Effective Time over the aggregate exercise price of such corresponding
Company Option. As soon as practicable after the Effective Time, Buyer shall
deliver to the holders of Company Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Option Plans and the
agreements evidencing the grants of such Company Options and that such Company
Options and agreements shall be assumed by Buyer and shall continue in effect on
the same terms and conditions (subject to the adjustments required by this
Section 1.8.2 after giving effect to the Merger).
(d) After the Effective Time, a holder of an Adjusted Option
may exercise such Adjusted Option in whole or in part in accordance with its
terms by following procedures to be communicated by Buyer with the notice
contemplated by paragraph (c) above, together with the consideration therefor
and the federal withholding tax information, if any, required in accordance with
the related Company Option Plan.
(e) Except as otherwise expressly provided by this Section
1.8.2, Section 5.16 and Section 5.23 and except to the extent required under the
respective terms of the Company Options, all restrictions or limitations on
transfer and vesting with respect to Company Options awarded under the Company
Option Plans or any other plan, program or arrangement of the Company, to the
extent that such restrictions or limitations shall not have already lapsed, and
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all other terms thereof, shall remain in full force and effect with respect to
such options after giving effect to the Merger and the assumption by Buyer as
set forth above.
(f) The Company shall cooperate with, and assist Buyer in the
preparation of a registration statement on Form S-8 (or other appropriate form)
for the purpose of registering shares of Buyer Common Stock subject to Company
Options.
(g) The Company agrees to use its commercially reasonable
efforts to cause all other warrants to acquire Company Capital Stock (including
without limitation those certain Warrants dated as of various dates in October
1999 and November 1999 issued to investors of the Company's Series G Preferred
Stock) to be exercised in full or otherwise cancelled (without the payment of
any consideration) prior to the Effective Time, and to provide evidence thereof
reasonably satisfactory to the Buyer prior to or at the Closing. Notwithstanding
anything herein to the contrary, prior to the Effective Time, the Company shall
cause all commitments to issue or grant options or similar rights to purchase or
receive Company Capital Stock to be terminated.
(h) Buyer acknowledges that the Company will allow holders of
Company Options to net exercise any portion of such Company Options that are
vested prior to the Effective Date.
1.8.3 Effect on Capital Stock of Merger Sub. Each share of common
stock, no par value, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, no par value, of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership
of any such shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
1.8.4 Adjustment To Buyer Common Stock. The number of shares of Buyer
Common Stock issuable hereunder shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Buyer Common Stock or Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Buyer Common Stock or Company Capital Stock occurring after the date
hereof and prior to the Effective Time.
1.8.5 Fractional Shares. Notwithstanding anything to the contrary in
this Agreement, no fractional shares of Buyer Common Stock shall be issued
pursuant to the Merger. In lieu of the issuance of any fractional share of Buyer
Common Stock pursuant to the Merger, cash adjustments will be paid to holders in
respect of any fractional share of Company Capital Stock that would otherwise be
issuable, and the amount of such cash adjustment shall be equal to the product
of (a) such fractional amount and (b) either (i) if Buyer Common Stock is then
publicly traded, the average closing price of Buyer Common Stock on the Nasdaq
National Market for the five (5) trading days ending on the trading day prior to
the Effective Time or (ii) if Buyer Common Stock is not then publicly traded,
the fair market value of a share of Buyer Common Stock as determined by the
Buyer's Board of Directors in good faith.
7.
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1.8.6 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, any shares of Company Capital Stock issued and
outstanding immediately prior to the Effective Time that are held by a
Shareholder who has not voted such shares in favor of the Merger and who has
delivered a written demand for purchase of such shares in the manner provided in
Section 1301 of the CCC ("Dissenting Shares"), shall not be converted into or
represent a right to receive Buyer Common Stock pursuant to Section 1.8.1,
unless and until such holder shall have failed to perfect or shall have
effectively withdrawn or lost such holder's right to purchase and payment under
the CCC. Notwithstanding the provisions of this Section, if any holder of
Dissenting Shares shall effectively withdraw or lose (through failure to perfect
or otherwise) such right, then, as of the Effective Time, such holder's shares
shall automatically be converted into and represent only the right to receive
the shares of Buyer Common Stock to which such Shareholder would otherwise be
entitled under Section 1.8.1 (less the number of shares allocable to such
Shareholder that have been deposited into the Escrow Fund on such holder's
behalf pursuant to Article VII), upon surrender of the certificate representing
such shares. The Company shall give Buyer (i) prompt notice of any written
demand received by the Company for purchase of its shares pursuant to the
applicable provisions of the CCC and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Buyer, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands. To the extent that the Company makes any payments in respect of any
Dissenting Shares prior to the Effective Time, Buyer shall be entitled to
recover under the terms of Article VII hereof the aggregate amount by which such
payment or payments exceed the aggregate consideration that otherwise would have
been payable in respect of such shares (for this purpose, valued in the same
manner specified in Section 7.2.5(b) below). From and after the Effective Time,
no shareholder who has exercised dissenters' rights as provided in Chapter 13 of
the CCC shall be entitled to vote such holder's shares for any purpose or to
receive payment of dividends or other distributions with respect to such
holder's shares (except dividends and other distributions payable to
shareholders of record at a date which is prior to the Effective Time).
1.8.7 Surrender of Certificates.
(a) Buyer shall appoint a reputable institution to serve as
exchange agent (the "Exchange Agent") in the Merger.
(b) Within three (3) business days after the Effective Time,
Buyer shall make available to the Exchange Agent for exchange in accordance with
this Article I the shares of Buyer Common Stock issuable pursuant to Section
1.8.1 in exchange for all the outstanding shares of Company Capital Stock;
provided, however, that on behalf of the Shareholders, pursuant to Section 7.2
hereof, Buyer shall deposit into an escrow account 10% of the shares of Buyer
Common Stock otherwise issuable to the Shareholders pursuant to Section 1.8.1
(the "Escrow Amount"). The portion of the Escrow Amount contributed on behalf of
each Shareholder shall be in proportion to the aggregate number of shares which
such Shareholder would otherwise be entitled to receive in the Merger by virtue
of ownership of outstanding shares of Company Capital Stock unless so otherwise
agreed by certain Shareholders.
(c) On the Closing Date or promptly thereafter, the
Shareholders will surrender the certificates representing their Company Capital
Stock (the "Certificates") to the
8.
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Exchange Agent for cancellation together with a letter of transmittal in such
form and having such provisions as Buyer may reasonably request. Buyer shall
provide such letter of transmittal to the Shareholders on the Closing Date or as
promptly thereafter as practicable. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the Exchange Agent will promptly deliver to the holder of such Certificate in
exchange therefor a certificate representing the number of whole shares of Buyer
Common Stock (less the number of shares of Buyer Common Stock to be deposited in
the Escrow Fund on such holder's behalf pursuant to Section 1.8.7(b) and Article
VII) to which such Shareholder is entitled pursuant to Section 1.8.1, and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Capital Stock will be deemed from and after the Effective
Time, for all corporate purposes, to evidence only the right to receive the
number of full shares of Buyer Common Stock into which such shares of Company
Capital Stock shall have been converted pursuant to this Article I (except as
may otherwise be provided under the CCC with respect to Dissenting Shares),
together with any cash in lieu of fractional shares. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Buyer shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing that
number of shares of Buyer Common Stock equal to the Escrow Amount, which shall
be registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holder on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Buyer as provided in Article VII.
(d) No dividends or other distributions declared or made after
the Effective Time with respect to Buyer Common Stock with a record date after
the Effective Time will be paid to any holder of any unsurrendered Certificate
with respect to the shares of Buyer Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of Buyer
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Buyer Common Stock.
(e) If any certificate for shares of Buyer Common Stock is to
be issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance thereof
that the certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Buyer or any agent designated by it any transfer or other taxes required
by reason of the issuance of a certificate for shares of Buyer Common Stock in
any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of Buyer or any agent designated
by it that such tax has been paid or is not payable.
(f) In the event any certificates evidencing shares of Company
Capital Stock shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed certificates, upon
the making of an affidavit of that fact by the holder thereof, the number of
shares of Buyer Common Stock, if any, as may be required pursuant to Section
1.8.1; provided, however, that Buyer may, in its discretion and as a condition
9.
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precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver a bond in such sum as it may reasonably direct
against any claim that may be made against Buyer or the Exchange Agent with
respect to the certificates alleged to have been lost, stolen or destroyed.
Notwithstanding the foregoing, Buyer acknowledges and agrees that delivery of a
bond shall not be required prior to the Buyer IPO so long as the holder provides
customary indemnities relating to a lost, stolen or destroyed certificate in
addition to making an affidavit of that fact.
(g) Notwithstanding anything to the contrary in this Section
1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Buyer Common Stock or Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) All shares of Buyer Common Stock (plus, in the case of the
Company's Series A Preferred Stock , Series B Preferred Stock and Series C
Preferred Stock, the specified cash) issued upon the surrender for exchange of
shares of Company Capital Stock in accordance with the terms hereof shall be
deemed to be issued in full satisfaction of all rights pertaining to such shares
of Company Capital Stock, including rights to receive accumulated or declared
and unpaid dividends, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Capital Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
(i) Dissenting Shares, if any, after payments of fair value in
respect thereto have been made to dissenting Shareholders of the Company
pursuant to the CCC and this Article I, shall be canceled.
1.8.8 Tax Consequences; Accounting Treatment. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368(a) of the Code. Each party has consulted with its own tax
advisors with respect to the tax consequences of the Merger. It is intended by
the parties hereto that the Merger shall be treated as a purchase for accounting
purposes. Each party has consulted with its own accounting advisors with respect
to the accounting treatment of the Merger.
1.8.9 Further Assurances. If, at any time after the Effective Time,
any further action is necessary or desirable to consummate the Merger, to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Buyer are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
10.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer, subject to such
exceptions as are specifically disclosed in the disclosure schedule referencing
the appropriate section and paragraph numbers (provided that the failure to
refer to a particular section or paragraph will not affect the applicability of
a disclosure to such section or paragraph if the nature of such disclosure makes
reasonably clear the applicability thereof to the subject matter of such section
or paragraph) supplied by the Company to Buyer (the "Disclosure Schedule") and
dated as of the date hereof, that on the date hereof and as of the Effective
Time as though made at the Effective Time as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power and authority to own and use its
properties and assets and to carry on its business as now being conducted. The
Company is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
be reasonably likely to have a Material Adverse Effect. The Company has
delivered a true and correct copy of its Articles of Incorporation and Bylaws,
each as amended to date, to Buyer. The Company is not in violation of any of the
provisions of its Articles of Incorporation or Bylaws. Section 2.1 of the
Disclosure Schedule lists the directors and officers of the Company. The
operations now being conducted by the Company have not been conducted under any
other name.
2.2 Subsidiaries. The Company does not have, and has never had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint venture
or other business entity.
2.3 Company Capital Structure.
2.3.1 The authorized capital stock of the Company consists of (i)
15,000,000 shares of Company Common Stock, of which 3,985,596 shares were
outstanding as of the date of this Agreement; (ii) 133,500 shares of Series A
Preferred Stock, of which 133,500 shares are outstanding as of the date of this
Agreement; (iii) 133,500 shares of Series B Preferred Stock, of which 133,500
shares are outstanding as of the date of this Agreement; (iv) 166,667 shares of
Series C Preferred Stock, of which 166,667 shares are outstanding as of the date
of this Agreement; (v) 133,333 shares of Series D Preferred Stock, of which
133,333 shares are outstanding as of the date of this Agreement; (vi) 105,066
shares of Series E Preferred Stock, of which 105,066 shares are outstanding as
of the date of this Agreement; (vii) 300,000 shares of Series F Preferred Stock,
of which 300,000 shares are outstanding as of the date of this Agreement; and
(viii) 270,000 shares of Series G Preferred Stock, of which 269,784 shares are
outstanding as of the date of this Agreement. In addition, as of the date of
this Agreement, there are outstanding warrants exercisable for 439,716 shares of
Common Stock. As of the date of this Agreement, the Company Capital Stock is
held by the persons, with the domicile addresses and in the amounts set forth in
Section 2.3.1 of the Disclosure Schedule. All outstanding shares of
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Company Capital Stock are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of the Company or any agreement to which the
Company is a party or by which it is bound and have been issued in compliance
with federal and state securities laws. There are no declared and unpaid
dividends with respect to any shares of the Company Capital Stock. If
accumulated dividends are disregarded, each outstanding share of Preferred Stock
is convertible into four (4) shares of Company Common Stock. The Company has no
other capital stock authorized, issued or outstanding.
2.3.2 Except for the Company Option Plans, the Company has never
adopted or maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has reserved 4,800,000 and 435,000
shares of Company Capital Stock for issuance to employees and consultants
pursuant to the 1999 Stock Option Plan and 1999 25102(o) Stock Option/Stock
Issuance Plan, respectively. Of such shares, as of the date of this Agreement,
1,120,996 shares have been issued upon exercise of Company Options under the
1999 Stock Option Plan and 1999 25102(o) Stock Option/Stock Issuance Plan and
3,420,480 shares are subject to outstanding unexercised options under the 1999
Stock Option Plan and 1999 25102(o) Stock Option/Stock Issuance Plan. Section
2.3.2.1 of the Disclosure Schedule sets forth for each outstanding Company
Option, as of the date of this Agreement, the name of the holder of such option,
the domicile address of such holder, the number and class or series of shares of
Company Capital Stock subject to such option, the exercise price of such option,
the vesting schedule for such option, including the extent vested to date and
whether the exercisability of such option will be accelerated by the
transactions contemplated by this Agreement, the Option Plan under which such
option was granted, and whether such option is intended to qualify as an
incentive stock option as defined in Section 422 of the Code. Except for the
Company Options as set forth in Section 2.3.2.2 of the Disclosure Schedule,
there are no options, warrants, calls, convertible securities (other than the
Company Preferred Stock), exchangeable securities, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of Company Capital Stock or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, convertible security, exchangeable security,
right, commitment or agreement. There is no outstanding Company Capital Stock
which is subject to vesting.
2.3.3 There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or other similar rights with respect to the
Company. The Company is not a party to and, to the Company's knowledge, there
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting stock of the Company.
2.3.4 As a result of the Merger, Buyer will be the record and sole
beneficial owner of all outstanding Company Capital Stock and all rights to
acquire or receive any Company Capital Stock, whether or not such Company
Capital Stock is outstanding.
2.4 Authority. The Company has all requisite power and authority to enter
into this Agreement and the Related Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and any
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Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, and no further action is
required on the part of the Company to authorize this Agreement, any Related
Agreements to which it is a party and the transactions contemplated hereby and
thereby, subject only to the approval of this Agreement by the Shareholders and
the receipt of required third party consents (which material third party
consents are identified in Section 2.6 of the Disclosure Schedule). This
Agreement, the Merger and any Related Agreements to which the Company is a party
have been unanimously approved by the Board of Directors of the Company. This
Agreement has been, and any Related Agreements to which the Company is a party
have been or will have been prior to the Effective Time, duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties hereto and thereto, constitute the valid and
binding obligation of the Company, enforceable in accordance with their
respective terms, except as such enforceability may be limited by principles of
public policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies.
2.5 No Conflict. The execution and delivery of this Agreement and any
Related Agreements to which it is party by the Company do not, and, the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit (any such event, a "Conflict") under (i) any provision of the Articles
of Incorporation and Bylaws of the Company, (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise or
license to which the Company or any of its properties or assets are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets; except for a Conflict
under subsection (ii) or (iii) above that would not have a Material Adverse
Effect on the Company or on the ability of the parties to consummate the Merger
or the other transactions contemplated by this Agreement and the Related
Agreements.
2.6 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party, including a party to any agreement with the Company (so as not to
trigger any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws, (ii) the filing of
the Merger Agreement with the Secretary of State of the State of California,
(iii) the approval of the Merger by the Company's Shareholders, (iv) any other
filings or approvals as may be required under California state law, and (v)
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made, would not have a
Material Adverse Effect on the Company or on the ability of the parties to
consummate the Merger or the other transactions contemplated by this Agreement.
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2.7 Company Financial Statements. Section 2.7 of the Disclosure Schedule
sets forth the Company's audited balance sheets as of December 31, 1999,
December 31, 1998 and December 31, 1997 and the related audited income
statements, statements of stockholders' equity and statements of cash flows of
the Company for the years then ended, together with the notes thereto and the
unqualified report and opinion of KPMG relating thereto, and the Company's
unaudited balance sheet as of February 29, 2000 and related unaudited statements
of income and cash flow for the two-month period then ended (collectively, the
"Financials"). The Financials are correct and complete in all material respects
and have been prepared in accordance with GAAP, applied on a basis consistent
throughout the periods indicated and consistent with each other (except that the
interim period Financials may not contain all the notes that may be required by
GAAP). The Financials present fairly the financial condition and operating
results of the Company as of the dates and during the periods indicated therein,
subject to normal year-end adjustments, which will not be material in amount or
significance. The Company's Balance Sheet as of February 29, 2000 shall be
hereinafter referred to as the "Current Balance Sheet."
2.8 No Undisclosed Liabilities. To the Company's Knowledge, the Company
has no liability, indebtedness, obligation, expense, claim, deficiency, guaranty
or endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or otherwise (collectively, "Contingent Liabilities") (whether or not
required to be reflected in financial statements in accordance with GAAP), other
than (i) Contingent Liabilities that are reserved or otherwise reflected
expressly in the Current Balance Sheet and (ii) Contingent Liabilities that have
arisen in the ordinary course of business consistent with past practices since
February 29, 2000 (which, in the aggregate, are not material in amount or
significance).
2.9 No Changes. Except as contemplated by this Agreement or the Related
Agreements, from December 31, 1999 through the date of this Agreement, there has
not been, occurred or arisen any:
(a) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(b) capital expenditure or commitment by the Company, either
individually exceeding $50,000 or in the aggregate exceeding $100,000;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation, revenue recognition or amortization policies or rates)
by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or
other distribution with respect to the Company Capital Stock or any direct or
indirect redemption, purchase or other acquisition by the Company of Company
Capital Stock;
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(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(i) any agreement, contract, covenant, instrument, lease,
license or commitment to which the Company is a party or by which it or any of
its assets are bound or any termination, extension, amendment or modification of
the terms of any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its assets
are bound other than in the ordinary course of the Company's business,
consistent with past practice;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company or any creation of any security interest in
such assets or properties other than in the ordinary course of the Company's
business, consistent with past practice;
(k) loan by the Company to any person or entity, incurring by
the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, except for advances to employees
for travel and business expenses in the ordinary course of business, consistent
with past practice;
(l) incurrence by the Company of any liability in excess of
$50,000 individually or $100,000 in the aggregate;
(m) waiver or release of any right or claim of the Company
including any write-off or other compromise of any account receivable of the
Company (other than compromises of invoices with customers in the ordinary
course of business consistent with past practice, which compromises are not in
the aggregate material in amount or significance);
(n) the commencement or notice or threat of any lawsuit or
proceeding or investigation against the Company or its affairs;
(o) notice of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as defined
in Section 2.13) or of infringement by the Company of any other person's
Intellectual Property (as defined in Section 2.13);
(p) issuance or sale, or contract to issue or sell, by the
Company of any shares of Company Capital Stock or securities exchangeable,
convertible or exercisable therefor, or any securities, warrants, options or
rights to purchase any of the foregoing, except for options to purchase capital
stock of the Company granted to employees of and consultants to the Company in
the ordinary course of business consistent with past practice;
(q) (i) selling or entering into any material license
agreement with respect to the Company Intellectual Property with any third party
or (ii) buying or entering into any material license agreement with respect to
the Intellectual Property of any third party;
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(r) any event or condition of any character that has had a
Material Adverse Effect on the Company;
(s) any transaction by the Company except in the ordinary
course of business as conducted on that date and consistent with past practices;
or
(t) negotiation or agreement by the Company or any officer
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with Buyer and its representatives regarding the
transactions contemplated by this Agreement).
2.10 Tax Matters.
2.10.1 Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
2.10.2 Tax Representations.
(a) The Company has prepared and timely filed all required
federal, state, local and foreign returns, estimates, information statements and
reports ("Returns") relating to any and all Taxes concerning or attributable to
the Company or its operations and such Returns are true and correct and have
been completed in accordance with applicable law (other than Taxes not yet due
for which adequate reserves have been established on the Current Balance Sheet).
(b) The Company (A) has paid all Taxes it is required to pay
and has withheld with respect to its employees all federal and state income
taxes, Federal Insurance Contribution Act ("FICA"), Federal Unemployment Tax Act
("FUTA") and other Taxes required to be withheld, (other than Taxes not yet due
for which adequate reserves have been established on the Current Balance Sheet)
and (B) has accrued on the Current Balance Sheet all unpaid Taxes (whether or
not due) attributable to all periods through the date of the Current Balance
Sheet and has not incurred any liability for Taxes for the period from the date
of the Current Balance Sheet to the Effective Time other than in the ordinary
course of business, consistent with past practice.
(c) The Company is not delinquent in the payment of any Tax
(other than items for which adequate reserves have been established on the
Current Balance Sheet) nor is there any Tax deficiency outstanding, assessed or
proposed against the Company, nor has the
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Company executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(d) No action, suit, taxing authority proceeding, audit or
other examination of any Return of the Company is presently in progress, nor has
the Company been notified of any request for such an audit or other examination.
(e) No adjustment relating to any Returns filed by the Company
has been proposed formally or informally by any Tax authority to the Company or
any representative thereof.
(f) The Company has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in
accordance with GAAP on the Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in
the ordinary course of business, consistent with past practice.
(g) The Company has made available to Buyer or its legal
counsel, copies of all foreign, federal and state income and all state sales and
use Returns for the Company filed for all periods since its inception.
(h) There are (and immediately following the Effective Time
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes other
than Liens for Taxes not yet due and payable.
(i) None of the Company's assets are treated as "tax-exempt
use property," within the meaning of Section 168(h) of the Code.
(j) The Company is not subject to any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible by the Company as an expense under applicable law
(including, without limitation, Sections 280G, 404 and 162(m) of the Code).
(k) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(l) The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement.
(m) The Company is not, and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(n) The Company will not be required to include any amount in
taxable income or exclude any item of deduction or loss from taxable income for
any taxable
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period (or portion thereof) ending after the Closing Date as a result of (A) a
change in method of accounting for a taxable period ending on or prior to the
Closing Date, (B) any "closing agreement," as described in Section 7121 of the
Code (or any corresponding provision of state, local or foreign income Tax law),
(C) any sale reported on the installment method where such sale occurred on or
prior to the Closing Date, or (D) any prepaid amount received on or prior to the
Closing Date.
(o) The Company has never (i) been a member of an "affiliated
group" within the meaning of Section 1504 of the Code (or any analogous
combined, consolidated or unitary group defined under state, local or foreign
income Tax law), or (ii) filed or been included in a combined, consolidated or
unitary income tax Return.
(p) The Company has not requested or been granted an extension
of the time for filing any Tax Return which has not yet been filed.
(q) The Company has not consented to extend to a date later
than the date hereof the time in which any Tax may be assessed or collected by
any taxing authority.
(r) No claim has ever been made by a taxing authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to Taxes assessed by such jurisdiction.
2.11 Restrictions On Business Activities. There is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or may have
the effect of prohibiting or impairing any business practice of the Company, any
acquisition of property (tangible or intangible) by the Company or the conduct
of business as currently run by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its technology or
products to or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
2.12.1 The Company does not own any real property, and has never owned
any real property. Section 2.12.1 of the Disclosure Schedule sets forth a list
of all real property currently leased by the Company, the name of the lessor and
the date of the lease and each amendment thereto. All such current leases are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
2.12.2 The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Current
Balance Sheet and except for Liens for Taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character,
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amount or extent, and which do not detract from the value, or interfere with the
present use, of the property subject thereto or affected thereby.
2.12.3 All material items of equipment (the "Equipment") owned or
leased by the Company are (i) adequate for the conduct of the business of the
Company as currently conducted and (ii) in acceptable operating condition,
regularly and properly maintained, subject to normal wear and tear.
2.13 Intellectual Property.
2.13.1 For the purposes of this Agreement, the following terms have
the following definitions:
(a) "Intellectual Property" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (i) all
United States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and continuations-
in-part thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, and all documentation relating to
any of the foregoing; (iii) all copyrights, copyrights registrations and
applications therefor and all other rights corresponding thereto throughout the
world; (iv) all mask works, mask work registrations and applications therefor;
(v) all industrial designs and any registrations and applications therefor
throughout the world; (vi) all trade names, logos, common law trademarks and
service marks; trademark and service mark registrations and applications
therefor and all goodwill associated therewith throughout the world; (vii) all
databases and data collections and all rights therein throughout the world;
(viii) all computer software including all source code, object code, firmware,
development tools, files, records and data, all media on which any of the
foregoing is recorded, all Internet and Worldwide Web addresses, URLs, sites and
domain names; (ix) any similar, corresponding or equivalent rights to any of the
foregoing; and (x) all documentation related to any of the foregoing.
(b) "Company Intellectual Property" shall mean any
Intellectual Property that is owned by or exclusively licensed to the Company.
(c) "Registered Intellectual Property" shall mean all United
States, international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; (iv) any mask work registrations and applications to
register mask works; and (v) any other Company Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued by, filed with, or recorded by, any state, government or other public
legal authority.
2.13.2 Section 2.13.2 of the Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"Company Registered Intellectual Property") and lists any proceedings or actions
before any court, tribunal (including the United
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States Patent and Trademark Office (the "PTO") or equivalent authority anywhere
in the world) related to any of the Company Registered Intellectual Property
Rights.
2.13.3 Each item of Company Intellectual Property, including all
Company Registered Intellectual Property listed in Section 2.13.3 of the
Disclosure Schedule and all Intellectual Property licensed to the Company, is
free and clear of any Liens other than subject to existing UCC's, which UCC's
are listed on Section 2.13.3 of the Disclosure Schedule. The Company has rights
to the trademarks, trade names and copyrights used in connection with the
operation or conduct of the business of the Company that are sufficient to
enable the Company to conduct its business as the business is currently
conducted, including the sale of any products or technology or the provision of
any services by the Company (other than with respect to products acquired from
third parties). The Company, to its knowledge, owns exclusively, and has good
title to, all copyrighted works that are Company products or other works of
authorship that the Company otherwise purports to own.
2.13.4 To the extent that any Intellectual Property has been developed
or created by any person other than the Company for which the Company has,
directly or indirectly, paid, the Company has a written agreement with such
person with respect thereto and the Company thereby has obtained ownership of,
and is the exclusive owner of, by operation of law or by valid assignment, all
such Intellectual Property.
2.13.5 The Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use any
Intellectual Property that is or was Company Intellectual Property, to any other
person.
2.13.6 The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of its business as
it currently is conducted, including, without limitation, the design,
development, manufacture, use, import and sale of the products, technology and
services of the Company (including products, technology or services currently
under development).
2.13.7 To the Company's Knowledge, no person who has licensed
Intellectual Property from the Company has ownership in such Intellectual
Property.
2.13.8 Section 2.13.8 of the Disclosure Schedule lists all contracts,
licenses and agreements between the Company and any other person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to assume
or incur any material obligation or liability or provide a right of rescission
with respect to the infringement or misappropriation by the Company or such
other person of the Intellectual Property of any person other than the Company.
2.13.9 To the Company's Knowledge, the operation of the business of
the Company as it currently is conducted, including but not limited to the
Company's design, development, use, import, manufacture and sale of the
Company's website and the Company's products, technology or services (including
portions of the Company's website or the Company's products, technology or
services currently under development) does not infringe or misappropriate any
Intellectual Property of any person, violate the rights of any person
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(including rights to privacy or publicity), or constitute unfair competition or
trade practices under the laws of any jurisdiction. The Company has not received
any notice from any person that the operation of the business of the Company as
it currently is conducted, including but not limited to the Company's design,
development, use, import, manufacture and sale of the products, technology or
services (including products, technology or services currently under
development) of the Company infringes or misappropriates the Intellectual
Property (other than trademarks, trade names and service marks) of any person or
constitutes unfair competition or trade practices under the laws of any
jurisdiction.
2.13.10 All necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Company Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property.
2.13.11 There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company regarding the scope of such
agreement, or performance under such agreement including with respect to any
payments to be made or received by the Company thereunder.
2.13.12 To the Company's Knowledge, as of the date of this Agreement,
no person is infringing or misappropriating any Company Intellectual Property.
2.13.13 The Company has, and enforces, a policy requiring each
employee, consultant and contractor to execute proprietary information,
confidentiality and assignment agreements substantially in the Company's
standard forms, and all current employees, consultants and contractors of the
Company have executed such an agreement.
2.13.14 As of the date of this Agreement, no Company Intellectual
Property or product, technology or service of the Company, including its
website, is subject, or, to the Company's Knowledge, may reasonably be expected
to become subject to, any proceeding or outstanding decree, order, judgment,
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
2.13.15 No: (i) product, technology, service or publication of the
Company, including its website, (ii) material published or distributed by the
Company, including its website, or (iii) conduct or statement of Company
constitutes obscene material, a defamatory statement or material false
advertising.
2.14 Agreements, Contracts And Commitments.
2.14.1 The Company is not a party to nor is it bound by:
(a) any employment or consulting agreements, contracts or
commitments with employees or individual consultants or salespersons or
consulting or sales
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agreements, contracts or commitments with a firm or other organization, which
agreements, contracts or commitments are not terminable by the Company without
further liability upon payment in the aggregate of more than $50,000 with
respect to all such agreements, contracts and commitments; and the Company has
no employment agreements providing for employment other than on an at-will
basis;
(b) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any fidelity or surety bond or completion bond;
(d) any lease of personal property with fixed annual rental
payments in excess of $100,000;
(e) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(f) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $50,000 either
individually or $100,000 in the aggregate;
(g) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(h) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit;
(i) any purchase order or contract for the purchase of
materials involving in excess of $50,000 individually or $100,000 in the
aggregate;
(j) any construction contracts;
(k) any agreement for the provision of advertising content or
space or for the licensing of content from third parties for inclusion in the
Company's website, or any other dealer, distribution, joint marketing or
development agreement;
(l) any sales representative, original equipment manufacturer,
value added reseller, remarketer or other agreement for distribution of the
Company's products or services; or
(m) any other agreement, contract or commitment that involves
$100,000 or more or is not cancelable without penalty within forty-five (45)
days.
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2.14.2 The Company is in compliance with and has not breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted under, any of the terms or conditions of any agreement, contract,
covenant, instrument, lease, license or commitment to which the Company is a
party or by which it is bound (collectively a "Contract") except for a breach,
violation or default, or notice therefor that would not have a Material Adverse
Effect on the Company or on the ability of the parties to consummate the Merger
or the other transactions contemplated by this Agreement and the Related
Agreements, nor is the Company aware of any event that would constitute such a
breach, violation or default with the lapse of time, giving of notice or both.
Each Contract is in full force and effect and is not subject to any material
default thereunder by any party obligated to the Company pursuant thereto.
2.15 Interested Party Transactions. No officer, director or Shareholder of
the Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services,
products or technology that the Company furnishes or sells, or proposes to
furnish or sell, or (ii) any interest in any entity that purchases from or sells
or furnishes to the Company any goods or services, or (iii) a beneficial
interest in any Contract; provided, that ownership of no more than one percent
(1%) of the outstanding voting stock of a publicly traded corporation shall not
be deemed an "interest in any entity" for purposes of this Section 2.15.
2.16 Governmental Authorization. The Company has obtained all necessary
consents, licenses, permits, grants or other authorizations necessary to operate
or conduct its business as currently conducted or hold any interest in its
properties or assets (collectively "Company Authorizations").
2.17 Litigation. There is no action, suit or proceeding of any nature
pending nor has the Company received notice (oral or written) of any actions,
suits or proceedings threatened against the Company, its properties or any of
its officers or directors, nor to the Company's Knowledge, as of the date of
this Agreement is there any reasonable basis therefor. There is no investigation
pending or threatened against the Company, its properties or any of its officers
or directors by or before any Governmental Entity, nor to the Company's
Knowledge, as of the date of this Agreement is there any reasonable basis
therefor. No Governmental Entity has at any time challenged or questioned the
legal right of the Company to conduct its operations as presently or previously
conducted.
2.18 Accounts Receivable. All accounts receivable, including, without
limitation, all accounts receivable derived from licenses to end-users of the
right to use the Company's presentation software, arose in the ordinary course
of business, are carried at values determined in accordance with GAAP
consistently applied and are reasonably anticipated to be collectible except to
the extent of reserves therefor set forth in the Current Balance Sheet. No
person has any lien, encumbrance or other similar right with respect to any of
such accounts receivable and no request or agreement for deduction or discount
has been made with respect to any of such Accounts Receivable.
2.19 Minute Books. The minutes of the Company made available to counsel for
Buyer are the only minutes of the Company and contain a reasonably accurate
summary of all
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meetings of the Board of Directors (or committees thereof) of the Company and
its Shareholders or actions by written consent since the incorporation of the
Company.
2.20 Environmental Matters.
2.20.1 To the Company's knowledge, the Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
2.20.2 To the Company's knowledge, the Company currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of the Company's Hazardous
Material Activities, respectively, and other businesses of the Company as such
activities and businesses are currently being conducted.
2.20.3 No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending nor has the Company received
notice (oral or written) of any action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Company.
2.21 Brokers' and Finders' Fees; Third Party Expenses. The Company has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby. Section 2.21 of the
Disclosure Schedule sets forth the principal terms and conditions of any
agreement, written or oral, with respect to such fees. Section 2.21 of the
Disclosure Schedule also sets forth the Company's current estimate of Third
Party Expenses (as defined in Section 5.4.1) expected to be incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.22 Employee Matters and Benefit Plans.
2.22.1 Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.22.1(a) below (which definition shall apply
only to this Section 2.22), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(a) "Affiliate" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(b) "Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance,
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termination pay, deferred compensation, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits or remuneration of
any kind, whether written or unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation;
(c) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(d) "DOL" shall mean the Department of Labor;
(e) "Employee" shall mean any current or former employee,
consultant or director of the Company or any Affiliate;
(f) "Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee;
(g) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(h) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(i) "International Employee Plan" shall mean each Company
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(j) "IRS" shall mean the Internal Revenue Service;
(k) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(l) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(m) "Pension Plan" shall mean each Company Employee Plan which
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
2.22.2 Schedule. Schedule 2.22.2 contains an accurate and complete
list of each Company Employee Plan. The Company has no agreements with employees
other than the offer letters substantially similar in form to that previously
provided to the Buyer. The Company does not have any plan or commitment to
establish any new Company Employee Plan or Employee Agreement, to modify any
Company Employee Plan or Employee Agreement (except to the
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extent required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Buyer in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement.
2.22.3 Documents. The Company has provided to Buyer: (i) correct and
complete copies of all documents embodying each Company Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and all
related trust documents; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan; (iv) if the Company Employee Plan is funded, the
most recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and all applications and correspondence to or from the IRS
or the DOL with respect to any such application or letter; (vii) all material
written agreements and contracts relating to each Company Employee Plan,
including, but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company; (ix) all correspondence to or from any governmental agency relating to
any Company Employee Plan; (x) all COBRA forms and related notices; (xi) all
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Company Employee Plan; (xii) all discrimination tests for each Company
Employee Plan for the most recent plan year, if required; and (xiii) all
registration statements, annual reports Form 11-K and all attachments thereto)
and prospectuses prepared in connection with each Company Employee Plan.
2.22.4 Employee Plan Compliance. (i) The Company has performed all
material obligations required to be performed by it under, is not in default or
violation of, and has no knowledge of any material default or violation by any
other party to each Company Employee Plan, and each Company Employee Plan has
been established and maintained in accordance with its terms and in material
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Plan as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Employee Plan; (iii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 408 of ERISA, has occurred with respect
to any Company Employee Plan; (iv) there are no actions, suits or claims pending
or threatened or reasonably anticipated (other than routine claims for
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benefits) against any Company Employee Plan or against the assets of any Company
Employee Plan; (v) each Company Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability to Buyer, the Surviving Corporation, the Company or any
Affiliate (other than ordinary administration expenses); (vi) there are no
audits, inquiries or proceedings pending or, to the Knowledge of the Company or
any Affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code.
2.22.5 Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
2.22.6 Multiemployer Plans. At no time has the Company or any
Affiliate contributed to or been required to contribute to any Multiemployer
Plan.
2.22.7 No Post-Employment Obligations. No Company Employee Plan
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has never represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
2.22.8 COBRA. Neither the Company nor any Affiliate has, prior to the
Effective Time, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees where such violation could result in material
liability to the Company.
2.22.9 Effect of Transaction. (i) The execution of this Agreement and
the consummation of the transactions contemplated hereby will not constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee (excluding
from this representation the effect of any termination of an Existing Employee
under Section 5.11.2 or 5.11.3 of this Agreement); and (ii) no payment or
benefit which will or may be made by the Company or its Affiliates with respect
to any Employee as a result of the transactions contemplated by this Agreement
or otherwise will be characterized as a "parachute payment," within the meaning
of Section 280G(b)(2) of the Code (but without regard to clause (ii) thereof).
2.22.10 Employment Matters. The Company: (i) is in material compliance
in all respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld and reported all amounts required by
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law or by agreement to be withheld and reported with respect to wages, salaries
and other payments to Employees; (iii) is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending, or
to the Knowledge of the Company, threatened or reasonably anticipated claims or
actions against the Company under any worker's compensation policy or long-term
disability policy.
2.22.11 Labor. No work stoppage or labor strike against the Company is
pending, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending or
threatened or reasonably anticipated against the Company relating to any labor,
safety or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, result
in any liability to the Company, Buyer, the Surviving Corporation or any
Affiliate. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
The Company is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Company.
2.22.12 No Interference or Conflict. To the Company's knowledge, no
officer, director, consultant or employee of the Company is obligated under any
contract or agreement or subject to any judgment, decree or order of any court
or administrative agency that would interfere with such person's efforts to
promote the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the carrying
on of the Company's business as presently conducted or proposed to be conducted
nor any activity of such officers, directors, employees or consultants in
connection with the carrying on of the Company's business as presently conducted
or proposed to be conducted, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract
or agreement under which any of such officers, directors, employees or
consultants is now bound.
2.23 Insurance. Section 2.23 of the Disclosure Schedule lists all insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid, and the Company and any covered parties are otherwise in compliance with
the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage).
2.24 Compliance with Laws. To the Company's knowledge, the Company has
complied with, and is not in violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation, the violation of which
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would have a Material Adverse Effect on the Company or on the ability of the
parties to consummate the Merger or the other transactions contemplated by this
Agreement and the Related Agreements.
2.25 Warranties, Indemnities. Except for the warranties and indemnities
contained in those contracts and agreements set forth in Section 2.25 of the
Disclosure Schedule, the Company has not issued any warranties or indemnities
relating to products or technology sold or licensed or services rendered by the
Company, other than warranties and indemnities that are not in the aggregate,
reasonably expected to have a Material Adverse Effect.
2.26 Proxy Statement And Shareholder Information Statement. The information
supplied by the Company for inclusion in (x) the Proxy Statement or the
Shareholder Information Statement or the Form S-4 Registration Statement (each
as defined below) or any application filed in connection with a "fairness
hearing" pursuant to Section 5.1 hereof, will not on the date it (or any
amendment or supplement thereto) is first sent to Shareholders, on either (i)
the date of circulation of the written consent or (ii) the date of the Company's
Shareholder Meeting and at the Effective Time, and (y) the Buyer Registration
Statement (or any amendment or supplement thereto) will not at any time prior to
the Effective Time, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, or will omit to state any material fact necessary in order to
make the statements therein not false or misleading. If at any time prior to the
Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment or a supplement to the Proxy Statement or
the Shareholder Information Statement or the Form S-4 Registration Statement or
the Buyer Registration Statement, the Company will promptly inform the Buyer.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Buyer that is contained in any of
the foregoing documents.
2.27 Voting Agreements. The Shareholders delivering to Buyer executed
Voting Agreements (as defined in Section 5.15 of this Agreement) simultaneously
with the execution and delivery of this Agreement possess sufficient voting
power to approve (without the consent or approval of any other Shareholders)
this Agreement, the Merger and all of the other transactions contemplated by
this Agreement and the Voting Agreements.
2.28 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Disclosure Schedule), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement or furnished in or in connection with documents mailed or delivered to
the Shareholders for use in soliciting their consent to this Agreement and the
Merger contains or will contain at the Effective Time (when read together with
the Proxy Statement or Shareholder Information Statement (as amended or
supplemented) and the Form S-4 Registration Statement at the Effective Time),
any untrue statement of a material fact, or omits or will omit at the Effective
Time (when read together with the Proxy Statement or Shareholder Information
Statement) (as amended or supplemented) and the Form S-4 Registration Statement
at the Effective Time), to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company that on the date hereof and,
except as expressly provided otherwise below and except as may be modified to
appropriately reflect the transactions contemplated hereby and the Buyer IPO,
and as of the Effective Time as though made at the Effective Time as follows:
3.1 Organization, Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Buyer has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect on the ability of Buyer to consummate the Merger
or the other transactions contemplated hereby.
3.2 Charter And Bylaws. The Certificate of Incorporation and Bylaws of
Buyer filed as exhibits to the Buyer Registration Statement are complete and
accurate copies thereof and are in full force and effect. Buyer is not in
violation of any of the provisions of its Certificate of Incorporation or
Bylaws.
3.3 Authority.
3.3.1 Buyer has all requisite power and authority to enter into this
Agreement and any Related Agreements to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and any Related Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Buyer, and no
further action is required on the part of Buyer to authorize this Agreement, any
Related Agreements to which it is a party or the transactions contemplated
hereby and thereby (except that, with respect to Section 5.22 of this Agreement,
Buyer will be required to obtain the consent of certain of its Stockholders to
an increase in the size of Buyer's Board of Directors, in order to permit the
election of the representative in accordance with such Section 5.22). Buyer has
duly executed and delivered this Agreement and, as of the Effective Time, will
have duly executed and delivered each Related Agreement to which it is a party.
Assuming the due authorization, execution and delivery by the other parties
hereto and thereto, this Agreement and such Related Agreements constitute or, as
of the Effective Time in the case of the Related Agreements, will constitute,
the valid and binding obligations of Buyer, enforceable in accordance with their
respective terms, except as such enforceability may be limited by principles of
public policy and subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
3.3.2 Merger Sub has all requisite power and authority to enter into
this Agreement and any Related Agreements to which it is a party and to
consummate the
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transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and any Related Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Merger Sub, and no further action
is required on the part of Merger Sub to authorize this Agreement, any Related
Agreements to which it is a party or the transactions contemplated hereby and
thereby. Merger Sub has duly executed and delivered this Agreement and, as of
the Effective Time, will have duly executed and delivered each Related Agreement
to which it is a party. Assuming the due authorization, execution and delivery
by the other parties hereto and thereto, this Agreement and such Related
Agreements constitute or, as of the Effective Time in the case of the Related
Agreements, will constitute, the valid and binding obligations of Merger Sub,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
3.3.3 Merger Shares. The shares of Buyer Common Stock to be issued
pursuant to the Merger will be duly authorized, validly issued, fully paid, non-
assessable and will be issued in compliance with all applicable federal and
state securities laws.
3.4 No Conflict. The execution and delivery of this Agreement and any
Related Agreement to which Buyer or Merger Sub is or will be a party by Buyer or
Merger Sub, as the case may be, do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a Conflict under (i) any provision of the Certificate of
Incorporation or Bylaws of Buyer or of the Articles of Incorporation or Bylaws
of Merger Sub, (ii) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise or license to which Buyer or Merger
Sub or any of their respective properties or assets are subject and that has
been filed as an exhibit to the Buyer Registration Statement, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Buyer or Merger Sub or their respective properties or assets, except for a
Conflict under subsection (ii) or (iii) above that would not have a Material
Adverse Effect on the ability of the parties to consummate the Merger or the
other transactions contemplated by this Agreement.
3.5 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any third
party is required, including a party to any agreement with Buyer or Merger Sub
(so as not to trigger any Conflict), by or with respect to Buyer or Merger Sub
in connection with the execution and delivery of this Agreement and any Related
Agreements to which Buyer or Merger Sub is or will be a party or the
consummation of the transactions contemplated hereby and thereby, except for (i)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws,
(ii) the filing of a Merger Agreement with the Secretary of State of the State
of California, (iii) any other filings or approvals as may be required under
California state law, and (iv) consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings which, if not obtained
or made, would not have a Material Adverse Effect on Buyer or on the ability of
the parties to consummate the Merger or the other transactions contemplated by
this Agreement.
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3.6 Proxy Statement And Shareholder Information Statement. The information
supplied by Buyer for inclusion in the Proxy Statement or Shareholder
Information Statement and the Form S-4 Registration Statement or any application
filed in connection with "fairness hearing" pursuant to Section 5.1 hereof will
not, on the date it (or any amendment or supplement thereto) is first mailed to
Shareholders, at the time of the Company Shareholders Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or will omit to state any material fact necessary in order to
make the statements therein not false or misleading. If at any time prior to the
Effective Time any event relating to Buyer, Merger Sub or any of their
respective affiliates, officers or directors should be discovered by Buyer or
Merger Sub which should be set forth in an amendment or a supplement to the
Proxy Statement or Shareholder Information Statement, Buyer or Merger Sub will
promptly inform the Company. Notwithstanding the foregoing, Buyer and Merger Sub
make no representation or warranty with respect to any information supplied by
the Company that is contained in any of the foregoing documents.
3.7 Merger Sub. Merger Sub has been formed for the sole purpose of
effecting the Merger and, except as contemplated by this Agreement, Merger Sub
will not conduct any business activities and will not have any material
liabilities or obligations.
3.8 SEC Filings; Financial Statements.
3.8.1 The Buyer Registration Statement (including, without limitation
information concerning capitalization included on pages 5 and 19 therein) (i) at
the time it was filed, complied as to form in all material respects with the
requirements of the Securities Act and (ii) did not at the time it was filed (or
if amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
3.8.2 The financial statements of the Buyer (including, in each case,
any related notes thereto) (the "Buyer Financial Statements") contained in the
Buyer Registration Statement have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved (except as may be indicated
in the notes thereto) and fairly present in all material respects the financial
position of Buyer as at the respective dates thereof and the results of its
operations and cash flows for the periods indicated, except that any unaudited
interim financial statements were or are subject to normal and recurring year-
end adjustments which were not or are not expected to be, individually or in the
aggregate, materially adverse to Buyer.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Buyer shall otherwise consent in writing), to carry on the Company's business in
the usual, regular and ordinary course in substantially the
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same manner as heretofore conducted, to pay the debts and Taxes of the Company
when due, to pay or perform other obligations when due consistent with the past
practices of the Company, and, to the extent consistent with such business, use
its commercially reasonable efforts consistent with past practice and policies
to preserve intact the Company's present business organizations, keep available
the services of the Company's present officers and key employees and preserve
the Company's relationships with customers, advertisers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
all with the goal of preserving unimpaired the Company's goodwill and ongoing
businesses at the Effective Time. The Company shall promptly notify Buyer of any
event or occurrence or emergency not in the ordinary course of business of the
Company and any material event involving the Company. Except as expressly
contemplated by this Agreement or as set forth in Section 4.1 of the Disclosure
Schedule, the Company shall not, without the prior written consent of Buyer:
4.1.1 Except in the ordinary course of business and consistent with
past practice, (i) sell or enter into any license agreement with respect to the
Company Intellectual Property with any person or entity or (ii) buy or enter
into any license agreement with respect to the Intellectual Property of any
person or entity;
4.1.2 Except in the ordinary course of business and consistent with
past practice, transfer to any person or entity any rights to the Company
Intellectual Property;
4.1.3 Enter into or amend any single Contract (or series of related
Contracts) with a potential obligation or value of $100,000 or more or multiple
Contracts in any calendar month with aggregate potential obligations or value of
$200,000 or more;
4.1.4 Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate, in any material respect, the terms of,
any of the Contracts set forth or described in the Disclosure Schedule;
4.1.5 Commence any litigation or settle: (i) any litigation for
$50,000 or more or (ii) any litigation relating to intellectual property rights;
provided that the Company shall have the right to settle litigation outstanding
as of the date hereof, so long as the terms of such settlement involve no
monetary obligation or other liability imposed on the Company;
4.1.6 Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of the capital
stock of the Company or options, warrants or other rights exercisable therefor
(except for the Company's repurchase of Company Capital Stock from its employees
at the purchase price paid by such employees for such stock or except as
provided for in Section 4.1.7 below);
4.1.7 Issue, grant, deliver or sell, contract to issue, grant,
deliver or sell, or authorize or propose the issuance, grant, delivery or sale
of, or purchase or propose the purchase of, any shares of its capital stock
(other than the exercise of currently outstanding stock options and the exercise
of outstanding warrants) or securities convertible into or exchangeable for, or
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subscriptions, rights, warrants or options to acquire, or other agreement or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities (excluding employee and consultant stock options
or exercises thereof and grants of restricted stock pursuant to the Company
Option Plan);
4.1.8 Cause or permit any amendments to its Articles of Incorporation
or Bylaws or other organizational documents;
4.1.9 Acquire or agree to acquire any assets or business which are
material, individually or in the aggregate, to the Company's business;
4.1.10 Make any capital expenditures in excess of $100,000
individually or $200,000 in the aggregate;
4.1.11 Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practices;
4.1.12 Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others or issue or become subject to any fidelity, surety or
completion bond, except pursuant to existing agreements set forth on the
Disclosure Schedule;
4.1.13 Incur liabilities outside of the ordinary course of business in
excess of $50,000 individually or $100,000 in the aggregate;
4.1.14 Grant any loans to others outside ordinary course of business
or purchase debt securities of others or amend the terms of any outstanding loan
agreement;
4.1.15 Grant (or enter into or amend any contract or arrangement
providing for) any severance or termination pay: (i) to any director or officer
or (ii) to any other employee except payments made pursuant to written
agreements outstanding on the date hereof and disclosed in the Disclosure
Schedule;
4.1.16 Adopt any employee benefit plan, or enter into any employment
contract or pay or agree to pay any special bonus or special remuneration to any
director;
4.1.17 Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
4.1.18 Pay, discharge or satisfy, in an amount in excess of $50,000
(in any one case) or $100,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Current Balance
Sheet;
4.1.19 Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
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assessment in respect of Taxes provided that Buyer shall not unreasonably
withhold its consent for any of the foregoing;
4.1.20 Enter into any strategic alliance or joint marketing
arrangement or agreement that (i) would substantially change any line of
business in which the Company operates or (ii) relates to any business segment
of the Buyer;
4.1.21 Accelerate the vesting schedule of any of the outstanding
Company Options or Company Capital Stock;
4.1.22 (i) Terminate any officer or key employee, (ii) hire an
employee with an annual salary in excess of $100,000, (iii) hire an officer or
(iv) hire any material number of employees (for these purposes, an increase of
10% or more in the size of the Company's workforce shall be deemed material);
4.1.23 Agree in writing to take any of the actions described in
Sections 4.1.1 through 4.1.22; or
4.1.24 Take, or agree in writing to take any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
4.2 No Solicitation.
4.2.1 For purposes of this Section 4.2, the following terms shall
have the following meanings:
(a) "Acquisition Proposal" shall mean any offer or proposal
(other than an offer or proposal by Buyer) contemplating or otherwise relating
to any Company Acquisition Transaction.
(b) A party's "Associates" shall include such party's
subsidiaries and other affiliates and the respective directors, officers,
employees, agents, representatives, consultants, accountants, attorneys and
financial advisors of such party and its affiliates.
(c) "Company Acquisition Transaction" shall mean any
transaction not contemplated by this Agreement involving: (A) any sale, lease,
exchange, transfer or other disposition of the assets of the Company or any
subsidiary of the Company constituting more than 5% of the assets of the Company
or accounting for more than 5% of the revenues of the Company in any one
transaction or in a series of related transactions; or (B) any offer to
purchase, tender offer, exchange offer or any similar transaction or series of
related transactions made by any person, group or entity involving more than 5%
of the outstanding shares of capital stock of the Company; or (C) any merger,
consolidation, business combination, share exchange, reorganization or similar
transaction or series of related transactions involving the Company other than
any transaction which results in the Shareholders of the Company before the
transaction continuing to hold at least 95% of the outstanding voting securities
of the Company after such transaction.
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(d) "Termination Date" shall mean the earlier of (i) the
Effective Time, or (ii) the date that this Agreement is terminated in accordance
with its terms.
4.2.2 The Company agrees that prior to and through the Termination
Date, it shall not, directly or indirectly, and shall not authorize or permit
any Associate of the Company to (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal or take any
action that could reasonably be expected to lead to an Acquisition Proposal,
(ii) furnish any information regarding the Company or any subsidiary of the
Company to any person, group or entity in connection with or in respect to any
Acquisition Proposal, (iii) continue or engage in discussions with any person,
group or entity with respect to any Acquisition Proposal, (iv) approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent,
term sheet or similar document or any contract, commitment or other obligation
of any kind contemplating or otherwise relating to any Company Acquisition
Transaction (other than with Buyer and Merger Sub). Without limiting the
generality of the foregoing, the Company acknowledges and agrees that any
violation of any of the restrictions set forth in the preceding sentence by an
Associate of the Company shall be deemed to constitute a breach of this Section
4.2. In addition, the Company agrees that any negotiations with respect to any
of the above activities (other than negotiations with Buyer and Merger Sub) in
progress as of the date hereof will be suspended during the period from the date
hereof through the Termination Date. In the event that the Company receives,
directly or indirectly, any Acquisition Proposal, the Company shall immediately
notify Buyer thereof, including information as to the identity of the offeror or
the party making any such Acquisition Proposal and the specific terms of such
Acquisition Proposal. The Company agrees that its obligations under this Section
4.2 are necessary and reasonable in order to protect Buyer and its business, and
expressly agrees that monetary damages would be inadequate to compensate Buyer
for any breach of this Section 4.2. Accordingly, the Company agrees and
acknowledges that any such violation or threatened violation will cause
irreparable injury to Buyer and that, in addition to any other remedies that may
be available in law, in equity or otherwise, Buyer shall be entitled to obtain
injunctive relief against the threatened breach of this Agreement or the
continuation of any such breach, without the necessity of proving damages.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Fairness Hearing; Proxy Statement and Shareholder Information
Statement; Registration Statements.
5.1.1 Notwithstanding anything in this Agreement to the contrary, the
parties agree to use commercially reasonable efforts to qualify the issuance of
Buyer Common Stock in the Merger under the exemption provided by Section
3(a)(10) of the Securities Act. Consistent therewith, the parties agree to
cooperate with one another, commencing promptly following the date hereof, to
prepare and file with the Commissioner of Corporations of the State of
California an application for qualification of the Buyer Common Stock in the
Merger pursuant to a "fairness hearing" procedure, and to take such other
actions as may be reasonably necessary to perfect such exemption. If, despite
the parties' commercially reasonable efforts, such qualification is denied or
such exemption cannot otherwise be perfected by May 31, 2000, (a
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"Fairness Hearing Failure") then the provisions of this Agreement calling for
registration of the Buyer Common Stock to be issued in the Merger on Form S-4
(or another appropriate form) under the Securities Act shall immediately be
invoked and complied with in order to have such registration declared effective
at the earliest practicable time. All references in this Agreement to the Form
S-4 Registration Statement (as hereinafter defined), the filing thereof with the
SEC and similar matters shall be deemed applicable only following a Fairness
Hearing Failure, notwithstanding anything in this Agreement to the contrary. The
foregoing limitation shall not, however, otherwise affect the parties'
obligations with respect to the Shareholder Information Statement and the Proxy
Statement. Subject to the foregoing, Buyer and the Company shall jointly prepare
and cause to be filed with the SEC preliminary Shareholder solicitation
materials, which shall be in the form of a Shareholder information statement
(the "Shareholder Information Statement") or a proxy statement (the "Proxy
Statement"), as determined jointly by Buyer and the Company, for the
solicitation of approval of the Shareholders of the Company of this Agreement,
the Merger and the transactions contemplated hereby. Buyer shall also prepare
and cause to be filed with the SEC a Registration Statement on Form S-4 (or
other appropriate form) of Buyer pertaining to the shares of Buyer Common Stock
to be issued pursuant to the Merger (the "Form S-4 Registration Statement"), in
which the Shareholder Information Statement or Proxy Statement, as the case may
be, will be included as a prospectus. Each of Buyer and the Company shall
provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the providing
party or its counsel, may be required or appropriate for inclusion in the
Shareholder Information Statement or Proxy Statement, as the case may be, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Shareholder Information Statement or Proxy Statement, as the case may be. The
Shareholder Information Statement or Proxy Statement, as the case may be, shall
include information regarding the Company, the terms of the Merger and this
Agreement and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger. Each of Buyer and the Company shall use all
reasonable efforts to cause the Form S-4 Registration Statement and the
Shareholder Information Statement or Proxy Statement, as the case may be, to
comply with applicable law and the rules and regulations promulgated by the SEC
and to cause the Shareholder Information Statement or Proxy Statement, as the
case may be, to be mailed to the Company's Shareholders as promptly as
practicable. If any event relating to Buyer or the Company occurs, or if Buyer
or the Company becomes aware of any information, that should be disclosed in an
amendment or supplement to the Shareholder Information Statement or Proxy
Statement, as the case may be, then Buyer or the Company, as applicable, shall
inform the other thereof and shall cooperate with each other in completing such
amendment or supplement, and, if appropriate, in mailing such amendment or
supplement to the Company's Shareholders.
5.1.2 Prior to the Effective Time, Buyer shall use commercially
reasonable efforts to obtain all regulatory approvals needed to ensure that the
Buyer Common Stock to be issued in the Merger (i) will be registered or
qualified under the securities law of every jurisdiction of the United States in
which any registered holder of the Company Capital Stock who is receiving shares
of registered Buyer Common Stock has an address of record or be exempt from such
registration and (ii) will, after the Buyer IPO, be approved for quotation in
the Nasdaq National Market; provided, however, that, in the case of clause (i)
above, Buyer shall not, pursuant to the foregoing, be required (I) to qualify to
do business as a foreign corporation in
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any jurisdiction in which it is not currently qualified or (II) to file a
general consent to service of process in any jurisdiction with respect to
matters unrelated to the issuance of Buyer Common Stock pursuant hereto.
5.1.3 Each of Buyer and the Company (in respect of the information
respectively supplied by it) agrees that: (i) none of the information to be
supplied by it or its Affiliates for inclusion in the Shareholder Information
Statement or Proxy Statement, as the case may be, will, at the time such
document is mailed to the Shareholders of the Company, or as of the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and (ii) as to matters respecting it, the Shareholder
Information Statement or the Proxy Statement, as the case may be, will comply as
to form in all material respects with the provisions of the Securities Act and
the Exchange Act, as applicable, and the rules and regulations promulgated by
the SEC thereunder, except that no covenant, representation or warranty is made
by Buyer with respect to statements made or incorporated by reference therein
based on information supplied by the Company for inclusion or incorporation by
reference therein and no covenant, representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by Buyer for inclusion or incorporation by
reference therein.
5.1.4 The Company shall promptly after the "fairness hearing"
procedure or the filing of an S-4 Registration Statement pursuant to Section
5.1.1 hereof, take all action necessary in accordance with applicable law and
its Articles of Incorporation and Bylaws to approve this transaction by written
consent of the Shareholders. It is understood and intended by the parties hereto
that the Voting Agreements delivered to Buyer by the Company are sufficient to
approve the transactions contemplated hereby by the Company's Shareholders, and
the Company shall not in any way challenge the validity, enforceability or
effectiveness of the Voting Agreements.
5.1.5 The Company and Buyer will prepare and file any other filings
required under any Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). Each of the Company and
Buyer will notify the other promptly upon the receipt of any correspondence or
communications from any government officials concerning the Shareholder
Information Statement, the Proxy Statement or any Other Filing and will supply
the other with copies of all correspondence between such party or any of its
representatives, on the one hand, and any other government officials, on the
other hand, with respect to the Shareholder Information Statement, the Proxy
Statement, the Merger or any Other Filing. The Proxy Statement, the Shareholder
Information Statement and the Other Filings will comply in all material respects
with all applicable requirements of law and the rules and regulations
promulgated thereunder.
5.1.6 Promptly after the date of this Agreement, the Company shall
provide to Buyer such information concerning its business and financial
statements and affairs as, in the reasonable judgment of Buyer and its counsel,
may be required or appropriate for inclusion in the Buyer Registration Statement
or in any amendments or supplements thereto in order to reflect the transactions
contemplated hereby and other information concerning the Company, and to cause
the Company's counsel and auditors to cooperate with Buyer's counsel and
auditors in the preparation of the Buyer Registration Statement or any
amendments or supplements thereto. The
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Company shall use all reasonable efforts to ensure that the information provided
by it for inclusion in the Buyer Registration Statement complies with applicable
law and the rules and regulations promulgated by the SEC, to assist Buyer in
responding promptly to any comments of the SEC or its staff, and to assist Buyer
in having the Buyer Registration Statement declared effective under the
Securities Act as promptly as practicable. If any event relating to the Company
occurs, or if the Company becomes aware of any information, that should be
disclosed in an amendment or supplement to the Buyer Registration Statement,
then the Company shall inform Buyer thereof and shall cooperate with Buyer in
filing such amendment or supplement with the SEC. The Company represents and
warrants to Buyer that all information provided by the Company for inclusion in
the Buyer Registration Statement shall not, at the time it was provided, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5.2 Cooperation; Access to Information. The Company shall afford Buyer and
its accountants, counsel and other representatives, reasonable access during
normal business hours and upon reasonable notice during the period prior to the
Effective Time to (a) all of the Company's properties, books, contracts,
commitments and records, (b) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of
the Company as Buyer may reasonably request and (c) all officers and, as
scheduled through officers, key employees of the Company. The Company agrees to
provide to Buyer and its accountants, counsel and other representatives copies
of internal financial statements (including by returns and supporting
documentation) promptly upon request. No information or knowledge obtained in
any investigation pursuant to this Section 5.2 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.2, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby, shall be governed by the terms of the Mutual
Non-Disclosure Agreement effective as of February 18, 2000 between the Company
and Buyer.
5.4 Expenses.
5.4.1 Whether or not the Merger is consummated, except as set forth
in Section 5.4.2, all fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, investment banking,
broker, financial advisory, consulting and all other fees and expenses of third
parties ("Third Party Expenses") incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses; provided, however that Buyer and the
Company shall share equally in all fees and expenses, other than Third Party
Expenses, incurred in relation to any 3(a)(10) filing or filing of the Form S-4
Registration Statement and printing the Proxy Statement or Shareholder
Information Statement (as the case may be and the Form S-4 Registration
Statement, if required).
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5.4.2 In the event that the Merger is consummated, Buyer agrees to
pay those Third Party Expenses incurred by the Company, provided that Buyer
shall have full recourse to the Escrow Fund (as defined herein) to the extent
provided in Section 7.2.1 for payment of all Third Party Expenses incurred by
the Company exceeding $200,000 (excluding the expense of the Company's
accounting professionals to prepare an audit of the Company's post-December 31,
1999 financial statements, if required for the Buyer Registration Statement).
5.5 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Buyer and Company prior to release. Any public announcement by Buyer
regarding the subject matter of this Agreement shall be delivered to and
approved by the Company prior to release (such approval to not be unreasonably
withheld).
5.6 Consents. The Company shall use reasonable commercial efforts to
obtain the consents, waivers, assignments and approvals under any of the
Contracts set forth in Section 2.6 of the Disclosure Schedule so as to preserve
all rights of, and benefits to, the Company thereunder.
5.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Buyer a properly executed statement in a form reasonably acceptable to Buyer for
purposes of satisfying Buyer's obligations under Treasury Regulation Section
1.1445-2(c)(3).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement
(including, without limitation the Buyer IPO); provided that Buyer shall not be
required to agree to any divestiture by Buyer or the Company or any of Buyer's
subsidiaries or affiliates of shares of capital stock or of any business, assets
or property of Buyer or its subsidiaries or affiliates or of the Company, its
affiliates, or the imposition of any material limitation on the ability of any
of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.9 Notification Of Certain Matters. The Company and Buyer shall give
prompt notice to the other of: (i) the occurrence or nonoccurrence of any event,
the occurrence or nonoccurrence of which is likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate at or prior
to the Effective Time and (ii) any failure to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.9 shall not limit or otherwise affect any remedies available to the
party receiving such notice and no disclosure pursuant to this Section 5.9 shall
be deemed to amend or supplement the disclosure schedules or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
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5.10 Additional Documents And Further Assurances. Each party hereto, at the
request of another party hereto, shall use reasonable commercial efforts to
execute and deliver such other instruments and do and perform such other acts
and things as may be necessary in the written opinion of counsel to the
requesting party for effecting the consummation of this Agreement and the
transactions contemplated hereby.
5.11 Non-Disclosure Agreements. The Company agrees to use its commercially
reasonable efforts to cause all of its current employees and consultants to
execute, to the extent they have not already done so, a Non-Disclosure Agreement
(with Intellectual Property assignment provisions) in substantially the form
currently used by the Company.
5.12 Affiliate Agreements. Schedule 5.12 sets forth those persons who, in
the Company's reasonable judgment, are or may be "affiliates" of the Company
within the meaning of Rule 145 (each such person a "Rule 145 Affiliate")
promulgated under the Securities Act ("Rule 145"). The Company shall provide
Buyer such information and documents as Buyer shall reasonably request for
purposes of reviewing such list. The Company shall deliver or cause to be
delivered to Buyer, concurrently with the execution of this Agreement (and in
any case prior to the Closing Date) from each of the Rule 145 Affiliates of the
Company, an executed Affiliate Agreement ("Affiliate Agreement") in the form
attached hereto as Exhibit B, each of which will be in full force and effect as
of the Effective Time. Buyer shall be entitled to place appropriate legends on
the certificates evidencing any Buyer Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for Buyer Common Stock,
consistent with the terms of such Affiliate Agreements.
5.13 Tax-Free Reorganization. The parties intend to adopt this Agreement
and the Merger as a tax-free plan of reorganization under Section 368(a)(1)(A)
of the Code by virtue of the provisions of Section 368(a)(2)(E) of the Code. The
Buyer Common Stock issued in the Merger will be issued solely in exchange for
the Company Capital Stock, and no other transaction other than the Merger
represents, provides for or is intended to be an adjustment to the consideration
paid for the Company Capital Stock. The parties shall not take a position on any
tax return inconsistent with this Section 5.13. From and after the Closing,
neither Buyer nor the Surviving Corporation shall take any action that could
reasonably be expected to cause the Merger not to be treated as a reorganization
within the meaning of Section 368(a) of the Code.
5.14 Directors' And Officers' Indemnification. From and after the Effective
Time, Buyer shall (i) assume, as of the Effective Time, all obligations of the
Company under Article V, Section 7 of the Company's Bylaws as currently in
effect and the Company's Indemnification Agreements with the current and certain
former directors and officers of the Company, (ii) pay or cause the Surviving
Corporation to pay all amounts that become due and payable under such
provisions, and (iii) pay all premiums on and take all other steps to maintain
in force the current insurance policy of the Company covering directors and
officers provided to Buyer for a period of three years from the Effective Time.
This Section 5.14 shall survive the consummation of the Merger, is intended to
benefit the Company, the Surviving Corporation and each indemnified party, shall
be binding, jointly and severally, on all successors and assigns of the
Surviving Corporation and Buyer, and shall be enforceable by the indemnified
parties.
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5.15 Voting Agreements. The Company has delivered to Buyer, concurrently
with the execution of this Agreement, an executed Voting and Lock-Up Agreement
substantially in the form attached hereto as Exhibit C (the "Voting Agreement"),
duly executed and delivered by respective counterparties constituting a majority
in interest of the Shareholders (as described in Section 2.27 hereof). The
Company agrees to use its best efforts to obtain and deliver to Buyer duly
authorized and executed Voting Agreements from additional Shareholders such
that, within ten (10) business days following the date of this Agreement, Buyer
shall have received such Agreements from Shareholders owning not less than
eighty percent (80%) of the Total Outstanding Company Shares (the "Shareholder
Requirement"). Further, the Company agrees use its best efforts to, promptly
following the date hereof, receive from all other Shareholders duly authorized
and executed Voting Agreements, and receive from all Shareholders and the
holders of outstanding Company Options a lock-up agreement or arrangement
identical to that contained in the Voting Agreement or provided by Buyer's
underwriters in the Buyer IPO (a "Lock-Up").
5.16 Director Action With Respect To Option Plans. Except as agreed to in
writing by the Buyer, prior to the Effective Time, the Board of Directors of the
Company shall take such actions as shall ensure that Company Options do not have
their vesting accelerated as a result of the consummation of the Merger and the
transactions contemplated hereby.
5.17 Legal Opinions. Buyer agrees to use commercially reasonable efforts to
cause Cooley Godward LLP to deliver a legal opinion in customary form reasonably
acceptable to the Company. The Company agrees to use commercially reasonable
efforts to cause Brobeck Phleger & Harrison LLP, to deliver a legal opinion in
customary form reasonably acceptable to the Buyer.
5.18 Noncompetition Agreements. Each of the parties hereto, as applicable,
and each of Amir Moussavian, Scott Neill and Robert Brown agree to execute and
deliver at the Closing a Noncompetition Agreement for each of Amir Moussavian,
Scott Neill, and Robert Brown in the form attached hereto as Exhibit D. The
Company agrees to use its best efforts to assist the Buyer in its efforts to
enter into Noncompetition Agreements at the Closing with certain employees of
the Company identified by Buyer prior to the Closing.
5.19 No Piggyback Registration Rights. As of the Effective Time, there
shall be no piggy back registration rights or other rights to cause the Buyer to
register the shares of Buyer Common Stock to be received by the Shareholders as
a result of the Merger.
5.20 No Right to Receive Accumulated or Declared and Unpaid Dividends. As
of the Effective Time, there shall be no rights of holders of Company Capital
Stock or Company Options to receive any accumulated or declared and unpaid
dividends and neither Buyer nor the Surviving Corporation shall be liable or
required to pay for any amount, liability or payment in connection with any and
all such dividends. The parties hereto hereby acknowledge and agree that this
covenant will be satisfied upon either (i) the receipt of an opinion addressed
to Buyer as of the Closing, reasonably acceptable to Buyer, from Brobeck Phleger
& Harrison LLP stating that no amount, liability or payment in connection with
such dividends is outstanding and not cancelled or (ii) the amendment and
restatement of the Company's Articles of Incorporation to delete or otherwise
affirmatively cancel such dividends.
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5.21 Cash Payment; No Tax Liability. At the Closing and upon receipt of a
written request from the Company's Board of Directors, Buyer will make a cash
payment to the Company that is required to fund any liability of the Company
arising from that certain Employment Agreement dated July 16, 1998 between the
Company and Amir Moussavian in connection with the Merger, which payment by
Buyer shall in no event exceed $5 million (the "Cash Payment"). In addition,
Buyer shall not be liable or required to pay for any taxes, including without
limitation, income or excise taxes, in connection with such Cash Payment and any
other amount required to be aggregated with such Cash Payment for purposes of
Code Sections 280G and 4999; provided, however, that upon Buyer's receipt of
written evidence, reasonably satisfactory to Buyer, of excise tax liability
arising from the Cash Payment, Buyer shall pay such tax liability, which
obligation of Buyer shall not exceed $1 million.
5.22 Board Representation. Prior to the Effective Time, Buyer will take
such action as may be required so that Dr. Massih Tayebi, if he is then ready
and willing so to serve, will be elected effective as of the Effective Time as a
member of the Buyer's Board of Directors.
5.23 Amendments to Company Option Plans or Option Agreements. Except to add
to the options currently outstanding under the Company's 1999 Section 25102(o)
Stock Option/Stock Issuance Plan certain provisions related to accelerated
vesting as currently allowed under such plan and except as otherwise
specifically provided herein, the Company shall not amend any of the Company
Option Plans, including any underlying option agreements, without the prior
written consent of Buyer.
5.24 Amendments to Company Articles of Incorporation or Bylaws. The Company
shall not amend the Company Articles of Incorporation or Bylaws, without the
prior written consent of Buyer.
5.25 Modification and Termination of Company Employee Plans. The Company
shall not modify any Company Employee Plan from the date of this Agreement until
the Closing Date so as to alter the Company's or Buyer's cost or obligation
thereunder; provided, however, that the Company shall terminate the 401(k) plan
and the associated trust intended to qualify under Section 501(a) of the Code,
effective on or before the Closing Date.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect The Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
6.1.1 No Injunction Or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administration, agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted,
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entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal.
6.1.2 Governmental Approval. No Governmental Approval shall be
required to be obtained which, if not so obtained, would render consummation of
the Merger illegal.
6.1.3 No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
6.2 Additional Conditions To Obligations Of The Company. The obligations
of the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:
6.2.1 Representations, Warranties and Covenants. The representations
and warranties of Buyer in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of such time (and with respect to Section
3.8.1, such representations and warranties shall refer to the Registration
Statement as amended through the time such Registration Statement is declared
effective by the SEC) and Buyer shall have performed and complied in all
material respects with all covenants of this Agreement (including without
limitation those in Article IV and V) required to be performed and complied with
by it as of the Effective Time; provided, however, that Buyer shall notify the
Company of any material change, event, effect or condition that has a Material
Adverse Effect on the Buyer or on the ability of the parties to consummate the
Merger or the other transaction contemplated in this Agreement, provided
further, that for purposes of this Section 6.2.1, any change, event, effect or
condition on or of the existing business of the Buyer that is primarily
attributable (i) to the Merger or the announcement or effects of announcement of
the Merger or (ii) to general industry-wide changes in, or changes in the
ordinary course of, such existing business shall be disregarded.
6.2.2 Certificate of Buyer. The Company shall have been provided with
a certificate executed on behalf of Buyer by the Chief Financial Officer or
Chief Executive Officer of Buyer certifying (i) as to compliance with the
matters set forth in Section 6.2.1 above and (ii) that all covenants (including
without limitation those in Article IV) of this Agreement to be performed by
Buyer on or before such date have been so performed in all material respects.
6.3 Additional Conditions to the Obligations of Buyer. The obligations of
Buyer to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing,
exclusively by Buyer:
6.3.1 Representations, Warranties and Covenants. The representations
and warranties of the Company (as modified by the Disclosure Schedule) in this
Agreement shall be true and correct in all material respects on and as of the
Effective Time as though such representations and warranties were made on and as
of the Effective Time, the Company shall
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have performed and complied in all material respects with all covenants of this
Agreement (including without limitation those in Article IV and V) required to
be performed and complied with by it as of the Effective Time and each of Amir
Moussavian, Scott Neill, and Robert Brown shall have executed and delivered the
agreements specified above in Section 5.23; provided, however, that the Company
shall notify the Buyer of any material change, event, effect or condition that
has a Material Adverse Effect on the Company or on the ability of the parties to
consummate the Merger or the other transaction contemplated in this Agreement,
provided further, that for purposes of this Section 6.3.1, any change, event,
effect or condition on or of the existing business of the Company that is
primarily attributable (i) to the Merger or the announcement or effects of
announcement of the Merger or (ii) to general industry-wide changes in, or
changes in the ordinary course of, such existing business shall be disregarded.
6.3.2 Shareholder Approval. The Shareholders of the Company shall
have approved this Agreement, the Merger and the transactions contemplated
hereby; the Shareholder Requirement shall have been satisfied and Lock-Ups shall
have been obtained from the security holders representing 80% of the Total
Outstanding Company Shares and of the Company Capital Stock subject to Company
Options.
6.3.3 Certificate of the Company. Buyer shall have been provided with
a certificate executed on behalf of the Company by its Chief Executive Officer
or its Chief Financial Officer certifying (i) as to compliance with the matters
set forth in Section 6.3.1 above and (ii) that all covenants (including without
limitation those in Article IV and V) of this Agreement to be performed by the
Company on or before such date have been so performed in all material respects.
6.3.4 Effectiveness of Registration Statement. Either (i) the
issuance of Buyer Common Stock pursuant to the Merger contemplated hereby shall
be qualified for the exemption provided under Section 3(a)(10) of the Securities
Act or (ii) the Form S-4 Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order shall
have been issued by the SEC with respect to the Form S-4 Registration Statement.
Further, no proceeding similar to a stop order in respect of the Proxy Statement
or Information Statement (as the case may be), shall have been initiated or
threatened in writing by the SEC.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until the date
that is one (1) year following the Closing Date (the "Expiration Date"),
provided that the representations and warranties in Section 2.10 hereof shall
survive until the expiration of the applicable statute of limitations. All of
Buyer's representations and warranties contained herein or in any instrument
delivered pursuant to this Agreement shall terminate on the Closing Date.
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7.2 Indemnification; Escrow Arrangements.
7.2.1 Indemnification. The Company (on behalf of itself and the
Shareholders) agrees to indemnify and hold Buyer and its officers, directors and
affiliates (the "Indemnified Parties") harmless against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation (hereinafter individually a "Loss"
and collectively "Losses") incurred by the Indemnified Parties directly or
indirectly as a result of: (i) any inaccuracy or breach of a representation or
warranty of the Company set forth in this Agreement or in any certificate of any
officer of the Company delivered pursuant to this Agreement, (ii) any failure by
the Company to perform or comply with any covenant (including, without
limitation, those contained in Article IV) contained in this Agreement, and
(iii) the Third Party Expenses incurred by the Company exceeding $200,000
(excluding the expense of the Company's accounting professionals to prepare an
audit of the Company's March 31, 2000 financial statements or any other
supplemental auditing work for a post-December 31, 1999 audit, if required for
the Buyer Registration Statement); provided, however, that (x) the aggregate
amount recoverable by the Indemnified Parties pursuant to this Article VII shall
not exceed the amount deposited in the Escrow Fund (as defined below), except
that Losses attributable to inaccuracies or breaches of the representations and
warranties in Section 2.10 hereof shall not be taken into account in calculating
the limitation on the amount recoverable and shall be recoverable in full,
notwithstanding any such limitation, and (y) except for Losses attributable to
inaccuracies or breaches of the representations and warranties in Section 2.10,
the Indemnified Parties shall not be entitled to indemnification hereunder (1)
with respect to any individual claim for less than $5,000 ($25,000 in the case
of breach of solely Section 2.8) in value, or (2) unless the aggregate amount
for which valid indemnification claims are made exceeds $750,000, in which case
the Indemnified Parties shall be entitled to indemnification from the first
dollar of indemnification claims. The Escrow Fund shall be available to
compensate the Indemnified Parties for any such Losses. Nothing herein shall
limit the liability of the Company for any breach of any representation,
warranty or covenant if the Merger is not consummated.
7.2.2 Escrow Fund. As security for the indemnity provided for in
Section 7.2.1 and by virtue of this Agreement, as soon as practicable after the
Effective Time, the Escrow Amount, without any act of the Company, will be
deposited with an institution selected by Buyer and approved by the Shareholder
Representative (as defined in Section 7.2.9(L)) as Escrow Agent (the "Escrow
Agent"), provided that Shareholder Representative shall not withhold such
approval if Buyer selects a third party that is unrelated to Buyer and that is
generally engaged in the escrow industry or the financial services industry. The
Escrow Agent will either execute an acknowledgement and agreement to the terms
of this Article VII or enter into a separate agreement that sets forth
substantially the same terms provided herein. The deposit of the Escrow Amount
will constitute an escrow fund (the "Escrow Fund") to be governed by the terms
set forth herein. The Escrow Amount shall be contributed on behalf of each
Shareholder of the Company in proportion to the aggregate Buyer Common Stock
which each such holder would otherwise be entitled to under Section 1.8 hereof.
The Shareholders of the Company will be deemed to have received and deposited
with the Escrow Agent (as defined below) the Escrow Amount (plus any additional
shares as may be issued upon any stock split, stock dividend or recapitalization
effected by Buyer after the Effective Time with respect to the Escrow Amount)
without any act of any Shareholder.
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7.2.3 Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California local time on the Expiration Date (the "Escrow Period"); provided,
however, that the Escrow Period shall not terminate with respect to any amount
which, in the reasonable judgment of Buyer, is necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate (as defined below)
delivered to the Escrow Agent prior to termination of such Escrow Period with
respect to facts and circumstances existing prior to the termination of such
Escrow Period. As soon as all such claims have been resolved, the Escrow Agent
shall deliver to the Shareholders of the Company the remaining portion of the
Escrow Fund not required to satisfy such claims. Deliveries of Escrow Amounts to
the Shareholders of the Company pursuant to this Section 7.2 shall be made in
proportion to their respective original contributions to the Escrow Fund.
7.2.4 Protection of Escrow Fund.
(a) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Buyer and shall hold
and dispose of the Escrow Fund only in accordance with the terms hereof.
(b) Any shares of Buyer Common Stock or other equity
securities issued or distributed by Buyer (including shares issued upon a stock
split) ("New Shares") in respect of Buyer Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Buyer
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Buyer Common Stock shall not be added to the Escrow Fund but shall
be distributed to the record holders thereof.
(c) Each Shareholder shall have voting rights and the right to
distributions of cash dividends with respect to the shares of Buyer Common Stock
contributed to the Escrow Fund by such Shareholder (and on any voting securities
added to the Escrow Fund in respect of such shares of Buyer Common Stock). As
the record holder of such shares, the Escrow Agent shall vote such shares in
accordance with the instructions of the Shareholders having the beneficial
interest therein and shall promptly deliver copies of all proxy solicitation
materials to such Shareholders.
7.2.5 Claims Upon Escrow Fund.
(a) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of a certificate signed by any officer of
Buyer (an "Officer's Certificate"): (A) stating that Buyer has paid or properly
accrued or, with respect to third-party claims of which Buyer, the Company or
the Surviving Corporation has received notice, reasonably anticipates that it
will have to pay or accrue Losses, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow
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Agent shall deliver to Buyer out of the Escrow Fund, as promptly as practicable
subject to Section 7.2.6, shares of Buyer Common Stock held in the Escrow Fund
with a value equal to such Losses; provided, however, that in the event of a
third party claim that is the subject of the demand on the Escrow Fund, no
shares shall be delivered out of the Escrow Fund until the claim is settled or
adjudicated.
(b) For the purposes of determining the number of shares of
Buyer Common Stock to be delivered to Buyer out of the Escrow Fund as indemnity
pursuant to Section 7.2.5(a) hereof, the shares of Buyer Common Stock shall be
valued at $7.28 per share prior to the Buyer IPO. After the Buyer IPO, the
shares of Buyer Common Stock shall be valued at the price of the Buyer Common
Stock listed on the cover of the prospectus of the Company filed with the SEC
pursuant to Rule 424(b) under the Securities Act (the "IPO Price"), unless the
average closing price of the Buyer Common Stock for any five (5) consecutive
trading days during the thirty (30) day period preceding the assertion of a
particular indemnity claim exceeds 150% of the IPO Price per share, in which
case the shares of Buyer Common Stock shall be valued at such average closing
price (but in no event at more than 150% of the IPO Price per share).
7.2.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholder Representative, and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Buyer of
any Escrow Amounts pursuant hereto unless the Escrow Agent shall have received
written authorization from the Shareholder Representative to make such delivery.
After the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of shares of Buyer Common Stock from the Escrow Fund in accordance
herewith; provided, however, that no such payment or delivery may be made if the
Shareholder Representative shall object in a written statement to the claim made
in the Officer's Certificate, and such statement shall have been delivered to
the Escrow Agent prior to the expiration of such thirty (30) day period.
7.2.7 Resolution of Conflicts; Arbitration.
(a) In case the Shareholder Representative shall object in
writing to any claim or claims made in any Officer's Certificate, the
Shareholder Representative and Buyer shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Shareholder Representative and Buyer should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of Buyer Common Stock from the Escrow Fund
in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Buyer or the Shareholder Representative may demand
arbitration of the matter unless the amount of the damage or Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
one arbitrator mutually agreeable to Buyer and the Shareholder Representative.
In the event that
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within forty-five (45) days after submission of any dispute to arbitration,
Buyer and the Shareholder Representative cannot mutually agree on one
arbitrator, Buyer and the Shareholder Representative shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator or majority of the three arbitrators, as the case may
be, to discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrator or a majority of the three arbitrators, as
the case may be, shall rule upon motions to compel or limit discovery and shall
have the authority to impose sanctions, including attorneys' fees and costs, to
the same extent as a competent court of law or equity, should the arbitrators or
a majority of the three arbitrators, as the case may be, determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision of the
arbitrator or a majority of the three arbitrators, as the case may be, as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement. Such decision shall be
written and shall be supported by written findings of fact and conclusions which
shall set forth the award, judgment, decree or order awarded by the
arbitrator(s).
(c) Judgment upon any award rendered by the arbitrator(s) may
be entered in any court having jurisdiction. Any such arbitration shall be held
in Santa Clara County, California, under the rules then in effect of the
American Arbitration Association. The arbitrator(s) shall determine how all
expenses relating to the arbitration shall be paid, including without
limitation, the respective expenses of each party, the fees of each arbitrator
and the administrative fee of the American Arbitration Association.
7.2.8 Third-Party Claims. In the event Buyer becomes aware of a
third-party claim which Buyer believes may result in a demand against the Escrow
Fund, Buyer shall notify the Shareholder Representative of such claim. Buyer may
not settle any such claim without the consent of the Shareholder Representative,
which consent shall not be unreasonably withheld or delayed.
7.2.9 Escrow Agent.
(a) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of Buyer
and the Shareholder Representative, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(b) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law or of the
arbitrator(s) appointed pursuant to Section 7.2.7, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court
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or of the arbitrator(s) appointed pursuant to Section 7.2.7. In case the Escrow
Agent obeys or complies with any such order, judgment or decree of any court or
of the arbitration panel appointed by Section 7.2.7, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(c) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(d) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(e) In performing any duties under this Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for any action taken or omitted in
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(f) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Buyer Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damage. Furthermore, the Escrow Agent may at its option,
file an action of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and shares of Buyer Common Stock held
in escrow, except in respect of all costs, expenses, charges and reasonable
attorney fees incurred by the Escrow Agent due to the interpleader action and
which the parties jointly and severally agree to pay. Upon initiating such
action, the Escrow Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
(g) Buyer shall indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the
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performance of his/her duties under this Agreement, including but not limited to
any litigation arising from this Agreement or involving its subject matter other
than arising out of the Escrow Agent's negligence or willful misconduct.
(h) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
commercially reasonable efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent. The successor escrow agent
shall execute and deliver an instrument accepting such appointment and it shall,
without further acts, be vested with all the estates, properties, rights,
powers, and duties of the predecessor escrow agent as if originally named as
escrow agent. Upon appointment of a successor escrow agent, the Escrow Agent
shall be discharged from any further duties and liability under this Agreement.
(i) All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Buyer in accordance with the standard fee schedule of
the Escrow Agent. It is understood that the fees and usual charges agreed upon
for services of the Escrow Agent shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Escrow Agent renders any
service not provided for in this Agreement, or if the parties request a
substantial modification of its terms, or if any controversy arises, or if the
Escrow Agent is made a party to, or intervenes in, any litigation pertaining to
the Escrow Fund or its subject matter, the Escrow Agent shall be reasonably
compensated for such extraordinary services and reimbursed for all costs,
attorney's fees, including allocated costs of in-house counsel, and expenses
occasioned by such default, delay, controversy or litigation.
(j) In no event shall the Escrow Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(k) Any corporation into which the Escrow Agent in its
individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
(l) In the event that the Merger is approved, upon the
Effective Time, and without further act of any Shareholder, Scott Neill shall be
appointed as agent and attorney-in-fact (the "Shareholder Representative") for
each Shareholder, for and on behalf of the Shareholders, to give and receive
notices and communications, to authorize delivery to Buyer of shares of Buyer
Common Stock from the Escrow Fund in satisfaction of claims by Buyer, to object
to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to
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such claims, and to take all actions necessary or appropriate in the judgment of
the Shareholder Representative for the accomplishment of the foregoing. Such
agency may be changed by the Shareholders from time to time upon not less than
thirty (30) days prior written notice to Buyer; provided, however, that the
Shareholder Representative may not be removed unless holders of a majority in
interest in the Escrow Fund agree to such removal and to the identity of the
substituted agent. Any vacancy in the position of Shareholder Representative may
be filled by approval of the holders of a majority in interest in the Escrow
Fund. No bond shall be required of the Shareholder Representative, and the
Shareholder Representative shall not receive compensation for his or her
services. Notices or communications to or from the Shareholder Representative
shall constitute notice to or from each of the Shareholders. The Shareholder
Representative shall not be liable for any act done or omitted hereunder as
Shareholder Representative while acting without gross negligence, bad faith and
willful misconduct. The Shareholders on whose behalf the Escrow Amount was
contributed to the Escrow Fund shall severally indemnify the Shareholder
Representative and hold the Shareholder Representative harmless against any
loss, liability or expense incurred without gross negligence, bad faith or
willful misconduct on the part of the Shareholder Representative and arising out
of or in connection with the acceptance or administration of the Shareholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Shareholder Representative. A decision, act,
consent or instruction of the Shareholder Representative shall constitute a
decision of all Shareholders for whom a portion of the Escrow Amount otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each of such Shareholders, and the Escrow Agent and Buyer
may rely upon any such decision, act, consent or instruction of the Shareholder
Representative as being the decision, act, consent or instruction of each and
every such Shareholder. The Escrow Agent and Buyer are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholder Representative.
7.3 Maximum Payments; Remedy. From and after the Effective Time, this
Article VII shall provide the sole and exclusive remedy for any and all damages
or other liability sustained or incurred by the Indemnified Parties or their
successors and assigns as the result of any breach of any representation,
warranty or covenant contained in this Agreement or any claim of negligent
misrepresentation against the Company in connection with this Agreement or the
Merger. No Shareholder shall have any right to contribution from the Company for
any claim made by Buyer after the Effective Time.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2, this Agreement may be
terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Buyer;
(b) by Buyer or the Company if the Effective Time has not occurred by
October 31, 2000; provided, however, that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose action or
failure to act has been a
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principal cause of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a breach of this
Agreement;
(c) by Buyer or the Company if (i) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (ii) there shall be any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Merger by
any Governmental Entity that would make consummation of the Merger illegal;
(d) by Buyer if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
Buyer's or Merger Sub's ownership or operation of any portion of the business of
the Company or (ii) compel Buyer or the Company to dispose of or hold separate
all or a portion of the business or assets of the Company or Buyer as a result
of the Merger;
(e) by Buyer if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty or covenant contained in this Agreement on the part of
the Company, or if any representation or warranty on the part of the Company has
become untrue, in either case such that the condition set forth in Section 6.3.1
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue and such inaccuracy in such
representation or warranty or breach shall not have been cured within thirty
(30) calendar days after written notice to the Company; provided, however, that,
no cure period shall be required for a breach which by its nature cannot be
cured;
(f) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty or covenant contained in this Agreement on the part of
Buyer, or if any representation or warranty on the part of Buyer has become
untrue, in either case such that the condition set forth in Section 6.2.1 would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue and such inaccuracy in such
representation or warranty or breach shall not have been cured within thirty
(30) calendar days after written notice to Buyer; provided, however, that, no
cure period shall be required for a breach which by its nature cannot be cured;
(g) by Buyer if a majority of the Shareholders of the Company
vote against the Merger by written action or at the Company Shareholders
Meeting;
8.2 Effect Of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Buyer or the Company or their
respective officers, directors or Shareholders, provided that each party shall
remain liable for any breaches of this Agreement prior to its termination;
provided further that the provisions of Sections 5.3 (confidentiality), 5.4
(expenses), (effect of termination) and 9 (notices) shall remain in full force
and effect and survive any termination of this Agreement.
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8.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Buyer and
the Company may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), provided, however,
that notices sent by mail will not be deemed given until received:
If to Buyer:
Evoke Incorporated
1157 Century Drive
Louisville, CO 80027
Attention: Paul Berberian
Telephone No.: (303) 928-2800
Facsimile No: (303) 928-2837
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, CO 80302
Attention: Michael L. Platt, Esq.
Telephone No.: (303) 546-4000
Facsimile No.: (303) 546-4099
If to the Company:
Contigo Software, Inc.
11512 El Camino Real
San Diego, CA 92130
Attention: Amir Moussavian
Telephone No.: (858) 792-8206
Facsimile No: (858) 792-8207
54.
<PAGE>
with a copy to:
Brobeck Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Attention: Hayden Trubitt, Esq.
Telephone No.: (858) 720-2500
Facsimile No: (858) 720-2555
If to the Shareholder Representative:
Scott F. Neill
2356 Lone Oak Lane
Vista, CA 92084
with a copy to:
Brobeck Phleger & Harrison LLP
12390 El Camino Real
San Diego, CA 92130
Attention: Hayden Trubitt, Esq.
Telephone No.: (858) 720-2500
Facsimile No: (858) 720-2555
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Disclosure Schedule, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings both written and oral, among the parties
with respect to the subject matter hereof; (b) except as specifically provided
herein, are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned (other than by operation of law).
9.5 Severability. In the event that any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will
55.
<PAGE>
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
9.6 Equitable Remedies; Cumulative Remedies. The parties hereto
acknowledge that monetary damages may be inadequate to compensate a party for a
breach of this Agreement by the other party. Accordingly, each party hereto
shall be entitled to seek equitable relief, including, without limitation, the
remedy of specific performance, in the event of a breach of this Agreement by
the other party. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
[signature page to follow]
56.
<PAGE>
In Witness Whereof, the parties hereto have caused this Agreement to be
signed, all as of the date first written above.
Evoke Incorporated
a Delaware corporation
By:________________________________
Name: Paul Berberian
Title: Chief Executive Officer
Contigo Software, Inc.
a California corporation
By:________________________________
Name: Amir Moussavian
Title: Chairman and CEO
CSI Acquisition Corporation
a California corporation
By:________________________________
Name:
Title:
Agreement and Plan of Reorganization
Signature Page
<PAGE>
Exhibit A Agreement of Merger
Exhibit B 145 Letter
Exhibit C Voting and Lock-Up Agreement
Exhibit D Noncompetition Agreement
<PAGE>
Exhibit A
AGREEMENT OF MERGER
This Agreement of Merger (this "Agreement") is made and entered into
as of ________ ___, 2000 by and between Contigo Software, Inc., a California
corporation ("Contigo"), and CSI Acquisition Corporation ("Sub"), a California
------- ---
corporation and wholly-owned subsidiary of Evoke Incorporated, a Delaware
corporation ("Evoke"). Contigo and Sub are sometimes jointly referred to herein
-----
as the "Constituent Corporations."
------------------------
INTENDING TO BE LEGALLY BOUND, and in consideration of the promises and
material covenants and agreements contained herein, the Constituent Corporations
hereby agree as follows:
ARTICLE I
The Merger
----------
1.1. Merger of Sub With and Into Contigo.
-----------------------------------
(a) Filing. This Agreement, together with the officers' certificates
------
of each of the Constituent Corporations required by the Corporations Code of
California ("CCC") shall be filed with the Secretary of State of the State of
California as specified in the Merger Agreement.
(b) Agreement to Acquire Contigo. Subject to the terms of this
----------------------------
Agreement and in accordance with the Agreement and Plan of Reorganization dated
as of March 24, 2000 (the "Merger Agreement"), among Contigo, Sub and Evoke, Sub
----------------
shall be merged with and into Contigo (the "Merger"), with Contigo continuing as
------
the surviving corporation and as a wholly-owned subsidiary of Evoke (the
"Surviving Corporation"). As used herein, the term "Evoke Common Stock" shall
- ---------------------- ------------------
mean the Common Stock, $0.001 par value per share, of Evoke, and the term
"Closing" shall mean the closing of the Merger pursuant to the Merger Agreement.
- --------
(b) Effective Time of the Merger. The Merger shall become effective
----------------------------
at such time (the "Effective Time") as this Agreement and the officers'
--------------
certificates of each Constituent Corporation are accepted by the Secretary of
State of the State of California pursuant to Section 1103 of the CCC.
1.2 Effect of the Merger; Additional Actions.
----------------------------------------
(a) Effects. The Merger shall have the effects set forth in Section
-------
1107 of the CCC.
(b) Additional Actions. If, at any time after the Effective Time, any
------------------
further action is necessary or desirable to consummate the Merger, to carry out
the purposes of the Merger Agreement and to vest the Surviving Corporation with
full right, title and possession to
<PAGE>
all assets, property, rights, privileges, powers and franchises of Contigo and
Sub, the officers and directors of the Contigo and Evoke are fully authorized in
the name of their respective corporations or otherwise to take, and will take,
all such lawful and necessary action.
ARTICLE II
The Surviving Corporation
-------------------------
2.1 Articles and Bylaws. The Articles of Incorporation of Sub immediately
-------------------
prior to the Effective Time shall become the Articles of Incorporation of the
Surviving Corporation. The Bylaws of Sub immediately prior to the Effective Time
shall become the Bylaws of the Surviving Corporation.
2.2 Directors and Officers. The directors of Sub immediately prior to the
----------------------
Effective Time shall become the directors of the Surviving Corporation, each to
hold office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation. The officers of Sub immediately prior to the Effective
Time shall become the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
ARTICLE III
Effect of the Merger on the Capital Stock of the
------------------------------------------------
Constituent Corporations; Exchange of Certificates
--------------------------------------------------
3.1 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Evoke, Sub, Contigo or any holder
of any shares of Contigo Common Stock or Contigo Preferred Stock:
(a) Capital Stock of Sub. Each issued and outstanding share of
--------------------
capital stock of Sub shall be converted into one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving Corporation.
Each stock certificate of Sub evidencing ownership of any such shares shall
thereafter evidence ownership of shares of common stock of the Surviving
Corporation.
(b) Conversion of Contigo Common Stock. Each outstanding share of
----------------------------------
Contigo Common Stock immediately prior to the Effective Time (other than shares,
if any, held by persons exercising dissenters' rights in accordance with the CCC
("Common Dissenting Shares")) shall be cancelled and extinguished and shall,
------------------------
upon the surrender of the certificate representing such share of Contigo Common
Stock, be converted automatically into the right to receive a fraction of a
share of Evoke Common Stock equal to the Exchange Ratio. As used herein, the
"Exchange Ratio" shall equal the quotient obtained by dividing (i) 9,000,000 by
- ---------------
(ii) the sum of: (x) the aggregate total number of shares of common stock,
preferred stock and any other capital stock of Contigo outstanding immediately
prior to the Effective Time (in the case of convertible securities, computed on
a Contigo Common Stock equivalent basis, giving effect to the conversion ratio
governing each such convertible security but without giving effect to any and
all declared or accumulated and unpaid dividends) and (y) the aggregate number
of
-3-
<PAGE>
shares of capital stock of Contigo subject to any issued and outstanding
options, warrants and other rights ("Contigo Options") to acquire or receive
---------------
Contigo capital stock, whether or not vested (in the case of Contigo Options, if
any, exercisable for convertible securities, computed on a Contigo Common Stock
equivalent basis, giving effect to the conversion ratio governing each such
convertible security but without giving effect to any and all declared or
accumulated and unpaid dividends) outstanding immediately prior to the Effective
Time, except for Contigo Options which by their terms can never be exercisable
after the Merger.
(c) Conversion of Contigo Preferred Stock. Each outstanding share of
-------------------------------------
each class of Contigo Preferred Stock immediately prior to the Effective Time
(other than shares, if any, held by persons exercising dissenters' rights in
accordance with the CCC (together with the Common Dissenting Shares, the
"Dissenting Shares")) shall be cancelled and extinguished and shall, upon the
- ------------------
surrender of the certificate representing such share of Contigo Preferred Stock,
be converted automatically into the right to receive cash as described below
plus a fraction of a share of Evoke Common Stock equal to the Exchange Ratio,
applied to such share of Contigo Preferred Stock on a Contigo Common Stock
equivalent basis (but without giving effect to any and all declared or
accumulated and unpaid dividends). Such conversion shall constitute a
forgiveness and cancellation, in effect, of any and all declared or accumulated
and unpaid dividends on such Contigo Preferred Stock. The cash amount to be
received upon such conversion shall be $2.2472 per share of Series A Preferred
Stock (such cash amount to be received by all holders of Series A Preferred
Stock not to exceed $300,001.20 in the aggregate), $2.2472 per share of Series B
Preferred Stock (such cash amount to be received by all holders of Series B
Preferred Stock not to exceed $300,001.20 in the aggregate), $3.00 per share of
Series C Preferred Stock (such cash amount to be received by all holders of
Series C Preferred Stock not to exceed $500,001.00 in the aggregate) and zero
per share of Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock. Such cash payment (if any) and
issuance of Evoke Common Stock shall satisfy all rights of such Preferred Stock
holders with respect to their liquidation preference.
(d) Dissenters' Rights. If holders of Contigo capital stock have
------------------
perfected any dissenters' rights in connection with the Merger under the CCC,
any Dissenting Shares held by such holders shall not be cancelled but shall be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to the CCC unless and
until such holder shall have failed to perfect or shall have effectively
withdrawn or lost such holder's right to purchase and payment under the CCC.
3.2 Effect on Options. At the Effective Time all issued and outstanding
-----------------
options, warrants and other rights to acquire or receive Contigo
capital stock (the "Contigo Options"), except for Contigo Options which by their
---------------
terms can never be exercisable after the Merger, shall be converted into an
option to acquire, on the same terms and conditions as were applicable under
such Contigo Options, shares of Evoke Common Stock at a price and in an amount
adjusted to grant to the holder thereof substantially equivalent economic value
before and after the Effective Time.
3.3 General.
-4-
<PAGE>
(a) Fractional Shares. No fractional shares of Evoke Common Stock
-----------------
shall be issued, but in lieu thereof, the number of shares otherwise issuable to
any holder of Contigo Preferred Stock, Contigo Options (each on a Contigo Common
Stock equivalent basis) or Contigo Common Stock shall be rounded down to the
nearest whole share of Evoke Common Stock and an appropriate cash adjustment
shall be made to reflect the value of the fractional share not received.
(b) Escrow. Following the Effective Time or such later time as may be
------
determined pursuant to the provisions of the Merger Agreement, Evoke will
deposit in escrow certificates representing 10% of the total number of shares of
Evoke Common Stock to be issued or reserved to the shareholders and
optionholders, as applicable, of Contigo in the Merger to be held as security
for the indemnification obligations of Contigo in accordance with the terms of
the Merger Agreement.
ARTICLE IV
Termination
-----------
4.1 Termination by Mutual Agreement. This Agreement may be terminated at
-------------------------------
any time prior to the Effective Time by mutual written consent of the
Constituent Corporations or if the Merger Agreement is terminated as provided
therein.
4.2 Effects of Termination. In the event of the termination of this
----------------------
Agreement, this Agreement shall become void and there shall be no liability on
the part of any of Contigo, Sub, or Evoke or their respective officers or
directors, except as otherwise provided in the Merger Agreement.
ARTICLE V
General Provisions
------------------
5.1 Amendment. This Agreement may be amended by the parties hereto at any
---------
time prior to the Effective Time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
5.2 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
5.3 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
[Signature Page Follows]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement of Merger
as of the date first written above.
CSI Acquisition Corporation
________________________________________
Paul A. Berberian
President and Chief Executive Officer
________________________________________
James M. LeJeal
Secretary
Contigo Software, Inc.
________________________________________
Amir Moussavian
Chairman and CEO
________________________________________
Scott Neill
Secretary
<PAGE>
CONTIGO SOFTWARE, INC.
OFFICERS' CERTIFICATE
Amir Moussavian and Scott Neill hereby certify that:
1. They are the Chief Executive Officer and Secretary, respectively, of
Contigo Software, Inc., a California corporation (the "Corporation").
2. The Agreement of Merger to which this Certificate is attached (the
"Merger Agreement") has been duly approved by the Board of Directors of
the Corporation.
3. The Corporation has one class of common stock outstanding, designated
"Common Stock," of which _______ shares were outstanding and entitled
to vote on the merger.
4. The Corporation has one class of preferred stock outstanding, divided
into seven series, designated Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock, respectively. The
number of shares of preferred stock outstanding and entitled to vote on the
Merger was __________. The number of shares of each series of preferred stock
outstanding and entitled to vote on the merger were as follows:
Series A Preferred Stock ______________ shares
Series B Preferred Stock ______________ shares
Series C Preferred Stock ______________ shares
Series D Preferred Stock ______________ shares
Series E Preferred Stock ______________ shares
Series F Preferred Stock ______________ shares
Series G Preferred Stock ______________ shares
5. The principal terms of the Merger Agreement were approved by the
shareholders of the Corporation by a vote of a number of shares which equaled or
exceeded the vote required. The vote required was greater than 50% of the
outstanding shares of Common Stock, greater than 50% of the outstanding shares
of preferred stock, greater than 50% of the outstanding shares of Series A
Preferred Stock, greater than 50% of the outstanding shares of Series B
Preferred Stock, and greater than 50% of the outstanding shares of Series C,
Series D, Series E, Series F and Series G Preferred Stock (voting together as if
constituting a separate class).
<PAGE>
The undersigned declare under penalty of perjury that the matters set out
in the foregoing Certificate are true of their own knowledge. Executed at San
Diego, California on ___________ ___, 2000.
______________________________
Amir Moussavian, Chairman and CEO
______________________________
Scott Neill, Secretary
-2-
<PAGE>
CSI Acquisition Corporation
(Disappearing Corporation)
OFFICERS' CERTIFICATE
Paul A. Berberian and James M. LeJeal hereby certify that:
1. They are the President and Secretary, respectively, of CSI Acquisition
Corporation, a California corporation (the "Corporation").
2. The Agreement of Merger to which this Certificate is attached (the
"Merger Agreement") has been duly approved by the Board of Directors of the
Corporation.
3. The Corporation has one class of stock outstanding, designated "Common
Stock," of which 100 shares were outstanding and entitled to vote on the merger.
4. The principal terms of the Merger Agreement were approved by the
shareholders of the Corporation by a vote of a number of shares which equaled or
exceeded the vote required. The vote required was greater than 50% of the
outstanding shares of Common Stock.
5. The required vote of each class of shareholders of Evoke Incorporated,
the parent of the Corporation, which parent corporation is issuing and/or
reserving for issuance equity securities to the shareholders, optionholders and
warrantholders of Contigo Software, Inc. pursuant to the Merger Agreement, was
obtained.
The undersigned declare under penalty of perjury that the matters set out
in the foregoing Certificate are true of their own knowledge. Executed at
Louisville, Colorado on ______________ , 2000.
______________________________
Paul A. Berberian,
President and Chief Executive Officer
______________________________
James M. LeJeal, Secretary
A-1.
<PAGE>
Exhibit B
[Form of Affiliate Agreement]
March 24, 2000
Evoke Incorporated
1157 Century Drive
Louisville, Colorado 80027
Ladies and Gentlemen:
The undersigned has been advised that as of the date hereof the undersigned
may be deemed to be an "affiliate" of Contigo Software, Inc., a California
corporation ("Contigo"), as the term "affiliate" is (i) defined for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger and
Reorganization, dated as of March 24, 2000 (the "Agreement"), between Evoke
Incorporated, a Delaware corporation ("Evoke"), Contigo and CSI Acquisition
Corporation, a wholly-owned California subsidiary of Evoke ("CSI"), at the
Effective Time (as defined in the Agreement) CSI will be merged with and into
Contigo, with Contigo remaining as the surviving corporation.
As a result of the Merger (as defined in the Agreement), the undersigned
may receive shares of Common Stock, par value $.001 per share of Evoke ("Evoke
Common Stock"). The undersigned would receive such shares in exchange for shares
of capital stock of Contigo owned by the undersigned.
The undersigned hereby represents and warrants to, and covenants with,
Evoke that in the event the undersigned receives any Evoke Common Stock in the
Merger:
(A) The undersigned shall not make any sale, transfer or other disposition
of (including a reduction of interest in or risk relating to) the Evoke Common
Stock in violation of the Act or the Rules and Regulations.
(B) The undersigned has carefully read this letter and discussed its
requirements and other applicable limitations upon the undersigned's ability to
sell, transfer or otherwise dispose of the Evoke Common Stock, to the extent the
undersigned has felt it necessary, with the undersigned's counsel.
(C) The undersigned has been advised that the issuance of shares of Evoke
Common Stock to the undersigned in the Merger may be registered under the Act by
a Registration Statement on Form S-4 or qualified for issuance under the
exemption provided by Section 3(a)(10) of the Act. However, the undersigned has
also been advised and agrees that because (i) at the time of the Merger's
submission for a vote of the stockholders of Contigo the undersigned may be
deemed an affiliate of Contigo and (ii) the distribution by the undersigned of
B-1
<PAGE>
the Evoke Common Stock has not been registered under the Act, the undersigned
may not sell, transfer or otherwise dispose of Evoke Common Stock issued to the
undersigned in the Merger unless (a) such sale, transfer or other disposition
has been registered under the Act, (b) such sale, transfer or other disposition
is made in conformity with the volume and other applicable limitations imposed
by Rule 145 under the Act, or (c) in the opinion of counsel reasonably
acceptable to Evoke, such sale, transfer or other disposition is otherwise
exempt from registration under the Act.
(D) The undersigned understands that Evoke will be under no obligation to
register the sale, transfer or other disposition of the Evoke Common Stock by
the undersigned or on the undersigned's behalf under the Act or to take any
other action necessary in order to make compliance with an exemption from such
registration available.
(E) The undersigned understands that stop transfer instructions will be
given to Evoke's transfer agent with respect to the Evoke Common Stock owned by
the undersigned and that there may be placed on the certificates for the Evoke
Common Stock issued to the undersigned, or any substitutions therefor, a legend
stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933
applies. The shares represented by this certificate may only be
transferred in accordance with the terms of a letter agreement dated
March 24, 2000, a copy of which agreement is on file at the principal
offices of Evoke."
(F) The undersigned also understands that unless the transfer by the
undersigned of the undersigned's Evoke Common Stock has been registered under
the Act or is a sale made in conformity with the provisions of this letter,
Evoke reserves the right, in its sole discretion, to place the following legend
on the certificates issued to any transferee of shares from the undersigned:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and were acquired from a person who
received such shares in a transaction to which Rule 145 under the
Securities Act of 1933 applies.
"The shares have been acquired by the holder not with a view to, or
for resale in connection with, any distribution thereof within the
meaning of the Securities Act of 1933 and may not be offered, sold,
pledged or otherwise transferred except in accordance with an
exemption from the registration requirements of the Securities Act of
1933."
It is understood and agreed that the legend set forth in paragraph E or F
above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to Evoke (i) a copy of a letter
from the staff of the Commission, or an opinion of counsel, in form and
substance reasonably satisfactory to Evoke to the effect that such legend is not
required for purposes of the Act or (ii) reasonably satisfactory evidence or
representations
B-2
<PAGE>
that the shares represented by such certificates are being or have been
transferred in a transaction made in conformity with the provisions of Rule 145.
This agreement shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to principles of
conflicts of laws. This agreement shall be binding on the undersigned's
successors and assigns, including his or her heirs, executors and
administrators.
Very truly yours,
_____________________________________
_____________________________________
Print name
Acknowledged this 24th day
of March 2000
Evoke Incorporated
By:______________________________
Name:____________________________
Its:_____________________________
B-3
<PAGE>
Exhibit C
VOTING AND LOCK-UP AGREEMENT
This Voting And Lock-Up Agreement is made and entered into as of March ___,
2000 (this "Voting Agreement"), by and between Evoke Incorporated, a Delaware
corporation ("Buyer"), and the party identified on the signature page hereto
("Shareholder").
Recitals
A. Buyer and Contigo Software, Inc., a California corporation (the
"Company"), have contemporaneously with the execution of this Voting Agreement
entered into an Agreement and Plan of Reorganization dated as of even date
herewith (the "Merger Agreement") which provides, among other things, that a
wholly-owned subsidiary of Buyer ("Merger Sub") shall be merged (the "Merger")
with and into the Company pursuant to the terms and conditions thereof;
B. As an essential condition and inducement to Buyer to enter into the
Merger Agreement and in consideration therefor, Shareholder and Buyer have
agreed to enter into this Voting Agreement; and
C. As of the date hereof, the Shareholder owns of record and beneficially
the shares of common stock, no par value per share ("Company Common Stock") and,
if applicable, the shares of preferred stock, no par value per share ("Company
Preferred Stock"), of the Company (collectively, the Company Common Stock and
the Company Preferred Stock are referred to herein as the "Company Stock") set
forth on the signature page hereto and desires to enter into this Agreement with
respect to such shares of Company Stock.
Now, Therefore, in consideration of the foregoing and the mutual covenants
and agreements contained herein and in the Merger Agreement, the parties hereto
agree as follows:
ARTICLE I
VOTING OF SHARES; CONVERSION OF SHARES
1.1 Voting Agreement. Unless otherwise provided in Section 1.2 below,
Shareholder hereby agrees to (a) appear, or cause the holder of record on any
applicable record date (the "Record Holder") to appear for the purpose of
obtaining a quorum at any annual or special meeting of stockholders of the
Company and at any adjournment thereof at which matters relating to the Merger,
the Merger Agreement or any transaction contemplated thereby are considered and
(b) vote, or cause the Record Holder to vote, in person or by proxy, all of the
shares of Company Stock owned by Shareholder, or with respect to which such
Shareholder has or shares voting power or control, and all of the shares of
Company Stock which shall, or with respect to which voting power or control
shall, hereafter be acquired by Shareholder (collectively, the "Shares") (i) in
favor of the Merger, the Merger Agreement and the transactions contemplated by
the Merger Agreement and (ii) against any amendment of the Company's articles of
incorporation or by-laws or other proposal or transaction involving the Company,
which would be reasonably likely to impede, frustrate, prevent or nullify the
Merger, the Merger
C-1
<PAGE>
Agreement or any of the other transactions contemplated by the Merger Agreement
or change in any manner the voting rights of any class of Company Stock. In the
event written consents are solicited or otherwise sought from stockholders of
the Company with respect to approval or adoption of the Merger Agreement, with
respect to the approval of the Merger or with respect to any of the other
actions contemplated by the Merger Agreement, Shareholder shall (unless
otherwise directed by Buyer) execute, or cause the Record Holder to execute,
with respect to all Shares, a written consent or written consents to such
proposed action.
1.2 Grant of Proxy. In furtherance of the foregoing, Shareholder, by this
Agreement, with respect to all Shares now owned of record or that may hereafter
be acquired by Shareholder at anytime prior to the Effective Time (as defined in
the Merger Agreement), does hereby constitute and appoint Buyer and Merger Sub,
or any nominee of Buyer and Merger Sub, with full power of substitution, from
the date hereof to the earlier to occur of the termination of this Voting
Agreement or the Effective Time, as its true and lawful attorney-in-fact and
proxy (its "Proxy"), for and in its name, place and stead, to demand that the
Secretary of the Company call a special meeting of stockholders of the Company
for the purpose of considering any action related to the Merger Agreement and to
vote each of such Shares as its Proxy at every annual, special or adjourned
meeting of stockholders of the Company, including the right to sign its name (as
stockholder) to any consent relating to the Company that the law of the State of
California may permit or require, in favor of the Merger, the Merger Agreement
and the transactions contemplated by the Merger Agreement. This Proxy and power
of attorney is irrevocable to the fullest extent permitted by the law of the
State of California and is coupled with an interest.
1.3 Further Assurances. Shareholder shall perform such further acts and
execute such further documents and instruments as may reasonably be required to
vest in Buyer and Merger Sub the power to carry out and give effect to the
provisions of this Voting Agreement.
1.4 No Ownership Interest. Nothing contained in this Voting Agreement
shall be deemed to vest in Buyer any direct or indirect ownership or incidence
of ownership of or with respect to any Shares. All rights, ownership and
economic benefits of and relating to the Shares shall remain and belong to
Shareholder, and Buyer shall have no authority to manage, direct, superintend,
restrict, regulate, govern, or administer any of the policies or operations of
the Company or exercise any power or authority to direct Shareholder in the
voting of any of the Shares, except as otherwise provided herein, or the
performance of Shareholder's duties or responsibilities as a stockholder of the
Company.
1.5 Documents Delivered. Shareholder acknowledges receipt of copies of the
following documents: the Merger Agreement, the Disclosure Schedule and all
Exhibits and Schedules thereto.
1.6 No Inconsistent Agreements. Each Shareholder hereby covenants and
agrees that, except as contemplated by this Voting Agreement and the Merger
Agreement, the Shareholder (a) has not entered, and shall not enter at any time
while this Voting Agreement remains in effect, into any voting agreement and (b)
has not granted, and shall not grant at any time while this Voting Agreement
remains in effect, a proxy or power of attorney.
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1.7 Actions. The Shareholder agrees to take, or cause to be taken, all
actions (including, without limitation, by causing any director designee of such
Shareholder to cause the Company to take action) necessary to:
(a) terminate, not later than the Effective Time, any other agreement
or arrangement between the Shareholder and the Company or between/among the
Shareholder and any other stockholder of the Company restricting the
registration, voting or transfer of Shares, or granting the Shareholder
registration rights without requiring any payment, performance or obligation by
the Company;
(b) remove any right to receive any accumulated or declared and
unpaid dividends or any other right to receive any consideration other than the
Buyer Common Stock (as defined in the Merger Agreement) for the Shares and, with
respect to the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock, the respective cash amount in respect of the
Liquidation Preference (as defined in the Merger Agreement) set forth in the
Merger Agreement in connection with the Merger; provided, however, that the
effectiveness of each of the foregoing actions described in clauses (a) and (b)
shall be contingent upon consummation of the Merger.
The Shareholder also agrees to provide Buyer with reasonably satisfactory
evidence of all of the preceding actions.
ARTICLE II
TRANSFER
2.1 Transfer of Title.
(a) Shareholder hereby covenants and agrees that Shareholder will
not, prior to the termination of this Voting Agreement, either directly or
indirectly, sell, assign, pledge, hypothecate, transfer, exchange, or dispose
("Transfer") of any Shares or options to purchase Company Stock ("Options") or
any other securities or rights convertible into or exchangeable for shares of
Company Stock, owned either directly or indirectly by Shareholder or with
respect to which Shareholder has the power of disposition, whether now or
hereafter acquired, without the prior written consent of Buyer; provided that
nothing contained herein will be deemed to restrict the exercise of Option; and
provided further, that the foregoing requirements shall not prohibit any
Transfer to any person or entity where as a pre-condition to such Transfer the
transferee agrees to be bound by all the terms and conditions of this Voting
Agreement and deliver a duly executed copy of the Voting Agreement to Buyer to
evidence such agreement.
(b) Shareholder hereby agrees and consents to the entry of stop
transfer instructions by the Company against the transfer of any Shares or
Options consistent with the terms of Section 2.1(a) hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
Shareholder hereby represents and warrants to Buyer as follows:
3.1 Authority Relative to this Agreement. Shareholder is competent to
execute and deliver this Voting Agreement, to perform its obligations hereunder
and to consummate the transactions contemplated hereby. This Voting Agreement
has been duly and validly executed and delivered by Shareholder and, assuming
the due authorization, execution and delivery by Buyer, constitutes a legal,
valid and binding obligation of Shareholder, enforceable against Shareholder in
accordance with its terms. If the Shareholder is a natural person and is
married, and the Shares and Options held or owned by the Shareholder constitute
community property or otherwise need spousal or other approval for this Voting
Agreement to be legal, valid and binding, this Agreement has been duly
authorized, executed and delivered by, and (making the same assumption in the
preceding sentence) constitutes a valid and binding agreement of, the
Shareholder's spouse, enforceable against such spouse in accordance with its
terms. No trust of which such Shareholder is a trustee requires the consent of
any beneficiary to the execution and delivery of this Voting Agreement or to the
consummation of the transactions contemplated hereby.
3.2 No Conflict. The execution and delivery of this Voting Agreement by
Shareholder does not, and the performance of this Voting Agreement by
Shareholder shall not, result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance, on any of
the Shares or Options pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Shareholder is a party or by which Shareholder or the Shares
or Options are bound or affected.
3.3 Title to the Shares. The Shareholder is the record and beneficial
owner of, and has good and marketable title to, the Shares and Options set forth
on the signature page hereto, and the Shares and Options held by Shareholder are
owned free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Shareholder's voting rights,
charges and other encumbrances of any nature whatsoever, and Shareholder has not
appointed or granted any proxy, which appointment or grant remains effective,
with respect to the Shares (other than under this Voting Agreement).
ARTICLE IV
LOCK-UP
Shareholder acknowledges that Buyer is currently in registration with the
Securities and Exchange Commission for the initial public offering (the "IPO")
of shares of Buyer's Common Stock, par value $.001 per share ("Buyer Common
Stock"). Shareholder further acknowledges that, in connection with the IPO,
certain stockholders of Buyer will become bound by a 180-day lock-up arrangement
with the underwriters in the IPO that restricts the ability of such
C-4
<PAGE>
stockholders to sell or otherwise transfer any interest in shares of Buyer
Common Stock held by them during such time period following the IPO (the "Lock-
Up"). As additional consideration for Buyer's agreement to enter into and
consummate the transactions contemplated by the Merger Agreement, Shareholder
agrees to be bound by the Lock-Up effective as of the Effective Time of the
Merger (as defined in the Merger Agreement) and continuing through the end of
such 180-day Lock-Up period, as if Shareholder were a direct party thereto with
the underwriters in the IPO, with respect to all shares of Buyer Common Stock
that may have been or are acquired by Shareholder at any time, whether pursuant
to the exchange of shares in the Merger or otherwise; provided, however, that to
the extent any percentage of the shares of any executive officer, director or
holder of more than 5% of the Buyer's outstanding capital stock is released from
such Lock-Up, then Shareholder shall be released from such Lock-Up to the same
extent on a proportional basis.
ARTICLE V
MISCELLANEOUS
5.1 No Solicitation. From the date hereof until the Effective Time or, if
earlier, the termination of the Merger Agreement, Shareholder shall not (whether
directly or indirectly through advisors, agents or other intermediaries) engage
in any discussions or take any actions that, if engaged in or taken by the
Company, would violate Section 4.2 of the Merger Agreement.
5.2 Termination. This Agreement shall terminate upon the earliest to occur
of (a) the termination of the Merger Agreement in accordance with its terms or
(b) the Effective Time. Upon such termination, no party shall have any further
obligations or liabilities hereunder other than as provided in Section 4 hereof,
provided that no such termination shall relieve any party from liability for any
breach of this Voting Agreement prior to such termination.
5.3 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Voting
Agreement were not performed in accordance with its specified terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Voting Agreement and
to specific performance of the terms and provisions hereof in addition to any
other remedy to which they are entitled at law or in equity.
5.4 Successors And Affiliates. This Voting Agreement shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
heirs, legal representatives and permitted assigns. If Shareholder shall at any
time hereafter acquire ownership of, or voting power with respect to, any
additional Shares in any manner, whether by the exercise of any options or any
securities or rights convertible into or exchangeable for shares of Company
Stock, by operation of law or otherwise, such Shares shall be held subject to
all of the terms and provisions of this Voting Agreement. Without limiting the
foregoing, Shareholder specifically agrees that the obligations of Shareholder
hereunder shall not be terminated by operation of law, whether by death or
incapacity of Shareholder or otherwise.
5.5 Entire Agreement. This Voting Agreement together with the Affiliates
Agreements, in the form attached as Exhibit B to the Merger Agreement, if and to
the extent
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<PAGE>
entered into by Shareholder and Buyer, constitutes the entire agreement among
Buyer and Shareholder with respect to the subject matter hereof and supersedes
all prior agreements and understandings, both written and oral, among Buyer and
Shareholder with respect to the subject matter hereof.
5.6 Captions And Counterparts. The captions in this Voting Agreement are
for convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Voting Agreement. This
Voting Agreement may be executed in several counterparts, each of which shall
constitute one and the same instrument.
5.7 Amendment. This Voting Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
5.8 Waivers. Except as provided in this Voting Agreement, no action taken
pursuant to this Voting Agreement, including without limitation any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Voting Agreement. The
waiver by any party hereto of a breach of any provision hereunder shall not
operate or be construed as a wavier of any prior or subsequent breach of the
same or any other provision hereunder.
5.9 Severability. If any term or other provision of this Voting Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Voting Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Voting Agreement so
as to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Voting Agreement remain as originally contemplated
to the fullest extent possible.
5.10 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
and shall be effective upon receipt, if delivered personally, upon receipt of a
transmission confirmation if sent by facsimile (with a confirming copy sent by
overnight courier) and on the next business day if sent by Federal Express,
United Parcel Service, Express Mail or other reputable overnight courier to the
parties at the following addresses (or at such other address for a party as
shall be specified by notice):
If to Shareholder:
At the address set forth opposite Shareholder's name on the signature
page hereto.
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With a copy to:
__________________________
__________________________
__________________________
Attention:________________
Telephone:________________
Fax No.:__________________
If to Buyer or Merger Sub:
Evoke Incorporated
1157 Century Drive
Louisville, CO 80027
Attention: Paul Berberian
Telephone: (303) 928-2800
Fax No.: (303) 928-2837
With a copy to:
Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, CO 80302
Attention: Michael L. Platt, Esq.
Telephone: (303) 546-4000
Fax No.: (303) 546-4099
5.11 Governing Law. This Voting Agreement shall be governed by, and
construed in accordance with, the laws of the State of California regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
5.12 Definitions. Capitalized terms used and not defined herein shall have
the meaning set forth in the Merger Agreement.
5.13 Officers And Directors. No person who is or becomes (during the term
hereof) a director or officer of the Company makes any agreement or
understanding herein in his or her capacity as such director or officer, and
nothing herein will limit or affect, or give rise to any liability to
Shareholder by virtue of, any actions taken by any Shareholder in his or her
capacity as an officer or director of the Company in exercising its rights under
the Merger Agreement.
5.14 Interpretation. The parties have participated jointly in the
negotiation of this Voting Agreement. In the event that an ambiguity or question
of intent or interpretation arises, this Voting Agreement shall be construed as
if drafted jointly by the parties, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of the
provisions of this Voting Agreement.
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<PAGE>
In Witness Whereof, each of the parties hereto have caused this Voting
Agreement to be duly executed as of the date first written above.
Evoke Incorporated
By:___________________________________
Name:_________________________________
Title:________________________________
Shareholder
By:___________________________________
Name:_________________________________
Title:________________________________
Address:______________________________
______________________________
______________________________
______________________________________
Spouse (if necessary)
Number of Shares of Company
Common Stock owned:______________
Number of Shares of Company
Preferred Stock owned: Series A:________;
Series B:________;
Series C:________;
Series D:________;
Series E:________;
Series F:________;
Series G:_________
Number of Options:____________________
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Exhibit D
NONCOMPETITION AGREEMENT
D-1
<PAGE>
NONCOMPETITION AGREEMENT
This Noncompetition Agreement is being executed and delivered as of March
__, 2000 by _______ (the "Employee") in favor of, and for the benefit of Evoke
Incorporated, a Delaware corporation ("Evoke"), Contigo Software, Inc., a
California corporation ("Contigo"), and the other "Indemnitees" (as hereinafter
defined). Certain capitalized terms used in this Noncompetition Agreement are
defined in Section 19.
Recitals
A. As an employee of Contigo, the Employee has obtained extensive and
valuable knowledge and confidential information concerning the businesses of
Contigo.
B. Pursuant to an Agreement and Plan of Reorganization, dated as of March
24, 2000, by and among Evoke, CSI Acquisition Corporation, a California
corporation (the "Merger Sub") and Contigo (the "Reorganization Agreement"),
Merger Sub will be merged with and into Contigo with Contigo continuing as the
surviving corporation and as a wholly-owned subsidiary of Evoke.
C. Pursuant to the Reorganization Agreement and to enable Evoke to secure
more fully the benefits of such acquisition, Evoke has required that the
Employee enter into this Noncompetition Agreement, and the Employee is entering
into this Noncompetition Agreement in order to induce Evoke to consummate the
acquisition contemplated by the Reorganization Agreement.
D. The Employee is becoming or has been a key employee of Contigo and will
accordingly obtain or has obtained extensive and valuable knowledge and
confidential information concerning the businesses of Evoke and/or Contigo.
E. Evoke and Contigo have conducted and are conducting their respective
businesses on a national basis.
Agreement
In order to induce Evoke to consummate the transactions contemplated by the
Reorganization Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Employee agrees as
follows:
1. Restriction on Competition. The Employee agrees that, during the
Noncompetition Period, the Employee shall not, and shall not permit any of the
Employee's Controlled Persons to:
(a) engage directly or indirectly in Competition in any Restricted
Territory; or
(b) directly or indirectly be or become an officer, director, stockholder,
owner, co-owner, Controlled Person, partner, promoter, employee, agent,
representative, designer, consultant, advisor, manager, licensor or
sublicensor of, for or to, or otherwise be or become associated with or
acquire or hold (of record, beneficially or otherwise) any
<PAGE>
direct or indirect interest in, any Person that engages directly or
indirectly in Competition in any Restricted Territory;
provided, however, that the Employee may, without violating this Section 1, own,
as a passive investment, shares of capital stock of a publicly-held corporation
that engages in Competition if (i) such shares are actively traded on an
established national securities market in the United States, (ii) the number of
shares of such corporation's capital stock that are owned beneficially (directly
or indirectly) by the Employee and the Employee's Controlled Persons
collectively represent less than one percent of the total number of shares of
such corporation's capital stock outstanding, and (iii) neither the Employee nor
any Controlled Person of the Employee is otherwise associated directly or
indirectly with such corporation or with any Affiliate of such corporation.
2. No Hiring or Solicitation of Employees. The Employee agrees that,
during the Nonsolicitation Period, the Employee shall not, and shall not permit
any of the Employee's Controlled Persons to directly or indirectly, personally
or through others, encourage, induce, attempt to induce, solicit or attempt to
solicit (on the Employee's own behalf or on behalf of any other Person) any
Specified Employee to leave his or her employment with Evoke, Contigo or any of
Evoke's other Affiliates. For purposes of this Section 2, "Specified Employee"
shall mean any individual who is or becomes an employee of Evoke, Contigo or any
of Evoke's other Affiliates on the date of this Noncompetition Agreement or at
any time during the Nonsolicitation Period.
3. Confidentiality. The Employee agrees that the Employee shall hold all
Confidential Information in strict confidence and shall not at any time (whether
during or after the Noncompetition Period or the Nonsolicitation Period): (a)
reveal, report, publish, disclose or transfer any Confidential Information to
any Person (other than Evoke or Contigo), except in the performance of the
Employee's obligations as an employee of Contigo; (b) use any Confidential
Information for any purpose, except in the performance of the Employee's
obligations as an employee of Contigo; or (c) use any Confidential Information
for the benefit of any Person (other than Evoke or Contigo).
4. Representations and Warranties. The Employee represents and warrants,
to and for the benefit of the Indemnitees, that: (a) the Employee has full power
and capacity to execute and deliver, and to perform all of the Employee's
obligations under, this Noncompetition Agreement; and (b) neither the execution
and delivery of this Noncompetition Agreement nor the performance of this
Noncompetition Agreement will result directly or indirectly in a violation or
breach of (i) any agreement or obligation by which the Employee or any of the
Employee's Controlled Persons is or may be bound, or (ii) any law, rule or
regulation. The Employee's representations and warranties shall survive the
expiration of the Noncompetition Period and the Nonsolicitation Period for an
unlimited period of time.
5. Specific Performance. The Employee agrees that, in the event of any
breach or threatened breach by the Employee of any covenant or obligation
contained in this Noncompetition Agreement, each of Evoke, Contigo and the other
Indemnitees shall be entitled (in addition to any other remedy that may be
available to it or them, including monetary damages) to seek and obtain (a) a
decree or order of specific performance to enforce the
2.
<PAGE>
observance and performance of such covenant or obligation, and (b) an injunction
restraining such breach or threatened breach. The Employee further agrees that
no Indemnitee shall be required to obtain, furnish or post any bond or similar
instrument in connection with or as a condition to obtaining any remedy referred
to in this Section 5, and the Employee irrevocably waives any right the Employee
may have to require any Indemnitee to obtain, furnish or post any such bond or
similar instrument.
6. Indemnification. Without in any way limiting any of the rights or
remedies otherwise available to any of the Indemnitees, the Employee shall
indemnify and hold harmless each Indemnitee against and from any loss, damage,
injury, harm, detriment, lost opportunity, liability, exposure, claim, demand,
settlement, judgment, award, fine, penalty, tax, fee (including attorneys'
fees), charge or expense (whether or not relating to any third-party claim) that
is directly or indirectly suffered or incurred at any time (whether during or
after the Noncompetition Period or the Nonsolicitation Period) by such
Indemnitee, or to which such Indemnitee otherwise becomes subject at any time
(whether during or after the Noncompetition Period or the Nonsolicitation
Period), and that arises directly or indirectly out of or by virtue of, or
relates directly or indirectly to, (a) any inaccuracy in or breach of any
representation or warranty contained in this Noncompetition Agreement, or (b)
any failure on the part of the Employee to observe, perform or abide by, or any
other breach of, any restriction, covenant, obligation or other provision
contained in this Noncompetition Agreement.
7. Non-Exclusivity. The rights and remedies of Evoke, Contigo and the
other Indemnitees under this Noncompetition Agreement are not exclusive of or
limited by any other rights or remedies which they may have, whether at law, in
equity, by contract or otherwise, all of which shall be cumulative (and not
alternative). Without limiting the generality of the foregoing, the rights and
remedies of Evoke, Contigo and the other Indemnitees under this Noncompetition
Agreement, and the obligations and liabilities of the Employee under this
Noncompetition Agreement, are in addition to their respective rights, remedies,
obligations and liabilities under the law of unfair competition, under laws
relating to misappropriation of trade secrets, under other laws and common law
requirements and under all applicable rules and regulations. Nothing in this
Noncompetition Agreement shall limit any of the Employee's obligations, or the
rights or remedies of Evoke, Contigo or any of the other Indemnitees, under the
Reorganization Agreement; and nothing in the Reorganization Agreement shall
limit any of the Employee's obligations, or any of the rights or remedies of
Evoke, Contigo, or any of the other Indemnitees, under this Noncompetition
Agreement. No breach on the part of Evoke, Contigo or any other party of any
covenant or obligation contained in the Reorganization Agreement or any other
agreement shall limit or otherwise affect any right or remedy of Evoke, Contigo
or any of the other Indeminitees under this Noncompetition Agreement.
8. Severability. If any provision of this Noncompetition Agreement or any
part of any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) the
invalidity or unenforceability of such provision or part thereof shall not
3.
<PAGE>
affect the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Noncompetition
Agreement. Each provision of this Noncompetition Agreement is separable from
every other provision of this Noncompetition Agreement, and each part of each
provision of this Noncompetition Agreement is separable from every other part of
such provision.
9. Governing Law; Venue.
(a) This Noncompetition Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of California
(without giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Noncompetition Agreement or the enforcement of any provision of this
Noncompetition Agreement may be brought or otherwise commenced in any state or
federal court located in the County of San Diego, California. The Employee:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of San
Diego, California (and each appellate court located in the State of
California), in connection with any such legal proceeding;
(ii) agrees that service of any process, summons, notice or
document by U.S. mail addressed to him at the address set forth on the
signature page of this Noncompetition Agreement shall constitute effective
service of such process, summons, notice or document for purposes of any
such legal proceeding;
(iii) agrees that each state and federal court located in the
County of San Diego, California, shall be deemed to be a convenient forum;
and
(iv) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in the County of San Diego, California, any claim that the
Employee is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that the
venue of such proceeding is improper or that this Noncompetition Agreement
or the subject matter of this Noncompetition Agreement may not be enforced
in or by such court.
Nothing contained in this Section 9 shall be deemed to limit or otherwise affect
the right of any Indemnitee to commence any legal proceeding or otherwise
proceed against the Employee in any other forum or jurisdiction.
(c) THE EMPLOYEE IRREVOCABLY WAIVES THE RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY LEGAL PROCEEDING RELATING TO THIS NONCOMPETITION AGREEMENT
OR THE ENFORCEMENT OF ANY PROVISION OF THIS NONCOMPETITION AGREEMENT.
4.
<PAGE>
10. Waiver. No failure on the part of Evoke, Contigo or any other
Indemnitee to exercise any power, right, privilege or remedy under this
Noncompetition Agreement, and no delay on the part of Evoke, Contigo or any
other Indemnitee in exercising any power, right, privilege or remedy under this
Noncompetition Agreement, shall operate as a waiver of such power, right,
privilege or remedy; and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further exercise thereof or of
any other power, right, privilege or remedy. No Indemnitee shall be deemed to
have waived any claim of such Indemnitee arising out of this Noncompetition
Agreement, or any power, right, privilege or remedy of such Indemnitee under
this Noncompetition Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed
and delivered on behalf of such Indemnitee; and any such waiver shall not be
applicable or have any effect except in the specific instance in which it is
given.
11. Successors and Assigns. Each of Evoke, Contigo and the other
Indemnitees may freely assign any or all of its rights under this Noncompetition
Agreement, at any time, in whole or in part, to any Person without obtaining the
consent or approval of the Employee or of any other Person. This Noncompetition
Agreement shall be binding upon the Employee and the Employee's heirs,
executors, estate, and personal representatives, and shall inure to the benefit
of Evoke, Contigo and the other Indemnitees.
12. Further Assurances. The Employee shall (at the Employee's sole
expense) execute and/or cause to be delivered to each Indemnitee such
instruments and other documents, and shall (at the Employee's sole expense) take
such other actions, as such Indemnitee may reasonably request at any time
(whether during or after the Noncompetition Period or the Nonsolicitation
Period) for the purpose of carrying out or evidencing any of the provisions of
this Noncompetition Agreement.
13. Attorneys' Fees. If any legal action or other legal proceeding
relating to this Noncompetition Agreement or the enforcement of any provision of
this Noncompetition Agreement is brought against the Employee, the prevailing
party shall be entitled to recover reasonable attorneys' fees, costs and
disbursements (in addition to any other relief to which the prevailing party may
be entitled).
14. Captions. The captions contained in this Noncompetition Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Noncompetition Agreement and shall not be referred to in connection with the
construction or interpretation of this Noncompetition Agreement.
15. Construction. Whenever required by the context, the singular number
shall include the plural, and vice versa; the masculine gender shall include the
feminine and neuter genders; and the neuter gender shall include the masculine
and feminine genders. Any rule of construction to the effect that ambiguities
are to be resolved against the drafting party shall not be applied in the
construction or interpretation of this Noncompetition Agreement. Neither the
drafting history nor the negotiating history of this Noncompetition Agreement
shall be used or referred to in connection with the construction or
interpretation of this Noncompetition Agreement. As used in this Noncompetition
Agreement, the words "include" and "including," and variations thereof, shall
not be deemed to be terms of limitation, and shall be deemed to be
5.
<PAGE>
followed by the words "without limitation." Except as otherwise indicated in
this Noncompetition Agreement, all references in this Noncompetition Agreement
to "Sections" are intended to refer to Sections of this Noncompetition
Agreement.
16. Survival of Obligations. Except as specifically provided herein, the
obligations of the Employee under this Noncompetition Agreement (including the
Employee's obligations under Sections 3, 6 and 12) shall survive the expiration
of the Noncompetition Period and the Nonsolicitation Period. The expiration of
the Noncompetition Period or the Nonsolicitation Period shall not operate to
relieve the Employee of any obligation or liability arising from any prior
breach by the Employee of any provision of this Noncompetition Agreement.
17. Obligations Absolute. The Employee's obligations under this
Noncompetition Agreement are absolute and shall not be terminated or otherwise
limited by virtue of any breach (on the part of Evoke, Contigo, any other
Indemnitee or any other Person) of any provision of the Reorganization Agreement
or any other agreement, or by virtue of any failure to perform or other breach
of any obligation of Evoke, Contigo, any other Indemnitee or any other Person.
18. Amendment. This Noncompetition Agreement may not be amended,
modified, altered or supplemented other than by means of a written instrument
duly executed and delivered on behalf of the Employee, Evoke (or any successor
to Evoke) and Contigo (or any successor to Contigo).
19. Defined Terms. For purposes of this Noncompetition Agreement:
(a) "Affiliate" means, with respect to any specified Person, any
other Person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with such specified
Person.
(b) "Competing Product" means any: (i) source code, software,
hardware, web design, trade secret, intellectual property, computer system,
internet server, operating system, telephony product, telephony system, web
collaboration, internet voice chat, or similar product or technology used by
Contigo in support of or in the provision of any Competing Service; (ii)
product, equipment, device or system that has been designed, developed,
manufactured, assembled, promoted, sold, supplied, distributed, resold,
installed, supported, maintained, repaired, refurbished, licensed, sublicensed,
financed, leased or subleased by or on behalf of Contigo (or any predecessor of
Contigo) at any time on or prior to this date of this Noncompetition Agreement;
(iii) product, equipment, device or system that is designed, developed,
manufactured, assembled, promoted, sold, supplied, distributed, resold,
installed, supported, maintained, repaired, refurbished, licensed, sublicensed,
financed, leased or subleased by or on behalf of Contigo at any time during the
Noncompetition Period; or (iv) product, equipment, device or system that is
substantially the same as, incorporates, is a material component or part of, is
based upon, is functionally similar to or competes in any material respect with
any product, equipment, device or system of the type referred to in clause
"(i)", clause "(ii)" or clause "(iii)" of this sentence.
(c) "Competing Service" means any: (i) webconferencing, voice chat
service, quickcall service, webconference application integration, web
collaboration, webconference
6.
<PAGE>
support, or similar service or any consultation or support service related to
the above services; (ii) service that has been provided, performed or offered by
or on behalf of Contigo (or any predecessor of Contigo) at any time on or prior
to the date of this Noncompetition Agreement; (iii) service that is provided,
performed or offered by Contigo at any time during the Noncompetition Period;
(iv) service that facilitates, supports or otherwise relates to the design,
development, manufacture, assembly, promotion, sale, supply, distribution,
resale, installation, support, maintenance, repair, refurbishment, licensing,
sublicensing, financing, leasing or subleasing of any Competing Product; (v)
other business or service presently engaged in, proposed to be in engaged in,
offered by or proposed to be developed by Contigo, including any business or
service set forth in any business plan, strategic plan or other contract or
document developed or written by or for Contigo or any business or service
presently engaged in, proposed to be in engaged in, offered by or proposed to be
developed by Contigo of which the Employee has knowledge or is otherwise aware;
or (vi) service that is substantially the same as, is based upon or competes in
any material respect with any service referred to in clause "(i)", clause
"(ii)", clause "(iii)", clause "(iv)" or clause "(v)" of this sentence.
(d) A Person shall be deemed to be engaged in "Competition" if: (a) such
Person or any of such Person's subsidiaries or other Controlled Persons is
engaged directly or indirectly in the design, development, manufacture,
assembly, promotion, sale, supply, distribution, resale, installation, support,
maintenance, repair, refurbishment, licensing, sublicensing, financing, leasing
or subleasing of any Competing Product; or (b) such Person or any of such
Person's subsidiaries or other Controlled Persons is engaged directly or
indirectly in providing, performing or offering any Competing Service.
(e) "Confidential Information" means any non-public information (whether
or not in written form and whether or not expressly designated as confidential)
relating directly or indirectly to Evoke, Contigo or any of Evoke's other
subsidiaries or relating directly or indirectly to the business, operations,
financial affairs, performance, assets, technology, processes, products,
contracts, customers, licensees, sublicensees, suppliers, personnel, consultants
or plans of Evoke, Contigo or any of Evoke's other subsidiaries (including any
such information consisting of or otherwise relating to trade secrets, know-how,
technology, inventions, prototypes, designs, drawings, sketches, processes,
license or sublicense arrangements, formulae, proposals, research and
development activities, customer lists or preferences, pricing lists, referral
sources, marketing or sales techniques or plans, operations manuals, service
manuals, financial information, projections, lists of consultants, lists of
suppliers or lists of distributors); provided, however, that "Confidential
Information" shall not be deemed to include information of Contigo that was
already publicly known and in the public domain prior to the time of its initial
disclosure to the Employee.
(f) "Controlled Person" means, with respect to any specified Person, any
other Person that, directly or indirectly, through one or more intermediaries,
is controlled by such specified Person.
(g) "Indemnitees" shall include: (i) Evoke; (ii) Contigo; (iii) each
Person who is or becomes an Affiliate of Evoke or Contigo; and (iv) the
successors and assigns of each of the Persons referred to in clauses "(i)",
"(ii)" and "(iii)" of this sentence.
7.
<PAGE>
(h) "Noncompetition Period" shall mean the period commencing on the date
of this Noncompetition Agreement and ending on the date that is two hundred
twenty-five (225) days from the date that Employee is no longer employed by any
of Evoke, Contigo or any other affiliate of Evoke.
(i) "Nonsolicitation Period" shall mean the period commencing on the date
of this Noncompetition Agreement and ending on the second anniversary of the
date that Employee is no longer employed by any of Evoke, Contigo or any other
affiliate of Evoke.
(j) "Person" means any: (i) individual; (ii) corporation, general
partnership, limited partnership, limited liability partnership, trust, company
(including any limited liability company or joint stock company) or other
organization or entity; or (iii) governmental body or authority.
(k) "Restricted Territory" means the United Kingdom, each county or
similar political subdivision of each State of the United States of America
(including each of the counties in the State of California), and each State,
territory or possession of the United States of America.
[Signature Page to Follow]
8.
<PAGE>
In Witness Whereof, the Employee has duly executed and delivered this
Noncompetition Agreement as of the date first above written.
[Name of Employee]
Address:
Telephone No.:( ) Facsimile:( )
9.
<PAGE>
Exhibit 3.1
Restated Certificate of Incorporation
of
Evoke Incorporated
Evoke Incorporated, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, Does Hereby
Certify:
1. The name of the corporation is Evoke Incorporated. The corporation was
originally incorporated under the name Intellistat Media Research, Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State of the State of Delaware was April 17, 1997.
2. This Restated Certificate of Incorporation of Evoke Incorporated has
been duly adopted in accordance with the provisions of Sections 228, 242 and 245
of the General Corporation Law of the State of Delaware.
3. This Restated Certificate of Incorporation restates the Certificate of
Incorporation and all amendments thereto of this corporation by restating the
text of the original Certificate of Incorporation in full to read as follows:
Article I.
The name of this corporation is Evoke Incorporated (the "Corporation").
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 the registered agent at that address is Corporation Service Company.
Article III.
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
Article IV.
Capital Stock
-------------
This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is one hundred
fifty million (150,000,000) shares, ninety-seven million (97,000,000) of which
shall be Common Stock (the "Common Stock") and fifty three million (53,000,000)
shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred
Stock shall have a par value of $.01 per share and the Common Stock shall have a
par
<PAGE>
value of $.001 per share. The Preferred Stock may be issued from time to time in
one or more series. The Board of Directors is hereby authorized, within the
limitations and restrictions stated in this Certificate of Incorporation, to fix
or alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, the liquidation preferences of any wholly unissued
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or any of them, and to increase or decrease the
number of shares of any series subsequent to the issue of shares of that series,
but not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
Designation of Series A Convertible Preferred Stock, Series B Convertible
- -------------------------------------------------------------------------
Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible
- ---------------------------------------------------------------------------
Preferred Stock and Series E Convertible Preferred Stock
- --------------------------------------------------------
Five million twenty-five thousand (5,025,000) of the authorized shares of
Preferred Stock are hereby designated Series A Convertible Preferred Stock (the
"Series A Preferred"). Ten thousand six-hundred thirty-five (10,635) of the
authorized shares of Preferred Stock are hereby designated Series B Convertible
Preferred Stock (the "Series B Preferred"). Ten million (10,000,000) of the
authorized shares of Preferred Stock are hereby designated Series C Convertible
Preferred Stock (the "Series C Preferred"). Thirty four million (34,000,000) of
the authorized shares of Preferred Stock are hereby designated Series D
Convertible Preferred Stock (the "Series D Preferred"). Three million
(3,000,000) of the authorized shares of Preferred Stock are hereby designated
Series E Convertible Preferred Stock (the "Series E Preferred"). The Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred collectively are referred to as the "Series Preferred." The rights,
preferences, privileges, restrictions and other matters relating to the Series
Preferred are as follows:
1. Dividend Rights.
(a) Declared Dividends. Holders of Series Preferred, in preference
to the holders of Common Stock and any other stock of the Corporation that is
not by its terms expressly senior to in right of payment to the Series Preferred
(collectively, "Junior Stock"), shall be entitled to receive dividends, when, as
and if declared by the Board of Directors, but only out of funds that are
legally available therefor. In the event that the Corporation declares or pays
any dividends, upon the Common Stock (whether payable in cash, securities or
other property) other than dividends payable solely in shares of Common Stock,
the Corporation shall also declare and pay to the holders of the Series
Preferred at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Series
Preferred had all of the outstanding Series Preferred been converted immediately
prior to the record date for such dividend, or if no record date is fixed, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined.
(b) Preference. The Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred shall rank pari passu with
respect to
<PAGE>
dividends; provided, however, that so long as any Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred remains outstanding, without
the prior written consent of the holders of at least 66 2/3% of the outstanding
shares of Series B Preferred and Series C Preferred (voting together as a single
class on an as-converted basis) and at least 66 2/3% of the outstanding Series D
Preferred and Series E Preferred (voting together as a single class on an as-
converted basis) (collectively, the "Required Holders"), the Corporation shall
not, nor shall it permit any Subsidiary to, redeem, purchase or otherwise
acquire directly or indirectly any Series A Preferred or Junior Stock, nor shall
the Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Series A Preferred or Junior Stock. The provisions of this
Section 1(b) shall not, however, apply to (i) the acquisition of shares of any
Series A Preferred or Junior Stock in exchange for shares of any other Series A
Preferred or Junior Stock, or (ii) any repurchase of any Reserved Employee Stock
from former employees, directors or consultants in connection with termination
of employment or service as a director or consultant that is approved by the
Corporation's Board of Directors.
2. Voting Rights.
(a) Generally. Except as otherwise provided herein or as required
by law, the Series Preferred shall vote with the shares of the Common Stock of
the Corporation (and not as a separate class) at any annual or special meeting
of stockholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each holder
of shares of Series Preferred shall be entitled to such number of votes as shall
be equal to the whole number of shares of Common Stock into which such holder's
aggregate number of shares of Series Preferred are convertible (pursuant to
Section 5 below) immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent.
(b) Election of Directors. In the election of directors of the
Corporation, the holders of the Series A Preferred, voting separately as a
single class to the exclusion of all other classes of the Corporation's capital
stock and with each share of Series A Preferred entitled to one vote, shall be
entitled to elect one director to serve on the Corporation's Board of Directors
until such person's successor is duly elected by the holders of the Series A
Preferred or such person is removed from office by the holders of the Series A
Preferred. In the election of directors of the Corporation, the holders of the
Series B Preferred, voting separately as a single class to the exclusion of all
other classes of the Corporation's capital stock and with each share of Series B
Preferred entitled to one vote, shall be entitled to elect one director to serve
on the Corporation's Board of Directors until such person's successor is duly
elected by the holders of the Series B Preferred or such person is removed from
office by the holders of the Series B Preferred. In the election of directors of
the Corporation, the holders of the Series C Preferred, voting separately as a
single class to the exclusion of all other classes of the Corporation' s capital
stock and with each share of Series C Preferred entitled to one vote, shall be
entitled to elect one director to serve on the Corporation's Board of Directors
until such person's successor is duly elected by the holders of the Series C
Preferred or such person is removed from office by the holders of the Series C
Preferred. In the election of directors of the Corporation, the holders of the
Series D Preferred, voting separately as a single class to the exclusion of all
other classes of the Corporation's capital stock and with each share of Series D
Preferred entitled to one vote, shall be entitled to elect one director to serve
on the Corporation's Board of Directors until such
<PAGE>
person's successor is duly elected by the holders of the Series D Preferred or
such person is removed from office by the holders of the Series D Preferred. If
the holders of the Series A Preferred, Series B Preferred, Series C Preferred
and/or Series D Preferred for any reason fail to elect a director to fill any
such directorship, such position shall remain vacant until such time as the
holders of the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred, as the case may be, elect a director to fill such position
and shall not be filled by resolution or vote of the Corporation's Board of
Directors or the Corporation's other stockholders. During the existence of an
Event of Noncompliance and for a period of three months after such Event of
Noncompliance has been cured or waived, the directors elected by the holders of
Series B Preferred, Series C Preferred and Series D Preferred shall be deemed to
constitute a separate class of directors of the Corporation within the meaning
of Section 141(d) of the Delaware General Corporation Law, and such directors
shall together be entitled to cast a number of votes on each matter considered
by the Board of Directors (including for purposes of determining the existence
of a quorum) equal to the sum of the number of votes entitled to be cast by all
other members of the Board of Directors plus one.
(c) Class Vote Requirement. Except as otherwise provided herein, so
long as at least (i) 10% of the shares of the Series B Preferred issued under
the terms of the Series B Purchase Agreement, (ii) 10% of the shares of the
Series C Preferred issued under the terms of the Series C Purchase Agreement,
(iii) 10% of the shares of Series D Preferred issued under the terms of the
Series D Purchase Agreement or (iv) 10% of the shares of Series E Preferred
issued under the terms of the Series E Purchase Agreement remain outstanding,
without the affirmative vote of the Required Holders, the Corporation will not
(i) create, issue or authorize the issuance of any additional Series Preferred
or create or authorize any new class or series of the Company's capital stock,
(ii) amend the Corporation's Certificate of Incorporation or Bylaws, (iii)
engage in any merger, consolidation, recapitalization, liquidation or sale of
substantial assets or substantially all of the assets outside the ordinary
course of business, (iv) engage in any acquisition of substantial assets outside
the ordinary course of business or engage in any business other than the
business of the Corporation, described in the Company's most recent annual
business plan approved by the Board of Directors of the Corporation and
activities incidental thereto, (v) increase the amount of Reserved Employee
Stock in excess of 5,000,000 (subject to adjustment for stock splits, stock
dividends and similar transactions), (vi) engage in any transaction with an
affiliate of the Corporation that is not approved by a majority of the
Corporation's disinterested directors, or (vii) increase the size of the Board
of Directors in excess of seven (7) directors.
3. Liquidation Rights.
(a) Liquidation Value. Upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, before any distribution
or payment shall be made to the holders of any Junior Stock, (i) the holders of
Series A Preferred shall be entitled to be paid out of the assets of the
Corporation an amount with respect to each share of Series A Preferred equal to
the sum of (A) $0.10 plus (B) all declared but unpaid dividends thereon (the
"Series A Liquidation Value"), (ii) the holders of Series B Preferred shall be
entitled to be paid an amount with respect to each share of Series B Preferred
equal to the sum of (A) $100.00 plus (B) all declared but unpaid dividends
thereon (the "Series B Liquidation Value"), (iii) the holders of Series C
Preferred shall be entitled to be paid an amount with respect to each share of
Series C
<PAGE>
Preferred equal to the sum of (A) $1.04 plus (B) all declared but unpaid
dividends thereon (the "Series C Liquidation Value"), (iv) the holders of Series
D Preferred shall be entitled to be paid an amount with respect to each share of
Series D Preferred equal to the sum of (A) $3.00 plus (B) all declared but
unpaid dividends thereon (the "Series D Liquidation Value") and (v) the holders
of Series E Preferred shall be entitled to be paid an amount with respect to
each share of Series E Preferred equal to the sum of (A) $7.28 plus (B) all
declared but unpaid dividends thereon (the "Series E Liquidation Value") (the
Series A Liquidation Value, Series B Liquidation Value, Series C Liquidation
Value, Series D Liquidation Value and Series E Liquidation Value collectively
are referred to as the "Series Liquidation Value"). The Series Liquidation Value
shall be appropriately adjusted for stock splits, stock dividends and the like.
(b) Non-Participation. After the payment of the full liquidation
preference of the Series Preferred as set forth in Section 3(a) above, the
remaining assets of the Corporation legally available for distribution, if any,
shall be distributed to the holders of Junior Stock entitled to a preference
over the Common Stock and, thereafter, to the holders of Common Stock. The
holders of Series Preferred shall be entitled to participate in distributions to
holder of the Common Stock such that, giving effect to all distributions
pursuant to Section 3(a), the holders of Series Preferred receive aggregate
distributions equal to the greater of the Series Liquidation Value or the
amounts that such holders would have received if the Series Preferred Stock had
been converted into Common Stock immediately prior to such liquidation,
dissolution or winding up of the Corporation.
(c) Liquidation Events. The following events shall be considered a
liquidation for purposes of Section 3(a) in the absence of a vote to the
contrary by the Required Holders:
(i) any merger, consolidation, business combination,
reorganization or recapitalization of the Corporation in which the Corporation
is not the surviving entity or in which the stockholders of the Corporation
immediately prior to such transaction own capital stock representing less than
fifty percent (50%) of the Corporation's voting power immediately after such
transaction, or any transaction or series of related transactions in which
capital stock representing in excess of fifty percent (50%) of the Corporation's
voting power is transferred (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation (an "Asset Transfer"), or any extraordinary
dividend of all or substantially all of the assets of the Corporation.
(d) Proportionate Payments. If, upon any liquidation, dissolution
or winding up, the assets of the Corporation shall be insufficient to make
payment in full to all holders of Series Preferred, then such assets shall be
distributed among the holders of Series Preferred at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.
<PAGE>
4. Redemption Rights.
(a) Scheduled Redemptions. The Corporation shall redeem a number
of shares of Series B Preferred equal to 33 1/3% of the total number of shares
of Series B Preferred issued under the Series B Purchase Agreement (or such
lesser number then outstanding) on each of May 27, 2004, May 27, 2005 and May
27, 2006 (the "Scheduled Redemption Dates") at a price per share equal to the
Series B Liquidation Value. The Corporation shall redeem a number of shares of
(i) Series C Preferred equal to 33 1/3% of the total number of shares of Series
C Preferred issued under the Series C Purchase Agreement (or such lesser number
then outstanding), (ii) Series D Preferred equal to 33 1/3% of the total number
of shares of Series D Preferred issued under the Series D Purchase Agreement (or
such lesser number then outstanding) and (iii) Series E Preferred equal to 33
1/3% of the total number of shares of Series E Preferred issued under the Series
E Purchase Agreement (or such lesser number then outstanding)on each of the
Scheduled Redemption Dates at a price per share equal to the Series C
Liquidation Value, Series D Liquidation Value and Series E Liquidation Value,
respectively.
(b) Redemption Payments. For each share of Series Preferred which
is to be redeemed hereunder, the Corporation shall be obligated on the Scheduled
Redemption Date to pay to the holder thereof (upon surrender by such holder at
the Corporation's principal office of the certificate representing such share)
an amount in cash equal to the Series Liquidation Value of such share of Series
Preferred. If the funds of the Corporation legally available for redemption of
Series Preferred required to be redeemed on any Scheduled Redemption Date are
insufficient to redeem the total number of shares to be redeemed on such date,
those funds which are legally available shall be used to redeem the maximum
possible number of shares pro rata among the holders of Series Preferred to be
redeemed based upon the aggregate Series Liquidation Value of such share of
Series Preferred held by each such holder. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
Series Preferred, such funds shall immediately be used to redeem the balance of
the shares which the Corporation has become obligated to redeem on any Scheduled
Redemption Date but which it has not redeemed.
(c) Notice of Redemption. Except as otherwise provided herein, the
Corporation shall mail written notice of each redemption of Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred to each record
holder thereof not more than 60 nor less than 30 days prior to the Scheduled
Redemption Date. The holders of Series Preferred to be redeemed shall in any
event have the right to convert their shares into Common Stock at any time prior
to the close of business on the Scheduled Redemption Date. In case fewer than
the total number of shares represented by any certificate are redeemed, a new
certificate representing the number of unredeemed shares shall be issued to the
holder thereof without cost to such holder within five business days after
surrender of the certificate representing the redeemed shares.
(d) Determination of the Number of Shares to be Redeemed. The
number of shares of Series B Preferred to be redeemed from each holder thereof
in redemptions hereunder shall be the number of shares determined by multiplying
the total number of shares of Series B Preferred to be redeemed by a fraction,
the numerator of which shall be the total number of shares of Series B Preferred
then held by such holder and the denominator of which shall be the total number
<PAGE>
of shares of Series B Preferred then outstanding. The number of shares of Series
C Preferred to be redeemed from each holder thereof in redemptions hereunder
shall be the number of shares determined by multiplying the total number of
shares of Series C Preferred to be redeemed by a fraction, the numerator of
which shall be the total number of shares of Series C Preferred then held by
such holder and the denominator of which shall be the total number of shares of
Series C Preferred then outstanding. The number of shares of Series D Preferred
to be redeemed from each holder thereof in redemptions hereunder shall be the
number of shares determined by multiplying the total number of shares of Series
D Preferred to be redeemed by a fraction, the numerator of which shall be the
total number of shares of Series D Preferred then held by such holder and the
denominator of which shall be the total number of shares of Series D Preferred
then outstanding. The number of shares of Series E Preferred to be redeemed from
each holder thereof in redemptions hereunder shall be the number of shares
determined by multiplying the total number of shares of Series E Preferred to be
redeemed by a fraction, the numerator of which shall be the total number of
shares of Series E Preferred then held by such holder and the denominator of
which shall be the total number of shares of Series E Preferred then
outstanding.
(e) Other Redemptions or Acquisitions. The Corporation shall not,
nor shall it permit any Subsidiary to, redeem or otherwise acquire any shares of
Series Preferred, except as expressly authorized herein or pursuant to a
purchase offer made pro rata to all holders of Series Preferred on the basis of
the aggregate Series Liquidation Value of the shares of Series Preferred owned
by each such holder.
5. Conversion Rights.
The holders of the Series Preferred shall have the following right
with respect to the conversion of the Series Preferred into shares of Common
Stock:
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, any shares of Series Preferred may, at the option
of the holders, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series A Preferred shall be entitled upon conversion shall be the product
obtained by multiplying the "Series A Conversion Rate" then in effect
(determined as provided in Section 5(b)) by the number of shares of Series A
Preferred being converted. The number of shares of Common Stock to which a
holder of Series B Preferred shall be entitled upon conversion shall be the
product obtained by multiplying the "Series B Conversion Rate" then in effect
(determined as provided in Section 5(b)) by the number of shares of Series B
Preferred being converted. The number of shares of Common Stock to which a
holder of Series C Preferred shall be entitled upon conversion shall be the
product obtained by multiplying the "Series C Conversion Rate" then in effect
(determined as provided in Section 5(b)) by the number of shares of Series C
Preferred being converted. The number of shares of Common Stock to which a
holder of Series D Preferred shall be entitled upon conversion shall be the
product obtained by multiplying the "Series D Conversion Rate" then in effect
(determined as provided in Section 5(b)) by the number of shares of Series D
Preferred being converted. The number of shares of Common Stock to which a
holder of Series E Preferred shall be entitled upon conversion shall be the
product obtained by multiplying the "Series E Conversion Rate"
<PAGE>
then in effect (determined as provided in Section 5(b)) by the number of shares
of Series E Preferred being converted.
(b) Conversion Rate. The conversion rate in effect at any time for
conversion of the Series A Preferred (the "Series A Conversion Rate") shall be
the quotient obtained by dividing $.10 by the "Series A Conversion Price"
calculated as provided in Section 5(c). The conversion rate in effect at any
time for conversion of the Series B Preferred (the "Series B Conversion Rate")
shall be the quotient obtained by dividing $100 by the "Series B Conversion
Price" calculated as provided in Section 5(c). The conversion rate in effect at
any time for conversion of the Series C Preferred (the "Series C Conversion
Rate") shall be the quotient obtained by dividing $1.04 by the "Series C
Conversion Price" calculated as provided in Section 5(c). The conversion rate in
effect at any time for conversion of the Series D Preferred (the "Series D
Conversion Rate") shall be the quotient obtained by dividing $3.00 by the
"Series D Conversion Price" calculated as provided in Section 5(c). The
conversion rate in effect at any time for conversion of the Series E Preferred
(the "Series E Conversion Rate") shall be the quotient obtained by dividing
$7.28 by the "Series E Conversion Price" calculated as provided in Section 5(c).
(c) Conversion Price. The conversion price for the Series A
Preferred (the "Series A Conversion Price") shall initially by $.10. The
conversion price for the Series B Preferred (the "Series B Conversion Price")
shall initially be $.52. The conversion price for the Series C Preferred (the
"Series C Conversion Price") shall initially be $1.04. The conversion price for
the Series D Preferred (the "Series D Conversion Price") shall initially be
$3.00. The conversion price for the Series E Preferred (the "Series E Conversion
Price") shall initially be $7.28. Such initial Series A Conversion Price, Series
B Conversion Price, Series C Conversion Price, Series D Conversion Price and
Series E Conversion Price shall be adjusted from time to time in accordance with
this Section 5. If and whenever on or after May 27, 1998, the Corporation issues
or sells, or in accordance with this Section 5(c) is deemed to have issued or
sold, any shares of its Common Stock (other than pursuant to a Permitted
Issuance) for a consideration per share less than the Series C Conversion Price
in effect immediately prior to the time of such issue or sale, then immediately
upon such issue or sale or deemed issue or sale the Series C Conversion Price
shall be reduced to the amount determined by dividing (a) the sum of (1) the
product derived by multiplying the Series C Conversion Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus
<PAGE>
(2) the consideration, if any, received or deemed to have been received by the
Corporation upon such issue or sale, by (b) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale plus the number of
shares of Common Stock issued or sold or deemed issued or sold. All references
to the Series C Conversion Price herein shall mean the Series C Conversion Price
as so adjusted. If and whenever on or after November 17, 1999, the Corporation
issues or sells, or in accordance with this Section 5(c) is deemed to have
issued or sold, any shares of its Common Stock (other than pursuant to a
Permitted Issuance) for a consideration per share less than the Series D
Conversion Price in effect immediately prior to the time of such issue or sale,
then immediately upon such issue or sale or deemed issue or sale, the Series D
Conversion Price shall be reduced to the amount determined by dividing (a) the
sum of (1) the product derived by multiplying the Series D Conversion Price in
effect immediately prior to such issue or sale by the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received or deemed to have been received by the
Corporation upon such issue or sale, by (b) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale plus the number of
shares of Common Stock issued or sold or deemed issued or sold. All references
to the Series D Conversion Price herein shall mean the Series D Conversion Price
as so adjusted. If and whenever on or after the original date of issuance of the
Series E Preferred (the "Original Series E Issue Date"), the Corporation issues
or sells, or in accordance with this Section 5(c) is deemed to have issued or
sold, any shares of its Common Stock (other than pursuant to a Permitted
Issuance) for a consideration per share less than the Series E Conversion Price
in effect immediately prior to the time of such issue or sale, then immediately
upon such issue or sale or deemed issue or sale, the Series E Conversion Price
shall be reduced to the amount determined by dividing (a) the sum of (1) the
product derived by multiplying the Series E Conversion Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (2) the
consideration, if any, received or deemed to have been received by the
Corporation upon such issue or sale, by (b) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale plus the number of
shares of Common Stock issued or sold or deemed issued or sold. All references
to the Series E Conversion Price herein shall mean the Series E Conversion Price
as so adjusted. For purposes of determining the adjusted Series C Conversion
Price, adjusted Series D Conversion Price and adjusted Series E Conversion
Price, the following shall be applicable:
(i) Issuance of Rights or Options. If the Company in any manner
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such options, is less than
the Series C Conversion Price, Series D Conversion Price or Series E Conversion
Price in effect immediately prior to the time of the granting or sale of such
Options, then the maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the maximum number of
shares of Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued and sold by the Corporation at the time of
the granting or sale of such Options for such price per share. For purposes of
this paragraph, the "price per share for which Common Stock is issuable" shall
be determined by dividing (A) the total amount, if any, received or receivable
by the Corporation as consideration for the granting or sale of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Corporation upon exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the issuance
or sale of such Convertible Securities and the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Series C Conversion Price, Series D Conversion Price or Series
E Conversion Price shall be made when Convertible Securities are actually issued
upon the exercise of such Options or when Common Stock is actually issued upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Series C Conversion Price,
<PAGE>
Series D Conversion Price or Series E Conversion Price in effect immediately
prior to the time of such issue or sale, then the maximum number of shares of
Common Stock issuable upon conversion or exchange of such Convertible Securities
shall be deemed to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Series C Conversion Price, Series D Conversion Price
or Series E Conversion Price shall be made when Common Stock is actually issued
upon the conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Series C Conversion Price or Series D
Conversion Price had been or are to be made pursuant to other provisions of this
Section 5, no further adjustment of the Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price shall be made by reason of such
issue or sale.
(iii) Change in Option Price or Conversion Rate. If the price per
share for any outstanding Options deemed to be issued pursuant to subsection (i)
above, or any outstanding Convertible Securities deemed to be issued pursuant to
subsection (ii) above changes at any time (other than as a result of any anti-
dilution provisions thereof), the Series C Conversion Price, Series D Conversion
Price and Series E Conversion Price in effect at the time of such change shall
be immediately adjusted to the Series C Conversion Price, Series D Conversion
Price or Series E Conversion Price which would have been in effect had the
Options or Convertible Securities outstanding as of the time of such change in
the price per share provided for such changed "price per share" at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option without the exercise of such
Option or the cancellation of any Convertible Security without payment of
consideration by the Company therefor, the Series C Conversion Price, Series D
Conversion Price and Series E Conversion Price then in effect hereunder shall be
adjusted immediately to the Series C Conversion Price, Series D Conversion Price
and Series E Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Security, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If any Common Stock,
Option or Convertible Security is issued or sold or deemed to have been issued
or sold for cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security is issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be the fair value of such
consideration. If any Common Stock, Option or Convertible Security is issued to
the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such
<PAGE>
Common Stock, Option or Convertible Security, as the case may be. The fair value
of any consideration other than cash and securities shall be determined jointly
by the Corporation and the Required Holders. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of such
consideration shall be determined by the Board of Directors, including at least
one of the directors elected by the holders of the Series B Preferred, Series C
Preferred or Series D Preferred.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(vii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(d) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the Original Series D
Issue Date effect a subdivision of the outstanding Common Stock, the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price and the Series E Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Corporation shall at any time or from time to time after the
Original Series E Issue Date combine the outstanding shares of Common Stock into
a smaller number of shares, the Series A, the Series B, the Series C, the Series
D and the Series E Conversion Prices in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 5(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Common Stock Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Series E Issue
Date makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a divided or other distribution payable in additional
shares of Common Stock, in each such event the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price and the Series E Conversion Price that are then in effect shall
be decreased as of the time of such issuance or, in the event such record date
is fixed, as of the close of business on such record date, by multiplying each
of the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price then in effect by a fraction (1) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date, and (2) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, each of the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the Series
D Conversion Price and the Series E Conversion Price
<PAGE>
shall be recomputed accordingly as of the close of business on such record date
and thereafter each of the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price and the
Series E Conversion Price shall be adjusted pursuant to this Section 5(e) to
reflect the actual payment of such dividend or distributions.
(f) Adjustments for Other Dividends and Distributions. If the
Corporation at any time or from time to time after the Original Series E Issue
Date makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, in each such
event provision shall be made so that the holders of the Series Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of other securities of the Corporation
which they would have receive had their Series Preferred been converted into
Common Stock on the date of such event and had they thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to tall other adjustments called for during such period under this
Section 5 with respect to the rights of the holders of the Series Preferred or
with respect to such other securities by their terms.
(g) Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Series E Issue Date, the
Common Stock issuable upon the conversion of the Series Preferred is changed
into the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
5), in any such event each holder of Series Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property that such holder would own had such holder converted its
shares of Series Preferred into Common Stock immediately prior to such
recapitalization, reclassification or change and held any stock, securities or
other property received in exchange for Common Stock in connection with such
recapitalization, reclassification or change, from the date of such change until
the date of conversion of such shares of Series Preferred.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any time or from time to time after the Original Series E Issue Date, there
is a capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 5), as part of such capital
reorganization, provision shall be made so that the holders of the Series
Preferred shall thereafter be entitled to receive upon conversion of the Series
Preferred the number of shares of stock or other securities or property of the
Corporation to which a holder of the maximum number of shares of Common Stock
deliverable upon conversion would have been entitled in connection with such
capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 5 with respect to
the rights of the holders of Series Preferred after the capital reorganization
to the end that the provisions of this Section 5 (including adjustment of the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price then
<PAGE>
in effect and the number of shares issuable upon conversion of the Series
Preferred) shall be applicable after that event and be as nearly equivalent as
practicable.
(i) Certificate of Adjustment. In each case of an adjustment or
readjustment of the Series A Conversion Price, the Series B Conversion Price,
the Series C Conversion Price, Series D Conversion Price and/or Series E
Conversion Price for the number of shares of Common Stock or other securities
issuable upon conversion of the Series Preferred, the Corporation, at its
expense, shall compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Series Preferred at the holder's address
as shown in the Corporation's books. The certificate shall set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Corporation for any
additional shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, the Series D Conversion Price and/or the Series E
Conversion Price at the time in effect, (3) the number of additional shares of
Common Stock issued or sold or deemed to have been issue or sold, and (4) the
type and amount, if any, of other property which at the time would be received
upon conversion of the Series Preferred.
(j) Notices of Record Date. Upon (i) any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other corporation, any Asset
Transfer (as defined in Section 3(c)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Series Preferred at least twenty (20) days prior to the
record date specified therein a notice specifying (1) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed for determining the
holders of record of Common Stock (or other securities) that shall be be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up.
(k) Automatic Conversion. Each share of Series A Preferred shall
automatically be converted into shares of Common Stock, based on the then-
effective Series A Conversion Price, immediately upon the earlier of (i) the
election of the holders of at least 75% of the outstanding Series A Preferred
(voting as a single class on an as-converted basis) or (ii) the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Corporation in which (x) the per
share price to the public is at least $8.00 per share (as adjusted for stock
splits, recapitalizations and the like), and (y) the gross cash proceeds to the
Corporation (before underwriting discounts, commissions and fees) are at least
<PAGE>
$30,000,000 (a "Qualified Public Offering"). Each share of Series B Preferred
shall automatically be converted into shares of Common Stock, based on the then-
effective Series B Conversion Price, immediately upon the earlier of (i) the
election of the holders of at least 75% of the outstanding Series B Preferred
(voting as a single class on an as-converted basis) or (ii) the closing of a
Qualified Public Offering. Each share of Series C Preferred shall automatically
be converted into shares of Common Stock, based on the then-effective Series C
Conversion Price, immediately upon the earlier of (i) the election of the
holders of at least 75% of the outstanding Series C Preferred (voting as a
single class on an as-converted basis) or (ii) the closing of a Qualified Public
Offering. Upon such automatic conversion, all declared but unpaid dividends, if
any, shall be paid in accordance with Section 5(l). Each share of Series D
Preferred shall automatically be converted into shares of Common Stock, based on
the then-effective Series D Conversion Price, immediately upon the earlier of
(i) the election of the holders of at least 75% of the outstanding Series D
Preferred (voting as a single class on an as-converted basis) or (ii) the
closing of a Qualified Public Offering. Upon such automatic conversion, all
declared but unpaid dividends, if any, shall be paid in accordance with Section
5(l). Each share of Series E Preferred shall automatically be converted into
shares of Common Stock, based on the then-effective Series E Conversion Price,
immediately upon the earlier of (i) the election of the holders of at least 75%
of the outstanding Series E Preferred (voting as a single class on an as-
converted basis) or (ii) the closing of a Qualified Public Offering. Upon such
automatic conversion, all declared but unpaid dividends, if any, shall be paid
in accordance with Section 5(l).
(l) Mechanics of Conversion.
(i) Optional Conversion. Each holder of Series Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
5 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for the Series Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same. Such notice shall state the number of shares of
Series Preferred being converted. Thereupon, the Corporation shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in cash or, to the extent sufficient funds are not then
legally available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board of Directors as of the date of such conversion),
any declared but unpaid dividends on the shares of Series Preferred being
converted. Such conversion shall be deemed to have been made at the close of
business on the date of such surrender of the certificate representing the
shares of Series Preferred to be converted, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such date.
(ii) Automatic Conversion. Upon the occurrence of an event
specified in Section 5(1) above, the outstanding shares of Series Preferred
shall be converted into Common Stock 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; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates
<PAGE>
evidencing such shares of Series Preferred are either delivered to the
Corporation or its transfer agent as provided below, 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. Upon surrender by any holder of the certificates formerly
representing shares of Series Preferred at the office of the Corporation or any
transfer agent for the Series Preferred, there shall be issued and delivered to
such holder promptly at such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Common Stock into which the shares of Series Preferred surrendered
were convertible on the date on which such automatic conversion occurred, and
the Corporation shall promptly pay in cash or, at the option of the Corporation,
Common Stock (at the Common Stock's fair market value determined by the Board as
of the date of such conversion) or, at the option of the Corporation, a
combination of both, all declared but unpaid dividends on the shares of Series
Preferred being converted. Until surrendered as provided above, each certificate
formerly representing shares of Series Preferred shall be deemed for all
corporate purposes to represent the number of shares of Common Stock resulting
from such automatic conversion.
(m) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion.
6. Certain Definitions.
"Event of Noncompliance" means any of the following:
(i) the Corporation fails to make any dividend, redemption or other
payment with respect to the Series Preferred which it is required to make
hereunder, whether or not such payment is legally permissible or is prohibited
by any agreement to which the Corporation is subject;
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Stockholders
Agreement, which default is not cured within a reasonable period of time (not to
exceed 45 days) after written notice of such default is provided to the
Corporation by the Required Holders or, if such default is not capable of being
cured, such default shall constitute an Event of Noncompliance upon provision of
such notice; provided, however, that no Event of Noncompliance shall have
occurred under this subparagraph (ii) if the Corporation establishes (to the
reasonable satisfaction of the Required Holders) that (a) the particular default
has not been caused by knowing or purposeful conduct by the Corporation or any
Subsidiary, (b) the Corporation has exercised, and continues to exercise, best
efforts to expeditiously cure the default (if cure is possible), and (c) the
default is not material to the financial condition, operating results,
operations, assets or business prospects of the Corporation and its
Subsidiaries, taken as a whole;
<PAGE>
(iii) any representation or warranty made to any holder of Series
Preferred Stock in the Series B Stock Purchase Agreement, Series C Stock
Purchase Agreement, the Series D Stock Purchase Agreement or the Series E Stock
Purchase Agreement or in the Transaction Documents or any information required
to be furnished by the Corporation to holders of Series Preferred Stock, is
false or misleading in any material respect on the date made or furnished and is
material to any holder of the Series Preferred Stock.
(iv) the Corporation or any Significant Subsidiary makes any
assignment for the benefit of creditors or admits in writing its inability to
pay its debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any Significant Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or any
Significant Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Significant Subsidiary petitions or applies to any tribunal
for the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Significant Subsidiary or of any substantial part of the
assets of the Corporation or any Significant Subsidiary, or commences any
proceeding (other than a proceeding for the voluntary liquidation and
dissolution of a Subsidiary) relating to the Corporation or any Significant
Subsidiary under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is commenced,
against the Corporation or any Significant Subsidiary and either (a) the
Corporation or any such Significant Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (b) such petition,
application or proceeding is not dismissed within 60 days; or the Corporation or
any Significant Subsidiary defaults in the payment when due of any monetary
obligation in the amount of $250,000 or more or defaults in the performance of
any obligation or agreement if the effect of such default is to cause an amount
exceeding $250,000 to become due prior to its scheduled payment date or to
permit the holder or holders of any such obligation (after giving effect to any
applicable grace period) to cause an amount exceeding $250,000 to become due
prior to its scheduled payment date.
"Common Stock Deemed Outstanding" means, at any given time, the sum of the
number of shares of Common Stock actually outstanding at such time, plus (a) the
number of shares of Common Stock which would be issued upon exercise of all the
Corporation's outstanding Options and (b) the number of shares of Common Stock
which would be issued upon conversion or exchange of all of the Corporation's
outstanding Convertible Securities (including Convertible Securities issuable
upon exercise of Options).
"Convertible Securities" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock but shall not
include Options.
"Holder Stock" shall mean (i) shares of Common Stock owned by the holders
of Series C, Series D Preferred and Series E Preferred; (ii) shares of Common
Stock issued or issuable upon the conversion or exercise of any stock
(including, without limitation, the Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred) warrants, options or other securities
of the Company owned by the holders of Series C, Series D and Series E
Preferred, and (iii) any shares of Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the shares
referenced in (i) and (ii) above.
<PAGE>
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Permitted Issuance" means (i) any issuance of Common Stock upon conversion
of shares of Series Preferred, (ii) any issuance of Reserved Employee Stock,
(iii) shares of Common Stock issued or issuable in a public offering before or
in connection with which all outstanding shares of Convertible Preferred Stock
will be converted to Common Stock or upon exercise of warrants or rights granted
to underwriters in connection with such a public offering, (iv) shares of Common
Stock issued upon exercise or conversion of any option, warrant or other
convertible security outstanding as of the Original Series E Issue Date, (v)
securities issued pursuant to the acquisition of another business entity or
business segment of any such entity by the Corporation by merger, purchase of
substantially all the assets or other reorganization whereby the Corporation
will own not less than fifty-one percent (51%) of the voting power of such
business entity or business segment of any such entity or (vi) shares of Common
Stock issued in connection with (A) any borrowings, direct or indirect, from
financial institutions or other persons by the Corporation, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, if such borrowing, loan or debt instrument is approved
by the Board of Directors, (B) any transaction with vendors or customers or to
other persons in similar commercial situations with the Corporation if such
issuance is approved by the Board of Directors, or (C) obtaining lease
financing, whether issued to a lessor, guarantor or other person if such
issuance is approved by the Board of Directors.
"Pro Rata Portion" means the quotient determined by dividing (i) the number
of shares of Holder Stock held by the holder of Series C Preferred by (ii) the
sum of the total number of shares of Holder Stock held by all holders of Series
C Preferred, the quotient determined by dividing (i) the number of shares of
Holder Stock held by the holder of Series D Preferred by (ii) the sum of the
total number of shares of Holder Stock held by all holders of Series D Preferred
and the quotient determined by dividing (i) the number of shares of Holder Stock
held by the holder of Series E Preferred by (ii) the sum of the total number of
shares of Holder Stock held by all holders of Series E Preferred.
"Reserved Employee Stock" means shares of the Company's Common Stock
issuable to employees, directors, officers or consultants of the Corporation and
its Subsidiaries pursuant to the Company's 2000 Equity Incentive Plan, or any
successor plan approved by the Company's Board of Directors.
"Series B Purchase Agreement" means the Purchase Agreement, dated as of
September 2, 1997, by and among the Corporation and certain investors, as such
agreement may from time to time be amended in accordance with its terms.
"Series C Purchase Agreement" means the Purchase Agreement, dated as of May
27, 1998, by and among the Corporation and certain investors, as such agreement
may from time to time be amended in accordance with its terms.
"Series D Purchase Agreement" means the Purchase Agreement, dated as of
November 17, 1999, by and among the Corporation and certain investors, as such
agreement may from time to time be amended in accordance with its terms.
<PAGE>
"Series E Purchase Agreement" means the Purchase Agreement, dated as of
March 29, 2000, by and among the Corporation and certain investors, as such
agreement may from time to time be amended in accordance with its terms.
"Stockholders Agreement" means the Stockholders Agreement dated as of March
29, 2000, by and among the Corporation, the purchasers of Series Preferred and
certain other stockholders of the Corporation, as such agreement may from time
to time be amended in accordance with its terms.
"Significant Subsidiary" means a "significant subsidiary" as such term is
defined in Regulation S-X of the Securities and Exchange Commission.
"Subsidiary" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or provisions
of the Series Preferred shall be binding or effective without the prior written
consent of the Required Holders and no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the Required Holders; provided that any action which would adversely
alter or change solely the rights, preferences or privileges of the Series A
Preferred shall require the consent of the holders of at least 66 2/3% of the
outstanding Series A Preferred, any action which would adversely alter or change
solely the rights, preferences or privileges of the Series B Preferred shall
require the consent of the holders of at least 66 2/3% of the outstanding Series
B Preferred, any action which would adversely alter or change solely the rights,
preferences or privileges of the Series C Preferred shall require the consent of
the holders of at least 66 2/3% of the outstanding Series C Preferred, any
action which would adversely alter or change solely the rights, preferences or
privileges of the Series D Preferred shall require the consent of the holders of
at least 66 2/3% of the outstanding Series D Preferred, and any action which
would adversely alter or change solely the rights, preferences or privileges of
the Series E Preferred shall require the consent of the holders of at least 66
2/3% of the outstanding Series E Preferred and provided further that any
provision which requires a higher vote of holders of Preferred Stock may not be
amended, waived or modified without the higher vote of such holders and any
amendment, modification or waiver of any of the terms or provisions of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and/or Series E Preferred made in compliance with this Section 7, whether
prospective or retroactively effective, shall be binding upon all holders of
Series A Preferred Stock, Series B Preferred, Series C Preferred, Series D
Preferred and/or Series E Preferred.
8. General Provisions.
(a) Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of the Series Preferred. Upon
the surrender of any certificate
<PAGE>
representing Series Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate.
(b) Replacement. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder shall be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing shares of Series Preferred, and in the case of any such
loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to
the Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by lost, stolen, destroyed or mutilated certificate and dated the
date of such lost, stolen, destroyed or mutilated certificate.
(c) Reservation of Common Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then-outstanding shares of the Series Preferred, 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.
(d) Notices. Any notice required by the provisions of this Article
IV of this Certificate of Incorporation shall be in writing and shall be deemed
effectively given: (i) upon personal delivery to the party to be notified, (ii)
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient; if not, then on the next business day, (iii) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices to stockholders shall be addressed to each
holder of record at the address of such holder appearing on the books of the
Corporation.
(e) Payment of Taxes. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted was registered.
(f) No Dilution or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation,
<PAGE>
merger, dissolution, issue or sale of securities or any other voluntary action,
for the purpose of avoiding or seeking to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation.
(g) No Reissuance of Series Preferred. No share or shares of Series
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued.
Article V.
Except as otherwise provided in this Restated Certificate of Incorporation,
in furtherance and not limiting the powers conferred by statute, the Board of
Directors is expressly authorized to make, repeal, alter, amend and rescind any
or all of the Bylaws of the Corporation.
Article VI.
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws of the Corporation.
Article VII.
Election of directors at an annual or special meeting of stockholders need
not be by written ballot unless the Bylaws of the Corporation shall so provide.
Article VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
Article IX.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
<PAGE>
Any repeal or modification of the foregoing provision of this Article
IX by the stockholders of the Corporation shall not adversely affect any right
or protection of the director of the Corporation existing at the time of such
repeal or modification.
Article X.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been subscribed this 29th day of March, 2000 by the undersigned who certifies
that the statements made herein are true and correct.
EVOKE INCORPORATED
By: /s/ Paul A. Berberian
_______________________________
Its: President and Chief Executive Officers
______________________________
[Signature Page to Restated Certificate of Incorporation]
<PAGE>
Exhibit 10.1
EVOKE INCORPORATED
2000 Equity Incentive Plan
Adopted May 9, 1997
Approved By Stockholders July 22, 1997
Amended and Restated Effective February 15, 2000
Amendments Approved By Stockholders _______________, 2000
Termination Date: February 14, 2010
1. Purposes.
(a) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) Available Stock Awards. The purpose of the Plan is to provide a means by
which eligible recipients of Stock Awards may be given an opportunity to benefit
from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Stock Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause," with respect to any Participant, means (except as otherwise
provided in the applicable Stock Award Agreement or an applicable written
employment contract executed by an authorized officer of the Company and such
Participant) such Participant's (i) conviction of any felony or any crime
involving moral turpitude or dishonesty, (ii) participation in a fraud or act of
dishonesty against the Company, (iii) conduct that, based upon a good faith and
reasonable factual investigation and determination by the Company, demonstrates
such Participant's gross unfitness to serve, (iv) failure, based upon a good
faith and reasonable factual determination by the Company, to meet the minimum
performance requirements of his or her position as established by the Company,
or (v) intentional, material violation of any contract between the
1.
<PAGE>
Company and such Participant or any statutory duty of such Participant to the
Company that such Participant does not correct within thirty (30) days after
written notice to such Participant thereof. A Participant's physical or mental
disability shall not constitute "Cause."
(d) "Change in Control" means (i) a sale, lease or other disposition of all
or substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation and in which
beneficial ownership of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election of
the members of the Board has changed; (iii) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, and in which beneficial ownership of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of the member of the Board has changed; (iv) an
acquisition by any entity (other than (A) a controlled affiliate of the Company,
(B) any employee benefit plan, or related trust, sponsored or maintained by the
Company or subsidiary of the Company or other entity controlled by the Company,
or (C) any company owned directly or indirectly by stockholders of the Company
in substantially the same proportions as their ownership of Common Stock
interest of the Company, immediately prior to the occurrence with respect to
which the evaluation of the Change in Control is being made) of the beneficial
ownership, directly or indirectly, of securities of the Company representing at
least fifty percent (50%) of the combined voting power of the Company's then
outstanding securities; or (v) any event which causes the individuals who, as of
the date of adoption of the Plan, are members of the Company's Board (the
"Incumbent Board") to cease for any reason to constitute at least fifty percent
(50%) of the Board. (If the election, or nomination for election by the
Company's stockholders of any new Director is approved by a vote of at least
fifty percent (50%) of the Incumbent Board, such new Director shall be
considered to be a member of the Incumbent Board in the future.)
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(g) "Common Stock" means the common stock of the Company.
(h) "Company" means Evoke Incorporated, a Delaware corporation.
(i) "Consultant" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(j) "Continuous Service" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated.
2.
<PAGE>
The Participant's Continuous Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Participant renders
service to the Company or an Affiliate as an Employee, Consultant or Director or
a change in the entity for which the Participant renders such service, provided
that there is no interruption or termination of the Participant's Continuous
Service. For example, a change in status from an Employee of the Company to a
Consultant of an Affiliate or a Director will not constitute an interruption of
Continuous Service. The Board or the chief executive officer of the Company, in
that party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(k) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(l) "Director" means a member of the Board of Directors of the Company.
(m) "Disability" means the permanent and total disability of a person within
the meaning of Section 22(e)(3) of the Code.
(n) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(p) "Fair Market Value" means, as of any date, the value of the Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(q) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(r) "Non-Employee Director" means a Director who either (i) is not a current
Employee or Officer of the Company or its parent or a subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
a subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which
3.
<PAGE>
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(s) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(t) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(v) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(w) "Optionholder" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(x) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(y) "Participant" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(z) "Plan" means this Evoke Incorporated 2000 Equity Incentive Plan.
(aa) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(bb) "Securities Act" means the Securities Act of 1933, as amended.
(cc) "Stock Award" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(dd) "Stock Award Agreement" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
4.
<PAGE>
(ee) "Ten Percent Stockholder" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. Administration.
(a) Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section
12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan
to a Committee or Committees of one (1) or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded.
At such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3.
5.
<PAGE>
Within the scope of such authority, the Board or the Committee may (1) delegate
to a committee of one or more members of the Board who are not Outside Directors
the authority to grant Stock Awards to eligible persons who are either (a) not
then Covered Employees and are not expected to be Covered Employees at the time
of recognition of income resulting from such Stock Award or (b) not persons with
respect to whom the Company wishes to comply with Section 162(m) of the Code
and/or) (2) delegate to a committee of one or more members of the Board who are
not Non-Employee Directors the authority to grant Stock Awards to eligible
persons who are not then subject to Section 16 of the Exchange Act.
(d) Effect of Board's Decision. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate five million
(5,000,000) shares of Common Stock; provided however, that as of each January 1,
beginning with January 1, 2001, and continuing through and including January 1,
2010, the number of shares which may be issued pursuant to Stock Awards will be
increased automatically by three percent (3%) of the lesser of (i) the total
number of shares of the Common Stock outstanding on such January 1 or (ii) the
total number of shares outstanding on the effective date of the amendment and
restatement by the Board of the Plan as the 2000 Equity Incentive Plan, adjusted
in accordance with Section 11(a) hereof. Notwithstanding the foregoing, the
Board may designate a smaller number of shares to be added to the share reserve
as of a particular January 1.
(b) Reversion of Shares to the Share Reserve. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(c) Source of Shares. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) Section 162(m) Limitation. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be
6.
<PAGE>
granted Options covering more than two million (2,000,000) shares of Common
Stock during any calendar year.
(d) Consultants.
(i) A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) Exercise Price of a Nonstatutory Stock Option. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted.
7.
<PAGE>
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) Consideration. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may
8.
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vary. The provisions of this subsection 6(g) are subject to any Option
provisions governing the minimum number of shares of Common Stock as to which an
Option may be exercised.
(h) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) Extension of Termination Date. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) Disability of Optionholder. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to
9.
<PAGE>
exercise the Option as to any part or all of the shares of Common Stock subject
to the Option prior to the full vesting of the Option. Any unvested shares of
Common Stock so purchased may be subject to a repurchase option in favor of the
Company or to any other restriction the Board determines to be appropriate. The
Company will not exercise its repurchase option until at least six (6) months
(or such longer or shorter period of time required to avoid a charge to earnings
for financial accounting purposes) have elapsed following exercise of the Option
unless the Board otherwise specifically provides in the Option.
(m) Re-Load Options.
(i) Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Unless otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
(iii) Any such Re-Load Option may be an Incentive Stock Option
or a Nonstatutory Stock Option, as the Board may designate at the time of the
grant of the original Option; provided, however, that the designation of any Re-
Load Option as an Incentive Stock Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on the exercisability of Incentive
Stock Options described in subsection 9(d) and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. Provisions of Stock Awards other than Options.
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus
10.
<PAGE>
agreement shall include (through incorporation of provisions hereof by reference
in the agreement or otherwise) the substance of each of the following
provisions:
(i) Consideration. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) Vesting. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participant's Continuous Service. In the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.
(iv) Transferability. Rights to acquire shares of Common Stock under
that stock bonus agreement shall be transferable by the Participant only
upon0pon such terms and conditions as are set forth in the stock bonus
agreement, as the Board shall determine in its discretion, so long a Common
Stock awarded under the stock bonus agreement remains subject to the terms of
the stock bonus agreement.
(b) Restricted Stock Awards. Each restricted stock purchase agreement shall
be iin such form and shall contain such terms and conditions as the Board shall
deem appropriate. The terms and conditions of the restricted stock purchase
agreements may change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five (85%) of the Common Stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
(ii) Consideration. The purchase price of Common Stock acquired pursuant
to the restricted stock purchase agreement shall be paid either: (i) in cash at
the time of purchase; (ii) at the discretion of the Board, according to a
deferred payment or other similar arrangement with the Participant; or (iii) in
any other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in Delaware, then payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) Vesting. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
11.
<PAGE>
(iv) Termination of Participant's Continuous Service. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) Transferability. Rights to acquire shares of Common Stock
under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.
8. Covenants of the Company.
(a) Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Stockholder Rights. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to
12.
<PAGE>
continue to serve the Company or an Affiliate in the capacity in effect at the
time the Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without notice
and with or without cause, (ii) the service of a Consultant pursuant to the
terms of such Consultant's agreement with the Company or an Affiliate or (iii)
the service of a Director pursuant to the Bylaws of the Company or an Affiliate,
and any applicable provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.
(g) Cancellation and Re-Grant of Options.
13.
<PAGE>
(i) Authority to Reprice. The Board shall have the authority to
effect, at any time and from time to time, (1) the repricing of any outstanding
Options under the Plan and/or (2) with the consent of any adversely affected
holders of Options, the cancellation of any outstanding Options under the Plan
and the grant in substitution therefor of new Options under the Plan covering
the same or different numbers of shares of Common Stock. The exercise price per
share of Common Stock shall be not less than that specified under the Plan for
newly granted Stock Awards. Notwithstanding the foregoing, the Board may grant
an Option with an exercise price lower than that set forth above if such Option
is granted as part of a transaction to which Section 424(a) of the Code applies.
(ii) Effect of Repricing under Section 162(m) of the Code.
Shares of Common Stock subject to an Option which is amended or canceled in
order to set a lower exercise price per share of Common Stock shall continue to
be counted against the maximum award of Options permitted to be granted pursuant
to subsection 5(c). The repricing of an Option under this subsection 10(g)
resulting in a reduction of the exercise price shall be deemed to be a
cancellation of the original Option and the grant of a substitute Option; in the
event of such repricing, both the original and the substituted Options shall be
counted against the maximum awards of Options permitted to be granted pursuant
to subsection 5(c). The provisions of this subsection 10(g)(ii) shall be
applicable only to the extent required by Section 162(m) of the Code.
11. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation, Reverse
Merger, Securities Acquisition, Change in Incumbent Board. In the event of a
Change in Control, (i) any surviving corporation or acquiring corporation shall
assume all Stock Awards outstanding under the Plan or shall substitute similar
Stock Awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(c) for those
outstanding under the Plan); and (ii) except as otherwise provided in the
applicable Stock
14.
<PAGE>
Award Agreement, in the event the surviving or acquiring corporation assumes a
Participant's Stock Awards or substitutes substantially similar Stock Awards in
connection with a Change in Control, and within twelve (12) months after the
date of such Change in Control, such Participant's Continuous Service for the
surviving corporation terminates due to an involuntary termination (not
including death or disability) without Cause, then the vesting of such
Participant's Stock Awards (and, if applicable, the time at which such Stock
Awards may be exercised) shall be accelerated so that such Participant shall be
vested, upon the date of such termination, in that portion of the Participant's
Stock Awards in which the Participant would have been vested on the date which
is twelve (12) months after the date of such termination, provided that, after
termination of Participant's Continuous Service, the provisions of subsection
6(h) hereof shall apply with respect to the exercisability of any Option. In the
event any surviving corporation or acquiring corporation refuses to assume some
or all Stock Awards or to substitute similar Stock Awards for those outstanding
under the Plan, then with respect to any Stock Award that is not assumed or
substituted and which is held by a Participant whose Continuous Service has not
terminated, the vesting of such Stock Award (and, if applicable, the time at
which such Stock Award may be exercised) shall, except as otherwise provided in
the applicable Stock Award Agreement, be accelerated in full. Except as provided
in the applicable Stock Award Agreement, (a) any outstanding Options which are
not assumed or substituted for shall terminate if not exercised as of the
closing of such Change in Control; and (b) any other outstanding Stock Awards
which are not assumed or substituted for and which are unvested as of the
closing of such Change in Control (taking into account any vesting acceleration
provided in this Plan or the applicable Stock Award Agreement in connection with
such Change in Control) shall terminate as of the time of such closing.
12. Amendment of the Plan and Stock Awards.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements. With respect to Stock
Awards issued prior to any such Plan amendment and still outstanding at any time
thereafter, except as provided in subsection 12(d) below, such amendments shall
apply to such Stock Awards.
(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
15.
<PAGE>
(d) No Impairment of Rights. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (1) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is amended and restated by the Board as
the 2000 Equity Incentive Plan or such amendment and restatement is approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan in its amended and restated form shall be effective as of the
date such amendment and restatement is adopted by the Board, but no Stock Award
shall be exercised (or, in the case of a stock bonus, shall be granted) with
respect to shares exceeding the number of shares reserved for issuance under the
plan prior to the effective date of such amendment and restatement unless and
until the Plan, as amended and restated, has been approved by the stockholders
of the Company, which approval shall be within twelve (12) months before or
after the date the amended and restated Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Colorado shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
* * [THIS IS THE END OF THE DOCUMENT] * *
16.
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Exhibit 10.2
EVOKE INCORPORATED
2000 EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors on February 15, 2000
Approved by the Stockholders on _________ ___, 2000
1. Purpose.
(a) The purpose of this Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Evoke Incorporated, a Delaware
corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b),
may be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation or
subsidiary corporation of the Company, as those terms are defined in
Sections 424(e) and (f), respectively, of the Internal Revenue Code of
1986, as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the
Code.
2. Administration.
(a) The Plan shall be administered by the Board of Directors (the "Board") of
the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to
determine all questions of policy and expediency that may arise in the
administration of the Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of
such rights (which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
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<PAGE>
exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully
effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the
meaning of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a Committee of the
Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the
Board, including the power to delegate to a subcommittee of two (2) or
more Outside Directors any of the administrative powers the Committee
is authorized to exercise (and references in this Plan to the Board
shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board
may abolish the Committee at any time and revest in the Board the
administration of the Plan. For purposes of the Plan:
(i) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or
subsidiary, does not receive compensation (directly or indirectly)
from the Company or its parent or subsidiary for services rendered
as a consultant or in any capacity other than as a Director (except
for an amount as to which disclosure would not be required under
Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in
any other transaction as to which disclosure would be required
under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise
considered a "non-employee director" for purposes of Rule 16b-3.
(ii) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Section
162(m) of the Code), is not a former employee of the Company or an
"affiliated corporation" receiving compensation for prior services
(other than benefits under a tax qualified pension plan), was not
an officer of the Company or an "affiliated corporation" at any
time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director, or (ii) is
otherwise considered an "outside director" for purposes of Section
162(m) of the Code.
(d) Any interpretation of the Plan by the Board of any decision made by it
under the Plan shall be final and binding on all persons.
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<PAGE>
3. Shares Subject to the Plan.
(a) Subject to the provisions of paragraph 12 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
rights granted under the Plan shall not exceed in the aggregate six hundred
thousand (600,000) shares of the Company's common stock (the "Common
Stock"). As of each January 1, beginning with January 1, 2001, and
continuing through and including January 1, 2009, the number of Reserved
Shares will be increased automatically by three percent (3%) of the lesser
of (i) the total number of shares of the Common Stock outstanding on such
January 1 or (ii) the total number of shares outstanding as of the
effective date of the Plan. Notwithstanding the foregoing, the Board may
designate a smaller number of shares to be added to the share reserve as of
a particular January 1. If any right granted under the Plan shall for any
reason terminate without having been exercised, the Common Stock not
purchased under such right shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. Grant of Rights; Offering.
(a) The Board or the Committee may from time to time grant or
provide for the grant of rights to purchase Common Stock of the Company
under the Plan to eligible employees (an "Offering") on a date or dates
(the "Offering Date(s)") selected by the Board or the Committee. Each
Offering shall be in such form and shall contain such terms and conditions
as the Board or the Committee shall deem appropriate, which shall comply
with the requirements of Section 423(b)(5) of the Code that all employees
granted rights to purchase stock under the Plan shall have the same rights
and privileges. The terms and conditions of an Offering shall be
incorporated by reference into the Plan and treated as part of the Plan.
The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one (1) right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder, a right with a lower exercise price (or an earlier-
granted right if two (2) rights have identical exercise prices), will be
exercised to the fullest possible extent before a right with a higher
exercise price (or a later-granted right if two (2) rights have identical
exercise prices) will be exercised.
5. Eligibility.
(a) Rights may be granted only to employees of the Company or, as
the Board or the Committee may designate as provided in subparagraph 2(b),
to employees of any Affiliate of the Company. Except as provided in
subparagraph 5(b), an employee of the Company or any Affiliate shall not be
eligible to be granted rights under the Plan unless, on the Offering Date,
such employee has been in the employ of the Company or any Affiliate for
such continuous period preceding such grant as the Board or the Committee
may require, but in no event shall the
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required period of continuous employment be greater than two (2) years.
In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights
under the Plan unless, on the Offering Date, such employee's customary
employment with the Company or such Affiliate is for at least twenty
(20) hours per week and at least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an
eligible employee or occurs thereafter, receive a right under that
Offering, which right shall thereafter be deemed to be a part of that
Offering. Such right shall have the same characteristics as any rights
originally granted under that Offering, as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of
the exercise price of such right;
(ii) the period of the Offering with respect to such
right shall begin on its Offering Date and end coincident with the end of
such Offering; and
(iii) the Board or the Committee may provide that if
such person first becomes an eligible employee within a specified period of
time before the end of the Offering, he or she will not receive any right
under that Offering.
(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such
employee owns stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of
any Affiliate. For purposes of this subparagraph 5(c), the rules of Section
424(d) of the Code shall apply in determining the stock ownership of any
employee, and stock which such employee may purchase under all outstanding
rights and options shall be treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan
only if such rights, together with any other rights granted under "employee
stock purchase plans" of the Company and any Affiliates, as specified by
Section 423(b)(8) of the Code, do not permit such employee's rights to
purchase stock of the Company or any Affiliate to accrue at a rate which
exceeds twenty five thousand dollars ($25,000) of fair market value of such
stock (determined at the time such rights are granted) for each calendar
year in which such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall
be eligible to participate in Offerings under the Plan; provided, however,
that the Board may provide in an Offering that certain employees who are
highly compensated employees within the meaning of Section 423(b)(4)(D) of
the Code shall not be eligible to participate.
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6. Rights; Purchase Price.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to
the number of shares of Common Stock of the Company purchasable with a
percentage designated by the Board or the Committee not exceeding fifteen
percent (15%) of such employee's Earnings (as defined in subparagraph 7(a))
during the period which begins on the Offering Date (or such later date as
the Board or the Committee determines for a particular Offering) and ends
on the date stated in the Offering, which date shall be no later than the
end of the Offering. The Board or the Committee shall establish one (1) or
more dates during an Offering (the "Purchase Date(s)") on which rights
granted under the Plan shall be exercised and purchases of Common Stock
carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board
or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares
that may be purchased by all eligible employees pursuant to such Offering.
In addition, in connection with each Offering that contains more than one
(1) Purchase Date, the Board or the Committee may specify a maximum
aggregate number of shares which may be purchased by all eligible employees
on any given Purchase Date under the Offering. If the aggregate purchase of
shares upon exercise of rights granted under the Offering would exceed any
such maximum aggregate number, the Board or the Committee shall make a pro
rata allocation of the shares available in as nearly a uniform manner as
shall be practicable and as it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. Participation; Withdrawal; Termination.
(a) An eligible employee may become a participant in the Plan
pursuant to an Offering by delivering an enrollment agreement to the
Company within the time specified in the Offering, in such form as the
Company provides. Each such agreement shall authorize payroll deductions of
up to the maximum percentage specified by the Board or the Committee of
such employee's Earnings during the Offering. "Earnings" is defined as an
employee's regular salary or wages (including amounts thereof elected to be
deferred by the employee, that would otherwise have been paid, under any
arrangement established by the Company that is intended to comply with
Section 125, Section 401(k), Section 402(e)(3), Section 402(h) or section
403(b) of the Code, and also including any deferrals under a non-qualified
deferred compensation plan or arrangement established by the Company), and
also, if determined by the Board or the Committee and set forth in the
terms of the Offering, may include any or all of the following: (i)
overtime pay, (ii) commissions, (iii) bonuses, incentive pay, profit
sharing and other
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remuneration paid directly to the employee, and/or (iv) other items of
remuneration not specifically excluded pursuant to the Plan. Earnings
shall not include the cost of employee benefits paid for by the Company or
an Affiliate, education or tuition reimbursements, imputed income arising
under any group insurance or benefit program, traveling expenses, business
and moving expense reimbursements, income received in connection with stock
options, contributions made by the Company or an Affiliate under any
employee benefit plan, and similar items of compensation, as determined by
the Board or the Committee. Notwithstanding the foregoing, the Board or
Committee may modify the definition of "Earnings" with respect to one or
more Offerings as the Board or Committee determines appropriate. The
payroll deductions made for each participant shall be credited to an
account for such participant under the Plan and shall be deposited with the
general funds of the Company. A participant may reduce (including to zero)
or increase such payroll deductions, and an eligible employee may begin
such payroll deductions, after the beginning of any Offering only as
provided for in the Offering. A participant may make additional payments
into his or her account only if specifically provided for in the Offering
and only if the participant has not had the maximum amount withheld during
the Offering.
(b) At any time during an Offering, a participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering
by delivering to the Company a notice of withdrawal in such form as the
Company provides. Such withdrawal may be elected at any time prior to the
end of the Offering except as provided by the Board or the Committee in the
Offering. Upon such withdrawal from the Offering by a participant, the
Company shall distribute to such participant all of his or her accumulated
payroll deductions (reduced to the extent, if any, such deductions have
been used to acquire stock for the participant) under the Offering, without
interest, and such participant's interest in that Offering shall be
automatically terminated. A participant's withdrawal from an Offering will
have no effect upon such participant's eligibility to participate in any
other Offerings under the Plan but such participant will be required to
deliver a new enrollment agreement in order to participate in subsequent
Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's
employment with the Company and any designated Affiliate, for any reason,
and the Company shall distribute to such terminated employee all of his or
her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire stock for the terminated employee),
under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14, and during a
participant's lifetime, shall be exercisable only by such participant.
8. Exercise.
(a) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole
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<PAGE>
shares of stock of the Company, up to the maximum number of shares
permitted pursuant to the terms of the Plan and the applicable Offering, at
the purchase price specified in the Offering. No fractional shares shall be
issued upon the exercise of rights granted under the Plan. The amount, if
any, of accumulated payroll deductions remaining in each participant's
account after the purchase of shares which is less than the amount required
to purchase one share of Common Stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase
of shares under the next Offering under the Plan, unless such participant
withdraws from such next Offering, as provided in subparagraph 7(b), or is
no longer eligible to be granted rights under the Plan, as provided in
paragraph 5, in which case such amount shall be distributed to the
participant after such final Purchase Date, without interest. The amount,
if any, of accumulated payroll deductions remaining in any participant's
account after the purchase of shares which is equal to the amount required
to purchase one or more whole shares of Common Stock on the final Purchase
Date of an Offering shall be distributed in full to the participant after
such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon such exercise under the Plan
(including rights granted thereunder) are covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended
(the "Securities Act") and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws applicable to
the Plan. If on a Purchase Date in any Offering hereunder the Plan is not
so registered or in such compliance, no rights granted under the Plan or
any Offering shall be exercised on such Purchase Date, and the Purchase
Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date
shall not be delayed more than twelve (12) months and the Purchase Date
shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such
compliance, no rights granted under the Plan or any Offering shall be
exercised and all payroll deductions accumulated during the Offering
(reduced to the extent, if any, such deductions have been used to acquire
stock) shall be distributed to the participants, without interest.
9. Covenants of the Company.
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of Common
Stock required to satisfy such rights, provided that the Company shall not
be obligated to keep available shares in excess of the limits set forth or
described in paragraphs 3 and 6 of the Plan and any corresponding or
additional limits set forth in an Offering.
(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over
the Plan such authority as may be required to issue and sell shares of
stock upon exercise of the rights granted under the Plan. If, after
reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan,
the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such rights unless and until such authority is
obtained.
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10. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. Rights as a Stockholder.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company (or
its transfer agent).
12. Adjustments upon Changes in Stock.
(a) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a lease, sale, or other disposition of all or substantially all of
the assets of the Company; (3) a merger or consolidation in which the Company is
not the surviving corporation; (4) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; (5) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or any Affiliate
of the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors; or (6) the individuals who,
as of the date of the adoption of this Plan, are members of the Board (the
"Incumbent Board"; (if the election, or nomination for election by the Company's
stockholders, of a new director was approved by a vote of at least fifty percent
(50%) of the members of the Board then comprising the Incumbent Board, such new
director shall upon his or her election be considered a member of the Incumbent
Board) cease for any reason to constitute at least fifty percent (50%) of the
Board; then the Board in its sole discretion may take any action or arrange for
the taking of any action among the following: (i) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for those
under the Plan, (ii) such rights may continue in full force and
8
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effect, or (iii) all participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to or within a reasonable period of time
following the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. Amendment of the Plan or Offerings.
(a) The Board at any time, and from time to time, may amend the
Plan or the terms of one or more Offerings. However, except as provided in
paragraph 12 relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the stockholders of the Company within twelve
(12) months before or after the adoption of the amendment, where the amendment
will:
(i) Increase the number of shares reserved for rights under
the Plan;
(ii) Modify the provisions as to eligibility for
participation in the Plan or an Offering (to the extent such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act, or any comparable
successor rule ("Rule 16b-3"); or
(iii) Modify the Plan or an Offering in any other way if such
modification requires stockholder approval in order for the Plan to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan or an Offering in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under an Offering
into compliance therewith.
(b) The Board may, in its sole discretion, submit any amendment
to the Plan or an Offering for stockholder approval.
(c) Rights and obligations under any rights granted before
amendment of the Plan or Offering shall not be impaired by any amendment of the
Plan, except with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under an
Offering comply with the requirements of Section 423 of the Code.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if applicable, from the participant's
account under the Plan in the event of such participant's death subsequent to
the end of an Offering but prior to delivery to the participant 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 the
Plan in the event of such participant's death during an Offering.
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(b) Such designation of beneficiary may be changed by the
participant at any time by written notice in the form prescribed by the Company.
In the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living (or if an entity, is otherwise
in existence) at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares and/or cash to the spouse or to any one (1) 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 determine.
15. Termination or Suspension of the Plan.
(a) The Board in its discretion, may suspend or terminate the
Plan at any time. The Plan shall automatically terminate if all the shares
subject to the Plan pursuant to subparagraph 3(a) are issued. No rights may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under an Offering comply with the requirements of Section
423 of the Code.
16. Effective Date of Plan.
The Plan shall become effective on the same day on which the Company's
registration statement under the Securities Act with respect to the initial
public offering of shares of the Company's Common Stock becomes effective (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan had been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
17. Choice of Law.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Colorado, without
regard to such state's conflict of laws rules.
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Exhibit 10.3
EVOKE INCORPORATED
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
March 29, 2000
<PAGE>
Table Of Contents
Page
ARTICLE 1 CERTAIN DEFINITIONS............................ 1
ARTICLE 2 REGISTRATION RIGHTS............................ 4
2.1 Demand Registrations............................. 4
2.2 Piggyback Registrations.......................... 5
2.3 Expenses of Registration......................... 6
2.4 Registration Procedures.......................... 7
2.5 Indemnification.................................. 8
2.6 Other Obligations................................ 10
2.7 Termination of Registration Rights............... 10
2.8 Transfer of Registration Rights.................. 11
ARTICLE 3 RESTRICTIONS ON TRANSFER OF MANAGEMENT STOCK... 11
3.1 Rights of First Refusal.......................... 11
3.2 Co-Sale Rights................................... 12
3.3 Exempt Transactions.............................. 12
3.4 Assignment of First Refusal Right................ 13
ARTICLE 5 COVENANTS OF THE COMPANY....................... 14
5.1 Basic Financial Information...................... 14
5.2 Additional Information Rights.................... 15
5.3 Prompt Payment of Taxes, Etc..................... 16
5.4 Maintenance of Properties and Leases............. 16
5.5 Insurance........................................ 16
5.6 Accounts and Records............................. 16
5.7 Independent Accountants.......................... 17
5.8 Compliance with Laws............................. 17
5.9 Maintenance of Corporate Existence, Etc.......... 17
5.10 Transactions with Affiliates..................... 17
5.11 Limited First Refusal Rights..................... 17
ARTICLE 6 CORPORATE GOVERNANCE........................... 18
6.1 Board of Directors............................... 18
6.2 Meetings of the Board............................ 20
i.
<PAGE>
6.3 Committees....................................... 21
6.4 Reimbursement of Expenses........................ 21
6.5 Certain Approvals................................ 21
ARTICLE 7 MISCELLANEOUS.................................. 21
7.1 Governing Law.................................... 21
7.2 "Market Stand-Off" Agreement..................... 21
7.3 Successors and Assigns........................... 22
7.4 Entire Agreement; Amendment and Waiver........... 22
7.5 Notices, Etc..................................... 22
7.6 Delays or Omissions.............................. 22
7.7 Severability..................................... 23
7.8 Counterparts..................................... 23
7.9 Termination...................................... 23
7.10 Specific Enforcement............................. 23
7.11 Confidentiality and Non-Disclosure............... 23
ii.
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
Amended and Restated Stockholders Agreement (this "Agreement") dated as of
March 29, 2000 by and among (i) Evoke Incorporated, a Delaware corporation (the
"Company"), (ii) the holders of the Company's Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
identified on the signature pages hereto (the "Investors"), and (iii) the
members of the Company's management identified on the signature pages hereto or
that have otherwise agreed to be bound by the provisions hereof (the "Management
Holders"). The Investors and the Management Holders are referred to
collectively as the "Stockholders."
Whereas, the Company has granted registration rights, information rights
and certain other rights pursuant to that certain Amended and Restated
Stockholders' Agreement, dated as of November 17, 1999 as amended on December
15, 1999 (the "Prior Agreement");
Whereas, the Company proposes to sell and issue shares of its Series E
Preferred Stock pursuant to the Series E Preferred Stock Purchase Agreement of
even date herewith (the "Purchase Agreement"); and
Whereas, as a condition of entering into the Purchase Agreement, the
prospective purchasers have requested that the Company extend to them
registration rights, information rights and other rights as set forth below, and
the Company and the parties to the Prior Agreement are willing to amend the
rights given to them pursuant to the Prior Agreement by replacing such rights in
their entirety with the rights set forth in this Agreement.
Now, Therefore, in consideration of the mutual promises and covenants set
forth herein, the parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "Affiliate" shall mean any individual, partnership, corporation,
association, joint stock company, trust, joint venture, unincorporated
organization, governmental entity or any department, agency or political
subdivision thereof, controlling, controlled by or under common control with the
referenced party and any partner of an Investor which is a partnership and any
member of an Investor which is a limited liability company.
1.2 "Certificate" shall mean the Company's Amended and Restated
Certificate of Incorporation setting forth the rights, preferences, privileges
and restrictions of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock.
1.
<PAGE>
1.3 "Closing" shall mean the date of the initial sale of shares of the
Company's Series E Preferred Stock pursuant to the Purchase Agreement.
1.4 "Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
1.5 "Common Stock" shall mean the Company's Common Stock, $.001 par value per
share.
1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934 (or any
similar successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.7 "Independent Third Party" means any person who, immediately prior to the
contemplated transaction, does not own in excess of 5 percent (5%) of the
Company's Common Stock, on a fully-diluted basis (a "5% Owner"), who is not
controlling, controlled by or under common control with any such 5% Owner and
who is not the spouse or descendent (by birth or adoption) of any such 5% Owner
or a trust for the benefit of such 5% Owner and/or such other persons.
1.8 "Initiating Holders" shall mean holders of Registrable Securities
representing not less than thirty-three percent (33%) of the then-outstanding
Registrable Securities.
1.9 "Investor Stock" shall mean (i) shares of Common Stock owned by the
Investors or any transferee thereof; (ii) shares of Common Stock issued or
issuable upon the conversion or exercise of any stock (including, without
limitation, the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock) warrants, options or other
securities of the Company owned by the Investors or any transferee thereof; and
(iii) any shares of Common Stock issued as a dividend or other distribution with
respect to or in exchange for or in replacement of the shares referenced in (i)
and (ii) above.
1.10 "Management Stock" shall mean (i) shares of Common Stock owned by the
Management Holders or any Permitted Transferee thereof; (ii) shares of Common
Stock issued or issuable upon the conversion or exercise of any stock (including
without limitation the Series A Preferred Stock), options or other securities of
the Company owned by the Management Holders; and (iii) any shares of Common
Stock issued as a dividend or other distribution with respect to or in exchange
for or in replacement of the shares referenced in (i) and (ii) above.
1.11 "Permitted Transferee" shall mean with respect to a Management Holder, a
member of such Management Holder's immediate family, a trust established for the
benefit of members of such management Holder's immediate family, an affilitated
entity established for estate planning purposes, or a transferee of such
Management Holder by will or the laws of intestate succession.
1.12 "Preferred Stock" shall mean, collectively, (i) the Series A Preferred
Stock; (ii) the Series B Preferred Stock; (iii) the Series C Preferred Stock;
(iv) the Series D Preferred Stock; and (v) the Series E Preferred Stock.
2.
<PAGE>
1.13 "Qualified Public Offering" shall mean an underwritten public offering of
Common Stock resulting in proceeds to the Company of not less than $30 million
(prior to expenses and underwriting commissions) and at an offering price per
share equal to at least $8.00 (as appropriately adjusted for future stock
splits, stock dividends, recapitalizations and similar transactions affecting
the Common Stock).
1.14 "Registrable Securities" shall mean (i) the Investor Stock and (ii) for
purposes of Section 2.2 through and including Section 2.7, shall also include
the Management Stock; provided, however, that Registrable Securities shall not
include any shares of Investor Stock that have previously been registered under
the Securities Act or that have otherwise been sold to the public in an open-
market transaction under Rule 144.
1.15 The terms "registers," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
1.16 "Registration Expenses" shall mean all expenses incurred in effecting any
registration pursuant to this Agreement, including without limitation all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
expenses of any regular or special audits incident to or required by any such
registration, and the fees and expenses of one counsel for the selling holders
of Registrable Securities, but excluding Selling Expenses.
1.17 "Rule 144" shall mean Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor Rule that may be promulgated by the Commission.
1.18 "Rule 145" shall mean Rule 145 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor Rule that may be promulgated by the Commission.
1.19 "Sale of the Company" means the sale of the Company to an Independent
Third Party or group of Independent Third Parties pursuant to which such party
or parties acquire (i) capital stock of the Company possessing the voting power
under normal circumstances to elect a majority of the Company's board of
directors (whether by merger, consolidation or sale or transfer of the Company's
capital stock) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
1.20 "Securities Act" shall mean the Securities Act of 1933 (or any similar
successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.21 "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
1.22 "Series A Preferred Stock" shall mean the Company's Series A Convertible
Preferred Stock, $.01 par value per share.
3.
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1.23 "Series B Preferred Stock" shall mean the Company's Series B Convertible
Preferred Stock, $.01 par value per share.
1.24 "Series C Preferred Stock" shall mean the Company's Series C Convertible
Preferred Stock, $.01 par value per share.
1.25 "Series D Preferred Stock" shall mean the Company's Series D Convertible
Preferred Stock, $.01 par value per share.
1.26 "Series E Preferred Stock" shall mean the Company's Series E Convertible
Preferred Stock, $.01 par value per share.
1.27 "Subsidiary" shall mean any corporation with respect to which a person or
entity owns a majority of the common stock or has the power to vote or direct
the voting of sufficient securities to elect a majority of the directors.
ARTICLE 2
REGISTRATION RIGHTS
2.1 Demand Registrations.
(a) Request for Registration. At any time or times after the
earlier of the third anniversary of the Closing or the effective date of the
first registration statement filed by the Company under the Securities Act, the
Initiating Holders may require that the Company effect a registration under the
Securities Act up to four times utilizing a registration on Form S-1 or any
similar form (a "Long-Form Registration") and as many times as requested by the
Initiating Holders utilizing a Form S-3 or any similar form, if available (a
"Short-Form Registration") (each a "Demand Registration"). Upon receipt of
written notice of such demand, the Company will promptly give written notice of
the proposed registration to all other holders of Registrable Securities and
will include in such registration all Registrable Securities specified in such
demand, together with all Registrable Securities of any other holder of
Registrable Securities joining in such demand as are specified in a written
request received by the Company within twenty (20) days after delivery of the
Company's notice. Demand Registrations will be Short-Form Registrations whenever
the Company is permitted to use any applicable short form.
(b) Deferral of Demand Registration. The Company shall file a
registration statement with respect to each Demand Registration requested
pursuant to Section 2.1(a) as soon as practicable after receipt of the demand of
the Initiating Holders; provided, however, that if in the good faith judgment of
the Board of Directors of the Company, such registration would be seriously
detrimental to the Company and the Board of Directors concludes, as a result,
that it is advisable to defer the filing of such registration statement at such
time (as evidenced by an appropriate resolution of the Board), then the Company
shall have the right to defer such filing for the period during which such
registration would be seriously detrimental; provided, however, that (i) the
Company may not defer the filing for a period of more than one hundred eighty
(180) days after receipt of the demand of the Initiating Holders, (ii) the
Company shall not exercise its right to defer a Demand Registration more than
once, and (iii) if the Company undertakes a primary registration following an
exercise of its deferral right, the holders of Registrable
4.
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Securities shall have "piggyback" rights under Section 2.2 hereof with respect
to not less than one-third (1/3) of the number of shares of Common Stock to be
sold in such offering. In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration:
(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 under the
Securities Act; or
(ii) during the period starting with the date 60 days prior to
the Company's good faith estimate of the date of filing of, and ending on a date
180 days after the effective date of, a registration filed pursuant to Section
2.2 hereof; provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective.
(c) Underwriting. If the Initiating Holders intend to distribute the
Registrable Securities covered by a Demand Registration by means of an
underwriting, they shall so advise the Company as a part of their demand made
pursuant to Section 2.1 and the Company shall include such information in its
written notice to holders of Registrable Securities. The Initiating Holders
shall have the right to select the managing underwriter(s) for an underwritten
Demand Registration, subject to the approval of the Company's Board of Directors
(which will not be unreasonably withheld or delayed). The right of any holder of
Registrable Securities to participate in an underwritten Demand Registration
shall be conditioned upon such holder's participation in such underwriting in
accordance with the terms and conditions thereof, and the Company and such
holders will enter into an underwriting agreement in customary form.
(d) Priorities. The holders of Registrable Securities will have
absolute priority over any other securities included in a Demand Registration.
If other securities are included in any Demand Registration that is not an
underwritten offering, all Registrable Securities included in such offering
shall be sold prior to the sale of any of such other securities. If other
securities are included in any Demand Registration that is an underwritten
offering, and the managing underwriter for such offering advises the Company
that in its opinion the amount of securities to be included exceeds the amount
of securities which can be sold in such offering without adversely affecting the
marketability thereof, the Company will include in such registration all
Registrable Securities requested to be included therein prior to the inclusion
of any other securities. If the number of Registrable Securities requested to be
included in such registration exceeds the amount of securities which in the
opinion of such underwriter can be sold without adversely affecting the
marketability of such offering, such Registrable Securities shall be included
pro rata among the holders thereof based on the percentage of the outstanding
Common Stock held by each such Stockholder (assuming the conversion of the
Preferred Stock and the exercise of all options, warrants and similar rights
held by such Stockholder).
2.2 Piggyback Registrations.
(a) Request for Inclusion. If (but without any obligation to do so)
the Company shall determine to register any of its securities for its own
account or for the account of
5.
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other security holders of the Company for cash on any registration form (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan, or a Rule 145 transaction or a registration on any form that does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities)
which permits the inclusion of Registrable Securities (a "Piggyback
Registration"), the Company will promptly give each holder of Registrable
Securities written notice thereof and, subject to Section 2.2(c), shall include
in such registration all the Registrable Securities requested to be included
therein pursuant to the written requests of holders of Registrable Securities
received within twenty (20) days after delivery of the Company's notice.
(b) Underwriting. If the Piggyback Registration relates to an
underwritten public offering, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given pursuant to Section
2.2(a). In such event, the right of any holder of Registrable Securities to
participate in such registration shall be conditioned upon such holder's
participation in such underwriting in accordance with the terms and conditions
thereof. All holders of Registrable Securities proposing to distribute their
securities through such underwriting shall (together with the Company) enter
into an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
(c) Priorities. If such proposed Piggyback Registration is an
underwritten offering and the managing underwriter for such offering advises the
Company that the securities requested to be included therein exceeds the amount
of securities that can be sold in such offering, except as provided in Section
2.1(b), any securities to be sold by the Company in such offering shall have
priority over any Registrable Securities, and the number of shares to be
included by a holder of Registrable Securities in such registration shall be
reduced, but only after all shares proposed to be sold by employees, officers or
directors of the Company and any other proposed sellers that do not hold
Registrable Securities have been reduced in their entirety, pro rata on the
basis of the percentage of the outstanding Common Stock held by such Stockholder
(assuming the conversion of the Preferred Stock and the exercise of all options,
warrants and similar rights held by such Stockholder) and all other holders
exercising similar registration rights but in no event shall the amount of
securities of the selling holders included in the offering be reduced below
fifteen percent (15%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case all of the Registrable Securities of the selling
holders may be excluded if the underwriters make the determination described
above.
2.3 Expenses of Registration. All Registration Expenses incurred in
connection with up to four Long-Form Registrations and all Short-Form and
Piggyback Registrations (including the expenses of one special counsel for the
holders of Registrable Securities) shall be borne by the Company; provided,
however, that no registration shall count as one of the Company-paid Long Form
Registrations unless the holders of Registrable Securities are able to register
and sell at least 90% of the Registrable Securities requested to be included
therein; and provided, further, that the Company shall not be required to pay
for any expense of any registration proceeding begun pursuant to Section 2.1 if
the registration request is subsequently withdrawn at the request of the holders
of a majority of the Registrable Securities to be registered
6.
<PAGE>
(in which case all participating holders of such Registrable Securities to be
registered shall bear such expense), unless the holders of a majority of the
Registrable Securities agree to forfeit their right to one Demand Registration
pursuant to Section 2.1. All Selling Expenses relating to Registrable Securities
included in any Demand or Piggyback Registration shall be borne by the holders
of such securities pro rata on the basis of the number of shares sold by them.
2.4 Registration Procedures. In the case of each registration effected by
the Company pursuant to this Article II, the Company will keep each holder of
Registrable Securities advised in writing as to the initiation of such
registration and as to the completion thereof. At its expense, the Company will
use its best efforts to:
(a) cause such registration to be declared effective by the Commission
and, in the case of a Demand Registration, keep such registration effective for
a period of one hundred eighty (180) days or until the holders of Registrable
Securities included therein have completed the distribution described in the
registration statement relating thereto, whichever first occurs;
(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 (including post-effective amendments) as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;
(c) obtain appropriate qualifications of the securities covered by
such registration under state securities or "blue sky" laws in such
jurisdictions as may be requested by the holders of Registrable Securities;
provided, however, that the Company shall not be required to file a general
consent to service of process in any jurisdiction in which it is not otherwise
subject to service in order to obtain any such qualification;
(d) furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a holder
of Registrable Securities from time to time may reasonably request;
(e) 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 or incomplete in the light of the
circumstances then existing, and at the request of any such holder, prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
7.
<PAGE>
(f) cause all Registrable Securities covered by such registration to be
listed on each securities exchange or inter-dealer quotation system on which
similar securities issued by the Company are then listed;
(g) provide a transfer agent and registrar for all Registrable Securities
covered by such registration and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration;
(h) otherwise comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than 18 months, beginning with the first month after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act; and
(i) in connection with any underwritten Demand Registration, the Company
will enter into an underwriting agreement reasonably satisfactory to the
Initiating Holders containing customary underwriting provisions, including
indemnification and contribution provisions.
2.5 Indemnification.
(a) The Company will indemnify each holder of Registrable Securities, each
of such holders' officers, directors, partners, agents, employees and
representatives, and each person controlling such holder within the meaning of
Section 15 of the Securities Act, with respect to each registration,
qualification or compliance effected pursuant to this Article II, against all
expenses, claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
indemnified person for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability or action; provided, however, 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 on any untrue statement or
omission based upon written information furnished to the Company by such holder
of Registrable Securities and stated to be specifically for use therein. It is
agreed that the indemnity agreement contained in this Section 2.5(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent has not been unreasonably withheld).
(b) Each holder of Registrable Securities included in any registration
effected pursuant to this Article II shall indemnify the Company, each of its
directors, officers, agents, employees and representatives, and each person who
controls the Company within the meaning
8.
<PAGE>
of Section 15 of the Securities Act, each other such holder of Registrable
Securities and each of their officers, directors and partners, and each person
controlling such holders, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse such indemnified persons for any legal or 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 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 strict
conformity with written information furnished to the Company by such holder of
Registrable Securities; provided, however, that (x) no holder of Registrable
Securities shall be liable hereunder for any amounts in excess of the net
proceeds received by such holder pursuant to such registration, and (y) the
obligations of such holder of Registrable Securities hereunder shall not apply
to amounts paid in settlement of any such claims, losses, damages or liabilities
(or actions in respect thereof) if such settlement is effected without the
consent of such holder (which consent has not been unreasonably withheld).
(c) Each party entitled to indemnification under this Section 2.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnified Party,
who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2.5 to the extent such
failure is not prejudicial. No Indemnifying Party in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include an unconditional release of such Indemnified Party from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 2.5 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 which 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
9.
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statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in an underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
2.6 Other Obligations. With a view to making available the benefits of
certain rules and regulations of the Commission which may effectuate the
registration of Registrable Securities or permit the sale of Registrable
Securities to the public without registration, the Company agrees to:
(a) after its initial registration under the Securities Act, exercise
best efforts to cause the Company to be eligible to utilize Form S-3 (or any
similar form) for the registration of Registrable Securities;
(b) at such time as any Registrable Securities are eligible for
transfer under Rule 144(k), upon the request of the holder of such Registrable
Securities, remove any restrictive legend from the certificates evidencing such
securities at no cost to such holder;
(c) make and keep available public information as defined in Rule 144
under the Securities Act at all times from and after ninety (90) days following
its initial registration under the Securities Act;
(d) 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
at any time after it has become subject to such reporting requirements; and
(e) furnish any holder of Registrable Securities upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time from and after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents as a holder of Registrable Securities may reasonably request in
availing itself of any rule or regulation of the Commission (including Rule
144A) allowing a holder of Registrable Securities to sell any such securities
without registration.
2.7 Termination of Registration Rights. The right of any holder of
Registrable Securities to request inclusion of Registrable Securities in any
registration pursuant to this Article II shall terminate when (i) all
Registrable Securities beneficially owned by such holder of Registrable
Securities may immediately be sold under Rule 144(k), and (ii) the Company's
Common Stock is listed on a national securities exchange or traded in The Nasdaq
Stock Market; provided, however, that the provisions of this Section 2.7 shall
not apply to any holder of
10.
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Registrable Securities holding more than five percent (5%) of the Company's
then-outstanding Common Stock.
2.8 Transfer of Registration Rights. The rights to cause the Company to
register securities granted to the holders under Sections 2.1 and 2.2 and
associated obligations including the standoff agreement in ARTICLE VII below may
be assigned to any transferee or assignee in connection with any transfer or
assignment of Registrable Securities by the holder provided that the transferor
provides the Company with written notice of the proposed transfer and the
transferee agrees in writing to be bound by the provisions of this Agreement.
ARTICLE 3
RESTRICTIONS ON TRANSFER OF MANAGEMENT STOCK
3.1 Rights of First Refusal. No shares of Management Stock or any
interest therein may be transferred other than in compliance with the provisions
of this Article III. If at any time a Management Holder receives a bona fide
offer from any person (a "Third Party") to purchase shares of Preferred Stock
and/or Common Stock or any interest therein held by such Management Holder (a
"Third-Party Offer") which such Management Holder wishes to accept, such
Management Holder shall cause such Third-Party Offer to be reduced to writing
and shall notify the Company and each holder of Investor Stock of such
Management Holder's desire to accept the Third-Party Offer. The Management
Stockholder's notice (the "Sale Notice") shall contain an irrevocable offer to
sell such Preferred Stock and/or Common Stock to the Company and/or the
Investors at a purchase price equal to the price contained in, and on the same
terms and conditions of, the Third-Party Offer and shall be accompanied by a
true copy of the Third-Party Offer (which shall identify the offeror) provided,
however, the Company and the Investors may pay cash to the selling Management
Holder equal in amount to the fair market value of any non-cash consideration
offered by the Third Party in the Third-Party Offer. At any time within 10
business days after the date of receipt by the Company of the Sale Notice, the
Company shall have the right to purchase the Preferred Stock and/or Common Stock
covered by the Third-Party Offer at the same price and on the same terms and
conditions as the Third-Party Offer. If at the end of such 10-business day
period the Company has not elected to purchase all Preferred Stock and Common
Stock covered by such Third-Party Notice, the Management Holder shall provide
the Sale Notice to the Investors along with a statement as to the number of
shares to be purchased by the Company (if any). Within 10 business days after
receipt by the Investors of such Sale Notice, each Investor (or any Affiliate
thereof), by providing notice to the Management Holder, shall have the right to
purchase that portion of the shares equal to the Investors Pro Rata Number of
Shares (as defined below) at the same price and on the same terms and conditions
as the Third-Party Offer. In the event any Investor (or an Affiliate thereof)
does not exercise its right to purchase its respective Investors Pro Rata Number
of Shares, the other Investors shall have the right to purchase such shares, and
the purchase of such shares shall be allocated among the participating Investors
(or any participating Affiliates thereof) pro rata in proportion to the Investor
Stock held by such Investors, or in such other proportions as the participating
Investors (and such Affiliates) may agree upon. To the extent the Investors have
not notified the selling Management Holder in writing of a desire to purchase
all of the Preferred Stock and Common Stock as set forth herein, the selling
Management Holder may within 60 days thereafter sell the remaining Management
Stock covered by the Third-Party Offer to the
11.
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Third Party on the terms set forth in the original Third-Party Offer. Any
Management Stock covered by the Third Party Offer that is not so transferred
during such 60-day period shall again be subject to this Section 3.1. The
Company may assign its rights to purchase Management Stock pursuant to this
Section 3.1 to one or more third parties subject only to compliance with
applicable securities laws, provided that the Company shall offer to assign such
rights to the Investors pro rata prior to offering such rights to other persons.
For purposes of this Section 3.1 such Investors Pro Rata Number of Shares shall
be equal to that number of shares of Preferred Stock and/or Common Stock derived
by multiplying the total number of shares to be purchased by the Third Party as
set forth in the Sale Notice by a fraction, the numerator of which is the total
number of shares of Investor Stock beneficially owned by such participating
holder of Investor Stock and the denominator of which is the total number of
shares beneficially owned by all holders of Investor Stock.
3.2 Co-Sale Rights. If neither the Company nor the Investors has elected
to purchase all of the Management Stock specified in the Sale Notice pursuant to
Section 3.1 above, each Investor may elect to participate in the contemplated
transfer by delivering written notice to the Management Holder and the Company
within 15 business days after receipt by the Investor of the Sale Notice. If any
Investor has elected to participate in such sale, the Management Holder and the
electing Investors will be entitled to sell in the contemplated sale, at the
same price and on the same terms, a number of shares of the Company's Common
Stock equal to the product of (i) the quotient determined by dividing the
percentage of the Company's Common Stock (on a fully-diluted basis) held by such
person, by the aggregate percentage of the Company's Common Stock (on a fully-
diluted basis) owned by the Management Holder and all electing Investors and
(ii) the number of shares of Common Stock to be sold in the contemplated sale.
For Example, if the Sale Notice contemplated a sale of 100 shares of Common
Stock, and if the Management Holder was at such time the owner of 30% of
the Company's Common Stock (on a fully-diluted basis) and if one Investor
elected to participate and the Investor owned 20% of the Company's Common
Stock (on a fully-diluted basis), the Management Holder would be entitled
to sell 60 shares (30% / 50% x 100 shares) and the Investor would be
entitled to sell 40 shares (20% / 50% x 100 shares).
If the Management Holder is selling Preferred Stock, the calculation set forth
above shall be done assuming conversion of the Preferred Stock. The Investors
participating in such a sale of Preferred Stock by a Management Holder shall
have the option of selling Preferred Stock or Common Stock. The Management
Holder will use his best efforts to obtain the agreement of the prospective
transferee(s) to the participation of the Investors in the contemplated transfer
and will not transfer any Management Stock to the prospective transferee(s) if
such transferee(s) refuses to allow the participation of Investors.
3.3 Exempt Transactions. The restrictions set forth in this Article III
shall not apply to transfers of Management Stock to a Permitted Transferee of
the transferring Management Holder; provided, however, that such Permitted
Transferee shall agree in writing to be bound by such restrictions in connection
with subsequent transfers.
12.
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3.4 Assignment of First Refusal Right. The Company has (a) adopted its
2000 Equity Incentive Plan (the "Stock Plan") and (b) granted Stock Options to
certain of its employees (the "Optionees") (the documents referred to in (a) and
(b) are collectively defined as the "Stock Plan Agreements"). The Stock Plan
Agreements contain provisions granting the Company certain repurchase rights and
rights of first refusal with respect to Common Stock held by the Optionees. In
the event the Company elects not to exercise such repurchase rights and rights
of first refusal, the Company agrees to assign such unexercised rights to the
Investors (or any Affiliate designated by any Investor). Any unexercised right
shall be assigned at least 10 days prior to its expiration. The Investors shall
be permitted to purchase their Pro Rata Number of Shares of any Common Stock
being offered and the offer shall be conducted in accordance with the procedures
set forth in Section 3.1 of this Agreement. To the extent any of the provisions
of the Stock Plan Agreements and this Section 3.4 are inconsistent with the
provisions of Section 3.1 or 3.2 above, the provisions of Sections 3.1 and 3.2
shall govern.
ARTICLE 4
RIGHT OF FIRST NOTIFICATION
4.1 For so long as Intel Corporation ("Intel") owns at least seventy five
percent (75%) of the Series D Preferred owned by it (including any Common Stock
into which Series D Preferred Stock has been converted) as of the date of this
Agreement, in the event that the Board of Directors of the Company (i) receives
a bona fide offer to be acquired by means of (x) a merger, consolidation or
other business combination pursuant to which the stockholders of the Company
immediately prior to the effective date of such transaction have beneficial
ownership of less than fifty percent (50%) of the total combined voting power
for election of directors of the surviving corporation immediately following
such transaction, or (y) the sale of all or substantially all of the assets of
the Company, or (ii) votes to initiate a sale to any other person or entity of
(xx) fifty (50%) percent or more of the total voting power of the Company, or
(yy) all or substantially all of the Company's assets, prior to accepting such
acquisition proposal or initiating such sale, the Company shall provide to Intel
written notice within 24 hours (the "Notice") of the proposed terms of such
acquisition proposal or sale. The Notice shall set forth the specific terms of
the acquisition proposal or the initiation of a sale of the Company. Further,
the Company shall provide Intel with access to (and copies of, if requested) all
documents containing nonpublic information of the Company that are or have been
supplied to the party making the acquisition proposal. In its discretion, Intel
shall have eight business days (which time period may be extended by mutual
written agreement) following its receipt of the Notice ("the Negotiation
Period") in which to present an offer to acquire the Company (the "Intel
Offer"), which the Company shall be under no obligation to accept. If, however,
the Company elects to pursue the Intel Offer, then the Company will provide
Intel written acknowledgment of such election. The parties agree to negotiate
in good faith for a period of ten (10) business days (which may be extended by
mutual written agreement) after Intel's receipt of the Company's written
acknowledgment to pursue Intel's Offer, to reach agreement on mutually agreeable
terms.
4.2 In the event that (i) Intel does not deliver an Intel Offer to the
Company within eight business days (or other mutually agreed upon time period,
as set forth above), after its receipt of the Notice; (ii) the Company elects
not to accept Intel's Offer; or (iii) within the ten
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(10) business days (or other mutually agreed upon time period, as set forth
above) following the Company's acknowledgment of its desire to pursue the Intel
Offer, Intel and the Company do not mutually agree to the terms of an agreement
for an acquisition of the Company, then, and only then, the right of first
negotiation of Intel hereunder shall expire with respect to such acquisition
proposal or initiation of a sale and the Company shall be free thereafter to
enter into a definitive agreement with a third party for an acquisition or sale
of the Company.
4.3 This right is applicable only to Intel and is not transferable or
assignable by Intel.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Registrable
Securities are outstanding, as follows:
5.1 Basic Financial Information. The Company will furnish the following
reports to each of the Investors holding at least 500,000 shares(as adjusted
for stock splits, stock dividends and similar transactions) of the outstanding
Registrable Securities and with respect to Microsoft Corporation ("Microsoft")
for so long as Microsoft owns at least 50% of the Series E Preferred owned by it
(including any Common Stock into which Series E Preferred has been converted) as
of the date of this Agreement:
(a) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of such
fiscal year, and consolidated statements of income and cash flow of the Company
and its subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail and certified by independent public accountants of
recognized national standing selected by the Company.
(b) As soon as practicable after the end of each quarterly accounting
period in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and cash flow of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from normal year-end audit adjustments, all in reasonable detail and certified
by the chief financial officer of the Company (or the chief accounting officer
if no chief financial officer is in place), except that such statements need not
contain the notes required by generally accepted accounting principles.
(c) As soon as practicable after the end of each monthly accounting
period and in any event within thirty (30) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of such
month and consolidated statements of income
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and of cash flow of the Company and its subsidiaries, if any, for each month and
for the current fiscal year of the Company to date, all subject to normal year-
end audit adjustments, prepared in accordance with generally accepted accounting
principles consistently applied and certified by the chief financial officer of
the Company (or the chief accounting officer if no chief financial officer is in
place), except that such statements need not contain the notes required by
generally accepted accounting principles.
(d) Subsequent to the Company's initial public offering, the Company
will deliver to all holders of greater than or equal to 500,000 shares (as
adjusted for stock splits, stock dividends and similar transactions) of the
Registrable Securities, copies of all reports required to be filed by the
Company pursuant to the requirements of the Securities Exchange Act of 1934, as
amended.
5.2 Additional Information Rights.
(a) The Company will permit each of the Investors for so long as such
Investor beneficially owns greater than or equal to 500,000 shares (as adjusted
for stock splits, stock dividends and similar transactions) of the Registrable
Securities) and with respect to Microsoft Corporation ("Microsoft") for so long
as Microsoft owns at least 50% of the Series E Preferred owed by it (including
any Common Stock into which Series E Preferred has been converted) as of the
date of this Agreement and/or their respective representatives to visit and
inspect any of the properties of the Company, including its books of account and
other records (and make copies thereof and take extracts therefrom), and to
discuss its affairs, finances and accounts with the Company's officers and its
independent public accountants, all at such reasonable times and as often as any
such person may reasonably request during the Company's normal business hours;
provided that any person or persons exercising rights under this Section 5.2(a)
shall (i) use all reasonable efforts to ensure that any such examination or
visit results in a minimum of disruption to the operations of the Company and
(ii) agree in writing to keep any proprietary information of the Company
disclosed to such person in the course of such inspection confidential in a
manner consistent with prudent business practices and treatment of such person's
or persons' own confidential information and not use such proprietary
information for any purpose other than in connection with such Investor's or
such transferee's ownership of an interest in the Company; provided, further,
that the disclosure of confidential information to Intel shall be governed by
the terms of the Corporate Non-Disclosure Agreement No. 2087874 dated March 23,
1999 and any Confidential Information Transmittal Records provided in connection
therewith. Notwithstanding the foregoing, the Company reserves the right to omit
such information as the Company's Board of Directors unanimously deems to be
confidential and the disclosure of which could be to the material detriment of
the Company's best interests.
(b) The Company will deliver the reports described below in this
Section 5.2(b) to each of the Investors:
(i) Annually (but in any event at least thirty (30) days prior
to the commencement of each fiscal year of the Company) the financial plan of
the Company, in such manner and form as approved by the Board of Directors of
the Company, which financial plan shall include an operating budget for such
fiscal year and an updated five-year strategic plan for the Company.
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(ii) Concurrently with delivery thereof, copies of all reports and
other written material submitted to the Board of Directors.
(iii) Concurrently with delivery thereof, copies of any reports or
communications delivered to the financial community, including all press
releases.
(c) Each of the Investors hereby agrees to hold in confidence and trust
and not to misuse or disclose any confidential information provided pursuant to
this Section 5.2; provided, however, that an Investor shall not be prohibited
from using any such information for the purpose of generating and delivering
portfolio valuation information to its investors.
5.3 Prompt Payment of Taxes, Etc. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto; and provided, further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore. The Company will promptly pay or cause to be paid when due, in
conformance with customary trade terms, all other uncontested obligations
incident to the operations of the Company and material thereto individually or
in the aggregate.
5.4 Maintenance of Properties and Leases . The Company will keep its
properties and those of its subsidiaries, if any, in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
material provision of all leases to which any of them is a party or under which
any of them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise, or
operations of the Company.
5.5 Insurance .
(a) The Company will keep its assets, and those of its subsidiaries,
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, and the Company
will maintain, with financially sound and reputable insurers, insurance against
other hazards and risks and liability to persons and property to the extent and
in the manner customary for companies in similar businesses similarly situated.
(b) Within 60 days of the Initial Closing, the Company shall have
obtained from financially sound and reputable insurance companies, life
insurance policies, if available on commercially reasonable terms, on each of
the lives of Paul A. Berberian, James M. LeJeal and Todd H. Vernon, in the
amount of $2,000,000 each, which policies shall name the Company a loss payee,
and the Company shall maintain such life insurance policies.
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5.6 Accounts and Records. The Company will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs.
5.7 Independent Accountants. The Company will retain a "Big Five"
national accounting firm as its independent public accountants who shall certify
the Company's financial statements at the end of each fiscal year. Once such
"Big Five" accounting firm is selected, its services shall not be terminated
unless the holders of at least 51% of the Investor Stock consent to such
termination of services. In the event the Company determines to terminate the
services of the independent public accountants so selected, the Company will
promptly thereafter notify the holders of Investor Stock of such termination and
the reasons therefor. In its notice to the holders of Investor Stock the Company
shall state whether the change of accountants was recommended or approved by the
Board of Directors of the Company or any committee thereof. In the event such
termination takes place, the Company will promptly thereafter engage another
"Big Six" national accounting firm as its independent public accountants.
5.8 Compliance with Laws. The Company and all its subsidiaries shall duly
observe and conform to all applicable laws and valid requirements of
governmental authorities relating to the conduct of their businesses or to their
properties or assets.
5.9 Maintenance of Corporate Existence, Etc. The Company shall maintain in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights in or to use patents, processes, licenses, trademarks,
trade names or copyrights owned or possessed by it or any subsidiary and deemed
by the Company to be necessary to the conduct of their business and material
thereto.
5.10 Transactions with Affiliates. The Company shall not and shall not
permit any Subsidiary of the Company to enter into or be a party to any
transaction with any Affiliate of the Company or such Subsidiary, except (i)
transactions expressly permitted hereby, (ii) transactions in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms that are fully
disclosed to the Investors and are no less favorable to the Company or such
Subsidiary than would be obtained in a comparable arm's-length transaction with
a person not an Affiliate of the Company or such Subsidiary, (iii) transactions
between the Company and its wholly-owned Subsidiaries or between such
Subsidiaries and (iv) payment of compensation to employees and directors' fees.
5.11 Limited First Refusal Rights.
(a) Except for the issuance of Common Stock or any securities
containing options or rights to acquire any shares of Common Stock ("Equity
Securities") (i) to the Company's employees, consultants, officers or directors
pursuant to any stock option plan, stock purchase or stock bonus plan,
arrangement or agreement, as approved by the Company's Board of Directors, (ii)
upon the conversion of the Preferred Stock, (iii) pursuant to a Qualified Public
Offering, (iv) pursuant to a merger, consolidation, acquisition or similar
business combination approved by the Company's Board of Directors, (v) in
connection with any stock split, stock dividend, or recapitalization, (vi) to a
lender or equipment lessor in connection with any loan or lease financing
transaction, or (vii) in connection with strategic transactions involving the
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Company and other entities (including (x) joint ventures, manufacturing,
marketing or distribution arrangements or (y) technology transfer or development
arrangements; provided, however, that such strategic transactions and the
issuance of shares therein, have been approved by the Company's Board of
Directors), (viii) securities issued to vendors or customers or other persons in
similar commercial situations with the Company if such issuance is approved by
the Board of Directors or (ix) any right, option or warrant to acquire any
security convertible into securities excluded pursuant to (i) through (viii)
above, if the Company authorizes the issuance or sale of any Equity Securities,
the Company shall first offer to sell to each of the holders of Investor Stock
(or any Affiliates designated by such holder) its "pro rata portion" of such
Equity Securities. A holder's "pro rata portion" shall equal the quotient
determined by dividing (1) the number of shares of Investor Stock held by each
such holder by the (2) sum of the total number of shares of Investor Stock held
by all holders of Investor Stock. Each holder of Investor Stock (or such
Affiliates) shall be entitled to purchase such Equity Securities at the most
favorable price and on the most favorable terms as such Equity Securities are to
be offered to any other Persons. The purchase price for all Equity Securities
offered to the holders of the Investor Stock shall be payable in cash or, to the
extent otherwise required hereunder, notes issued by such holders.
(b) In order to exercise its purchase rights hereunder, a holder of
Investor Stock (or such Affiliate) must within 7 business days after receipt of
written notice from the Company describing in reasonable detail the Equity
Securities being offered, the purchase price thereof, the payment terms and such
holder's percentage allotment deliver a written notice to the Company describing
its election hereunder. If all of the Equity Securities offered to the holders
of Investor Stock (or their Affiliates) are not fully subscribed by such
holders, the remaining Equity Securities shall be reoffered by the Company to
the holders of Investor Stock purchasing their full allotment upon the terms set
forth in this paragraph, except that such holders must exercise their purchase
rights within five days after receipt of such reoffer.
(c) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such Equity Securities which the holders of
Investor Stock have not elected to purchase during the 90 days following such
expiration on terms and conditions no more favorable to the purchasers thereof
than those offered to such holders. Any Equity Securities offered or sold by the
Company after such 90-day period must be reoffered to the holders of Investor
Stock pursuant to the terms of this section.
ARTICLE 6
CORPORATE GOVERNANCE
6.1 Board of Directors.
(a) Concurrently with the Closing and at all times thereafter, each
Stockholder agrees to vote all securities of the Company over which such
Stockholder has voting control and to take all other necessary or desirable
actions within its control (whether as a stockholder, director or officer of the
Company or otherwise, and including without limitation attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings), and the Company shall take all necessary and
desirable actions
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within its control (including, without limitation, calling special board
and stockholder meetings), so that:
(i) the Company shall have a Board of Directors comprised of no more
than seven members;
(ii) the following persons shall be elected to the Board of Directors:
(A) One representative designated by the holders of a majority of the
outstanding Management Stock (the "Management Director"); provided that,
until the next annual meeting of the Company's stockholders, Paul
Berberian shall serve as the Management Director;
(B) One representative designated by the holders of a majority of the
outstanding Series A Preferred Stock (the "Series A Preferred Director");
provided that until the next annual meeting of the Company's
stockholders, Jim LeJeal shall serve as the Series A Director;
(C) One representative designated by the holders of a majority of the
outstanding Series B Preferred Stock (the "Series B Preferred Director")
(collectively with the Series C Preferred Director (as defined below),
the "Investor Directors"); provided that, until the next annual meeting
of the Company's stockholders, Donald H. Parsons, Jr. of The Centennial
Funds ("Centennial") shall serve as the Series B Preferred Director; and,
provided further, that in the event that the holders of a majority of the
Series B Preferred Stock do not exercise their right to designate an
Investor Director pursuant to this paragraph (C), Centennial shall have
the right to designate a board observer for so long as Centennial owns,
through one or more of its affiliated entities, at least 500,000 shares
(subject to adjustment for stock splits, stock dividends and similar
transactions) of the Registrable Securities;
(D) One representative designated by the holders of a majority of the
outstanding Series C Preferred Stock (the "Series C Preferred Director");
provided that until the next annual meeting of the Company's
stockholders, Bradley Feld, as a representative of SoftBank, shall serve
as the Series C Director;
(E) One representative designated by the holders of a majority of the
outstanding Series D Preferred Stock subject to the approval of the
entire Board (the "Series D Preferred Director"); provided that the Board
seat to be held by such representative shall be filled by an Outside
Director (as defined below) until such date at which the Company has sold
an aggregate of 33,333,333 shares of Series D Preferred Stock.
Notwithstanding the above, Centennial shall have the right to designate
such Series D Director (who shall not be affiliated with either the
Company, Centennial or any of the Investors) subject to the approval of
the entire Board of Directors, so long as (i) Centennial has purchased an
aggregate of 6,550,000 shares of Series D Preferred Stock on or as of an
Additional Closing (as defined in the Series D Stock Purchase Agreement)
and (ii) Centennial holds at least eighteen percent (18%)of the Series D
Preferred Stock outstanding immediately following such Additional
Closing; and
(F) Three directors designated by a majority of the Board of Directors until
such time as a Series D Director is designated pursuant to paragraph (E)
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and thereafter two directors (the "Outside Directors"); provided that no such
Outside Director is a member of the Company's management or an employee of the
Company or its Subsidiaries; and provided further that, Byron Chrisman, G.
Jackson Tankersley, Jr. and Carol dB. Whittaker shall initially serve as the
Outside Directors.
(iii) in the event that any director for any reason ceases to serve
as a member of the Board during his term of office, the resulting vacancy on the
Board shall be filled by a majority vote of the Stockholders entitled to elect
such director as provided in this Section 6.1;
(iv) if the Stockholders fail to designate a representative to fill a
directorship pursuant to the terms of this Section 6.1, the election of such
director shall be accomplished in accordance with the Company's certificate of
incorporation and bylaws and applicable law; and
(v) each of the Stockholders agrees to vote all shares of stock
owned by it for the removal of a director whenever (but only whenever) there
shall be presented to the Board of Directors the written direction that such
director be removed by a majority of the Stockholders entitled to elect the
director.
(vi) Each of Highland Capital Partners III Limited Partnership
("Highland"), Intel Corporation ("Intel"), Excite, Inc. ("Excite") Pequot
Private Equity Fund II, L.P. ("Pequot"), GE Capital Equity Investments, Inc.
("GE") and Matsushita Electric Industrial Co., Ltd. ("Panasonic") for so long as
each of them owns greater than or equal to 500,000 shares (subject to adjustment
for stock dividends, stock splits and similar transactions) of the Registrable
Securities shall be entitled to designate one representative (each an "
Observer" and, collectively, the "Observers") to attend and observe all meetings
of the Company's Board of Directors and all committees thereof (whether in
person, telephonic or otherwise) in a non-voting observer capacity and to
receive all notices and information forwarded by the Company to its directors
and copies of the minutes of all meetings; provided, however, that the Company
may require any such Observer to execute a nondisclosure/confidentiality
agreement prior to disclosing confidential information to such Observer and the
right to omit such information as the Company's Board of Directors unanimously
deems to be confidential and the disclosure of which could be to the material
detriment of the Company and; provided, further, that the disclosure of
confidential information to the Intel Observer shall be governed by the terms of
the Corporate Non-Disclosure Agreement No. 2087874, dated March 23, 1999, and
any Confidential Information Transmittal Records provided in connection
therewith. The Observers may participate in discussions of matters brought to
the Board at the sole discretion of the Board.
(b) To the extent that any provision of the Company's certificate of
incorporation or bylaws is inconsistent with the provisions of this Agreement,
the Stockholders agree to take all actions necessary to effect such amendments
to the certificate of incorporation or bylaws as may be necessary and
appropriate to give full effect to the provisions of this Agreement.
6.2 Meetings of the Board. The Board of Directors will meet at least six
times each calendar year in accordance with an agreed-upon schedule. One such
meeting will be held at the
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same time and place that a national trade conference is held for the Company's
industry. Within six months of the Closing, subject to reasonable economic
feasibility, the Company will implement video teleconferencing (specifically,
one which is compatible with Centennial's video teleconferencing system) to
facilitate board, committee and other meetings with the Investors.
6.3 Committees. Promptly after the Closing, the Board of Directors will
establish audit, nominating and compensation committees and shall delegate to
such committees those duties and powers as are customarily performed by
committees of such type. The audit committee shall not include any of the
Management Directors. At least one of the directors appointed pursuant to
Section 6.1(a)(ii)(C), (D) or (E) shall be a member of each such committee.
6.4 Reimbursement of Expenses. The reasonable travel expenses of each
Investor Director (or observer if an Investor is no longer represented on the
Board) and the Observers incurred in attending or observing Board or committee
meetings shall be reimbursed by the Company. If the Company adopts any plan or
arrangement to compensate all of its "outside" or "independent" directors
generally for service as a director either with cash or with stock options, then
the Company will also extend the same compensation to the Investor Directors
and, in the case of stock options, such options shall be freely transferable by
the Investor Directors to their respective firms.
6.5 Certain Approvals. Without the approval of a majority of the
Investor Directors, the Company shall not (i) engage any underwriter or
placement agent for any public or private offering of securities other than an
investment banking firm of recognized national reputation, (ii) issue any stock
or options to employees of the Company that are not subject to vesting and/or
buy-back restrictions, or (iii) waive or accelerate any vesting or buy-back
restrictions with respect to Management Stock.
ARTICLE 7
MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Colorado as such laws are applied to agreements between
Colorado residents entered into and performed entirely in Colorado, except that
the General Corporation Law of the State of Delaware shall govern as to matters
of corporate law. The parties hereto waive all right to trial by jury in any
action or proceeding to enforce or defend any rights under this Agreement.
7.2 "Market Stand-Off" Agreement. Each Stockholder hereby agrees that,
during the period of duration (not to exceed one-hundred eighty (180) days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company following the effective date of the Company's registration
statement in connection with the Company's first Qualified Public Offering , the
Stockholder shall not, to the extent requested by the Company or such
underwriter, directly or indirectly sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by such Stockholder, except Common Stock or other
securities included in such registration; provided that all officers,
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directors and holders of 1% or greater of the Company's Common Stock agree to
similar provisions and such provisions are in full force and effect and are not
waived in any respect or have been waived ratably with respect to each holder.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to such securities of each such Investor (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period. This covenant shall survive termination of this
Agreement.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that such assignee, heir, executor or
administrator of the parties hereto shall then execute a counterpart to this
Agreement.
7.4 Amendment and Restatement of Prior Agreement. The undersigned parties
who constitute the requisite parties necessary to amend the Prior Agreement
hereby agree that, effective upon the date hereof, the Prior Agreement is null
and void and superseded by the rights and obligations set forth in this
Agreement, and any application of first refusal rights (including any notice
requirements) set forth in Section 5.11 of the Prior Agreement as to the
issuance of the Company's Series E Stock is waived by the undersigned Investors
on behalf of each and every Investor.
7.5 Entire Agreement; Amendment and Waiver. This Agreement and the
Purchase Agreement supersede any other agreement, whether written or oral, that
may have been made or entered into by the parties hereto relating to the matters
contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof. In particular,
the execution of this Agreement amends and replaces in its entirety that certain
Stockholders' Agreement dated as of May 28th, 1998, as amended, by and between
the Company and certain of the Investors. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated except by a written
instrument signed by the Company and the holders of at least 66 2/3% of the
outstanding Investor Stock, including at least 662/3% of the outstanding Series
D Preferred Stock, and any such amendment, waiver, discharge or termination
shall be binding on all the Stockholders; provided however, that no amendment or
waiver which adversely affects the interests of one Investor without a similar
and proportionate effect on the interests of all Investors may be made without
the consent of the Investor whose interests are so adversely affected; provided,
further, that any amendment or waiver which solely adversely affects the rights
of the holders of either the Management Stock or the Series A Preferred Stock,
respectively, shall require the written consent of a majority of the Holders of
Management Stock or the Series A Preferred Stock, respectively.
7.6 Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day, (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, special next day delivery, with verification of receipt. All
communications shall be sent to the Company at 5777 Central Avenue, Suite 120,
Boulder, Colorado 80301 and to a Stockholder at the address
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reflected in the Company's stock ledger or at such other address as such
Stockholder shall have furnished to the Company in writing.
7.7 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Stockholder under this Agreement shall impair
any such right, power or remedy of such Stockholder nor shall it be construed to
be a waiver of any such breach or default, or an acquiescence therein, or of or
in any similar breach or default thereafter occurring; nor shall any waiver of
any single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Stockholder of any breach or default
under this Agreement or any waiver on the part of any Stockholder of any
provisions or conditions of this Agreement must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
Stockholder, shall be cumulative and not alternative.
7.8 Severability. Unless otherwise expressly provided herein, a
Stockholder's rights hereunder are several rights, not rights jointly held with
any of the other Stockholders. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.10 Termination. The provisions of this Agreement (other than Article II
hereof) shall terminate upon the earlier to occur of (i) consummation of a
Qualified Public Offering or (ii) a Sale of the Company. The provisions of
Article II shall terminate on the tenth anniversary of the date hereof.
7.11 Specific Enforcement. Any holder of Investor Stock shall be entitled
to specific enforcement of its rights under this Agreement. The parties
acknowledge that money damages would be an inadequate remedy for a breach of
this Agreement and consent to an action for specific performance or other
injunctive relief in the event of any such breach.
7.12 Confidentiality and Non-Disclosure.
(a) Disclosure of Terms. The terms and conditions of this Agreement
and the Transaction Documents (collectively, the "Financing Terms"), including
their existence, shall be considered confidential information and shall not be
disclosed by any party hereto to any third party except in accordance with the
provisions set forth below.
(b) Press Releases, Etc. Neither the Investors nor the Company
shall issue any press release or make any public disclosure regarding the
transactions contemplated hereby unless such press release or public disclosure
is approved by those parties mentioned in such press release or public
disclosure in advance. Notwithstanding the foregoing and subject to subsection
(d) below, each of the parties hereto may, in documents required to be filed by
it with the SEC or other regulatory bodies, make such statements with respect to
the transactions contemplated hereby as each may be advised by counsel is
legally necessary or advisable, and
23.
<PAGE>
may make such disclosure as it is advised by its counsel is required by law.
Intel's name and the fact that Intel is an investor in the Company can be
included in a reusable press release boilerplate statement, so long as Intel has
given the Company its initial approval of such boilerplate statement and the
boilerplate statement is reproduced in exactly the form in which it was
approved. No other announcement regarding Intel in a press release, conference,
advertisement, announcement, professional or trade publication, mass marketing
materials or otherwise to the general public may be made without Intel's prior
written consent. No announcement regarding Excite in a press release,
conference, advertisement, announcement, professional or trade publication, mass
marketing materials or otherwise to the general public may be made without
Excite's prior written consent.
(c) Permitted Disclosures. Notwithstanding the foregoing, (i) any party
may disclose any of the Financing Terms to its current or bona fide prospective
investors, employees, investment bankers, lenders, accountants and attorneys, in
each case only where such persons or entities are under appropriate
nondisclosure obligations, (ii) any party may disclose (other than in a press
release or other public announcement described in subsection (b)) solely the
fact that the Investors are investors in the Company to any third parties
without the requirement for the consent of any other party or nondisclosure
obligations, (iii) Intel may disclose its investment in the Company and the
related financing terms to third parties or the public at its sole discretion
and (iv) Centennial may disclose its investment in the Company and the related
financing terms to any of its or their affiliates.
(d) Legally Compelled Disclosure. In the event that any party is
requested or becomes legally compelled (including without limitation, pursuant
to securities laws and regulations) to disclose the existence of this Agreement,
the Stock Purchase Agreement, the Rights Agreement or any of the Financing Terms
hereof in contravention of the provisions of this Section 7.12, such party (the
"Disclosing Party") shall provide the other parties (the "Non-Disclosing
Parties") with prompt written notice of that fact so that the appropriate party
may seek (with the cooperation and reasonable efforts of the other parties) a
protective order, confidential treatment or other appropriate remedy. In such
event, the Disclosing Party shall furnish only that portion of the information
which is legally required and shall exercise reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded such information
to the extent reasonably requested by any Non-Disclosing Party.
(e) Other Information. The provisions of this Section 7.12 shall be in
addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by any of the parties hereto with respect to
the transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel (including without
limitation, any exchanges of information with any Intel Observer) shall be
governed by the terms of the Corporate Non-Disclosure Agreement No. 2087874,
dated March 23, 1999, executed by the Company and Intel, and any Confidential
Information Transmittal Records ("CITR") provided in connection therewith.
(f) All notices required under this section shall be made pursuant to
Section 7.6 of this Agreement.
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
25.
<PAGE>
In Witness Whereof, the parties hereto have executed this Stockholders
Agreement effective as of the day and year first above written.
COMPANY:
Evoke Incorporated
By:
Title:
PURCHASERS:
Centennial Fund V, L.P.
By: Centennial Holdings V, L.P.,
Its General Partner
By:
a General Partner
Centennial Fund VI, L.P.
By: Centennial Holdings VI, LLC
Its General Partner
By:
Managing Principal
Centennial Entrepreneurs Fund VI, L.P.
By: Centennial Holdings VI, LLC.
Its General Partner
By:
Managing Principal
<PAGE>
Centennial Holdings I, LLC
By:
Its:
By:
Title:
Softbank Technology Ventures IV, L.P.
By: STV IV LLC
By:
Managing Director
Softbank Technology Ventures V, L.P.
By: STV IV LLC
By:
Managing Director
Softbank Technology Ventures Advisors Fund V,
L.P.
By: STV IV LLC
By:
Managing Director
Softbank Technology Ventures Entrepreneurs Fund
V, L.P.
By: STV IV LLC
By:
Managing Director
[Signature Page to Stockholders Agreement]
27.
<PAGE>
Matsushita Electric Industrial Co., LTD
By:
Title:
Highland Capital Partners III Limited
Partnership
By: Highland Management Partners III Limited
Partnership
Its General Partner
By:
Title:
Highland Entrepreneurs' Fund III Limited
Partnership
By: HEF III, LLC
Its General Partner
By:
Title:
Intel Corporation
By:
Title:
Excite, Inc.
By:
Title:
Nexus Capital Partners II, L.P.
By:
Title:
[Signature Page to Stockholders Agreement]
28.
<PAGE>
Porcelain Partners, L.P.
By:
Its General Partner
By:
Title:
GE Capital Equity Investments, Inc.
By:
Title:
Asdale, Ltd.
By:
Title:
Millennial Holdings, LLC
By:
Title:
Whitko & Company
By:
Title:
Pequot Private Equity Fund II, L.P.
By: Pequot Capital Management, Inc.
Its Investment Manager
By:
David Malat, Chief Financial Officer
[Signature Page to Stockholders Agreement]
29.
<PAGE>
Vivendi
By:
Title:
EMC Corporation
By:
Title:
Microsoft Corporation
By:
Title:
Paul Berberian
Jim Le Jeal
Todd Vernon
University of Colorado Foundation, Inc.
By:
Title:
Kim N.C. Tomsic
John L. Kurtz, Jr.
Lori K. Bornheimer
[Signature Page to Stockholders Agreement]
30.
<PAGE>
Frances L. Berberian
Charles O. Higgins
Byron R. Chrisman
T. Charles Fial TTEE FBO T. Charles Fial 1997
Revocable trust DTD 9/30/97
Eva Garibian
Vahe Garibian
Mathew S. Martin
Karen S. Martin
Thomas Patsiga
Charles Schwab & Co., Inc. FBO Austin R.
Gibbons IRA Acct. #36500127
Jarvis Seccombe
Diane Secombe
Rimvydas Ambraziunas
Marsha Ambraziunas
Francis X. Malone
[Signature Page to Stockholders Agreement]
31.
<PAGE>
David A. Makarechian
Jeremy W. Makarechian
Alfred E. Moore
Joanne L. Moore
Philippe Muller
[Signature Page to Stockholders Agreement]
32.
<PAGE>
Exhibit 10.19
EVOKE INCORPORATED
Series E Preferred Stock Purchase Agreement
<PAGE>
Table of Contents
Page
1. Agreement To Sell And Purchase........................................... 1
1.1 Authorization of Shares............................................. 1
1.2 Sale and Purchase................................................... 1
2. Closing, Delivery And Payment............................................ 1
2.1 Closing............................................................. 1
3. Representations And Warranties Of The Company............................ 2
3.1 Organization, Good Standing and Qualification....................... 2
3.2 Capitalization...................................................... 2
3.3 Subsidiaries........................................................ 3
3.4 Authorization; Binding Obligations.................................. 3
3.5 Consents and Approvals.............................................. 3
3.6 No Violations....................................................... 3
3.7 Financial Statements; Interim Changes............................... 4
3.8 Compliance with Laws................................................ 4
3.9 Proprietary Rights.................................................. 4
3.10 Actions Pending.................................................... 5
3.11 Material Contracts................................................. 5
3.12 Investments in United States Real Property Interests............... 5
3.13 Unrelated Business Taxable Income.................................. 6
3.14 Taxes.............................................................. 6
3.15 Real Property...................................................... 6
3.16 Insurance Coverage................................................. 7
3.17 Employees and Actions.............................................. 7
3.18 No Brokers or Finders.............................................. 7
3.19 Alliances, etc..................................................... 8
3.20 ERISA.............................................................. 8
3.21 Full Disclosure................................................... 10
3.22 Securities Laws................................................... 10
3.23 Inventions Assignment and Confidentiality Agreement............... 11
<PAGE>
3.24 Interested Party Transactions..................................... 11
3.25 Environmental Matters............................................. 11
3.26 Company Status.................................................... 11
4. Representations And Warranties Of The Purchasers........................ 11
4.1 Requisite Power and Authority...................................... 12
4.2 Investment Representations......................................... 12
5. Conditions Precedent To Purchasers' Obligations......................... 14
6. Miscellaneous........................................................... 16
6.1 Definitions....................................................... 16
6.2 Governing Law..................................................... 16
6.3 Survival.......................................................... 16
6.4 Successors and Assigns............................................ 17
6.5 Entire Agreement.................................................. 17
6.6 Specific Enforcement.............................................. 17
6.7 Separability...................................................... 17
6.8 Amendment and Waiver.............................................. 17
6.9 Notices........................................................... 17
6.10 Counterparts...................................................... 18
6.11 Broker's Fees..................................................... 18
6.12 Future Financings................................................. 18
6.13 Confidentiality and Non-Disclosure................................ 18
<PAGE>
Series E Preferred Stock Purchase Agreement
This Series E Preferred Stock Purchase Agreement (the "Agreement") is
entered into as of March 29, 2000, by and among Evoke Incorporated, a Delaware
corporation (the "Company"), and each of those persons and entities, severally
and not jointly, whose names are set forth on Exhibit B attached hereto
(collectively the "Purchasers" and individually a "Purchaser"). Capitalized
terms not otherwise defined herein are defined in Section 7.1.
In consideration of the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Agreement To Sell And Purchase
1.1 Authorization of Shares. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized the sale and issuance to the
Purchasers of shares of its Series E Convertible Preferred Stock (the "Shares")
having the rights, preferences, privileges and restrictions set forth in the
Amended and Restated Certificate of Incorporation of the Company, attached
hereto as Exhibit A (the "Certificate").
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at the
Closing the Company hereby agrees to issue and sell to each Purchaser and each
Purchaser severally and not jointly agrees to purchase from the Company, the
number of Shares set forth opposite such Purchaser's name on Exhibit B, at a
purchase price of Seven Dollars Twenty Eight Cents ($7.28) per Share.
2. Closing, Delivery And Payment
2.1 Closing. The closing (the "Closing") shall take place at the offices
of Cooley Godward LLP at 10:00 a.m. (Mountain Daylight Time) on March 29, 2000
or at such other place and on such other date as may be mutually agreeable to
the Company and a majority of the Purchasers upon the satisfaction or waiver of
the conditions set forth in Section 5 herein. At the Closing, subject to the
terms and conditions hereof, the Company will deliver to the Purchasers
certificates representing the number of Shares to be purchased at the Closing by
each Purchaser as set forth on Exhibit B hereto, against payment of the purchase
price therefor by check or wire transfer of immediately available funds.
3. Representations And Warranties Of The Company
The Company hereby represents and warrants to each Purchaser that except as
set forth on the Disclosure Schedule attached hereto, which shall be deemed
representations and warranties as if made hereunder:
1
<PAGE>
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
each of the Stockholders' Agreement, to issue and sell the Shares and the shares
of the Company's common stock, $.001 par value (the "Common Stock") issuable
upon conversion thereof (the "Conversion Shares"), to carry out the other
provisions of this Agreement and the Stockholders Agreement, and to carry on its
business as presently conducted and as presently proposed to be conducted. The
Company is qualified to do business as a foreign corporation and is in good
standing in all jurisdictions in which it is required to be so qualified to do
business as currently conducted and presently proposed to be conducted by the
Company, except for in such jurisdictions in which the failure to so qualify
would not reasonably be expected to have a material adverse effect on the
business or operations of the Company.
3.2 Capitalization. The authorized capital stock of the Company, immediately
prior to the Closing, will consist of ninety seven million (97,000,000) shares
of Common Stock, one million two hundred five thousand six hundred ninety nine
(1,205,699) shares of which are issued and outstanding, and fifty three million
(53,000,000) shares of preferred stock, of which (i) five million twenty-five
thousand (5,025,000) shares are designated Series A Convertible Preferred Stock,
all of which are issued and outstanding, (ii) ten thousand, six hundred thirty-
five (10,635) shares are designated Series B Convertible Preferred Stock, all of
which are issued and outstanding, (iii) ten million (10,000,000) shares are
designated Series C Convertible Preferred Stock, nine million nine hundred fifty
three thousand nine hundred and thirty five (9,953,935) of which are issued and
outstanding, (iv) thirty four million (34,000,000) shares are designated Series
D Convertible Preferred Stock, thirty three million three hundred thirty three
thousand three hundred thirty three (33,333,333) of which are issued and
outstanding and (v) three million (3,000,000) shares of Series E Convertible
Preferred Stock, none of which are issued and outstanding. (The Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock, the
Series C Convertible Preferred Stock, the Series D Convertible Preferred Stock
and the Series E Convertible Preferred Stock are collectively referred to as the
"Preferred Stock".) All issued and outstanding shares of the Company's Common
Stock, Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Schedule 3.2, there are no outstanding
options, warrants or other rights to purchase from the Company any of its
securities. Except as set forth in Schedule 3.2 of the Disclosure Schedule, no
shares of the Company's outstanding capital stock, or stock issuable upon
exercise or exchange of any outstanding options, warrants or rights, or other
stock issuable by the Company, are subject to any preemptive rights, rights of
first refusal or other rights to purchase such stock (whether in favor of the
Company or any other person) pursuant to any agreement or commitment of the
Company.
2
<PAGE>
3.3 Subsidiaries. The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, trust, joint
venture, association or other entity.
3.4 Authorization; Binding Obligations. All corporate action on the part of
the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement, the performance of all obligations of the
Company hereunder and under the Stockholders' Agreement and for the
authorization, sale, issuance and delivery of the Shares has been taken or will
be taken at or prior to the Closing. When issued in compliance with the
provisions of this Agreement , the Shares will be validly issued, fully paid and
nonassessable. The Conversion Shares have been duly and validly reserved for
issuance and, when issued upon conversion of the Series E Preferred Stock in
accordance with the terms of the Certificate, will be validly issued, fully paid
and nonassessable. The Stockholders' Agreement have been duly executed by the
Company and constitute valid and binding obligations of the Company enforceable
in accordance with their terms except (i) as limited by applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) to
the extent the indemnification provision contained in the Stockholders Agreement
may be limited by applicable federal or state securities laws.
3.5 Consents and Approvals. No filings with, notices to, or approvals of any
governmental or regulatory body are required to be obtained or made by the
Company in connection with the consummation of the transactions contemplated
hereby except for filings pursuant to state and federal securities laws (all of
which have been made by the Company, other than those which are required to be
made after the Closing and which will be duly made on a timely basis).
3.6 No Violations. The execution and delivery of this Agreement and the
Stockholders' Agreement and the performance by the Company of its obligations
hereunder and thereunder (i) do not and will not conflict with or violate any
provision of the certificate of incorporation, as amended, (including the
Certificate), or bylaws of the Company and (ii) do not and will not (a) conflict
with or result in a breach of the terms, conditions or provisions of, (b)
constitute a default under, (c) result in the creation of any encumbrance upon
the capital stock or assets of the Company pursuant to, (d) give any third party
the right to modify, terminate or accelerate any obligation under, (e) result in
a violation of, or (f) require any authorization, consent, approval, exemption
or other action by or notice to any court or administrative or governmental body
or other third party pursuant to, any law, statute, rule or regulation or any
agreement or instrument or any order, judgment or decree to which the Company is
subject or by which any of its assets are bound which would have a material
adverse effect on the business, assets, financial condition or operations of the
Company.
3
<PAGE>
3.7 Financial Statements; Interim Changes. The Company's audited balance
sheet as of December 31, 1999 and audited statements of operations and cash
flows of the Company for the 12-month period ended December 31, 1999 (the
"Latest Balance Sheet") delivered to the Purchasers in connection with the
investment contemplated hereby have been prepared in accordance with generally
accepted accounting principles consistently applied (subject to normal year-end
adjustments) and fairly present in all material respects the financial position
and the results of operations of the Company for the period covered thereby, and
the Company has no material liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) that are not either reflected or fully
reserved against on the Latest Balance Sheet or incurred in the ordinary course
of the business of the Company subsequent to the date thereof. Since the date
of the Latest Balance Sheet, there has not been any material adverse change in
the business, operations, or financial condition as presently conducted or
presently proposed to be conducted by the Company (a "Material Adverse Change").
3.8 Compliance with Laws. The Company is not in violation or default of any
provisions of its Certificate of Incorporation or Bylaws, both as amended to-
date. The Company's business has been conducted in compliance with all
applicable laws and regulations of governmental authorities, except for such
violations that have been cured or that, individually or in the aggregate, may
not reasonably be expected to have a Material Adverse Change.
3.9 Proprietary Rights. Section 3.9 of the Disclosure Schedule contains a
complete and accurate list of (i) all patented and registered Proprietary Rights
owned by the Company, (ii) all pending patent applications and applications for
registrations of other Proprietary Rights filed by the Company, (iii) all
unregistered trade names and corporate names owned or used by the Company and
(iv) all unregistered trademarks, service marks and copyrights and computer
software, which are material to the financial condition, operating results,
assets, operations or business of the Company. Section 3.9 of the Disclosure
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company to any third party with respect to any Proprietary
Rights and all licenses and other rights granted by any third party to the
Company with respect to any Proprietary Rights, except for "shrink-wrapped" or
similar licenses granted to the Company by third parties for software used in
the business of the Company that is generally commercially available. The
Company owns or has the right to use pursuant to a valid license all Proprietary
Rights necessary for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. To the Company's
knowledge, no loss or expiration of any Proprietary Right or related group of
Proprietary Rights is threatened, pending or expected. The Company has taken
all reasonably necessary actions to maintain and protect the Proprietary Rights
which it owns and uses. The Company has no reason (without having conducted any
special investigation) to believe that the owners of any Proprietary Rights
licensed to the Company have not taken actions necessary to maintain and protect
the Proprietary Rights which are subject to such licenses. Except
4
<PAGE>
as indicated on Section 3.9 of the Disclosure Schedule, (i) the Company owns all
right, title, and interest in and to or has the right to use under a valid
license all of the Proprietary Rights listed on such schedule and all other
Proprietary Rights material to the operation of the business of the Company,
(ii) there have been no claims made against the Company asserting the
invalidity, misuse or unenforceability of any of such rights and to the
Company's knowledge, none is threatened, (iii) the Company has not received a
notice of conflict with the asserted rights of others, and (iv) to the knowledge
of the Company (without having conducted a special investigation or patent
search) the conduct of the Company's business has not infringed or
misappropriated and does not infringe or misappropriate any Proprietary Rights
of other Persons, and, to the Company's knowledge, the Proprietary Rights owned
by the Company have not been infringed or misappropriated by other Persons.
3.10 Actions Pending. Except as set forth in Schedule 3.10 of the Disclosure
Schedule, there is no action, suit or proceeding pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
respective properties or rights before any court or by or before any
governmental body or arbitration board or tribunal.
3.11 Material Contracts. Except as set forth on Schedule 3.11 of the
Disclosure Schedule, the Company is not a party to (and is not otherwise bound
by) any of the following: (i) any employment or consulting contract, (ii) any
agreement providing for the issuance or repurchase of any securities of the
Company, (iii) any agreement in respect of registration rights, preemptive
rights, rights of first refusal, voting rights or other rights of security
holders, (iv) any agreement evidencing or providing for any indebtedness for
borrowed money, or (v) any other agreement that could reasonably be deemed
material to the Company.
3.12 Investments in United States Real Property Interests. The Company's
capital stock does not constitute a United States real property interest as that
term is defined in Section 897(c)(1)(A)(ii) of the Internal Revenue Code of
1986, as amended (the "Code"). The preceding representation is based on a
determination by the Company that the Company is not and has not been a United
States real property holding corporation (as that term is defined in Section
897(c)(2) of the Code) ("USRPHC") during the five (5) year period preceding the
date of this Agreement. From time to time, upon request of any Purchaser, the
Company shall make a determination as to its status as a USRPHC. If at any time
in the future the Company should become a USRPHC, the Company shall, as promptly
as possible, notify each Purchaser of such change in status.
3.13 Unrelated Business Taxable Income. Any gross income derived by the
Purchasers from the Company shall be in the form of dividends, interest, capital
gains and losses from the disposition of property, and rents and royalties, but
only such rents and royalties as are excluded pursuant to Code Sections
512(b)(2) and 512(b)(3), respectively, in calculating unrelated business taxable
income and only such dividends,
5
<PAGE>
interest, capital gains and losses, and rents and royalties that are not
included under Section 512(b)(4) of the Code in calculating unrelated business
taxable income.
3.14 Taxes. The Company has filed all tax returns (including statements of
estimated taxes owed) required to be filed within the applicable periods for
such filings and has paid all taxes required to be paid (other than those
contested in good faith for which adequate reserves have been established), and
has established adequate reserves (net of estimated tax payments already made)
for the payment of all taxes payable in respect of the period subsequent to the
last periods covered by such returns. There is no pending dispute with any
taxing authority relating to any of such returns and the Company has not
received notice of any proposed liability for any tax to be imposed upon the
properties or assets of the Company. No deficiencies for any tax are currently
assessed against the Company, and no tax returns of the Company have ever been
audited, and, to the knowledge of the Company, there is no such audit pending or
threatened. There is no tax lien, whether imposed by any federal, state or local
taxing authority, outstanding against the assets, properties or business of the
Company or its predecessor, except such liens for taxes not yet due and payable
as may accrue in the ordinary course of business and for which the Company has
established reasonable reserve and as would not, in any case, constitute a
Material Adverse Change.
3.15 Real Property.
(a) The Disclosure Schedule sets forth the addresses and uses of all
real property that the Company owns, leases or subleases, and any material lien
or encumbrance on any such owned real property or the Company's leasehold
interest therein, specifying in the case of each such lease or sublease, the
name of the lessor or sublessor, as the case may be, and the lease term. Copies
of all leases have been provided to special counsel to the Purchasers.
(b) The Company has good and marketable title to, and owns free and
clear of all liens and encumbrances, all property listed as owned by the Company
on the Disclosure Schedule, and, to the knowledge of the Company, there is no
material violation of any law, regulation or ordinance (including without
limitation laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property owned, leased or
subleased by the Company. With respect to the property it leases, the Company is
in compliance with all such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
(c) There are no defaults by the Company or, to the knowledge of the
Company, by any other party thereto, which might curtail in any material respect
the current use of the Company's property listed on the Disclosure Schedule.
Except for property sold or otherwise disposed of in the ordinary course of
business since December 31, 1999, the Company owns free and clear of any liens
or encumbrances, all of the personal property reflected as owned by the Company
in the latest Balance Sheet,
6
<PAGE>
and all other material items of personal property acquired by the Company
through the date hereof. All material items of such personal property are in
good operating condition, normal wear and tear excepted.
3.16 Insurance Coverage. The Disclosure Schedule contains an accurate summary
of the insurance policies currently maintained by the Company. There are
currently no claims in excess of $50,000 in the aggregate pending against the
Company under any insurance policies currently in effect and covering the
property, business or employees of the Company, and all premiums due and payable
with respect to the policies maintained by the Company have been paid to date.
3.17 Employees and Actions. The Company is not bound by or subject to (and
none of its assets or properties are bound by or subject to) any contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending, or to the knowledge of the Company
threatened, which could constitute a Material Adverse Change, nor is the Company
aware of any labor organization activity involving its employees. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate his, her or its employment with the Company, nor does the
Company have a current intention to terminate the employment of any of the
foregoing. Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the Company is
terminable at the will of the Company. Except as set forth on the Disclosure
Schedule, there are no employment, consulting or management agreements covering
the management of t he Company.
3.18 No Brokers or Finders. No person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or claim
against or upon the Company for any commission, fee or other compensation as a
finder or broker because of any act or omission by the Company.
3.19 Alliances, etc. Except as set forth on the Disclosure Schedule, the
Company is not engaged in any joint venture or partnership with any other
Person.
3.20 ERISA .
(a) Schedule 3.21 sets forth: (i) all "employee benefit plans", as
defined in Section 3(3) of the Employee Retirement Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder ("ERISA"), and
any other employee benefit arrangements or payroll practices, including, without
limitation, severance pay, sick leave, vacation pay, salary continuation for
disability, consulting or other compensation agreements, retirement, deferred
compensation, bonus, stock purchase, hospitalization, medical insurance, life
insurance and scholarship programs (the "Plans") maintained by Company or to
which Company contributed or is obligated
7
<PAGE>
to contribute thereunder, and (ii) all "employee pension plans", as defined in
Section 3(2) of ERISA (the "Pension Plans"), maintained by Company to which the
Company contributed or is obligated to contribute thereunder.
(b) Purchasers will not have (i) any obligation to make any
contribution to any Multiemployer Plan (as defined under ERISA) or (ii) any
withdrawal liability from any such Multiemployer Plan under Section 4201 of
ERISA which it would not have had if it had not purchased the Shares from the
Company at the Closing in accordance with the terms of this Agreement.
(c) The Pension Plans intended to be qualified under Section 401 of
the Internal Revenue Code of 1986, as amended (the "IRC") are so qualified and
the trusts maintained pursuant thereto are exempt from federal income taxation
under Section 501 of the IRC, and nothing has occurred with respect to the
operation of the Pension Plans which could cause the loss of such qualification
or exemption or the imposition of any liability, penalty, or tax under ERISA or
the IRC.
(d) All contributions required by law or pursuant to the terms of
the Plans (without regard to any waivers granted under Section 412 of the IRC)
to any funds or trusts established thereunder or in connection therewith have
been made by the due date thereof (including any valid extension) and no
accumulated funding deficiencies exist in any of the Pension Plans.
(e) There is no "amount of unfunded benefit liabilities" as defined
in Section 4001(a)(18) of ERISA in any of the respective Pension Plans.
(f) There has been no "reportable event" as that term is defined in
Section 4043 of ERISA and the regulations thereunder with respect to the Pension
Plans which would require the giving of notice, or any event requiring
disclosure under Sections 4041(c)(3)(C), 4063(a) or 4068(f) of ERISA.
(g) There is no material violation of ERISA with respect to the
filing of applicable reports, documents, and notices regarding the Plans with
the Secretary of Labor and the Secretary of the Treasury or the furnishing of
such documents to the participants or beneficiaries of the Plans.
(h) True, correct and complete copies of the following documents,
with respect to each of the Plans, have been made available or delivered to the
Purchasers by the Company: (A) any plans and related trust documents, and
amendments thereto, (B) the most recent Forms 5500 (including any schedules
thereto) and the most recent actuarial valuation report, if any, (C) the last
Internal Revenue Service determination letter, (D) summary plan descriptions,
(E) written communications to employees relating to the Plans and (F) written
descriptions of all non-written agreements relating to the Plans.
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(i) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Plans, the assets of any of the trusts under
such Plans or the Plan sponsor or the Plan administrator, or against any
fiduciary of the Plans with respect to the operation of such Plans (other than
routine benefit claims), nor does the Company have knowledge of facts which
could form the basis for any such claim or lawsuit.
(j) All amendments and actions required to bring the Plans into
conformity in all material respects with all of the applicable provisions of
ERISA and other applicable laws have been made or taken except to the extent
that such amendments or actions are not required by law to be made or taken
until a date after the Closing Date.
(k) The Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA (including rules
and regulations thereunder) and other applicable Federal and state law, and
neither the Company nor a "party in interest" or a "disqualified person" with
respect to the Plans has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the IRC or Section 406 of ERISA.
(l) Neither the Company nor any Person that, together with the
Company, would be or was at any time treated as a single employer under Section
414 of the Code or Section 4001 of ERISA or any general partnership of which the
Company is or has been a general partner (an "ERISA Affiliate") has terminated
any Pension Plan, or incurred any outstanding liability under Section 4062 of
ERISA to the PBGC, or to a trustee appointed under Section 4042 of ERISA.
(m) Neither the Company nor any ERISA Affiliate maintains retired
life and retired health insurance plans which provide for continuing benefits or
coverage for any participant or any beneficiary of a participant except as may
be required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA") and at the expense of the participant or the participant's
beneficiary.
(n) Neither the Company nor any ERISA Affiliate has contributed or
been obligated to contribute to a Multiemployer Plan through the Closing.
(o) Neither the Company nor any ERISA Affiliate has withdrawn in a
complete or partial withdrawal from any Multiemployer Plan prior to the Closing
Date, nor has any of them incurred any liability due to the termination or
reorganization of a Multiemployer Plan.
(p) Neither the Company nor any ERISA Affiliate or any organization
to which Company is a successor or parent corporation, within the meaning of
Section 4069(b) of ERISA, has engaged in any transaction, within the meaning of
Section 4069 of ERISA.
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3.21 Full Disclosure. No information contained in this Agreement, any other
Transaction Document, the Financial Statements or any written statement
furnished by or on behalf of Company pursuant to the terms of this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not misleading
in light of the circumstances under which made.
3.22 Securities Laws. In reliance on the investment representations contained
in Section 4, the offer, issuance, sale and delivery of the Shares, as provided
in this Agreement, are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and all applicable
state securities laws, and are otherwise in compliance with such laws. Except as
set forth in Schedule 3.23 of the Disclosure Schedule, neither the Company nor
any person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of Company under
circumstances which would require the integration of such offering with the
offering of the Shares under the Securities Act and the rules and regulations of
the Securities and Exchange Commission ("SEC") thereunder) which might subject
the offering, issuance or sale of the Shares to the registration requirements of
Section 5 of the Securities Act.
3.23 Inventions Assignment and Confidentiality Agreement. Each employee and
contractor of the Company has entered into and executed a Proprietary
Information and Inventions Agreement in the form attached to this Agreement as
Exhibit C or an employment or consulting agreement containing substantially
similar terms.
3.24 Interested Party Transactions. Except as set forth in Schedule 3.25 of
the Disclosure Schedule, to the knowledge of the Company, no officer or director
of the Company or any "affiliate" or "associate" (as those terms are defined in
Rule 405 promulgated under the Securities Act) of any such person has had,
either directly or indirectly, a material interest in: (i) any person or entity
which purchases from or sells, licenses or furnishes to the Company any goods,
property, technology, intellectual or other property rights or services; or (ii)
any contract or agreement to which the Company is a party or by which it may be
bound or affected.
3.25 Environmental Matters. The Company knows of no violation or violations
by the Company, its employees or agents of any environmental or safety statute,
law or regulation that in the aggregate would have a Material Adverse Effect, no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation. No action, proceeding, permit revocation,
writ, injunction or claim is pending or, to the Company's knowledge threatened
concerning the Company's facilities and the Company is not aware of any fact or
circumstance which could involve the Company in any environmental litigation or
impose any material environmental liability upon the Company. As of the Closing,
no Hazardous Material (as defined below) is present on any Company facility and,
to the Company's knowledge, no reasonable likelihood exists that any Hazardous
Material present on other property will
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come to be present on a Company facility. To the Company's knowledge, there are
no underground storage tanks, asbestos or PCBs present on a Company facility.
For the purposes of this Section 3.26, the term "Hazardous Material" shall mean
any material or substance that is prohibited or regulated by any environmental
law or that has been designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
3.26 Company Status. The Company is not (i) a "public utility holding company"
or a "holding company" as defined in the Public Utility Holding Company Act of
1935, as amended, or (ii) an "investment company" as defined in the Investment
Company Act of 1940, as amended.
4. Representations And Warranties Of The Purchasers
Each Purchaser, severally and not jointly, hereby represents and warrants
to the Company as follows:
4.1 Requisite Power and Authority. Such Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Stockholders' Agreement and to carry out the provisions
hereunder and thereunder. All actions on such Purchaser's part required for the
lawful execution and delivery of this Agreement and the Stockholders' Agreement
have been or will be effectively taken prior to the Closing and each such
agreement constitutes a valid and binding obligation of such Purchaser,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) to the extent the indemnification provision contained in the
Stockholders Agreement may be limited by applicable federal or state securities
laws.
4.2 Investment Representations. Such Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Such Purchaser also understands and hereby confirms that the Shares are being
offered and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon the Purchaser's representations contained in
this Agreement.
(a) Purchaser Bears Economic Risk. Such Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Such Purchaser must bear the economic
risk of this investment indefinitely unless the Shares (or the Conversion
Shares) are registered pursuant to the Securities Act, or an exemption from
registration is available. Such Purchaser understands that there is no assurance
that
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any exemption from registration under the Securities Act will be available and
that, even if available, such exemption may not allow such Purchaser to transfer
all or any portion of the Shares or the Conversion Shares under the
circumstances, in the amounts or at the times such Purchaser might propose.
(b) Acquisition for Own Account. Such Purchaser is acquiring the
Shares and the Conversion Shares for its own account for investment only, and
not with a view towards their public resale or distribution within the meaning
of the Securities Act; provided that the disposition thereof shall be and remain
in the control of such Purchaser. By executing this Agreement, each Purchaser
further represents that such Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Shares.
(c) Purchaser Can Protect Its Interest. Such Purchaser represents
that, by reason of its or of its management's business or financial experience,
such Purchaser has the capacity to protect its own interests in connection with
the transactions contemplated in this Agreement. Further, such Purchaser is
aware of no publication of any advertisement in connection with the transactions
contemplated by the Agreement.
(d) Accredited Investor. Such Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) Company Information. Such Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with directors,
officers and management of the Company. Such Purchaser has also had the
opportunity to ask questions of, and receive answers from, the Company and its
management regarding the terms and conditions of this investment.
(f) Rule 144. Such Purchaser acknowledges and agrees that the
Shares and the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Such Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resales of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(g) Further Limitations on Disposition. Without in any way limiting
the representations set forth above, each Purchaser further agrees not to make
any
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disposition of all or any portion of the Shares (or the Conversion Shares
issuable upon the conversion thereof) unless and until there is then in effect a
Registration Statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such Registration
Statement, or such Purchaser shall have established to the reasonable
satisfaction of the Company that an exemption from registration is available.
(h) Legends. It is understood that the certificates evidencing the
Shares (and the Conversion Shares) may bear one or all of the following legends:
(i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION BEING AVAILABLE UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS."
(ii) Any legend required by any applicable state securities
laws.
(iii) Any legend required by the Stockholders Agreement.
5. Conditions Precedent To Purchasers' Obligations
The obligation of each Purchaser to purchase and pay for the Shares to be
delivered to it at the Closing shall be subject to the satisfaction of the
following conditions as of the Closing (except as otherwise noted):
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true
and correct in all respects;
(b) Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before
the Closing, and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described
herein.
(c) Certificate Effective. The Certificate shall have been duly
adopted by the Company by all necessary corporate action of its Board
of Directors and stockholders, and shall have been duly filed with and
accepted by the Secretary of State of Delaware.
(d) Compliance Certificate. The Company shall have delivered to a
representative of all of the Purchasers at Closing a certificate
signed on its
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behalf by its President and Chief Executive Officer or Chief Financial Officer
certifying that the conditions specified in Sections 5(a) - (c) have been
fulfilled and stating that there shall have been no Material Adverse Change not
previously disclosed to the Purchasers in writing.
(e) Securities Exemptions. The offer and sale of the Shares to the
Purchasers pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act and the registration and/or qualification
requirements of all other applicable state securities laws.
(f) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to a
majority of the Purchasers and to special counsel to the Purchasers. Such
documents shall include (but not be limited to):
(i) Certified Charter Documents. A copy of the Certificate (as
amended through the date of the Closing), certified by the Secretary of the
Company as a true and correct copy thereof as of Closing.
(ii) Corporate Actions. A copy of the resolutions of the Board of
Directors, and, if required, the stockholders of the Company evidencing the
amendment to the Certificate providing for the authorization of the Shares, the
approval of the Stockholders' Agreement and the consummation of the transactions
contemplated hereby and thereby, including the issuance and sale of the Shares
and the other matters contemplated thereby.
(iii) Secretary's Incumbency Certificate. A certificate of the
Secretary or Assistant Secretary or other officer of the Company certifying the
names of the officers of the Company authorized to sign this Agreement, the
certificates for the Shares purchased under this Agreement and the other
documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers.
(iv) Good Standing Certificates. Certificate of good standing
issued by the Delaware Secretary of State dated within ten (10) days of the
Closing.
(g) Bylaws. The Bylaws of the Company shall be in the form previously
provided to special counsel for the Purchasers.
(i) Stockholders' Agreement. Concurrent with the Closing, the Company, the
Purchasers participating in such closing and the parties to the Stockholders'
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Agreement dated November 17, 1999 between the Company and certain stockholders
of the Company shall have entered into the Stockholders Agreement;
(j) Legal Opinion. The Purchasers shall have received the legal opinion of
Cooley Godward LLP, counsel to the Company, in the form of Exhibit D hereto
as of the date of the Closing and each Additional Closing;
(k) Microsoft Warrant. Solely with respect to the obligations of Microsoft
Corporation to purchase Shares hereunder, Microsoft Corporation shall have
received from the Company a warrant to purchase 858,416 shares of the
Company's Series E Convertible Preferred Stock in the form attached hereto
as Exhibit E.
(l) Commercial Agreement. Solely with respect to the obligations of
Microsoft Corporation to purchase Shares hereunder, the Company and
Microsoft Corporation shall have entered into that certain Commercial
Agreement (the "Commercial Agreement"), a form of which is attached hereto
as Exhibit F.
(m) Existing First Refusal Rights. Any preemptive rights, rights of first
refusal or other similar rights as they apply to the issuance and sale of
the Shares totaling greater than 50,000 shares, individually or in the
aggregate, shall have been waived and released in writing or shall have
been satisfied in full.
(n) No Material Change. There shall not have been a Material Adverse
Change since the date of the Latest Balance Sheet .
6. Miscellaneous
6.1 Definitions. For purposes of this Agreement, the following terms have the
meanings set forth below:
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.
"Proprietary Rights" means all (i) patents, patent applications, patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and
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information, drawings, specifications, designs, plans, proposals, and customer
and supplier lists and information), (vii) other intellectual property rights,
and (viii) copies and tangible embodiments thereof (in whatever form or medium).
6.2 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Colorado as such laws are applied to agreements between
Colorado residents entered into and performed entirely in Colorado, except that
the General Corporation Law of the State of Delaware shall govern as to matters
of corporate law. The parties hereto waive all right to trial by jury in any
action or proceeding to enforce or defend any rights under this Agreement.
6.3 Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by any Purchaser and the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company hereunder in connection with the transactions contemplated hereby
shall be deemed to be representations and warranties by the Company hereunder
solely as of the date of such certificate or instrument.
6.4 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Shares from time to time.
6.5 Entire Agreement. This Agreement, the Exhibits and the other documents
expressly delivered hereunder, including the Stockholders' Agreement, supersede
any other agreement, whether written or oral, that may have been made or entered
into by the parties hereto relating to the matters contemplated hereby and
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof, and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
6.6 Specific Enforcement. Any Purchaser shall be entitled to specific
enforcement of its rights under this Agreement. The Company acknowledges that
money damages would be an inadequate remedy for its breach of this Agreement and
consents to an action for specific performance or other injunctive relief in the
event of any such breach.
6.7 Separability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby and
such provision shall be enforced to the greatest extent permitted by law.
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6.8 Amendment and Waiver. This Agreement may be amended or modified only upon
the mutual written consent of the Company and the holders of at least 66 2/3% of
the Shares (voting on an as-converted basis).
6.9 Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (i) upon personal delivery to the party
to be notified; (ii) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, special next day delivery, with
verification of receipt. All communications shall be sent to the Company at
1157 Century Drive, Louisville, CO 80027 and to a Purchaser at the address set
forth on Exhibit B attached hereto or at such other address as the Company or
Purchaser may designate by ten (10) days advance written notice to the other
parties hereto.
6.10 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
6.11 Broker's Fees'. Each party hereto represents and warrants that no agent,
broker, investment banker, person or firm acting on behalf of or under the
authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.11 being untrue.
6.12 Future Financings. Nothing contained in this Agreement or any Purchaser' s
prior dealings with the Company shall be deemed to constitute a commitment on
the part of any Purchaser to participate in any future financings by the
Company.
6.13 Confidentiality and Non-Disclosure. The parties hereto agree to be bound by
the confidentiality and non-disclosure provisions of Section 7.11 of the
Stockholders' Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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In Witness Whereof, the parties hereto have executed the Agreement as of
the date set forth in the first paragraph hereof.
COMPANY:
Evoke Incorporated
By: /s/ Paul A. Berberian
_________________________________________
Title: President and Chief Executive Officer
______________________________________
PURCHASERS
Microsoft Corporation
By: Microsoft Corporation
By: /s/ Brad Brunell
______________________________________
[Signature Page to Purchase Agreement]
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EXHIBIT A
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
19
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EXHIBIT B
SCHEDULE OF PURCHASERS
Number of Shares Aggregate
Purchase
Price
Name and Address
Microsoft Corporation 686,813 $4,999,998.64
TOTAL $4,999,998.64
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EXHIBIT C
FORM OF PROPRIETARY AND INVENTIONS AGREEMENT
21
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EXHIBIT D
FORM OF LEGAL OPINION
22
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EXHIBIT E
FORM OF WARRANT
23
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EXHIBIT F
COMMERCIAL AGREEMENT
24
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EXHIBIT D
FORM OF LEGAL OPINION
22
<PAGE>
EXHIBIT E
FORM OF WARRANT
23
<PAGE>
EXHIBIT F
COMMERCIAL AGREEMENT
24
<PAGE>
Exhibit 10.20
PERSONAL SERVICES AGREEMENT
This PERSONAL SERVICES AGREEMENT is made as of and effective on March 28,
2000, (the "Effective Date") by and between Evoke Incorporated, a Delaware
corporation (the "Company") having its principal place of business at 1157
Century Drive, Louisville, Colorado 80027, and Terence G. Kawaja ("Executive").
WHEREAS, the Company desires to employ Executive pursuant to the terms and
conditions and for the consideration set forth in this Agreement and Executive
desires to enter the employ of the Company pursuant to such terms and conditions
and for such consideration;
WHEREAS, the provisions of this Agreement are a condition of Executive
being employed by Company, of Executive's having access to confidential business
and technological information, and of Executive's being eligible to receive
certain benefits of the Company. This Agreement is entered into, and is
reasonably necessary, to protect confidential information and customer
relationships to which Executive may have access, and to protect the goodwill
and other business interests of the Company; and
WHEREAS, the provisions of this Agreement are also a condition to
Executive's agreement to provide personal services to Company.
NOW THEREFORE, in consideration of the mutual promises and covenants agreed
to herein, the receipt and sufficiency of which are hereby acknowledged, Company
and Executive agree as follows:
1. Position, Term, Duties, Responsibilities
----------------------------------------
(a) Position. Executive shall be employed by the Company in the
capacity of Chief Financial Officer - Executive Vice President, to act in
accordance with the terms and conditions hereinafter set forth.
(b) Duties. The Executive shall, during the term of his employment
hereunder, devote his full normal working time, energies and attention to the
duties of his employment, as they may be established from time to time by the
Board of Directors of the Company (the "Board") consistent with the position and
office occupied by Executive. Executive shall comply with the provisions of this
Agreement and all reasonable rules, regulations and administrative directions
now or hereafter established by the Company.
(c) Term. This Agreement shall be for a term beginning on the
Effective Date and terminating the earlier of (i) two years from the Effective
Date (the "Expiration Date"), or (ii) the date on which Executive's employment
is terminated pursuant to Section 3 of this Agreement (the "Term"); provided
that the Term shall be automatically extended indefinitely thereafter until
either party shall have given notice to the contrary (the "Term Termination
<PAGE>
Notice"), in which event the Term shall expire on the six month anniversary of
such Term Termination Notice. Notwithstanding the Term set forth in this
paragraph, the termination of this Agreement shall not affect Executive's rights
pursuant to the option agreement described in Section 2(c), including but not
limited to the right to accelerated vesting under the circumstances set forth
herein and therein.
(d) Other Activities. During Executive's employment with the Company,
Executive shall devote his entire business time, attention and energies to the
performance of his duties and functions under this Agreement; provided, however
that nothing in this Agreement shall prevent Executive from: (i) serving as a
director of any entity that is not a Competitive Business (as defined in Section
5); (ii) managing his personal investments and affairs and the personal
investments and affairs of any of his family members; (iii) acquiring any
interest in any entity, whether or not part of a control group, that is directly
or indirectly owned or controlled, in whole or in part, by Executive and/or one
or more members of his family, or a partnership, trust or other entity held by
or for the benefit of Executive and/or one or more members of his family and/or
(iv) performing any services for any entity, whether or not part of a control
group, that is directly or indirectly owned or controlled, in whole or in part,
by Executive and/or one or more members of his family, or a partnership, trust
or other entity held by or for the benefit of Executive and/or one or more
members of his family; provided, however, that any service shall be
insubstantial and shall not include any active involvement in the management of
such entity and provided further that such entities do not constitute a
Competitive Business (as defined in Section 5).
2. Compensation, Bonuses and Benefits
----------------------------------
(a) Base Salary. During Executive's employment with the Company, the
Company shall pay Executive a base annual salary, (the "Base Salary") which at
the time of the execution of this Agreement is Two Hundred and Fifteen Thousand
Dollars ($215,000). The Base Salary shall be payable in accordance with the
Company's normal payroll schedule, less all applicable tax withholdings for
state and federal income taxes, FICA and other deductions as required by law
and/or authorized by the Executive. The Executive's Base Salary shall be
reviewed no less frequently than annually to determine whether or not the same
should be increased in light of the duties and responsibilities of the Executive
and the performance thereof, as determined by review of comparably situated
companies and, if it is determined that an increase is merited, such increase
shall be promptly put into effect and the Base Salary of the Executive as so
increased shall constitute the Base Salary of the Executive for purposes of this
Agreement.
(b) Incentive Compensation Program. During Executive's employment
with the Company, Executive shall be eligible for a discretionary performance-
based bonus based upon the actual performance of the Company in relation to
target milestones agreed upon by the Compensation Committee of the Board, or the
Board. The Compensation Committee or the Board will set such milestones on or
before December 31st of each year of the Term. Notwithstanding anything in this
Agreement to the contrary, (i) Executive's target annual bonus for the 2000
calendar year shall be an amount up to 100% of Executive's Base Salary, and (ii)
Executive shall receive a guaranteed minimum bonus for the 2000 calendar year in
an amount equal to 50% of Executive's Base Salary (the "Guaranteed Bonus"). Any
bonus payable as a
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performance bonus shall be in the amount, and paid at the time and in
the manner, as determined by the Compensation Committee or the Board.
(c) Initial Stock Options. At the Effective Date, the Company shall
grant Executive options to purchase 1,200,000 shares of the Company's $.001 par
value common stock (the "Initial Stock Options") pursuant to the Company's 2000
Equity Incentive Plan (the "2000 Plan") with the purchase price, expiration
date, type of option, vesting and other terms all as described on Exhibit A
attached hereto. Notwithstanding anything to the contrary in this Agreement (or
the Exhibits attached hereto), the Initial Stock Options shall become fully
vested and immediately exercisable (and any shares purchasable or purchased
under the Initial Stock Options shall no longer be subject to any repurchase
rights by the Company) upon (i) the occurrence of a Change in Control (as
defined in Section 3(g)), (ii) termination of Executive's employment (A) by the
company other than for Cause (as defined in Section 3), including upon the
Company's delivery of the Term Termination Notice to Executive, or (B) by the
Executive for Good Reason (as defined in Section 3). Subsequent grants may be
awarded subject to the approval of the Board based on your performance and
contributions to the business.
(d) Initial Stock Purchase. On or within five days following the
Effective Date, the Executive shall be permitted but not obligated to purchase
375,000 shares of the Company's $0.001 par value common stock (the "Initial
Shares") at a purchase price of $ 3.00 per share. Executive acknowledges that
such shares shall be issued pursuant to an exemption from registration under the
Securities Act of 1933, as amended, and shall be deemed "restricted securities"
thereunder, but shall otherwise be freely transferable and not subject to any
repurchase right by the Company. The Company and Executive acknowledge that the
Board has determined that the fair market value as of the Effective Date of one
share of the Company's $0.001 par value common stock is $7.20. The Company shall
provide Executive with an interest-free loan (the "Loan") in an amount equal to
the amount of income taxes payable as a result of Executive's purchase of the
Initial Shares. The Executive shall be obligated to repay the Loan to the
Company upon the earlier of: (i) four years from the date of the loan, (ii)
termination of Executive's employment; provided, however, that, to the extent
then outstanding, the Loan shall be forgiven in the event that Executive's
employment is terminated (i) by the Company other than for Cause, including upon
the Company's delivery of the Term Termination Notice to Executive or (ii) by
the Executive for Good Reason. The Company shall not be obligated to reimburse
employee for any taxes associated with the forgiveness of such loan.
(e) Benefits. Executive shall also be entitled to participate in such
employee benefit plans which the Company provides or may establish from time to
time for the benefit of employees, subject to the terms of each such plan and
subject to the right of the Company and the Board to modify, revise or eliminate
such benefit plans from time to time in their sole discretion. Executive shall
pay for the portion of the cost of such benefits as is from time-to-time
established by Company as the portion of such cost to be paid by senior
executives of Company.
(f) Costs and Expenses. Executive shall be entitled to reimbursement
for all ordinary reasonable out-of-pocket business expenses which are reasonably
incurred by him in the furtherance of the Company's business, in accordance with
the policies adopted from time to time by the Company or the Board. Executive
will comply with the Company's travel policies as
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established from time to time by the Company or the Board; provided, that
Executive shall be entitled to reimbursement for first-class airfare travel
expenses incurred in connection with the performance of Executive's duties and
responsibilities hereunder; provided, further, that Executive shall not incur
such business travel expenses for first-class airfare until such time as
Executive has reasonably utilized to the greatest extent possible Executive's
personal frequent-flyer points and/or mileage for the purposes of upgrading to
first-class (subject to availability and other restrictions imposed by the
airline carriers).
(g) Vacation. During the Term, Executive shall be entitled to four
weeks of paid vacation per year so long as the absence of Executive does not
interfere in any material respect with the performance by Executive of
Executive's duties hereunder. Executive will use his best efforts to schedule
vacation periods to minimize disruption of the Company's business.
3. Termination.
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(a) Mutual Agreement. This Agreement may be terminated at any time by
the mutual agreement of the Company and Executive, expressed in writing.
(b) Voluntary. Executive may terminate this Agreement with or without
the consent of the Company by giving written notice of his intent to terminate
with the effective date of termination at least one hundred (100) days after the
effective date of the notice of termination. After such notice the Company may
accelerate the date of termination without being in breach hereof.
(c) Without Cause. The Company may terminate this Agreement at any
time without Cause upon twenty (20) days prior notice.
(d) Disability or Death. The Company may terminate this Agreement
upon the death or disability of Executive. For purposes of this Agreement,
Executive shall be considered disabled if he is unable to perform his duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty (180)
days in a three hundred sixty-five (365) day period, and the Board reasonably
determines that Executive has been unable to perform his duties for the one
hundred eighty (180) day period as a result of injury, illness or other
disability.
(e) For Cause by the Company. The Company may terminate this
Agreement for "Cause", as defined below, immediately upon written notice to
Executive. For purposes of this Agreement, "Cause" shall mean:
(i) If Executive materially violates any term of this Agreement
and such action or failure is not substantially remedied or reasonable steps to
effect such substantial remedy are not commenced within twenty (20) days of
written notice from the Company to Executive.
(ii) Dishonesty which is not the result of an inadvertent or
innocent mistake of Executive with respect to the Company or any of its
subsidiaries;
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(iii) Willful misfeasance or nonfeasance of duty by Executive
intended to injure or having the effect of injuring in some material fashion the
reputation, business or business relationships of the Company or any of its
subsidiaries or any of their respective officers, directors or employees;
(iv) Conviction of Executive upon a charge of any crime
involving moral turpitude or a crime other than a vehicle offense which could
reflect in some material fashion unfavorably upon the Company or any of its
subsidiaries; or
(v) Willful or prolonged absence from work by the Executive
(other than by reason of disability due to physical or mental illness) or
failure, neglect or refusal by the Executive to perform his duties and
responsibilities without the same being corrected upon twenty (20) days prior
written notice.
(f) For Good Reason by the Executive. If (i) there is a material
reduction or change of Executive's reporting relationship, job duties,
responsibilities or requirements that is inconsistent with the position or
positions listed in Section 1(a) and the Executive's prior reporting
relationship, duties, responsibilities or requirements; (ii) there is a
reduction in Executive's Base Salary, other than a reduction comparable to
reductions generally applicable to similarly situated employees of the Company;
(iii) the Company requires Executive to relocate to a facility or location more
than 50 miles from the Company's current location; or (iv) the Company
materially breaches this Agreement, Executive may at his option terminate his
employment and such termination shall be considered to be a termination of
Executive's employment by the Company for reasons other than Cause. Such
termination is a termination by Executive for Good Reason.
(g) Termination of Executive Upon Change of Control. In the event
Executive's employment is terminated prior to the Expiration Date on or
following the occurrence of a Change of Control of the Company, as defined
below, Company shall: (i) pay to Executive, in a lump sum within ten (10) days
after the date Executive's employment is terminated, the amount of Executive's
then current Base Salary pursuant to Section 2(a) above through the termination
date of this Agreement or for a period of eighteen (18) months, whichever is
longer, beginning in the month next following such termination; and (ii) pay to
Executive the portion of the incentive compensation for the year of such
termination which is (A) determined by objective measurement standards under
Section 2(b), and (B) would have been paid to Executive had Executive been
continuously employed under this Agreement through the Expiration Date. Payment
of such portions of incentive compensation, if any, shall be made to Executive
within 10 business days after the date, if any, on which senior executives of
Company receive payment of their incentive compensation under such incentive
compensation program. If a Change of Control (as defined below) results in a
successor firm, Executive shall receive, in lieu of the shares underlying the
Initial Stock Option, the cash, stock and other securities or property in the
successor firm to which he would have been entitled if he had exercised the
Initial Stock Options immediately prior to the Change of Control or, at the
Company's election, the Initial Stock Options shall be converted into an
equivalent number of like securities, fully vested as aforesaid, preserving the
post-tax economics of the Initial Stock Options, including the substantive terms
thereof. The term of the Initial Stock Options shall be ten years from the date
of grant. The Initial Stock Options shall not be transferable except by will
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or by reason of the laws of descent and distribution. Thereafter Executive shall
not be entitled to receive, and the Company shall not be obligated to provide
Executive with any additional salary, payments or benefits of any kind other
than those specifically set forth in this Section 3(g) and all accrued
compensation and unreimbursed business expenses.
As used herein, "Change of Control" means (i) a sale, lease or
other disposition of all or substantially all of the assets of the Company; (ii)
a merger or consolidation in which the Company is not the surviving corporation
and in which beneficial ownership of securities of the Company representing at
least fifty percent (50%) of the combined voting power entitled to vote in the
election of the members of the Board has changed; (iii) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, and in which beneficial ownership of securities of the
Company representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of the member of the Board has changed; (iv) an
acquisition by any entity (other than (A) a controlled affiliate of the Company,
(B) any employee benefit plan, or related trust, sponsored or maintained by the
Company or subsidiary of the Company or other entity controlled by the Company,
or (C) any company owned directly or indirectly by stockholders of the Company
in substantially the same proportions as their ownership of Common Stock
interest of the Company, immediately prior to the occurrence with respect to
which the evaluation of the Change in Control is being made) of the beneficial
ownership, directly or indirectly, of securities of the Company representing at
least fifty percent (50%) of the combined voting power of the Company's then
outstanding securities; or (v) any event which causes the individuals who, as of
the date of adoption of the Plan, are members of the Company's Board (the
"Incumbent Board") to cease for any reason to constitute at least fifty percent
(50%) of the Board. (If the election, or nomination for election by the
Company's stockholders of any new Director is approved by a vote of at least
fifty percent (50%) of the Incumbent Board, such new Director shall be
considered to be a member of the Incumbent Board in the future.)
(h) (i) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment, award, benefit or
distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates a Change in Control (or any of its affiliated entities) to or
for the benefit of Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 3(h)) (the "Payments") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by Executive with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the Company
shall pay to Executive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by Executive of all taxes (including any Excise Tax)
imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up
Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y)
the product of any deductions disallowed because of the inclusion of the Gross-
Up Payment in Executive's adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-Up
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Payment is to be made. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to (i) pay federal income taxes at the
highest marginal rates of federal income taxation for the calendar year in which
the Gross-Up Payment is to be made and (ii) pay applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(ii) Subject to the provisions of Section 3(h)(i), all
determinations required to be made under this Section 3(h), including whether
and when a Gross-Up Payment is required, the amount of such Gross-Up Payment,
and the assumptions to be utilized in arriving at such determinations, shall be
made by the public accounting firm that is retained by the Company as of the
date immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and Executive
within fifteen (15) business days of the receipt of notice from the Company or
the Executive that there has been a Payment, or such earlier time as is
requested by the Company (collectively, the "Determination"). In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, Executive may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company and the Company shall enter into any agreement requested
by the Accounting Firm in connection with the performance of the services
hereunder. The Gross-up Payment under this Section 3(h) with respect to any
Payments shall be made no later than thirty (30) days following such Payment. If
the Accounting Firm determines that no Excise Tax is payable by Executive, it
shall furnish Executive with a written opinion to such effect, and to the effect
that failure to report the Excise Tax, if any, on Executive's applicable federal
income tax return will not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be binding upon the
Company and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the Determination, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment") or Gross-Up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations required to
be made hereunder. In the event that the Executive thereafter is required to
make payment of any Excise Tax or additional Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the
benefit of Executive. In the event the amount of the Gross-Up Payment exceeds
the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been made
and any such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code) shall be promptly paid by Executive (to the extent he
has received a refund if the applicable Excise Tax has been paid to the Internal
Revenue Service) to or for the benefit of the Company. Executive shall
cooperate, to the extent his expenses are reimbursed by the Company, with any
reasonable requests by the Company in connection with any contests or disputes
with the Internal Revenue Service in connection with the Excise Tax.
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4. Payments at Termination.
-----------------------
(a) Upon (i) termination of this Agreement by the Company under
Section 3(c) titled "Without Cause", including upon the Company's delivery of
the Term Termination Notice to Executive or (ii) termination of this Agreement
by Executive under Section 3(f) titled "For Good Reason by the Executive,"
Executive shall receive monthly payments equal to his Base Salary prior to
termination ("Applicable Base Salary") through the termination date of this
Agreement or for a period of eighteen (18) months, whichever is longer,
beginning in the month next following such termination. In either case Executive
shall receive all accrued compensation and unreimbursed expenses to the date of
termination as provided herein. The monthly payments provided for in this
Section 4(a) shall be paid in accordance with the Company's normal payroll
schedule, less applicable tax withholdings for state and federal taxes and other
deductions required by law and shall not be reduced by compensation the
Executive may receive from other sources. In either such case of termination,
all unexercised options granted pursuant to the 2000 Plan or any other Company
stock option plan (the "Plan"), including the Initial Stock Options, shall vest
and become exercisable on the day of termination (and any shares purchasable
thereunder shall no longer be subject to any repurchase rights by the Company,
if any). For any such non-statutory stock option or incentive stock option, the
period for exercise of the option shall continue for the shorter of the maximum
length of time the option is exercisable under the Plan as though the service of
Executive had not terminated, and three (3) years after the date of termination
of service, provided, however, that if the existence of this sentence would
cause any incentive stock option not to qualify as an incentive stock option
pursuant to Section 422 of the Internal Revenue Code of 1986, as amended,
("Section 422") at any time prior to ninety (90) days after termination of
employment as provided in Section 422, this sentence shall be null and void as
to such incentive stock option.
(b) If the Company terminates this Agreement due to disability, under
Section 3(d) titled "Disability or Death," Executive or his estate shall receive
the disability payments provided for by the Company's disability insurance
policy.
(c) If Executive terminates this Agreement without cause under
Section 3(b), titled "Voluntary", or if this Agreement is terminated under
Section 3(a), titled "Mutual Agreement," or if this Agreement is terminated by
the Company under Section 3(e) titled "For Cause by the Company," Executive
shall not be entitled to any further payments except unreimbursed expenses to
the date of termination as provided herein and any accrued compensation and as
provided in Section 4(d).
(d) In the event of termination of Executive's employment under
Section 4(a), (b) or (c), termination is the date of actual termination, not the
date notice of termination is given. Other than payments owing under a provision
providing for payments at a different time, all payments for accrued unpaid
monthly compensation shall be made within ten (10) days after the end of the
month following the month in which termination occurred and all payments for
reimbursement shall be made within forty-five (45) days after the end of the
month following the month in which termination occurred.
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(e) Unless specified otherwise in any bonus plan or bonus agreement,
if termination occurs during a bonus period pursuant to Section 3(c) titled
"Without Cause" or Section 3(f) titled "For Good Reason by the Executive," or
Section 3(d) titled "Disability or Death," and based upon the results of the
full bonus period the bonus would have been earned, any bonus which would have
been earned shall be based upon the number of calendar days in such bonus period
which have elapsed at the date of termination. Unless specified otherwise in any
such bonus plan or bonus agreement, if Executive is terminated "For Cause by the
Company" (Section 3(e)), or Executive terminates voluntarily (Section 3(b) or
Executive after termination violates a confidentiality, covenant not to compete,
or "no hire" or "no raid" agreement with the Company, its parent (if any) or a
direct or indirect Company subsidiary or affiliate, then the Company shall have
no obligation to pay any earned or unearned bonus or the payments provided for
in the first sentence of Section 4(e) hereof.
(f) The foregoing rights in this Section 4 are Executive's exclusive
rights to payment from the Company in the event of termination of this Agreement
except for amounts which the Company is required to pay under applicable statute
or regulation, payments under insurance policies, and payments owing under other
written agreement(s) (if any) between the Company and Executive.
(g) Employment at Will After Termination of Agreement. If, upon the
termination of this Agreement pursuant to Section 3, the parties to this
Agreement agree that Executive shall remain employed by the Company, then
Executive's employment with the Company will continue in accordance with, and
subject to, the terms and conditions of this Agreement, except that Executive's
continued employment will not be for any specific term but will be at-will and
either the Company or Executive may terminate the employment relationship at any
time for any reason whatsoever. If the Company then terminates the employment of
Executive pursuant to Section 3(c) or Executive terminates the relationship for
Good Reason pursuant to Section 3(f), Executive shall be entitled to his salary
and bonus through the date of termination. If the Company terminates the
employment of Executive for Cause pursuant to Section 3(e) or Executive
voluntarily terminates his employment pursuant to Section 3(b), Executive shall
be entitled to his salary through the date of termination and no bonus payments.
5. Non-Competition.
---------------
(a) Executive covenants and agrees with the Company that so long as
he is employed by the Company and for a period of the longer of (i) twelve (12)
months after termination of Executive's employment for any reason or (ii) during
which any payments are made to Executive or for his benefit following
termination of employment pursuant to Section 4 of this Agreement, Executive
will not engage or participate, directly or indirectly, as principal, agent,
employee, employer, consultant, advisor, sole proprietor, stockholder, partner,
independent contractor, trustee, joint venturer or in any other individual or
representative capacity whatever, in the conduct or management of, or own any
stock or other proprietary interest in, or debt of, any business organization,
person, firm, partnership, association, corporation, enterprise or other entity
that shall be engaged in any business (whether in operation or in the planning,
research or development stage) that is a Competitive Business anywhere in the
Restricted Territory, unless Executive shall obtain the prior written consent of
the Board, given in its sole discretion, which consent shall make express
reference to this Agreement.
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Notwithstanding the foregoing, Executive may (i) make passive investments in any
company whose stock is listed on a national securities exchange or traded in the
over-the-counter market so long as he does not come to own, directly or
indirectly, more than five percent (5%) of the equity securities of such company
(ii) join an investment banking firm and provide general investment banking and
advisory services to any business, whether or not such business is a Competitive
Business and (iii) become employed by a division of AT&T, MCI and Global
Crossing, or an equivalently large, diversified corporation, provided that
Executive is not assigned to a division or group which directs or conducts a
Competitive Business. For purposes of this Agreement, a business shall be
considered a "Competitive Business" if it involves or relates to (i) the
provision of (a) telephonic or internet based teleconferencing products or
services or (b) web collaboration products or services (except to the extent
that such products or services are not, in the reasonable opinion of a person
experience in the industry, competitive with the Company's products or services
at the time of Executive's termination) or (ii) the business currently conducted
by Centra Software, Contigo Software, PlaceWare or WebEx. The term "Restricted
Territory" shall mean each and every county, province, state, city or other
political subdivision of the United States.
(b) During the time of Executive's employment and for twelve (12)
months after termination of Executive's employment for any reason, without the
express, prior written consent of an executive officer of the Company, Executive
shall not engage in any of the following conduct:
(i) Hire, attempt to hire or assist any other person or entity
in hiring or attempting to hire any current employee of the Company or any
person who was a Company employee within the three (3) month period prior to the
termination of Executive's employment; provided, however that this prohibition
on solicitation of the Company's employees shall not apply to the person acting
as the Executive's current executive assistant as of the date of termination of
Executive's employment; and provided further that Executive agrees that
Executive will provide the Company with thirty (30) days prior written notice of
Executive's intent to solicit and/or hire such executive assistant upon
Executive's termination of employment.
(ii) Solicit, divert, or take away, in competition with the
Company, the business or patronage of any current Company customer.
Notwithstanding the foregoing, this restriction shall not apply to any person or
entity who is no longer a customer at the time of any such solicitation by
Executive.
(c) Executive agrees that if he acts in violation of Sections 5 or 7
of this Agreement, the number of days that such violation exists will be added
to any period of limitations on the specific activities.
(d) The covenants contained in paragraph (a) shall be construed as a
series of separate covenants, one for each county, province, state, city or
other political subdivision of the Restricted Territory. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenant contained in paragraph (a). If, in any judicial proceeding, a court
refuses to enforce any of such separate covenants (or any part thereof), then
such unenforceable covenant (or such part) shall be eliminated from this
Agreement to the extent necessary to permit the remaining separate covenants (or
portions thereof) to be enforced. In the
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event that the provisions of this Section 5 are deemed to exceed the time,
geographic or scope limitations permitted by applicable law, then such
provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, permitted by applicable laws.
(e) Without limitation of any of the provisions of this Section 5,
any payments to be made to Executive or for his benefit following termination of
his employment with the Company pursuant to Section 4 of this Agreement shall be
deemed to secure his agreements set forth in this Section 5 and such payments
may be terminated by the Company if Executive fails to observe the agreements
set forth in this Section 5 and fails to cure such failure within ten (10) days
of receipt of written notice of such failure.
(f) Executive (i) acknowledges that his skills and experience are
such that he can anticipate finding employment at a senior level in his
profession, and (ii) represents and agrees that the restrictions imposed by this
Section 5 on engaging in competitive business activities are necessary for the
protection of the legitimate interests and competitive position of the Company
and do not impose undue hardships on him.
6. Termination Obligations of Executive
------------------------------------
(a) Return of the Company's Property. Executive hereby acknowledges
and agrees that all personal property, including, without limitation, all books,
manuals, records, reports, notes, contracts, lists, files, disks and other media
with Company information, blueprints, and other documents, or materials, or
copies thereof, and equipment furnished to or prepared by Executive in the
course of or incident to Executive's employment, belong to the Company and shall
be promptly returned to the Company upon termination of Executive's employment.
(b) Cooperation in Pending Work. For two (2) months after termination
of Executive's employment, Executive agrees to fully cooperate with the Company
in all matters relating to the winding up of pending work on behalf of the
Company and the orderly transfer of work to other employees of the Company
following any termination of Executive's employment. For two (2) years after
termination of Executive's employment, Executive shall also cooperate in the
resolution of any dispute, including litigation of any action, involving the
Company that relates in any way to Executive's activities while employed by the
Company. In the event, however, Executive's services to the Company under this
Section 6(b) exceed forty (40) hours, the Company shall pay Executive for his
services at a rate equivalent to his Base Salary at the time of termination of
employment and shall pay Executive's out-of-pocket expenses incurred in
connection with his services. Such activities and all such activities shall be
scheduled for mutually convenient times.
7. Confidentiality.
---------------
(a) Confidential Information. Executive acknowledges that he has had
and will have access to certain information related to the business, operations,
future plans and customers of the Company, the disclosure or use of which could
cause the Company substantial losses and damages. Accordingly, Executive
covenants that during the term of his employment with the Company and thereafter
he will keep confidential all information and documents furnished to him by or
on behalf of the Company and not use the same to his advantage, except
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to the extent such information or documents are lawfully obtained from other
sources on a non-confidential (as to the Company) basis or are in public domain
through no fault on his part or is consented to in writing by the Company.
(b) Innovations, Patents, and Copyrights. Executive agrees to
promptly disclose, in writing, all Innovations to the Company. Executive further
agrees to provide all assistance requested by the Company, at its expense, in
the preservation of its interests in any Innovations, and hereby assigns and
agrees to assign to the Company all rights, title and interest in and to all
worldwide patents, patent applications, copyrights, trade secrets and other
intellectual property rights in any Innovation. Furthermore, during the term of
this Agreement, the Company may, with Executive's written permission (such
permission not to be unreasonably withheld), use Executive's name and image as
appropriate in the conduct of its business.
"Innovations" shall mean all developments, improvements, designs,
original works of authorship, formulas, processes, software programs, databases,
and trade secrets, whether or not patentable, copyrightable or protectable as
trade secrets, that Executive by himself or jointly with others, creates,
modifies, develops, or implements during the period of Executive's employment
which relate in any way to the Company's business. The term Innovations shall
not include Innovations developed entirely on Executive's own time without using
the Company's equipment, supplies, facilities or Confidential Information, and
which neither relate to the Company's business, nor result from any work
performed by or for the Company.
8. Right to Injunctive Relief. Executive agrees and acknowledges that a
--------------------------
violation of the covenants contained in Sections 5, 6(a) and 7 of this Agreement
will cause irreparable damage to the Company, and that it is and may be
impossible to estimate or determine the damage that will be suffered by the
Company in the event of a breach by Executive of any such covenant. Therefore,
Executive further agrees that in the event of any violation or threatened
violation of such covenants, the Company shall be entitled as a matter of course
to an injunction out of any court of competent jurisdiction restraining such
violation or threatened violation by Executive, such right to an injunction to
be cumulative and in addition to whatever other remedies the Company may have.
9. Alternative Dispute Resolution. The Company and Executive mutually
------------------------------
agree that any controversy or claim arising out of or relating to this Agreement
or the breach thereof, or any other dispute between the parties relating in any
way to Executive's employment with the Company or the termination of that
relationship, including disputes arising under the common law and/or any federal
or state statutes, laws or regulations, shall be submitted to mediation before a
mutually agreeable mediator, which cost is to be borne equally by the parties.
In the event mediation is unsuccessful in resolving the claim or controversy,
such claim or controversy shall be resolved exclusively by binding arbitration.
The claims covered by this Agreement ("Arbitrable Claims") include, but are not
limited to, claims for wages or other compensation due; claims for breach of any
contract (including this Agreement) or covenant (express or implied); tort
claims; claims for discrimination (including, but not limited to, race, sex,
religion, national origin, age, marital status, medical condition, or
disability); claims for benefits (except where an employee benefit or pension
plan specifies that its claims procedure shall culminate in an arbitration
procedure different from this one), and claims for violation of any federal,
state, or
12
<PAGE>
other law, statute, regulation, or ordinance, except claims excluded in the
following paragraph. The parties hereby waive any rights they may have to trial
by jury in regard to Arbitrable Claims.
Claims Executive or the Company may have regarding Workers' Compensation or
unemployment compensation benefits and the noncompetition provisions of this
Agreement are not covered by the arbitration and mediation provisions of this
Agreement. Claims Executive or the Company may have for violation of the
proprietary information provisions of this Agreement as well as the terms and
provisions of Exhibit A of this Agreement are not covered by the arbitration and
mediation provisions of this Section 9 of this Agreement.
Arbitration under this Agreement shall be the exclusive remedy for all
Arbitrable Claims. The Company and Executive agree that arbitration shall be
held in or near either Boulder or Denver, Colorado and shall be in accordance
with the then-current Employment Dispute Resolution Rules of the American
Arbitration Association, before an arbitrator licensed to practice law in
Colorado. The arbitrator shall have authority to award or grant both legal,
equitable, and declaratory relief. Such arbitration shall be final and binding
on the parties. The Federal Arbitration Act shall govern the interpretation and
enforcement of this Section 9 pertaining to Alternative Dispute Resolution.
This Agreement to mediate and arbitrate survives termination of Executive's
employment.
10. Use of Executive's Likeness. For so long as Executive is employed by
---------------------------
the Company or an Affiliate, Executive authorizes the Company or an Affiliate to
use, reuse and to reasonably grant others the right to use and reuse without
additional compensation, Executive's name, photograph, likeness (including
caricature), voice and biographical information and any reproduction or
simulation thereof in any media now known or hereafter developed, for valid
business purposes of the Company or an Affiliate.
11. Exclusion of Property of Others. Executive will not bring to the
-------------------------------
Company or use in the performance of his duties any documents or materials of a
former employer that are not generally available to the public or that have not
been legally transferred to the Company.
12. Executive's Authorization to Deduct Amounts Owed. Upon Executive's
------------------------------------------------
separation from employment, Company is authorized to deduct from Executive's
final wages or other monies due Executive any debts or amounts owed to Company
by Executive.
13. Integration. This Agreement and any exhibits attached hereto shall
-----------
constitute the entire Agreement relating to the employment of Executive. This
Agreement shall be governed by the laws of Colorado, excluding laws on choice of
law. Any litigation regarding this Agreement shall only be brought and heard in
the federal or state courts located in Denver, Colorado and no transfer of venue
outside such area shall be permitted.
14. Unenforceability. If any paragraph or subparagraph of this Agreement
----------------
or any part thereof shall be unenforceable under any applicable laws,
notwithstanding such unenforceability the remainder of this Agreement shall
remain in full force and effect.
13
<PAGE>
15. Binding. This Agreement shall inure to the benefit of and be binding
-------
upon, the Company and its affiliates and subsidiaries.
16. Attorneys' Fees. In the event of any legal or arbitration action or
---------------
proceeding to enforce or interpret the provisions hereof, the prevailing party
shall be entitled to reasonable attorneys' fees and costs, whether or not the
proceeding results in a final judgment.
17. Survival. Terms which by their terms or sense are to survive
--------
termination hereof shall so survive.
18. Notice. All notices or other communications required or permitted
------
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand, overnight delivery or mailed, postage prepaid, by
certified or registered mail, return receipt requested, and addressed to the
Company:
Evoke Incorporated
1157 Century Drive
Louisville, Colorado 80027
Attn: Board of Directors
Telephone: (303) 928-2400
Facsimile: (303) 928-2832
and to Executive at:
Terence G. Kawaja
205 East Street, Apt. 20C
New York, NY 10021
Telephone: (212) 327-0765
Facsimile: (212) 585-1077
Executive and the Company shall be obligated to notify the other party of any
change in address. Notice of change of address shall be effective only when
made in accordance with this Section.
19. Executive Acknowledgment. The parties acknowledge (a) that they have
------------------------
consulted with or have had the opportunity to consult with independent counsel
of their own choice concerning this Agreement, and (b) that they have read and
understand the Agreement, are fully aware of its legal effect, and have entered
into it freely based on their own judgment and not on any representations or
promises other than those contained in this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Personal Services
Agreement as of the Effective Date.
EVOKE INCORPORATED
By:________________________________________
Title:_____________________________________
EXECUTIVE
___________________________________________
Terence G. Kawaja
15
<PAGE>
EXHIBIT A
EVOKE INCORPORATED
NOTICE OF GRANT OF STOCK OPTION
-------------------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Evoke Incorporated, (the "Corporation"):
Optionee: Terence G. Kawaja
--------
Grant Date: March __, 2000
----------
Vesting Commencement Date:
-------------------------
Exercise Price: $6.20 per share
Number of Option Shares: 1,200,000 shares
Expiration Date: November __, 2009
---------------
Type of Option: Incentive Stock Option
-------------- -----
X Non-Statutory Stock Option
-----
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: Except as otherwise provided in any other agreement
----------------
between the Optionee and the Corporation, (a) the Option Shares shall
be unvested and subject to repurchase by the Corporation at the
Exercise Price paid per share, (b) Optionee shall acquire a vested
interest in, and the Corporation's repurchase right shall accordingly
lapse with respect to, (i) twenty-five percent (25%) of the Option
Shares upon Optionee's completion of one (1) year of Service measured
from the Vesting Commencement Date and (ii) the balance of the Option
Shares in a series of thirty-six (36) successive equal monthly
installments upon Optionee's completion of each additional month of
Service over the thirty-six (36) month period of Service measured from
the first anniversary of the Vesting Commencement Date and (c), in no
event shall any additional Option Shares vest after Optionee's
cessation of Service.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the Evoke Incorporated 2000 Equity Incentive
Plan (the "Plan"). Optionee further agrees to be bound by the terms of the Plan
and the terms of the Option as set forth in the
<PAGE>
Stock Option Agreement attached hereto as Exhibit A. Optionee understands that
any Option Shares purchased under the Option will be subject to the terms set
forth in the Stock Purchase Agreement attached hereto as Exhibit B.
Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as Exhibit C.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED
-----------------
UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE
TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE AGREEMENT.
No Employment or Service Contract. Nothing in this Notice or in the
---------------------------------
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the meaning
-----------
assigned to them in this Notice or in the attached Stock Option Agreement.
Date: March____________, 2000
EVOKE INCORPORATED
_______________________________________
By:____________________________________
Title:_________________________________
OPTIONEE
_______________________________________
Address:_______________________________
_______________________________________
<PAGE>
ATTACHMENTS
- -----------
Exhibit A - Stock Option Agreement
Exhibit B - Stock Purchase Agreement
Exhibit C - 2000 Equity Incentive Plan
<PAGE>
EXHIBIT A
---------
STOCK OPTION AGREEMENT
----------------------
<PAGE>
EXHIBIT B
---------
STOCK PURCHASE AGREEMENT
------------------------
<PAGE>
EXHIBIT C
---------
EVOKE 2000 EQUITY INCENTIVE PLAN
--------------------------------
<PAGE>
Exhibit 23.2
Independent Auditors'
The Board of Directors
Evoke, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
Boulder, Colorado
March 29, 2000
1
<PAGE>
Exhibit 23.3
Independent Auditors
The Board of Directors
Contigo Software, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
San Diego, California
March 30, 2000
1
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul A. Berberian and James M. LeJeal and each
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place, and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments, exhibits thereto and other documents in connection
therewith) to the Registration Statement of Evoke Incorporated (the
"registrant"), and any subsequent registration statement filed by the
registrant pursuant to Rule 462(b) of the Securities Act of 1933, as amended,
which relates to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Terence Kawaja Chief Financial Officer March 30, 2000
___________________________________________ (Principal Financial
Terence Kewaja Officer)
/s/ Andre Meyer Director March 30, 2000
___________________________________________
Andre Meyer
</TABLE>
