<PAGE>
As filed with the Securities and Exchange Commission on May 19, 2000
Registration No. 333-34040
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
OPEN PORT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Illinois (before 7372 36-3874234
reincorporation) (Primary Standard (I.R.S. Employer
Delaware (after Industrial Identification Number)
reincorporation) Classification Code Number)
(State or other jurisdiction
of
incorporation or
organization)
676 North St. Clair Street, Suite 900
Chicago, Illinois 60611
(312) 867-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Randy S. Storch
Chairman, President and Chief Executive Officer
Open Port Technology, Inc.
676 North St. Clair Street, Suite 900
Chicago, Illinois 60611
(312) 867-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
----------------
Mark L. Gordon, Esq. Linda Chaplik Harris, Esq. Erin Karzmer, Esq.
Janet Smerling LeVee, Mark L. Dosier, Esq. Testa, Hurwitz &
Esq. Sonnenschein Nath & Rosenthal Thibeault, LLP
Gordon & Glickson LLC 8000 Sears Tower 125 High Street
444 N. Michigan Avenue Chicago, Illinois 60606 Boston, Massachusetts
Chicago, Illinois 60611 (312) 876-8000 02110
(312) 321-1700 (617) 248-7000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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 to be a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
registration statement of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number if the earlier effective registration statement
for the same offering. [_]
If the 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 jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated May 19, 2000
[OPEN PORT(R) TECHNOLOGY LOGO]
- --------------------------------------------------------------------------------
4,000,000 Shares
Common Stock
- --------------------------------------------------------------------------------
This is the initial public offering of Open Port Technology, Inc. and we are
offering 4,000,000 shares of our common stock. We anticipate that the initial
public offering price will be between $10.00 and $12.00 per share. We have
applied to list our common stock on the Nasdaq National Market under the
symbol "OPRT."
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Open Port
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to 600,000
additional shares to cover over-allotments.
Deutsche Banc Alex. Brown
Robertson Stephens
Dain Rauscher Wessels
The date of this prospectus is , 2000
<PAGE>
[Inside Front Cover]
[Over the graphical depiction are the words "OPEN PORT HELPS USERS MANAGE
THEIR MESSAGES."
Graphical representation of three concentric circles appears centered in the
page. Inside the smaller circle appear the words "IP LaunchPad" enclosed by a
rectangular border with four circular button symbols situated horizontally
across the top of the rectangular border. Inside the intermediate circle appear
the logos for "Bell Atlantic Data Solutions Group, Inc.," "Cable & Wireless
U.K.," "Qwest Communications Corporation," "MCI WorldCom Network Services,
Inc.," "Cisco Systems, Inc.," "Sun Microsystems," "3Com" and "Lucent
Technologies Inc." The largest circle is divided into four quadrants. The four
quadrants are labeled, clockwise from the top, "AT HOME," "AT WORK," "WHEREVER
YOU ARE" and "IN YOUR CAR" and contain graphical depictions of those locations
and communication devices used in those locations.]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements,
before making an investment decision.
Open Port Technology, Inc.
We design, develop and distribute IP LaunchPad, a carrier-class software
platform that enables our customers to deliver enhanced communication services
over networks based on the Internet Protocol, or IP. Our customers are service
providers, including long distance telecommunication providers, regional Bell
operating companies, competitive local exchange carriers, public telephone and
telegraph companies, and Internet service providers. IP LaunchPad provides
software connections between IP networks and the public switched telephone
network, or PSTN, and wireless networks. These connections allow our customers
to offer enhanced IP services that connect to PSTN and wireless devices such as
fax machines, telephones, voicemail systems, cellular phones and pagers. The
types of enhanced IP services that we enable or intend to enable include
services such as delivering email messages to fax machines, voicemail messages
to email systems, and news alerts to mobile phones.
Our solution enables enhanced IP services to be deployed with the
accountability, tracking and reliability of services delivered over the PSTN,
while taking advantage of the more efficient use of bandwidth, increased
functionality, flexibility and reduced costs offered by IP networks. In
addition to bridging IP networks, the PSTN and wireless networks, our IP
LaunchPad solution addresses other key challenges limiting deployment of
enhanced IP services today.
. We integrate IP LaunchPad into a service provider's network
infrastructure. As a result, we and other application developers can
create applications that integrate with our platform rather than
directly with each service provider's environment. This one-time
integration makes it easier for service providers to offer their
subscribers new enhanced IP services.
. Our solution enables service providers to track and monitor the delivery
of enhanced IP services, allowing them to offer their subscribers a
variety of service level guarantees.
. Our solution enables subscribers to provide self-care through a web
browser interface. For example, a subscriber can sign up for a new
service, adjust user preferences and track the progress of sent
messages. This reduces the service provider's support costs.
. Our solution enables wholesale distribution of enhanced IP services,
such that each new service launched on IP LaunchPad can also be
distributed in a wholesale manner by one service provider to another.
Our objective is to become the leading provider of software that enables
service providers to deliver enhanced IP services. To achieve our objective, we
intend to license IP LaunchPad to service providers that can deploy our
solution over extensive networks. We believe that by achieving widespread
deployment early in the evolution of enhanced IP services, our solution can
become the preferred software for enhanced IP service delivery. We intend to
target these service providers by expanding our direct sales force and by
developing new and existing strategic relationships with technology leaders
such as Cisco Systems and Sun Microsystems. We also intend to extend our
technology leadership by investing significant resources in technology and
product development, and to introduce new enhanced IP services applications
incrementally, as market demand develops. Further, we expect to invest in our
professional service capabilities to enhance our customer relationships and
revenue opportunities.
Our executive offices are located in Chicago, Illinois, and we have regional
offices in San Francisco, California, Denver, Colorado, the Netherlands,
Belgium and France. As of April 30, 2000, we had 120 full-time employees, and
had entered into license agreements with 17 customers, including Bell Atlantic
Data Solutions Group, Inc., Cable and Wireless Japan Ltd., Interpath
Communications, Inc., Qwest Communications Corporation and Tele Danmark A/S.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Open Port....... 4,000,000 shares
Common stock to be outstanding
after this offering.................... 19,281,591 shares
Use of proceeds......................... To repay existing indebtedness and
fund the growth and expansion of our
business, and for working capital and
other general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.. OPRT
</TABLE>
The number of shares to be outstanding upon completion of this offering is
based on shares outstanding as of April 30, 2000. This number excludes an
aggregate of 2,474,951 shares of common stock issuable upon the exercise of
outstanding stock options and warrants and an aggregate of 2,631,472 shares of
common stock available for future grants under our employee benefit plans,
which also contain provisions which increase the number of shares available for
grants in future periods. See "Shares Eligible For Future Sale" and
"Management-Employee Benefit Plans."
----------------
We were incorporated in Illinois in January 1993 and will reincorporate in
Delaware upon the closing of this offering. Our principal executive office is
located at 676 North St. Clair Street, Suite 900, Chicago, Illinois 60611, and
our telephone number at that office is (312) 867-5000. Our Web site is located
at www.openport.com. Information contained on our Web site is not part of this
prospectus.
Open Port is a registered trademark in the United States, and Open Port
Technology, Open Port AFD, Open Port Harmony, Open Port Harmony and Design, and
the "Swoop Logo Design" are registered trademarks of Open Port. All other brand
names or trademarks appearing in this prospectus are the property of their
respective holders.
----------------
The information in this prospectus reflects a one-for-3.75 reverse split of
our common stock to be effected in 2000. Unless otherwise indicated, the
information contained in this prospectus assumes:
. all outstanding shares of preferred stock will convert into an aggregate
of 11,831,282 shares of common stock upon the closing of this offering;
. we will reincorporate in Delaware upon the closing of this offering,
which will result in, among other things, our adoption of a new
certificate of incorporation and by-laws; and
. the underwriters will not exercise their over-allotment option to
purchase additional shares of common stock, and no other person will
exercise any other outstanding option or warrant.
4
<PAGE>
Summary Consolidated Financial Data
The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the consolidated financial statements, including the notes thereto, and
other financial information appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
--------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software products...... $ 1,218 $ 892 $ 5,048 $ 3,241 $ 907 $ 26 $ 773
Maintenance and
support services...... 65 517 1,266 1,600 1,443 359 580
Hardware products...... 642 867 835 506 -- -- --
------- ------- ------- -------- -------- ------- --------
Total revenues....... 1,925 2,276 7,149 5,347 2,350 385 1,353
------- ------- ------- -------- -------- ------- --------
Costs of revenues:
Software products...... 52 131 135 579 667 129 167
Maintenance and
support services...... 118 1,775 2,668 2,871 2,403 552 780
Hardware products...... 378 521 430 331 -- -- --
------- ------- ------- -------- -------- ------- --------
Total cost of
revenues............ 548 2,427 3,233 3,781 3,070 681 947
------- ------- ------- -------- -------- ------- --------
Gross profit (loss)..... 1,377 (151) 3,916 1,566 (720) (296) 406
Operating expenses:
Marketing and
selling............... 762 3,310 4,249 5,029 6,728 1,606 1,557
General and
administrative........ 1,009 1,449 1,547 1,932 2,304 444 738
Research and
development........... 744 2,780 4,058 3,730 4,761 1,158 1,661
Stock-based
compensation.......... -- -- -- -- -- -- 101
------- ------- ------- -------- -------- ------- --------
Total operating
expenses............ 2,515 7,539 9,854 10,691 13,793 3,208 4,057
------- ------- ------- -------- -------- ------- --------
Operating loss.......... (1,138) (7,690) (5,938) (9,125) (14,513) (3,504) (3,651)
Net loss................ (1,138) (7,609) (6,090) (9,455) (15,860) (3,768) (3,957)
Net loss applicable to
common stockholders.... $(1,205) $(8,184) $(7,320) $(11,271) $(20,714) $(4,252) $(38,977)
Basic and diluted net
loss per share (1)..... $ (0.38) $ (2.56) $ (2.29) $ (3.49) $ (6.15) $ (1.27) $ (11.39)
======= ======= ======= ======== ======== ======= ========
Shares used in
calculation of basic
and diluted net loss
per share (1).......... 3,200 3,200 3,200 3,230 3,370 3,342 3,423
======= ======= ======= ======== ======== ======= ========
Pro forma basic and
diluted net loss per
share (1).............. $ (2.23) $ (0.26)
======== ========
Shares used in
calculation of pro
forma basic and diluted
net loss per
share (1).............. 7,123 15,260
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------------
Pro Forma
Actual Pro Forma (2) As Adjusted (3)
-------- ------------- --------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital....................... $ 10,989 $10,989 $46,188
Total assets.......................... 19,269 19,269 54,468
Total liabilities..................... 9,015 9,015 4,451
Redeemable convertible preferred
stock................................ 99,541 -- --
Stockholders' equity (deficit)........ (89,287) 10,254 50,017
</TABLE>
- -------
(1) See note 1 of the Open Port consolidated financial statements for an
explanation of the methods used to determine the number of shares used in
computing net loss per share data.
(2) The pro forma amounts reflect the conversion of all outstanding shares of
preferred stock into common stock upon the closing of the offering.
(3) Adjusted to reflect the pro forma adjustments and the sale of the 4,000,000
shares of common stock offered hereby at an assumed initial public offering
price of $11.00 per share and the application of net proceeds by Open Port,
after deducting underwriting discounts and commissions and estimated
offering expenses.
5
<PAGE>
RISK FACTORS
You should carefully consider the following risks and other information in
this prospectus before you decide to buy our common stock. An investment in our
common stock involves a high degree of risk. Our business, operating results or
financial condition may suffer if any of the following risks is actually
realized. Additional risks and uncertainties not currently known to us may also
adversely affect our business, operating results or financial condition. If any
of these risks or uncertainties is realized, the trading price of our common
stock could decline.
Risks Related to our Business
If commercial use of IP network infrastructure does not grow as expected, our
future prospects and growth will be impaired.
Our future success depends heavily on IP networks being accepted and widely
used for commerce. If IP network commerce does not continue to grow or grows
more slowly than expected, our business, operating results and financial
condition would be materially adversely affected. Consumers and businesses may
reject IP networks as a viable commercial medium for a number of reasons,
including potentially inadequate network infrastructure, security concerns,
slow development of enabling technologies or insufficient commercial support.
The current IP network infrastructure may not be able to support the demands of
an increasing number of users or the bandwidth requirements of users. In
addition, the effectiveness of IP networks may decline due to delays in the
development or adoption of new standards and protocols designed to support
increased levels of activity and due to increased government regulation. Even
if the required infrastructure, standards, protocols or complementary products
or services necessary to support increasing commercial use of IP networks are
developed, we may incur substantial expenses adapting our solution to changing
or emerging technology.
Acceptance of our products in a new and rapidly changing market is uncertain
and risky.
Since the market for enhanced IP services is new and rapidly changing,
demand and market acceptance for our products are subject to a high level of
uncertainty and risk. Several factors have deterred businesses and consumers
from using enhanced IP services, including security concerns, inconsistent
service quality, increasing IP network traffic and incompatible software
products. The acceptance of enhanced IP services requires a broad acceptance of
new methods of conducting business and exchanging information. Businesses that
already have invested substantial resources in other messaging methods may be
reluctant to adopt a new strategy that may limit or compete with their existing
efforts. In addition, the continued growth in Internet traffic may result in
slower response times which may adversely affect the use and acceptance of
enhanced IP services. The development of enhanced IP services also depends
largely on resolving issues associated with the quality and reliability of
message delivery over IP networks. If the market for reliable enhanced IP
services fails to develop or develops more slowly than expected, it could have
a material adverse effect on our business, operating results and financial
condition.
If enhanced IP services are not commercially accepted by subscribers, our
prospects for growth will suffer.
We currently derive substantially all of our revenues from software that
permits service providers to offer enhanced IP services. As a result, we depend
upon the ability of service providers to establish viable businesses based on
offering enhanced IP services to their
6
<PAGE>
subscribers. Our success and the success of these businesses rely on the
commercial acceptance of enhanced IP services by subscribers. We first
delivered IP LaunchPad in September 1999 and to date, only a limited number of
customers have licensed IP LaunchPad. While enhanced IP services provide
features and functions that are not available over the PSTN, we cannot be
certain that subscribers will find enhanced IP services attractive. If
subscriber demand for enhanced IP services does not develop or develops more
slowly than anticipated, it would have a material adverse effect on our
business, operating results and financial condition.
If our service provider customers are not able to successfully market enhanced
IP services to their subscribers, our business could be seriously harmed.
We have limited marketing resources and depend upon the marketing efforts of
our service provider customers to establish a market with their subscribers for
enhanced IP services based on our solution. If subscribers demand enhanced IP
services, we expect service providers to license more products and applications
to support the increased traffic and functionality. Accordingly, our results
will depend in significant part on the efforts and success of our service
provider customers to deploy enhanced IP services based on our software.
Because we have a limited operating history in our current business, we are
facing new risks and uncertainties, which makes evaluating our prospects
difficult.
Although we began operating in January 1993, the increasing popularity and
use of IP networks and the Internet have occurred only recently and, as a
result, the focus of our business changed significantly. We did not begin to
deliver our IP LaunchPad platform until September 1999. As a result, the
operating history of our business in its current form is limited and we are
facing new risks and challenges. You should evaluate our prospects in light of
the risks and uncertainties encountered by companies in the early stages of
development, particularly companies in new and rapidly evolving markets. These
risks include:
. unpredictability of operating results and future revenues;
. unproven market acceptance of our products;
. customer concentration;
. dependence on IP networks, service providers, strategic relationships
and our IP LaunchPad solution;
. increased competition; and
. general economic and market conditions.
We may not be successful in addressing any or all of these risks. Our failure
to address these risks could have a material adverse effect on our business,
operating results and financial condition.
If IP LaunchPad is not successful, our future revenues and profits will be
impaired.
Our future revenues and profits substantially depend on the commercial
success of IP LaunchPad. Our sales growth strategy is to target service
providers early in the evolution of enhanced IP services. We cannot be certain
that service providers will choose to offer enhanced IP services over their IP
networks, but even if they do offer such services, the growth of such services
will be fueled by subscribers' demands. Even if enhanced IP services are
adopted by subscribers and service providers, IP LaunchPad may not be accepted
on a timely basis or at all. Failure of IP LaunchPad to achieve market
acceptance for these or any other reasons could have a material adverse effect
on our business, operating results and financial condition.
7
<PAGE>
We may not be able to achieve or sustain growth in our business if service
providers do not purchase additional applications.
Even if our IP LaunchPad and our IP LaunchPad Fax Suite, the first enhanced
IP services application offered as part of our solution, achieve market
acceptance, we cannot be certain that service providers will purchase
additional applications from us to support increased functionality, such as
voice messaging services. If subscriber demand for IP LaunchPad and IP
LaunchPad Fax Suite does not develop or develops more slowly than anticipated,
our ability to increase revenues from licensing additional applications to
support increased functionality will be limited and could have a material
adverse effect on our business, operating results and financial condition.
If we are unable to introduce new products successfully, our business prospects
will be impaired.
The successful implementation of our business model depends on our ability
to introduce certain new products and to introduce these new products on
schedule. We recently entered into an agreement with a service provider to
begin trials of certain applications included in our IP LaunchPad Voicemail
Suite. We also are currently developing and intend to introduce the other
applications included in our IP LaunchPad Voicemail Suite as well as our IP
LaunchPad Wireless Data Suite. We cannot assure you that we will be able to
introduce these products or our other products under development on schedule,
or at all. In addition, early releases of software often contain errors or
defects. We cannot assure you that, despite our extensive testing, errors will
not be found in our new product releases before or after commercial release,
which could result in product re-development costs and loss of, or delay in,
market acceptance. A failure by us to introduce planned products or to
introduce such products on schedule could have a material adverse effect on our
business prospects.
Because our customer base is highly concentrated, the loss of one or more of
our significant customers could cause our business to suffer.
Our customer base is highly concentrated. Our top five customers accounted
for 52% of our revenues for the year ended December 31, 1999. One of our
customers accounted for 25% of our revenues for the fiscal year ended December
31, 1999. We do not expect this customer to account for any revenues in the
year ended December 31, 2000. However, other customers may account for more
than 10% of our revenues in the future and we expect that a small number of our
customers will continue to account for a substantial portion of our revenues.
In addition, companies in the Internet service and telecommunications
industries have been consolidating, resulting in a limited number of service
providers controlling an increasing portion of IP network traffic. Therefore,
we believe that our revenues will be largely dependent upon product acceptance
by a small number of service providers. If our products and services are not
widely deployed, or if we were to lose any one major customer due to
consolidation or otherwise, our business, operating results and financial
condition could be materially adversely affected. Our ability to increase our
revenues in the future will also depend in part upon our ability to make sales
to new service provider customers. In the event that such sales do not occur,
or if one or more of our service provider customers elects to purchase and
market competing technologies or products, it could have a material adverse
effect on our business, operating results and financial condition.
We typically enter into perpetual license agreements with each of our
service provider customers. We seek to enter into agreements substantially on
the terms set forth in our form of software license agreement, but individual
customer contracts are negotiated and may
8
<PAGE>
include provisions which vary materially from our standard agreement. Our
customer agreements generally do not obligate our customers to license software
or purchase services or maintenance support from us in the future. As a result,
our customer contracts do not provide any assurance of future revenues.
Our failure to successfully compete in our highly competitive market could
seriously harm our business.
Our industry is intensely competitive, rapidly evolving and subject to rapid
technological change. We expect competition to intensify in the future. Several
organizations offer components that compete with certain components of our
solutions and may become increasingly competitive with us in the future. Many
companies that offer products or services that compete with one or more of our
products or services have greater financial, technical, product development,
marketing and other resources than we have. These organizations may be better
known and may have more customers than we have. We may be unable to compete
successfully against these organizations.
As our product and service offerings evolve and the markets in which we
compete develop, we may in the future face competition from several other types
of organizations. In addition we expect our competitors to continue to improve
the performance of their current products and introduce new products or new
technologies. Certain of our current and future competitors may have greater
brand name recognition that could give them an advantage over us in gaining
market share. Successful new product introductions or enhancements by current
or future competitors could reduce the sales or market acceptance of our
products and services, perpetuate intense price competition or make our
products obsolete.
To be competitive, we must continue to invest significant resources in
research and development, sales and marketing and customer support. We cannot
be sure that we will have sufficient resources to make these investments or
that we will be able to make the technological advances necessary to be
competitive. Increased competition may result in price reductions, reduced
gross margins and loss of market share. Our failure to compete successfully
against current or future competitors could seriously harm our business,
operating results and financial condition.
We experience long sales and deployment cycles causing us to incur expenditures
prior to recognizing related revenues.
We typically experience long sales and deployment cycles. The sales cycle
varies between customers and generally ranges from one to six months. Because
the licensing of our products generally involves a significant capital
expenditure by the customer, our sales process is subject to lengthy approval
processes and delays. We often devote significant time and resources to a
prospective customer, including costs associated with site visits, product
demonstrations and trials and feasibility studies, without any assurance that
the prospective customer will decide to license our products. We cannot be
certain that the sales cycle for our products will not lengthen in the future.
The deployment cycle also generally varies by customer from one to three
months. The time required to deploy our solution varies significantly depending
on a number of factors, including the needs and skill set of the customer, the
size of the deployment, the complexity of the customer's network environment,
the quantity and degree of hardware configuration necessary to deploy our
solution, the procurement of hardware and PSTN access, and the customer's
installation schedule. During the deployment phase, we continue to devote
significant time and resources to the customer to install and test the products
and train the
9
<PAGE>
customer. Our software is generally subject to acceptance testing once a
license agreement has been entered into, and we cannot assure you that these
tests will be successful or that our customers will be obligated to pay for
software under these agreements.
The emerging and evolving nature of the enhanced IP services market may
cause prospective customers to delay their purchase decisions as they evaluate
new technologies and develop and implement new systems. The sales and
deployment process generally becomes more complex as the order size increases,
which may lead to potential delays in receipt of these orders. As a result, our
long and unpredictable sales cycle contributes to the uncertainty of our future
operating results.
Because we depend on foreign revenues, we are exposed to currency fluctuations,
import barriers and other risks related to conducting foreign operations.
We derived approximately 20% of our net revenues from customers outside of
the United States for the year ended December 31, 1999. We expect this
percentage to increase in 2000, as one component of our growth strategy is to
expand our international presence by expanding our direct sales force in Europe
and Asia. We derived approximately 41% of our net revenues from customers
outside the United States in the three months ended March 31, 2000. Our
international business operations are and will be subject to a number of risks,
including:
. difficulties in managing foreign operations, enforcing agreements and
collecting receivables through foreign legal systems;
. burdens of complying with a wide variety of foreign laws, particularly
with respect to intellectual property and license requirements;
. import or export licensing and product certification requirements and
restrictions;
. tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries;
. potential adverse tax consequences, including restrictions on
repatriation of earnings;
. fluctuations in currency exchange rates;
. impact of recessions in economies outside the United States, including
foreign currency devaluation, higher interest rates, spiraling
inflation, and increased government regulation or ownership of
traditional private businesses;
. longer payment cycles;
. fluctuations in the value of foreign currencies; and
. unexpected regulatory, economic or political changes in foreign markets.
The relationship between non-dollar denominated revenues and dollar
denominated expenses may subject us to significant foreign exchange risks. We
cannot be certain that these factors will not have a material adverse effect on
our business, operating results and financial condition.
Export regulations, either in their current form or as may be subsequently
enacted, may limit our ability to distribute our software outside the United
States. The unlawful export of our software could also harm our business.
Although we take precautions against unlawful export of our software, the
global nature of the Internet makes if difficult to effectively control the
distribution of software.
We currently have offices in Belgium, France, the Netherlands and the United
States. We intend to expand the scope of our international operations, which
will require us to enhance
10
<PAGE>
our communications infrastructure and may include the establishment of
additional overseas operations. If we are unable to expand our international
operations effectively and quickly, we may be unable to successfully market,
sell, deliver and support our products internationally.
If we are not able to expand our direct sales force and our relationships with
resellers, our ability to execute our growth strategy will be seriously harmed.
In 1999, we licensed substantially all of our products through our direct
sales force. As of April 30, 2000, we had 16 direct sales representatives. In
addition, we entered into two agreements with resellers in the quarter ended
March 31, 2000, and intend to enter into additional agreements with resellers
in the future. Our future success depends on increasing the size and scope of
our direct sales force and our relationships with resellers. There is intense
competition for personnel, and we cannot guarantee that we will be able to
attract, assimilate or retain additional qualified sales personnel or
relationships with resellers on a timely basis. Failure to add additional sales
representatives and expand our relationships with resellers would have a
material adverse effect on our business, operating results and financial
condition.
We must establish and maintain strategic relationships in order to successfully
expand our business.
To be successful, we must establish and maintain strategic relationships
with leaders in a number of telephony and Internet industry segments. This is
critical to our success because we believe that these relationships will enable
us to:
. extend the reach of our products and services to a larger number of
service providers;
. develop and deploy new products;
. further enhance the Open Port brand; and
. generate additional revenues.
Entering into strategic relationships is complicated because some of our
current and future strategic allies may decide to compete with us in some or
all of our markets. In addition, we may not be able to establish relationships
with key participants in the telephony industry if we have relationships with
their competitors. Moreover, some potential strategic allies have resisted, and
may continue to resist, working with us until our products and services have
achieved widespread market acceptance. Our agreements with our strategic allies
typically are subject to termination on short notice.
Once we have established strategic relationships, we will depend on our
allies' ability to generate increased acceptance and use of our products and
services. To date, we have established only a limited number of strategic
relationships, and many of these relationships are in the early stages of
development. We have limited experience in establishing and maintaining
strategic relationships with telephony and Internet industry participants. If
we lose any of these strategic relationships or fail to establish additional
relationships, or if our strategic relationships fail to benefit us as
expected, we may not be able to execute our business plan, and our business
will suffer.
Because we have a history of losses and may continue to incur significant
expenses, we cannot be certain that we will achieve profitability.
We incurred net losses of $9.5 million for the year ended December 31, 1998,
$15.9 million for the year ended December 31, 1999, and $4.0 million for the
three months ended March 31, 2000. As of March 31, 2000, we had an accumulated
deficit of $90.4 million, $44.3 million of which was attributable to accretion
of redeemable preferred stock and warrants to acquire preferred stock and
preferred stock dividends. Our losses resulted from the significant costs
11
<PAGE>
we incurred to develop our products and services and our limited revenues to
date. Because we expect to incur increased product development, sales and
marketing, and administrative expenses as we execute our business strategy, we
will need to generate significant revenues to achieve and maintain
profitability. We expect to continue to incur substantial operating losses for
the next several quarters. Our operating losses may continue to increase as we
invest in the growth of our business and the implementation of our business
strategy. If we are able to successfully implement our business strategy, we
believe that we will achieve profitability. However, because the market for
enhanced IP services is new and rapidly changing and implementation of our
business strategy depends on a variety of factors, many of which are beyond our
control, the timing of when we become profitable cannot be determined at this
time. We cannot be certain that we will ever achieve profitability. If we do
achieve profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future. If we fail to
achieve profitability within the time frame expected by our investors, the
market price of our common stock will be adversely affected.
Our failure to meet significant capital requirements may seriously harm our
business and results of operations.
Our capital requirements in connection with our sales and marketing and
product development activities have been and will continue to be significant.
Our future capital requirements will depend on many factors, some of which are
not within our control. We may need to raise additional funds in the future in
order to fund more rapid expansion, to develop newer or enhanced products, or
to respond to competitive pressures. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
our stockholders will be reduced, stockholders may experience additional
dilution and such securities may have rights, preferences or privileges senior
to those of the holders of our common stock. Our issuance of additional equity
securities could also result in further dilution to the per share value of our
common stock. If we raise funds by incurring debt, we may be forced to accept
terms that restrict our ability to make capital expenditures and incur
additional indebtedness, which may impede our ability to achieve the growth
rate expected under our business plan. We cannot assure you that additional
financing will be available on terms favorable to us, or at all.
Failure to alter our products to meet the demands of technological innovation
in the enhanced IP services industry could seriously harm our business.
Our future growth depends on our successful and timely introduction of new
products and services in a market that is new and rapidly evolving. The IP
network and enhanced IP services markets are characterized by rapid
technological change, frequent new product introductions embodying new
technologies, changes in customer demands and evolving industry standards that
could render our existing products obsolete and unmarketable. As a result, our
future operating results will depend upon our ability to address the
increasingly sophisticated and varied needs of our customers by developing and
introducing new products and enhancements to our existing software on a cost-
effective and timely basis that keep pace with technological developments and
emerging industry standards. We cannot be certain that we will be successful in
developing and marketing new products and enhancements to our software that
respond to technological change, evolving industry standards or customer needs,
that we will not experience difficulties that could delay or prevent the
successful development, introduction and sale of such products and enhancements
or that such products and enhancements will adequately meet the requirements of
the marketplace and achieve any significant degree of market acceptance. We
have in the past experienced delays in the release dates of new products and
enhancements. Any material delay in the release dates of future products or
enhancements or any failure of such future products or enhancements to achieve
market acceptance when released could have a material adverse effect on our
business, operating results and financial condition. In addition, we cannot be
certain that the introduction or announcement of new product offerings by us or
our competitors will not
12
<PAGE>
cause customers to defer or forego purchases of current versions of our
software, which could have a material adverse effect on our business, operating
results and financial condition.
Governmental regulation of IP networks may seriously harm our business.
There are currently few laws and regulations directly applicable to access
to, or commerce over, IP networks. Due to the increasing popularity and use of
IP networks, several legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations.
It is possible that a number of laws and regulations may be adopted with
respect to IP networks, covering issues such as content, privacy, pricing,
encryption standards, consumer protection, electronic commerce, taxation,
copyright infringement and other intellectual property issues. In addition,
while the Federal Communications Commission does not currently regulate service
providers which do not otherwise qualify as "telecommunications providers"
under the terms of the Telecommunications Act of 1996, the FCC recently stated
its intention to consider whether to regulate voice and fax telephony services
provided over IP networks as "telecommunications." Additionally, the European
Union has recently adopted a directive regarding the collection and
transmission of data over IP networks. Member states of the European Union may
adopt laws to implement this directive which could impede the expected growth
of IP networks resulting in a material adverse effect on our business. We
cannot assure you that current or new government laws and regulations, or the
application of existing telecommunications and other laws and regulations will
not expose us or our customers to significant liabilities, significantly
decrease the use of IP networks or otherwise cause a material adverse effect on
our business, operating results or financial condition.
We have a limited ability to protect our intellectual property rights, and
others could infringe on or misappropriate our proprietary rights and
information.
Our success and ability to compete are substantially dependent upon our
internally developed technology. While we rely on patent, copyright, trade
secret and trademark law to protect our technology, we believe that factors
such as the technological and creative skills of our personnel, new product
developments, frequent product enhancements and reliable product maintenance
are essential to establishing and maintaining a technology leadership position.
We cannot assure you that our competitors will not develop technologies that
are similar or superior to our technology. We generally enter into agreements
regarding confidentiality and ownership of intellectual property with our
employees, consultants and strategic allies, and generally control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. We have in the past and may in the future alert parties
of potential infringement claims. To date we have not commenced or defended any
litigation relating to the validity of our proprietary rights. Policing
unauthorized use of our products is difficult, and there can be no assurance
that the steps taken by us will prevent misappropriation or infringement of our
technology, particularly in foreign countries where the laws may not protect
our proprietary rights as fully as the laws of the United States. The failure
to protect our intellectual property in a meaningful manner could have a
material adverse effect on our business, operating results and financial
condition. Substantial litigation regarding intellectual property rights exists
and is increasing in the software industry, and we expect that software
products may be increasingly subject to third-party infringement claims as the
number of competitors in our industry segments grows and the functionality of
products in different industry segments overlaps. Litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, or to determine the validity and scope of the proprietary rights of
others.
Our products may infringe the intellectual property rights of others.
We cannot be certain that third parties will not claim that our technology
infringes their rights in products or enhancements to those products. We also
cannot be certain that third
13
<PAGE>
parties will not claim that our names or the logos associated with our products
or services infringe their trademark rights. Any such claims, with or without
merit, could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays, require us
to change our names or logos, or require us to develop non-infringing
technology or enter into royalty or licensing agreements to provide non-
infringing technology to our customers. A successful claim of infringement
against us could result in a judgment awarding substantial damages, as well as
injunctive or other equitable relief that could effectively block our ability
to provide products or services. In addition, we cannot assure you that royalty
or licensing agreements for any intellectual property of third parties that
might be required for our products or services will be available on
commercially reasonable terms, or at all.
Defects in our products could seriously harm our business.
Products as complex as those we offer frequently contain undetected defects
or failures that may occur at any point in the product's life. Despite testing
by us and our customers, defects or failures may occur in existing or new
products. These problems could result in lost or delayed market acceptance,
lost or delayed revenues, lost market share, diversion of development
resources, injury to our reputation or increased service and warranty costs,
any of which could have a material adverse effect on our business, operating
results and financial condition. We maintain product liability insurance that
we believe is sufficient for our business, and we review our insurance coverage
annually to determine whether we have adequate coverage. However, we cannot
assure you that we will be able to obtain continuing or additional coverage on
acceptable terms, at an acceptable price, or at all. A claim brought against us
that is under-insured or uninsured could materially harm our financial
condition.
Our reliance on third-party software may result in product defects or delays.
We rely on certain technology that is licensed from certain third parties.
There can be no assurance that the third-party software technology will
continue to be available to us on commercially reasonable terms or at all. The
loss or inability to maintain any of these software licenses could result in
delays or reductions in product shipments until equivalent software could be
identified and licensed or compiled, which could materially adversely affect
our business, operating results and financial condition. We also depend on
these third parties to deliver reliable products, support these products,
enhance their current products, develop new products on a timely and cost-
effective basis, and respond to emerging industry standards and other
technological changes. The failure of these third parties to meet these
criteria could seriously harm our business, financial condition and results of
operations. Additionally, our customers may sue us, and we may be liable, for
defects in the software developed by third parties that we incorporate into our
products. Typically, our agreements with third party software developers
require the developers to reimburse us for most losses resulting from defects.
However, we cannot assure you that we will be entitled to indemnification for
claims that we are liable for, that a court would enforce any such
reimbursement remedies or that the developers would have the financial ability
to satisfy any such requirements.
To remain competitive and expand our growth, we need to manage our growth and
expansion effectively.
We are currently experiencing a period of significant expansion. Our
historical growth has placed a significant strain on our managerial,
operational, financial and other resources. We have grown from 74 employees as
of December 31, 1997 to 120 employees as of April 30, 2000. We are required to
manage multiple relationships with various customers, strategic partners,
resellers, technology licensors, vendors and other third parties. Managing
these relationships will become more challenging in the event of future growth
or an increase in the number of third party relationships. In addition, we
cannot assure you that our systems,
14
<PAGE>
procedures or controls will be adequate to support our operations or that our
management will be able to manage any growth effectively. To effectively manage
our growth, we must continue to improve our operational, financial and
management information systems and to expand, train and manage our employee
base. If we are not able to do so, it could have a material adverse effect on
our business, operating results and financial condition.
Loss of any of our key personnel could seriously harm our business.
Our future success depends to a significant extent on the performance of our
senior management team and other key employees, many of whom have worked
together for only a short period of time. In addition, because of the technical
nature of our business, our success will also depend on our ability to attract,
integrate, motivate and retain additional highly skilled technical, sales and
marketing personnel. Competition for senior management and technical, sales and
marketing personnel in technology-based businesses is intense. We cannot assure
you that we will be able to retain our senior management team and other key
employees. We do not intend to maintain key-person insurance on any of our
employees following completion of this offering. The loss of any member of our
senior management team or other key employees or our failure to attract,
integrate, motivate and retain additional key employees could have a material
adverse effect on our business, operating results and financial condition.
If we are unable to identify and successfully integrate acquisitions, our
ability to expand our product and service offerings and our customer base may
be limited.
We may seek to acquire complementary businesses or technologies.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, services, products and personnel of the acquired company,
the diversion of management's attention from other business concerns, entry
into markets in which we have little or no direct prior experience and the
potential loss of key employees of the acquired company. The successful
implementation of an acquisition strategy depends on our ability to identify
suitable acquisition candidates, acquire companies on acceptable terms and
integrate their operations and technology successfully with our own. We are
unable to predict whether or when any prospective acquisition candidate will
become available or the likelihood that any acquisition will be completed.
Moreover, in pursuing acquisition opportunities, we may compete for acquisition
targets with other companies with similar growth strategies which may be larger
and have greater financial and other resources than we have. Competition among
potential acquirors could result in increased prices for acquisition targets.
Future acquisitions may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt, the assumption of known and
unknown liabilities, the writeoff of software development costs and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition, operating results and prospects.
Risks Related to this Offering and our Stock
Because our common stock price is likely to be highly volatile, the market
price of our common stock could drop unexpectedly.
Prior to this offering, there has been no public market for our common
stock. We cannot guarantee that an active trading market will develop or be
sustained or that the market price of our common stock will not decline. Even
if an active trading market develops, the market price of our common stock is
likely to be highly volatile and could fluctuate significantly in response to
various factors, including:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new services or products
by us or our competitors;
15
<PAGE>
. timeliness of our introductions of new products;
. changes in financial estimates by securities analysts;
. conditions and trends in the enhanced IP service, wireless service,
Internet, e-commerce and telecommunications markets;
. announcements by us or our competitors of significant acquisitions,
strategic alliances or joint ventures; and
. changes in general market conditions and in the market valuations of
other telecommunications and Internet companies.
Many of these factors are beyond our control. In addition, the stock
markets, especially the Nasdaq National Market, have experienced extreme price
and volume fluctuations that have affected the market prices of equity
securities of many technology companies, and Internet-related companies in
particular. These fluctuations have often been unrelated or disproportionate to
operating performance. While the trading prices of many technology companies'
stocks were at or near historical highs in the first quarter of 2000, the
prices of many of these stocks have recently experienced significant decreases
and high volatility. We cannot assure you that current trading levels will be
sustained. These broad market factors may materially affect the trading price
of our common stock. General economic, political and market conditions like
recessions and interest rate fluctuations may also have an adverse effect on
the market price of our common stock. In the past, following periods of
volatility in the market price for a company's securities, stockholders have
often initiated securities class action litigation. Any securities class action
litigation could result in substantial costs and the diversion of management's
attention and resources.
Our quarterly results are likely to be volatile.
Our limited operating history and the emerging nature of our marketplace
make prediction of future revenues difficult. We believe that our ability to
accurately forecast revenues from sales of our software is also limited because
of the lengthy sales cycle involved in selling our software and the
unpredictability of our customers' service deployment plans. This makes it
difficult to predict the quarter in which sales will occur. Our expense levels
are based, in part, on our expectations regarding future revenues, and our
expenses are generally fixed, particularly in the short term. We may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Any significant shortfall of revenues in relation to our
expectations could negatively affect our quarterly operating results.
Our operating results have varied on a quarterly basis during our limited
operating history and are likely to fluctuate significantly in the future. Our
operating results may be below the expectations of our investors as a result of
a variety of factors, many of which are outside our control. Factors that may
affect our quarterly operating results include:
. fluctuating demand for our products and services;
. size and timing of sales of our products and services;
. our customers' budget constraints and services deployment plans;
. changes in the growth rate of IP network usage;
. market acceptance of enhanced IP services in general and the IP
LaunchPad solution in particular;
. unexpected delays in new product introductions;
. our ability to control costs;
16
<PAGE>
. success in expanding our direct sales force;
. our ability to anticipate and adapt to rapidly changing technology;
. introduction of new products and services by us or our competitors;
. seasonal variations in purchasing by our customers (for example, we may
experience a decline in purchasing by European customers during the
summer months);
. changes in our pricing policies or those of our competitors; and
. general economic conditions and specific economic conditions in the
Internet and related industries.
Any one of these factors could cause our revenues and operating results to vary
significantly in the future. Accordingly, we believe that quarter-to-quarter
comparisons of our operating results are not necessarily meaningful. Investors
should not rely on the results of one quarter as an indication of our future
performance.
Because we will have broad discretion in using the net proceeds of this
offering, we may not use the proceeds to the satisfaction of investors.
Our management will have broad discretion over the allocation of the net
proceeds from this offering as well as over the timing of their expenditure
without stockholder approval. We intend to use the net proceeds from this
offering for the repayment of indebtedness, the growth and expansion of our
business, working capital and other general corporate purposes, including
possible acquisitions of complementary technologies or businesses. We have not
yet determined the amount of net proceeds to be used specifically for each of
the foregoing purposes. It is likely, however, that our spending patterns will
change following this offering. As a result, you will be relying upon
management's judgment with only limited information about our specific
intentions for the use of the net proceeds of this offering. Our failure to
apply these proceeds effectively could cause our business to suffer.
We may have substantial sales of our common stock after this offering.
After this offering, we will have 19,281,591 shares of common stock
outstanding. Sales of a substantial number of our shares of common stock in the
public market following this offering or the expectation of such sales could
cause the market price of our common stock to decline. All the shares sold in
this offering and 1,808 shares held by existing stockholders will be freely
tradable. The remaining shares of common stock outstanding after this offering
will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Date of Availability for Sale Number of Shares
----------------------------- ----------------
<S> <C>
, 2000 (180 days after the date of this prospectus)..... 10,571,879
At various times thereafter upon registration under the
Securities Act or the expiration of one-year holding
periods................................................... 4,707,904
</TABLE>
Of the shares available for sale on , 2000, 4,503,003 shares are
subject to a limitation on the number of shares that can be sold in any three-
month period. Deutsche Bank Securities Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the shares subject to
lock-up agreements. After this offering, the holders of approximately
13,758,888 shares of common stock and the holders of warrants to purchase
approximately 381,857 shares of common stock will be entitled to registration
rights with respect to these shares until the holders may sell the shares under
Rule 144(k) of the Securities Act. These include three demand registration
rights we granted to the holders of our Series E preferred stock, which will
convert into 4,707,904 shares of common stock upon completion of this offering,
which may first be exercised 120 days after this offering. We expect such
registration rights to be exercised, which would require us to use our best
commercial efforts to cause a registration statement under the Securities Act
to become effective on the 181st day
17
<PAGE>
after the effectiveness of this registration statement and to keep such
registration statement effective for 180 days. We also intend to file a
registration statement after consummation of this offering to register all
shares of common stock that we may issue under our employee benefit plans.
After these registration statements are effective, these shares will be
eligible for resale in the public market without restriction. For more
information, see "Shares Eligible for Future Sale."
We are subject to anti-takeover provisions which could affect the price of our
common stock.
We will be a Delaware corporation upon completion of this offering. Certain
provisions of Delaware law and of our certificate of incorporation and by-laws
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from attempting to acquire control of us. For
example, our certificate of incorporation and by-laws will provide for a
classified board of directors, will limit who may call special meetings of
stockholders, and will allow us to issue preferred stock with rights senior to
those of the common stock without any further vote or action by the
stockholders. In addition, we will be subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law, which could have the
effect of delaying, deterring or preventing a change in control of us. These
provisions could deprive our stockholders of an opportunity to receive a
premium for their common stock as part of a sale of our company or may
otherwise discourage a potential acquiror from attempting to obtain control
from us, which in turn could have a material adverse effect on the market price
of our common stock.
Because our early investors paid substantially less than the initial public
offering price when they purchased their shares, new investors will incur
immediate and substantial dilution in their investment.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in net tangible book value per share because the price
that investors pay will be substantially greater than the net tangible book
value per share of the shares acquired. This dilution is due in large part to
the fact that our earlier investors paid substantially less than the initial
public offering price when they purchased their shares. Based on the assumed
initial public offering price of $11.00 per share, existing Open Port
stockholders will, in the aggregate, own 15,260,196 shares of common stock and
have approximately $112.2 million of unrealized gains immediately following
completion of this offering. Investors purchasing common stock at the assumed
initial public offering price of $11.00 per share will incur immediate dilution
of approximately $8.40 in the book value per share of common stock from the
price paid. In addition, there were options and warrants for the purchase of
2,474,951 shares of common stock outstanding at April 30, 2000. To the extent
such options and warrants are exercised in the future, there will be further
dilution to new investors.
Our existing stockholders will have significant voting control over matters
requiring stockholder approval.
On completion of this offering, our officers, directors, and their
affiliates will beneficially own, in the aggregate, approximately 28.6% of our
outstanding common stock and our existing stockholders will beneficially own,
in the aggregate, approximately 79.3% of our outstanding common stock. As a
result, these stockholders will be able to exercise significant control over
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions, which may have the effect
of delaying or preventing a third party from acquiring control over us.
18
<PAGE>
We do not intend to pay dividends.
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
FORWARD LOOKING STATEMENTS
Many of the statements included in this prospectus contain forward-looking
statements and information relating to our company. We generally identify
forward-looking statements by the use of terminology such as "may," "will,"
"could," "should," "potential," "continue," "expect," "intend," "plan,"
"estimate," "anticipate," "believe," or similar phrases or the negatives of
such terms. We base these statements on our beliefs as well as assumptions we
made using information currently available to us. Such statements are subject
to risks, uncertainties and assumptions, including those identified in the
foregoing "Risk Factors," as well as other matters not yet known to us or not
currently considered material by us. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Given these risks and uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements.
Forward-looking statements do not guarantee future performance. Recognize these
statements for what they are and do not rely on them as facts. We undertake no
obligation to update or revise any of the forward-looking statements to reflect
new events or circumstances after the date of this prospectus.
USE OF PROCEEDS
We estimate that we will receive approximately $40.2 million in net proceeds
from this offering based on an assumed initial public offering price of $11.00
per share and after deducting the underwriting discounts and commissions and
estimated expenses payable by us. If the underwriters' over-allotment option is
exercised in full, we estimate that we will receive approximately $46.3 million
in net proceeds from this offering.
We expect to use $5.0 million of the net proceeds from this offering to
repay the outstanding balance under our credit facility with CID Mezzanine,
which accrues interest at a rate of 11% annually and is due in July 2001. See
"Related Party Transactions--CID Loan and Warrant." We intend to use the
balance of the net proceeds from this offering to fund the growth and expansion
of our business, and for working capital and other general corporate purposes,
including possible acquisitions of complementary technologies or businesses.
However, as of the date of this prospectus, we have no commitment or agreement
relating to any material acquisition or investment. We have not yet determined
the amount of net proceeds to be used specifically for any of the foregoing
purposes except the repayment of indebtedness. Accordingly, management will
have significant flexibility in applying the net proceeds of this offering.
Pending their use, we intend to invest the net proceeds of this offering in
short-term, investment-grade interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future. Any determination in the future to
pay dividends will depend upon our financial condition, capital requirements,
results of operations and other factors deemed relevant by our board of
directors, including any contractual or statutory restrictions on our ability
to pay dividends.
19
<PAGE>
CAPITALIZATION
The following table shows our capitalization as of March 31, 2000 on an
actual, pro forma and pro forma as adjusted basis. The "actual" column reflects
our capitalization as of March 31, 2000 on an historical basis, without any
adjustments to reflect subsequent or anticipated events.
The "pro forma" column reflects our capitalization as of March 31, 2000 with
adjustments to reflect our reincorporation in Delaware upon the closing of this
offering, which will result in, among other things, the adoption of a new
certificate of incorporation that provides for authorized capital stock of 80
million shares of common stock and ten million shares of undesignated preferred
stock, and the conversion of all outstanding shares of preferred stock into
common stock upon the closing of this offering.
The "pro forma as adjusted" column reflects our capitalization as of March
31, 2000 with the preceding "pro forma" adjustments and adjustments for the
receipt of the estimated net proceeds from our sale of the 4,000,000 shares of
our common stock in this offering at an assumed initial public offering price
of $11.00 per share and the application of the net proceeds therefrom. See "Use
of Proceeds."
None of the columns shown below reflects:
. the 1,879,799 shares of common stock issuable as of March 31, 2000 upon
the exercise of outstanding stock options under our 1995 Incentive Stock
Option Plan and our 1995 Non-Employee Stock Option Plan at a weighted
average exercise price of $4.86 per share;
. the 414,681 shares of common stock issuable as of March 31, 2000 upon
the exercise of outstanding warrants at a weighted average exercise
price of $4.41 per share; and
. an aggregate of 492,300 shares of common stock available as of March 31,
2000 for future grants under our 1995 Stock Option Plans. See
"Management-Employee Benefit Plans."
<TABLE>
<CAPTION>
March 31, 2000
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Long-term obligations, less current portion.... $ 4,918 $ 4,918 $ 354
Redeemable convertible preferred stock at
redemption value, par value $.001 per share;
37,288,245 shares authorized, 36,597,039
shares issued and outstanding, actual; no
shares authorized, issued and outstanding, pro
forma and pro forma as adjusted............... 99,541 -- --
Stockholders' deficit:
Common stock, par value $.001 per share;
71,000,000 shares authorized, 3,428,915
shares issued and outstanding, actual;
80,000,000 shares authorized, 15,260,196
shares issued and outstanding, pro forma;
80,000,000 shares authorized, 19,260,196
shares issued and outstanding, pro forma as
adjusted.................................... 13 25 25
Preferred stock, undesignated par value; no
shares authorized, issued and outstanding,
actual; 10,000,000 shares authorized, no
shares issued and outstanding, pro forma and
pro forma as adjusted....................... -- -- --
Additional paid-in capital................... 5,661 105,190 145,390
Deferred stock-based compensation............ (4,343) (4,343) (4,343)
Stock purchase notes receivable.............. (126) (126) (126)
Accumulated other comprehensive loss......... (69) (69) (69)
Accumulated deficit.......................... (90,423) (90,423) (90,860)
-------- -------- --------
Total stockholders' equity (deficit)......... (89,287) 10,254 50,017
-------- -------- --------
Total capitalization........................ $ 15,172 $ 15,172 $ 50,371
======== ======== ========
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was approximately
$10.3 million or $0.68 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets reduced by
the amount of our total liabilities, divided by the number of shares of common
stock outstanding after giving effect to the automatic conversion of all
outstanding shares of preferred stock upon the closing of this offering.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of common stock in this
offering and the net tangible book value per share of common stock immediately
after the closing of this offering. After giving effect to the sale of the
4,000,000 shares of common stock offered by us at an assumed initial public
offering price of $11.00 per share, and after deducting the underwriting
discount and estimated offering expenses payable by us, our pro forma as
adjusted net tangible book value at March 31, 2000 would have been
approximately $50.0 million or $2.60 per share of common stock. This represents
an immediate increase in pro forma as adjusted net tangible book value of $1.92
per share to existing stockholders and an immediate dilution of $8.40 per share
to new investors in the common stock. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $11.00
Pro forma net tangible book value per share before the
offering.................................................... $0.68
Increase per share attributable to new investors............. 1.92
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................. 2.60
------
Dilution per share to new investors............................ $ 8.40
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000
after giving effect to this offering, the difference between existing
stockholders and new investors with respect to the number of shares of common
stock purchased, the total consideration paid and the average price per share
paid to us for those shares. The table assumes that the initial public offering
price will be $11.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 15,260,196 79.2% $55,654,938 55.8% $ 3.65
New investors.............. 4,000,000 20.8 44,000,000 44.2 11.00
---------- ----- ----------- -----
Total.................... 19,260,196 100.0% $99,654,938 100.0%
========== ===== =========== =====
</TABLE>
The outstanding share information shown in the table above excludes:
. 1,879,799 shares of common stock issuable as of March 31, 2000 upon the
exercise of outstanding stock options under our 1995 Incentive Stock
Option Plan and our 1995 Non-Employee Stock Option Plan at a weighted
average exercise price of $4.86 per share;
. an aggregate of 414,681 shares of common stock issuable as of March 31,
2000 upon the exercise of outstanding warrants at a weighted average
exercise price of $4.41 per share; and
. an aggregate of 492,300 shares of common stock available as of March 31,
2000 for future grants under our 1995 Stock Option Plans. See
"Management-Employee Benefit Plans."
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data set forth below as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999 are derived from the audited consolidated financial
statements which are included elsewhere in this prospectus. The selected
consolidated financial data as of December 31, 1995, 1996 and 1997 and for each
of the two years in the period ended December 31, 1996 are derived from audited
consolidated financial statements not included in this prospectus. The balance
sheet data as of March 31, 2000 and the statement of operations data for the
three month periods ended March 31, 1999 and 2000 were derived from our
unaudited consolidated financial statements that are included in this
prospectus. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which we consider necessary for a fair
presentation of the consolidated financial position and results from operations
for these periods. The historical results are not necessarily indicative of the
results to be expected in any future period. You should read the selected
consolidated financial data shown below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Software products...... $ 1,218 $ 892 $ 5,048 $ 3,241 $ 907 $ 26 $ 773
Maintenance and
support services...... 65 517 1,266 1,600 1,443 359 580
Hardware products...... 642 867 835 506 -- -- --
------- ------- -------- -------- -------- ------- --------
Total revenues....... 1,925 2,276 7,149 5,347 2,350 385 1,353
------- ------- -------- -------- -------- ------- --------
Cost of revenues:
Software products...... 52 131 135 579 667 129 167
Maintenance and
support services...... 118 1,775 2,668 2,871 2,403 552 780
Hardware products...... 378 521 430 331 -- -- --
------- ------- -------- -------- -------- ------- --------
Total cost of
revenues............ 548 2,427 3,233 3,781 3,070 681 947
------- ------- -------- -------- -------- ------- --------
Gross profit (loss)..... 1,377 (151) 3,916 1,566 (720) (296) 406
Operating expenses:
Marketing and
selling............... 762 3,310 4,249 5,029 6,728 1,606 1,557
General and
administrative........ 1,009 1,449 1,547 1,932 2,304 444 738
Research and
development........... 744 2,780 4,058 3,730 4,761 1,158 1,661
Stock-based
compensation.......... -- -- -- -- -- -- 101
------- ------- -------- -------- -------- ------- --------
Total operating
expenses............ 2,515 7,539 9,854 10,691 13,793 3,208 4,057
------- ------- -------- -------- -------- ------- --------
Operating loss.......... (1,138) (7,690) (5,938) (9,125) (14,513) (3,504) (3,651)
Net loss................ (1,138) (7,609) (6,090) (9,455) (15,860) (3,768) (3,957)
Net loss applicable to
common stockholders.... $(1,205) $(8,184) $ (7,320) $(11,271) $(20,714) $(4,252) $(38,977)
Basic and diluted net
loss per share (1)..... $ (0.38) $ (2.56) $ (2.29) $ (3.49) $ (6.15) $ (1.27) $ (11.39)
======= ======= ======== ======== ======== ======= ========
Shares used in
calculation of basic
and diluted net loss
per share (1).......... 3,200 3,200 3,200 3,230 3,370 3,342 3,423
======= ======= ======== ======== ======== ======= ========
Pro forma basic and
diluted net loss per
share (1).............. $ (2.23) $ (0.26)
======== ========
Shares used in
calculation of pro
forma basic and diluted
net loss per
share (1).............. 7,123 15,260
======== ========
Balance Sheet Data (at
end of period):
Working capital
(deficit).............. $ 211 $(1,441) $ 213 $ 133 $(10,647) $(3,016) $ 10,989
Total assets............ 2,998 7,281 8,257 5,644 4,705 5,730 19,269
Total liabilities....... 1,989 7,109 5,798 5,484 16,702 9,158 9,015
Redeemable convertible
preferred stock........ 2,067 9,392 19,022 27,727 35,542 28,211 99,541
Stockholders' equity
(deficit).............. (1,058) (9,220) (16,563) (27,567) (47,539) (31,369) (89,287)
</TABLE>
- --------
(1) See note 1 to the Open Port consolidated financial statements for an
explanation of the methods used to determine the number of shares used in
computing net loss per share data.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results
of operations should be read together with the financial statements and the
related notes included in another part of this prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties.
Overview
We design, develop and distribute IP LaunchPad, a carrier-class software
platform that enables our customers to deliver enhanced communication services
over networks based on the Internet Protocol, or IP. Our customers are service
providers, including long distance telecommunication providers, regional Bell
operating companies, competitive local exchange carriers, public telephone and
telegraph companies, and Internet service providers. IP LaunchPad provides
software connections between IP networks and the public switched telephone
network, or PSTN, and wireless networks. These connections allow our customers
to offer enhanced IP services that connect to PSTN and wireless devices such as
fax machines, telephones, voicemail systems, cellular phones and pagers. The
types of enhanced IP services that we enable or intend to enable include
services such as delivering email messages to fax machines, voicemail messages
to email systems, and news alerts to mobile phones. As of April 30, 2000, we
had entered into license agreements with 17 customers including Bell Atlantic
Data Solutions Group, Inc., Cable and Wireless Japan Ltd., Interpath
Communications, Inc., Qwest Communications Corporation and Tele Danmark A/S.
During the period from our inception on January 27, 1993 through December
31, 1994, we had very limited revenues and our operating activities related
primarily to the development of the initial versions of our software. During
1995 and 1996, we generated revenues primarily from licensing software to
large, multinational corporate enterprises to enable those enterprises to send
faxes across their internal local and wide-area networks, and from related
installation, training and other services. Also in 1996, recognizing the
growing importance of the service provider market, we focused our efforts on
developing and marketing software that enables enhanced IP services to be
provided by service providers. During 1997, we increased our revenues from the
licensing of software to corporate enterprises and began generating revenues
related to the licensing of Harmony NSP, the predecessor of IP LaunchPad, to
service providers. Research and development expenses for Harmony NSP peaked
during 1997.
In 1998, we began to develop our IP LaunchPad platform to better address the
needs of the service provider marketplace. During 1998, our revenues from the
licensing of Harmony fax server products declined as we de-emphasized that
product line and began to market the benefits of IP LaunchPad. During this
period, we also incurred substantial costs for the development of IP LaunchPad.
In September 1999, we announced that we would no longer support our Harmony fax
server and Harmony NSP product lines effective June 30, 2000. We are attempting
to transition customers who purchased our Harmony NSP product to our IP
LaunchPad solution. We began commercial deliveries of IP LaunchPad in September
1999.
Our top five customers totaled 52% of our total revenues in 1999. One
customer, GRIC Communications, Inc., accounted for 25% of our revenues for the
fiscal year ended December 31, 1999. We do not expect this customer to account
for any revenues in the year ended December 31, 2000. However, other customers
may account for more than 10% of our revenues in the future and we expect that
a small number of our customers will continue to account for a substantial
portion of our revenues.
23
<PAGE>
We derived approximately 20% of our net revenues from customers outside of
the United States for the year ended December 31, 1999, including approximately
8% of our net revenues from customers in Europe and 12% of our net revenues
from customers in Asia. We expect this percentage to increase in 2000, as one
component of our growth strategy is to increase our international presence by
expanding our five-person direct sales force in Europe and Asia and expanding
existing, and establishing new, relationships with resellers who can sell our
products to their service provider customers in those markets. We derived
approximately 41% of our net revenues from customers outside the United States
in the three months ended March 31, 2000. We presently are not subject to
significant market risks for changes in currency rates as our net assets
located outside the United States are not material. See "--Quantitative and
Qualitative Disclosures About Market Risk."
In order to grow our revenue base and implement our business strategy, we
intend to aggressively market IP LaunchPad and related software products to
service providers. We expect to derive substantially all of our revenues from
the licensing of our IP LaunchPad and related software products and from fees
earned on related maintenance and professional services. We believe that our
future revenues and operating results will depend largely on our ability to
license our IP LaunchPad software to service providers and to continue to
develop and release applications that leverage its capabilities. We intend to
significantly increase our investment in research and development, sales and
marketing and customer support. While we expect our investment in these areas
to increase in the future, we expect that these expenses will decrease as a
percentage of our total revenues as we implement our growth strategy and expand
our revenue base. We also expect our software product costs to increase as a
result of research and development expenditures on our voice and wireless
product suites in 2000. We expect to continue to incur substantial operating
losses for the foreseeable future as we execute our business strategy. We have
incurred significant losses since our inception, and as of March 31, 2000, had
an accumulated deficit of approximately $90.4 million ($44.3 million of which
was attributable to accretion of redeemable preferred stock and warrants to
acquire preferred stock and preferred stock dividends).
In a given period, overall operating profits are primarily impacted by the
size of individual software license sales, the mix of maintenance and other
services sold, the relative mix of revenues from software products versus
maintenance and other services and our level of research and development
expenditures. We typically realize higher profit margins on sales of software
licenses as compared to sales of maintenance and professional services.
Our limited operating history and the emerging nature of our marketplace
make predicting our future revenues difficult. We believe that forecasting
revenues from sales of our software will be difficult because of the lengthy
sales cycle involved in selling our software and the unpredictability of our
customers' service deployment plans. Our expense levels are based, in part, on
our expectations regarding future revenues, and our expenses are generally
fixed, particularly in the short term. We may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Any
significant shortfall of revenues in relation to our expectations could cause
significant declines in our quarterly operating results.
We had 120 full-time employees as of April 30, 2000 and intend to hire
additional employees in the future. Hiring additional employees places
significant demands on our management and operational resources. To manage this
growth and increased demand, we must be able to hire, train, manage and retain
our employees.
Options were granted during early 2000 at exercise prices which were the
best estimate as to the fair value of the underlying common stock on the date
of grant. Subsequent to the grant date, management concluded that for these
grants the estimates may not have fully reflected the impact of changing
business conditions. Future earnings will incur a charge associated with the
difference between the exercise price and the deemed fair market value
amortized
24
<PAGE>
over the four year vesting period. In the quarter ended March 31, 2000, we
recorded total unearned stock compensation of approximately $4.4 million in
connection with stock options granted during the period. This amount represents
the difference between the exercise price of stock option grants and the
estimated fair market value of our common stock at the time of the grants. The
unearned stock compensation is being amortized to expense over the vesting
periods of the applicable options, which resulted in approximately $101,000 of
expense for the quarter ended March 31, 2000. Amortization of unearned
compensation expense arising from these grants for each of the next five fiscal
years is expected to be as follows:
<TABLE>
<CAPTION>
Amount
Year Ended (in thousands)
---------- --------------
<S> <C>
December 31, 2000......... $ 934
December 31, 2001......... 1,111
December 31, 2002......... 1,111
December 31, 2003......... 1,111
December 31, 2004......... 177
</TABLE>
Each series of our preferred stock is redeemable at the option of the holder
at any time during the period beginning July 15, 2002 and ending July 15, 2004.
In the event of redemption, holders of each series of preferred stock would be
entitled to receive the greater of their then-current liquidation preference or
the fair market value of their respective series as determined at that time.
The carrying value of the Company's shares of preferred stock is adjusted
through accretion to their full redemption value at the end of each quarter
period. The carrying value of the preferred stock was adjusted $2.7 million for
the year ended December 31, 1999 and $33.9 million for the quarter ended March
31, 2000. The preferred stock redemption option will terminate upon the
conversion of all outstanding preferred stock into common stock upon the
closing of this offering. See note 4 to the Open Port consolidated financial
statements.
Results of Operations
The following table sets forth for the periods indicated certain items from
our consolidated financial statements expressed as a percentage of total
revenues.
<TABLE>
<CAPTION>
As a Percentage of Total Revenues
-------------------------------------------------
Three Months
Ended
Year Ended December 31, March 31,
------------------------------- ---------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software products.......... 63% 39% 71% 61% 39% 7% 58%
Maintenance and support
services.................. 3 23 18 30 61 93 42
Hardware products.......... 34 38 11 9 -- -- --
--- ---- --- ---- ---- ------ ------
Total revenues........... 100 100 100 100 100 100 100
--- ---- --- ---- ---- ------ ------
Cost of revenues:
Software products........... 3 6 2 11 29 34 12
Maintenance and support
services................... 6 78 37 54 102 143 58
Hardware products........... 20 23 6 6 -- -- --
--- ---- --- ---- ---- ------ ------
Total cost of revenues.... 29 107 45 71 131 177 70
--- ---- --- ---- ---- ------ ------
Gross profit (loss).......... 71 (7) 55 29 (31) (77) 30
Operating expenses:
Marketing and selling...... 40 145 59 94 286 417 115
General and
administrative............ 52 64 22 36 98 115 54
Research and development... 38 122 57 70 203 300 123
Stock-based compensation... -- -- -- -- -- -- 8
--- ---- --- ---- ---- ------ ------
Total costs and
expenses................ 130 331 138 200 587 832 300
--- ---- --- ---- ---- ------ ------
Operating loss............... (59) (338) (83) (171) (618) (910) (270)
Other income (expense)....... -- 4 (1) (6) (56) (68) (22)
Net loss..................... 59% (334)% (85)% (177)% (675)% (979)% (293)%
=== ==== === ==== ==== ====== ======
</TABLE>
25
<PAGE>
Three Months ended March 31, 2000 Compared to Three Months ended March 31, 1999
Revenues
Software Products. Our software products revenues increased by $747,000 from
$26,000 in the three months ended March 31, 1999 to $773,000 in the three
months ended March 31, 2000. The increase was attributable to an increase in
our customer base due to product acceptance in the marketplace and the
introduction of new versions with additional enhancements and features.
Maintenance and Professional Services. Our maintenance and professional
services revenues increased $221,000 or 62% from $359,000 in the three months
ended March 31, 1999 to $580,000 in the three months ended March 31, 2000. The
increase was primarily due to the increase in customers who require training
services and installation support.
Operating Expenses
Software Products. Software product costs are comprised of amortization of
capitalized software development costs, such as wages, contractor fees and
equipment costs, and royalties relating to technology licensed from third-party
vendors that has been incorporated into our software products. Our software
products costs increased by $38,000 or 30% from $129,000 in the three months
ended March 31, 1999 to $167,000 in the three months ended March 31, 2000. The
increase was due to an increase in the amortization of capitalized software
development costs relating to the development of our IP LaunchPad platform.
Maintenance and Professional Services. Costs relating to maintenance and
professional services primarily include personnel and other expenses incurred
to provide those services. Our costs of maintenance and professional services
increased by $228,000 or 41% from $552,000 in the three months ended March 31,
1999 to $780,000 in the three months ended March 31, 2000. The increase was
primarily due to an increase in personnel needed to support and service our
growing base of customers.
Sales and Marketing. Sales and marketing expenses consist primarily of costs
relating to personnel including commissions, marketing programs, travel and
entertainment and the maintenance of sales offices. Our costs of sales and
marketing were approximately $1.6 million for each of the three month periods
ended March 31, 1999 and 2000.
General and Administrative. General and administrative expenses primarily
consist of executive and administrative personnel costs, professional fees,
facilities rent, depreciation and general office expenses. Our general and
administrative costs increased $294,000 or 67% from $444,000 in the three
months ended March 31, 1999 to $738,000 in the three months ended March 31,
2000. The increase was due to an increase in legal costs and an increase in
personnel in order to handle the additional administrative duties of our
growing company.
Research and Development. Research and development expenses consist
primarily of personnel costs, consulting services and other expenses incurred
in the development and enhancement of our software products. We expense all of
our research and development costs as they are incurred, although we do
capitalize certain software development costs. Our research and development
costs increased $503,000 or 42% from $1.2 million in the three months ended
March 31, 1999 to $1.7 million in the three months ended March 31, 2000. The
increase was primarily due to an increase in personnel and consulting costs
attributable to the continued development of the IP Launchpad platform and the
Fax Suite products as well as the new development of the Voicemail Suite
products.
Other Income (Expense)
Other income (expense) is primarily comprised of interest due on outstanding
notes payable and capital lease obligations, as well as the amortization of the
estimated fair value of
26
<PAGE>
warrants granted in connection with the issuance of notes payable and capital
lease arrangements over the term of the respective borrowing arrangements,
offset by interest earned on our outstanding cash balance. Other income
(expense) increased $40,000 from ($260,000) in the three months ended March 31,
1999 to ($300,000) in the three months ended March 31, 2000. The increase was
attributable to interest paid for additional capital lease borrowings as well
as the issuance of additional notes payable and related warrants.
Year ended December 31, 1999 Compared to Year ended December 31, 1998
Revenues
Software Products. Our software products revenues decreased by $2.3 million
or 72% from $3.2 million in 1998 to $900,000 in 1999. This decrease was
attributable to the discontinuance of our Harmony NSP and Harmony Fax Server
products and our decision to focus solely on the development of our IP
LaunchPad solution during the first half of 1999. This decrease was partially
offset by $540,000 of revenue related to the settlement of an invoice dispute.
Shipments of IP LaunchPad, which began in late 1999, aggregated $338,000, of
which $268,000 was deferred into 2000. This deferral was due to an undelivered
feature, not sold separately by Open Port, with respect to two software license
agreements we entered into in 1999. Each feature was subsequently delivered in
the first quarter of fiscal 2000.
Maintenance and Professional Services. Our maintenance and professional
services revenues decreased by $157,000 or 10% from $1.6 million in 1998 to
$1.4 million in 1999. This decrease was also attributable to the discontinuance
of our Harmony NSP and Harmony Fax Server products, which resulted in a
decrease in the number of customers purchasing maintenance and professional
services on these product lines. Maintenance and professional services revenues
were a higher percentage of total revenue in 1999 due to the phaseout of our
Harmony products in 1999 and the introduction of IP LanuchPad in late 1999. In
the future, we expect to realize a higher percentage of our total revenues from
software product sales than from the providing of maintenance and professional
services.
Hardware Products. Our hardware products revenues decreased by 100% from
$506,000 in 1998 to $0 in 1999. This decrease was attributable to our decision
during 1998 to no longer sell and support hardware products.
Operating Expenses
Software Products. Our costs of software products increased by $88,000 or
15% from $579,000 in 1998 to $667,000 in 1999. This increase was due to an
increase in amortization of capitalized software development costs relating to
the development of our IP LaunchPad platform.
Maintenance and Professional Services. Our costs of maintenance and
professional services decreased by $468,000 or 16% from $2.9 million in 1998 to
$2.4 million in 1999. This decrease relates to our decision to discontinue
supporting our Harmony products.
Hardware Products. Our costs of hardware products decreased by 100% from
$331,000 in 1998 to $0 in 1999. This decrease was due to our decision to no
longer include hardware products as part of our solution.
Sales and Marketing. Our costs of sales and marketing increased by $1.7
million or 34% from $5.0 million in 1998 to $6.7 million in 1999. The increase
in these costs was attributable to our decision to grow our direct sales force
worldwide as well as an increase in our marketing initiatives associated with
the introduction of IP LaunchPad to increase our name and product recognition
in the marketplace.
27
<PAGE>
General and Administrative. Our general and administrative costs increased
by $372,000 or 19% from $1.9 million in 1998 to $2.3 million in 1999. This
increase was primarily attributable to an increase in our allowance for
doubtful accounts principally related to a specific customer dispute that arose
late in 1999 and to expenses billed to Harmony customers relating to
professional services deemed not to be collectible.
Research and Development. Our research and development costs increased by
$1.0 million or 28% from $3.7 million in 1998 to $4.8 million in 1999. This
increase in research and development expenses, as well as the increase in
capitalized software development costs, was attributable to the continuing
increase in personnel costs and consulting services related to the further
development of our IP LaunchPad product and related applications.
Other Income (Expense)
Total interest and warrant amortization expense aggregated $1.4 million in
1999 compared to $336,000 in 1998. The increase was primarily attributable to
additional capital lease borrowings and the issuance of additional notes
payable and related warrants between June 1998 and December 1999 and, to a
lesser extent, a general decrease in our cash position from 1998 to 1999.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues
Software Products. Our software products revenues decreased by $1.8 million
or 36% from $5.0 million in 1997 to $3.2 million in 1998. This decrease was
primarily attributable to a decrease in revenues relating to our Harmony fax
server product. Sales efforts relating to the Harmony fax server product
decreased substantially during 1998 as we shifted our focus away from legacy
customers toward the service provider market.
Maintenance and Professional Services. Our maintenance and professional
services revenues increased by $334,000 or 26% from $1.3 million in 1997 to
$1.6 million in 1998. The increase in revenues was due to an increase in the
number of Harmony NSP customers who purchased maintenance.
Hardware Products. Our hardware products revenues decreased by $329,000 or
39% from $835,000 in 1997 to $506,000 in 1998. The decrease was due to our
decision in the second half of 1998 to not include hardware products as part of
our solution.
Operating Expenses
Software Products. Our costs of software products increased by $444,000 or
329% from $135,000 in 1997 to $579,000 in 1998. This increase was due to an
increase in amortization of capitalized software development costs relating to
updated versions of existing software products as well as increased royalties
on third-party technologies integrated into newer versions of our software
products.
Maintenance and Professional Services. Our maintenance and professional
services costs increased by $203,000 or 8% from $2.7 million in 1997 to $2.9
million in 1998. The increase was due to an increase in staffing to support
both our enterprise and service provider customers.
Hardware Products. Our costs of hardware products decreased by $99,000 or
23% from $430,000 in 1997 to $331,000 in 1998. The decrease was due to our
decision in the second half of 1998 not to include hardware products as part of
our solution.
Sales and Marketing. Our sales and marketing costs increased by $780,000 or
18% from $4.2 million in 1997 to $5.0 million in 1998. The increase in these
costs was attributable to an increase in the size of our direct sales force and
an increase in our marketing initiatives to increase our name recognition in
the marketplace in the second half of 1998.
General and Administrative. Our general and administrative costs increased
$385,000 or 25% from $1.5 million in 1997 to $1.9 million in 1998. The increase
was primarily due to increased legal fees relating to debt financings and
customer, facility and vendor/supplier contracts.
28
<PAGE>
Research and Development. Our research and development costs decreased by
$328,000 or 8% from approximately $4.1 million in 1997 to $3.7 million in 1998.
The slight decrease was attributable to a reduction of third-party consultant
costs of $700,000, partially offset by increased personnel costs of $585,000.
Other Income (Expense)
Total interest and warrant amortization expense aggregated $336,000 in 1998
compared to $182,000 in 1997. The increase was due to additional capital lease
borrowings and the issuance of additional notes payable and related warrants
between June 1998 and September 1998.
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly statements of
operations data for each of the nine quarters ended March 31, 2000. This
information has been derived from our unaudited consolidated financial
statements which, in management's opinion, have been prepared on a basis
consistent with the audited consolidated financial statements, and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the quarters presented. You should
read this information in conjunction with our audited financial statements and
the notes thereto included elsewhere in this prospectus. The operating results
for any quarter are not necessarily indicative of the operating results for a
full year or for any future period and there can be no assurance that any trend
reflected in such results will continue in the future.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------
Dec. Dec.
March 31, June 30, Sept. 30, 31, March 31, June 30, Sept. 30, 31, March 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
--------- -------- --------- ------- --------- -------- --------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software products...... $1,735 $ 1,125 $ 174 $ 207 $ 26 $ 185 $ 68 $ 628 $ 773
Maintenance and
support services...... 378 493 340 389 359 343 344 397 580
Hardware products...... 115 353 38 -- -- -- -- -- --
------ ------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 2,228 1,971 552 596 385 528 412 1,025 1,353
------ ------- ------- ------- ------- ------- ------- ------- -------
Costs of revenues:
Software products...... 47 51 174 307 129 95 98 345 167
Maintenance and
support services...... 644 688 738 801 552 548 547 756 780
Hardware products...... 77 210 22 22 -- -- -- -- --
------ ------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenues............ 768 949 934 1,130 681 643 645 1,101 947
------ ------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)..... 1,460 1,022 (382) (534) (296) (115) (233) (76) 406
Operating Expenses:
Marketing and
selling............... 852 1,003 1,543 1,631 1,606 1,888 1,848 1,386 1,557
General and
administrative........ 378 466 665 423 444 559 743 558 738
Research and
development........... 754 1,021 918 1,037 1,158 939 1,264 1,400 1,661
Stock-based
compensation.......... -- -- -- -- -- -- -- -- 101
------ ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 1,984 2,490 3,126 3,091 3,208 3,386 3,855 3,344 4,057
------ ------- ------- ------- ------- ------- ------- ------- -------
Operating loss......... $ (524) $(1,468) $(3,508) $(3,625) $(3,504) $(3,501) $(4,088) $(3,420) $(3,651)
====== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
29
<PAGE>
Revenues
Software Products. Our software products revenues decreased from the
beginning of 1998 to the third quarter of 1999 due to the decision to decrease
our sales emphasis on Harmony NSP, our predecessor product to IP LaunchPad. In
the fourth quarter of 1999, we commercially introduced IP LaunchPad to the
service provider market. This contributed to the increase in quarterly revenue
in the fourth quarter of 1999 and the first quarter of 2000.
Maintenance and Support Services. Our maintenance and support services
revenues decreased slightly during 1998 but have remained consistent through
1999. The decrease is attributable to our decision to reduce our sales emphasis
on Harmony NSP. Our maintenance and services revenues have remained consistent
in 1999 due to an increase in maintenance and support from IP LaunchPad
customers, offset by a similar decrease in maintenance and support services
from our Harmony customers. Maintenance and professional services increased in
the first quarter of 2000 due to increased services for our growing customer
base.
Hardware Products. Revenues generated from hardware sales were discontinued
in late 1998. Customers are now required to furnish their own hardware for the
deployment of services. This decision was also the reason for there being no
hardware products revenues in 1999 or 2000.
Operating Expenses
Software Products. Our costs of software products increased in 1998 due to
increases in amortization of capitalized software development costs relating to
updated versions of existing software products as well as royalties on third-
party technologies integrated into newer versions of our software products. Our
costs of software products decreased in early 1999 in absolute dollars as
revenues from our software products decreased and increased in the fourth
quarter of 1999 as our revenues increased.
Maintenance and Support Services. Our maintenance and support costs
increased in 1998 as we increased our staffing in both the U.S. and Europe to
handle the projected support needs of both Harmony customers and our new IP
LaunchPad customers. In 1999, our costs decreased in the first quarter as our
staffing needs to support our Harmony customers decreased but increased at the
end of 1999 as our IP LaunchPad customer base and related support needs
increased.
Hardware Products. Our costs relating to hardware products decreased in 1998
as a result of our decision to no longer sell hardware products as part of our
solution.
Sales and Marketing. Our sales and marketing costs increased in 1998 and
remained relatively consistent for the first quarter of 1999. In 1998,
management made a decision to increase the marketing and sales staffs in order
to gain first mover advantages in the marketplace and take advantage of an
emerging marketplace. We decreased our U.S. direct sales force in late 1999 and
are currently increasing our sales forces in Asia and Europe.
General and Administrative. Our general and administrative costs were
consistent in 1998 and have increased in 1999 and the first quarter of 2000.
These costs varied slightly due to fluctuating legal costs incurred for both
general business purposes and in connection with financings we completed during
those periods.
Research and Development. Our costs of research and development have
fluctuated in 1998 and 1999. These fluctuations relate primarily to increased
personnel costs, offset by the capitalization of software development costs
relating to the IP LaunchPad product in 1999.
30
<PAGE>
These fluctuations have been compounded by variability in consulting costs
resulting from the need for certain specific skills and temporary needs due to
impending product releases. The costs are currently increasing due to continued
development of our current products including our fax, voicemail and wireless
suites.
Liquidity and Capital Resources
At April 30, 2000, our principal source of liquidity was approximately $12.0
million in cash and cash equivalents. Our principal sources of funds since
inception have been private sales of preferred stock, the issuance of debt, and
capital lease facilities.
Net proceeds from sales of preferred stock from our inception through April
30, 2000 totaled approximately $53.0 million, including sales of approximately
$7.0 million in 1998, $3.0 million in 1999 and $28.0 million (including $3.0
million of notes payable converted into preferred stock) in January 2000. We
have used these capital resources to fund operating losses, working capital,
capital expenditures, and the retirement of debt.
During 1998, we entered into a revolving credit facility with Silicon Valley
Bank which provided for the borrowing of up to $4.0 million at a variable
interest rate of prime plus 1.5%. This credit facility was decreased to $3.0
million in January 1999. We paid off all amounts outstanding and terminated
this credit facility in April 1999. Over the course of this credit facility, we
paid $197,000, including amortized estimated fair value of the warrants issued
in connection with the January 1999 amendment, in interest in connection with
borrowings under the credit facility.
In May 1999, we entered into a term loan arrangement with American National
Bank and Trust, which allowed for borrowings of up to $3.0 million for working
capital needs. We amended this arrangement in August 1999 to increase the
borrowing capacity to $4.0 million. Borrowings under the term loan accrued
interest at a variable rate equal to American National Bank and Trust's prime
rate plus 1% payable monthly. Over the course of its term, we paid a total of
$250,000 in interest in connection with this term loan. We repaid the $4.0
million outstanding under this loan in January 2000 and at which time the
facility was terminated.
In addition, in September 1998, we entered into a mezzanine debt facility
with CID Mezzanine Capital, L.P. that allowed for borrowings of up to $3.0
million for working capital needs. In April 1999, we amended this mezzanine
debt facility to increase the borrowing capacity to $5.0 million for working
capital needs, which amount was outstanding as of April 30, 2000. Borrowings
under the mezzanine debt facility accrue interest at an annual rate of 11%,
which interest is payable monthly. As of April 30, 2000, we had since inception
paid a total of $1.1 million, including amortized estimated fair value of the
warrants issued to CID Mezzanine, in interest on borrowings under this
mezzanine debt facility. We intend to repay the outstanding balance under this
mezzanine debt facility with a portion of the net proceeds from this offering.
As of December 31, 1999, we had $3.0 million of indebtedness outstanding
under a bridge facility. Borrowings under this facility accrued interest at an
annual rate of 9.5%. These bridge notes, including $73,000 of accrued interest,
were converted into preferred stock in connection with our issuance of $28.0
million of Series E preferred stock in January 2000.
Net cash used in operating activities was $2.9 million, $10.7 million and
$10.7 million in 1997, 1998, and 1999, respectively, and $4.9 million for the
three months ended March 31, 2000. Net cash used in operating activities in
each of these periods was primarily due to net losses, and was partially offset
by a decrease in accounts receivable in 1997. Net cash used in investing
activities was $759,000, $1.0 million and $1.7 million in 1997, 1998 and 1999,
respectively, and $987,000 for the three months ended March 31, 2000. Net cash
used in
31
<PAGE>
investing activities in all such periods was primarily related to purchases of
property and equipment and capitalization of additional software development
costs. Net cash provided by financing activities was $7.0 million, $8.8 million
and $12.0 million in 1997, 1998, and 1999, respectively, and $19.0 million for
the three months ended March 31, 2000. Net cash provided by financing
activities in all such periods resulted primarily from the issuance of
preferred stock and notes payable.
We maintain allowances for uncollectible accounts to reflect our accounts
receivable balances at net realized value. The adequacy of the allowance is
determined by periodic reviews of individual customer accounts. The allowances
for uncollectible accounts at December 31, 1998, December 31, 1999 and March
31, 2000 were $0, $319,000 and $332,000, respectively.
As of March 31, 2000, we had an accumulated deficit of $90.4 million ($44.3
million of which was attributable to accretion of redeemable preferred stock
and warrants to acquire preferred stock and preferred stock dividends,) and
available net operating loss carryforwards totaling $42.8 million, which expire
between 2010 and 2018. See note 7 to our consolidated financial statements
included elsewhere in this prospectus. Our ability to use these operating loss
carryforwards to offset future taxable income depends on a variety of factors,
including possible limitations on usage under Internal Revenue Code Section
382. Section 382 imposes an annual limitation on the future utilization of
operating loss carryforwards due to changes in ownership resulting from the
issuance of common shares, stock options, warrants and preferred shares.
We believe that the net proceeds from this offering, together with our
current cash, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in future periods through public or private
financings, or other arrangements. We cannot assure you that such additional
financings, if needed, will be available on attractive terms, if at all. The
failure to raise additional capital could have a material adverse effect on our
business, operating results and financial condition. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our then-current stockholders would be reduced. Furthermore, such equity
securities might have rights, preferences or privileges senior to those of our
common and preferred stock.
Quantitative and Qualitative Disclosures About Market Risk
We believe that our exposure to market risks for changes in interest and
currency rates is not significant. Our investments generally are limited to
highly liquid instruments with maturities of three months or less.
Substantially all of our interest-bearing debt will be paid off with the net
proceeds of this offering. Foreign net assets currently consist of investments
in sales offices and local personnel and are not material. However, they are
expected to grow as we expand our global client base. Sales office operations
are conducted in the local currency. Open Port does not hedge against foreign
currency fluctuations.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The statement, as amended, is effective for fiscal years beginning after
June 15, 2000. Since we do not have any derivative instruments or hedging
activities, we do not expect SFAS No. 133 to have a material effect on our
financial results.
32
<PAGE>
BUSINESS
We design, develop and distribute IP LaunchPad, a carrier-class software
platform that enables enhanced communication services to be deployed over
networks based on the Internet Protocol, or IP. The types of enhanced IP
services that we enable or intend to enable include services such as delivering
email messages to fax machines, voicemail messages to email systems, and news
alerts to mobile phones. Our solution enables these enhanced IP services to be
deployed with the accountability, tracking and reliability of services
delivered over the public switched telephone network, or PSTN, while taking
advantage of the more efficient use of bandwidth, increased functionality,
flexibility and reduced costs offered by IP networks. In addition, IP LaunchPad
provides software interfaces between IP networks and the PSTN and wireless
networks, which enable service providers to offer enhanced IP services that
connect to PSTN and wireless devices such as fax machines, telephones,
voicemail systems, mobile phones and pagers. Our customers are service
providers including long distance telecommunication providers, regional Bell
operating companies, competitive local exchange carriers, public telephone and
telegraph companies, and Internet service providers. As of April 30, 2000 we
had entered into license agreements with 17 customers, including Bell Atlantic
Data Solutions Group, Inc., Cable and Wireless Japan Ltd., Interpath
Communications, Inc., Qwest Communications Corporation and Tele Danmark A/S.
We designed IP LaunchPad to provide an IP-based messaging infrastructure
that supports various types of enhanced IP services. The IP LaunchPad platform
facilitates message broadcasting, bridges incompatible messaging systems, and
enables service providers to offer different levels of service to subscribers
based upon their priority. We also develop and provide enhanced IP services
applications such as IP LaunchPad Fax Suite, which we commercially released in
the third quarter of 1999. In addition, we currently offer IP LaunchPad
Software Development Kit/Application Programmers Interface, which can be used
by service providers or third parties to develop their own custom applications.
We recently entered into an agreement with a service provider to begin trials
of certain applications included in our IP LaunchPad Voicemail Suite. Also, we
currently are developing and intend to introduce additional applications to be
included in our IP LaunchPad Voicemail Suite as well as our IP LaunchPad
Wireless Data Suite.
Industry Overview
Due to deregulation, industry consolidation and the advent of new
technologies, including the Internet, the market for communications has grown
and the number of service providers has increased. As the number of service
providers has increased, competition among them has intensified, and their
profit margins generally have been reduced. To differentiate themselves,
service providers have attempted to compete on factors other than price.
Traditionally, service providers delivered basic PSTN and wireless network-
based services such as dial-tone and call waiting. Recently, a new class of
service providers began to offer basic IP network-based services such as dial-
up Internet access and web site hosting. We believe service providers will
increasingly compete based on the types of enhanced services they offer to
their subscribers. These enhanced services are designed to enable people to
receive and deliver voicemail, email and wireless data conveniently using a
variety of devices. For example, a business person could specify that email
messages be converted and delivered as voicemail to his or her mobile phone,
providing convenience and increased responsiveness to his or her customers.
These enhanced services offer service providers the opportunity to gain new
subscribers, retain existing subscribers and increase revenue per subscriber.
33
<PAGE>
The PSTN, wireless and IP networks can each be used to provide enhanced
services. Links among these networks offer the potential to enable more and
increasingly sophisticated enhanced IP services. Historically, attempts to
provide enhanced services that work across each of these networks have proven
difficult and have not been commercially successful. Instead, service providers
have generally been limited to delivering enhanced services such as voicemail
within each network, subject to the advantages and disadvantages of each
network.
The PSTN has the largest deployed network infrastructure in the world, and
its advantages and disadvantages are well known. The PSTN is a circuit-switched
network that, for each communication, reserves a dedicated circuit with fixed
bandwidth that remains allocated during the entire communication. Maintaining a
dedicated circuit allows for short, predictable transmission delays, high
quality and reliability. However, since the PSTN dedicates a fixed amount of
bandwidth to each communication, it uses bandwidth inefficiently, making it
less well suited to data intensive communication. Another advantage of the PSTN
is its extensive management and control facilities that permit traditional
telecommunications companies to determine whether a communication has reached
its destination and provide the ability to track, account and bill for
individual subscribers. However, the PSTN comprises thousands of switching
points, often called central offices, or COs, each of which must usually be
upgraded before a new service can be offered across the network. As a result,
it is time-consuming and costly to deploy new communication services. Also,
because the PSTN is highly regulated, it is costly for long distance
communications.
Wireless networks are growing rapidly and can be deployed by service
providers with significantly less investment than the PSTN. Wireless networks
offer users the advantages of increased flexibility and convenience due to the
mobility of wireless devices. However, wireless devices currently are not
capable of displaying large amounts of data and the cost of transmitting
wireless communications is generally higher and the quality and reliability
generally are lower than comparable transmissions over the PSTN. Further,
wireless networks comprise many base stations, each of which must usually be
upgraded before a new service can be offered.
IP networks are packet-switched networks that divide a communication into
discrete packets for transmission. The multiple packets that make up a single
communication move independently of each other and may take different routes
through IP networks before being reassembled at the destination. Each
communication uses only the bandwidth necessary to send its packets and as a
result, IP networks use bandwidth more efficiently than the PSTN and wireless
networks.
IP networks also enable flexible management and provisioning of services.
While IP networks also contain many switching points, new services can be
installed at one location in the core of an IP network and made immediately
available to all subscribers. This is significantly less expensive and time-
consuming than in the PSTN and wireless networks, where the new service has to
be deployed in each CO or wireless base station. IP networks also allow
subscribers to minimize long distance charges by transporting traffic across
unregulated IP backbones instead of the regulated PSTN or wireless networks.
However, IP networks also have limitations. The discrete packets of an IP
network have to be reordered and reassembled, for example, causing
unpredictable delays in transmissions. To date, IP networks have also lacked
the quality, reliability, tracking, and accountability associated with
traditional PSTN services, such as voice and fax.
Because IP networks carry large amounts of data efficiently and have other
transmission advantages over the PSTN and wireless networks, we believe service
providers will choose to deliver enhanced services using the IP network as a
backbone. However, because PSTN and wireless devices are familiar and simple to
use, and users have come to rely upon the phone
34
<PAGE>
numbers attached to them, we also believe service providers will want to
deliver these enhanced services to and from the IP network to subscribers who
use the PSTN and wireless networks. Therefore, service providers must be able
to deliver these enhanced IP services to the millions of subscribers who use
PSTN and wireless devices such as telephones, wireless phones, fax machines,
pagers and wireless personal data assistants, or PDAs.
In order to commercially deliver enhanced IP services to all network
subscribers, we believe that service providers must address the following key
issues:
. Eliminate Barriers between Networks. For the foreseeable future, we
believe traditional PSTN and wireless network devices will provide one
of the primary means for subscribers to take advantage of enhanced IP
services. To date, commercial acceptance of enhanced IP services has
been restrained because subscribers do not want to change or add to
their existing email addresses and PSTN and wireless phone numbers.
Accordingly, service providers planning to offer enhanced IP services
must have the ability to bridge these networks, enabling users to retain
their existing email addresses and phone numbers while still enjoying
the benefits of IP networks.
. Enable New Services Quickly. Service providers must deploy services
quickly to increase their revenues, retain customers and build their
competitive position. When adding a new service to a service provider's
network, the application must be integrated with existing billing, user
provisioning and network management systems, as well as the network
hardware communications infrastructure. In addition, service providers
often desire to customize applications and differentiate their services
from those offered by their competitors. As a result, deploying new
applications on a service provider's network can be time consuming and
expensive.
. Provide Tiered Service Level Offerings for IP Communications. We believe
many subscribers are willing to compensate the service provider for an
"elite" level of service, for example, rather than "basic" service.
However, today there are no mechanisms in an IP network that allow
service level agreements, or SLAs, for enhanced IP services. To provide
these different levels of service, a service provider must have the
capability to create SLAs for its subscribers, and then have a system
that ensures the services are being delivered according to the SLAs.
. Enable Subscriber Self-Care. Subscriber care activities for enhanced IP
services include provisioning a new service, adjusting preferences and
providing message delivery status. If these subscriber care activities
are performed by service providers, it will be at a significant cost. To
minimize the costs associated with subscriber care and increase
subscriber satisfaction and loyalty, service providers need a mechanism
that enables subscribers to perform these activities for themselves.
. Support Service Wholesaling Capabilities. Today many service providers
wholesale basic IP services over their networks to other service
providers that then brand the service as their own and market it to
their subscribers. As a typical example in use today, one service
provider may have an extensive network infrastructure, including
thousands of dial-up Internet access lines. Another service provider,
who may own some network components, can resell the access lines of the
former service provider, using its own brand name to offer dial-up
Internet access to its subscribers. To take advantage of this powerful
distribution model, enhanced IP services must be designed to allow
wholesaling from one service provider to another.
We believe that service providers are seeking software solutions to help
them address these key issues and to deliver enhanced IP services, enabling
them to increase their revenues by gaining new subscribers, retaining existing
subscribers and increasing their revenue per subscriber.
35
<PAGE>
The Open Port Solution
We have designed and developed IP LaunchPad, a carrier-class software
platform that enables enhanced IP services to be deployed over IP networks with
connections to the PSTN and wireless networks. Our solution allows service
providers to deliver enhanced IP services to their subscribers with the
accountability, tracking and reliability of PSTN systems while taking advantage
of the more efficient use of bandwidth, increased functionality, flexibility
and reduced costs offered by IP networks. Our customers can use our solution to
create and realize new revenue opportunities by offering messaging services
across a combination of the PSTN, IP and wireless networks that previously
could be offered only over each network individually. In addition, our
customers can use our solution to offer enhanced IP services that are not
currently possible on the PSTN and traditional wireless networks.
Our comprehensive messaging solution allows service providers to offer
enhanced IP services by providing an interface between IP networks and
traditional PSTN and wireless devices, and by addressing the five key
challenges limiting deployment of those services today:
. IP LaunchPad Bridges Dissimilar Networks and Messaging Systems. Our
solution provides connections enabling traditional PSTN and wireless
devices to use an enhanced IP services infrastructure. For example, a
voicemail user can specify that messages be forwarded to email. The
creator of financial reports can submit the list of recipients to IP
LaunchPad, which is designed to enable delivery of the message to some
of those recipients via fax, to others via voicemail, to others in their
home email system, and to still others via wireless phones capable of
displaying that information. Additionally, existing voicemail systems,
departmental fax servers, and corporate-wide email servers can be
connected as if they were IP devices.
. IP LaunchPad Enables New Services Quickly. We integrate with a service
provider's billing, user provisioning, network management and network
hardware communications infrastructure. As a result, developers of
applications that provide enhanced IP services can create applications
that will integrate with our platform rather than directly with each
service provider's environment. Since service providers only need to
integrate with our solution rather than with each application
separately, they can more quickly and easily offer their subscribers new
enhanced services, which are created by Open Port and third party
application developers. The flexibility of our software suites, combined
with application programmer interfaces, or APIs, also enables service
providers to customize the applications and differentiate their services
from those offered by competitors.
. IP LaunchPad Allows Service Providers to Offer Tiered Service Contracts
for Enhanced IP Services. Our solution allows service providers to
guarantee, track and monitor the delivery of enhanced IP services,
enabling them to conform to SLAs with each subscriber. In addition,
service providers can offer their subscribers a variety of premium
service levels based on the subscriber's needs. For example, a
subscriber distributing information, such as financial reports, may
offer the reports to high-priority subscribers first.
. IP LaunchPad Allows Service Providers to Enable Subscriber Self-
Care. Our solution allows subscribers to provide subscriber care
activities for themselves through a web browser interface, without
involving the service provider's personnel. Additionally, each new
service launched on IP LaunchPad can have subscriber care controls
contained in a web browser interface. For example, a subscriber can sign
up for a new enhanced service, quickly adjust user preferences and track
the progress of sent messages using a web browser interface.
36
<PAGE>
. IP LaunchPad Enables Service Providers to Reach Subscribers through
Wholesale Distribution. Our solution enables wholesale distribution of
enhanced IP services, such that each new service launched on IP
LaunchPad can also be distributed in a wholesale manner by one service
provider to another. For example, larger service providers have the
opportunity to realize additional revenues by wholesaling enhanced
services to service providers who do not own a network infrastructure.
Strategy
Our objective is to become the leading provider of software that enables
service providers to deliver enhanced IP services. Key elements of our strategy
include:
. Targeting our Service Provider Networks. We believe that by delivering
our solution to service providers early in the evolution of enhanced IP
services, we achieve a number of strategic advantages. These advantages
include being the first enhanced communications solution offered by
service providers. By becoming the enabling infrastructure technology
most widely used in service providers' systems for enhanced IP services,
we believe that we will be well-positioned to offer new applications
that leverage the capabilities of the IP LaunchPad platform.
. Leveraging our Direct Sales Model. We intend to aggressively target the
service provider market and resellers to that market through our direct
sales force. We plan to expand our direct sales force in the European
and Asian markets. Further, we plan to continue to leverage our
relationships with global service providers that wholesale their network
services. We believe that these customers will sell services enabled by
our software solutions to their service provider customers, including
Internet service providers, regional Bell operating companies,
competitive local exchange carriers and local service providers.
. Introducing our Enhanced IP Services Applications Incrementally. We
believe we can more easily achieve acceptance of the IP LaunchPad
platform by offering enhanced IP services applications incrementally,
rather than by offering multiple applications for services not yet in
demand by service providers or their subscribers. Fax-related services
are the first type of enhanced IP services enabled by our solution. As
enhanced IP services and the IP LaunchPad platform achieve greater
market acceptance, we intend to incrementally introduce more advanced
applications and functionality. In line with this strategy, we are
currently developing and intend to introduce a suite of voice messaging
services as well as a suite of services directed to wireless data
devices.
. Extending our Technology Leadership. We intend to continue to invest
significant resources in technology and product development. We also
intend to ensure that the Open Port solution can serve as a platform for
third-party applications. We plan to support a wide variety of IP
messaging types and enhanced services by further enhancing our platform
and developing new messaging applications.
. Leveraging our Strategic Relationships with Technology Leaders. In order
to facilitate the acceptance of our solution and enhance our marketing
and distribution efforts, we have established strategic relationships
with certain technology industry leaders such as Ascend (now a
subsidiary of Lucent), Cisco, Microsoft, Optus, Sun Microsystems and
3Com. Through these relationships, we have accelerated the market
acceptance of our products by integrating our technology with our
strategic allies' products and by forming joint marketing arrangements.
We intend to further develop and expand our strategic relationships.
. Enhancing our Solutions with Professional Services. We have developed
internal expertise that enhances the value of our solutions and
strengthens our customer relationships through customer support. Our
customer support personnel work with
37
<PAGE>
our customers to identify their optimal solutions, provide expert
consultation on system development and deployment, manage the
implementation of the solutions, and design customized training plans.
We intend to further invest in our professional service capabilities in
order to enhance our customer relationships and revenue opportunities.
Products
We design, develop and distribute IP LaunchPad, a carrier-class software
platform that enables enhanced IP services. We offer or are developing software
applications designed to enable a wide variety of enhanced IP services that
fall into three broad categories: fax services, voice messaging services and
wireless data services. All of our enhanced IP services applications are
enabled by the IP LaunchPad platform's core capabilities.
We currently offer IP LaunchPad Fax Suite, which we commercially released in
the third quarter of 1999. IP LaunchPad Fax Suite supports fax-related enhanced
IP services. We also currently offer IP LaunchPad Software Development
Kit/Application Programmers Interface, which can be used by service providers
or third parties to develop their own custom applications. We recently entered
into an agreement with a service provider to begin trials of certain
applications included in our IP LaunchPad Voicemail Suite. Also, we are
currently developing and intend to introduce additional applications for our IP
LaunchPad Voicemail Suite, and our IP LaunchPad Wireless Data Suite. A service
provider can offer any of the services enabled by our solutions separately or
together as bundled services, and can provide the services directly to
subscribers, or as a wholesale offering that can be resold to other service
providers.
Core Capabilities of the IP LaunchPad Platform
. Least Cost Routing. Our patented least cost routing technology allows
the service provider to establish the optimal path that a message should
follow to get to the intended recipient. The correct route is determined
based on the type of message (such as voice, fax, or email), the time of
day, network availability, rate structures, and other parameters. Once
this information is entered, IP LaunchPad will automatically route any
message type through an IP network, the PSTN or a wireless network to
its intended recipient. This capability is designed to enable service
providers to optimize message delivery costs.
. Message Tracking. Our technology enhances the quality and reliability of
message transmission over IP networks and among IP networks, the PSTN
and wireless networks. When a message is created by a subscriber, it is
routed by IP LaunchPad to the recipient using our least cost routing
technology. If a message cannot be delivered on the first attempt, our
software will continue to attempt delivery. The sender can track the
current progress of the message on an ongoing basis. All message
activity is automatically logged and reporting is available to the
subscriber showing message delivery history. Tracking is critical when
the sender wants some guarantee of message delivery, including active
feedback from the recipient. This functionality is important for
individual messages, but even more so for large broadcasts that may go
to hundreds or thousands of recipients.
. Scalability, High Availability, and Redundancy. IP LaunchPad can be
installed across a few servers initially, and as the service provider's
business grows, additional servers can be added to the system to
increase the service capacity. This architecture can reduce the service
provider's initial investment and its cost of system expansion. Our
product achieves high availability to subscribers in two ways. We run
our software on Sun Microsystems SPARC servers, which provide their own
hardware redundancy and
38
<PAGE>
high availability. We enhance this by allowing the service provider to
configure software fail-over and load balancing to keep the system
running if a piece of the equipment fails, and to distribute the
workload during peak times. This combination of hardware and software
makes the overall system solution highly scalable, available and
redundant.
. Network Independence. Each service provider's network comprises
different vendors' remote access server, or RAS, hardware, and their
billing, customer provisioning and network management systems, which
form a complex and unique environment. IP LaunchPad neutralizes the
unique aspects of the service provider's network environment, so that
applications can quickly interface with the service provider's network
without having to develop custom interfaces for each service provider.
The service provider benefits by having a simpler and less expensive
implementation, and can leverage its existing investment in RAS devices,
billing, provisioning and network management systems. The service
provider's capital costs associated with deploying our product are
limited to our software and the servers on which our software resides.
We leverage the service provider's existing infrastructure, enhancing
the service provider's return on its existing investment in equipment
and support systems.
. Service Level Offerings and Enforcement. IP LaunchPad allows service
providers to build policies, assign policies to users, and then ensure
that applications running on IP LaunchPad adhere to those policies. This
enables service providers to offer higher levels of service to some
subscribers than to others, and to commit to SLAs with their
subscribers, which often is a requirement for rolling out a commercial
grade service.
. Multiple Language Support. Our products support all major languages. The
global economy combined with the reach of the Internet have enabled
businesses to market services outside their traditional borders. IP
LaunchPad allows service providers to offer enhanced IP services to any
market in the world in the local language of the respective market--all
from one system. Multiple language support also facilitates peering
relationships between service providers in different parts of the world.
In a peering relationship, service providers deliver each other's
traffic and offer services to one another's subscribers. For example, a
service provider in the United States can offer virtual United States
phone numbers to subscribers of its peers in South American countries.
The value in this increases greatly if the South American subscribers
can retrieve their messages using Spanish or Portuguese user interfaces.
39
<PAGE>
Enhanced IP Service Application Suites. The following is an overview of our
current and anticipated enhanced IP service application suites and software
solutions that leverage the core capabilities of our IP LaunchPad platform.
IP LaunchPad Fax Suite
<TABLE>
<CAPTION>
Application Description Status
----------- ----------- ------
<C> <S> <C>
Broadcast Fax........ A subscriber may create a Currently available
broadcast fax that is sent to
multiple recipients.
Email-to-Fax......... A subscriber may use his/her Currently available
existing email system to send a
fax to a fax machine in the same
way that he/she sends a message
to an email user.
Fax-to-Email......... Faxes sent to a subscriber's fax Currently available
number are automatically routed
to the subscriber as an email
message.
Web-to-Fax........... A subscriber can send faxes and Currently available
view received faxes with a
standard web browser.
Fax Mailbox.......... Faxes sent to a subscriber's fax Currently available
number are automatically routed
to the subscriber's IP LaunchPad
mailbox, and can then be
retrieved via a web browser.
Never Busy Fax....... Faxes sent to a subscriber's fax Currently available
machine are stored by IP
LaunchPad if the fax machine is
busy and resent when the fax
machine is available.
Fax Machine.......... All faxes sent from a Currently available
Redirection subscriber's fax machine are
routed through IP LaunchPad for
access to broadcasting functions
or for lower cost delivery across
an IP network.
IP LaunchPad Software Development Kit / Application Programmers Interface
<CAPTION>
Application Description Status
----------- ----------- ------
<C> <S> <C>
Business Process..... Third-party messaging software Currently available
Integration and service provider back office
administrative systems can be
linked to IP LaunchPad across an
IP network.
Custom Messaging..... Messaging software developers can Currently available
Applications interface their custom
applications with IP LaunchPad-
enabled service providers.
User Provisioning.... Developers and system integrators Currently available
can integrate third-party user
provisioning systems with IP
LaunchPad to avoid duplicate data
entry.
</TABLE>
40
<PAGE>
IP LaunchPad Voicemail Suite
<TABLE>
<CAPTION>
Application Description Status
----------- ----------- ------
<C> <S> <C>
Voicemail-to-Email... A subscriber may forward to an email In test stage
account some or all of the voice
messages that come into his/her
existing legacy voice mailbox.
Enterprise-to-Mobile. This service auto-forwards messages In development
Voicemail from a subscriber's enterprise voice
mailbox to the subscriber's
mobile/wireless voice mailbox.
Send/Forward......... A subscriber on one voicemail system In development
Voicemail to Another may send a voice message to a
Subscriber recipient on a different voicemail
system, or directly to the recipient
via a home, work or mobile phone.
Voicemail.. Broadcast A subscriber may create a voice In development
message within his/her existing
voicemail account and send it to a
browser-managed list of recipients.
Recipients may be on disparate
voicemail systems.
Email-to-Voicemail... A subscriber can use his/her existing In development
Delivery email system to send a voice or text
message that will be translated into a
synthetic voice message and sent to
his/her home, work or mobile/wireless
voicemail system. The recipient's
voicemail system may be located
anywhere, and does not have to be part
of the sender's intranet or voicemail
system.
IP LaunchPad Wireless Data Suite
<CAPTION>
Application Description Status
----------- ----------- ------
<C> <S> <C>
WAP/SMS.............. Message receipt, message delivery In development
Notification confirmation and data availability
notifications can be made through
wireless application protocol (WAP) or
small message system (SMS)
communication.
Email-to-WAP/SMS..... Email subscribers can direct short In development
messages to a wireless device.
WAP/SMS-to-Email..... Senders of WAP/SMS messages can direct In development
short messages to a wireless device.
Message Push and..... IP LaunchPad can pass parts of a In development
Response message to a wireless device along
with a pointer for rapid retrieval of
the complete message content.
Information Push..... Data content providers can target In development
wireless data messages such as news
alerts to individuals, pre-defined
groups, or by matches to pre-recorded
recipients' preferences.
Information Push..... Information pushed to wireless devices In development
Tracking may include pointers for responses and
follow-up.
</TABLE>
We price initial system deployment of our software solution based on a
variety of factors, including the number of ports our customers will need to
support their projected traffic levels, the number of subscribers provisioned
in the system, gateways to external voicemail, fax and other systems, and
recurring maintenance. Our customers deploy an initial system
41
<PAGE>
configuration with prices generally ranging from $50,000 to $1.0 million. The
service provider can then purchase additional port licenses and subscriber
licenses as the demand for its service grows. We invoice our customers annually
for software maintenance which currently is calculated as a percentage of the
list price of all of our installed software.
Technology
IP Network Overview. Our technology comprises a software platform that is
deployed within a service provider's existing network infrastructure to route,
track, deliver and control the flow of messaging traffic across IP networks. An
IP network comprises an array of transmission lines that connect servers and
other devices to create a network. Information is transmitted by routers which
use the destination addresses of the packets of information passing through
them to determine on which routes to send them. Access to an IP network is
obtained through a direct line into the network or through a remote access
server, or RAS. Each RAS has ports through which subscribers can establish
dial-up connections to the IP network. RASs are located throughout IP networks
at geographically dispersed points of presence, or PoPs, which are often the
functional edges of IP networks.
The Software Architecture. Our solution enhances the quality and reliability
of message transmission over IP networks. Our architecture centralizes IP
messaging intelligence by placing management and control functions at hub
locations in IP networks rather than at PoPs. Centralization of IP messaging
intelligence at the hub of IP networks is fundamental to least cost routing
decisions and facilitates expansions in system functionality and processing
capacity. Complementary to this centralized structure, the IP LaunchPad
platform is a modular architecture which allows the service provider
flexibility in creating those new functions and offering scalability from the
processing needs of the smallest service provider to those of the largest. Our
software modules are designed to operate as independent components in order to
promote system stability and availability. Additional traffic can be handled by
adding additional modules without affecting any other module's performance.
Additional features and enhancements can be implemented by adding different
modules without affecting the overall system flow.
How a Message is Processed by Our Technology. Our technology enables parties
to communicate through any combination of telephony or network-connected
devices, including fax machines, telephones, voicemail systems, wireless
devices, stand-alone PCs with modems, servers and PC workstations that are
directly connected to the IP network. Our technology processes messages in the
following manner:
To collect messages for delivery:
. The sender, or some automated process such as an invoice-creation system
or data content mining application, generates a message using a PSTN, IP
or wireless device, such as voice, fax, email, application server, or
video mail.
. If the originating device is on an IP network directly connected to an
Open Port-enabled IP network, the message flows through the service
provider's direct connection router into an IP LaunchPad hub location
(typically, a network operations center).
. If the sender is on a network which is not directly connected to an Open
Port-enabled IP network, the message is converted to an IP message
format using an Open Port-enabled IP LaunchPad Connector. The specific
processes used depends upon whether the message is sent in analog or
digital format.
. IP LaunchPad software determines user privileges and authenticates and
updates user account information for the sender.
. Information needed for billing, tracking and controlling message
delivery is stored or transmitted, as applicable, to service provider
network administration systems.
42
<PAGE>
To deliver the message, IP LaunchPad then:
. Identifies the type of message being sent, assigns specific attributes
to the message and designates the delivery requirement, such as
immediate or deferred delivery, to be applied.
. Determines whether the intended recipient of the message has a mailbox
on the IP network. If so, the message is delivered. If the intended
recipient of the message does not have a mailbox on the IP network, our
least cost routing technology is used to determine the lowest cost
method for delivering the message at the particular time and date.
. Queues this message with others contending for limited resources, if
applicable. IP LaunchPad applies SLA policies to determine whether this
message should be moved to the top of the queue, or possibly delivered
in sequence (after higher-priority messages have been delivered).
. Continuously collects and updates network status information such as
bandwidth and port availability for our least cost routing algorithm.
. Delivers the message either to a destination on the IP network or to an
off network device through an Open Port-enabled RAS and a dial-out
through either a PSTN or wireless connection.
When the message transmission is complete:
. The associated tracking information is sent back to the network
operations center which pairs the send request with the receipt
confirmation.
. This tracking information is immediately delivered to the service
provider's network administration systems that have been linked to our
software.
Using the tracking information:
. End-users can determine in real-time the current status of messages
which have been delivered or are in process of delivery.
. Settlement issues between service providers who contract with one
another for delivery services are resolved.
. Message senders and content providers can be assured of delivery, or
create detailed or summary management reports indicating recipients'
responses to messages sent.
Professional Services
We offer a comprehensive line of professional services to help our customers
offer enhanced IP services to their subscribers. As of April 30, 2000, our
professional services staff consisted of 27 employees. We provide three phases
of service support: management consulting, service development and
implementation, and full-scale production support.
Management Consulting. In the first phase, we help customers define an
enhanced IP services solution by providing some or all of the following:
. establishing the business definition and business case;
. determining market definition and selecting target market segments;
. defining details of the hardware and software to be distributed;
. defining the business processes that are required to manage and support
the service offering;
43
<PAGE>
. determining a high level marketing and sales plan; and
. establishing the acceptance criteria and plan for the service to go into
production.
Concurrently, we begin planning for service deployment which may include:
. developing detailed deployment schedules and budgets;
. determining outsourcing needs and establishing contracts with identified
partners;
. monitoring the project schedules and deliverables and taking corrective
actions to meet established delivery goals; and
. establishing executive and technical review teams and conducting regular
review meetings for information exchange and processing and system buy-
in.
Service Development and Implementation. In the second phase, we develop the
enhanced IP services solutions with our customers and implement the solutions
in internal trials and initial deployment, prior to full-scale production. We
have gained international systems implementation knowledge and experience by
deploying hardware and software at customer sites worldwide. Our systems
implementation services include:
. establishing requirements for the hardware and software deployment
needed for the successful implementation of the desired services;
. scheduling the deployment based on the availability of the required
facilities, telephony, hardware and software;
. installing software at the deployment sites; and
. training the customer to perform installations.
Production Support. In the final phase, as the services solution is rolled
out by our customer, we continue to provide management consulting, training,
implementation, and customer support services as needed. Also, on an ongoing
basis after the roll out, for a maintenance fee our customers receive support
and software upgrades.
Customers
We currently target sales of IP LaunchPad to service providers as our
principal customers. As of April 30, 2000, the following customers had entered
into license agreements to deploy our solution in their networks:
. AT&T Unisource Communications . Interpath Communications, Inc.
Service v.o.f. . LEC Unwired, LLC
. Bell Atlantic Data Solutions . LTS S.p.A.
Group, Inc. . MCI WorldCom Network Services,
. Cable & Wireless HKT CSL Limited Inc.
(Hong Kong Telephone) . Pacific Internet Limited
. Cable & Wireless Japan Ltd. . QQ Interactive, Inc.
. Cable & Wireless Optus . Qwest Communications
. Cable & Wireless U.K. Corporation
. China Telecom-Guandong PTA . Taiwan Telecommunication
. Ics.IP S.p.A. Network Services Co., Ltd.
. Tele Danmark A/S
In December 1999 we entered into a master license agreement with Cable &
Wireless Ltd., which has approximately 70 operating units. This agreement
provides the terms and conditions under which Cable & Wireless operating units
may elect to license our software solutions. As of April 30, 2000, five Cable &
Wireless operating units had entered into license agreements for our software.
44
<PAGE>
Our top five customers totaled 52% of our total revenues in 1999. One
customer, GRIC Communications, Inc., accounted for 25% of our revenues for the
fiscal year ended December 31, 1999. We do not expect this customer to account
for any revenues in the year ended December 31, 2000. However, other customers
may account for more than 10% of our revenues in the future and we expect that
a small number of our customers will continue to account for a substantial
portion of our revenues.
Strategic Relationships
In order to facilitate the acceptance of our solutions and enhance our
marketing and distribution efforts, we have established strategic relationships
with certain technology industry leaders such as Ascend (now a subsidiary of
Lucent), Cisco, Microsoft, Optus, Sun Microsystems and 3Com. These
relationships have accelerated the market acceptance of our products through
technology integration into our allies' products and/or joint marketing
arrangements.
. Ascend. Starting in 1997, we jointly developed software with Ascend,
which was acquired by Lucent in 1999. In 1998, we entered into a non-
exclusive worldwide strategic alliance agreement with Ascend which makes
it simpler for Ascend's customers to use our solution.
. Cisco. We are a member of Cisco's New World Ecosystem Program, a
community of technology partners. In 1999, we announced an alliance to
bring certain IP LaunchPad fax solutions to Cisco's AS5X00 product
family. We engage in joint marketing activities and receive sales
referrals from Cisco.
. iReady. In January 1999, we entered into a strategic alliance to provide
iReady with our protocols that enable fax transmissions over the
Internet. iReady's Internet Tuner module, enhanced with these these
protocols, allows multi-function peripherals and fax machines to send
and receive faxes over the Internet.
. Kanbay. In 1999, we entered into a global integrator agreement with
Kanbay under which they will provide integration and customization
services for IP LaunchPad, either by subcontracting with us or by
contracting directly with the end user. In addition, Kanbay will promote
IP LaunchPad to their service provider customers.
. Microsoft. In 1998, we entered into a development and license agreement.
Under the agreement, we licensed to Microsoft perpetual rights to
certain of our proprietary technologies, including our patented least
cost routing technology, subject to certain field of use restrictions.
For a minimum period of three years, Microsoft will integrate and
distribute the software that is developed under this agreement with
certain Microsoft server products. Microsoft also purchased shares of
our preferred stock.
. Optus. In 1998, we entered into a worldwide development and license
agreement with Optus under which Optus granted us a license to certain
fax technology, and we granted Optus a license to our Internet gateway
software, which allows Optus products to communicate with Open Port-
enabled service providers.
. Sun Microsystems. In 1999, we became a Sun strategic developer and a
founding member of Sun's SunTone Architecture Council. We also have a
marketing alliance that combines IP LaunchPad with the Sun-Netscape
Alliance messaging server software. We engage in joint marketing with,
and receive sales referrals from, Sun.
. 3Com. In 1998, we entered into a non-exclusive worldwide strategic
alliance and referral agreement with 3Com. Under this agreement, we
participate in joint product development and co-marketing activities.
45
<PAGE>
We intend to selectively pursue additional strategic alliances and
relationships in the future. We are conducting preliminary discussions with
third parties regarding potential strategic business opportunities that may
take a number of different forms. These discussions are in early stages, and no
definitive terms and conditions have been agreed upon. Accordingly, there can
be no assurance as to the terms, timing or consummation of any of these
opportunities.
Sales and Marketing
We rely on our direct sales force to make sales to service providers. As of
April 30, 2000, we had 16 direct sales professionals on our staff. A sales
director in Chicago manages Latin America, Canada and the midwest and eastern
portions of the United States. A sales director in our San Francisco office
manages the western United States and Asian region business, and a sales
director in our Paris office manages Europe, Africa and the Middle East. All of
these sales directors report to our Senior Vice President of Sales and
Marketing. We plan to expand our domestic and international sales opportunities
by increasing the size of our sales force and through reseller/distribution
alliances.
The sales process is divided into three phases: business definition, due
diligence and contract, and service deployment.
. Business Definition. Our sales personnel review the prospective
customer's business and network infrastructure before presenting a
formal proposal. Following the proposal, we perform a series of
technical reviews, analyzing the prospective customer's network and
objectives, combined with a marketing implementation review. We work
closely with the prospective customer in defining our solutions.
. Due Diligence and Contract. We install our software on the prospective
customer's network on a limited scale. Once testing of this limited
installation is successfully completed, we negotiate with our customers
and sign a contract. Our customer's decision to license our software is
usually enterprise-wide, involving approval by numerous members of the
customer's management team, and thus several months often elapse between
initial contact and final contract signing.
. Service Deployment. Our professional services organization works with
the customer to install and test the software in their network. We train
the customer's support services personnel in the operation and
management of the installed software as a billable service. Service
deployment typically takes two to three months depending on the
customer's requirements and is implemented in a phased approach tailored
to such requirements. A global account manager, who is on site at the
customer's headquarters, maintains an understanding of the customer
deployment to better service the needs of the customer and thereby
increase sales to the customer.
As of April 30, 2000, 12 of our employees were responsible for a variety of
marketing activities, including product management, market research, sales
collateral development, web design and implementation, public relations,
channel partnerships, trade shows and conferences. Continued revenue growth
depends, in part, on our ability to retain and maintain sales and marketing
personnel as well as our ability to expand and maintain our strategic business
relationships with resellers, distributors and other third parties that are
crucial in our sales process.
Research and Development
We believe that our future success depends in large part on our ability to
enhance our current product family and introduce new products that enable a
wide range of enhanced IP services to service providers. As of April 30, 2000,
our product development organization
46
<PAGE>
consisted of 44 full-time employees. We also utilize contract technical
professionals on an as-needed basis.
Our product development organization is responsible for product design,
development and testing, as well as user documentation. This group is
responsible for integrating our software with various third-party components.
In addition, our advanced technologies group investigates ways to expand the
usability of our IP LaunchPad platform software, including researching possible
future unified messaging applications and enhancements to our wireless data
product suite.
Competition
Our industry is intensely competitive, rapidly evolving and subject to rapid
technological change. We expect competition to intensify in the future. Many
companies that offer products or services that compete with one or more of our
products or services have greater financial, technical, product development,
marketing and other resources than we have. These organizations may be better
known and may have more customers than we have. We may be unable to compete
successfully against these organizations.
We currently compete with other companies offering software to enable
enhanced IP services. We compete directly with a number of private companies in
the fax-over-IP market such as Netcentric Corporation and Arelnet Ltd. We
believe a critical component to success in this market is the ability to
provide a flexible, complete platform solution which enables service provider
customers to readily add enhanced IP applications on an ongoing basis. We
believe that there are no competitors in our market that currently offer a
comprehensive solution with the functionality, features, and value proposition
for service providers comparable to ours. However, several organizations offer
components that compete with certain components of our solutions and may become
increasingly competitive with us in the future. We believe that the main
competitive factors in our market are product features, particularly the types
of enhanced services which may be delivered, product quality and value,
deployment expertise and customer service, and relationships with service
providers and their network system equipment vendors.
As our product and service offerings evolve and the markets in which we
compete develop, we may in the future face competition from several other types
of organizations, including:
. manufacturers of network hardware and infrastructure devices, such as
Cisco Systems, Inc. and Ascend Communications (now a division of Lucent
Technologies Inc.), that currently concentrate on communications between
devices such as telephones and fax machines;
. traditional manufacturers of telephony equipment, such as Lucent
Technologies Inc. and Nortel Networks Corp., some of which recently
began manufacturing telephony equipment for IP networks;
. traditional providers of corporate voice, fax and email systems
including such companies as Comverse Technology, Inc. for voice, Omtool,
Ltd. for fax, and ISOCOR (recently acquired by Critical Path, Inc.) for
email; and
. companies that currently, or may in the future, provide IP messaging
applications individually or through alliances.
In addition, we expect that major software companies and others specializing
in the telephony or messaging industries may offer products or services that
are competitive with components of our solutions. While many of these types of
organizations are potential competitors, we believe opportunities exist to
establish strategic relationships, alliances or
47
<PAGE>
agreements with some of them. We have entered into strategic agreements with
some of these types of organizations, and intend to selectively pursue other
opportunities in the future.
Intellectual Property
We rely primarily on a combination of patents, copyrights, trademarks, trade
secret laws, restrictions on disclosure and other methods to protect our
intellectual property and trade secrets. We also enter into confidentiality
agreements with our employees and consultants, and generally control access to
and distribution of our documentation and other proprietary information.
Although we have not secured registration of all of our marks, we pursue the
registration of certain of our trademarks and service marks in the United
States and in other countries. In addition to our existing registered
trademarks set forth elsewhere in this prospectus, we have applications for the
words-only marks "IP LaunchPad" and "IP LaunchPad Fax Suite" pending with the
United States Patent and Trademark Office and for "IP LaunchPad" pending in the
European Community and Japan. We have entered into an agreement with Sequent
Computer Systems, Inc. in Europe in which we agreed that we will not use the
"Open Port" mark in connection with software for migrating application software
from a mainframe environment to an open system environment or related services,
and Sequent agreed not to object to or challenge our use or registration of the
"Open Port" mark in Europe in connection with messaging software for networks
or related services. Also, in 1995, we entered into an agreement with Relay
Technology, Inc. in which we agreed not to use the mark "Open Port," "Open Port
Harmony," or any similarly confusing mark in connection with computer software
for transferring data between standard query language databases. Relay
Technology agreed not to use the mark "Relay/Open Port" or any similarly
confusing mark in connection with computer software and hardware for providing
electronic messaging, video messaging, voice messaging, image messaging, or fax
transmission functions to computer users.
We own four issued patents and three pending United States patent
applications, each relating to aspects of our business. One of our four issued
United States patents which expires in 2013 is generally directed to the use of
a re-router device to provide alternative paths for digitally-encoded messages
when the initial attempt to deliver the fax or other message is unsuccessful.
The second and third of our United States patents, each of which expires in
2015, are generally directed to a least cost method of routing messages. In one
application, this least cost routing option produces different results
depending on a variety of factors, including the time-of-day and day-of-week
for delivery, the message sender's request for a particular level of service,
the conditions of the network delivery sites as well as bandwidth to those
sites, the location of sending and receiving devices and whether or not the
message is being delivered to one or many devices. The fourth of our United
States patents expires in 2017 and is generally directed to forwarding received
messages to online end-users capable of processing the contents of those
messages. In one application, end-users are agents working for a customer
service center, and our system forwards messages pertaining to specific types
of customer service problems to the agent most ready and capable of handling
each specific type of problem. We have granted licenses under our patents to
certain third parties, including Microsoft Corporation. See "--Strategic
Relationships."
Governmental Regulation
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state, local and foreign
regulations and legislation affecting our industry. Other existing federal,
state, local and foreign legislation and
48
<PAGE>
regulations are currently subject to judicial proceedings, legislative hearings
and administrative proposals that could change, in varying degrees, the manner
in which this industry operates. We cannot predict the outcome of these
proceedings or their impact upon us, our customers or the growth of IP network
infrastructure and utilization of enhanced IP
services. Any legislation that substantially impairs the growth of IP network
infrastructure, enhanced IP services or service providers could materially
affect our business.
In the United States and most countries in which we conduct our operations,
we are not currently subject to direct regulation other than pursuant to laws
applicable to businesses generally and specific United States export and import
controls of other countries, including controls on the use of encryption
technologies that may apply to our products. Adverse developments in the legal
or regulatory environment relating to enhanced IP services and IP network
infrastructure in the United States, Europe, Asia or elsewhere could have a
material adverse effect on our business, financial condition and operating
results. Such regulation could also negatively affect our customers resulting
in a decrease in the demand for our products. A number of legislative and
regulatory proposals from various international bodies and foreign and domestic
governments in the areas of telecommunications, IP network infrastructure,
access charges, encryption standards and related export controls, content,
consumer protection, advertising, intellectual property, privacy, electronic
commerce, taxation, and tariffs and other trade barriers, among others, are now
under consideration. We are unable at this time to predict which, if any, of
these proposals may be adopted and, if adopted, whether these proposals would
have a beneficial or an adverse effect on our business, financial condition and
operating results.
Similarly, we are unable to predict the effect of certain existing
legislation related to use of IP networks. For example, United States laws
protecting internet privacy including the Children's Online Privacy Protection
Act, recently became effective. Additionally, the European Parliament and the
European Council issued Directive 95/46/EC regarding the processing of personal
data and the free movement of such data. The manner in which these existing
domestic and foreign laws will or may be applied to us or our customers is
uncertain.
Employees
As of April 30, 2000, we had 120 full-time employees. Of the total, 33 were
employed in sales, marketing and business development, 44 in research and
development, 27 in professional services, and 16 in finance, information
systems and administration. Our future performance depends, in significant
part, upon our ability to attract new personnel and retain existing personnel
in key areas including engineering, technical support and sales. Competition
for this personnel is intense, and we cannot be sure that we will be successful
in attracting or retaining the personnel in the future. We have never had a
work stoppage, and no employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good.
Facilities
Our principal executive offices currently are located at 676 North St. Clair
Street, Suite 900, Chicago, Illinois 60611. Our lease on these premises covers
24,531 square feet and expires February 28, 2002. We recently leased additional
space covering 8,406 square feet at 205 N. Michigan, Suite 1305, Chicago,
Illinois 60601. This lease expires December 31, 2000. We also lease regional
sales office facilities in: San Francisco, California; Denver, Colorado;
Rotterdam, Netherlands; Diegem, Belgium; and Paris, France.
49
<PAGE>
We believe that, except as described below with respect to our Chicago
facilities, our facilities generally are adequate for our current needs and
that additional suitable space will be available as needed on commercially
reasonable terms. Our Chicago facilities do not have adequate available space
to accommodate our anticipated growth, and we expect to identify and lease a
new facility within the next several months to replace our existing facilities.
Upon leasing a new facility, we would attempt to sublet our 676 North St. Clair
Street facility for the remainder of its lease term. While the market for
commercial real estate in downtown Chicago is competitive, we believe that
suitable space will be available at market rates.
Legal Proceedings
We are not a party to any litigation or other legal proceedings that we
believe would have a material adverse effect on our business or financial
condition.
50
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning our executive
officers, directors and certain other key employees:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<C> <C> <S>
Executive Officers and Directors:
Randy S. Storch.................. 41 Chairman of the Board, President and
Chief Executive Officer
Cheryl E. Mayberry............... 44 Senior Vice President/General Manager of
Sales and Marketing
Omprasad S. Nandyal.............. 34 Chief Technical Officer, Secretary and
Director
Michael B. Clauer................ 43 Vice President and Chief Financial
Officer
Clarissa Cerda................... 35 Vice President, General Counsel and
Assistant Secretary
Peter J. Barris(1)............... 47 Director
Thomas J. Crotty(1).............. 41 Director
Royce J. Holland................. 50 Director
Donald R. Hollis(2).............. 64 Director
John E. Major(2)................. 54 Director
Joseph A. Piscopo(2)............. 55 Director
Other Key Employees:
Antonio Dutra.................... 48 Vice President of Strategy
Michael Flockenhaus.............. 37 Vice President of Engineering
Joseph M. Fuller................. 34 Vice President of Finance and
Administration
Alvon D. Ramp.................... 52 Vice President of Client Services
James B. Tucker.................. 44 Vice President of Global Business
Development
Martin T. Wegner................. 33 Vice President and Chief Scientist
</TABLE>
- --------
(1) Member of the compensation committee
(2) Member of the audit committee
Executive Officers
Randy S. Storch, a co-founder of Open Port, has served as Chairman of the
Board, President and Chief Executive Officer since our inception in January
1993. Prior to founding Open Port, Mr. Storch was a consultant to Tandem
Computers as a subject matter expert in the area of messaging from October 1992
to December 1993 and served as general manager of Ameritech Corporation's
enhanced messaging services group from March 1991 to October 1992. In 1985, he
founded and was chief executive officer of Airplan Travel Systems until 1987.
Upon the sale of Airplan Travel Systems to Texas Air in June 1987, Mr. Storch
served as a corporate vice president of Texas Air and was responsible for
running the Airplan division and directing the strategy for the company through
February 1991.
Cheryl E. Mayberry has served as Senior Vice President/General Manager of
Sales and Marketing since November 1997. Ms. Mayberry is responsible for
directing and implementing all sales and marketing strategies. From September
1992 to July 1997, Ms. Mayberry served as vice president of sales for U.S.
Robotics, where she established and managed their network systems division.
From 1977 to 1992, she was employed at IBM in various sales and marketing
management positions. Ms. Mayberry also serves as chairman of the board of
BrownAngels.com, an early stage e-commerce company.
Omprasad S. Nandyal, a co-founder of Open Port, has served as Chief
Technical Officer and as a director since January 1995. Mr. Nandyal was
responsible, in conjunction with Chief Scientist Martin Wegner, for the
original design of our messaging architecture. He now
51
<PAGE>
oversees the overall direction of our products. Between April 1990 and January
1995, Mr. Nandyal was a co-owner and principal of Frontline Software
Technology, a maker of corporate network fax server software which was
purchased by Open Port in January 1995.
Michael B. Clauer has served as Vice President and Chief Financial Officer
since April 2000. He previously served in various management capacities, most
recently as executive vice president and chief financial officer, for Budget
Group, Inc., a company engaged in the business of renting cars and trucks, from
November 1997 to February 2000. From April 1996 to November 1997, he served as
senior director of finance, strategy and planning for the North America
national franchise business units of the Pepsi-Cola Company, and from September
1994 to April 1996, he was the senior director field finance for Pepsico
International Restaurants, Inc.
Clarissa Cerda has served as Vice President, General Counsel and Assistant
Secretary since May 2000. Prior to joining Open Port, Ms. Cerda focused on
corporate and securities law matters at Sonnenschein Nath & Rosenthal, a
national law firm, from August 1995 to May 2000, serving most recently as a
partner. From May 1993 to July 1995, she served in the White House Counsel's
Office as Assistant Counsel to the President of the United States.
Outside Directors
Peter J. Barris has served as a director of Open Port since March 1997. He
has been a general partner of New Enterprise Associates, a venture capital
firm, since 1993. He specializes in investments in information technology
companies. Before joining NEA, Mr. Barris was president and chief operating
officer of Legent Corporation, a systems software manufacturer, and senior vice
president and general manager of the systems software division at UCCEL. Mr.
Barris also serves as a director of CareerBuilder Inc., a provider of
recruitment products and services, and Mobius Management Systems, Inc., a
provider of software products.
Thomas J. Crotty has served as a director of Open Port since March 2000. He
has been a general partner of Battery Ventures, a venture capital partnership
focused on investments in communications, software and Internet/e-commerce
companies, since 1989. Mr. Crotty served as an observer at our board meetings
from June 1998 to February 2000. Prior to joining Battery Ventures, he worked
at Abacus Ventures, a partnership specializing in communications investments.
Mr. Crotty also serves as a director of Witness Systems, Inc., a software
provider.
Royce J. Holland has served as a director of Open Port since February 1997.
He is chairman and chief executive officer and co-founder of Allegiance
Telecom, Inc., a competitive local exchange carrier headquartered in Dallas,
Texas that was formed in 1997. Previously, Mr. Holland was president and one of
several co-founders of MFS Communications Company, Inc., a competitive local
exchange carrier with operations in 52 metropolitan areas in North America,
Europe and Asia, from January 1992 to December 1996. Mr. Holland also serves as
a director of Choice One Communications, Inc., an integrated communications
provider of broadband data and voice telecommunications services, and CSG
Systems International, Inc., a provider of customer care and billing solutions
to the communications industry.
Donald R. Hollis has served as a director of Open Port since December 1996.
He is president of DRH Strategic Consulting, Inc., which assists clients in
developing strategies for leveraging technology and quality practices to
improve payments related transaction processing products as well as in finding
appropriate acquisitions. From 1981 to 1996 he was an executive vice president
of First Chicago Corporation responsible for its technology leadership and its
commercial transaction processing businesses. Mr. Hollis serves on the
executive committee of the Illinois Institute of Technology's board of trustees
and the IIT research institute board of governors. Mr. Hollis also serves as a
director of Deluxe Corporation.
52
<PAGE>
John E. Major has served as a director of Open Port since March 2000. He has
served as chief executive officer of the Wireless Internet Solutions Group, a
consulting and investment strategy business focused on the convergence of the
wireless and Internet industries. Mr. Major served as the chairman and chief
executive officer of Wireless Knowledge, a Qualcomm and Microsoft joint venture
which provides Internet based solutions for wireless access to corporate
information, from November 1998 to November 1999. Prior to that, Mr. Major
served as an executive vice president of Qualcomm and as president of its
wireless infrastructure division. Prior to joining Qualcomm in 1997, Mr. Major
served as senior vice president and staff chief technical officer at Motorola,
Inc., a manufacturer of telecommunications equipment, and as senior vice
president and general manager for Motorola's worldwide systems group. Mr. Major
currently serves on the board of directors of Lennox International Inc., a
provider of climate control solutions, Littlefuse, Inc., a manufacturer of
fuses, and Verilink Corporation, a manufacturer of network access devices.
Joseph A. Piscopo has served as a director of Open Port since December 1995.
He is a private investor in software and technology firms. He was chairman of
Software Artistry, Inc., an Indianapolis software firm, from 1992 to 1998, when
it was acquired by IBM. He founded Pansophic Systems, a systems software
company in Lisle, Illinois and served as chairman and chief executive officer
of the company from 1969 to 1987.
Key Employees
Antonio Dutra, a co-founder of Open Port, has served as Vice President of
Strategy since 1993. Mr. Dutra has an extensive background in communications
services, hardware and software. Prior to founding Open Port, from 1985 to 1993
Mr. Dutra was an independent consultant with a practice focused on email
applications, electronic data interchange and fax networking. From 1981 to 1985
Mr. Dutra was a technical manager for CompuServe Inc.
Michael Flockenhaus has served as the Vice President of Engineering since
August 1999. Mr. Flockenhaus joined Open Port in November 1998 as Director of
Engineering. From October 1997 to October 1998, Mr. Flockenhaus was vice
president of research and development of Cruise Technologies, a developer of
wireless thin client technology for the health care industry. From March 1988
to October 1997, Mr. Flockenhaus held several senior management positions at
U.S. Robotics, serving most recently as director of modem and telco interface
development.
Joseph M. Fuller has served as Vice President of Finance and Administration
since October 1999. Mr. Fuller joined Open Port in January 1996 as Director of
Finance and Administration and Controller. From 1994 to 1995, Mr. Fuller was
vice president of operations for Crown Mortgage Company, one of the largest
privately-owned mortgage companies in Illinois.
Alvon D. Ramp has served as Vice President of Client Services since January
1996. From December 1993 to January 1996, he was employed at May & Speh, Inc.,
a computer services outsourcing and direct marketing systems company, where he
served as a strategic account consultant, managing relationships with direct
marketing accounts.
James B. Tucker has served as Vice President of Global Business Development
since January 2000. From 1994 to 1999, Mr. Tucker served as director of
strategic sales initiatives for U.S. Robotics and its successor, 3Com
Corporation, where he managed relationships with telecommunications carriers
and network service providers. From 1976 to 1994, Mr. Tucker was employed at
IBM in various sales and marketing management positions.
Martin T. Wegner, a co-founder of Open Port, has served since January 1995
as Chief Scientist in our advanced technologies group, which is our principal
research and development organization for applications in the area of IP
messaging. Working with our Chief
53
<PAGE>
Technical Officer, Mr. Nandyal, Mr. Wegner helped develop the original design
of Open Port's messaging architecture. Between April 1990 and January 1995, Mr.
Wegner was a co-owner and principal of Frontline Software Technology, a maker
of corporate network fax server software which was purchased by Open Port in
January 1995.
Board of Directors
Our business is managed under the direction of our board of directors.
Following this offering, the board of directors will be composed of three
classes, with each class as nearly equal in number as possible. Upon the
expiration of the term of each class of directors, directors comprising that
class will be elected for a three-year term at the annual meeting of
stockholders in the year in which their term expires. Messrs. Holland and
Piscopo will serve in the class with a term that expires on the date of the
annual meeting of stockholders to be held in 2001. Messrs. Barris, Crotty and
Hollis will serve in the class with a term that expires on the date of the
annual meeting of stockholders to be held in 2002. Messrs. Major, Nandyal and
Storch will serve in the class with a term that expires on the date of the
annual meeting of stockholders to be held in 2003. Following this offering, no
person will have the right to have its designee elected to our board of
directors. All officers serve at the discretion of the board of directors.
There are no family relationships among any of our directors or executive
officers.
Committees of the Board of Directors
Our board of directors has established two committees: a compensation
committee and an audit committee. Each such committee has two or more members,
who serve at the discretion of the board of directors.
Our compensation committee will consist of Messrs. Barris and Crotty upon
completion of this offering. The compensation committee reviews, acts on and
reports to the board of directors with respect to various compensation and
employee benefit matters. This includes overseeing and making recommendations
with respect to the salaries, bonuses, and other compensation paid to our
officers and key employees, including the terms and conditions of their
employment, and administering all stock option and other benefit plans (except
that with respect to participation by persons who are not officers, such stock
option and other benefit plans may also be administered by the board of
directors or a committee which includes our chairman of the board unless
otherwise specified in the applicable plan documents) affecting officers' and
key employees' direct and indirect remuneration.
Our audit committee currently consists of Messrs. Hollis, Major and Piscopo.
The audit committee reviews, acts on and reports to the board of directors with
respect to various auditing and accounting matters, including: reviewing the
adequacy of our system of internal accounting controls; reviewing the results
of the independent auditors' annual audit, including any significant
adjustments, management judgements and estimates, new accounting policies and
disagreements with management; reviewing the scope and results of our internal
auditing procedures; reviewing our audited financial statements and discussing
them with management; reviewing the audit reports submitted by the independent
auditors; reviewing disclosures by independent auditors concerning
relationships with our company and the performance of our independent auditors
and annually recommending independent auditors; adopting and annually assessing
our committee charter, and preparing such reports or statements as may be
required by Nasdaq or the securities laws.
Compensation of Directors
We have agreed to pay each director who is not one of our employees a fee of
$1,500 for each meeting of the board of directors that they attend after
completion of this offering. Such persons will also receive stock option grants
pursuant to our 2000 Outside Directors Stock Option Plan. See "--Employee
Benefit Plans--2000 Outside Directors Stock Option Plan." Messrs. Barris,
Crotty, Holland, Hollis, Major and Piscopo are currently eligible to receive
such
54
<PAGE>
meeting fees and stock option grants. All directors are reimbursed for out-of-
pocket expenses incurred in connection with attendance at meetings of the board
of directors and meetings of committees of the board of directors. Mr. Hollis
received options to purchase 6,666 shares of common stock at an exercise price
of $1.13 per share on January 1, 1997 pursuant to our 1995 Non-Employee Stock
Option Plan.
Executive Compensation
The following table sets forth information for the year ended December 31,
1999, regarding the compensation of our Chief Executive Officer and each of our
other executive officers whose salary and bonus for the year ended December 31,
1999 were in excess of $100,000. No options or stock appreciation rights were
granted to any of the named executive officers in 1999. We use the term "named
executive officers" to refer collectively to these individuals later in this
prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------ ------------
Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options (#) Compensation
- --------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Randy S. Storch............... 1999 $190,000 -- -- --
Chairman of the Board,
President and Chief
Executive Officer
Cheryl E. Mayberry............ 1999 125,000 -- -- --
Senior Vice
President/General Manager of
Sales and Marketing
Omprasad S. Nandyal........... 1999 125,400 -- -- --
Chief Technical Officer and
Secretary
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table provides information about options held as of December
31, 1999 and option exercises during 1999 by the named executive officers. The
value of unexercised in-the-money options at fiscal year end is calculated
using the difference between the option exercise price and the fair market
value at December 31, 1999, which has been deemed to be $5.63 per share,
multiplied by the number of shares underlying the option. An option is in-the-
money if the fair market value of the common stock subject to the option is
greater than the exercise price. Based on the assumed initial public offering
price of $11.00 per share, the value of unexercised in-the-money options
following the completion of this offering is expected to significantly exceed
the value of these options at fiscal year end.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised in-the-
Underlying Unexercised Money Options at
Options at Fiscal Year End (#) Fiscal Year End ($)
------------------------------ --------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------ --------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Randy S. Storch......... -- -- 25,555 27,778 $ 114,998 $ 125,001
Cheryl E. Mayberry...... -- -- 50,806 89,887 228,627 404,492
Omprasad S. Nandyal..... -- -- 12,777 13,889 57,497 62,501
</TABLE>
In addition, in March 2000, we granted options to acquire 247,587, 66,666,
and 93,333 shares, respectively, to Mr. Storch, Ms. Mayberry and Mr. Nandyal.
These options have an exercise price of $5.63 per share and generally vest over
four years.
55
<PAGE>
Compensation Committee Interlocks And Insider Participation
Our compensation committee will consist of Messrs. Barris and Crotty upon
completion of this offering. During the fiscal year ended December 31, 1999,
the compensation committee was comprised of Mr. Storch and two former
directors, John C. Aplin and James E. Crawford. Neither of Messrs. Aplin or
Crawford serves, or has at any time served, as an officer or employee of Open
Port or any of its subsidiaries. Mr. Storch also serves as our Chairman of the
Board, President and Chief Executive Officer. None of our executive officers
has served as a member of the compensation committee, or other committee
serving an equivalent function, of any other entity, one of whose executive
officers served as a member of our compensation committee.
Employment Agreements
Messrs. Storch and Nandyal each have entered into an employment agreement
with us, dated August 1, 1995, which provides, among other things, for certain
salary and bonus payments. The agreement provides that Messrs. Nandyal and
Storch will receive 12 months and 18 months severance, respectively, if their
employment is terminated without "cause" (defined as having been convicted of a
crime, engaged in habitual substance abuse, engaged in professional misconduct
or failed to perform duties or obligations to us). The agreements provide that
Messrs. Nandyal and Storch will each receive six months and nine months
severance, respectively, if employment is terminated for "cause" on account of
a failure to perform duties or obligations to us. In addition, each of the
employees has agreed not to solicit our employees or customers for a period of
one year following the termination of employment. The agreement also contains
nondisclosure provisions.
Ms. Mayberry entered into an employment agreement with us dated October 31,
1997, which provides, among other things, for certain salary and bonus
payments. In addition, she has agreed not to solicit employees or customers for
a period of one year following the termination of employment. The agreement
also contains nondisclosure provisions.
We are currently negotiating with each of Messrs. Storch and Nandyal and Ms.
Mayberry with respect to amended and restated employment agreements. We expect
that such agreements will be completed prior to completion of this offering. We
also plan to enter into employment agreements with Mr. Clauer, our Vice
President and Chief Financial Officer, and Ms. Cerda, our Vice President and
General Counsel, and certain key employees prior to completion of this
offering.
Employee Benefit Plans
2000 Equity Incentive Plan
In April 2000, our board of directors approved our 2000 Equity Incentive
Plan, subject to the approval of our stockholders. We have authorized an
aggregate limit on shares of common stock for issuance under this plan and the
2000 Outside Directors Stock Option Plan. The limit is 1,866,666 shares, plus
the number of shares (2,595,385) that are authorized for issuance under our
1995 Incentive Stock Option Plan and our 1995 Non-Employee Stock Option Plan,
minus the number of shares (2,310,579 as of April 30, 2000) subject to
outstanding or exercised options under the 2000 Equity Incentive Plan, the 2000
Outside Directors Stock Option Plan, the 1995 Incentive Stock Option Plan and
the 1995 Non-Employee Stock Option Plan. The number of authorized shares will
automatically increase each May 1, beginning on May 1, 2001 and ending on the
May 1 preceding the date on which the plan is terminated, by 5% of the number
of our then outstanding shares of common stock, or by 1,333,333 shares,
whichever is less. The plan also includes limits on the number of shares which
may be subject to awards granted to any person in a calendar year.
56
<PAGE>
The plan is for the benefit of all employees, directors, officers,
consultants, suppliers, contractors and certain other providers of service to
us. The plan will become effective upon approval by our stockholders. No
options or other awards will be granted under this plan prior to effectiveness
of this registration statement.
The plan may be administered by our compensation committee or any other
committee approved by the board of directors, provided that all awards to
officers and directors must be approved by the compensation committee. The
committee will have the power, subject to the terms of the plan, to interpret
the plan and may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the plan
including: determining when, to whom and what type and amounts of awards should
be granted, accelerating the exercisability of awards, accelerating or waiving
terms and conditions of awards, extending the time awards may be exercised, and
in certain circumstances rescinding any exercise, payment or delivery of shares
and requiring the repayment from the grantee of any gain realized or payment
received as a result of the exercise, payment or delivery so rescinded.
We may issue two types of stock options under the plan: incentive stock
options, or ISOs, which are intended to qualify under Section 422 of the
Internal Revenue Code and non-qualified stock options. The options have a 10-
year term. The exercise price of each ISO granted under the plan must be at
least equal to the fair market value of a share of common stock on the date the
option is granted and if the employee owns more than 10% of our stock, at least
110% of the fair market value of the underlying stock on the date of grant. The
exercise price for non-qualified stock options will be determined by the
committee on the date of grant. The option exercise price may be paid in cash
or, if permitted by the committee, in stock (including restricted stock) or by
a "cashless exercise" through a broker. An option or other award becomes
exercisable at the time or times determined by the committee.
Incentive stock options are not transferable. To the extent permitted in the
award agreement, awards other than ISOs may be transferred to certain family
members, family trusts, family partnerships or similar entities.
Stock appreciation rights, or SARs, may be granted under the plan either
alone or in conjunction with all or part of any stock option granted under the
plan. A SAR granted under the plan entitles its holder to receive, at the time
of exercise, an amount per SAR equal to the excess of the fair market value at
the date of exercise of a share of common stock over a specified price fixed by
the committee.
Restricted stock, performance shares, performance units, deferred shares,
bonus shares, reload options and cash-based awards may also be granted under
the plan. The committee will determine the purchase price, performance period
and performance goals, if any, with respect to any grant of restricted stock,
performance shares, performance units, deferred shares, bonus shares or cash-
based awards.
Except as otherwise determined by the committee:
. If an employee is terminated for cause (as defined in the plan), all
unvested or unexercised awards will terminate and be forfeited and, in
the case of restricted stock, we will refund to the employee the amount,
if any, paid to purchase the stock.
. In the event of death or disability of an employee, any restricted stock
and deferred shares will become vested; any option, ISO or SAR will vest
immediately and may be exercised by the grantee's personal
representative, beneficiary or by the individual receiving such option,
ISO or SAR by will or by descent; and any performance shares,
performance units or cash-based awards will be paid on a pro rata basis.
57
<PAGE>
. If an employee terminates for any other reason, any restricted stock or
deferred shares to the extent forfeitable will be forfeited, subject to
the refund to the employee of the amount, if any, paid to purchase
restricted stock, the then-exercisable portion of any unexercised option
or SAR may be exercised for three months and any unexercised performance
shares, performance units or cash-based awards will terminate
immediately.
Upon a change of control as defined in the plan, restricted stock and
deferred shares may immediately become vested. Options, ISOs and SARs may also
vest upon a change of control, if not already vested, to the extent specified
in the plan or applicable award or employment agreements. All performance
shares, performance units and cash-based awards will be paid out on a pro rata
basis to the extent specified in the plan or applicable award or employment
agreements.
The committee may amend, suspend or terminate the plan at any time. Further,
no action may be taken that adversely affects any rights under outstanding
awards without the holder's consent. The plan will terminate on the 10th
anniversary of its effective date unless it is terminated earlier by our board
of directors.
2000 Outside Directors Stock Option Plan
In April 2000, our board of directors approved the 2000 Outside Directors
Stock Option Plan, subject to the approval of our stockholders. The plan will
become effective upon approval by our stockholders. No options or other awards
will be granted under this plan prior to effectiveness of this registration
statement. We have authorized an aggregate limit on shares of common stock for
issuance under this plan and the 2000 Equity Incentive Plan. See "--Employee
Benefit Plans--2000 Equity Incentive Plan."
The 2000 Outside Directors Stock Option Plan provides for the grant of stock
options to eligible directors. An eligible director is any director who is not
(at the time of grant) an employee of the company. Each eligible director will
receive on the date this offering is completed, on the date of the 2001 annual
meeting, and every annual meeting thereafter, an automatic grant of an option
to purchase 5,000 shares, provided in case of grants after completion of this
offering that the eligible director is either elected to serve at such annual
meeting, or continues to serve through the date of such meeting as a previously
elected director in a class whose term does not expire at such annual meeting.
Each eligible director elected to the board between annual meeting grant dates
will receive on the date of election an automatic annual grant of an option to
purchase a reduced number of shares proportional to the time remaining until
the next regular automatic grant date.
The exercise price for the options granted upon the closing of this offering
will be the initial public offering price, and the exercise price for all other
options granted under the plan will be the fair market value of our common
stock on the date of grant. All options become vested and exercisable in three
equal annual installments on the first three anniversaries of the grant date or
the date preceding the related scheduled annual meeting of stockholders, if
earlier. Each option has a ten-year term, but will terminate 90 days after a
grantee ceases to be a director (180 days if he or she ceases to be a director
because of disability or death). Options vest and become exercisable for 180
days if the grantee ceases to be a director due to disability or death. In
addition, all options become vested and exercisable upon a change of control as
defined in the plan.
The exercise price may be paid in cash, or if permitted by the board by
turning in currently owned shares, or by "cashless exercise" through a broker.
Options are not transferable during the grantee's lifetime except to certain
family members, family trusts, family partnerships or similar entities.
58
<PAGE>
The plan is administered by our board of directors. Our board may amend or
terminate the plan at any time. Further, no action may be taken that adversely
affects any rights under outstanding awards without the holder's consent. The
plan will terminate on the 10th anniversary of its effective date unless it is
terminated earlier by our board of directors.
1995 Stock Option Plans
In October 1995, our board of directors and stockholders adopted our 1995
Incentive Stock Option Plan and our 1995 Non-Employee Stock Option Plan. The
plans have since been amended from time to time. The Incentive Plan provides
for the grant of options, which may be ISOs, to employees. The Non-Employee
Plan provides for the grant of non-qualified stock options to members of our
board, consultants, suppliers, contractors and certain other providers of
services to us. We have reserved an aggregate of 2,595,385 shares of our common
stock for issuance pursuant to awards under these stock option plans. If an
option terminates or expires without having been exercised in full, the shares
subject to such option continue to be available under our stock option plans.
Options granted under these stock option plans generally expire ten years after
the date of grant.
As of April 30, 2000, options to purchase an aggregate of 2,028,355 shares
of common stock were outstanding to employees under the Incentive Plan and
options to purchase an aggregate of 31,915 shares of common stock were
outstanding under the Non-Employee Plan. No further options will be granted
under these plans after completion of this offering. However, the number of
shares of our common stock reserved under these plans before the offering that
are not committed by outstanding or exercised options will be available for
grant under our 2000 Equity Incentive Plan and the 2000 Outside Directors Stock
Option Plan.
The 1995 stock option plans are administered by one or more committees
designated by the board, which has the authority to determine who receives
options and the number of shares that may be purchased. All options are granted
at an exercise price determined by our board equal to or greater than the fair
market value of the underlying stock on the date of grant. Our board may amend
or terminate the plan at any time. However, any amendment which increases the
number of shares reserved under the plans or materially changes the persons
eligible for awards is subject to the approval of our stockholders.
Options under the Incentive Plan become vested and exercisable as follows
unless otherwise provided in the applicable award agreement: 25% on the first
anniversary of the date of grant and monthly thereafter for a 36-month period.
Options under the Non-Employee plan become vested and exercisable in three
equal annual installments unless otherwise provided in the applicable option
agreement. Upon a change of control as defined in the plan, options under the
Incentive Plan will vest, if not already vested, unless otherwise provided by
the committee, to the extent they would have been vested if they had been
granted three years prior to the change of control, and options under the Non-
Employee Plan become fully vested and exercisable.
Except as otherwise provided in the option agreement, upon termination of
employment (for options under the Incentive Plan) or service (for options under
the Non-Employee Plan), the nonvested portion of an option terminates, and the
vested portion must be exercised if at all within 30 days following termination
of employment or within three months following termination of service. Options
are not transferable during the grantee's lifetime, except that options under
the Non-Employee Plan, and options under the Incentive Plan if the option
agreement so provides, may be transferred to certain family members, family
trusts, family partnerships or similar entities. The exercise price may be paid
in cash or, if permitted by the committee, by turning in currently owned shares
or by "cashless exercise" through a broker.
59
<PAGE>
Employee Stock Purchase Plan
In April 2000, our board approved our 2000 Employee Stock Purchase Plan,
subject to the approval of our stockholders. The plan will become effective
upon approval by our stockholders. No options or other awards will be granted
under this plan prior to effectiveness of this registration statement. We have
authorized a total of 480,000 shares of common stock for issuance under the
plan. The number of authorized shares automatically increases each May 1,
beginning on May 1, 2001 and ending on the May 1 preceding the date on which
the plan is terminated, by 1% of our then outstanding shares of common stock or
by 266,667 shares, whichever is less. Our compensation committee will
administer the plan. The first enrollment period under the plan will begin on
the first day of the first calendar quarter that begins at least 30 days after
this offering becomes effective, or such other date designated by the
committee.
Employees generally will be eligible to participate in the plan if they are
employed for at least six months as of the beginning of the applicable offering
period and they are customarily employed by us, or any of our subsidiaries that
we designate, for more than 20 hours per week and more than five months in a
calendar year. Employees are not eligible to participate in the plan if they
hold 5% or more of our outstanding stock, or would become 5% stockholders as a
result of their participation in this plan, or are non-U.S. employees barred
from participation by the laws of their own country, or are members of a
collective bargaining unit.
Under the plan, eligible employees will be able to acquire shares of our
common stock through payroll deductions. Eligible employees may elect payroll
deductions between 1% and 10% of their cash compensation, or a dollar amount,
up to $15,000 (or such higher or lower amount determined by the committee) for
the enrollment period, and are subject to maximum purchase limitations.
Participation in this plan will end automatically upon termination of
employment for any reason. Each enrollment period under the plan will be six
months or such other period (not longer than 27 months) as the committee may
designate. A new enrollment period will begin on the semiannual anniversary of
the commencement of the prior enrollment period or on such other date as the
committee designates. The purchase price for common stock under the plan will
be 85% of the fair market value of our common stock on the first day of the
applicable enrollment period or on the date of purchase, whichever is less.
The plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code. The plan will terminate on the day
prior to the 10th anniversary of the approval of the plan by our board of
directors unless it is terminated earlier by the board. The board may amend or
terminate the plan at any time.
401(k) Plan
We have adopted a 401(k) retirement savings plan. This plan is available to
all employees other than nonresident aliens with no U.S. source income.
Beginning on the first day of the quarter following date of hire, an employee
may contribute, on a pretax basis, 1% to 15% of the employee's compensation
from us, subject to certain limitations under the Internal Revenue Code. In our
discretion, we may match the employee's contributions at such rate as we
determine or make other contributions on behalf of the employees. Contributions
are allocated to each employee's individual account and are, at the employee's
election, invested in one, all, or some combination of the mutual funds offered
under the plan. Employee contributions are fully vested and non-forfeitable.
Employer contributions vest over a six-year period.
60
<PAGE>
RELATED PARTY TRANSACTIONS
Our policy is that all transactions between Open Port and its executive
officers, directors and principal stockholders occurring outside the ordinary
course of business be on terms no less favorable than could be obtained from
unaffiliated third parties or be subject to the approval of our disinterested
directors.
Series D Preferred Stock. In April 1999, we sold an aggregate of 935,454
shares of Series D convertible preferred stock at a cash purchase price of
$3.207 per share to 11 investors. All outstanding shares of Series D preferred
stock will automatically convert into an aggregate of 495,785 shares of common
stock upon completion of this offering. The following 5% beneficial owners of
Open Port common stock purchased shares of Series D preferred stock convertible
upon completion of this offering into the number of shares of common stock
indicated:
<TABLE>
<CAPTION>
Number of Series D
Name Conversion Shares
---- ------------------
<S> <C>
Battery Ventures III,
L.P.................... 100,550
Frontenac VI Limited
Partnership............ 129,151
New Enterprise
Associates VII, Limited
Partnership............ 108,247
NEA Presidents' Fund,
L.P.................... 1,652
</TABLE>
Mr. Crotty, one of our directors, is a general partner of Battery Ventures, the
general partner of Battery Ventures III, L.P. James Crawford, a former
director, is a general partner of Frontenac Company, the general partner of
Frontenac VI Limited Partnership. Mr. Barris, one of our directors, is the
general partner of: (a) NEA Partners VII, Limited Partnership, the general
partner of New Enterprise Associates VII, Limited Partnership; (b) NEA General
Partners, L.P., the general partner of NEA Presidents' Fund, L.P.
Series E Preferred Stock. In January 2000, we sold an aggregate of
17,436,746 shares of our Series E convertible participating preferred stock.
15,527,950 of such shares were sold at a cash purchase price of $1.61 per share
to 26 investors and 1,908,796 of such shares were issued to ten investors
pursuant to the conversion of the principal of and interest on the subordinated
convertible promissory notes described below which were issued in September
1999. The Series E preferred stock will automatically convert into an aggregate
of 4,707,904 shares of common stock upon completion of this offering. The
following investors affiliated with 5% beneficial owners of Open Port purchased
shares of Series E preferred stock convertible upon completion of this offering
into the number of shares of common stock indicated:
<TABLE>
<CAPTION>
Number of Series E
Name Conversion Shares
---- ------------------
<S> <C>
Battery Ventures III,
L.P.................... 136,335
Brookside Capital
Partners Fund, L.P..... 1,677,018
CID Equity Capital V,
L.P.................... 71,804
CID Mezzanine Capital,
L.P.................... 48,829
Frontenac VI Limited
Partnership............ 110,380
New Enterprise
Associates VII, Limited
Partnership............ 94,097
WPG Raytheon Networking
Fund, L.P.............. 287,633
WPG Institutional
Software Fund, L.P..... 195,204
WPG Raytheon Software
Fund, L.P.............. 138,228
WPG Networking Fund,
L.P.................... 116,103
WPG Software Fund,
L.P.................... 85,821
WPG Institutional
Networking Fund, L.P... 13,002
</TABLE>
61
<PAGE>
Mr. Crotty, one of our directors, is a general partner of Battery Ventures,
the general partner of Battery Ventures III, L.P. James Crawford, a former
director, is a general partner of Frontenac Company, the general partner of
Frontenac VI Limited Partnership. Mr. Barris, one of our directors, is the
general partner of NEA Partners VII, Limited Partnership, the general partner
of New Enterprise Associates VII, Limited Partnership. In addition, Raj Mehra,
the general partner of WPG Raytheon Software Fund, L.P., WPG Software Fund,
L.P., WPG Institutional Software Fund, L.P., WPG Raytheon Networking Fund,
L.P., WPG Networking Fund, L.P. and WPG Institutional Networking Fund, L.P.,
purchased shares of Series E preferred stock which will convert into 2,515
shares of common stock upon completion of this offering.
Bridge Financing. In September 1999, we entered into a subordinated
convertible promissory note purchase agreement with certain of our existing
investors, including Battery Ventures III, L.P. and New Enterprise Associates
VII, Limited Partnership, whereby we authorized the issuance of subordinated
convertible promissory notes in the original aggregate principal amount of up
to $3.0 million. Interest accrued on the outstanding amounts at a rate of 1%
above the prime rate of interest. We issued $3.0 million aggregate principal
amount of these notes in three installments between September 1999 and November
1999. All of the notes issued in connection with this facility were converted
to Series E preferred stock in connection with the Series E preferred stock
financing.
Voting and Co-Sale Agreement. In July 1995, in connection with our Series A
preferred stock financing, Open Port, the holder of the Series A preferred
stock and the holders of the then outstanding common stock, entered into a
voting and co-sale agreement, which was subsequently amended and restated in
connection with our Series B preferred stock financing in March 1996, April
1996 and March 1997, our Series C preferred stock financing in June 1998, our
Series D preferred stock financing and our Series E preferred stock financing.
As of the completion of the Series E preferred stock financing, the parties to
the voting and co-sale agreement included Open Port, each of the holders of our
existing preferred stock and the following founding stockholders: Messrs.
Storch, Nandyal, Dutra and Wegner and Gordon Kapes, as well as certain
stockholders affiliated with certain of these founding stockholders. The voting
and co-sale agreement will terminate upon completion of this offering.
Registration Rights Agreement. In July 1995, in connection with the Series A
preferred stock financing, we and the holder of Series A preferred stock,
entered into a registration rights agreement, which was subsequently amended
and restated in connection with each of the Series B preferred stock financing,
the Series C preferred stock financing, the Series D preferred stock financing
and the Series E preferred stock financing, at which time each holder of
existing preferred stock became a party to that agreement. Pursuant to the
registration rights agreement, each holder of existing preferred stock and each
of our founding stockholders have certain registration rights with respect to
their shares of common stock including common stock to be issued upon
conversion of our preferred stock.
CID Loan and Warrant. In June 1998, we entered into a note and warrant
purchase agreement with CID Mezzanine Capital, L.P., which was later amended in
December 1998, February 1999, and April 1999. This agreement authorized us to
issue up to an aggregate of $5.0 million in principal amount of our 11%
subordinated notes to CID Mezzanine. As of December 31, 1999, we had issued all
$5.0 million in subordinated notes under this facility. The proceeds of these
loans have been used for working capital and other general corporate purposes.
In connection with the issuance of these subordinated notes, in June 1998 we
granted CID Mezzanine warrants to purchase up to 370,310 shares of Series C
preferred stock (103,686 shares of common stock upon completion of this
offering) at an exercise price of $0.01 per share. All outstanding subordinated
notes are due and payable on July 1, 2001. We also entered into a security
agreement with CID Mezzanine which granted a security interest in all of our
assets, and agreed that upon exercise of the warrants, CID would become a party
to the voting and co-sale agreement and the registration rights agreement
between us and various investors. CID Mezzanine is an affiliate of CID Equity
Capital III, L.P. and CID Equity Capital V, L.P. We intend to repay the
outstanding balance under this mezzanine debt facility with a portion of the
net proceeds from this offering. See "Use of Proceeds."
62
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
our common stock, as of April 30, 2000, by:
. each person known to us to own beneficially more than 5% of our
outstanding common stock;
. each of our directors;
. each of our executive officers named in the summary compensation table;
and
. all of our directors and executive officers as a group.
The beneficial ownership of our common stock set forth in this table is
determined in accordance with the rules of the Securities and Exchange
Commission. As of April 30, 2000, we had 15,281,591 shares of common stock
outstanding, assuming conversion of all of our outstanding preferred stock. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are currently exercisable or will become
exercisable within 60 days after April 30, 2000 are considered outstanding,
while these shares are not considered outstanding for purposes of computing
percentage ownership of any other person. Unless otherwise indicated in the
footnotes below, the persons and entities named in the table have sole voting
and investment power as to all shares beneficially owned, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Percent of
Shares Beneficially Owned(1) Ownership
---------------------------- -----------------
Warrants
Common and Before After
Name of Beneficial Owner Stock Options Total Offering Offering
- ------------------------ --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
CID Equity Capital III, L.P. 1,641,063 103,686 1,744,749 11.4% 9.0%
(2)...........................
One American Sq., Suite 2850
Indianapolis, IN 46282
Frontenac VI Limited 1,660,067 -- 1,660,067 10.9 8.6
Partnership (3)...............
135 South LaSalle, Suite 3800
Chicago, IL 60603
Brookside Capital Partners
Fund,
L.P. (4)...................... 1,677,018 -- 1,677,018 10.9 8.7
2 Copley Place
Boston, MA 02116
New Enterprise Associates VII,
Limited Partnership (5)....... 1,413,349 -- 1,413,349 9.3 7.3
11911 Freedom Drive
Reston, VA 20190
Battery Ventures III, L.P. 1,342,308 -- 1,342,308 8.8 7.0
(6)...........................
20 William Street, Suite 200
Wellesley, MA 02181
WPG Software Fund, L.P. (7).... 838,506 -- 838,506 5.5 4.3
One New York Plaza
New York, NY 10004
Randy S. Storch (8)............ 493,333 32,222 525,555 3.4 2.7
Cheryl E. Mayberry............. 113,564 74,254 187,818 1.2 1.0
Omprasad S. Nandyal (9)........ 493,332 16,110 509,442 3.3 2.6
Michael B. Clauer.............. -- -- -- -- --
Clarissa Cerda................. -- -- -- -- --
Peter J. Barris (10)........... 1,413,349 -- 1,413,349 9.3 7.3
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Percent of
Shares Beneficially Owned(1) Ownership
---------------------------- -----------------
Warrants
Common and Before After
Name of Beneficial Owner Stock Options Total Offering Offering
- ------------------------ --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Thomas J. Crotty (11).......... 1,342,308 -- 1,342,308 8.8% 7.0%
Royce J. Holland............... 18,728 -- 18,728 * *
Donald R. Hollis (12).......... 149,116 277 149,393 1.0 *
John E. Major.................. -- -- -- -- --
Joseph A. Piscopo.............. 301,594 -- 301,594 2.0 1.6
All directors and executive
officers as a group (11
persons)...................... 4,325,324 122,863 4,448,187 29.1% 23.0%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent of the outstanding
common stock.
(1) This tables assumes that all of our outstanding shares of preferred stock
will be converted into common stock, that the voting and co-sale agreement
between our existing preferred stockholders and our founding stockholders
will be terminated upon completion of this offering and that the proxies
granted to Mr. Storch by certain employees will be terminated upon
completion of this offering. See "Related Party Transactions-Voting and
Co-sale Agreement."
(2) Includes 236,983 shares held by CID Equity Capital V, L.P., an affiliate
of CID Equity Capital III, L.P, and 48,829 shares held and 103,686 shares
subject to warrants held by CID Mezzanine Capital, L.P., an affiliate of
CID Equity Capital III, L.P. CID Equity Partners II is the general partner
of CID Equity Capital III, L.P. The general partners of CID Equity
Partners II are John C. Aplin, John T. Hackett and Kevin E. Sheehan.
(3) Voting and dispositive power over such shares is shared by Frontenac
Company, the general partner of Frontenac VI Limited Partnership, and by
Paul D. Carbery, James E. Cowie, James E. Crawford III, Rodney L.
Goldstein, Martin J. Koldyke, M. Laird Koldyke, Roger S. McEniry, Laura P.
Pearl and Jeremy H. Silverman, the general partners of Frontenac Company.
(4) Brookside Capital Investors, L.P. is the sole general partner of Brookside
Capital Partners Fund, L.P. Brookside Capital Investors, Inc. is the sole
general partner of Brookside Capital Investors, L.P. W. Mitt Romney is the
sole stockholder of Brookside Capital Investors, Inc., and Mr. Romney is
thus the controlling person of Brookside Capital Partners Fund, L.P.
(5) Includes 28,081 shares held by NEA Presidents' Fund, L.P., an affiliate of
New Enterprise Associates VII, Limited Partnership. NEA Partners VII,
Limited Partnership is the sole general partner of New Enterprise
Associates VII, Limited Partnership and exercises sole voting and
investment control with respect to all shares held of record by New
Enterprise Associates VII, Limited Partnership. Peter J. Barris, Nancy L.
Dorman, Ronald H. Kase, Richard Kramlich, Arthur J. Marks, Thomas C.
McConnell, Peter T. Morris, John M. Nehra, Charles W. Newhall III, and
Mark W. Perry are the general partners of NEA Partners VII, Limited
Partnership. Includes 1,651 shares held by NEA Ventures 1997, L.P. New
Enterprise Associates VII, Limited Partnership disclaims beneficial
ownership of the shares held by NEA Ventures 1997, L.P.
(6) Voting and dispositive power over such shares is shared by Battery
Partners III, L.P., the sole general partner of Battery Ventures III,
L.P., and by Richard D. Frisbie, Robert G. Barrett, Howard Anderson,
Oliver D. Curme, Thomas J. Crotty, Kenneth P. Lawler and Todd A. Dagres,
the general partners of Battery Partners III, L.P.
(7) Includes 195,204 shares held by WPG Institutional Software Fund, L.P.,
138,228 shares held by WPG Raytheon Software Fund, L.P., 13,002 shares
held by WPG Institutional Networking Fund, L.P., 116,103 shares held by
WPG Networking Fund, L.P., 287,633 shares held by WPG Raytheon Networking
Fund, L.P. and 2,515 shares held by Raj Mehra, affiliates of WPG Software
Fund, L.P and of each other. Weiss, Peck & Greer, L.L.C., the general
partner of WPG Software Fund, L.P., is wholly owned by Robeco Group, N.V.,
a Dutch money management firm that is 50% owned by Rabobank Group, a
commercial bank, and 50% owned by shareholders of various investment funds
advised by Robeco Group, N.V.
(8) Includes 20,000 shares held in the name of Mark L. Gordon, trustee of the
Deborah S. Storch Generation-Skipping Trust of 1998 and 20,000 shares held
in the name of Mark L. Gordon, trustee of the Randy S. Storch Generation-
Skipping Trust of 1998. Mr. Storch disclaims beneficial ownership of these
shares.
(9) Includes 13,333 shares held in the name of Srinath Nandyal, trustee of the
Omprasad Srinath Nandyal Generation-Skipping Trust of 1998, and 13,333
shares held in the name of Srinath Nandyal, trustee of the Shubha Omprasad
Nandyal Generation-Skipping Trust of 1998. Mr. Nandyal disclaims
beneficial ownership of these shares.
(10) Mr. Barris shares voting and dispositive power over such shares in his
capacity as a general partner of: (a) NEA Partners VII, Limited
Partnership, the general partner of New Enterprise Associates VII, Limited
Partnership; (b) NEA General Partners, L.P., the general partner of NEA
Presidents' Fund, L.P.; and (c) NEA Ventures 1997, L.P. Mr. Barris does
not directly own any shares of our common stock.
(11) Mr. Crotty shares voting and dispositive power over such shares in his
capacity as a general partner of Battery Ventures, the general partner of
Battery Ventures III, L.P. Mr. Crotty does not directly own any shares of
our common stock.
(12) Includes 109,998 shares held in the name of the Hollis Family Limited
Partnership #1 f/k/a Hollis Family Limited Partnership.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our certificate of incorporation will
provide that our authorized capital stock consists of 80 million shares of
common stock, $0.001 par value, and ten million shares of preferred stock,
$0.001 par value. As of April 30, 2000, there were 3,450,309 shares of common
stock outstanding, which were held of record by approximately 81 stockholders.
An additional 11,831,282 shares of common stock will be issued to approximately
48 stockholders upon the closing of this offering as the result of mandatory
conversion of our outstanding preferred stock. Upon closing of this offering,
there will be no shares of preferred stock outstanding.
Common Stock
Holders of common stock will be entitled to one vote for each share held on
all matters subject to a vote of stockholders, subject to the rights of holders
of any outstanding preferred stock, and will not have cumulative voting rights.
Accordingly, holders of a majority of the shares of common stock entitled to
vote in any election of directors may elect all of the directors standing for
election, subject to the rights of holders of any outstanding preferred stock.
Holders of common stock will be entitled to receive ratably any dividends that
the board of directors may declare out of funds legally available therefor,
subject to any preferential dividend rights of outstanding preferred stock.
Upon the liquidation, dissolution or winding up of Open Port, the holders of
common stock will be entitled to receive ratably the net assets of Open Port
available after the payment of all debts and other liabilities and subject to
the prior rights of holders of any outstanding preferred stock. Holders of
common stock will have no preemptive, subscription, redemption or conversion
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable and the shares of common stock to be issued on completion of this
offering will be fully paid and nonassessable.
Preferred Stock
Under our certificate of incorporation, we will be authorized to issue 10
million shares of preferred stock, which may be issued from time to time in one
or more series upon authorization by the board of directors. The board of
directors, without further approval of the stockholders, will be authorized to
fix the number of shares constituting any series, as well as the dividend,
conversion, voting and redemption rights and terms, as well as liquidation
preferences and any other rights, preferences, privileges and restrictions
applicable to each series of preferred stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could also adversely affect the voting power and dividend
and liquidation rights of the holders of common stock. The issuance of
preferred stock could also, under some circumstances, have the effect of making
it more difficult for a third party to acquire, or discouraging a third party
from acquiring, a majority of our outstanding voting stock or otherwise
adversely affect the market price of our common stock. It is not possible to
state the actual effect of the issuance of any shares of preferred stock on the
rights of holders of common stock until the board of directors determines the
specific rights of that series of preferred stock.
Registration Rights of Stockholders
Following this offering, holders of an aggregate of 13,758,888 shares of our
outstanding common stock and holders of warrants to purchase 381,857 shares of
our common stock will be entitled to rights with respect to registration of
these shares of common stock under the Securities Act. Subject to limitations
provided in the agreement and those in lock-up
65
<PAGE>
agreements that these stockholders have signed relating to this offering, these
stockholders have the right, beginning six months after completion of this
offering, in certain circumstances to require us to register their shares of
common stock under the Securities Act. We have granted up to four company-paid
demand registration rights to the holders of our outstanding preferred stock,
each such demand right being exercisable by any such holder or holders owning
not less than 5% of the common stock issuable upon conversion of the Series E
preferred stock or 7.6% of the common stock issuable upon conversion of any
other series of preferred stock. With respect to any demand registration,
including those described in the next paragraph, we are not required to, but
may, include shares held by other holders of preferred stock in such
registration statement.
In addition, we have granted up to three other demand registration rights to
the purchasers of Series E preferred stock as a group (provided that the
holders of Series E preferred stock may not demand more than four
registrations, including registrations that were demanded by the holders of
Series E preferred stock pursuant to the registration rights described in the
preceding paragraph). These demand registration rights are exercisable by any
stockholder holding not less than 5% of the common stock issuable upon
conversion of the Series E preferred stock. These demand rights may first be
exercised 120 days after this offering, requiring us to use our best commercial
efforts to cause a registration statement to become effective on the 181st day
after the effectiveness of this registration statement and to keep such
registration statement effective for 180 days. Any such demand registration
will be underwritten only if requested by the holders of a majority of the
common stock issuable upon conversion of the Series E preferred stock included
in such registration. The holders of Series E preferred stock have agreed that
they will not offer or sell securities pursuant to a registration statement
without giving us 10 days' notice.
If we propose to register our securities under the Securities Act after this
offering, these stockholders and the holder of warrants to purchase up to
381,857 shares of our common stock will be entitled to notice of the
registration and to include their shares in the registration, provided that the
underwriters of the proposed offering will have the right to limit the number
of shares included in the registration. We must pay for all expenses in
connection with these registrations, other than any underwriters' discounts and
commissions.
Options and Warrants
As of April 30, 2000, options to purchase an aggregate of 284,806 shares of
common stock were available for future grants under the 1995 Stock Option Plan.
There were 2,060,270 options outstanding under the plan at a weighted average
exercise price of $4.97 per share, of which 354,388 were exercisable as of
April 30, 2000.
As of April 30, 2000, 414,681 shares of common stock were issuable upon the
exercise of outstanding warrants with a weighted average exercise price of
$4.41 per share. Upon the closing of this offering, we will have outstanding
warrants as follows:
<TABLE>
<CAPTION>
Exercise Price
Holder Number of Shares Per Share Expiration Date
- ------ ---------------- -------------- ----------------
<S> <C> <C> <C>
Comdisco, Inc................ 19,663 $ 3.05 November 7, 2005
Comdisco, Inc................ 14,285 4.20 August 15, 2006
Third Coast Venture
Lease Partners I, L.P....... 5,530 7.23 June 22, 2008
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Exercise Price
Holder Number of Shares Per Share Expiration Date
- ------ ---------------- -------------- ---------------------
<S> <C> <C> <C>
CID Mezzanine Capital, 103,686 $0.04 The third anniversary
L.P.................... of the date the loan
is repaid. See "Use
of Proceeds."
Silicon Valley Bank..... 21,000 7.23 January 28, 2004
Deutsche Bank Securities
Inc.................... 250,517 6.04 October 22, 2004
</TABLE>
Indemnification and Limitation of Liability
Upon the closing of this offering, our certificate of incorporation will
provide that no director of Open Port shall have any personal liability to Open
Port or its stockholders for breach of fiduciary duty as a director, except for
liability:
. for breach of the director's duty of loyalty to Open Port or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for payment of dividends or stock purchases or redemptions by the
corporation in violation of Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
As a result of this provision, Open Port and our stockholders may be unable
to obtain monetary damages from a director for certain breaches of his or her
fiduciary duty. This provision does not, however, eliminate the directors'
fiduciary responsibilities and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Upon the closing of this offering, our by-laws will provide for the
indemnification of our directors and officers to the fullest extent authorized
by the Delaware General Corporation Law. Such indemnification may include, if
we so decide, the right of the indemnified party to be paid expenses in advance
of any proceeding for which indemnification may be had, provided that the
payment of these expenses incurred by a director or officer in advance of the
final disposition of a proceeding may be made only upon delivery to us of an
undertaking by or on behalf of the director or officer to repay all amounts
paid in advance if it is ultimately determined that the director or officer is
not entitled to be indemnified. In addition, our certificate of incorporation
provides that our employees and other agents, may be indemnified in accordance
with the Delaware General Corporation Law to the extent determined by our board
of directors in its sole discretion.
Anti-Takeover Effects of Certain Provisions of Delaware Law and our Certificate
of Incorporation and By-laws
Some provisions of Delaware law, our certificate of incorporation and by-
laws may be deemed to have an anti-takeover effect and may delay or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
67
<PAGE>
Section 203 of Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates or associates,
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder becomes an
interested stockholder, unless:
. the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an
interested stockholder;
. the interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in which
it becomes an interested stockholder; or
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
For this purpose, business combinations include mergers, consolidations,
sales or other dispositions of assets having an aggregate value in excess of
10% of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation.
Classified Board of Directors
Our board of directors will be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one-third of the
board of directors is elected each year. These provisions, when coupled with
the provision of our certificate of incorporation authorizing the board of
directors to fill vacant directorships or increase the size of the board of
directors, may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
Number of Directors; Removal; Vacancies
Our by-laws will provide that we have at least three directors, with the
exact number fixed by the board of directors. Vacancies on the board of
directors may be filled only by the affirmative vote of the remaining directors
then in office. Our certificate of incorporation will provide that directors
may be removed only for cause and only by the holders of at least 80% of the
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class.
Special Meetings of Stockholders; Limitations on Stockholder Action By Written
Consent
Our certificate of incorporation will provide that special meetings of our
stockholders may be called only by a majority of the board of directors, the
chairman of the board or the chief executive officer. In addition, the
certificate of incorporation will provide that, following the closing of this
offering, our stockholders may only take actions at a duly called annual or
special meeting of stockholders and may not take action by written consent
unless the action to be effected by written consent of stockholders and the
taking of such action by such written consent have expressly been approved in
advance by the board of directors.
68
<PAGE>
Advance Notice Requirements for Stockholder Proposals and Nomination of
Directors
Our by-laws will provide that 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 provide timely notice in
writing. To be timely, a stockholder's notice must be delivered to or mailed
and received at our principal executive offices not less than 90 days nor more
than 120 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders. However, in the event that the annual meeting is
called for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder in order to be timely must be received not
later than the close of business on the tenth day following the date on which
notice of the date of the annual meeting was mailed to stockholders or made
public, whichever first occurs. Our by-laws also specify requirements as to the
form and content of a stockholder's notice.
Consideration of Constituencies with respect to Acquisitions
Our certificate of incorporation will provide that in determining whether an
acquisition proposal is in the best interests of Open Port and its
stockholders, our board of directors may, to the extent permitted by law,
consider all factors it deems relevant, including the effects of the
acquisition upon employees, suppliers, customers and the communities in which
we are located.
Amendments; Supermajority Vote Requirements
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless either a
corporation's certificate of incorporation or by-laws require a greater
percentage. Our certificate of incorporation and by-laws will impose
supermajority vote requirements in connection with the amendment of provisions
of our certificate of incorporation and by-laws, including those provisions
relating to the classified board of directors, action by written consent and
the ability of stockholders to call special meetings.
Ability to Adopt Stockholder Rights Plan
The board of directors may in the future resolve to issue shares of
preferred stock or rights to acquire such shares to implement a stockholder
rights plan. A stockholder rights plan typically creates voting or other
impediments that would discourage persons seeking to gain control of Open Port
by means of a merger, tender offer, proxy contest or otherwise if the board of
directors determines that such change in control is not in the best interests
of our stockholders.
Transfer Agent
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, New York, New York.
Listing
We have applied to list our shares of common stock on the Nasdaq National
Market under the symbol "OPRT."
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Following this offering, we will have 19,281,591 shares of common stock
outstanding. All the shares we sell in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares purchased by our affiliates, as that term is defined in Rule
144, may generally only be sold in compliance with the limitations of Rule 144
described below.
The remaining 15,281,591 shares of common stock outstanding following this
offering will be "restricted securities" as the term is defined under Rule 144.
We issued and sold these restricted securities in private transactions in
reliance on exemptions from registration under the Securities Act. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption under Rule 144 or Rule 701 under the Securities
Act, as summarized below.
Taking into account the lock-up agreements described below and assuming
Deutsche Bank Securities Inc. does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
. on the date of this prospectus, 4,001,808 shares (including the
4,000,000 shares sold in this offering) will be immediately available
for sale in the public market;
. 180 days after the date of this prospectus, approximately 10,571,879
shares will be eligible for sale, 4,503,003 of which will be subject to
volume, manner of sale and other limitations under Rule 144; and
. the remaining 4,707,904 shares may be eligible for sale as early as the
181st day after the date of this prospectus if the holders of these
shares exercise the demand registration rights described below;
otherwise such shares will be eligible for sale under Rule 144 from time
to time upon the expiration of various one-year holding periods.
Lock-up Agreements. We have agreed with the underwriters that we will not,
without the prior written consent of Deutsche Bank Securities Inc., issue any
additional shares of common stock or securities convertible into, exercisable
for or exchangeable for shares of common stock for a period of 180 days after
the date of this prospectus, except that we may grant options to purchase
shares of common stock under our employee benefit plans, and issue shares of
common stock upon the exercise of outstanding options and warrants.
Our officers, directors and substantially all of our stockholders have
agreed that they will not, without the prior written consent of Deutsche Bank
Securities Inc., offer, sell, pledge or otherwise dispose of any shares of our
common stock or any securities convertible into or exercisable or exchangeable
for, or any rights to acquire or purchase, any of our common stock, or publicly
announce an intention to effect any of these transactions, for a period of 180
days after the date of this prospectus.
Rule 701. Shares issuable upon exercise of options we granted prior to the
date of this prospectus will also be available for sale in the public market
pursuant to Rule 701 under the Securities Act, subject to certain Rule 144
limitations and to the lock-up agreements. Rule 701 permits resales of these
shares beginning 90 days after the date of this prospectus by persons other
than affiliates.
70
<PAGE>
Rule 144. In general, under Rule 144, a stockholder who owns restricted
shares that have been outstanding for at least one year is entitled to sell,
within any three-month period, a number of these restricted shares that does
not exceed the greater of:
. one percent of the then outstanding shares of common stock, or
approximately shares immediately after this offering; or
. the average weekly trading volume in the common stock on the Nasdaq
Stock Market during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements.
Persons deemed to be our affiliates must always sell pursuant to Rule 144,
even after expiration of the 144(k) holding period described below. In other
words, our affiliates must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, to sell shares of
common stock which are not restricted securities.
Rule 144(k). Under Rule 144(k), a stockholder who is not currently, and who
has not been for at least three months before the sale, an affiliate of ours
and who owns restricted shares that have been outstanding for at least two
years may resell these restricted shares without compliance with the above
requirements. The one- and two-year holding periods described above do not
begin to run until the full purchase price is paid by the person acquiring the
restricted shares from us or an affiliate of ours.
Employee Benefit Plans. As of April 30, 2000, there were options outstanding
to purchase 2,060,270 shares of common stock pursuant to our stock option
plans. We intend to file, after the effective date of this offering, one or
more registration statements on Form S-8 to register the shares of common stock
reserved for issuance under our stock option plans. The registration statement
on Form S-8 will become effective automatically upon filing. Shares issued
under our 1995 Stock Option Plan, after the filing of a registration statement
on Form S-8 may be sold in the open market, subject, in the case of some
holders, to the Rule 144 limitations applicable to affiliates, the lock-up
agreements and vesting restrictions imposed by us.
Registration Rights. In addition, following this offering, the holders of
13,758,888 shares of outstanding common stock and the holders of warrants to
purchase 381,857 shares of common stock will, under some circumstances, have
rights to require us to register their shares for future sale. These include
the demand registration rights we granted to the holders of our Series E
preferred stock, which will convert into 4,707,904 shares of common stock upon
completion of this offering. We expect these registration rights to be
exercised. If exercised, these rights would require us to use our best
commercial efforts to cause a registration statement under the Securities Act,
to become effective on the 181st day, after the effectiveness of this
registration statement and to keep such registration statement effective for
180 days. Registration of these shares would result in these shares becoming
freely tradable without restriction under the Securities Act provided the
shares are not purchased by any of our affiliates. See "Description of Capital
Stock--Registration Rights of Stockholders."
71
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., FleetBoston Robertson Stephens Inc., and Dain Rauscher
Incorporated, have severally agreed to purchase from us the following
respective number of shares of common stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
- ----------- ---------
<S> <C>
Deutsche Bank Securities Inc..........................................
FleetBoston Robertson Stephens Inc....................................
Dain Rauscher Incorporated............................................
---------
Total............................................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all of
the shares of common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $ per share. The underwriters may allow, and these dealers may re-
allow, a concession of not more than $ per share to other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the representatives of the underwriters.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to 600,000 shares of
common stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered in this offering. To the
extent that the underwriters exercise this option, each of the underwriters
will become obligated, subject to conditions, to purchase approximately the
same percentage of additional shares of common stock as the number of shares of
common stock to be purchased by it in the above table bears to the total number
of shares of common stock offered in this offering. If any additional shares of
common stock are purchased, the underwriters will offer the additional shares
on the same terms as those on which the 4,000,000 shares are being offered.
The underwriting fee is equal to the initial public offering price per share
of common stock less the amount paid by the underwriters to us per share of
common stock. We have agreed to pay the underwriters the following fees,
assuming either no exercise or full exercise by the underwriters of the
underwriters' over-allotment option:
<TABLE>
<CAPTION>
Total Fees
---------------------------------------------------------
Without Exercise Of With Full Exercise Of
Fee Per Share Over-Allotment Option Over-Allotment Option
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Open Port.. $ $ $
</TABLE>
72
<PAGE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $750,000.
We have agreed to indemnify the underwriters against certain specified
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, certain stockholders and certain holders
of options and warrants to purchase our stock, has agreed not to offer, sell,
sell short, contract to sell, transfer, hypothecate, pledge or otherwise
dispose of, or enter into any transaction that is designed to, or could be
expected to, result in the disposition of any shares of our common stock or
other securities convertible into or exchangeable or exercisable for shares of
our common stock or derivatives of our common stock for a period of 180 days
after the effective date of the registration statement of which this prospectus
is a part, directly or indirectly, without the prior written consent of
Deutsche Bank Securities Inc. This consent may be given at any time without
public notice. We have entered into a similar agreement with the
representatives of the underwriters.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these over-
allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 400,000 shares for our directors, officers,
employees, vendors, customers and other third parties. The number of shares of
our common stock available for sale to the general public will be reduced to
the extent these reserved shares are purchased. Any reserved shares that are
not purchased by these persons will be offered by the underwriters to the
general public on the same basis as the other shares in this offering.
In January 2000, we sold shares of our Series E preferred stock in a private
placement at a price of $1.61 per share. Each share of Series E preferred stock
is convertible at the option of the holder into approximately 0.267 shares of
our common stock. In conjunction with this private placement, Deutsche Bank
Securities Inc. received a warrant dated as of October 22, 1999 to purchase
250,517 shares of common stock at an exercise price of $6.04 per share. The
exercise price per share under the warrant issued to Deutsche Bank Securities
Inc. is the same price per share paid by the investors in the private
placement. In addition, persons affiliated with Deutsche Bank Securities Inc.
purchased Series E preferred stock on the same terms as the other investors in
the private placement. Deutsche Bank Securities Inc. is deemed the beneficial
owner of 45,900 of shares of Series E preferred stock.
73
<PAGE>
Pricing of this Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock
will be determined by negotiation among us and the representatives of the
underwriters. Among the primary factors to be considered in determining the
public offering price are:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and
. estimates of our business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for Open
Port by Sonnenschein Nath & Rosenthal, Chicago, Illinois. Certain legal matters
with respect to this offering will be passed upon for Open Port by Gordon &
Glickson LLC, Chicago, Illinois. Gordon & Glickson LLC owns 17,346 shares of
our common stock. Certain legal matters with respect to this offering will be
passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The financial statements of Open Port as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and any amendments with
respect to the common stock we are offering hereby. This prospectus is a part
of the registration statement and includes all of the information which we
believe is material to you in considering whether to make an investment in our
common stock. We refer you to the registration statement for additional
information about us, our common stock and this offering, including the full
texts of the exhibits, some of which have been summarized in this prospectus.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete. With respect to
each such contract or other document filed as a part of the Registration
Statement, reference is made to the exhibit for a more complete description of
the matters involved, and each such statement shall be deemed qualified in its
entirety by such reference. The registration statement is available for
inspection and copying at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information about the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site that makes available the
registration statement. The address of the SEC's Internet site is www.sec.gov.
As a result of this offering, Open Port will be required to file reports and
other information with the SEC pursuant to the informational requirements of
the Securities Exchange Act of 1934.
REPORTS TO STOCKHOLDERS
We intend to distribute to our stockholders annual reports containing
audited financial statements and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
74
<PAGE>
OPEN PORT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 and March 31,
2000 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999 and the three months ended (unaudited) March 31, 1999
and 2000 ................................................................ F-4
Consolidated Statements of Redeemable Convertible Preferred Stock,
Stockholders' Deficit and Comprehensive Loss for the Years Ended December
31, 1997, 1998 and 1999 and the three months ended (unaudited) March 31,
2000..................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 and the three months ended (unaudited) March 31, 1999
and 2000 ................................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Open Port Technology, Inc.
The reverse stock split described in Note 12 to the financial statements has
not been consummated as of April 4, 2000. When it has been consummated, we will
be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of redeemable convertible
preferred stock, stockholders' deficit and comprehensive loss and of cash
flows present fairly, in all material respects, the financial position of
Open Port Technology, Inc. and its subsidiaries at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above."
PricewaterhouseCoopers LLP
Chicago, Illinois
April 4, 2000
F-2
<PAGE>
OPEN PORT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31,
December 31, (unaudited)
------------------ -------------------
2000
1998 1999 2000 Pro forma
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............ $ 706 $ 277 $ 13,436 $ 13,436
Accounts receivable, net............. 1,563 482 1,107 1,107
Prepaid expenses and other current
assets.............................. 649 368 543 543
-------- -------- -------- --------
Total current assets................ 2,918 1,127 15,086 15,086
Property and equipment, net........... 2,122 2,016 2,556 2,556
Software development costs, net....... 465 1,238 1,232 1,232
Other assets, net..................... 139 324 395 395
-------- -------- -------- --------
$ 5,644 $ 4,705 $ 19,269 $ 19,269
======== ======== ======== ========
Liabilities, Redeemable Convertible
Preferred Stock and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable..................... $ 948 $ 1,610 $ 1,514 $ 1,514
Accrued expenses and other current
liabilities......................... 779 1,626 1,386 1,386
Notes payable--current............... -- 7,000 -- --
Current portion of capital lease
obligations......................... 558 429 410 410
Deferred revenue..................... 500 1,109 787 787
-------- -------- -------- --------
Total current liabilities........... 2,785 11,774 4,097 4,097
Notes payable.......................... 2,320 4,481 4,564 4,564
Capital lease obligations.............. 379 447 354 354
-------- -------- -------- --------
Total liabilities................... 5,484 16,702 9,015 9,015
-------- -------- -------- --------
Commitments and contingencies (Note 8)
Redeemable convertible preferred stock,
and warrants at redemption value,
$0.001 par value, no shares authorized
or outstanding--pro forma:
Series A preferred stock, authorized,
issued and outstanding--1,228,917
shares............................... 2,547 2,707 3,281 --
Series B preferred stock, authorized,
issued and outstanding--13,526,786
shares............................... 17,847 21,778 36,116 --
Series C preferred stock, authorized--
4,009,199 shares; issued and
outstanding--3,469,136 shares........ 7,562 8,802 10,366 --
Series D preferred stock, authorized--
1,160,454 shares; issued and
outstanding--935,454 shares.......... -- 3,162 3,222 --
Series E preferred stock, authorized--
17,662,889 shares; issued and
outstanding--17,436,746 shares....... -- -- 46,556 --
-------- -------- -------- --------
Total redeemable convertible
preferred stock.................... 27,956 36,449 99,541 --
-------- -------- -------- --------
Stockholders' equity (deficit):
Common Stock, $0.001 par value:
authorized--71,000,000 shares; issued
and outstanding--3,271,524, 3,417,787
and 3,428,915 shares; and 15,260,196
shares pro forma..................... 12 13 13 25
Additional paid-in capital............ 249 425 5,661 105,190
Deferred stock-based compensation..... -- -- (4,343) (4,343)
Stock purchase notes receivable....... (53) (126) (126) (126)
Accumulated deficit................... (27,990) (48,704) (90,423) (90,423)
Accumulated other comprehensive loss.. (14) (54) (69) (69)
-------- -------- -------- --------
Total stockholders' equity
(deficit).......................... (27,796) (48,446) (89,287) 10,254
-------- -------- -------- --------
$ 5,644 $ 4,705 $ 19,269 $ 19,269
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OPEN PORT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31, (unaudited)
---------------------------------- -----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Software products...... $ 5,048 $ 3,241 $ 907 $ 26 $ 773
Maintenance and
professional
services.............. 1,266 1,600 1,443 359 580
Hardware products...... 835 506 -- -- --
---------- ---------- ---------- ---------- -----------
Total revenues........ 7,149 5,347 2,350 385 1,353
---------- ---------- ---------- ---------- -----------
Costs of revenues:
Software products...... 135 579 667 129 167
Maintenance and
professional
services.............. 2,668 2,871 2,403 552 780
Hardware products...... 430 331 -- -- --
---------- ---------- ---------- ---------- -----------
Total cost of
revenues............. 3,233 3,781 3,070 681 947
---------- ---------- ---------- ---------- -----------
Gross profit (loss)..... 3,916 1,566 (720) (296) 406
Operating expenses:
Sales and marketing.... 4,249 5,029 6,728 1,606 1,557
General and
administrative........ 1,547 1,932 2,304 444 738
Research and
development........... 4,058 3,730 4,761 1,158 1,661
Stock-based
compensation.......... -- -- -- -- 101
---------- ---------- ---------- ---------- -----------
Total operating
expenses............. 9,854 10,691 13,793 3,208 4,057
---------- ---------- ---------- ---------- -----------
Loss from operations.... (5,938) (9,125) (14,513) (3,504) (3,651)
Other income (expense):
Interest income........ 79 83 34 2 39
Interest expense....... (182) (336) (1,356) (247) (339)
Other expense, net..... -- (57) -- (15) --
---------- ---------- ---------- ---------- -----------
Total other income
(expense)............ (103) (310) (1,322) (260) (300)
---------- ---------- ---------- ---------- -----------
Loss before income
taxes.................. (6,041) (9,435) (15,835) (3,764) (3,951)
Provision for income
taxes (Note 7)......... 49 20 25 4 6
---------- ---------- ---------- ---------- -----------
Net loss.............. (6,090) (9,455) (15,860) (3,768) (3,957)
Accretion and dividends
on redeemable
convertible preferred
stock and warrants..... (1,230) (1,816) (4,854) (484) (35,020)
---------- ---------- ---------- ---------- -----------
Net loss applicable to
common stockholders.... $ (7,320) $ (11,271) $ (20,714) $ (4,252) $ (38,977)
========== ========== ========== ========== ===========
Basic and diluted net
loss per share......... $ (2.29) $ (3.49) $ (6.15) $ (1.27) $ (11.39)
========== ========== ========== ========== ===========
Shares used in
calculation of basic
and diluted net loss
per share.............. 3,200,000 3,229,776 3,369,802 3,342,077 3,423,168
========== ========== ========== ========== ===========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (2.23) $ (0.26)
========== ===========
Shares used in
calculation of pro
forma basic and diluted
net loss per share
(unaudited)............ 7,123,372 15,260,196
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
OPEN PORT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK, STOCKHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
(in thousands, except share data--March 31, 2000 balances are unaudited)
<TABLE>
<CAPTION>
Redeemable Redeemable Redeemable Redeemable Redeemable
Convertible Convertible Convertible Convertible Convertible
Preferred Stock-- Preferred Stock-- Preferred Stock-- Preferred Stock-- Preferred Stock--
Series A Series B Series C Series D Series E
------------------ ------------------- ------------------ ------------------ -------------------
Number Carrying Number Carrying Number of Carrying Number Carrying Number Carrying
of Shares Value of Shares Value shares Value of Shares Value of Shares Value
--------- -------- ---------- -------- --------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
1, 1997......... 1,228,917 $2,227 6,026,786 $ 7,165 -- $ -- -- $ -- -- --
Issuance of
redeemable
convertible
preferred
stock........... -- -- 7,500,000 8,400 -- -- -- -- -- --
Cumulative
preferred
dividends....... -- 160 -- 1,070 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment...... -- -- -- -- -- -- -- -- -- --
--------- ------ ---------- ------- --------- ------- ------- ------ ---------- -------
Balance,
December 31,
1997............ 1,228,917 2,387 13,526,786 16,635 -- -- -- -- -- --
Issuance of
redeemable
convertible
preferred stock,
net of issuance
costs of $136... -- -- -- -- 3,469,136 7,025 -- -- -- --
Issuance of
common stock.... -- -- -- -- -- -- -- -- -- --
Issuance of
warrants........ -- -- -- -- -- 229 -- -- --
Cumulative
preferred
dividends....... -- 160 -- 1,212 -- 308 -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment...... -- -- -- -- -- -- -- -- -- --
--------- ------ ---------- ------- --------- ------- ------- ------ ---------- -------
Balance,
December 31,
1998............ 1,228,917 2,547 13,526,786 17,847 3,469,136 7,562 -- -- -- --
Issuance of
redeemable
convertible
preferred
stock........... -- -- -- -- -- -- 935,454 3,000 -- --
Issuance of
common stock.... -- -- -- -- -- -- -- -- -- --
Purchase of
treasury stock..
Issuance of
warrants........ -- -- -- -- -- 678 -- -- -- --
Accretion and
cumulative
preferred
dividends....... -- 160 -- 3,931 -- 562 -- 162 -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
Cumulative
transition
adjustment...... -- -- -- -- -- -- -- -- -- --
--------- ------ ---------- ------- --------- ------- ------- ------ ---------- -------
Balance,
December 31,
1999............ 1,228,917 2,707 13,526,786 21,778 3,469,136 8,802 935,454 3,162
Issuance of
redeemable
convertible
preferred
stock........... -- -- -- -- -- -- -- -- 17,436,746 28,072
Issuance of
common stock.... -- -- -- -- -- -- -- -- -- --
Issuance of
warrants........ -- -- -- -- -- -- -- -- -- --
Accretion and
cumulative
preferred
dividends....... -- 574 -- 14,338 -- 1,368 -- 60 -- 18,484
Adjustment of
warrants to
redemption
value........... -- -- -- -- -- 196 -- -- -- --
Deferred
compensations
related to stock
options
granted......... -- -- -- -- -- -- -- -- -- --
Amortizations of
stock based
compensation.... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment...... -- -- -- -- -- -- -- -- -- --
--------- ------ ---------- ------- --------- ------- ------- ------ ---------- -------
Balance, March
31, 2000........ 1,228,917 $3,281 13,526,786 $36,116 3,469,136 $10,366 935,454 $3,222 17,436,746 $46,556
<CAPTION>
Common Stock Stock Other Total
------------------- Additional Deferred Purchase Accumu- Compre- Stock- Compre-
Number Carrying Paid-In Stock-Based Notes lated hensive holders' hensive
of Shares Value Capital Compensation Receivable Deficit Loss Deficit Loss
---------- -------- ---------- ------------ ---------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
1, 1997......... 3,200,000 $12 $ 167 $ -- $ -- $ (9,399) $ -- $ (9,220) --
Issuance of
redeemable
convertible
preferred
stock........... -- -- -- -- -- -- -- -- --
Cumulative
preferred
dividends....... -- -- -- -- -- (1,230) -- (1,230) --
Net loss........ -- -- -- -- -- (6,090) -- (6,090) $ (6,090)
Cumulative
translation
adjustment...... -- -- -- -- -- (23) (23) (23)
---------- -------- ---------- ------------ ---------- --------- ------- --------- ---------
Balance,
December 31,
1997............ 3,200,000 12 167 -- -- (16,719) (23) (16,563) $ (6,113)
=========
Issuance of
redeemable
convertible
preferred stock,
net of issuance
costs of $136... -- -- -- -- (136) -- (136) --
Issuance of
common stock.... 71,524 -- 82 -- (53) -- -- 29 --
Issuance of
warrants........ -- -- -- -- -- -- -- -- --
Cumulative
preferred
dividends....... -- -- -- -- -- (1,680) -- (1,680) --
Net loss........ -- -- -- -- -- (9,455) -- (9,455) $ (9,455)
Cumulative
translation
adjustment...... -- -- -- -- -- -- 9 9 9
---------- -------- ---------- ------------ ---------- --------- ------- --------- ---------
Balance,
December 31,
1998............ 3,271,524 12 249 -- (53) (27,990) (14) (27,796) $ (9,446)
=========
Issuance of
redeemable
convertible
preferred
stock........... -- -- -- -- -- (39) -- (39) --
Issuance of
common stock.... 148,246 1 178 -- (73) -- -- 106 --
Purchase of
treasury stock.. (1,983) -- (2) -- -- -- -- (2) --
Issuance of
warrants........ -- -- -- -- -- -- -- -- --
Accretion and
cumulative
preferred
dividends....... -- -- -- -- -- (4,815) -- (4,815) --
Net loss........ -- -- -- -- -- (15,860) -- (15,860) $(15,860)
Cumulative
transition
adjustment...... -- -- -- -- -- -- (40) (40) (40)
---------- -------- ---------- ------------ ---------- --------- ------- --------- ---------
Balance,
December 31,
1999............ 3,417,787 13 425 -- (126) (48,704) (54) (48,446) (15,900)
=========
Issuance of
redeemable
convertible
preferred
stock........... -- -- -- -- -- (1,963) -- (1,963) --
Issuance of
common stock.... 11,128 -- 13 -- -- -- -- 13 --
Issuance of
warrants........ -- -- 779 -- -- (779) -- -- --
Accretion and
cumulative
preferred
dividends....... -- -- -- -- -- (34,824) -- (34,824) --
Adjustment of
warrants to
redemption
value........... -- -- -- -- -- (196) -- (196) --
Deferred
compensations
related to stock
options
granted......... -- -- 4,444 (4,444) -- -- -- -- --
Amortizations of
stock based
compensation.... -- -- -- 101 -- -- -- 101 --
Net loss........ -- -- -- -- -- (3,957) (3,957) (3,957)
Cumulative
translation
adjustment...... -- -- -- -- -- -- (15) (15) (15)
---------- -------- ---------- ------------ ---------- --------- ------- --------- ---------
Balance, March
31, 2000........ 3,428,915 $13 $5,661 $(4,343) $(126) $(90,423) $ (69) $(89,287) $ (3,972)
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
OPEN PORT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
Year Ended December 31, (unaudited)
--------------------------- ----------------
1997 1998 1999 1999 2000
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss....................... $(6,090) $ (9,455) $(15,860) $(3,768) $(3,957)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization
of property and equipment..... 767 1,046 1,196 279 289
Amortization of capitalized
software costs and other
assets........................ 139 288 347 83 167
Amortization of debt
discount...................... -- 44 350 86 82
Amortization of stock-based
compensation.................. -- -- -- -- 101
Provision for doubtful
accounts...................... -- -- 319 -- 13
Changes in assets and
liabilities:
Accounts receivable........... 2,291 (741) 762 (299) (638)
Prepaid expenses and other
assets....................... 416 568 281 (198) (175)
Other assets.................. (46) (46) (193) (4) (74)
Accounts payable.............. (644) 218 662 (67) (96)
Accrued expenses and other
current liabilities.......... 164 (531) 847 250 (240)
Deferred revenue.............. 111 (2,042) 609 90 (322)
------- -------- -------- ------- -------
Net cash used in operating
activities.................. (2,892) (10,651) (10,680) (3,548) (4,850)
------- -------- -------- ------- -------
Cash flows from investing
activities:
Additions to property and
equipment..................... (524) (623) (551) (139) (827)
Additions to capitalized
software costs................ (235) (339) (1,112) (223) (160)
------- -------- -------- ------- -------
Net cash used in investing
activities.................. (759) (962) (1,663) (362) (987)
------- -------- -------- ------- -------
Cash flows from financing
activities:
Proceeds from issuance of notes
payable....................... -- 2,500 13,500 3,518 --
Payment of notes payable....... (950) -- (4,000) -- (7,000)
Payments of capital lease
obligations................... (477) (655) (612) (181) (111)
Proceeds from sale of common
stock......................... -- 29 105 89 13
Proceeds from sale of
redeemable convertible
preferred stock, net of
issuance costs................ 8,400 6,889 2,961 -- 26,109
------- -------- -------- ------- -------
Net cash provided by
financing activities........ 6,973 8,763 11,954 3,426 19,011
------- -------- -------- ------- -------
Effect of foreign currency
exchange rate fluctuations on
cash........................... (18) 9 (40) 11 (15)
------- -------- -------- ------- -------
Net increase (decrease) in
cash........................... 3,304 (2,841) (429) (473) 13,159
Cash and cash equivalents at
beginning of period............ 243 3,547 706 706 277
------- -------- -------- ------- -------
Cash and cash equivalents at end
of period...................... $ 3,547 $ 706 $ 277 $ 233 $13,436
======= ======== ======== ======= =======
Supplemental disclosure of cash
flow information:
Cash paid for interest......... $ 182 $ 266 $ 604 $ 134 $ 221
Cash paid for income taxes..... 1 -- 2 -- --
Supplemental disclosure of non-
cash investing and financing
activities:
Property and equipment acquired
under capital leases.......... $ 510 $ 379 $ 548 $ 58 $ --
Estimated fair value of
warrants recorded as debt
discount or issuance costs.... -- 229 678 175 779
Issuance of 46,897 and 65,128
shares of common stock in
exchange for stock purchase
notes receivable.............. -- 53 73 73 --
Accretion and dividends on
redeemable convertible
preferred stock and warrants.. 1,230 1,816 4,854 484 35,020
Deferred stock-based
compensation.................. -- -- -- -- 4,444
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Operations and Significant Accounting Policies
Nature of Operations
Open Port Technology, Inc. (the "Company") which was formed in 1993,
designs, develops and distributes software products that enable enhanced
communication services to be deployed over Internet Protocol ("IP") based
networks ("enhanced IP services"). The Company's products enable enhanced
IP services to be deployed with the accountability, tracking and
reliability of services delivered over the public switched telephone
network, while taking advantage of the more efficient use of bandwidth,
increased functionality, flexibility and reduced costs offered by IP
networks. The Company's headquarters are located in Chicago, Illinois, and
the Company maintains sales offices in the United States and Europe. The
Company sells to customers worldwide.
Basis of Presentation
The accompanying interim financial statements for the three months ended
March 31, 1999 and 2000 and the related notes have not been audited.
However, they have been prepared consistent with the accounting principles
disclosed in the audited financial statements and include all adjustments,
which were of a normal and recurring nature, which in the opinion of
management are necessary to present fairly the financial position of the
Company and results of operations and cash flows for the periods presented.
The operating results for the interim periods are not necessarily
indicative of results expected for the full years.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Foreign Currency Translation
The functional currencies for all of the Company's foreign subsidiaries are
their local currencies. The foreign subsidiaries' balance sheets are
translated at the year end rates of exchange and their results of
operations are translated at weighted average rates of exchange for the
year.
Translation adjustments resulting from this process are recorded as a
separate component of stockholders' deficit and will be included in the
determination of net income (loss) only upon sale or liquidation of the
subsidiaries, which is not contemplated at this time. Foreign exchange
transaction losses were not significant for any period presented.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents.
F-7
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which are
comprised of accounts receivable, accounts payable, capital lease
obligations, and notes payable, approximates their estimated fair value
based upon market prices for the same or similar types of financial
instruments.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to
concentrations of credit risk are primarily comprised of accounts
receivable. Management believes its credit policies are prudent and reflect
normal industry terms and business risk. The Company does not anticipate
non-performance by the counterparties and, accordingly, does not require
collateral.
At December 31, 1998, 50% of the Company's accounts receivable were due
from two customers. At December 31, 1999, 81% of the Company's accounts
receivable were due from two customers. As of March 31, 2000, 39% of the
Company's accounts receivable were due from three customers.
During 1997, seven customers accounted for 94% of the Company's revenues.
During 1998, four customers accounted for 76% of the Company's revenues.
One customer accounted for 25% of the Company's revenues in 1999. During
the three months ended March 31, 1999 and 2000, three and three customers
accounted for 65% and 44% of the Company's revenues respectively.
Sales totaling $2,688,000, or 38% of total 1997 revenue, $439,000, or 8% of
total 1998 revenue and $194,000 or 8% of total 1999 revenue, were made to
customers in Europe. Sales totaling $276,000, or 12% of total 1999 revenue,
were made to customers in Asia. Sales totaling $30,000 or 8% and $309,000
or 23% of revenue for the three months ended March 31, 1999 and 2000,
respectively, were made to customers in Europe. Sales totaling $3,000 or 1%
and $246,000 or 18% of total revenue for the three months ended March 31,
1999 and 2000, respectively, were made to customers in Asia.
Revenue Recognition
The Company recognizes revenues in accordance with American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," as amended. The Company's revenues are
derived from licenses for its software as well as software maintenance and
support, training and consulting services. Software product revenues are
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the license fee is fixed and determinable and the collection of
the fee is probable. Fees from software products sold together with
professional services are recognized upon delivery provided that the above
criteria have been met and payment of the software product license fee is
not dependent upon the performance of the services. In instances where
customer acceptance criteria are included in software product license
agreements, revenue is not recognized until the customer acceptance
provision has been satisfied.
F-8
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues from professional services, other than as described above, are
recognized when the services are performed. Revenue derived from software
maintenance arrangements is recognized ratably over the period the services
are provided, typically one year. Revenue related to an initial 3 month
warranty period and annual maintenance and support is unbundled from the
license fee based on standard renewal rates and is recognized ratably over
a 15 month period.
Revenue from hardware products is recognized when the products have been
delivered and collection is probable.
The allowance for doubtful accounts was $0 and $319,000 at December 31,
1998 and 1999, respectively, and $332,000 at March 31, 2000. There were no
write-offs of accounts receivable during 1999.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon estimated useful lives ranging from
three to seven years. Maintenance and repair charges are expensed as
incurred.
Software Development Costs and Research and Development
Capitalization of software development costs in accordance with SFAS 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", begins upon the establishment of technological
feasibility and ends upon general release of the final product. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require
considerable judgment by management with respect to certain external
factors including, but not limited to, anticipated future revenues,
estimated economic life and changes in software and hardware technologies.
Amortization of capitalized software development costs begins upon general
release of the final product and is provided on a product-by-product basis
at the greater of the amount computed using (a) the ratio of current
revenues for a product to the total of current and anticipated future
revenues or (b) the straight-line method over the remaining economic life
of the product, generally 3 years. Research and development costs, which
principally relate to the design and development of proprietary software
prior to the establishment of technological feasibility, are expensed as
incurred.
Capitalized software development costs as of December 31, 1998 and 1999 and
March 31, 2000 (net of accumulated amortization of $527,000, $430,000 and
$595,000, respectively) aggregated $465,000, $1,238,000 and $1,233,000,
respectively. Amortization of capitalized software costs totaled $282,000
and $338,000 during 1998 and 1999, respectively, and $120,000 and $165,000
for the three months ended March 31, 1999 and 2000 respectively, and is
recorded in cost of software products. Fully amortized assets of $435,000
were written-off in 1999.
Accounting for Stock-based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Compensation expense is recorded for options issued to
employees in fixed amounts which have exercise prices below the estimated
fair value of the Company's common stock at the date
F-9
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of grant. The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," through disclosure only (Note 6).
Pro Forma Balance Sheet (unaudited)
The unaudited pro forma balance sheet as of March 31, 2000 presents the
conversion of 36,597,039 of the outstanding shares of Series A, B, C, D and
E preferred stock into 11,831,282 shares of common stock assuming the
completion of the Company's initial public offering.
Net Loss Per Share
Basic and diluted net loss per share applicable to common stockholders is
computed by dividing the net loss applicable to common stockholders for the
period by the weighted average number of common shares outstanding for the
period. The calculation of diluted net loss per share excludes the number
of shares of common stock issuable upon exercise of employee stock options
and warrants, and the shares of common stock issuable upon the conversion
of convertible preferred stock as the effect would be antidilutive.
Potential common shares consist of the incremental common shares issuable
upon the conversion of the redeemable convertible preferred stock (using
the incremental method) and shares issuable upon the conversion of stock
options and warrants (using the treasury stock method). See Note 9 for the
reconciliation of the numerator and denominator of the basic and diluted
EPS computations. Unaudited proforma basic and diluted net loss per share
has been calculated assuming the conversion of all outstanding shares of
preferred stock into shares of common stock, as if the shares had converted
immediately upon their issuance.
Comprehensive Income
Comprehensive income is comprised of two components, net income and other
comprehensive income. Other comprehensive income was comprised solely of
cumulative foreign currency translation adjustments.
Income Taxes
The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
requires the recognition of deferred tax liabilities for the expected
future tax consequences of temporary differences between tax bases and
financial reporting bases of assets and liabilities, using enacted tax
rates in effect for the year in which the differences are expected to be
paid or recovered. Deferred tax assets are reduced by a valuation allowance
to the extent that utilization is not considered more likely than not.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates made by
management regarding the reported amounts of assets and liabilities as well
as the revenues and expenses recognized during the reporting periods.
Actual results could differ from those estimates.
F-10
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment Reporting
The Company operates in one segment, selling software products and related
services. Substantially all product and service revenues through December
31, 1999 have been attributable to the sale of the Company's software
products. Service revenues through December 31, 1999 have been derived
principally from implementation and support of the Company's software
products. The Company's chief operating decision maker evaluates revenue
and profitability performance on an enterprise-wide basis to make operating
and strategic decisions. Therefore, segment information is identical to the
information included in the consolidated balance sheet and consolidated
statement of operations.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments and hedging activities
and requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at
fair value. The statement, as amended, is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 is not expected to have a
material effect on its financial results.
Reclassifications
Certain reclassifications now have been made to the financial statements to
conform to the 2000 presentation. These reclassifications had no impact on
the reported net loss for the periods presented.
2.Financial Statement Components
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31, March 31,
---------------------- ----------------
1998 1999 2000
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Equipment under capital lease:
Computer equipment............ $1,722,000 $2,242,000 $ 2,242,000
Computer software............. 485,000 513,000 513,000
Furniture and fixtures........ 375,000 375,000 375,000
Computer equipment.............. 1,040,000 1,429,000 2,200,000
Furniture, fixtures and
improvements................... 912,000 1,065,000 1,123,000
---------- ---------- -----------
4,534,000 5,624,000 6,453,000
Less: Accumulated amortization
and depreciation............. (2,412,000) (3,608,000) (3,897,000)
---------- ---------- -----------
$2,122,000 $2,016,000 $ 2,556,000
========== ========== ===========
</TABLE>
Depreciation expense for 1997, 1998, 1999 and for the three months ended
March 31, 1999 and 2000 was $296,000, $338,000, $574,000, $117,000 and
$169,000, respectively. Amortization expense related to property and
equipment acquired under capital lease
F-11
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
arrangements was $471,000, $707,000 and $622,000 during 1997, 1998 and
1999, respectively and $159,000 and $120,000 for the three months ended
March 31, 1999 and 2000. Accumulated amortization on property and equipment
under capital lease totaled $861,000, $1,568,000 and $2,190,000 as of
December 31, 1997, 1998 and 1999, respectively and $2,310,000 as of March
31, 2000. Interest expense relating to capital lease obligations totaled
$156,000, $148,000 and $140,000 during 1997, 1998 and 1999, respectively
and $39,000 and $24,000 for the three months ended March 31, 1999 and 2000.
Other assets are comprised of the following:
<TABLE>
<CAPTION>
December 31, March 31,
------------------ ---------------
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Patent costs........................... $141,000 $154,000 $157,000
Security deposits and other............ 14,000 14,000 14,000
Deferred financing costs............... -- 181,000 251,000
-------- -------- --------
155,000 349,000 422,000
Less: Accumulated amortization......... (16,000) (25,000) (27,000)
-------- -------- --------
$139,000 $324,000 $395,000
======== ======== ========
</TABLE>
Amortization expense relating to capitalized patent costs totaled $4,000,
$7,000 and $9,000 in 1997, 1998 and 1999, respectively and $2,000 and
$2,000 for the three months ended March 31, 1999 and 2000.
Accrued expenses and other current liabilities are comprised of the
following:
<TABLE>
<CAPTION>
December 31, March 31,
------------------- ---------------
1998 1999 2000
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Accrued compensation................... $176,000 $ 296,000 $ 296,000
Accrued bonus.......................... -- 743,000 503,000
Commissions payable.................... 313,000 222,000 138,000
Other ................................. 290,000 365,000 449,000
-------- ---------- ----------
$779,000 $1,626,000 $1,386,000
======== ========== ==========
</TABLE>
3.Credit Facilities and Notes Payable
Revolving Credit Facility
During 1998, the Company changed an existing loan arrangement with Silicon
Valley Bank (SVB) to create a revolving credit facility. As amended, this
facility provided for up to $4,000,000 in borrowings by the Company, except
that the maximum amount available was limited to the Company's borrowing
base (defined as the greater of $1,500,000 or 80% of the Company's eligible
accounts receivable), if lower. The facility also provided for the issuance
of up to $2,500,000 in standby letters of credit on behalf of the Company.
All borrowings made by the Company were collateralized by substantially all
of the Company's assets and were due on August 6, 1999. Interest accrued on
outstanding
F-12
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
borrowings at SVB's prime rate (8.5% at December 31, 1998) and was payable
monthly. The Company was subject to certain financial and non-financial
covenants under the facility. As of December 31, 1998, no borrowings or
letters of credit were outstanding under this revolving credit facility.
In January 1999, the Company amended its revolving credit facility with SVB
to decrease the borrowing facility from $4,000,000 to $3,000,000 and remove
the limitation on the amount available for borrowing relating to the
Company's borrowing base. In connection with this amendment, the due date
for all amounts outstanding was changed to the earlier of April 30, 1999 or
the closing of the Company's Series D preferred stock financing and the
interest rate was increased to the SVB's prime rate plus 1.5%. All amounts
available under the amended facility were drawn down during the first
quarter of 1999 and repaid in April 1999, at which time the arrangement
terminated.
In connection with this amendment in January 1999, the Company granted SVB
warrants to purchase 75,000 shares of the Company's Series C preferred
stock at price of $2.025 per share. These warrants can be exercised at any
time before the later of two years from the effective date of the Company's
initial public offering or January 28, 2004. The estimated fair value of
these warrants of $100,000 was recorded as a debt discount and is amortized
to interest expense over the term of the related debt. The warrants permit
the holder, upon an acquisition of the Company, to require the Company to
redeem each warrant for the difference between the warrant exercise price
and the fair value of a share of common stock. The Company will adjust the
warrants to redemption value through accretion and a charge/credit to
interest expense based on the estimated fair value of a share of common
stock at the end of each reporting period.
Mezzanine Credit Facility
In June 1998, the Company entered into a one-year borrowing agreement with
CID Mezzanine (a related party) under which the lender agreed to loan up to
$3,000,000 to the Company, the proceeds of which were to be used to finance
the acquisition of fixed assets and for working capital purposes. Each
borrowing under the agreement is collateralized by substantially all of the
Company's assets and is due on July 1, 2001 unless a change of control of
the Company occurs, in which case the notes become payable in full
immediately. Interest payments are due on a monthly basis at an annual
interest rate of 11%. In the event of default, this rate would increase to
13%. As of December 31, 1998, $2,500,000 was outstanding under this
arrangement. In connection with borrowings made in 1998, the Company also
issued warrants to purchase 111,093 shares of the Company's Series C
preferred stock (Note 6).
In January 1999, the remaining $500,000 available under the pre-existing
borrowing arrangement with the mezzanine capital company (a related party)
was drawn down by the Company. In April 1999, this facility was amended and
the borrowings increased by $2.0 million. The facility has the same terms
and interest rate as before the amendment. As of December 31, 1999,
$5,000,000 was outstanding under this facility. The Company was in non-
compliance with a covenant requiring audited financial statements within 90
days of year-end. A waiver for this non-compliance was received from the
lender. As of March 31, 2000, $5,000,000 was outstanding under this
facility.
F-13
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the aforementioned borrowing arrangements, the Company
granted the lender warrants to purchase an additional 259,217 shares of the
Company's Series C preferred stock at a price of $0.01 per share during
1999. These warrants can be exercised at any time before the later of July
1, 2001 or the third anniversary of the Company's repayment of the notes in
full. The estimated fair value of these warrants of $578,000 was recorded
as debt discount and is being amortized to interest expense over the
remaining term of the related notes payable.
Issuance of Term Notes Payable
In April 1999 and August 1999, the Company issued term notes payable to
American National Bank in exchange for cash proceeds totaling $4,000,000.
These borrowings, which are collateralized by substantially all of the
Company's assets, are due on February 1, 2000 (Note 12). Interest on these
notes, which accrues at the bank's prime rate plus 1% (8.4% at December 31,
1999), is payable monthly. Upon the occurrence of non-payment, all
outstanding principal under the notes would be callable at the option of
the holder and the interest rate would increase to the bank's prime rate
plus 4% on a prospective basis. As of December 31, 1999 and March 31, 2000,
$4,000,000 was outstanding under this agreement. During the first quarter
of 2000, this loan was repaid and the agreement terminated.
Issuance of Subordinated Convertible Promissory Notes
In September 1999, the Company entered into a Subordinated Convertible
Promissory Note Purchase Agreement under which certain existing investors
agreed, at their sole option, to loan the Company up to $3,000,000.
Subsequently, the Company issued subordinated convertible promissory notes
to various stockholders in exchange for gross proceeds totaling $3,000,000.
These borrowings bear interest at prime rate plus 1% (8.4% at December 31,
1999) and all principal and accrued interest was due on January 31, 2000.
As of December 31, 1999, $3,000,000 was outstanding under this agreement.
In the event that a subsequent financing takes place prior to that date
which results in gross proceeds to the Company of at least $15,000,000, all
principal and accrued interest will automatically convert into the
securities sold in that financing with the number of securities received
being based upon the offering price at which such securities are sold (Note
12). Subsequent to year-end the $3,000,000 converted to Series E preferred
shares (Note 12).
Notes Payable Maturities
Future payments under the above notes payable obligations are as follows
for the years ended December 31;
<TABLE>
<S> <C>
2000......................................................... $ 7,000,000
2001......................................................... 5,000,000
-----------
Gross minimum payments....................................... 12,000,000
Less: Amounts representing warrants issued
(net of amortization)....................................... 519,000
-----------
Net present value of minimum payments........................ 11,481,000
Less: Current portion........................................ 7,000,000
-----------
$ 4,481,000
===========
</TABLE>
F-14
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4.Redeemable Convertible Preferred Stock
As of December 31, 1999, the authorized shares of preferred stock were
designated as follows:
<TABLE>
<S> <C>
Series A preferred stock........................................ 1,228,917
Series B preferred stock........................................ 13,526,786
Series C preferred stock........................................ 4,009,199
Series D preferred stock........................................ 1,160,454
----------
19,925,356
==========
</TABLE>
The holders of the Series A, Series B, Series C, Series D and Series E
redeemable convertible preferred stock (the "Preferred Stock") are herein
referred to collectively as the "Preferred Stockholders." Series E
redeemable convertible preferred stock was issued in January of 2000 (see
Note 12). At March 31, 2000, the Preferred Stockholders have the following
rights and privileges.
Voting Rights
The Preferred Stockholders generally vote together with all other classes
and series of stock as a single class on all matters and are entitled to a
number of votes equal to the number of shares of common stock into which
each share of such stock is convertible.
Conversion Rights
Each share of Series A preferred stock is convertible into two shares of
the Company's common stock, subject to adjustment in the case of any
subsequent dilutive financing, at the discretion of the holder or
automatically at the closing of an initial public offering of the Company's
common stock. Each share of Series B preferred stock is convertible into
0.37 shares of the Company's common stock, subject to any subsequent
dilutive financing, at the discretion of the holder or automatically at the
closing of an initial public offering of the Company's common stock. Each
share of Series C preferred stock is convertible into 1.059 shares of the
Company's common stock subject to adjustment in the case of any subsequent
dilutive financing, at the discretion of the holder or automatically at the
closing of an initial public offering of the Company's common stock. Each
share of Series D preferred stock is convertible into 0.53 shares of the
Company's common stock subject to adjustment in the case of any subsequent
dilutive financing, at the discretion of the holder or automatically at the
closing of an initial public offering of the Company's common stock. Each
share of Series E preferred stock is convertible into one share of the
Company's common stock subject to adjustment in the case of any subsequent
dilutive financing, at the discretion of the holder or automatically at the
closing of an initial public offering of the Company's common stock.
Dividend Rights
Each share of Series A preferred stock is entitled to an 8% cumulative
dividend, which has preference over any dividends on the common stock.
Accrued dividends are payable upon the conversion of the Series A preferred
stock to common stock, unless the conversion is made upon the occurrence of
an initial public offering of the Company's common stock
F-15
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
meeting certain requirements or other defined events. Each share of Series
B preferred stock is entitled to an 8% cumulative dividend, which has
preference over any dividends on the common stock or Series A preferred
stock. Accrued dividends are payable upon the conversion of the Series B
preferred stock to common stock, unless the conversion is made upon the
occurrence of certain events. Each share of Series C preferred stock is
entitled to an 8% cumulative dividend. Accrued dividends are payable upon
the conversion of the Series C preferred stock to common stock, unless the
conversion is made upon the occurrence of certain events. Each share of
Series D preferred stock is entitled to an 8% cumulative dividend. In the
event of conversion upon a qualified public offering or corporate
transaction, all accrued and unpaid dividends on the Series D preferred
stock would be payable while accrued and unpaid dividends on all other
series of preferred stock would not. Each share of Series E preferred stock
is entitled to an 8% cumulative dividend.
Liquidation Preferences
In the event of any liquidation event including the sale or winding up of
the Company, the holders of the Preferred Stock are entitled to receive,
prior and in preference to the common stockholders, the following initial
liquidation amounts:
<TABLE>
<S> <C>
Series A preferred stock................................. $1.62 per share
Series B preferred stock................................. $1.12 per share
Series C preferred stock................................. $2.025 per share
Series D preferred stock................................. $3.207 per share
Series E preferred stock................................. $1.61 per share
</TABLE>
If proceeds remain after the initial liquidation amounts are paid in full
to the holders of each class of the Preferred Stock, the Preferred
Stockholders are entitled to receive secondary liquidation payments equal
to all accrued and unpaid dividends. With regard to priority in the payment
of both the initial and secondary liquidation amounts, the Series E is
senior to Series A, Series B, Series C and Series D preferred stock, the
Series D is senior to Series A, Series B, and Series C preferred stock, the
Series C preferred stock is senior to both Series A and Series B preferred
stock, and the Series B preferred stock is senior to the Series A preferred
stock. In the event that any proceeds remain after payment of all initial
and secondary liquidation amounts to the Preferred Stockholders, all
remaining proceeds will be shared ratably by the holders of all classes of
the Company's capital stock.
Redemption
Each series of Preferred Stock is redeemable at the option of the holder at
any time during the period beginning July 15, 2002 and ending July 15,
2004. In the event of redemption, holders of each series of Preferred Stock
would be entitled to receive the greater of their then-current liquidation
preference or the fair market value of a share of common stock as
determined at that time. As a result of this provision, the carrying value
of the preferred stock is adjusted through accretion to their full
redemption value at the end of each reporting period. The option to redeem
is terminated upon an initial public offering of the Company's common stock
meeting certain specified requirements.
F-16
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accretion recorded for each series of preferred stock and related
warrants is as follows:
<TABLE>
<CAPTION>
Series Series E
Series A B Series C Series D (unaudited)
-------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Carrying value at December
31, 1998................. $2,547 $17,847 $ 7,562 $ -- $ --
Issuance value............ -- -- -- 3,000 --
Dividends................. 160 1,212 562 162 --
Issuance of warrants
convertible into
preferred stock.......... -- -- 678 -- --
Accretion to redemption
value at $1.61 per
share.................... -- 2,719 -- -- --
------ ------- ------- ------ -------
Carrying value at December
31, 1999................. 2,707 21,778 8,802 3,162 --
Issuance value............ -- -- -- -- 28,072
Dividends................. 39 303 141 60 398
Accretion to redemption
value at $2.67 per
share.................... 535 14,035 1,423 -- 18,086
------ ------- ------- ------ -------
Carrying value at March
31, 2000................. $3,281 $36,116 $10,366 $3,222 $46,556
====== ======= ======= ====== =======
</TABLE>
5.Stockholders' Deficit
Common Stock
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends, if any, as may be declared by the Board of
Directors, subject to any preferential dividend rights of the preferred
stockholders. In April 1999, the Company approved an increase in the number
of authorized shares of its common stock to 48,950,438 shares. On January
25, 2000, the Company amended its Articles of Incorporation to increase the
number of authorized shares of its common stock to 71,000,000 shares.
Stock Purchase Notes Receivable
In July 1998, an employee issued a recourse note payable to the Company in
the amount of $53,000 as consideration for the exercise of vested options
to purchase 46,897 shares of the Company's common stock. This note is due
on July 30, 2003 and accrues interest at an annual a rate of 5.75%.
In February, 1999, another employee issued a recourse note payable to the
Company in the amount of $73,000 as consideration for the exercise of
vested options to purchase 65,128 shares of the Company's common stock.
This note is due on February 18, 2004 and accrues interest at an annual
rate of 4.71%.
F-17
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6.Stock Options and Warrants
Stock Option Plans
In 1995, the Company adopted its 1995 Incentive Stock Option Plan (the
"Employee Plan"). The Employee Plan provides for the issuance of shares of
common stock to key personnel at an option price to be determined by the
Board of Directors, which shall not be less than fair market value at the
date of the grant. The options vest over a four-year period beginning one
year from the date of grant and expire ten years from the date of the
grant.
In 1995, the Company adopted the 1995 Non-Employee Stock Option Plan (the
"Non-Employee Plan"). The plan provides for the issuance of stock options
to certain providers of service to the Company, such as members of the
Board of Directors, consultants, suppliers and contractors. The terms of
the plan are substantially similar to the 1995 Incentive Stock Option Plan.
During 1997, the Company granted 6,666 options at an exercise price of
$1.13 per share under the Non-Employee Plan. During 1998, the Company
granted 5,333 options at an exercise price of $11.62 per share under the
Non-Employee Plan. During 1999, the Company did not grant options under the
Non-Employee Plan. The fair value of these options was not significant. No
options expired during 1997, 1998 or 1999 nor were any options exercised or
canceled under the Non-Employee Plan.
The aggregate number of options authorized under both plans as of December
31, 1999 was 1,448,718. At December 31, 1999, 309,589 shares were available
for future grant.
During 1997, 1998 and 1999, compensation expense recognized for stock
option grants made by the Company under APB Opinion No. 25 was not
significant. Had compensation cost for these option grants been determined
based on their fair value at the date of grant consistent with the method
prescribed by SFAS No. 123, the Company's net loss applicable to common
stockholders would have been increased to $7,338,000, or $(2.29) per share,
$11,367,000 or $(3.52) per share and $20,922,000 or $(6.21) per share
during 1997, 1998 and 1999, respectively. Because most options vest over
several years and additional option grants are expected to be made in
future periods, the pro forma effects of applying the fair value method of
SFAS No. 123 may be increasingly significant in future years.
Under SFAS No. 123, the fair value of each employee option grant is estimated
on the date of grant using the Black-Scholes option pricing model to apply the
minimum value method with the following weighted average assumptions used for
options granted during the following periods:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Dividend yield..................................... 0.0% 0.0% 0.0%
Risk free interest rate............................ 6.0% 5.0% 5.2%
Volatility......................................... 0.0% 0.0% 0.0%
Expected term...................................... 5 years 5 years 4 years
</TABLE>
In the quarter ended March 31, 2000, the Company recorded total unearned stock
compensation of approximately $(4.4) million in connection with stock options
granted during the period. These amounts represent the difference between the
exercise price of stock option
F-18
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
grants and the estimated fair market value of common stock at the time of the
grants. The unearned compensation is being amortized to expense over the
vesting periods of the applicable options, resulting in approximately $101,000
of expense for the quarter ended March 31, 2000. Amortization of unearned
compensation expense for each of the next five fiscal years arising from these
grants is as follows:
<TABLE>
<CAPTION>
Amount
Year Ended (in thousands)
---------- --------------
<S> <C> <C> <C>
December 31, 2000................ $ 934
December 31, 2001................ 1,111
December 31, 2002................ 1,111
December 31, 2003................ 1,111
December 31, 2004................ 177
</TABLE>
Stock option activity during 1997, 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
Outstanding
Options
-------------------
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Outstanding--January 1, 1997........................... 654,959 $ 1.13
Granted (weighted average fair value of $0.08)....... 513,722 $ 1.13
Exercised............................................ -- --
Cancelled............................................ (461,347) --
---------
Outstanding--December 31, 1997......................... 707,334 $ 1.13
Granted (weighted average fair value of $0.26)....... 839,536 $ 4.43
Exercised............................................ (73,340) $ 1.13
Cancelled............................................ (236,204) $ 1.45
---------
Outstanding--December 31, 1998......................... 1,237,326 $ 3.31
Granted (weighted average fair value of $0.57)....... 100,004 $11.62
Exercised............................................ (146,429) $ 2.15
Cancelled............................................ (269,559) $ 1.23
---------
Outstanding--December 31, 1999......................... 921,342 $ 4.88
Granted.............................................. 1,104,250 $ 5.63
Exercised............................................ (11,128) $ 1.13
Cancelled............................................ (134,665) $11.57
---------
Outstanding--March 31, 2000 (unaudited)................ 1,879,799 $ 4.86
=========
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (Years) Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.13 573,993 7.1 $ 1.13 295,099 $ 1.13
$ 7.59 4,800 8.3 7.59 1,222 7.59
$ 9.61 25,764 8.4 9.61 10,055 9.61
$ 11.62 172,058 9.0 11.62 36,380 11.62
$ 5.63 1,103,184 10.0 5.63 0 5.63
--------- -------
$0.30 - $3.10 1,879,799 8.6 $ 4.88 342,756 $ 2.52
========= =======
</TABLE>
F-19
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants
In connection with a master equipment lease agreement entered into in
November 1995 (Note 8), the Company granted the lessor warrants to purchase
19,663 shares of the Company's common stock at a price of $3.05 per share.
These warrants can be exercised at any time before the earlier of November
2000 or an initial public offering of the Company's common stock.
Subsequently, in August 1996, warrants to purchase an additional 14,285
shares of common stock at a price of $4.20 per share were issued to the
same lessor. These warrants can be exercised at any time before the earlier
of August 15, 2006 or five years from the date of an initial public
offering of the Company's stock. The estimated fair value of these
warrants, aggregating $45,000, was recorded as a debt discount and is being
amortized to interest expense over the term of the lease agreement.
In connection with a separate master lease agreement entered into in June
1998 (Note 8), the Company granted a different lessor warrants to purchase
9,876 shares of the Company's Series C preferred stock at a price of $2.025
per share which can be exercised at any time before July 1, 2008. In
connection with additional borrowings made under this master lease
agreement in 1999, the Company issued warrants to purchase an additional
9,877 shares of its Series C preferred stock to the lessor in August 1999.
These warrants have the same exercise price as those granted in 1998, but
may be exercised any time before October 1, 2009. The estimated fair value
of these warrants was not significant.
In connection with a debt financing arrangement entered into in June 1998
(Note 3), the Company granted the lender warrants to purchase 111,093
shares of the Company's Series C preferred stock at a price of $0.01 per
share. The warrants can be exercised at any time before the later of July
1, 2001 or the third anniversary of the Company's repayment of the note in
full. The estimated fair value of these warrants of $224,000 was recorded
as a debt discount and is being amortized to interest expense over the term
of the related notes payable.
In conjunction with the Series E preferred stock sale, the Company issued
an investment advisor a warrant for the purchase of 250,517 shares of
common stock. The warrant expires in October 2004 and has an exercise price
of $6.04 per share. The fair value of the warrant will be recorded as
offering costs.
The fair value of each issuance of warrants was estimated on the date of
grant using the Black-Scholes pricing model utilizing the following
assumptions:
<TABLE>
<CAPTION>
Deutsche
Silicon Bank
Valley Securities
CID Equity Bank Inc.
------------------ -------- ----------
1998 1999 1999 2000
Warrants Warrants Warrants Warrants
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Number of warrants issued........ 111,093 259,217 75,000 250,517
======== ======== ======== ========
Risk free interest rate.......... 5.0% 5.0% 4.6% 5.65%
Volatility....................... 50% 50% 30% 70%
Term-in years.................... 3 3 3 4
Exercise price per share......... $ .01 $ .01 $ 2.03 $ 6.04
Estimated fair value per share... $ 2.03 $ 2.24 $ 3.10 $ 5.63
Value recorded................... $229,000 $578,000 $100,000 $779,000
</TABLE>
F-20
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7.Income Taxes
For the years ended December 31, 1997, 1998 and 1999, the Company's income
tax provision is comprised solely of current foreign income taxes.
The components of the Company's net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Operating loss carryforwards...................... $9,330,000 $15,716,000
Deferred compensation............................. 70,000 70,000
Depreciation...................................... 92,000 97,000
Bad debt allowance................................ -- 128,000
Vacation accrual.................................. -- 48,000
Other............................................. 9,000 86,000
Capitalized software development costs............ (186,000) (495,000)
---------- -----------
9,315,000 15,650,000
Less: Valuation allowance......................... (9,315,000) (15,650,000)
---------- -----------
$ -- $ --
========== ===========
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to losses before income tax expense as a
result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected income tax
benefit.......................... $(2,114,000) $(3,303,000) $(5,542,000)
Increase (decrease) in tax benefit
resulting from:
Change in valuation allowance.... 2,395,000 3,749,000 6,335,000
State and local income taxes, net
of federal benefit.............. (302,000) (472,000) (792,000)
Other............................ 70,000 46,000 24,000
----------- ----------- -----------
Income tax expense................ $ 49,000 $ 20,000 $ 25,000
=========== =========== ===========
</TABLE>
Realization of deferred tax assets is contingent upon the generation of
future taxable income. The Company has recorded a full valuation allowance
against its deferred tax asset due to the uncertainty surrounding the
generation of future taxable income created by the limited operating
history and early stage of development of the Company. As a result, no
income tax benefit has been recognized relating to the losses generated
during 1997, 1998 and 1999 or any prior years.
At December 31, 1999, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $39.0 million, which
will expire between 2010 and 2018 if not utilized. Under the provisions of
the Internal Revenue Code, certain substantial changes in the Company's
ownership may limit the amount of net operating loss carryforwards which
could be utilized annually to offset future taxable income. The amount of
any such limitation is determined based upon the Company's value prior to
an ownership change.
F-21
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8.Commitments and Contingencies
Operating Leases
The Company is obligated under various lease agreements relating to its
property and equipment and facilities. In some cases, these obligations
contain renewal options. As of December 31, 1999, future minimum lease
payments for noncancelable operating leases are as follows for the years
ending December 31,:
<TABLE>
<S> <C>
2000............................................................ $ 657,000
2001............................................................ 495,000
2002............................................................ 119,000
2003............................................................ 23,000
----------
$1,294,000
==========
</TABLE>
Rent expense on operating leases totaled $512,000, $616,000 and $802,000
during 1997, 1998 and 1999, respectively, and $148,000 and $273,000 for the
three months ended March 31, 1999 and 2000.
Capital Leases
On November 7, 1995, the Company entered into a master lease agreement with
a financing company for the lease of computer hardware and software used in
its business. Each borrowing under the lease has a three-year term and is
collateralized by the assets purchased. The Company has the right to extend
each individual borrowing for one additional year and has exercised this
right for all individual borrowings with terms expiring through 1999. At
the end of the term of each borrowing, the Company has the option to
purchase the equipment for its then fair value. Equipment obtained pursuant
to these leases is capitalized and is included in property and equipment on
the balance sheet. The Company's ability to borrow under this arrangement
expired during 1998.
On June 22, 1998, the Company entered into a new master lease agreement
with a financing company under which the Company may borrow up to
$1,000,000 for the lease of computer hardware and software used in its
business. The terms of this arrangement are substantially similar to those
of the previous master lease agreement described above except that the
Company's ability to borrow expired on July 1, 1999.
In connection with the aforementioned arrangements, the Company issued
warrants to purchase certain of its equity securities to the respective
lessors (Note 6).
Future payments under noncancelable capital lease agreements are as follows
for the years ended December 31,:
<TABLE>
<S> <C>
2000........................................................... $ 514,000
2001........................................................... 365,000
2002........................................................... 141,000
2003........................................................... --
2004 and thereafter............................................ --
----------
Gross minimum lease payments................................... 1,020,000
Less: Amount representing interest and debt discount........... (144,000)
----------
Net present value of minimum lease payments.................... 876,000
Less: Current portion.......................................... (429,000)
----------
$ 447,000
==========
</TABLE>
F-22
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Matters
During 1999 the Company agreed to the settlement of an invoice dispute
surrounding software license fees and services with a former customer
resulting in the receipt of $600,000 which has been included in revenues.
9.Earnings Per Share
SFAS 128, "Earnings per Share," requires companies to provide a
reconciliation of the numerator and denominator of the basic and diluted
EPS computations. The calculation below provides net loss applicable to
common stockholders, weighted average common shares outstanding and the
resultant net loss per share for both basic and diluted EPS for the years
ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Numerator:
Net loss applicable to common
stockholders................. $(7,320,000) $(11,271,000) $(20,714,000)
=========== ============ ============
Denominator:
Weighted average common
shares....................... 3,200,000 3,229,776 3,369,802
(Denominator for basic
calculation)
Weighted average effect of
dilutive securities:
Convertible preferred
stock...................... -- -- --
Stock options and warrants.. -- -- --
----------- ------------ ------------
Denominator for diluted
calculation.............. 3,200,000 3,229,776 3,369,802
=========== ============ ============
Earnings per share:
Basic.......................... $ (2.29) $ (3.49) $ (6.15)
=========== ============ ============
Diluted........................ $ (2.29) $ (3.49) $ (6.15)
=========== ============ ============
Securities excluded because of their anti-dilutive effect:
Convertible preferred stock..... 7,123,372
Options......................... 921,342
Warrants........................ 444,681
</TABLE>
10.Related Party Transactions
The Company obtains legal services from a stockholder at amounts which
approximate fair value. During 1997, 1998 and 1999, the Company incurred
expenses of $258,000, $397,000 and $329,000, respectively, and $45,000 and
$236,000 for the three months ended March 31, 1999 and 2000 for services
provided by this firm.
F-23
<PAGE>
OPEN PORT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11.Employee Savings Plan
The Company maintains an employee retirement savings plan under Section
401(k) of the Internal Revenue Code (the "401(k) Plan") which covers
substantially all employees. Under the terms of the 401(k) Plan, employees
may contribute a percentage of their salary, up to a maximum of 15%, which
is then invested in one or more of several mutual funds selected by each
employee. The Company did not make any contributions to the 401(k) Plan on
behalf of its employees during 1997, 1998 or 1999.
12.Subsequent Events
On January 25, 2000 the Company amended its Articles of Incorporation. As a
result, the Company authorized shares of stock designated as follows:
<TABLE>
<S> <C>
Common stock................................................... 71,000,000
Series A preferred stock....................................... 1,228,917
Series B preferred stock....................................... 13,526,786
Series C preferred stock....................................... 3,934,199
Series D preferred stock....................................... 935,454
Series E preferred stock....................................... 17,662,889
-----------
108,288,245
===========
</TABLE>
In January 2000, the Company issued 17,436,746 shares of its Series E
preferred stock for proceeds of $28,000,000. The proceeds consist of cash
payments totaling $25,000,000 and the conversion of notes payable (Note 3)
in the amount of $3,000,000. A portion of the cash proceeds received was
used to repay the December 31, 1999 notes payable balance of $4,000,000. Of
the total shares issued, 1,597,012 were to related parties. Each share of
Series E preferred stock is convertible into one share of the Company's
common stock. The rights and preferences of the Series E preferred stock
are substantially the same as those of the other series of preferred stock
as outlined in Note 4, except that (i) it has liquidation preference over
all existing series of the preferred stock and (ii) its initial liquidation
value is $1.61 per share.
On January 27, 2000 and on March 28, 2000 the Company's Board of Directors
amended the 1995 Incentive and Non-Employee Stock Option Plans. The
amendment increased the number of shares available for grant under both
plans from 1,448,714 to 2,248,719 on January 27, 2000 and to 2,595,385 on
March 28, 2000.
During 2000, the Company granted options to purchase shares of common stock
to employees at a weighted average exercise price of approximately $1.50
per share. Compensation expense related to these stock options,
representing the difference between the exercise price and the fair market
value of a share of common stock at the date of grant, will be amortized to
compensation expense over the four-year vesting period.
Reverse stock split
The Board of Directors of Open Port has authorized the merger of the
Company into a subsidiary incorporated in Delaware and a 1:3.75 reverse
stock split subject to shareholder approval. The accompanying financial
statements have been adjusted assuming the reverse stock split has been
approved.
F-24
<PAGE>
[Inside Back Cover]
[Over the graphical depiction are the words "BRIDGING IP-BASED, PSTN AND
WIRELESS NETWORKS."
Graphical depiction consists of a circle with the words "IP LaunchPad"
enclosed by a rectangular border with four circular button symbols situated
horizontally across the top of the rectangular border. A graphical
representation of a cloud, connected to the circle by a line, contains the
acronym "PSTN" and appears in the lower left quadrant. Beneath this cloud are
the words, placed horizontally from left to right, with double-headed arrows
leading to and from the cloud, "Voicemail*," "Fax" and "Phone*" next to a
graphical depiction of those devices. A footnote located on the bottom of this
cover page denotes asterisk as meaning "in development." A graphical
representation of a second cloud, connected to the circle by a line, contains
the word "Wireless*" and appears in the lower right quadrant. To the right of
this cloud are the words, placed vertically from top to bottom, with double-
headed arrows leading to and from the cloud, "Voicemail," "PDA," "Pager" and
"Mobile" each next to a graphical depiction of those devices. A graphical
representation of a third cloud, connected to the circle by a line, contains
the acronym "IP" and appears above the circle. To the left of this cloud are
the words, placed vertically from top to bottom, with double-headed arrows
leading to and from the cloud, "Web," "Email" and "Client" each next to a
graphical depiction of those devices.]
<PAGE>
You should rely only on the
information contained in this
prospectus. We have not authorized
anyone to provide information
different from that contained in
this prospectus. We are offering to
sell, and seeking offers to buy,
shares of common stock only in
jurisdictions where offers and sales
are permitted. The information
contained in this prospectus is
accurate only as of the date of this
prospectus, regardless of the time
of delivery of this prospectus or of
any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Forward Looking Statements............................................... 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 33
Management............................................................... 51
Related Party Transactions............................................... 61
Principal Stockholders................................................... 63
Description of Capital Stock............................................. 65
Shares Eligible For Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 74
Experts.................................................................. 74
Where You Can Find Additional Information................................ 74
Reports to Stockholders.................................................. 74
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Until , 2000 (25 days after the
date of this prospectus), all
dealers that buy, sell or trade in
these securities, whether or not
participating in this offering, may
be required to deliver a prospectus.
Dealers are also obligated to
deliver a prospectus when acting as
underwriters and with respect to
their unsold allotments or
subscriptions.
[OPEN PORT TECHNOLOGY LOGO]
4,000,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Robertson Stephens
Dain Rauscher Wessels
Prospectus
, 2000
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with this
offering described in this registration statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 21,252
NASD Examination Fee............................................... 8,550
Nasdaq National Market Listing Fee................................. *
Accounting Fees and Expenses....................................... *
Printing and Engraving Expenses.................................... *
Legal Fees and Expenses............................................ *
Blue Sky Fees and Expenses......................................... *
Miscellaneous...................................................... *
--------
Total............................................................ $750,000
========
</TABLE>
- --------
* To be completed by amendment.
The foregoing items, except for the Securities and Exchange Commission and
NASD fees, are estimated. All expenses will be borne by Open Port.
Item 14. Indemnification of Directors and Officers
As permitted by Section 102 of the Delaware General Corporation Law, the
Certificate of Incorporation of Open Port (filed as Exhibit 3.1 to this
registration statement) eliminates its directors' personal liability to Open
Port or its stockholders for monetary damages for a breach of fiduciary duty as
a director of Open Port, except:
. for any breach of the director's duty of loyalty to Open Port or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for payment of dividends or stock purchases or redemptions by the
corporation in violation of Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
As a result of this provision, Open Port and its stockholders may be unable
to obtain monetary damages from a director for certain breaches of his or her
fiduciary duty to Open Port. This provision does not, however, eliminate the
directors' fiduciary responsibilities and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. The provision also does not affect a
director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
The by-laws of Open Port (filed as Exhibit 3.2 to this registration
statement) provide that Open Port must indemnify its directors and officers to
the fullest extent permitted by the Delaware General Corporation Law and that
it may indemnify its employees and agents in accordance with Delaware law as
determined by Open Port's board of directors in its sole discretion. Under
Section 145 of the Delaware General Corporation Law, a Delaware corporation has
the power to indemnify any person who was or is a party or is threatened to
II-1
<PAGE>
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the person is or was a director, officer, employee or agent of
the corporation. The corporation may indemnify such a person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with the action,
suit or proceeding if the person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful, except that, in
the case of an action by or in the right of the corporation, judicial approval
is required for indemnification in respect of any claim, issue or matter as to
which the person was adjudged to be liable to the corporation. To the extent
that a present or former director or officer of a corporation is successful on
the merits or otherwise in the defense of any such action, suit or proceeding,
the corporation must indemnify him or her against the expenses (including
attorney's fees) he or she actually and reasonably incurred. Under Delaware
law, the expenses of an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by a
Delaware corporation in advance of the final disposition of the action, suit or
proceeding after delivery to the corporation of an undertaking by or on behalf
of the director or officer to repay such amounts if it is ultimately determined
that the director or officer is not entitled to be indemnified. Expenses
incurred by former directors and officers or other employees and agents may be
so paid on such terms and conditions, if any, as the corporation deems
appropriate.
The form of Underwriting Agreement (to be filed as Exhibit 1.1 to this
registration statement) provides for indemnification by the underwriters of
Open Port and its officers and directors for certain liabilities arising under
the Securities Act of 1933, as amended, or otherwise.
The indemnification provision in Open Port's Certificate of Incorporation,
by-laws and the Underwriting Agreement may be sufficiently broad to permit
indemnification of Open Port's directors and executive officers for liabilities
arising under the Securities Act of 1933, as amended.
Open Port maintains directors' and officers' liability insurance policies
covering certain liabilities of persons serving as officers and directors and
providing reimbursement to Open Port for its indemnification of such persons.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement, we
issued the following securities (adjusted to give effect to a one-for-3.75
reverse stock split) that were not registered under the Securities Act:
In January 1998, we issued a warrant for the purchase of 75,000 shares of
Series C convertible participating preferred stock at a price of $2.025 per
share to Silicon Valley Bank. Exemption from registration is claimed pursuant
to Section 4(2) of the Securities Act and Regulation D promulgated thereunder,
no public sale having been involved.
In June 1998, we issued an aggregate of 3,469,136 shares of Series C
convertible participating preferred stock with a per share purchase price of
$2.025 to four accredited investors. In addition, from June 1998 through May
1999, we issued to CID Mezzanine Capital, L.P. warrants to purchase up to
370,310 shares of Series C convertible participating preferred stock with a per
share exercise price of $0.01. Exemption from registration is claimed pursuant
to Section 4(2) of the Securities Act and Regulation D promulgated thereunder,
no public sale having been involved.
II-2
<PAGE>
In June 1998, we issued a warrant for the purchase of 19,753 shares of
Series C convertible participating preferred stock at a price of $2.025 per
share to Third Coast Venture Lease Partners I, L.P. Exemption from registration
is claimed pursuant to Section 4(2) of the Securities Act and Regulation D
promulgated thereunder, no public sale having been involved.
In June 1998, we entered into a note and warrant purchase agreement with CID
Mezzanine Capital, L.P., which was subsequently amended, under which we
authorized the issuance of up to an aggregate of $5.0 million in principal
amount of our 11% subordinated notes to CID Mezzanine Capital, L.P. As of
September 30, 1999, we had issued all $5.0 million in subordinated notes under
this facility. Exemption from registration is claimed pursuant to Section 4(2)
of the Securities Act and Regulation D promulgated thereunder, no public sale
having been involved.
In April 1999, we issued an aggregate of 935,454 shares of Series D
convertible preferred stock with a per share purchase price of $3.207 to 11
accredited investors, four of whom owned 5% or more of our common stock on a
fully diluted basis, excluding outstanding options and warrants. See "Related
Party Transactions--Series D Preferred Stock." Exemption from registration is
claimed pursuant to Section 4(2) of the Securities Act and Regulation D
promulgated thereunder, no public sale having been involved.
In September 1999, we authorized the issuance of subordinated convertible
promissory notes in the original aggregate principal amount of up to $3.0
million. We issued $3.0 million aggregate principal amount of these notes in
three installments in September 1999, October 1999 and November 1999 to various
accredited investors, including Battery Ventures III, L.P. and New Enterprise
Associates VII, Limited Partnership. All of the notes issued were converted to
Series E convertible participating preferred stock in January 2000. Exemption
from registration is claimed pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder, no public sale having been involved.
Pursuant to our October 1999 engagement letter, we issued a warrant for the
purchase of 939,441 shares of common stock at a price of $1.61 per share to
Deutsche Bank Securities Inc. Exemption from registration is claimed pursuant
to Section 4(2) of the Securities Act and Regulation D promulgated thereunder,
no public sale having been involved.
In January 2000, we issued an aggregate of 17,436,746 shares of Series E
convertible participating preferred, 15,527,950 shares of which were sold at a
cash purchase price of $1.61 per share to 26 accredited investors and 1,908,796
shares of which were issued to 10 accredited investors pursuant to the
conversion, at a price of $1.61 per share, of principal and interest of our
subordinated convertible promissory notes issued in September 1999 (see
description above). Of the 36 purchasers of Series E preferred stock, 12 own 5%
or more of our common stock on a fully diluted basis, excluding outstanding
options and warrants. See "Related Party Transactions--Series E Preferred
Stock." Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder, no public sale having
been involved.
In the three years preceding April 30, 2000, we have granted options to
purchase an aggregate of 2,575,479 common shares and have issued an aggregate
of 252,291 common shares to current and former employees upon exercise of
options for an aggregate exercise price of $1.19. Exemption from registration
is claimed pursuant to Rule 701, no public sale having been involved.
Upon the closing of this offering, Open Port Technology, Inc., an Illinois
corporation, will merge with and into its wholly owned subsidiary, Open Port
Technology, Inc., a Delaware
II-3
<PAGE>
corporation. In connection with the merger, Open Port Technology, Inc. --
Delaware will issue shares of common stock to the holders of common stock of
Open Port Technology, Inc.--Illinois, in exchange for such holders' shares of
Open Port common stock. Exemption from registration is claimed pursuant to
Section 3(a)(9) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Form of Agreement and Plan of Merger between the registrant and Open
Port Technology, Inc., an Illinois corporation(1)
3.1 Form of Certificate of Incorporation of Open Port(1)
3.2 Form of By-Laws of Open Port(1)
4.1* Specimen certificate representing Open Port's common stock
4.2 Form of Warrant between Open Port and Comdisco, Inc.(1)
4.3 Form of Warrant between Open Port and CID Mezzanine Capital, L.P.(1)
4.4 Form of Warrant between Open Port and Silicon Valley Bank(1)
4.5 Form of Warrant between Open Port and Third Coast Venture Lease
Partners I, L.P.(1)
4.6 Form of Warrant between Open Port and Deutsche Bank Securities Inc.(1)
4.7 Second Amended and Restated Voting and Co-Sale Agreement
5.1* Opinion of Sonnenschein Nath & Rosenthal
10.1+ 1995 Incentive Stock Option Plan, as amended
10.2+ 1995 Non-Employee Stock Option Plan, as amended(1)
10.3+ 2000 Equity Incentive Plan
10.4+ 2000 Outside Directors Stock Option Plan
10.5+ 2000 Employee Stock Purchase Plan
10.6+* Employment Agreement between Open Port and Randy S. Storch
10.7+* Employment Agreement between Open Port and Cheryl Mayberry
10.8+* Employment Agreement between Open Port and Omprasad S. Nandyal
10.9+* Employment Agreement between Open Port and Michael B. Clauer
10.10 Amended and Restated Registration Rights Agreement among Open Port and
the investors specified therein
10.11 Lease between Open Port and Teachers Insurance and Annuity Association
of America(1)
10.12 First Amendment to Lease betwen Open Port and Teachers Insurance and
Annuity Association of America(1)
10.13 Master Lease Agreement between Open Port and Third Coast Venture Lease
Partners I, L.P.(1)
10.14 Form of Software License Agreement(1)
10.15 Note and Warrant Purchase Agreement between Open Port and CID
Mezzanine Capital, L.P.
10.16+* Employment Agreement between Open Port and Clarissa Cerda
21.1 Subsidiaries of Open Port(1)
23.1 Consent of PricewaterhouseCoopers LLP
23.2* Consent of Sonnenschein Nath & Rosenthal (to be included in Exhibit
5.1)
24.1 Powers of Attorney(1)
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Previously filed on April 5, 2000 as part of this Registration Statement.
* To be filed by amendment
+ Indicates compensatory plan or arrangement.
II-4
<PAGE>
(b) Financial Statement Schedules
No schedules have been included for the reason that they are not required or
are not applicable, or the required information is shown in the financial
statements or notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act,
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) 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 Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act 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.
(3) It will 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be filed on its
behalf by the undersigned, thereunto duly authorized in Chicago, Illinois on
May 19, 2000.
Open Port Technology, Inc.
/s/ Randy S. Storch
By: _________________________________
Randy S. Storch,
Chairman of the Board,
President and Chief Executive
Officer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the 19th day of May, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Randy S. Storch Chairman of the Board, President and Chief
___________________________________________ Executive Officer (principal executive
Randy S. Storch officer)
/s/ Michael B. Clauer Vice President and Chief Financial Officer
___________________________________________ (principal accounting and financial
Michael B. Clauer officer)
* Chief Technical Officer, Secretary and
___________________________________________ Director
Omprasad S. Nandyal
* Director
___________________________________________
Peter J. Barris
* Director
___________________________________________
Thomas J. Crotty
* Director
___________________________________________
Royce J. Holland
* Director
___________________________________________
Donald R. Hollis
* Director
___________________________________________
John E. Major
* Director
___________________________________________
</TABLE> Joseph Piscopo
/s/ Randy S. Storch
*By: ___________________________
(Randy S. Storch, as attorney-in-
fact)
II-6
<PAGE>
EXHIBIT 4.7
OPEN PORT TECHNOLOGY, INC.
SECOND AMENDED AND RESTATED
VOTING AND CO-SALE AGREEMENT
January 27, 2000
<PAGE>
SECOND AMENDED AND RESTATED
VOTING AND CO-SALE AGREEMENT
This Second Amended and Restated Voting and Co-Sale Agreement (this
"Agreement") is made and entered into as of the 27th day of January, 2000, by
and among Open Port Technology, Inc., an Illinois corporation (the "Company");
the persons and entities identified on Schedule 1 hereto which includes the
original preferred shareholders party to the First Amended and Restated Voting
and Co-Sale Agreement defined below (the "Original Preferred Shareholders") and
certain new preferred shareholders (the "New Preferred Shareholders," and
collectively with the Original Preferred Shareholders, the "Preferred
Shareholders") and certain persons identified on Schedule 2 hereto and who have
executed this Agreement (the persons identified on Schedule 2 and any other
person who hereafter becomes a holder of shares of Common Stock (as defined
below) and becomes a party to this Agreement are hereinafter referred to
individually as a "Shareholder" and collectively as the "Shareholders"). For
purposes of this Agreement, the "Preferred Shareholders" are not "Shareholders"
and shall not be deemed to be "Shareholders" solely by reason of the conversion
of their Preferred Stock into Common Stock.
RECITALS
A. The authorized capital stock of the Company consists of 71,000,000
shares of common stock, par value $.001 per share (the "Common Stock"),
1,228,917 shares of Series A Convertible Participating Preferred Stock, par
value $.001 per share (the "Series A Preferred Stock"), 13,526,786 shares of
Series B Convertible Participating Preferred Stock, par value $.001 per share
(the "Series B Preferred Stock"), 3,934,199 shares of Series C Convertible
Participating Preferred Stock, par value $.001 per share (the "Series C
Preferred Stock"), 935,454 shares of Series D Convertible Preferred Stock, par
value $.001 per share (the "Series D Preferred Stock") and 17,662,889 shares of
Series E Convertible Participating Preferred Stock, par value $.001 per share
(the "Series E Preferred Stock" and collectively with the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series
D Preferred Stock, the "Preferred Stock").
B. The beneficial and record owners of the issued and outstanding Common
Stock of the Company are as listed on Schedule 2. The Preferred Shareholders and
those persons listed on Schedule 2 are the holders of all the issued and
outstanding shares of capital stock of the Company indicated on those schedules.
C. The Company and the Original Preferred Shareholders are parties to that
certain Amended and Restated Voting and Co-Sale Agreement, dated as of June 15,
1998 (the "Existing Amended and Restated Voting and Co-Sale Agreement"), entered
into in connection with that certain Investment Agreement by and between the
Company and the Preferred Shareholders party thereto dated as of June 15, 1998
as amended (the "Series C Investment Agreement").
2
<PAGE>
D. Pursuant to the terms of an investment agreement (the "Series D
Investment Agreement"), dated as of April 29, 1999, among the Company, the
holders of the Series D Stock, the Series C Stock, the Series B Stock, and the
Series A Stock, the Company sold shares of Series D Preferred Stock.
E. The New Preferred Shareholders have agreed to purchase shares of Series
E Preferred Stock pursuant to that certain Investment Agreement dated as of even
date herewith (the "Series E Investment Agreement") provided that the Company,
the Preferred Shareholders and the Shareholders enter into this Agreement.
F. The Company, the Preferred Shareholders, and the Shareholders deem it
desirable to (i) enter into this Agreement in order to induce the New Preferred
Shareholders to purchase shares of Series E Preferred Stock pursuant to the
Series E Investment Agreement and (ii) to amend and restate (and supersede and
replace) the Amended and Restated Voting and Co-Sale Agreement.
G. The Company, in connection with certain financing arrangements has
issued warrants to acquire shares of Series C Preferred Stock to Third Coast
Venture Lease Partners I, L.P. ("Third Coast"), CID Mezzanine Capital, L.P.
("CIDMC") and Silicon Valley Bank (such warrants being collectively referred to
as the "Existing Warrants") and the Company may in the future enter into
additional financing arrangements pursuant to which the Company will issue
"Additional Warrants" (as that term is defined in Section 3.4 of the Series E
Investment Agreement); upon exercise of such Existing Warrants or such
Additional Warrants by the holder or holders thereof, such holder or holders
shall be deemed a "New Preferred Shareholder" for all purposes hereof and
Schedule 1 shall be amended to include such holder or holders designated as such
without any action of the Company or the other Preferred Shareholders.
TERMS AND CONDITIONS
In consideration of the mutual covenants, agreements, representations and
warranties contained in this Agreement and intending to be legally bound, the
parties agree to amend and restate (and supersede and replace) the Amended and
Restated Voting and Co-Sale Agreement as follows:
Section 1. Voting of Shares. CID shall nominate a director of the Company
to be elected by the holders of the Series A Preferred Stock pursuant to the
Company's Articles of Incorporation as amended and restated on or about the date
hereof (the "Restated Articles"), voting separately as a series (the "Series A
Director"), and, if the Series A Director ceases to serve as a director of the
Company for any reason, CID shall nominate a successor to such Series A Director
to be elected by the holders of the Series A Preferred Stock, voting separately
as a series. Each of Frontenac VI Limited Partnership ("Frontenac VI") and New
Enterprise Associates VII, Limited Partnership ("NEA VII") shall nominate one of
the two directors of the Company to be elected by the holders of the Series B
Preferred Stock pursuant to the Restated Articles, voting separately as a series
(each a "Series B Director"), and if a Series B Director
3
<PAGE>
ceases to serve as a director of the Company for any reason, the entity that
nominated such Series B Director shall nominate a successor to such Series B
Director to be elected by the holders of the Series B Preferred Stock, voting
separately as a series. The holders of Series E Preferred Stock shall nominate a
director of the Company to be elected by the holders of the Series E Preferred
Stock pursuant to the Restated Articles, voting separately as a series, provided
that such director is reasonably approved by a majority of the directors elected
pursuant to subsections 1(f), 1(g) and 1(i) below and is not affiliated with any
Series E Investor (the "Series E Director"), and, if the Series E Director
ceases to serve as a director of the Company for any reason, the holders of
Series E Preferred Stock shall nominate a successor to such Series E Director to
be elected by the holders of the Series E Preferred Stock, voting separately as
a series, provided that such director is reasonably approved by a majority of
the directors elected pursuant to subsections 1(f), 1(g) and 1(i) below and is
not affiliated with any Series E Investor. The holders of the Common Stock shall
designate by vote of a majority of the shares of Common Stock, voting separately
as a class, one nominee for director of the Company to be elected by the holders
of the Preferred Stock and Common Stock voting together as a single class, and
if such nominee ceases to serve as a director of the Company for any reason, the
holders of the Common Stock shall designate by vote of a majority of the shares
of Common Stock, voting separately as a class, a successor to such nominee to be
elected by the holders of the Preferred Stock and Common Stock voting together
as a single class. The Series A Director, the Series B Directors, the Series E
Director and the members of the Board of Directors designated pursuant to
subsections (f), (g) and (h) below shall designate by majority vote additional
nominees for directors of the Company to be elected by the holders of the
Preferred Stock and Common Stock voting together as a single class, and if any
such nominee ceases to serve as a director of the Company for any reason, such
directors shall designate by majority vote a successor to such nominee to be
elected by the holders of the Preferred Stock and Common Stock voting together
as a single class. Each of the Preferred Shareholders and the Shareholders
agrees that he, she or it shall vote any shares of Common Stock, Preferred Stock
and any other voting security he, she or it may now own or hereafter acquire
that may be entitled to vote on each of the following matters at any regular,
special, or adjourned meeting of shareholders of the Company at which the
matters specified herein shall be presented to the holders of Common Stock
and/or other voting securities, for a vote, as follows:
(a) in favor of the election of the Series A Director, or, if CID's
nominee is unable or unwilling to serve in that capacity, any other person
that CID designates, as permitted by ARTICLE FOURTH of the Restated
Articles;
(b) in favor of the election of the Series B Directors, or if either
or both of Frontenac VI's and NEA VII's nominees is unable or unwilling to
serve in that capacity, any other person that Frontenac VI or NEA VII, as
the case may be, designates, as permitted by ARTICLE FOURTH of the Restated
Articles;
(c) in favor of the election of the Series E Director, or, if such
nominee is unable or unwilling to serve in that capacity, any other person
that the holders of the Series E Preferred Stock designate, as permitted by
this Section 1;
4
<PAGE>
(d) in favor of all actions required by the Series E Investment
Agreement, unless the holders of Preferred Stock representing at least that
number of the shares of Common Stock into which all outstanding shares of
Preferred Stock are then convertible required to give consent in accordance
with the provisions of the Series E Investment Agreement;
(e) against all actions that would constitute a violation or breach of
the Series E Investment Agreement, unless the holders of Preferred Stock
representing at least that number of the shares of Common Stock into which
all outstanding shares of Preferred Stock are then convertible required to
give consent in the Series E Investment Agreement, consent to the action in
accordance with the provisions of the Series E Investment Agreement;
(f) in favor of the election of Randy S. Storch ("Storch") as a
director of the Company or, if he is unable or unwilling to serve in that
capacity or ceases to be an employee of the Company, such other person that
is designated by Storch (as long as he remains a Shareholder) or, in the
event that Storch is unable or unwilling to act in that regard or ceases to
be a Shareholder, by Omprasad Nandyal ("Nandyal") or, in the event that
Nandyal is unable or unwilling to act in that regard or ceases to be a
Shareholder, by a majority of the shares of Common Stock (excluding the
Preferred Stock, except to the extent converted);
(g) in favor of the election of Nandyal as a director of the Company
or, if he is unable or unwilling to serve in that capacity or ceases to be
an employee of the Company, such other person that is designated by Storch
(as long as he remains a Shareholder) or, in the event that Storch is
unable or unwilling to act in that regard, by Nandyal or, in the event that
Nandyal is unable or unwilling to act in that regard or ceases to be a
Shareholder, by a majority of the shares of Common Stock (excluding the
Preferred Stock, except to the extent converted);
(h) in favor of the election of Tom Crotty ("Crotty") as a director of
the Company or, if he is unable or unwilling to serve in that capacity,
such other person that is designated pursuant to subsection (j) below
(excluding any director elected pursuant to this subsection (h));
(i) in favor of the election to the Board of Directors of the nominee
designated by a majority of the shares of Common Stock (excluding the
Preferred Stock, except to the extent converted);
(j) in favor of the election to the Board of Directors of the nominees
of the majority of the Series A Director, the Series B Directors, the
Series E Director, and the members of the Board of Directors of the Company
designated pursuant to subsections (f), (g), (h) and (i) above; and
(k) to fill any vacancy occurring in the Board of Directors of the
Company in such order so as to fill any vacancy designated to be filled by
a person nominated under
5
<PAGE>
the immediately preceding subsections (a), (b), (c), (f), (g), (h) and (i),
before filling any other vacancies.
Section 2. Board of Directors.
(a) Until the provisions of Section 2(b) below become effective,
except as provided in the Restated Articles, the Board of Directors shall
consist of not less than seven and not more than ten members.
(b) The Series A Director, one of the Series B Directors, and one of
the directors elected pursuant to either Section 1(i) or Section 1(j) above
shall be appointed to every committee of the Board of Directors, whether
now existing or hereinafter created, except that the composition of the
Compensation Committee and the Audit Committee shall be subject to the
provisions of Section 3.7 and Section 3.8, respectively, of the Series E
Investment Agreement, which provisions shall control in the event of a
conflict with this Section 2. The Company shall indemnify each member of
the Board of Directors to the fullest extent permitted by applicable law.
(c) Immediately prior to the effective date of the first offering of
Common Stock to the public by the Company registered pursuant to the
Securities Act of 1933, as amended, the Preferred Shareholders and the
Shareholders shall take such actions as necessary to reduce the Board of
Directors to seven members. Concurrently with such reduction, such
shareholders or the appropriate shareholders, as the case may be, shall
take such actions as necessary to (i) cause the resignations of the
director nominated by CID Equity Capital III, L.P. and the director
nominated by Frontenac VI Limited Partnership, (ii) cause the resignation
of one of the directors elected pursuant to Section 1(j) of this Agreement,
(iii) amend the Restated Articles as necessary to reflect the revised board
structure described in this subsection, and (iv) amend Section 1 of this
Agreement to provide as is set forth on Exhibit A attached hereto and
delete Section 2(b).
Section 3. Restriction on Transfer. Each of the Shareholders agrees that,
during the term of this Agreement, all of the shares of Common Stock and all
other securities (including warrants, rights, and options) of the Company
convertible into or exchangeable for Common Stock, that they now or hereafter
own or hold (the Common Stock and other securities so owned or held by the
Shareholders are hereinafter collectively referred to as the "Shareholders'
Securities") shall be subject to the terms and conditions of this Agreement. No
sale or transfer (as defined in Section 20 of this Agreement) of any
Shareholders' Securities shall be valid (and the Company shall not take any
action to implement, acknowledge or record any transfer of Shareholders'
Securities) unless the Company and the Shareholder holding the Shareholders'
Securities have complied with the terms and conditions of this Agreement prior
to the sale or transfer. The Company and each of the Shareholders severally
represent and warrant that the total number of shares of Common Stock or other
Shareholders' Securities presently owned or held by the Shareholders is as set
forth on Schedule 2, and each of the Shareholders severally represents and
warrants that he or she holds the equity securities listed on Schedule 2 free
and
6
<PAGE>
clear of all liens, encumbrances, equitable rights of third parties, or claims
except as provided in this Agreement, the Series A Investment Agreement, the
Series B Investment Agreement, the Series C Investment Agreement, the Series D
Investment Agreement, the Series E Investment Agreement and the Restated
Articles and that he or she has not transferred, pledged, hypothecated, sold, or
agreed to transfer, pledge, hypothecate, or sell his or her holdings of equity
securities of the Company. Notwithstanding any provisions hereof to the
contrary, no Shareholder shall pledge or hypothecate any Shareholders'
Securities.
Section 4. Legends. All certificates representing the Common Stock,
Preferred Stock and other securities so owned or held by any Preferred
Shareholder (hereinafter referred to as "Preferred Securities") and
Shareholders' Securities now or hereafter owned by the Preferred Shareholders
and the Shareholders shall contain the following conspicuously placed legend (or
a substantially similar legend referring to this Agreement or any prior executed
version), as modified to reflect the security holder and the type of security
issued or held: The [shares] [warrants] [rights] [options] represented by this
[certificate] [instrument] are subject to and may be transferred only in
compliance with a Second Amended and Restated Voting and Co-Sale Agreement,
dated as of [the date of this Agreement] (as the same may be amended from time
to time, the "Agreement"), by and among the holder of this [certificate]
[instrument], the Company, and certain shareholders of the Company. The Company
will mail to the shareholder a copy of the Agreement without charge within five
days after receipt of a written request therefor.
Section 5. Conditions to Transfer by the Shareholders.
(a) Prior to a transfer of Shareholders' Securities by any Shareholder
who holds 2% or more of the Common Stock (assuming exercise or conversion
of all outstanding options, warrants, and convertible securities), the
transferring Shareholder shall first notify (i) the Preferred Shareholders
and (ii) the Founders (as hereinafter defined); provided, however, that if
any such Founder is not employed by the Company on the date of the notice,
such Founder is also not employed by any other entity that competes with
the Company (collectively, the "First Offerees") in writing at least 30
days in advance of the intended transfer. The notice shall contain all of
the terms of the transfer, including, without limitation, the name and
address of the prospective transferee, the purchase price and other terms
and conditions of payment (or the minimum purchase price or basis for
determining the minimum purchase price and minimum acceptable other terms
and conditions), the date on or about which the transfer is to be made, the
number of shares of Common Stock or other securities of the Company to be
transferred, and the percentage of the Shareholder's total holdings of
Shareholders' Securities that those shares or other securities represent
(the "Shareholder's Sales Notice") and a copy of the agreement whereby the
shares are to be transferred.
(b) Within ten business days after receipt of the Shareholder's Sales
Notice, any Preferred Shareholder may notify the Shareholders (the
"Preferred Notice") that such Preferred Shareholder will either (i)
purchase its pro rata share (as provided in subsection (d) below) of the
Shareholders' Securities on the terms and conditions set forth in the
Shareholders' Sales Notice, or (ii) transfer to either the buyer named in
the Shareholder's Sales Notice or to the Shareholder, Preferred Securities
in an amount equal to its pro rata
7
<PAGE>
share of the Shareholders' Securities (as provided in subsection (d) below) on
the same terms as set forth in the Shareholder's Sales Notice. The Preferred
Shareholders' right to transfer under subsection (b)(ii) hereof shall only apply
with respect to a transfer by a Shareholder who holds 2% or more of the Common
Stock (assuming exercise or conversion of all outstanding options, warrants, and
convertible securities).
(c) Within ten business days after receipt of the Shareholder's Sales
Notice, any other First Offeree may notify the Shareholders (the "Other First
Offeree Notice") that he, she or it will purchase his, her or its pro rata share
(as provided in subsection (e) below) of the Shareholders' Securities on the
terms and conditions set forth in the Shareholder's Sales Notice.
(d) With respect to any Shareholder's Sales Notice the Preferred
Shareholders receive under this Section 5, the maximum number of shares of
Shareholders' Securities that any Preferred Shareholder shall be entitled to
purchase or the maximum number of Preferred Securities that any Preferred
Shareholder shall be entitled to transfer or sell under subsection (b) shall be
equal to the total number of shares of Shareholders' Securities that the
Shareholder has agreed to sell or transfer, multiplied by the percentage that
such Preferred Shareholder's holdings of Common Stock (assuming conversion at
the then applicable conversion rate or rates of Preferred Stock, other
convertible securities, warrants, rights, or options held by such Preferred
Shareholder) bears to the total number of shares of Common Stock (assuming
conversion at the then applicable conversion rate or rates of Preferred Stock,
other convertible securities, warrants, rights, or options held by all holders
thereof) held by all of the First Offerees other than the transferring
Shareholder; provided, however, that if the other First Offerees do not purchase
the aggregate maximum number of shares purchasable by them under subsection (e)
below, the Preferred Shareholders shall have the right, on a pro rata basis, to
purchase any of the shares not purchased by the other First Offerees on the
terms and conditions set forth in the Shareholder's Sales Notice.
(e) With respect to any Shareholder's Sales Notice the First Offerees
other than the Preferred Shareholders receive under this Section 5, the only
number of shares of Shareholders' Securities that each of the other First
Offerees shall be entitled to purchase, except as otherwise agreed by the other
First Offerees, shall be equal to the total number of shares of Shareholders'
Securities that the Shareholder has agreed to sell or transfer, multiplied by
the percentage that the First Offeree's holdings of Common Stock bears to the
total number of shares of Common Stock (assuming conversion at the then
applicable conversion rate or rates of Preferred Stock, other convertible
securities, warrants, rights or options) then held by all of the First Offerees
other than the transferring Shareholder.
(f) Notwithstanding the foregoing provisions of this Section 5, prior to a
transfer of Shareholders' Securities by Antonio Dutra, Gordon K. Kapes, Omprasad
S. Nandyal, Randy S. Storch, or Martin T. Wegner (each a "Founder" and
collectively the "Founders") to anyone other than another Founder, the following
provisions shall apply:
8
<PAGE>
(i) The transferring Founder shall provide the notice required by
subsection (a) above, such notice being referred to in this subsection
(f) as the "Founder's Sales Notice;"
(ii) Within ten business days after receipt of the Founder's Sales
Notice, any other Founder (provided, however, that if any such Founder
is not employed by the Company on the date of the notice, such Founder
is also not employed by any other entity that competes with the
Company) may notify the Founders that he will purchase his or her pro
rata share of the Shareholders' Securities on the terms and conditions
set forth in the Founder's Sales Notice. A Founder's "pro rata share"
shall be equal to the total number of shares of Shareholders'
Securities that the Founder has agreed to sell or transfer, multiplied
by the percentage that the Founder's holdings of Common Stock bears to
the total number of shares of Common Stock (assuming conversion at the
then applicable conversion rate or rates of convertible securities,
warrants, rights or options) then held by the Founders other than the
transferring Founder, unless otherwise agreed to by the Founders.
(iii) If the other Founders of the Company do not purchase all of the
securities identified as to be transferred in the Founder's Sales
Notice, then the transferring Founder shall so notify the Preferred
Shareholders, and the Preferred Shareholders shall then have the
rights set forth in subsection (b) of this Section 5.
(g) If a Preferred Shareholder exercises its rights under subsection
(b)(ii) of this Section 5, the Shareholder shall either assign that portion of
his or her interest in the agreement of transfer as such Preferred Shareholder
is then entitled to and requests in the Preferred Notice (the assignment shall
be in form and substance reasonably satisfactory to the Preferred Shareholder),
or, at the Preferred Shareholder's option and demand, the Shareholder shall
acquire, under the same terms and conditions as set forth in the Shareholder's
Sales Notice, all or any part of the Preferred Securities that such Preferred
Shareholder would have been authorized to transfer under the provisions of this
Section 5; provided, however, that the Shareholder shall not be required to
purchase any Preferred Securities from such Preferred Shareholder if the
proposed sale or transfer with the prospective transferee fails to be
consummated.
(h) After compliance with the provisions of this Section 5, the
Shareholder may transfer his or her Shareholders' Securities, but only to the
transferee designated in the Shareholder's Sales Notice, within ninety (90) days
after the expiration of other shareholders' rights to buy, at the price, and on
the same terms and conditions as those contained in the Shareholder's Sales
Notice. The Preferred Notice or the Other First Offeree Notice pursuant to this
Section 5, when taken together with the Shareholder's Sales Notice shall
constitute a legal, valid, binding, and enforceable agreement between the
Shareholder and such First Offeree on the terms and conditions set forth
therein.
(i) The transferring Shareholder shall have the right to withdraw the
Shareholder's Sales Notice or the Founder's Sales Notice, as applicable, at any
time prior
9
<PAGE>
to the execution of a definitive agreement for the purchase and sale of the
Shareholder's Securities, and upon such withdrawal the transferring
Shareholder shall have no obligation to transfer the Shareholder's
Securities.
Section 6. Right of First Refusal -- New Securities. Each Preferred
Shareholder shall have the first right to purchase any authorized but unissued
or treasury stock of the Company, notes or other evidences of indebtedness of
the Company (except evidences of indebtedness issued to commercial lenders in
connection with any term loan, revolving loan, line of credit, or letter of
credit), or any other securities of the Company, including but not limited to
options, warrants, or other convertible securities other than the issuance of
options (or stock upon exercise of options) issued to employees of the Company
pursuant to the Stock Option Plan (as defined in the Series E Investment
Agreement) and other than securities of the Company being issued in a registered
primary offering pursuant to the Securities Act of 1933, as amended (the "New
Securities"), at a price and on such other terms and conditions that are no less
favorable to such Preferred Shareholder than those upon which the New Securities
shall be offered, sold, or issued to any other individual, corporation,
partnership, or other entity. Such Preferred Shareholder may exercise this right
of first offer at any time within ten business days after it receives written
notice from the Company of the contemplated offer, sale, or issuance of the New
Securities, and such Preferred Shareholder may exercise this right of first
offer to purchase the number of New Securities equal to the product obtained by
multiplying the total number of New Securities the Company is offering by a
fraction, the numerator of which shall be the number of shares of Common Stock,
on a fully diluted basis, owned by such Preferred Shareholder immediately prior
to the sale of such securities (assuming conversion in full of the Preferred
Stock) and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately prior to the sale of such securities
(assuming conversion in full of the Preferred Stock). Notwithstanding the
foregoing, the rights of each Preferred Shareholder pursuant to this Section 6
shall terminate upon the consummation by the Company of a Qualified Public
Offering (as defined in the Restated Articles).
Section 7. Obligations of the Company. The Company agrees that it shall
not issue or transfer on its records any Common Stock or other securities
convertible into or exchangeable for Common Stock held by any of the
Shareholders to any person, corporation, partnership, or other entity unless the
Company has verified that the transferring Shareholder has complied with his or
her obligations under this Agreement.
Section 8. Restrictions on Transfers to Five Percent Shareholders. The
Company and Shareholders agree that they shall not issue or transfer any Common
Stock or any other securities convertible or exchangeable for Common Stock to
any person who is not a party to this Agreement if as a result of such issuance
or transfer, such person would become (assuming the conversion and exercise of
any securities held by such person that are convertible into or exercisable for
Common Stock) the beneficial owners of 5% or more of the then outstanding Common
Stock, unless such person agrees to be bound by the terms of this Agreement.
Section 9. Term. This Agreement shall commence on the date first written
above and shall terminate on the earlier of (i) the date on which the Preferred
Shareholders together cease to own in the aggregate at least 5% of the issued
and outstanding shares of Common Stock of the
10
<PAGE>
Company (assuming conversion at the then applicable conversion rate or rates of
Preferred Stock, other convertible securities, warrants, rights, or options held
by such Preferred Shareholder) on a fully-diluted basis, and (ii) the
consummation by the Company of a Qualified Public Offering (as defined in the
Restated Articles).
Section 10. Restrictions on Public Sale by Shareholders. Each Shareholder
agrees not to make any public sale or distribution of equity securities of the
Company (except as part of the underwritten registration or pursuant to
registration on Form S-8 or any successor form), including a sale pursuant to
Rule 144, during the seven days prior to and the 180 days after the effective
date of a registration statement of the Company filed under the Securities Act
of 1933, as amended, unless the managing underwriters agree otherwise. In order
to enforce this Section 10, the Company may impose stop-transfer instructions
with respect to the securities of each Shareholder until the end of such period.
Section 11. Intentionally Deleted.
---------------------
Section 12. Event of Non-Compliance; Remedies. For the purposes of this
Agreement, "Event of Non-Compliance" means the breach in any material respect of
any term or condition of this Agreement by the Company or any Shareholder;
provided, however, that the failure of the Company to recertificate any
Preferred Securities or Shareholder Securities within 30 days of the date of
this Agreement pursuant to Section 4 hereof shall not constitute an Event of
Non-Compliance. If there is an Event of Non-Compliance under this Agreement, the
Preferred Shareholders shall have and may exercise those remedies available
under applicable laws and as provided in the Restated Articles.
Section 13. Amendment. This Agreement may be amended or modified only by a
written agreement executed by the Company, the Preferred Shareholders and the
holders of at least 70% of the then issued and outstanding Common Stock owned by
the Shareholders.
Section 14. Attorneys' Fees. In any legal action or proceeding brought to
enforce any provision of this Agreement, the prevailing party shall be entitled
to recover all reasonable expenses, charges, court costs, and attorneys' fees in
addition to any other available remedy at law or in equity.
Section 15. Benefit of Parties; Assignability. All of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective personal representatives, heirs,
successors and assigns, including without limitation all subsequent holders of
securities who become bound by the terms of this Agreement; provided, however,
that neither the Company nor any Shareholder may delegate its responsibilities
or assign or transfer its rights or obligations under this Agreement without the
prior written consent of each of the Preferred Shareholders.
Section 16. Construction. Any reference to the masculine gender shall be
deemed to include the feminine and neuter genders unless the context otherwise
requires.
11
<PAGE>
Section 17. Cooperation. The parties agree that after execution of this
Agreement they will from time to time, upon the request of any other party and
without further consideration, execute, acknowledge, and deliver in proper form
any further instruments and take such other action as any other party may
reasonably require to carry out effectively the intent of this Agreement.
Section 18. Cumulative Remedies and Survival. The rights and remedies
specified in this Agreement shall not be exclusive of any other right or remedy
and shall be cumulative and in addition to every other right or remedy now or
hereafter existing at law or in equity or by statute or otherwise that may be
available to the Preferred Shareholders.
Section 19. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
Section 20. Definitions. Except as set forth in the next sentence, the
terms "sale," "sell," "transfer," and the like shall include any assignment,
transfer, or other disposition, with or without consideration, to any person for
any purpose and shall include but shall not be limited to a private or public
sale, exchanges of securities on account of merger, consolidation,
reorganization, or any other transaction affecting any of the capital stock of
the Company. The terms "sale," "sell," "transfer," and the like shall not
include a transfer of Shareholders' Securities to the Company or to (a) any
other current shareholder, (b) the spouse or any parent, child, grandchild, or
sibling of the transferring Shareholder, or (c) a trust established by the
transferring Shareholder for the benefit of any of the persons specified in
clause (b); provided, however, in the case of clauses (a), (b) and (c) above,
the transfer shall be exempt from the provisions of this Agreement only if all
transferees (and in the case of a minor the person or persons holding the shares
for the benefit of the minor and who can make a binding obligation with respect
to the Shareholders' Securities transferred to the minor) agree in writing prior
to the transfer to be bound by the terms and conditions of this Agreement as
additional Shareholders if required by Section 8 hereof.
Section 21. Entire Agreement. This Agreement, including the Schedules
referred to and incorporated by reference herein that form a part of this
Agreement, the Second Amended and Restated Registration Rights Agreement (as
defined in the Series E Investment Agreement), the Series A Investment
Agreement, the Series B Investment Agreement, the Series C Investment Agreement,
the Series D Investment Agreement and the Series E Investment Agreement contain
the entire understanding of the parties with respect to the subject matter
hereof and thereof. There are no representations, promises, warrants, covenants,
or undertakings with respect to the subject matter of this Agreement other than
those expressly set forth or provided for herein or therein.
Section 22. Governing Law. All questions concerning the relative rights of
the Company and its Shareholders shall be governed by the laws of the State of
Illinois. Illinois law shall govern the interpretation, construction, and
enforcement of this Agreement and all transactions and agreements contemplated
hereby, notwithstanding any state's choice of law rules to the contrary.
12
<PAGE>
Section 23. Interpretation. The terms and conditions of this Agreement
represent the results of bargaining and negotiations among the parties, each of
which has been represented by counsel of its own selection, and none of which
has acted under duress or compulsion, whether legal, economic, or otherwise, and
represent the results of a combined draftsmanship effort. Consequently, the
terms and conditions hereof shall be interpreted and construed in accordance
with their usual and customary meanings and the parties hereby expressly waive
and disclaim in connection with the interpretation and construction hereof any
rule of law or procedures requiring otherwise, specifically including but not
limited to any rule of law to the effect that ambiguous or conflicting terms or
conditions contained herein shall be interpreted or construed against the party
whose counsel prepared this Agreement or any earlier draft hereof.
Section 24. Notices. All notices, requests, demands, or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and delivery shall be deemed sufficient in all
respects and to have been duly given on the date of service if delivered
personally or by facsimile transmission if receipt is confirmed to the party to
whom notice is to be given, or on the third day after mailing if mailed by first
class mail, return receipt requested, postage prepaid, and properly addressed to
the addresses set forth in the Series A Investment Agreement, the Series B
Investment Agreement, the Series C Investment Agreement, the Series D Investment
Agreement or the Series E Investment Agreement, as the case may be, or to such
other addresses as the respective parties hereto designate below and shall from
time to time designate to the others in writing.
Section 25. Specific Performance. Each of the parties agrees that damages
for a breach of or default under this Agreement would be inadequate and that in
addition to all other remedies available at law or in equity the parties and
their successors and assigns shall be entitled to specific performance or
injunctive relief, or both, in the event of a breach or a threatened breach of
this Agreement.
Section 26. Additional New Preferred Shareholder. The Company, in
connection with certain financing arrangements has issued warrants to acquire
shares of Series C Preferred Stock to Third Coast Venture Lease Partners I, L.P.
("Third Coast"), CID Mezzanine Capital, L.P. ("CIDMC") and Silicon Valley Bank
(such warrants being collectively referred to as the "Existing Warrants") and
the Company may in the future enter into additional financing arrangements
pursuant to which the Company will issue "Additional Warrants" (as that term is
defined in Section 3.4 of the Series E Investment Agreement) (the Existing
Warrants and the Additional Warrants being hereafter referred to as the
"Warrants"); upon exercise of such Warrants by the holder or holders thereof,
such holder or holders shall be deemed a "New Preferred Shareholder" for all
purposes hereof and Schedule 1 shall be amended to include such holder or
holders designated as such without any action of the Company or the other
Preferred Shareholders.
Section 27. Table of Contents and Captions. The Table of Contents and
captions of the sections and subsections of this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any provision of this Agreement.
13
<PAGE>
Section 28. Validity of Provisions. Should any part of this Agreement for
any reason be declared by any court of competent jurisdiction to be invalid,
that decision shall not affect the validity of the remaining portion, which
shall continue in full force and effect as if this Agreement had been executed
with the invalid portion eliminated, it being the intent of the parties that
they would have executed the remaining portion of the Agreement without
including any part or portion that may for any reason be declared invalid.
Section 29. Waiver of Right of First Refusal. Each Original Preferred
Shareholder hereby waives its right of first refusal under Section 6 of the
Existing Amended and Restated Voting and Co-Sale Agreement, with respect to (i)
the Series E Preferred Stock being issued pursuant to the Series E Investment
Agreement, (ii) the Warrants and (iii) the shares of Series C Preferred Stock
and Series E Preferred Stock, as appropriate, issuable upon exercise of the
Warrants and the shares of Common Stock issuable upon conversion of such shares
of Series C Preferred Stock or of Series E Preferred Stock.
Section 30. Waiver of Breach. Neither any waiver of any breach of, nor any
failure to enforce any term or condition of, this Agreement shall operate as a
waiver of any other breach of any term or condition, nor constitute nor be
deemed a waiver or release of any other rights, in law or at equity, or claims
that any party may have against any other party for anything arising out of,
connected with, or based upon this Agreement. No waiver shall be enforceable
against any party hereto unless set forth in a written instrument or agreement
signed by that party. No waiver shall be enforceable against any party hereto
unless set forth in a written instrument or agreement signed by that party. No
waiver shall be deemed to occur as a result of the failure of any party to
enforce any term or condition of this Agreement.
[END OF DOCUMENT]
[REST OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
SCHEDULE 1
Preferred Shareholders
----------------------
NEW PREFERRED SHAREHOLDERS
- ---------------------------
Furman Selz
Chelsey Investment Management
Essex Investment Management
Kobrick Funds
Crown Advisors
American Fund Advisors
Open Tech LLC
Winfield Capital
United States Development Capital Portfolio Company
DBAB Principals
Battery Venture Partners
Brookside Capital Partners Fund, L.P.
WPG Raytheon Software Fund, L.P.
WPG Software Fund, L.P.
WPG Institutional Software Fund, L.P.
WPG Raytheon Networking Fund, L.P.
WPG Networking Fund, L.P.
WPG Institutional Networking Fund, L.P.
Raj Mehra
EXISTING PREFERRED SHAREHOLDERS
- -------------------------------
CID Equity Capital III, L.P.
CID Equity Capital V, L.P.
Frontenac VI Limited Partnership
Battery Ventures III, L.P.
MKW Partners, L.P.
Jonathan N. Zakin
New Enterprise Associates VII, Limited Partnership
NEA Presidents' Fund, L.P.
NEA Ventures 1997, L.P.
15
<PAGE>
Joseph A. Piscopo
Royce J. Holland
Hollis Family Limited Partnership
Hollis Family Limited Partnership I
Ronald Kory and Kathy Kory, JTWROS
Kory Associates Pension Plan
David Aniol
Douglas Cogswell
Robert Milburn
Alvon Ramp
Microsoft Corporation
Oak Investment Partners VII, Limited Partnership
Oak VII Affiliates Fund, Limited Partnership
Northwestern University
Daniel Hollis
16
<PAGE>
SCHEDULE 2
Founders
Antonio Dutra
Gordon K. Kapes
Omprasad S. Nandyal
Randy S. Storch
Martin T. Wegner
<PAGE>
EXHIBIT A
---------
1. Voting of Shares. Provided that at least 200,000 shares of Series E
Preferred Stock remains outstanding, the holders of Series E Preferred Stock
shall nominate a director of the Company to be elected by a majority of the
holders of the Series E Preferred Stock pursuant to the Restated Articles,
voting separately as a series, provided that such director is reasonably
approved by a majority of the directors elected pursuant to subsections 1(b)
and 1(d) below and is not affiliated with any Series E Investor (the "Series
E Director"), and, if the Series E Director ceases to serve as a director of
the Company for any reason, the holders of Series E Preferred Stock shall
nominate a successor to such Series E Director to be elected by a majority
of the holders of the Series E Preferred Stock, voting separately as a
series, provided that such director is reasonably approved by a majority of
the directors elected pursuant to subsections 1(b) and 1(d) below and is not
affiliated with any Series E Investor. The holders of the Common Stock shall
designate by vote of a majority of the shares of Common Stock (excluding the
Preferred Stock, except to the extent converted), two management nominees
for director of the Company to be elected by the holders of the Common
Stock, and if such nominee ceases to serve as a director of the Company for
any reason, the holders of the Common Stock shall designate by vote of a
majority of the shares of Common Stock (excluding the Preferred Stock,
except to the extent converted), a successor to such nominee to be elected
by the holders of the Common Stock. The holders of the Preferred Stock
(other than the holders of the Series E Preferred Stock) shall designate by
vote of a majority of the shares of Preferred Stock (other than the Series E
Preferred Stock), two nominees for director of the Company to be elected by
the holders of the Preferred Stock (other than the Series E Preferred
Stock), and if any such nominee ceases to serve as a director of the Company
for any reason, the holders of the Preferred Stock (other than the Series E
Preferred Stock) shall designate by vote of a majority of the shares of
Preferred Stock (other than the Series E Preferred Stock), a successor to
such nominee to be elected by the holders of the Preferred Stock. The
directors elected pursuant to subsection 1(b) below shall designate by
majority vote two nominees, who shall not be affiliated with the Company or
with any holder of Preferred Stock or Common Stock, to be elected by a
majority of the holders of the Common Stock, and if any such nominee ceases
to serve as a director of the Company for any reason, such directors shall
designate by majority vote a successor to such nominee to be elected by the
holders of the Common Stock. Each of the Preferred Shareholders and the
Shareholders agrees that he, she or it shall vote any shares of Common
Stock, Preferred Stock and any other voting security he, she or it may now
own or hereafter acquire that may be entitled to vote on each of the
following matters at any regular, special, or adjourned meeting of
shareholders of the Company at which the matters specified herein shall be
presented to the holders of Common Stock and/or other voting securities, for
a vote, as follows:
(a) in favor of the election of the Series E Director, or, if such
nominee is unable or unwilling to serve in that capacity, any other person that
the holders of the Series E Preferred Stock designate, as permitted by this
Section 1;
<PAGE>
(b) in favor of the election to the Board of Directors of two
management nominees designated by the holders of a majority of the shares
of Common Stock (excluding the Preferred Stock, except to the extent
converted);
(c) in favor of the election to the Board of Directors of two
nominees designated by the holders of a majority of the shares of Preferred
Stock (other than the holders of the Series E Preferred Stock);
(d) in favor of the election to the Board of Directors of two
nominees designated by the directors elected pursuant to subsection 1(b)
above and reasonably approved by the holders of a majority of the Preferred
Stock, which nominees shall not be affiliated with the Company or any of
the holders of Preferred Stock or Common Stock;
(e) to fill any vacancy occurring in the Board of Directors of the
Company in accordance with (a) through (d) above.
<PAGE>
EXHIBIT 10.1
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
1. Purpose
-------
The purpose of the Plan is to benefit the Company and its shareholders by
having the Company offer certain Employees a favorable opportunity to acquire
shares of Stock over a period of years, thereby giving such Employees a
permanent stake in the growth and prosperity of the Company, encouraging such
Employees to continue their service with the Company, and motivating such
Employees to devote their best efforts to the business and profitability of the
Company. The Plan is not intended to qualify as an "employee stock purchase
plan" within the meaning of Code Section 423.
2. Definitions
-----------
As used herein, the following definitions shall apply.
2.1. "Board" shall mean the Board of Directors of the Company, or a
committee appointed by the Board to perform all or some of the Board's duties
under this Plan.
2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3. "Company" shall mean Open Port Technology, Inc., an Illinois
corporation.
<PAGE>
2.4. "Date of Grant" shall mean the day and year written in the Option
Agreement relating to such Option. The Date of Grant for an Option granted to
an Employee may be any date on or after the Employee's first day of employment
with the Company even if such date is prior to the effective date of this Plan.
2.5. "Director" shall mean any duly elected and qualified member of the
Board.
2.6. "Disability" shall mean any medically determinable physical or
mental impairment that, in the opinion of the Board, based upon medical reports
and other evidence satisfactory to the Board, can reasonably be expected to
prevent an Employee from performing substantially all of his customary duties of
employment for a continuous period of not less than twelve (12) months.
2.7. "Employee" shall mean any salaried employee of the Company.
2.8. "Exercise Price" shall mean the purchase price for shares of Stock
purchased pursuant to the exercise or partial exercise of an Option.
2.9. "Fair Market Value" shall mean, with respect to the valuation of
any shares of Stock, (i) if the Stock is publicly traded, the closing price of
the Stock on the trading day immediately preceding the business day during which
the shares of Stock are to be valued pursuant hereto, and (ii) if the Stock is
not publicly traded, the fair market value of the shares of Stock as reasonably
determined by the Board consistent with past practice.
2.10. "IPO" shall mean the closing of an initial public offering of the
common stock of the Company registered under the Securities Act.
2
<PAGE>
2.11. "Option" shall mean any right to purchase Stock which has been
granted by the Board pursuant to the Plan.
2.12. "Option Agreement" shall mean an agreement executed by an officer
of the Company and an Employee evidencing the grant of an Option.
2.13. "Option Shares" shall mean the shares of Stock transferred pursuant
to the exercise of an Option.
2.14. "Optionee" shall mean any Employee who receives an Option pursuant
to the Plan.
2.15. "Plan" shall mean the Open Port Technology, Inc. 1995 Incentive
Stock Option Plan.
2.16. "Securities Act" shall mean the Securities Act of 1933, as amended.
2.17. "Stock" shall mean the no par value common stock of the Company.
3. Shares Subject to the Plan
--------------------------
Except as provided in Section 4(a) hereof, the aggregate amount of Stock for
which Options may be granted shall not exceed 803,213 shares less (at the time
of the grant of any Option) all shares subject to any option granted under the
Open Port Technology, Inc. 1995 Non-Employee Stock Option Plan.
3
<PAGE>
Any shares subject to unexercised portions of Options which shall have
terminated, been canceled, or expired may again be made subject to Options. In
addition, shares that have been repurchased by the Company may again be made
subject to Options.
4. Adjustment
----------
4.1. The number of shares subject to the Plan and to Options shall be
adjusted as follows: (i) in the event that the number of shares of outstanding
Stock is changed by reason of a stock dividend, stock split, recapitalization or
combination of shares, the number of shares of Stock subject to the Plan and to
Options shall be proportionately adjusted; or (ii) in the event of any merger,
consolidation or reorganization of the Company with any other corporation or
corporations pursuant to which the holders of shares of Stock surrender shares
of Stock in exchange for other shares of stock or securities, there shall be
substituted for each share of Stock then subject to the Plan and to Options the
number and kind of shares of stock or other securities which the holders of
shares of Stock are entitled to receive for each share of Stock surrendered
pursuant to the transaction and the Exercise Price shall be proportionately
adjusted.
4.2. The number of shares subject to the Plan and Options shall not be
adjusted as a result of the issuance of shares of Stock by the Company (other
than an issuance described in subsection (a) of this Section 4), it being
understood that, upon such an issuance of shares of Stock, holders of Options
and holders of Option Shares will have a corresponding dilution of their
proportionate interests in the Stock.
4
<PAGE>
5. Administration of the Plan
--------------------------
The following provisions shall govern the administration of the Plan:
5.1. The Plan shall be administered by the Board.
5.2. The Board is authorized (but only to the extent not contrary to the
express provisions of the Plan) to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to the Plan and to the Options, to
determine the form and content of Options (except to the extent the form and
content of the Options are specified herein), and to make such other
determinations and exercise such other powers and authority as may be necessary
or advisable for the administration of the Plan. Each Option granted shall be
evidenced by an Option Agreement in such form as may be determined by the Board.
5.3. A majority of the members of the Board eligible to act shall
constitute a quorum for purposes of acting with respect to the Plan, and the
action of a majority of the members present who are eligible to act at any
meeting at which a quorum is present shall be deemed the action of the Board.
5.4. All decisions, determinations and interpretations of the Board made
in good faith with respect to the Plan and Option Agreements shall be final and
conclusive on all persons affected thereby.
5.5. Neither the Board nor any member thereof shall be liable for any
act, omission, interpretation, construction or determination made in connection
with the Plan in good faith, and the members of the Board shall be entitled to
indemnification and reimbursement by the Company in respect of any claim, loss,
damage or expense (including counsel fees) arising therefrom to the full extent
permitted by law.
5
<PAGE>
5.6. The aggregate fair market value of the Option Shares (determined as
of the Date of Grant) for which any Employee may be granted an Option or Options
which will first be exercisable in any single calendar year, taking account of
any special vesting provisions provided in an Option Agreement, may not exceed
$100,000.
6. Eligibility
-----------
The Board is authorized to select Employees to receive Options depending on
the availability of shares of Stock for which Options may be granted pursuant to
the terms of the Plan. In the event Options are granted pursuant to the Plan,
the Board is authorized to select the particular Employees who will receive such
Options and the number of shares of Stock under each such Option. In granting
Options, the Board shall take into consideration the contribution an Employee
has made or may make to the success of the Company and such other factors as the
Board shall determine. In no event shall any Employee or his or her legal
representatives, heirs, legatees, distributees or successors have any right to
participate in the Plan except to such extent, if any, as the Board shall
determine. No Options will be granted to any Employee who owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any parent or subsidiary corporation unless the Exercise
Price is at least one hundred ten percent (110%) of the Fair Market Value at the
Date of Grant.
7. Term of the Plan
----------------
The Plan shall continue in effect until terminated pursuant to Section 20
hereof; or until there is no more stock as to which an Option may be granted and
no Options are outstanding; provided, however, that all Options must be granted
within 10 years from the effective date of the Plan.
8. Restrictions on Transfers
-------------------------
8.1. The Options may not be transferred, assigned, pledged or
hypothecated in any way and will not be subject to execution, attachment or
similar process,
6
<PAGE>
except as provided by this Plan and except by will or under the laws of descent
and distribution (subject to the repurchase option described in Section 18
hereof).
8.2. The Option Shares may not be transferred, assigned, pledged or
hypothecated, voluntarily, involuntarily or by operation of law, except as
provided by this Plan and any Option Agreement pertaining to such Options.
8.3. An Option will terminate immediately upon any attempted transfer,
assignment, pledge or hypothecation of such Option in violation of this Section
8, and any attempted transfer, assignment, pledge or hypothecation of any Option
Shares in violation of this Section 8 will be void without further action by the
Company and have no effect.
9. Restrictions on Voting
----------------------
Until the occurrence of an IPO, Option Shares will be voted by the then chief
executive officer of the Company, pursuant to irrevocable proxies in the form
attached hereto as Exhibit B, executed by the Optionee upon the exercise of an
Option.
10. Vesting of Options
------------------
Options are exercisable only upon and after vesting. Except as provided in
Section 11 hereof and except as otherwise may be specifically provided in an
Option Agreement, Options shall vest according to the following schedule:
10.1. as to one-fifth (1/5) of the Option Shares on the first anniversary
of the Date of Grant;
7
<PAGE>
10.2. as to an additional one-fifth (1/5) of the Option Shares on the
second anniversary of the Date of Grant; and
10.3. as to an additional one-fifth (1/5) of the Option Shares on the
third anniversary of the Date of Grant;
10.4. as to an additional one-fifth (1/5) of the Option Shares on the
fourth anniversary of the Date of Grant; and
10.5. as to the remaining one-fifth (1/5) of the Option Shares on the
fifth anniversary of the Date of Grant.
The above vesting schedule assumes the Optionee's continuous employment with
the Company. No Option or part thereof shall vest after the date the Optionee
ceases to be an Employee for any reason, and any unvested portion of an Option
theretofore held by such an Optionee shall terminate as of that date.
11. Special Vesting Provisions
--------------------------
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise his or her Option as to all or any part of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. In
the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Board may provide for the Optionee to have the right to exercise the Option as
to all of the Option Stock, including Shares as to which the Option would not
otherwise be exercisable. The Board may notify the Optionee that the Option
shall be fully exercisable and the Option will terminate upon the consummation
of such sale or merger.
8
<PAGE>
12. When Options May Be Exercised
-----------------------------
12.1. Except as provided in subsections (b) and (c) of this Section 12,
a vested Option or the vested portion of an Option, shall be exercised, if at
all, by the Optionee at any time before the tenth anniversary of its Date of
Grant.
12.2. If an Optionee ceases to be an Employee for any reason, such
Optionee's vested Options must be exercised, if at all, not later than thirty
(30) days following the date such Optionee ceases to be an Employee. Any
unvested portion of an Option shall terminate immediately upon the cessation of
employment of the Optionee holding the Option.
12.3. In the event of the occurrence of any of the events described in
Section 11 hereof and the adoption by the Board of a resolution providing for
the exercise of the rights provided to the Board under Section 11 hereof, the
vested Options shall not be exercisable after the occurrence of such event. The
Company shall notify all Optionees of any such impending sale. With respect to
any Optionee that desires to exercise the vested portion of his or her Option
prior to such event, the Company may instead pay such Optionee the excess of the
amount received or to be received for the Option Shares over the amount that
would have been received from such Optionee upon the exercise of the vested
portion of such Option.
12.4. Unless the Optionee desires to forego the benefit of the Option
being considered an incentive stock option under Section 422 of the Code, no
Option or any part thereof may be exercised by the Optionee while there is
outstanding any incentive stock option which was granted by the Company to the
Optionee at an earlier time.
13. Exercise Price
--------------
The Exercise Price shall be $1.62 per share for Options granted on or before
the earlier of (i) the adoption by the Board of a resolution changing the
Exercise Price or (ii) an IPO.
9
<PAGE>
At all times, when established, the Exercise Price shall be equal to or greater
than the Fair Market Value.
14. Exercise of Option
------------------
During the Optionee's lifetime, Options shall be exercisable only by the
Optionee or his legal representative or guardian. Options shall not be
exercisable by the spouse of any Optionee during such Optionee's lifetime,
unless such spouse is acting in his or her capacity as the legal representative
or guardian of the Optionee. In the event of the Optionee's death, the Option
shall be exercisable by the person or entity (including the Optionee's estate)
that has obtained the Optionee's rights under the Option by will or under the
laws of descent and distribution.
Options shall be exercised if at all, by submitting to the Company (a) a
Notice of Exercise in the form attached hereto as Exhibit A, (b) the Irrevocable
Proxy, duly executed, (c) any other written representations, covenants, and
undertakings that the Company may prescribe pursuant to the Shareholders
Agreements or to satisfy securities laws and regulations or other requirements,
and (d) a certified or bank cashier's check payable to the order of the Company
in an amount equal to the full purchase price of the shares to be purchased.
Upon receipt of the Notice of Exercise (subject to Sections 15, 16, and 17 of
this Agreement), the Company shall issue a new certificate or certificates to
the holder of the Option. The certificate or certificates for the shares as to
which the Option shall have been exercised shall be registered in the name of
the holder of the Option and shall be delivered to or upon the written order of
the holder of the Option. The shares shall bear a legend substantially in the
following form:
"THE SHARES SUBJECT TO THIS CERTIFICATE ARE SUBJECT TO
TRANSFER AND VOTING RESTRICTIONS SET FORTH IN THE OPEN PORT
TECHNOLOGY, INC. 1995 INCENTIVE STOCK OPTION PLAN (THE
"PLAN"). COPIES OF THE PLAN ARE ON FILE IN THE OFFICE OF THE
SECRETARY OF THE CORPORATION. BY ACCEPTING THE SHARES OF
STOCK EVIDENCED BY THIS CERTIFICATE, THE HOLDER AGREES TO BE
BOUND BY THE PLAN AS IT MAY BE AMENDED FROM TIME TO TIME."
10
<PAGE>
15. Securities Law Restrictions
---------------------------
The Company shall not be obligated to issue any stock certificates evidencing
a transfer upon exercise of an Option, until, in the opinion of the Company and
its counsel, such transfer and issuance of stock certificates will not involve
any violation of applicable federal and state securities laws, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Stock may then be listed. Acceptance of an Option by an Optionee
shall constitute the Optionee's agreement (binding on any person who succeeds to
the Optionee's rights and obligations under the Option Agreement by reason of
the Optionee's death) that, if the Stock is not publicly traded as of the date
the Option is exercised, any shares of Stock purchased upon the exercise of the
Option shall be acquired for the Optionee's own account and not with a view to
distribution and that each notice of the exercise of any portion of the Option
shall be accompanied by a written representation and covenant signed by the
Optionee, in such form as may be specified by the Company, confirming such
agreement and containing such other provisions as may be prescribed by the
Company. The Company may, at its election, release an Optionee from the
Optionee's agreement to take for the Optionee's own account and not with a view
to distribution of the shares of Stock purchased upon exercise of an Option if,
in the opinion of the Company, such covenant ceases to be necessary for
compliance with the applicable federal and state securities laws (including the
rules and regulations promulgated thereunder) and the requirements of any stock
exchange upon which the Stock may then be listed.
If the shares purchased upon exercise of an Option are not covered by an
effective registration statement under the Securities Act, the Company may place
the following legend (or a legend which is substantially similar to the
following legend) upon, and issue appropriate stock transfer instructions with
respect to, the certificate or certificates representing the shares transferred
upon exercise of the Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
(THE STATE LAWS"), AND SUCH SHARES MAY NOT BE TRANSFERRED
UNLESS (A) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND APPLICABLE STATE LAWS COVERING SUCH TRANSFER IS THEN IN
EFFECT; OR (B) AN OPINION OF COUNSEL, SATISFACTORY TO THE
CORPORATION, HAS BEEN FURNISHED STATING THAT SUCH
11
<PAGE>
TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE LAWS."
16. Listing or Registration of Stock
--------------------------------
Each Option is subject to the requirement that, if at any time the Board shall
determine, in its discretion, that the listing, registration or qualification of
the shares of Stock subject to the Option upon any securities exchange or under
any state or federal law, or the consent or approval of any government
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting or exercise of the Option or the issuance or purchase of
shares under the Option, the Option may not be exercised in whole or in part
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Board.
The Company shall be under no obligation to effect or obtain any such listing,
registration, qualification, consent or approval if the Board shall determine,
in its discretion, that such action would not be in the best interests of the
Company. The Company shall not be liable for damages due to a delay in the
delivery or issuance of any stock certificates for any reason whatsoever,
including, but not limited to, a delay caused by listing, registration or
qualification of the shares of Stock subject to an Option under any securities
exchange or under any federal or state law, or by the effecting or obtaining of
any consent or approval of any governmental body with respect to the granting or
exercise of the Option or the issue or purchase of shares under the Option.
17. Withholding of Taxes
--------------------
The Board may make such provisions and take such steps as it may deem
necessary or appropriate for the withholding of any taxes which the Company is
required by any law or regulation of any governmental authority, whether
federal, state or local, domestic or foreign, to withhold in connection with any
Option, including, but not limited to, the withholding of the issuance of all or
any portion of the shares of Stock subject to the Option until the holder of the
Option reimburses the Company for the amount required to be withheld with
respect to such taxes, canceling any portion of the issuance of the shares of
Stock subject to the Option in an amount sufficient to reimburse the Company for
such amount, deducting from the Optionee's wages an amount sufficient to
reimburse the Company for such amount, or taking any other action reasonably
required to satisfy the withholding obligation of the Company.
12
<PAGE>
18. Repurchase Option
-----------------
The Options and Option Shares are subject to the rights of the Company to
repurchase or acquire the Option Shares upon the occurrence of certain events,
including but not limited to: death or disability of the Optionee; cessation of
employment with the Company for any reason; or a transfer of the Option or
Option Shares, voluntarily, involuntarily or by operation of law. The terms of
this repurchase option with respect to Option Shares shall be set forth in the
Option Agreement pertaining to such Options.
19. Modification of Options
-----------------------
At any time and from time to time the Board may provide for the modification,
extension, or renewal of any outstanding Option, provided that no such
modification, extension or renewal shall impair the Option in any respect
without the consent of the holder of the Option.
20. Amendment and Termination of the Plan
-------------------------------------
The Board may provide for the alteration, suspension or discontinuation of the
Plan, except that no such action may increase the benefits accruing to Employees
under the Plan, increase (other than as provided in Section 4(a) hereof) the
maximum number of shares permitted to be issued upon the exercise of Options, or
materially modify the requirements as to eligibility for participation in the
Plan unless such action is subject to approval by the shareholders of the
Company.
21. Shareholder Rights
------------------
A holder of an Option shall have none of the rights of a shareholder with
respect to the shares of Stock subject to the Option until the transfer of such
shares to him or her has been duly recorded on the stock transfer books of the
Company upon the exercise of the Option.
13
<PAGE>
22. Continued Employment Not Presumed
---------------------------------
Nothing in the Plan or any document describing it nor the grant of an Option
shall give any Optionee the right to continue in employment with the Company or
affect the right of the Company to terminate the employment of any Optionee with
or without cause.
14
<PAGE>
23. Effective Date
--------------
The foregoing Open Port Technology, Inc. 1995 Incentive Stock Option Plan is
hereby adopted by the Company as of October 19, 1995.
Open Port Technology, Inc.
/s/ Randy S. Storch
By: ------------------------------
Randy S. Storch, President
15
<PAGE>
EXHIBIT A
TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
NOTICE OF EXERCISE
(to be executed only upon exercise of the Option)
Reference is made to the Open Port Technology, Inc. 1995 Incentive Stock
Option Agreement, dated as of ___________________ _____, 1995 (the "Option
Agreement"), between Open Port Technology, Inc., an Illinois corporation (the
"Company"), and _____________________________________ (the "Optionee").
Capitalized terms used herein and not otherwise defined have the meanings
assigned to such terms in the Option Agreement.
23.1. The Optionee hereby irrevocably exercises the option for and
purchases _______________ shares of Stock.
23.2. The full purchase price for the shares of Stock being purchased
hereunder, calculated in accordance with the Option Agreement, is
$_______________, and the Optionee is delivering to the Company simultaneously
with the delivery of this Notice of Exercise a certified or bank cashier's check
payable to the order of the Company in such amount.
23.3. The shares of Stock being purchased hereunder are being acquired
for the Optionee's own account and not with a view to distribution thereof in
violation of applicable Federal or state securities laws.
<PAGE>
23.4. The Optionee requests that certificates for the shares of Stock
being purchased hereunder be issued in the name of and delivered to the Optionee
at the following address:
_________________________
_________________________
_________________________
_________________________
2
<PAGE>
Dated as of ____________________ ______________________________
(Signature)
______________________________
(Name)
______________________________
(Signature of Spouse)
______________________________
(Name)
3
<PAGE>
EXHIBIT B
TO
OPEN PORT TECHNOLOGY, INC. (the "Company")
1995 INCENTIVE STOCK OPTION PLAN (the "Plan")
IRREVOCABLE PROXY
The undersigned hereby revokes any previous proxies and irrevocably appoints
Randy S. Storch (the "Proxyholder") and his successor, pursuant to the Plan as
the proxy of the undersigned to attend any and all meetings of the shareholders
of the Company, and any adjournments or postponements of such meetings
(collectively, a "Meeting"), to vote for and in the name, place and stead of the
undersigned at any Meeting all shares of common stock, no par value per share
(the "Stock"), owned by the undersigned on the date of this proxy and any other
shares of Stock hereafter acquired by the undersigned (collectively, the "Proxy
Shares"), to execute written consents to corporate action, and to represent and
otherwise act for the undersigned on any and all matters with the same force and
effect as if the undersigned were personally present at such meeting or were
executing such consent.
This proxy is coupled with an interest and is expressly made irrevocable and
will be effective until the earliest to occur of (i) the consummation of an
initial public offering by the Company that is registered under the Securities
Act of 1933, as amended or (ii) the expiration of ten (10) years from the
execution date hereof. The undersigned acknowledges that monetary damages would
be an inadequate remedy for a breach of the provisions of this proxy and that
(in addition to any other remedy available at law) the obligations of the
undersigned and the rights of the Proxyholder are specifically enforceable.
The undersigned authorizes the Proxyholder to substitute any other person or
entity to act under this proxy, to revoke any such substitution, and to file
this proxy and any substitution or revocation of this proxy with the Secretary
of the Company.
Dated as of ____________________ ______________________________
(Signature)
4
<PAGE>
______________________________
(Name)
______________________________
(Signature of Spouse)
______________________________
(Name)
5
<PAGE>
AMENDMENT NUMBER ONE
TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
1. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan; as used herein, the term "Plan" shall refer to the
Plan as modified by this Amendment. The terms used herein which are defined in
the Plan shall have the meanings provided for in the Plan, unless otherwise
defined herein. Except as expressly modified hereby, all of the terms and
provisions of the Plan shall continue in full force and effect. A copy of this
Amendment shall be attached to and made a part of the Plan.
2. Amendment to Section 2(g) of the Plan
---------------------------- --------
Section 2(g) of the Plan is hereby amended so as to read in its entirety as
follows:
(g) "Employee" shall mean any salaried employee of the Company or of
any "Parent" or "Subsidiary" of the Company (as such terms are defined in
Section 424 of the Code); any references to employment with the Company,
shall be deemed to include the Company and any Parent or Subsidiary of the
Company, as the context may require.
3. Effective Date
--------------
This Amendment to the Plan is hereby adopted by the Committee as of the 1st
day of February, 1996.
Open Port Technology, Inc.
<PAGE>
AMENDMENT NUMBER TWO
TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
1. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc.
1995 Incentive Stock Option Plan, as amended by Amendment Number One to the Open
Port Technology, Inc. 1995 Incentive Stock Option Plan dated as of February 1,
1996; as used herein, the term "Plan" shall refer to the Plan as modified by
Amendment Number One and by this Amendment. The terms used herein which are
defined in the Plan shall have the meanings provided for in the Plan, unless
otherwise defined herein. Except as expressly modified hereby, all of the terms
and provisions of the Plan shall continue in full force and effect. A copy of
this Amendment shall be attached to and made a part of the Plan.
2. Amendment to Section 2(q) of the Plan
-------------------------------------
Section 2(q) of the Plan is hereby amended so as to read in its
entirety as follows:
(q) "Stock" shall mean the common stock, par value $.001 per
share, of the Company.
3. Amendment to Section 10 of the Plan
-----------------------------------
Section 10 of the Plan is hereby amended so as to read in its entirety
as follows:
<PAGE>
Options are exercisable only upon and after vesting. Except
as provided in Section 11 hereof and except as otherwise may be
specifically authorized by the Board and provided in an Option
Agreement, Options shall vest according to the following schedule:
(a) as to one-fourth (1/4th) of the Option Shares, on the first
anniversary of the Date of Grant; and
(b) as to an additional one-thirty-sixth (1/36th) of the Option
Shares, on the same calendar month day as the Date of Grant
occurring in each of the thirty-six (36) calendar months
occurring after the first anniversary of the Date of Grant.
The above vesting schedule assumes the Optionee's continuous
employment with the Company. No Option or part thereof shall vest
after the date the Optionee ceases to be an Employee for any reason,
and any unvested portion of an Option theretofore held by such an
Optionee shall terminate as of that date.
4. Effective Date
--------------
This Amendment to the Plan is hereby adopted by the Board as of the
30th day of April, 1996.
Open Port Technology, Inc.
2
<PAGE>
AMENDMENT NUMBER THREE
TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
1. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan, as amended by Amendment Number One to the Open Port
Technology, Inc. 1995 Incentive Stock Option Plan, dated as of February 1, 1996,
and Amendment Number Two to Open Port Technology, Inc. 1995 Incentive Stock
Option Plan. As used herein, the term "Plan" shall refer to the Open Port
Technology, Inc 1995 Incentive Stock Option Plan as modified by Amendment Number
One, Amendment Number Two, and by this Amendment Number Three. The terms used
herein which are defined in the Plan shall have the meanings provided for in the
Plan, unless otherwise defined herein. Except as expressly modified hereby, all
of the terms and provisions of the Plan shall continue in full force and effect.
A copy of this Amendment Number Three shall be attached to and made a part of
the Plan.
2. Amendment to Section 3 of the Plan
----------------------------------
The first paragraph of Section 3 of the Plan is hereby amended so as to
read in its entirety as follows:
Except as provided in Section 4(a) hereof, the aggregate amount of
Stock for which Options may be granted shall not exceed 3,682,695 shares
(based on the capitalization of the Company existing as of January 1, 1997)
less (at the time of the grant of any Option) all shares subject to any
option granted under the Option Port Technology, Inc. 1995 Non-Employee
Stock Option Plan, as amended.
3. Effective Date
--------------
<PAGE>
This Amendment Number Three to the Plan is hereby adopted by the Board as
of February 6, 1997 and approved by the shareholders of the Company as of
February 11, 1997.
Open Port Technology, Inc.
2
<PAGE>
AMENDMENT NUMBER FOUR
TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
24. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan, as amended by Amendment Number One to the Open Port
Technology, Inc. 1995 Incentive Stock Option Plan, dated as of February 1, 1996,
Amendment Number Two to Open Port Technology, Inc. 1995 Incentive Stock Option
Plan, dated as of April 30, 1996, and Amendment Number Three to Open Port
Technology Stock Option Plan, dated as of February 11, 1997. As used herein,
the term "Plan" shall refer to the Open Port Technology, Inc. 1995 Incentive
Stock Option Plan as modified by Amendment Number One, Amendment Number Two,
Amendment Number Three and by this Amendment Number Four. The terms used herein
which are defined in the Plan shall have the meanings provided for in the Plan,
unless otherwise defined herein. Except as expressly modified hereby, all of
the terms and provisions of the Plan shall continue in full force and effect. A
copy of this Amendment Number Four shall be attached to and made a part of the
Plan.
25. Amendment to Section 2 of the Plan
----------------------------------
Section 2 of the Plan is hereby amended by adding the following new
paragraph (r) at the end thereof:
(r) "Change of Control Event" shall mean, and be deemed to have
occurred: (i) upon the acquisition at any time (excluding any
acquisition in connection with any public offering of equity
securities of the Company pursuant to a registration statement
filed under the Securities Act) by a "person" or "group" (as used
in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (excluding, for this
purpose, the Company or any Subsidiary or any employee benefit
plan of the Company or any Subsidiary) of the beneficial
ownership (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities representing
fifty percent (50%) or more of the combined voting power of the
then-outstanding securities of the Company; or (ii) in the event
that the Board or the shareholders of the Company shall approve a
merger, share exchange (other than a merger or share exchange
with a wholly-owned subsidiary), consolidation, or sale or other
disposition of substantially all of the assets of the Company, as
a
<PAGE>
result of which immediately following such transaction the
shareholders of the Company shall not hold, directly or
indirectly, a majority of the voting power of the then-
outstanding securities of: (A) in the case of a merger or
consolidation, the surviving or resulting corporation; (B) in the
case of a share exchange, the acquiring corporation; or (C) in
the case of a sale or other disposition of substantially all of
the assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds fifty percent
(50%) or more of the assets of the Company.
26. Amendment of Section 11 of the Plan
-----------------------------------
Section 11 of the Plan is hereby amended by adding the following new
paragraph at the end of thereof:
Further, notwithstanding anything to the contrary in Section 10 or
this Section 11, upon the occurrence of a Change of Control Event, with
respect to each Option, if three (3) years has not elapsed since the Date
of Grant, then the vesting of the Option shall be accelerated so that any
portion of the Option that would have vested within three (3) years from
the Date of Grant, shall automatically vest as of the date of the Change of
Control Event. The remaining unvested portion shall continue to vest
according to above schedule (as if three (3) years had elapsed since the
Date of Grant).
27. Amendment of Section 18 of the Plan
------------------------------------
Section 18 of the Plan is hereby amended so as to read in its entirety as
follows:
The Options and the Option Shares are subject to the rights of the
Company to repurchase or acquire the Option Shares upon the occurrence of
certain events, including but not limited to: a transfer of the Option or
Option Shares, voluntarily, involuntarily or by operation of law or
cessation of employment with the Company for any reason, but excluding in
any instance upon the occurrence of a Change of Control Event. The terms
of this repurchase option with respect to Option Shares shall be set forth
in the Option Agreement pertaining to such Options.
28. Effective Date
--------------
This Amendment Number Four to the Plan is hereby adopted by the Board as of
the 20th day of November, 1997.
Open Port Technology, Inc.
2
<PAGE>
AMENDMENT NUMBER FIVE
TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
29. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan, as amended by Amendment Number One to the Open Port
Technology, Inc. 1995 Incentive Stock Option Plan, dated as of February 1, 1996,
Amendment Number Two to Open Port Technology, Inc. 1995 Incentive Stock Option
Plan, dated as of April 30, 1996, Amendment Number Three to Open Port Technology
Stock Option Plan, dated as of February 11, 1997, and Amendment Number Four to
Open Port Technology Stock Option Plan, dated as of November 20, 1997. As used
herein, the term "Plan" shall refer to the Open Port Technology, Inc. 1995
Incentive Stock Option Plan as modified by Amendment Number One, Amendment
Number Two, Amendment Number Three, Amendment Number Four, and this Amendment
Number Five. The terms used herein which are defined in the Plan shall have the
meanings provided for in the Plan, unless otherwise defined herein. Except as
expressly modified hereby, all of the terms and provisions of the Plan shall
continue in full force and effect. A copy of this Amendment Number Five shall
be attached to and made a part of the Plan.
30. Amendment to Section 3 of the Plan
----------------------------------
The first paragraph of Section 3 of the Plan is hereby amended so as to
read in its entirety as follows:
Except as provided in Section 4(a) hereof, the aggregate amount of
Stock for which Options may be granted shall not exceed 4,432,695 shares
(based on the capitalization of the Company existing as of January 1, 1997)
less (at the time of the grant of any Option) all shares subject to any
option granted under the Open Port Technology, Inc. 1995 Non-Employee Stock
Option Plan, as amended.
31. Effective Date
--------------
This Amendment Number Five to the Plan is hereby adopted by the Board as of
the 23rd day of April, 1998 and approved by the Shareholders of the Company as
of June 15, 1998.
Open Port Technology, Inc.
<PAGE>
AMENDMENT NUMBER SIX
TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
32. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan, as amended by Amendment Number One to the Open Port
Technology, Inc. 1995 Incentive Stock Option Plan, dated as of February 1, 1996,
Amendment Number Two to Open Port Technology, Inc. 1995 Incentive Stock Option
Plan, dated as of April 30, 1996, Amendment Number Three to Open Port Technology
Stock Option Plan, dated as of February 11, 1997, Amendment Number Four to Open
Port Technology Stock Option Plan, dated as of November 20, 1997, and Amendment
Number Five to Open Port Technology Stock Option Plan, dated as of June 15,
1998. As used herein, the term "Plan" shall refer to the Open Port Technology,
Inc. 1995 Incentive Stock Option Plan as modified by the foregoing Amendments
and this Amendment Number Six. The terms used herein which are defined in the
Plan shall have the meanings provided for in the Plan, unless otherwise defined
herein. Except as expressly modified hereby, all of the terms and provisions of
the Plan shall continue in full force and effect. A copy of this Amendment
Number Six shall be attached to and made a part of the Plan.
33. Amendment to Section 14 of the Plan
-----------------------------------
The second paragraph of Section 14 of the Plan is hereby amended so as to
read in its entirety as follows:
Options shall be exercised if at all, by submitting to the Company (a)
a Notice of Exercise in the form attached hereto as Exhibit A, (b) the
Irrevocable Proxy, duly executed, (c) any other written representations,
covenants, and undertakings that the Company may prescribe pursuant to the
Shareholders Agreements or to satisfy securities laws and regulations or
other requirements, and (d) a certified or bank cashier's check payable to
the order of the Company, or any other form of payment determined to be
acceptable by the Board, in its sole discretion, in an amount equal to the
full purchase price of the shares to be purchased.
34. Amendment to Exhibit A to the Plan
----------------------------------
Paragraph (b) of Exhibit A to the Plan is hereby amended so as to read in
its entirety as follows:
(b) The full purchase price for the shares of Stock being purchased
hereunder, calculated in accordance with the Option Agreement, is
$____________, and the Optionee is delivering to the Company simultaneously
<PAGE>
with the delivery of this Notice of Exercise a certified or bank
cashier's check payable to the order of the Company in such amount,
or any other form of payment determined to be acceptable by the
Board, in its sole discretion.
35. Effective Date
--------------
This Amendment Number Six to the Plan is hereby adopted by the Board as of
the 31st day of July, 1998.
Open Port Technology, Inc.
2
<PAGE>
AMENDMENT NUMBER SEVEN TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
36. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan (the "Plan"), as amended by Amendment Number One to
the Plan, dated as of February 1, 1996, Amendment Number Two to the Plan, dated
as of April 30, 1996, Amendment Number Three to the Plan, dated as of February
11, 1997, Amendment Number Four to the Plan, dated as of November 20, 1997,
Amendment Number Five to the Plan, dated as of June 15, 1998 and Amendment
Number Six to the Plan, dated as of July 31, 1998. As used herein, the term
"Plan" shall refer to the Open Port Technology, Inc. 1995 Incentive Stock Option
Plan as modified by Amendment Number One, Amendment Number Two, Amendment Number
Three, Amendment Number Four, Amendment Number Five, Amendment Number Six and
this Amendment Number Seven. The terms used herein which are defined in the
Plan shall have the meanings provided for in the Plan, unless otherwise defined
herein. Except as expressly modified hereby, all of the terms and provisions of
the Plan shall continue in full force and effect. A copy of this Amendment
Number Seven shall be attached to and made a part of the Plan.
37. Amendment to Section 3 of the Plan
----------------------------------
The first paragraph of Section 3 of the Plan is hereby amended so as to
read in its entirety as follows:
Except as provided in Section 4(a) hereof, the aggregate amount
of Stock for which Options may be granted shall not exceed 5,432,695
shares (based on the capitalization of the Company existing as of
January 1, 1997) less (at the time of the grant of any Option) all
shares subject to any option granted under the Open Port Technology,
Inc. 1995 Non-Employee Stock Option Plan, as amended.
38. Effective Date
--------------
This Amendment Number Seven to the Plan is hereby adopted by the Board as
of October 29, 1998 and approved by the Shareholders of the Company as of
February 8, 1999.
Open Port Technology, Inc.
<PAGE>
AMENDMENT NUMBER EIGHT TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
39. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan (the "Plan"), as amended by Amendment Number One to
the Plan, dated as of February 1, 1996, Amendment Number Two to the Plan, dated
as of April 30, 1996, Amendment Number Three to the Plan, dated as of February
11, 1997, Amendment Number Four to the Plan, dated as of November 20, 1997,
Amendment Number Five to the Plan, dated as of June 15, 1998, Amendment Number
Six to the Plan, dated as of July 31, 1998, and Amendment Number Seven to the
Plan, dated as of February 8, 1999. As used herein, the term "Plan" shall refer
to the Open Port Technology, Inc. 1995 Incentive Stock Option Plan as modified
by Amendment Number One, Amendment Number Two, Amendment Number Three, Amendment
Number Four, Amendment Number Five, Amendment Number Six, Amendment Number Seven
and this Amendment Number Eight. The terms used herein which are defined in the
Plan shall have the meanings provided for in the Plan, unless otherwise defined
herein. Except as expressly modified hereby, all of the terms and provisions of
the Plan shall continue in full force and effect. A copy of this Amendment
Number Eight shall be attached to and made a part of the Plan.
40. Amendment to Section 3 of the Plan
----------------------------------
The first paragraph of Section 3 of the Plan is hereby amended so as to
read in its entirety as follows:
Except as provided in Section 4(a) hereof, the aggregate amount
of Stock for which Options may be granted shall not exceed 8,432,695
shares (based on the capitalization of the Company existing as of
January 1, 1997) less (at the time of the grant of any Option) all
shares subject to any option granted under the Open Port Technology,
Inc. 1995 Non-Employee Stock Option Plan, as amended.
41. Effective Date
--------------
This Amendment Number Eight to the Plan is hereby adopted by the Board as
of January 27, 2000 and approved by the Shareholders of the Company as of
November, 1999.
Open Port Technology, Inc.
<PAGE>
AMENDMENT NUMBER NINE TO
OPEN PORT TECHNOLOGY, INC.
1995 INCENTIVE STOCK OPTION PLAN
42. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan (the "Plan"), as amended by Amendment Number One to
the Plan, dated as of February 1, 1996, Amendment Number Two to the Plan, dated
as of April 30, 1996, Amendment Number Three to the Plan, dated as of February
11, 1997, Amendment Number Four to the Plan, dated as of November 20, 1997,
Amendment Number Five to the Plan, dated as of June 15, 1998, Amendment Number
Six to the Plan, dated as of July 31, 1998, Amendment Number Seven to the Plan,
dated as of February 8, 1999 and Amendment Number Eight to the Plan, dated as of
January 27, 2000. As used herein, the term "Plan" shall refer to the Open Port
Technology, Inc. 1995 Incentive Stock Option Plan as modified by Amendment
Number One, Amendment Number Two, Amendment Number Three, Amendment Number Four,
Amendment Number Five, Amendment Number Six, Amendment Number Seven, Amendment
Number Eight and this Amendment Number Nine. The terms used herein which are
defined in the Plan shall have the meanings provided for in the Plan, unless
otherwise defined herein. Except as expressly modified hereby, all of the terms
and provisions of the Plan shall continue in full force and effect. A copy of
this Amendment Number Nine shall be attached to and made a part of the Plan.
43. Amendment to Section 3 of the Plan
----------------------------------
The first paragraph of Section 3 of the Plan is hereby amended so as to
read in its entirety as follows:
Except as provided in Section 4(a) hereof, the aggregate amount
of Stock for which Options may be granted shall not exceed 9,732,695
shares (based on the capitalization of the Company existing as of
January 1, 1997) less (at the time of the grant of any Option) all
shares subject to any option granted under the Open Port Technology,
Inc. 1995 Non-Employee Stock Option Plan, as amended.
44. Effective Date
--------------
This Amendment Number Nine to the Plan is hereby adopted by the Board as of
March 24, 2000 and approved by the Shareholders of the Company as of March 28,
2000.
Open Port Technology, Inc.
<PAGE>
AMENDMENT NUMBER TEN TO
OPEN PORT TECHNOLOGY, INC
1995 INCENTIVE STOCK OPTION PLAN
1. Reference to Plan
-----------------
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan (the "Plan"), as amended by Amendment Number One to
the Plan, dated as of February 1, 1996, Amendment Number Two to the Plan, dated
as of April 30, 1996, Amendment Number Three to the Plan, dated as of February
11, 1997, Amendment Number Four to the Plan, dated as of November 20, 1997,
Amendment Number Five to the Plan, dated as of June 15, 1998, Amendment Number
Six to the Plan, dated as of July 31, 1998, Amendment Number Seven to the Plan,
dated as of February 8, 1999, Amendment Number Eight to the Plan, dated as of
January 27, 2000, and Amendment Number Nine to the Plan, dated as of March 24,
2000. As used herein, the term "Plan" shall refer to the Open Port Technology,
Inc. 1995 Incentive Stock Option Plan as modified by Amendment Number One,
Amendment Number Two, Amendment Number Three, Amendment Number Four, Amendment
Number Five, Amendment Number Six, Amendment Number Seven, and Amendment Number
Eight and Amendment Number Nine. The terms used herein which are defined in the
Plan shall have the meanings provided for in the Plan, unless otherwise defined
herein. Except as expressly modified hereby, all of the terms and provisions of
the Plan shall continue in full force and effect. A copy of this Amendment
Number Ten shall be attached to and made part of the Plan.
2. Amendments to Section 2 of the Plan
-----------------------------------
Section 2 of the Plan is hereby amended by amending paragraph (l) so as to
read in its entirety as follows:
(l) "Option Agreement" shall mean an agreement executed by an officer
of the Company and an Employee evidencing the grant of an Option, as it may
be amended, modified, extended or renewed from time to time, subject to
Section 19.
Section 2 of the Plan is hereby further amended by amending paragraph (r)
so as to read in its entirety as follows:
(r) "Change of Control Event" means, unless otherwise defined for a
particular Optionee in an Option Agreement or in an employment
agreement between the Company and such Optionee which addresses the
effect of a Change of Control Event (as therein defined) on benefits
hereunder, shall mean, and be deemed to have occurred:
(i) upon the acquisition at any time (excluding any acquisition in
connection with any public offering of equity securities of the
Company pursuant to a registration statement filed under the
Securities Act) by a person or group (as used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of
<PAGE>
1934, as amended (the "Exchange Act"), excluding for this
purpose, the Company or any Subsidiary or any employee benefit
plan of the Company or any Subsidiary) of the beneficial
ownership (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities representing
fifty percent (50%) or more of the combined voting power of the
then-outstanding securities of the Company; except that no Change
of Control shall be deemed to have occurred solely by reason of
such beneficial ownership (A) by a corporation of which fifty
percent (50%) or more of the beneficial ownership is then held,
directly or indirectly, in substantially the same proportions by
the persons who held the beneficial ownership of the Company
immediately before such acquisition, or (B) resulting directly
from an issuance of Stock by the Company to such person; or
(ii) the approval by the Board or the shareholders of the Company of a
merger, share exchange (other than a merger or share exchange
with a wholly-owned subsidiary), consolidation, reorganization,
or similar transaction, or a plan or agreement for the sale or
other disposition of all or substantially all of the consolidated
assets of the Company or a plan of liquidation of the Company, as
a result of which immediately following such transaction the
shareholders of the Company shall not hold, directly or
indirectly, a majority of the voting power of the then-
outstanding securities of the surviving, resulting or acquiring
corporation (or in the case of a sale or other disposition of
assets, of each surviving, resulting or acquiring corporation
which immediately after the transaction holds fifty percent (50%)
of the former assets of the Company).
3. Amendment to Section 7 of the Plan
----------------------------------
Section 7 of the Plan is hereby amended so as to read in its entirety as
follows:
The Plan shall continue in effect until terminated pursuant to Section
20 hereof, or until there is no more Stock as to which an Option may be
granted and no Options are outstanding; provided, however, that all Options
must be granted within 10 years from the effective date of the Plan, and no
Options shall be granted under the Plan after an IPO.
4. Amendments to Section 8 of the Plan
-----------------------------------
Section 8 of the Plan is hereby amended so as to read in its entirety as
follows:
(a) The Options may not be transferred, assigned, pledged or
hypothecated in any way and will not be subject to execution, attachment or
similar process, except as provided by this Plan and except by will or
under the laws of descent and distribution, or pursuant to a domestic
relations order issued by a court of competent jurisdiction, or by
designation of beneficiary pursuant to subsection (c) of this Section 8,
and except as may
2
<PAGE>
be permitted by an Option Agreement in accordance with subsection (d) of
this Section 8, and subject to the repurchase option described in Section
18 hereof.
(b) Prior to an IPO the Option Shares may not be transferred,
assigned, pledged or hypothecated, voluntarily or involuntarily or by
operation of law, except as provided by this Plan and any Option Agreement
pertaining to such Options.
(c) Each Optionee under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be an individual or a trust and who
may be named contingently or successively) to exercise on such
beneficiary's behalf any Options that are outstanding and exercisable after
the death of the Optionee. Each such designation shall revoke all prior
designations by the same Optionee, shall be in a form prescribed by the
Company, and will be effective only when filed by the Optionee in writing
with the Company during the Optionee's lifetime. In the absence of any such
designation, the Option to the extent outstanding and exercisable after the
death of an Optionee may be exercised by his or her executors,
administrators, legatees or distributees of his or her estate as determined
under his or her will or by the laws of descent and distribution. If an
Option is exercised by the executors, administrators, legatees or
distributees of the estate of a deceased Optionee or by the guardian or
legal representative of a Optionee, the Company shall be under no
obligation to issue Stock thereunder unless and until it is satisfied that
the person or persons exercising the Option are the duly appointed
beneficiary or legal representatives of the Optionee or of the deceased
Optionee's estate or the proper legatees or distributees of such estate.
(d) If the Option Agreement so provides and the Optionee consents to
foregoing the benefits of the Option being considered an incentive stock
option under Section 422 of the Code, then notwithstanding subsection (a)
above, an Optionee may transfer an Option in the manner prescribed by the
Board, and subject to such terms and conditions as may be prescribed by the
Board, to any Permissible Transferee (as defined below). For purposes of
this Plan, "Permissible Transferee" means any member of the Immediate
----------------------
Family (as defined below) of the Optionee to whom such Option was granted,
any trust the primary beneficiaries of which consist exclusively of the
Optionee or members of the Optionee's Immediate Family or any corporation,
partnership or similar entity, the owners of which consist exclusively of
the Optionee or members of the Optionee's Immediate Family. For purposes of
this Section, "Immediate Family" means such Optionee's spouse, children,
----------------
nieces, nephews, grandchildren, great grandchildren, stepchildren, parents,
stepparents, grandparents, siblings, half siblings, and the spouses of such
individuals.
(e) An Option will terminate immediately upon any attempted transfer,
assignment, pledge or hypothecation of such Option in violation of this
Section 8, and any attempted transfer, assignment, pledge or hypothecation
of any Option Shares in violation of this Section 8 will be void without
further action by the Company and have no effect.
5. Amendment to Section 11 of the Plan
-----------------------------------
3
<PAGE>
The last paragraph of Section 11 of the Plan is hereby amended so as to
read in its entirety as follows:
Further, notwithstanding anything to the contrary in Section 10 or
this Section 11, but subject to any different provision for a particular
Optionee in an Option Agreement or in an employment agreement between the
Company and such Optionee which addresses the effect of a Change in Control
Event (as therein defined) on benefits hereunder, upon the occurrence of a
Change in Control Event, with respect to each Option, if three (3) years
has not elapsed since the Date of Grant, then the vesting of the Option
shall be accelerated so that any portion of the Option that would have
vested within three (3) years from the Date of Grant shall automatically
vest as of the date of the Change of Control Event. The remaining unvested
portion shall continue to vest according to the above schedule (as if three
(3) years had elapsed since the Date of Grant).
6. Amendments to Section 12 of the Plan
------------------------------------
Section 12(b) of the Plan is hereby amended so as to read in its entirety
as follows:
(b) Unless otherwise provided for a particular Optionee in an Option
Agreement and which may distinguish among reasons for termination of
employment, (i) any unvested portion of an Option shall terminate
immediately upon the cessation of employment for any reason of the Optionee
holding the Option, and (ii) if an Optionee ceases to be an Employee for
any reason, such Optionee's vested Options must be exercised, if at all,
not later than thirty (30) days following the date such Optionee ceases to
be an Employee.
Section 12(d) of the Plan is hereby deleted.
7. Amendment to Section 14 of the Plan
-----------------------------------
Section 14 of the Plan is hereby amended so as to read in its entirety as
follows:
Except to the extent provided in an Option Agreement which permits
transfer of Options pursuant to Section 8(d), during the Optionee's
lifetime Options shall be exercisable only by the Optionee or his legal
representative or guardian. Options shall not be exercisable by the spouse
of any Optionee during such Optionee's lifetime, unless such spouse is
acting in his or her capacity as the legal representative or guardian or a
permissible transferee under such Option Agreement, of the Optionee. In the
event of the Optionee's death, the Option shall be exercisable by the
person or entity (including the Optionee's estate) that has obtained the
Optionee's rights under the Option by designation of beneficiary, by will
or under the laws of descent and distribution, or by such permitted
transfer.
Options shall be exercised, if at all, by submitting to the Company
(a) a Notice of Exercise in the form attached hereto as Exhibit A, (b) if
exercise occurs prior to an IPO, the Irrevocable Proxy, duly executed, (c)
any other written representations, covenants and undertakings that the
Company may prescribe pursuant to any shareholders agreements or
4
<PAGE>
to satisfy securities laws and regulations or other requirements, and (d)
full payment for the Option Stock made by cash, personal check or wire
transfer or, subject to the approval of the Board, any one or more of the
following means:
(i) Shares of Stock that have been held by the Optionee for at
least six months or purchased by the Optionee on the open market
("Mature Shares"), valued at their Fair Market Value on the date of
exercise;
(ii) pursuant to procedures approved by the Board, through the
sale of the Stock acquired on exercise of the Option through a broker-
dealer to whom the Optionee has submitted an irrevocable notice of
exercise and irrevocable instructions to deliver promptly to the
Company the amount of sale or loan proceeds sufficient to pay for such
Stock, together with, if requested by the Company, the amount of
federal, state, local or foreign withholding taxes payable by Optionee
by reason of such exercise.
If Mature Shares are used to pay the Exercise Price, then if requested by
the Secretary or Assistant Secretary of the Company, the Optionee shall
deliver to the Secretary or Assistant Secretary the agreement evidencing
the Option and the Optionee's certificate that such shares have been held
by the Optionee for at least six months or were purchased on the open
market and such certificate shall identify the number of shares of Stock
and the stock certificate or other document or notation which evidences
such stock ownership. The number of Mature Shares being so used and the
number of shares of Stock purchased upon exercise may be evidenced by a
notation on the agreement and the agreement shall be returned to the
Optionee. No fractional shares of Stock (or cash in lieu of fractional
shares) shall be issued upon exercise of an Option and the number of shares
of Stock that may be purchased upon exercise shall be rounded to the
nearest number of whole shares.
Upon receipt of the Notice of Exercise (subject to Sections 15, 16 and
17 of this Plan), the Company shall issue a new certificate of certificates
to the holder of the Option. The certificate or certificates for the shares
as to which the Option shall have been exercised shall be registered in the
name of the holder of the Option and shall be delivered to or upon the
written order of the holder of the Option. If the shares are issued before
an IPO the shares shall bear a legend in substantially the following form:
"THE SHARES SUBJECT TO THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND
VOTING RESTRICTIONS SET FORTH IN THE OPEN PORT TECHNOLOGY, INC. 1995
INCENTIVE STOCK OPTION PLAN (THE "PLAN"). COPIES OF THE PLAN ARE ON
FILE IN THE OFFICE OF THE SECRETARY OF THE CORPORATION. BY ACCEPTING
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE, THE HOLDER AGREES
TO BE BOUND BY THE PLAN AS IT MAY BE AMENDED FROM TIME TO TIME."
Whenever under the Plan, shares are to be delivered upon exercise of
an Option the Company shall be entitled to require (x) that the Optionee
remit an amount in cash, or
5
<PAGE>
if determined by the Board, Mature Shares, sufficient to satisfy all
federal, state, local and foreign tax withholding requirements related
thereto ("Required Withholding"), (y) the withholding of such Required
Withholding from compensation otherwise due to the Optionee or from any
shares due to the Optionee under the Plan or (z) any combination of the
foregoing.
Any Optionee who makes a disposition not described in Section
422(a)(i) of the Code of Option Shares acquired under an incentive stock
option shall remit to the Company an amount sufficient to satisfy all
resulting Required Withholding; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such Required
Withholding from compensation otherwise due to the Optionee or from any
shares or other payment due to the Optionee under the Plan.
8. Amendments to Section 18 of the Plan
------------------------------------
Section 18 of the Plan is hereby amended to read in its entirety as
follows:
The Options and the Option Shares are subject to the rights of the
Company to repurchase or acquire the Option Shares upon the occurrence of
certain events, including but not limited to: a transfer of the Option or
Option Shares, voluntarily, involuntarily or by operation of law or
cessation of employment with the Company for any reason, but excluding in
any instance upon the occurrence of a Change of Control Event or after an
IPO. The terms of this repurchase option with respect to the Option Shares
shall be set forth in the Option Agreement pertaining to such Options.
9. Amendments to Section 20 of the Plan
------------------------------------
Section 20 is amended to read as follows:
The Board may provide for the alteration, suspension or
discontinuation of the Plan, except that no such action may increase (other
than as provided in Section 4(a) hereof) the maximum number of shares
permitted to be issued upon the exercise of Options, or materially modify
the requirements as to eligibility for participation in the Plan, unless
such action is subject to approval by the shareholders of the Company.
10. Effective Date
--------------
This Amendment Number Ten to the Plan is hereby adopted by the Board as of
April 3, 2000 subject to approval by the Shareholders of the Company.
Open Port Technology, Inc.
6
<PAGE>
AMENDMENT NUMBER TEN TO
OPEN PORT TECHNOLOGY, INC
1995 INCENTIVE STOCK OPTION PLAN
1. Reference to Plan
Reference is hereby made to that certain Open Port Technology, Inc. 1995
Incentive Stock Option Plan (the "Plan"), as amended by Amendment Number One to
the Plan, dated as of February 1, 1996, Amendment Number Two to the Plan, dated
as of April 30, 1996, Amendment Number Three to the Plan, dated as of February
11, 1997, Amendment Number Four to the Plan, dated as of November 20, 1997,
Amendment Number Five to the Plan, dated as of June 15, 1998, Amendment Number
Six to the Plan, dated as of July 31, 1998, Amendment Number Seven to the Plan,
dated as of February 8, 1999, Amendment Number Eight to the Plan, dated as of
January 27, 2000, and Amendment Number Nine to the Plan, dated as of March 24,
2000. As used herein, the term "Plan" shall refer to the Open Port Technology,
Inc. 1995 Incentive Stock Option Plan as modified by Amendment Number One,
Amendment Number Two, Amendment Number Three, Amendment Number Four, Amendment
Number Five, Amendment Number Six, Amendment Number Seven, and Amendment Number
Eight and Amendment Number Nine. The terms used herein which are defined in the
Plan shall have the meanings provided for in the Plan, unless otherwise defined
herein. Except as expressly modified hereby, all of the terms and provisions of
the Plan shall continue in full force and effect. A copy of this Amendment
Number Ten shall be attached to and made part of the Plan.
2. Amendments to Section 2 of the Plan
Section 2 of the Plan is hereby amended by amending paragraph (l) so as to
read in its entirety as follows:
(1) "Option Agreement" shall mean an agreement executed by an officer
of the Company and an Employee evidencing the grant of an Option, as it may
be amended, modified, extended or renewed from time to time, subject to
Section 19.
Section 2 of the Plan is hereby further amended by amending paragraph (r)
so as to read in its entirety as follows:
(r) "Change of Control Event" means, unless otherwise defined for a
particular Optionee in an Option Agreement or in an employment
agreement between the Company and such Optionee which addresses the
effect of a Change of Control Event (as therein defined) on benefits
hereunder, shall mean, and be deemed to have occurred:
(i) upon the acquisition at any time (excluding any acquisition in
connection with any public offering of equity securities of the
Company pursuant to a registration statement filed under the
Securities Act) by a person or group (as used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), excluding for this purpose, the Company or
any Subsidiary or any employee benefit plan of the Company
<PAGE>
or any Subsidiary) of the beneficial ownership (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities representing fifty percent (50%) or
more of the combined voting power of the then-outstanding
securities of the Company; except that no Change of Control shall
be deemed to have occurred solely by reason of such beneficial
ownership (A) by a corporation of which fifty percent (50%) or
more of the beneficial ownership is then held, directly or
indirectly, in substantially the same proportions by the persons
who held the beneficial ownership of the Company immediately
before such acquisition, or (B) resulting directly from an
issuance of Stock by the Company to such person; or
(ii) the approval by the Board or the shareholders of the Company of a
merger, share exchange (other than a merger or share exchange
with a wholly-owned subsidiary), consolidation, reorganization,
or similar transaction, or a plan or agreement for the sale or
other disposition of all or substantially all of the consolidated
assets of the Company or a plan of liquidation of the Company, as
a result of which immediately following such transaction the
shareholders of the Company shall not hold, directly or
indirectly, a majority of the voting power of the then-
outstanding securities of the surviving, resulting or acquiring
corporation (or in the case of a sale or other disposition of
assets, of each surviving, resulting or acquiring corporation
which immediately after the transaction holds fifty percent (50%)
of the former assets of the Company).
3. Amendment to Section 7 of the Plan
Section 7 of the Plan is hereby amended so as to read in its entirety as
follows:
The Plan shall continue in effect until terminated pursuant to Section
20 hereof, or until there is no more Stock as to which an Option may be
granted and no Options are outstanding; provided, however, that all Options
must be granted within 10 years from the effective date of the Plan, and no
Options shall be granted under the Plan after an IPO.
4. Amendments to Section 8 of the Plan
Section 8 of the Plan is hereby amended so as to read in its entirety as
follows:
(a) The Options may not be transferred, assigned, pledged or
hypothecated in any way and will not be subject to execution, attachment or
similar process, except as provided by this Plan and except by will or
under the laws of descent and distribution, or pursuant to a domestic
relations order issued by a court of competent jurisdiction, or by
designation of beneficiary pursuant to subsection (c) of this Section 8,
and except as may be permitted by an Option Agreement in accordance with
subsection (d) of this Section 8, and subject to the repurchase option
described in Section 18 hereof.
-2-
<PAGE>
(b) Prior to an IPO the Option Shares may not be transferred,
assigned, pledged or hypothecated, voluntarily or involuntarily or by
operation of law, except as provided by this Plan and any Option Agreement
pertaining to such Options.
(c) Each Optionee under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be an individual or a trust and who
may be named contingently or successively) to exercise on such
beneficiary's behalf any Options that are outstanding and exercisable after
the death of the Optionee. Each such designation shall revoke all prior
designations by the same Optionee, shall be in a form prescribed by the
Company, and will be effective only when filed by the Optionee in writing
with the Company during the Optionee's lifetime. In the absence of any such
designation, the Option to the extent outstanding and exercisable after the
death of an Optionee may be exercised by his or her executors,
administrators, legatees or distributees of his or her estate as determined
under his or her will or by the laws of descent and distribution. If an
Option is exercised by the executors, administrators, legatees or
distributees of the estate of a deceased Optionee or by the guardian or
legal representative of a Optionee, the Company shall be under no
obligation to issue Stock thereunder unless and until it is satisfied that
the person or persons exercising the Option are the duly appointed
beneficiary or legal representatives of the Optionee or of the deceased
Optionee's estate or the proper legatees or distributees of such estate.
(d) If the Option Agreement so provides and the Optionee consents to
foregoing the benefits of the Option being considered an incentive stock
option under Section 422 of the Code, then notwithstanding subsection (a)
above, an Optionee may transfer an Option in the manner prescribed by the
Board, and subject to such terms and conditions as may be prescribed by the
Board, to any Permissible Transferee (as defined below). For purposes of
this Plan, "Permissible Transferee" means any member of the Immediate
Family (as defined below) of the Optionee to whom such Option was granted,
any trust the primary beneficiaries of which consist exclusively of the
Optionee or members of the Optionee's Immediate Family or any corporation,
partnership or similar entity, the owners of which consist exclusively of
the Optionee or members of the Optionee's Immediate Family. For purposes of
this Section, "Immediate Family" means such Optionee's spouse, children,
nieces, nephews, grandchildren, great grandchildren, stepchildren, parents,
stepparents, grandparents, siblings, half siblings, and the spouses of such
individuals.
(e) An Option will terminate immediately upon any attempted transfer,
assignment, pledge or hypothecation of such Option in violation of this
Section 8, and any attempted transfer, assignment, pledge or hypothecation
of any Option Shares in violation of this Section 8 will be void without
further action by the Company and have no effect.
5. Amendment to Section 11 of the Plan
The last paragraph of Section 11 of the Plan is hereby amended so as to
read in its entirety as follows:
Further, notwithstanding anything to the contrary in Section 10 or
this Section 11, but subject to any different provision for a particular
Optionee in an Option Agreement or
-3-
<PAGE>
in an employment agreement between the Company and such Optionee which
addresses the effect of a Change in Control Event (as therein defined) on
benefits hereunder, upon the occurrence of a Change in Control Event, with
respect to each Option, if three (3) years has not elapsed since the Date
of Grant, then the vesting of the Option shall be accelerated so that any
portion of the Option that would have vested within three (3) years from
the Date of Grant shall automatically vest as of the date of the Change of
Control Event. The remaining unvested portion shall continue to vest
according to the above schedule (as if three (3) years had elapsed since
the Date of Grant).
6. Amendments to Section 12 of the Plan
Section 12(b) of the Plan is hereby amended so as to read in its entirety
as follows:
(b) Unless otherwise provided for a particular Optionee in an Option
Agreement and which may distinguish among reasons for termination of
employment, (i) any unvested portion of an Option shall terminate
immediately upon the cessation of employment for any reason of the Optionee
holding the Option, and (ii) if an Optionee ceases to be an Employee for
any reason, such Optionee's vested Options must be exercised, if at all,
not later than thirty (30) days following the date such Optionee ceases to
be an Employee.
Section 12(d) of the Plan is hereby deleted.
7. Amendment to Section 14 of the Plan
Section 14 of the Plan is hereby amended so as to read in its entirety as
follows:
Except to the extent provided in an Option Agreement which permits
transfer of Options pursuant to Section 8(d), during the Optionee's
lifetime Options shall be exercisable only by the Optionee or his legal
representative or guardian. Options shall not be exercisable by the spouse
of any Optionee during such Optionee's lifetime, unless such spouse is
acting in his or her capacity as the legal representative or guardian or a
permissible transferee under such Option Agreement, of the Optionee. In the
event of the Optionee's death, the Option shall be exercisable by the
person or entity (including the Optionee's estate) that has obtained the
Optionee's rights under the Option by designation of beneficiary, by will
or under the laws of descent and distribution, or by such permitted
transfer.
Options shall be exercised, if at all, by submitting to the Company
(a) a Notice of Exercise in the form attached hereto as Exhibit A, (b) if
exercise occurs prior to an IPO, the Irrevocable Proxy, duly executed, (c)
any other written representations, covenants and undertakings that the
Company may prescribe pursuant to any shareholders agreements or to satisfy
securities laws and regulations or other requirements, and (d) full payment
for the Option Stock made by cash, personal check or wire transfer or,
subject to the approval of the Board, any one or more of the following
means:
(i) Shares of Stock that have been held by the Optionee for at
least six months or purchased by the Optionee on the open market
("Mature Shares"), valued at their Fair Market Value on the date of
exercise;
-4-
<PAGE>
(ii) pursuant to procedures approved by the Board, through the
sale of the Stock acquired on exercise of the Option through a broker-
dealer to whom the Optionee has submitted an irrevocable notice of
exercise and irrevocable instructions to deliver promptly to the
Company the amount of sale or loan proceeds sufficient to pay for such
Stock, together with, if requested by the Company, the amount of
federal, state, local or foreign withholding taxes payable by Optionee
by reason of such exercise.
If Mature Shares are used to pay the Exercise Price, then if requested by
the Secretary or Assistant Secretary of the Company, the Optionee shall
deliver to the Secretary or Assistant Secretary the agreement evidencing
the Option and the Optionee's certificate that such shares have been held
by the Optionee for at least six months or were purchased on the open
market and such certificate shall identify the number of shares of Stock
and the stock certificate or other document or notation which evidences
such stock ownership. The number of Mature Shares being so used and the
number of shares of Stock purchased upon exercise may be evidenced by a
notation on the agreement and the agreement shall be returned to the
Optionee. No fractional shares of Stock (or cash in lieu of fractional
shares) shall be issued upon exercise of an Option and the number of shares
of Stock that may be purchased upon exercise shall be rounded to the
nearest number of whole shares.
Upon receipt of the Notice of Exercise (subject to Sections 15, 16 and
17 of this Plan), the Company shall issue a new certificate of certificates
to the holder of the Option. The certificate or certificates for the shares
as to which the Option shall have been exercised shall be registered in the
name of the holder of the Option and shall be delivered to or upon the
written order of the holder of the Option. If the shares are issued before
an IPO the shares shall bear a legend in substantially the following form:
"THE SHARES SUBJECT TO THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND
VOTING RESTRICTIONS SET FORTH IN THE OPEN PORT TECHNOLOGY, INC. 1995
INCENTIVE STOCK OPTION PLAN (THE "PLAN"). COPIES OF THE PLAN ARE ON
FILE IN THE OFFICE OF THE SECRETARY OF THE CORPORATION. BY ACCEPTING
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE, THE HOLDER AGREES
TO BE BOUND BY THE PLAN AS IT MAY BE AMENDED FROM TIME TO TIME."
Whenever under the Plan, shares are to be delivered upon exercise of
an Option the Company shall be entitled to require (x) that the Optionee
remit an amount in cash, or if determined by the Board, Mature Shares,
sufficient to satisfy all federal, state, local and foreign tax withholding
requirements related thereto ("Required Withholding"), (y) the withholding
of such Required Withholding from compensation otherwise due to the
Optionee or from any shares due to the Optionee under the Plan or (z) any
combination of the foregoing.
Any Optionee who makes a disposition not described in Section
422(a)(i) of the Code of Option Shares acquired under an incentive stock
option shall remit to the Company an amount sufficient to satisfy all
resulting Required Withholding; provided
-5-
<PAGE>
that, in lieu of or in addition to the foregoing, the Company shall have
the right to withhold such Required Withholding from compensation otherwise
due to the Optionee or from any shares or other payment due to the Optionee
under the Plan.
8. Amendments to Section 18 of the Plan
Section 18 of the Plan is hereby amended to read in its entirety as
follows:
The Options and the Option Shares are subject to the rights of the
Company to repurchase or acquire the Option Shares upon the occurrence of
certain events, including but not limited to: a transfer of the Option or
Option Shares, voluntarily, involuntarily or by operation of law or
cessation of employment with the Company for any reason, but excluding in
any instance upon the occurrence of a Change of Control Event or after an
IPO. The terms of this repurchase option with respect to the Option Shares
shall be set forth in the Option Agreement pertaining to such Options.
9. Amendments to Section 20 of the Plan
Section 20 is amended to read as follows:
The Board may provide for the alteration, suspension or
discontinuation of the Plan, except that no such action may increase (other
than as provided in Section 4(a) hereof) the maximum number of shares
permitted to be issued upon the exercise of Options, or materially modify
the requirements as to eligibility for participation in the Plan, unless
such action is subject to approval by the shareholders of the Company.
10. Effective Date
This Amendment Number Ten to the Plan is hereby adopted by the Board as of
April ___, 2000 subject to approval by the Shareholders of the Company.
Open Port Technology, Inc.
-6-
<PAGE>
Exhibit 10.3
Open Port Technology, Inc.
2000 Equity Incentive Plan
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1. Establishment, Objectives and Duration............. 1
1.1. Establishment of the Plan............................... 1
1.2. Objectives of the Plan.................................. 1
1.3. Duration of the Plan.................................... 1
Article 2. Definitions........................................ 1
2.1. "Article"............................................... 1
2.2. "Award"................................................. 1
2.3. "Award Agreement"....................................... 1
2.4. "Board"................................................. 1
2.5. "Bonus Shares".......................................... 1
2.6. "Cash-Based Award"...................................... 2
2.7. "Cause"................................................. 2
2.8. "Change of Control"..................................... 2
2.9. "Change of Control Value"............................... 3
2.10. "Code".................................................. 3
2.11. "Committee"............................................. 3
2.12. "Common Stock" or "Stock"............................... 3
2.13. "Company"............................................... 3
2.14. "Covered Employee"...................................... 3
2.15. "Deferred Shares"....................................... 3
2.16. "Disability"............................................ 3
2.17. "Disqualifying Disposition"............................. 3
2.18. "Effective Date"........................................ 3
2.19. "Eligible Person"....................................... 3
2.20. "Exchange Act".......................................... 4
2.21. "Fair Market Value"..................................... 4
2.22. "Freestanding SAR"...................................... 4
2.23. "Grant Date"............................................ 4
2.24. "Grantee"............................................... 4
2.25. "Incentive Stock Option" or "ISO"....................... 4
2.26. "including" or "includes"............................... 4
2.27. "IPO" or "Initial Public Offering"...................... 5
2.28. "IPO Date".............................................. 5
2.29. "Mature Shares"......................................... 5
2.30. "Option"................................................ 5
2.31. "Option Price".......................................... 5
2.32. "Option Term"........................................... 5
2.33. "Performance-Based Exception"........................... 5
2.34. "Performance Period".................................... 5
2.35. "Performance Share" or "Performance Unit"............... 5
2.36. "Period of Restriction"................................. 5
2.37. "Person"................................................ 5
2.38. "Plan".................................................. 5
-i-
<PAGE>
2.39. "Reload Option"........................................ 5
2.40. "Required Withholding".................................. 5
2.41. "Restricted Shares"..................................... 5
2.42. "Rule 16b-3"............................................ 6
2.43. "SAR"................................................... 6
2.44. "SEC"................................................... 6
2.45. "Section"............................................... 6
2.46. "Section 16 Person"..................................... 6
2.47. "Share"................................................. 6
2.48. "Strike Price".......................................... 6
2.49. "Subsidiary"............................................ 6
2.50. "Substitute Award"...................................... 6
2.51. "Tandem SAR"............................................ 6
2.52. "10% Owner"............................................. 6
2.53. "Termination of Affiliation"............................ 6
Article 3. Administration...................................... 7
3.1. Committee............................................... 7
3.2. Other Committee......................................... 7
3.3. Powers of Committee..................................... 7
Article 4. Shares Subject to the Plan.......................... 9
4.1. Number of Shares Available.............................. 9
4.2. Adjustments in Authorized Shares........................ 10
4.3. Performance Measures.................................... 10
4.4. Compliance with Section 162(m) of the Code.............. 11
Article 5. Eligibility and General Conditions of Awards........ 12
5.1. Eligibility............................................. 12
5.2. Grant Date.............................................. 12
5.3. Maximum Term............................................ 12
5.4. Award Agreement......................................... 12
5.5. Restrictions on Share Transferability................... 12
5.6. Termination of Affiliation.............................. 12
5.7. Nontransferability of Awards............................ 14
Article 6. Stock Options....................................... 15
6.1. Grant of Options........................................ 15
6.2. Award Agreement......................................... 15
6.3. Option Price............................................ 15
6.4. Grant of Incentive Stock Options........................ 15
6.5. Grant of Reload Options................................. 16
6.6. Conditions on Reload Options............................ 16
6.7. Payment................................................. 17
Article 7. Stock Appreciation Rights........................... 17
7.1. Grant of SARs........................................... 17
7.2. Exercise of Tandem SARs................................. 17
7.3. Payment of SAR Amount................................... 18
-ii-
<PAGE>
Article 8. Restricted Shares................................... 18
8.1. Grant of Restricted Shares............................... 18
8.2. Award Agreement.......................................... 18
8.3. Consideration............................................ 18
8.4. Effect of Forfeiture..................................... 18
8.5. Escrow; Legends.......................................... 19
Article 9. Performance Units, Performance Shares and
Cash-Based Awards................................... 19
9.1. Grant of Performance Units and Performance Shares........ 19
9.2. Value/Performance Goals.................................. 19
9.3. Earning of Performance Units, Performance Shares and
Cash-Based Awards........................................ 19
9.4. Form and Timing of Payment of Performance Units,
Performance Shares and Cash-Based Awards................. 19
Article 10. Bonus Shares and Deferred Shares................... 20
10.1. Bonus Shares............................................ 20
10.2. Deferred Shares......................................... 20
Article 11. Beneficiary Designation............................ 20
Article 12. Deferrals.......................................... 20
Article 13. Rights of Employees and Consultants 20
13.1. No Right to Employment.................................. 20
13.2. No Right to Participation............................... 21
Article 14. Change of Control and Certain Corporate
Transactions....................................... 21
14.1. Change of Control....................................... 21
14.2. Pooling of Interests Accounting......................... 23
14.3. Substituting Awards in Certain Corporate Transactions... 24
Article 15. Amendment, Modification, and Termination........... 24
15.1. Amendment, Modification, and Termination................ 24
15.2. Adjustments Upon Certain Unusual or Nonrecurring Events. 24
15.3. Awards Previously Granted............................... 24
Article 16. Withholding........................................ 24
16.1. Mandatory Tax Withholding............................... 24
16.2. Notification under Code Section 83(b)................... 25
Article 17. Additional Provisions.............................. 25
17.1. Successors.............................................. 25
17.2. Gender and Number....................................... 25
17.3. Severability............................................ 25
17.4. Requirements of Law..................................... 25
17.5. Securities Law Compliance............................... 25
17.6. No Rights as a Stockholder.............................. 26
17.7. Nature of Payments...................................... 26
17.8. Governing Law........................................... 27
-iii-
<PAGE>
Open Port Technology, Inc.
2000 Equity Incentive Plan
Article 1. Establishment, Objectives and Duration
1.1. Establishment of the Plan. Open Port Technology, Inc., a Delaware
corporation (the "Company"), hereby establishes this incentive compensation plan
to be known as the Open Port Technology, Inc. 2000 Equity Incentive Plan (the
"Plan") which was duly adopted by the Board of Directors of the Company (the
"Board") on April 3, 2000. The Plan shall become effective upon stockholder
approval (the "Effective Date"). No Awards shall be made prior to the IPO Date
(as defined herein).
1.2. Objectives of the Plan. The Plan is intended to allow employees,
directors, consultants and other service providers of the Company and its
Subsidiaries to acquire or increase equity ownership in the Company, thereby
strengthening their commitment to the success of the Company and stimulating
their efforts on behalf of the Company, and to assist the Company and its
Subsidiaries in attracting new employees, directors, consultants and other
service providers and retaining existing employees, directors, consultants, and
other service providers. The Plan is also intended to optimize the profitability
and growth of the Company through incentives which are consistent with the
Company's goals; to provide incentives for excellence in individual performance;
and to promote teamwork.
1.3. Duration of the Plan. The Plan shall commence on the Effective Date
and shall remain in effect, subject to the right of the Board to amend or
terminate the Plan at any time pursuant to Article 15 hereof, until the tenth
anniversary of the Effective Date; provided, however, that in no event may any
Incentive Stock Option be granted under the Plan more than 10 years from the
earlier of the date the Plan is adopted or the date the Plan was initially
approved by shareholders of the Company.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below:
2.1. "Article" means an Article of the Plan.
2.2 "Award" means Options (including Incentive Stock Options and Reload
Options), Restricted Shares, Bonus Shares, Deferred Shares, stock appreciation
rights (SARs), Performance Units, Performance Shares or Cash-Based Awards
granted under the Plan.
2.3. "Award Agreement" means a written agreement by which an Award is
evidenced, including any Award Agreement as amended by the Committee pursuant to
Section 3.2.
2.4. "Board" has the meaning set forth in Section 1.1.
2.5. "Bonus Shares" means Shares that are awarded to a Grantee without cost
and without restrictions in recognition of past performance (whether determined
by reference to another
<PAGE>
employee benefit plan of the Company or otherwise), as an incentive to become an
employee, director or consultant of the Company or a Subsidiary or otherwise.
2.6. "Cash-Based Award" has the meaning set forth in Article 9.
2.7. "Cause" means, unless otherwise defined for a particular Grantee in an
Award Agreement or in an employment agreement between the Company and such
Grantee which addresses the effect of a Termination of Affiliation for Cause (as
therein defined) on benefits hereunder:
(i) a Grantee's commission of a felony or other crime involving
fraud, dishonesty or moral turpitude;
(ii) a Grantee's willful or reckless misconduct in the
performance of the Grantee's duties; or
(iii) a Grantee's habitual neglect of duties, provided, however
that the Grantee is given at least ten (10) days prior written notice
of such habitual neglect and the opportunity to cure any curable
neglect;
(iv) a Grantee's breach or violation of any agreement between the
Grantee and the Company including but not limited to any
noncompetition, nonsolicitation, or nondisclosure undertaking, or of
any Company policy;
provided, however, that for purposes of clauses (ii) and (iii), Cause shall not
include bad judgment or negligent acts not amounting to habitual neglect of
duties. A Grantee who agrees to resign his affiliation with the Company or a
Subsidiary in lieu of being terminated for Cause may be deemed to have been
terminated for Cause for purposes of this Plan.
2.8. "Change of Control," unless otherwise defined for a particular Grantee
in an Award Agreement or in an employment agreement between the Company and such
Grantee which addresses the effect of a Change of Control (as therein defined)
on benefits hereunder, shall mean, and be deemed to have occurred:
(a) upon the acquisition at any time (excluding any acquisition in
connection with any public offering of equity securities of the Company
pursuant to a registration statement filed under the Securities Act) by a
person or group (as used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), excluding for this
purpose, the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary) of the beneficial ownership (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities representing seventy-five percent (75%) or more of the combined
voting power of the then-outstanding securities of the Company; except that
no Change of Control shall be deemed to have occurred solely by reason of
such beneficial ownership (A) by a corporation of which twenty-five percent
(25%) or more of the beneficial ownership is then held, directly or
indirectly, in substantially the same proportions by the persons who held
the beneficial ownership of the Company immediately before such
acquisition, or (B) resulting directly from an issuance of Stock by the
Company to such person; or
-2-
<PAGE>
(b) the approval by the Board or the shareholders of the Company of a
merger, consolidation, reorganization (other than a merger or share
exchange with a wholly-owned subsidiary), share exchange, or similar
transaction, or a plan or agreement for the sale or other disposition of
all or substantially all of the consolidated assets of the Company or a
plan of liquidation of the Company, as a result of which immediately
following such transaction the shareholders of the Company shall not hold,
directly or indirectly, twenty-five percent (25%) of the voting power of
the then-outstanding securities of the surviving, resulting or acquiring
corporation (or in the case of a sale or other disposition of assets, of
each surviving, resulting or acquiring corporation which immediately after
the transaction holds fifty percent (50%) of the former assets of the
Company).
2.9. "Change of Control Value" means the Fair Market Value of a Share on
the date of a Change of Control.
2.10. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and regulations and rulings thereunder. References to a particular
section of the Code include references to successor provisions of the Code or
any successor statute.
2.11. "Committee" has the meaning set forth in Article 3.
2.12. "Common Stock" or "Stock" means the common stock, $0.001 par value,
of the Company.
2.13. "Company" has the meaning set forth in Section 1.1.
2.14. "Covered Employee" means a Grantee who, as of the date that the value
of an Award is recognizable as taxable income, is one of the group of "covered
employees" within the meaning of Code Section 162(m).
2.15. "Deferred Shares" means Shares that are awarded to a Grantee on a
deferred basis pursuant to Section 10.2.
2.16. "Disability" means for purposes of Incentive Stock Options, a
permanent and total disability, within the meaning of Code Section 22(e)(3), as
determined by the Committee in good faith, upon receipt of medical advice from
one or more individuals, selected by the Committee, who are qualified to give
professional medical advice and for all other purposes, a mental or physical
condition which, in the opinion of the Committee, renders a Grantee unable or
incompetent to carry out the job duties and responsibilities assigned to such
Grantee at the time the disability was incurred and which is expected to be
permanent or of an indefinite duration exceeding six months.
2.17. "Disqualifying Disposition" has the meaning set forth in Section 6.4.
2.18. "Effective Date" has the meaning set forth in Section 1.1.
2.19. "Eligible Person" means (i) any employee (including any officer) of
the Company or any Subsidiary, including any such employee who is on an approved
leave of absence, layoff, or has been subject to a disability which does not
qualify as a Disability, (ii) any director of the
-3-
<PAGE>
Company and (iii) any person performing services for the Company or a
Subsidiary, including consultants, suppliers and contractors.
2.20. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to a particular section of the Exchange Act include references to
successor provisions.
2.21. "Fair Market Value" of any security of the Company means, as of any
applicable date:
(i) if the security is listed for trading on the New York Stock
Exchange, the closing price, regular way, of the security as reported
on the New York Stock Exchange Composite Tape, or if no sale of the
security shall have been reported for such date, on the next preceding
date on which such a sale was reported, or
(ii) if the security is not so listed, but is listed on another
national securities exchange or authorized for quotation on the Nasdaq
National Market, the closing price, regular way, of the security on
such exchange or the Nasdaq National Market, as the case may be, or if
no such sale of the security shall have been reported for such date,
on the next preceding date on which such a sale was reported, or
(iii) if the security is not listed for trading on a national
securities exchange or authorized for quotation on the Nasdaq National
Market, the average of the closing bid and asked prices as reported by
the Nasdaq SmallCap Market or, if no such prices shall have been so
reported for such date, on the next preceding date on which such
prices were so reported, or
(iv) if the security is not listed for trading on the national
securities exchange and is not authorized for quotation on the Nasdaq
National Market or the Nasdaq SmallCap Market, the fair market value
of the security as determined in good faith by the Committee;
provided, that the Fair Market Value of the Common Stock as of the IPO Date
shall be the IPO price of such Common Stock (without regard to any
underwriting discount).
2.22. "Freestanding SAR" means an SAR that is granted independently of any
other Award.
2.23. "Grant Date" has the meaning set forth in Section 5.2.
2.24. "Grantee" means an individual who has been granted an Award.
2.25. "Incentive Stock Option" or "ISO" means an option granted under
Section 6.4 of the Plan that is intended to meet the requirements of Code
Section 422 or any successor provision thereto.
2.26. "including" or "includes" mean "including, without limitation," or
"includes, without limitation", respectively.
-4-
<PAGE>
2.27. "IPO" or "Initial Public Offering" means the initial public offering
of Common Stock as contemplated in the registration statement on form S-1 filed
with the SEC by the Company on April 5, 2000 and as subsequently amended.
2.28. "IPO Date" means the closing date under the underwriting agreement
between the Company and the underwriters of the IPO with respect to the Firm
Shares (as defined in the underwriting agreement).
2.29. "Mature Shares" means Shares for which the holder thereof has good
title, free and clear of all liens and encumbrances, and which such holder
either (i) has held for at least six months or (ii) has purchased on the open
market.
2.30. "Option" means an option granted under Article 6 of the Plan.
2.31. "Option Price" means the price at which a Share may be purchased by a
Grantee pursuant to an Option.
2.32. "Option Term" means the period beginning on the Grant Date of an
Option and ending on the expiration date of such Option, as specified in the
Award Agreement for such Option and as may, consistent with the provisions of
the Plan, be extended from time to time by the Committee prior to the expiration
date of such Option then in effect.
2.33. "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.34. "Performance Period" has the meaning set forth in Section 9.2.
2.35. "Performance Share" or "Performance Unit" has the meaning set forth
in Article 9.
2.36. "Period of Restriction" means the period during which the transfer of
Restricted Shares is limited in some way (based on the passage of time, the
achievement of performance goals, or upon the occurrence of other events as
determined by the Committee) or the Shares are subject to a substantial risk of
forfeiture, as provided in Article 8.
2.37. "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.38. "Plan" has the meaning set forth in Section 1.1.
2.39. "Reload Option" has the meaning set forth in Section 6.5.
2.40. "Required Withholding" has the meaning set forth in Article 16.
2.41. "Restricted Shares" means Shares that are subject to transfer
restrictions and are subject to forfeiture if conditions specified in the Award
Agreement applicable to such Shares are not satisfied.
-5-
<PAGE>
2.42. "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the
Exchange Act, together with any successor rule, as in effect from time to time.
2.43. "SAR" means a stock appreciation right.
2.44. "SEC" means the United States Securities and Exchange Commission, or
any successor thereto.
2.45. "Section" means, unless the context otherwise requires, a Section of
the Plan.
2.46. "Section 16 Person" means a person who is subject to obligations
under Section 16 of the Exchange Act with respect to transactions involving
equity securities of the Company.
2.47. "Share" means a share of Common Stock.
2.48. "Strike Price" of any SAR shall equal, for any Tandem SAR (whether
granted at the same time as or after the grant of the related Option), the
Option Price of such Option, or for any other SAR, 100% of the Fair Market Value
of a Share on the Grant Date of such SAR; provided that the Committee may
specify a higher Strike Price in the Award Agreement; provided further that any
SAR granted as a Substitute Award pursuant to Section 14.3 may be granted at
such Strike Price as the Committee determines to be necessary to achieve
preservation of economic value as provided in Section 14.3.
2.49. "Subsidiary" means, for purposes of grants of Incentive Stock
Options, a corporation as defined in Section 424(f) of the Code (with the
Company being treated as the employer corporation for purposes of this
definition) and for all other purposes, with respect to any Person (a) any
corporation of which more than 50% of the voting securities are at the time,
directly or indirectly, owned by such Person, and (b) any partnership or limited
liability company in which such Person has a direct or indirect interest
(whether in the form of voting power or participation in profits or capital
contribution) of more than 50%.
2.50. "Substitute Award" has the meaning set forth in Section 6.3.
2.51. "Tandem SAR" means an SAR that is granted in connection with a
related Option, the exercise of which shall require cancellation of the right to
purchase a Share under the related Option (and when a Share is purchased under
the related Option, the Tandem SAR shall similarly be canceled).
2.52. "10% Owner" means a person who owns capital stock (including stock
treated as owned under Code Section 424(d)) possessing more than 10% of the
total combined voting power of all classes of capital stock of the Company or
any Subsidiary.
2.53. "Termination of Affiliation" occurs on the first day on which an
individual is for any reason no longer providing services to the Company or any
Subsidiary in the capacity of an employee, director, consultant or other service
provider, or with respect to an individual who is an employee of, a director of,
consultant to, or a service provider to a Person which is a Subsidiary, the
first day on which such Person ceases to be a Subsidiary.
-6-
<PAGE>
Article 3. Administration
3.1. Committee. Subject to Article 15, and to Section 3.2, the Plan shall
be administered by the Board, or a committee of the Board appointed by the Board
to administer the Plan ("Plan Committee"). To the extent the Board considers it
desirable for transactions relating to Awards to qualify for an exemption under
Rule 16b-3 or meet the Performance-Based Exception, the Plan Committee shall
consist of two or more directors of the Company, all of whom qualify as "outside
directors" as defined for purposes of the regulations under Code Section 162(m)
or as "non-employee directors" within the meaning of Rule 16b-3, as applicable.
The number of members of the Plan Committee shall from time to time be increased
or decreased, and shall be subject to such conditions, in each case as the Board
deems appropriate to permit transactions in Shares pursuant to the Plan to
satisfy such conditions of Rule 16b-3 or Code Section 162(m) as then in effect.
Any references herein to "Committee" are references to the Board or the Plan
Committee, as applicable.
3.2. Other Committee. The Board may, in its discretion, delegate to another
committee of the Board any or all of the authority and responsibility of the
Committee with respect to Awards to Grantees who are not officers of the Company
at the time any such delegated authority or responsibility is exercised. Such
other committee shall consist of the Chairman of the Board and may, but is not
required to, also include one or more other directors who may, but need not be,
officers or employees of the Company or of any of its Subsidiaries. To the
extent that the Board has delegated the authority and responsibility of the
Committee to such other committee, all references to the Committee in the Plan
shall be to such other committee.
3.3. Powers of Committee. Subject to the express provisions of the Plan,
the Committee has full and final authority and sole discretion as follows:
(a) to determine when, to whom and in what types and amounts Awards
should be granted and the terms and conditions applicable to each Award,
including the Option Price, the Option Term, the benefit payable under any
SAR, Performance Unit, or Performance Share or Cash-Based Award, and
whether or not specific Awards shall be granted in connection with other
specific Awards, and if so whether they shall be exercisable cumulatively
with, or alternatively to, such other specific Awards;
(b) to determine the amount, if any, that a Grantee shall pay for
Restricted Shares, whether and on what terms to permit or require the
payment of cash dividends thereon to be deferred, when Restricted Shares
(including Restricted Shares acquired upon the exercise of an Option) shall
be forfeited and whether such shares shall be held in escrow;
(c) to construe and interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan;
(d) to make, amend, and rescind rules relating to the Plan, including
rules with respect to the exercisability and nonforfeitability of Awards
upon the Termination of Affiliation of a Grantee;
-7-
<PAGE>
(e) to determine the terms and conditions of all Award Agreements
(which need not be identical) and, with the consent of the Grantee, to
amend any such Award Agreement at any time, among other things, to permit
transfers of such Awards to the extent permitted by the Plan; provided that
the consent of the Grantee shall not be required for any amendment which
(i) does not adversely affect the rights of the Grantee, or (ii) is
necessary or advisable (as determined by the Committee) to carry out the
purpose of the Award as a result of any new or change in existing
applicable law;
(f) to cancel, with the consent of the Grantee, outstanding Awards and
to grant new Awards in substitution therefor;
(g) to cancel any unexpired, unpaid or deferred Awards if at any time
the Committee determines the Grantee is not in compliance with the terms
and conditions (including, but not limited to any noncompete or
nonsolicitation provisions) of the Award Agreement related to such Awards;
(h) to rescind any exercise, payment or delivery of Shares and require
Grantee to repay the amount of any gain realized or payment received as a
result of the exercise, payment or delivery of such Shares so rescinded and
to determine when and under what circumstances it is appropriate to require
such rescission; provided that the events, circumstances and periods for
such rescission shall be set forth in the Award Agreement;
(i) to accelerate the exercisability (including exercisability within
a period of less than six months after the Grant Date) of, and to
accelerate or waive any or all of the terms and conditions applicable to,
any Award or any group of Awards for any reason and at any time, including
in connection with a Termination of Affiliation;
(j) subject to Sections 1.3, 5.3 and 6.4, to extend the time during
which any Award or group of Awards may be exercised;
(k) to make such adjustments or modifications to Awards to Grantees
who are working outside the United States as are advisable to fulfill the
purposes of the Plan or to comply with applicable local law;
(l) to delegate to the Chief Executive Officer of the Company the
power to grant Options and Restricted Shares from time to time to specified
categories of Eligible Persons in amounts and on terms to be specified by
the Committee; provided that no such grants shall be made to individuals
who are then Section 16 Persons;
(m) to delegate to officers, employees or independent contractors of
the Company matters involving the routine administration of the Plan and
which are not specifically required by any provision of this Plan to be
performed by the Committee;
(n) to impose such additional terms and conditions upon the grant,
exercise or retention of Awards as the Committee may, before or
concurrently with the grant thereof, deem appropriate, including limiting
the percentage of Awards which may from time to time be exercised by a
Grantee; and
-8-
<PAGE>
(o) to take any other action with respect to any matters relating to
the Plan for which it is responsible.
All determinations on any matter relating to the Plan or any Award
Agreement may be made in the sole and absolute discretion of the Committee, and
all such determinations of the Committee shall be final, conclusive and binding
on all Persons. No member of the Committee shall be liable for any action or
determination made with respect to the Plan or any Award.
Article 4. Shares Subject to the Plan
4.1. Number of Shares Available.
(a) Subject to increase as provided in Section 4.1(c) and to
adjustment as provided in Section 4.2, there are reserved for the grant of
Awards under this Plan and for sale pursuant to exercise of options under
the Open Port Technology, Inc. Outside Director Stock Option Plan (the
"Outside Director Plan") an aggregate number of Shares equal to the sum of:
(i) 1,866,667 Shares, plus
(ii) the aggregate number of 2,595,385 of Shares which, as
of the Effective Date will have been reserved pursuant to the
Company's 1995 Incentive Stock Option Plan, as amended, or the
Company's 1995 Non-Employee Stock Option Plan, as amended (such
Plans, collectively, the "1995 Plans"), reduced by the aggregate
number of Shares which, as of the Effective Date, have been
delivered pursuant to grants under a 1995 Plan or are as of such
date subject to options outstanding under a 1995 Plan./1/
(b) In the event that at any time or from time to time after the
Effective Date any Awards granted pursuant to this Plan, the Outside
Director Plan or a 1995 Plan shall for any reason be cancelled or expire
without having been exercised in full, the number of Shares subject to the
cancelled or expired portion of such Awards shall also be reserved pursuant
to this Section 4.1(a).
(c) The number of Shares reserved under this Section 4.1 shall
automatically be increased as of each May 1, beginning on May 1, 2001, by a
number of Shares equal to the lesser of (i) 5% of the number of Shares
outstanding as of the close of business on such date, or (ii) 1,333,333
Shares.
(d) In the event that from time to time any Shares (whether obtained
pursuant to an Award granted under this or any other plan, an open-market
purchase or otherwise) are tendered to, or withheld by, the Company in
connection with the exercise of an Award hereunder, or the withholding of
taxes related thereto, the number of Shares so tendered or withheld shall
reduce the number of Shares deemed to have been delivered under this Plan.
The Committee may from time to time determine the appropriate methodology
for calculating the number of Shares delivered pursuant to the Plan.
- -------------------
/1/ (As of April 30, 2000, 2,310,685 Shares have been issued or are subject to
outstanding options under the 1995 Plans.)
-9-
<PAGE>
(e) Shares available for Awards may be either authorized but unissued
Shares or previously-issued Shares that have been reacquired by the
Company. The Committee may from time to time determine the appropriate
methodology for calculating the number of Shares issued pursuant to the
Plan.
4.2. Adjustments in Authorized Shares. In the event that the Committee
determines that any dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, subdivision, consolidation or reduction of capital,
reorganization, merger, scheme of arrangement, split-up, spin-off or combination
involving the Company or repurchase or exchange of Shares or other rights to
purchase Shares or other securities of the Company, or other similar corporate
transaction or event that occurs at any time after the date on which the Board
adopts this Plan affects the Shares such that any adjustment is determined by
the Committee to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and type of Shares (or other securities or property of the
Company or any Person that is a party to a Reorganization Transaction with the
Company) with respect to which Awards may be granted, (ii) the number and type
of Shares (or other securities or property of the Company or any Person that is
a party to a Reorganization Transaction with the Company) subject to outstanding
Awards, and (iii) the grant or exercise price with respect to any Award or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award or the substitution of other property for Shares subject to an
outstanding Award; provided, in each case with respect to Awards of Incentive
Stock Options no such adjustment shall be authorized to the extent that such
adjustment would cause the Plan to violate Section 422(b)(1) of the Code or any
successor provision thereto; and provided, further, that the number of Shares
subject to any Award denominated in Shares shall always be a whole number.
4.3. Performance Measures. Unless and until the Committee proposes for
shareholder vote and the shareholders of the Company approve a change in the
general performance measures set forth in this Section 4.3 the attainment of
which may determine the degree of payout and/or vesting with respect to Awards
granted to Covered Employees which are designed to qualify for the Performance-
Based Exception, the performance measure(s) to be used for purposes of such
grants shall be chosen from among the following:
(a) Earnings (either in the aggregate or on a per-share basis);
(b) Net income;
(c) Operating income;
(d) Return measures (including return on assets, investments, equity,
or gross sales);
(e) Shareholder returns (including growth measures and stockholder
return or attainment by the Shares of a specified value for a specified
period of time), share price or share price appreciation;
(f) Cash flow;
-10-
<PAGE>
(g) Earnings before or after either, or any combination of, taxes,
interest or depreciation and amortization;
(h) Gross revenues;
(i) Reductions in expense levels in each case, where applicable,
determined either on a Company-wide basis or in respect of any one or more
business units;
(j) Net economic value; or
(k) Market share with respect to specific designated products or
product groups;
provided that Sections (a)-(f) may be measured on a pre- or post-tax basis and
provided further, that the Committee may, on the Grant Date of an Award intended
to comply with the requirements of Section 162(m) of the Code and, in the case
of other grants, at any time, provide that the formula for any Award may include
or exclude items to measure specific objectives, such as losses from
discontinued operations, extraordinary gains or losses, the cumulative effect of
accounting changes, acquisitions or divestitures, foreign exchange impacts and
any unusual, nonrecurring gain or loss. The Committee shall have the discretion
to adjust the determinations of the degree of attainment of the pre-established
performance goals; provided, however, the Awards which are designed to qualify
for the Performance-Based Exception, and which are held by Covered Employees,
may not be adjusted upward (the Committee, however, shall retain the discretion
to adjust such Awards to Covered Employees downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Section
162(m) of the Code.
4.4. Compliance with Section 162(m) of the Code.
(a) Section 162(m) Compliance. At all times when Section 162(m) of the Code
is applicable, all Awards granted under this Plan shall to the extent provided
by the Committee comply with the requirements of Section 162(m) of the Code;
provided, however, that in the event the Committee determines that such
compliance is not desired with respect to any Award or Awards available for
grant under the plan, then compliance with Section 162(m) of the Code will not
be required; provided further that to the extent Section 162 (m) or the
regulations thereunder require periodic shareholder approval of such performance
measures such approval shall not be required for the continuation of the Plan or
as a condition to grant any Award hereunder after such approval is required. In
addition, in the event that changes are made to Section 162(m) of the Code to
permit flexibility with respect to the Award or Awards available under the Plan,
the Committee may, subject to this Section 4.4, make any adjustments to such
Awards or otherwise it deems appropriate.
(b) Section 162(m) Maximum Individual Limits. Subject to adjustment as
provided in Section 4.2, the maximum number of Shares (including as Shares, a
number of Shares equal to
-11-
<PAGE>
the number of SARs granted) for which Awards (other than Reload Options,
Performance Units and Cash-Based Awards) may be granted to any Grantee in any
calendar year shall not exceed 1,333,333 and the number of Shares for which
Reload Options may be granted to any Grantee in any calendar year shall not
exceed 2,666,667. The maximum value of Performance Units and Cash-Based Awards
granted to any Grantee hereunder in any calendar year shall not exceed 300% of
such Grantee's salary in effect as of the date of the grant or the establishment
of the Award. Maximum Limits under this Section 4.4(b) shall be calculated in
accordance with Treasury Regulation (S)1.162-27(e)(2)(vi)(B).
Article 5. Eligibility and General Conditions of Awards
5.1. Eligibility. The Committee may grant Awards to any Eligible Person,
whether or not he or she has previously received an Award.
5.2. Grant Date. The Grant Date of an Award shall be the date on which
the Committee grants the Award or such later date as specified by the Committee
in the Award Agreement.
5.3. Maximum Term. Subject to the following proviso, the Option Term or
other period during which an Award may be outstanding shall not extend more than
10 years after the Grant Date, and shall be subject to earlier termination as
herein specified; provided, that any deferral of a cash payment or of the
delivery of Shares that is permitted or required by the Committee pursuant to
Article 12 may, if so permitted or required by the Committee, extend more than
10 years after the Grant Date of the Award to which the deferral relates.
5.4. Award Agreement. To the extent not set forth in the Plan, the terms
and conditions of each Award (which need not be the same for each grant or for
each Grantee) shall be set forth in an Award Agreement.
5.5. Restrictions on Share Transferability. The Committee may include in
the Award Agreement such restrictions on any Shares acquired pursuant to the
exercise or vesting of an Award as it may deem advisable, including restrictions
under applicable federal securities laws.
5.6. Termination of Affiliation. Except as otherwise provided for a
particular Grantee in an Award Agreement, and subject to the provisions of
Section 14.1, the extent to which the Grantee shall have the right to exercise,
vest in, or receive payment in respect of an Award following Termination of
Affiliation shall be determined in accordance with the following provisions of
this Section 5.6.
(a) For Cause. If a Grantee has a Termination of Affiliation for
Cause:
(i) the Grantee's Restricted Shares and Deferred Shares that
are forfeitable immediately before such Termination of
Affiliation shall automatically be forfeited on such date,
subject in the case of Restricted Shares to the provisions of
Section 8.4 regarding repayment of certain amounts to the
Grantee;
(ii) the Grantee's Deferred Shares that were vested
immediately before such Termination of Affiliation shall promptly
be settled by delivery to such
-12-
<PAGE>
Grantee of a number of unrestricted Shares equal to the aggregate
number of such vested Deferred Shares, and
(iii) any unexercised Option, ISO or SAR, and any
Performance Share, Performance Unit or Cash-Based Award with
respect to which the Performance Period has not ended immediately
before such Termination of Affiliation, shall terminate effective
immediately upon such Termination of Affiliation.
(b) On Account of Death or Disability. If a Grantee has a Termination
of Affiliation on account of death or Disability:
(i) the Grantee's Restricted Shares that were forfeitable
immediately before such Termination of Affiliation shall
thereupon become nonforfeitable;
(ii) the Grantee's Deferred Shares that were forfeitable
immediately before such Termination of Affiliation shall
thereupon become nonforfeitable and the Company shall, unless
otherwise provided in an Award Agreement, promptly settle all
Deferred Shares, whether or not forfeitable, by delivery to the
Grantee (or, after his or her death, to his or her personal
representative or beneficiary designated in accordance with
Article 11) of a number of unrestricted Shares equal to the
aggregate number of the Grantee's Deferred Shares;
(iii) any unexercised Option, ISO or SAR, whether or not
exercisable immediately before such Termination of Affiliation,
may be exercised, in whole or in part, for 180 days after such
Termination of Affiliation (but only during the Option Term) by
the Grantee or, after his or her death, by (A) his or her
personal representative or the person to whom the Option, ISO or
SAR, as applicable, is transferred by will or the applicable laws
of descent and distribution, or (B) the Grantee's beneficiary
designated in accordance with Article 11; and
(iv) the benefit payable with respect to any Performance
Share, Performance Unit or Cash-Based Awards with respect to
which the Performance Period has not ended immediately before
such Termination of Affiliation on account of death or Disability
shall be equal to the product of the Fair Market Value of a Share
as of the date of such Termination of Affiliation or the value of
the Performance Unit specified in the Award Agreement (determined
as of the date of such Termination of Affiliation), as
applicable, multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of
months (including as a whole month any partial month) that
have elapsed since the beginning of such Performance Period
until the date of such Termination of Affiliation and the
denominator of which is the number of months (including as a
whole month any partial month) in the Performance Period;
and
(2) a percentage determined by the Committee that would
be earned under the terms of the applicable Award Agreement
assuming that
-13-
<PAGE>
the rate at which the performance goals have been achieved
as of the date of such Termination of Affiliation would
continue until the end of the Performance Period, or, if the
Committee elects to compute the benefit after the end of the
Performance Period, the Performance Percentage, as
determined by the Committee, attained during the Performance
Period.
(c) Any Other Reason. If a Grantee has a Termination of Affiliation
for any reason other than for Cause, death or Disability, then:
(i) the Grantee's Restricted Shares and Deferred Shares, to
the extent forfeitable immediately before such Termination of
Affiliation, shall thereupon automatically be forfeited, subject
in the case of Restricted Shares to the provisions of Section 8.4
regarding repayment of certain amounts to the Grantee;
(ii) the Grantee's Deferred Shares that were not forfeitable
immediately before such Termination of Affiliation shall, unless
otherwise provided in an Award Agreement, promptly be settled by
delivery to the Grantee of a number of unrestricted Shares equal
to the aggregate number of the Grantee's vested Deferred Shares;
(iii) any unexercised Option, ISO or SAR, to the extent
exercisable immediately before such Termination of Affiliation,
shall remain exercisable in whole or in part for three months
after such Termination of Affiliation (but only during the Option
Term) by the Grantee or, after his or her death, by (A) his or
her personal representative or the person to whom the Option, ISO
or SAR, as applicable, is transferred by will or the applicable
laws of descent and distribution, or (B) the Grantee's
beneficiary designated in accordance with Article 11; and
(iv) any Performance Shares, Performance Units or Cash-Based
Award with respect to which the Performance Period has not ended
as of the date of such Termination of Affiliation shall terminate
immediately upon such Termination of Affiliation.
5.7. Nontransferability of Awards.
(a) Except as provided in Section 5.7(c) below, each Award, and each
right under any Award, shall be exercisable only by the Grantee during the
Grantee's lifetime, or, if permissible under applicable law, by the
Grantee's guardian or legal representative or by a transferee receiving
such Award pursuant to a qualified domestic relations order (a "QDRO") as
defined in the Code or Title I of the Employee Retirement Income Security
Act of 1974 or the rules thereunder.
(b) Except as provided in Section 5.7(c) below, no Award (prior to the
time, if applicable, Shares are issued in respect of such Award), and no
right under any Award, may be assigned, alienated, pledged, attached, sold
or otherwise transferred or encumbered by a Grantee otherwise than by will
or by the laws of descent and distribution (or in the case of Restricted
Shares, to the Company) or pursuant to a QDRO, and any such purported
assignment, alienation, pledge, attachment, sale, transfer or encumbrance
shall be void and
-14-
<PAGE>
unenforceable against the Company or any Subsidiary; provided, that the
designation of a beneficiary shall not constitute an assignment,
alienation, pledge, attachment, sale, transfer or encumbrance.
(c) To the extent and in the manner permitted by the Committee, and
subject to such terms and conditions as may be prescribed by the Committee,
a Grantee may transfer an Award (other than an Incentive Stock Option) to
(i) a spouse, sibling, parent, or lineal descendant (including a lineal
descendant by adoption) of the Grantee, a spouse, sibling or parent (any of
the foregoing, an "Immediate Family Member"), of the Grantee; (ii) a trust,
the primary beneficiaries of which consist exclusively of the Grantee or
Immediate Family Members, or (iii) a corporation, partnership or similar
entity, the owners of which consist exclusively of the Grantee or Immediate
Family Members of the Grantee.
Article 6. Stock Options
6.1. Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to any Eligible Person in such number, and upon such
terms, and at any time and from time to time as shall be determined by the
Committee. Without limiting the generality of the foregoing, the Committee may
grant to any Eligible Person, or permit any Eligible Person to elect to receive,
an Option in lieu of or in substitution for any other compensation (whether
payable currently or on a deferred basis, and whether payable under this Plan or
otherwise) which such Eligible Person may be eligible to receive from the
Company or a Subsidiary, which Option may have a value (as determined by the
Committee under Black-Scholes or any other option valuation method) that is
equal to or greater than the amount of such other compensation.
6.2. Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the Option Term, the number of
shares to which the Option pertains, the time or times at which such Option
shall be exercisable and such other provisions as the Committee shall determine.
6.3. Option Price. The Option Price of an Option under this Plan shall be
determined by the Committee; provided, however, that the Option Price of an ISO
shall be no less than 100% of the Fair Market Value of a Share on the Grant
Date.
6.4. Grant of Incentive Stock Options. At the time of the grant of any
Option, the Committee may designate that such Option shall be an "incentive
stock option" under the requirements of Section 422 of the Code. Any Option
designated as an Incentive Stock Option or ISO shall, to the extent required by
Section 422 of the Code:
(a) if granted to a 10% Owner, have an Option Price not less than 110%
of the Fair Market Value of a Share on its Grant Date;
(b) be exercisable for a period of not more than 10 years (five years
in the case of an Incentive Stock Option granted to a 10% Owner) from its
Grant Date, and be subject to earlier termination as provided herein or in
the applicable Award Agreement;
(c) not have an aggregate Fair Market Value (as of the Grant Date of
each Incentive Stock Option) of the Shares with respect to which Incentive
Stock Options (whether
-15-
<PAGE>
granted under the Plan or any other stock option plan of
the Grantee's employer or any parent or Subsidiary thereof ("Other Plans"))
are exercisable for the first time by such Grantee during any calendar
year, determined in accordance with the provisions of Section 422 of the
Code, which exceeds $100,000 (the "$100,000 Limit") and to the extent any
Grant is in excess of such $100,000 Limit, a portion of such Grant equal to
the $100,000 Limit shall be designated as an ISO and the remainder shall,
notwithstanding its prior designation as an ISO, be regarded as an Option
that is not an ISO.
(d) be granted within 10 years from the earlier of the date the Plan
is adopted or the date the Plan is approved by the stockholders of the
Company; and
(e) by its terms not be assignable or transferable other than by will
or the laws of descent and distribution and may be exercised, during the
Grantee's lifetime, only by the Grantee; provided, however, that the
Grantee may, in any manner permitted by the Plan and specified by the
Committee, designate in writing a beneficiary to exercise his or her
Incentive Stock Option after the Grantee's death.
Any Option designated as an Incentive Stock Option shall also require the
Grantee to notify the Committee of any disposition of any Shares issued pursuant
to the exercise of the Incentive Stock Option under the circumstances described
in Section 421(b) of the Code (relating to certain disqualifying dispositions)
(any such circumstance, a "Disqualifying Disposition"), within 10 days of such
Disqualifying Disposition.
Notwithstanding the foregoing and Section 3.2, the Committee may, without
the consent of the Grantee, at any time before the exercise of an Option
(whether or not an Incentive Stock Option), take any action necessary to prevent
such Option from being treated as an Incentive Stock Option.
6.5. Grant of Reload Options. The Committee may in connection with the
grant of an Option or thereafter provide that a Grantee who (i) is an Eligible
Person when he or she exercises an Option ("Exercised Option") and (ii)
satisfies the Option Price or Required Withholding applicable thereto with
Shares (including Shares that are deemed to have been delivered as payment for
all or any portion of the Option Price of an Exercised Option by attestation or
otherwise) shall automatically be granted, subject to Article 4, an additional
option (a "Reload Option") in an amount equal to the sum ("Reload Number") of
the number of Shares tendered (including Shares that are deemed to have been
tendered) to exercise the Exercised Option plus, if so provided by the
Committee, the number of Shares, if any, retained by the Company in connection
with the exercise of the Exercised Option to satisfy any federal, state, local
or foreign tax withholding requirements.
6.6. Conditions on Reload Options. Reload Options shall be subject to the
following terms and conditions:
(a) the Grant Date for each Reload Option shall be the date of
exercise of the Exercised Option to which it relates;
-16-
<PAGE>
(b) subject to Section 6.6(c), the Reload Option may be exercised at
any time during the Option Term of the Exercised Option (subject to earlier
termination thereof as provided in the Plan or in the applicable Award
Agreement); and
(c) the terms of the Reload Option shall be the same as the terms of
the Exercised Option to which it relates, except that, unless otherwise
provided in the Award Agreement, the Option Price for the Reload Option
shall be 100% of the Fair Market Value of a Share on the Grant Date of the
Reload Option.
6.7. Payment. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares made by cash, personal check or wire
transfer or, subject to the approval of the Committee, any one or more of the
following means:
(a) Mature Shares, valued at their Fair Market Value on the date of
exercise;
(b) Restricted Shares held by the Grantee for at least six months
prior to the exercise of the Option, each such share valued at the Fair
Market Value of a Share on the date of exercise; or
(c) pursuant to procedures approved by the Committee, through the sale
of the Shares acquired on exercise of the Option through a broker-dealer to
whom the Grantee has submitted an irrevocable notice of exercise and
irrevocable instructions to deliver promptly to the Company the amount of
sale or loan proceeds sufficient to pay for such Shares, together with, if
requested by the Company, the amount of federal, state, local or foreign
withholding taxes payable by Grantee by reason of such exercise.
If any Restricted Shares ("Tendered Restricted Shares") are used to pay the
Option Price, a number of Shares acquired on exercise of the Option equal to the
number of Tendered Restricted Shares shall be subject to the same restrictions
as the Tendered Restricted Shares, determined as of the date of exercise of the
Option.
Article 7. Stock Appreciation Rights
7.1. Grant of SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to any Eligible Person at any time and from time to time as shall
be determined by the Committee. The Committee may grant Freestanding SARs,
Tandem SARs, or any combination thereof. The Committee shall determine the
number of SARs granted to each Grantee (subject to Article 4), the Strike Price
thereof, and, consistent with Section 7.2 and the other provisions of the Plan,
the other terms and conditions pertaining to such SARs.
7.2. Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
-17-
<PAGE>
Notwithstanding any other provision of this Plan to the contrary, with
respect to a Tandem SAR, (i) the Tandem SAR will expire no later than the
expiration of the underlying Option; (ii) the value of the payout with respect
to the Tandem SAR may be for no more than 100% of the difference between the
Option Price of the underlying Option and the Fair Market Value of the Shares
subject to the underlying Option at the time the Tandem SAR is exercised; and
(iii) the Tandem SAR may be exercised only when the Fair Market Value of the
Shares subject to the Option exceeds the Option Price of the Option.
7.3. Payment of SAR Amount. Upon exercise of an SAR, the Grantee shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) the excess of the Fair Market Value of a Share on the date of
exercise over the Strike Price;
by
(b) the number of Shares with respect to which the SAR is exercised;
provided that the Committee may provide in the Award Agreement that the benefit
payable on exercise of an SAR shall not exceed such percentage of the Fair
Market Value of a Share on the Grant Date as the Committee shall specify. As
determined by the Committee, the payment upon SAR exercise may be in cash, in
Shares which have an aggregate Fair Market Value (as of the date of exercise of
the SAR) equal to the amount of the payment, or in some combination thereof, as
set forth in the Award Agreement.
Article 8. Restricted Shares
8.1. Grant of Restricted Shares. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Restricted
Shares to any Eligible Person in such amounts as the Committee shall determine.
8.2. Award Agreement. Each grant of Restricted Shares shall be evidenced by
an Award Agreement that shall specify the Period(s) of Restriction, the number
of Restricted Shares granted, and such other provisions as the Committee shall
determine. The Committee may impose such conditions or restrictions on any
Restricted Shares as it may deem advisable, including restrictions based upon
the achievement of specific performance goals (Company-wide, divisional,
Subsidiary or individual), time-based restrictions on vesting or restrictions
under applicable securities laws.
8.3. Consideration. The Committee shall determine the amount, if any, that
a Grantee shall pay for Restricted Shares. Such payment shall be made in full by
the Grantee before the delivery of the shares and in any event no later than 10
business days after the Grant Date for such shares.
8.4. Effect of Forfeiture. If Restricted Shares are forfeited, and if the
Grantee was required to pay for such shares or acquired such Restricted Shares
upon the exercise of an Option, the Grantee shall be deemed to have resold such
Restricted Shares to the Company at a price equal to the lesser of (i) the
amount paid by the Grantee for such Restricted Shares, or (ii) the
-18-
<PAGE>
Fair Market Value of a Share on the date of such forfeiture. The Company shall
pay to the Grantee the required amount as soon as is administratively practical.
Such Restricted Shares shall cease to be outstanding, and shall no longer confer
on the Grantee thereof any rights as a stockholder of the Company, from and
after the date of the event causing the forfeiture, whether or not the Grantee
accepts the Company's tender of payment for such Restricted Shares.
8.5. Escrow; Legends. The Committee may provide that the certificates for
any Restricted Shares (i) shall be held (together with a stock power executed in
blank by the Grantee) in escrow by the Secretary of the Company until such
Restricted Shares become nonforfeitable or are forfeited or (ii) shall bear an
appropriate legend restricting the transfer of such Restricted Shares. If any
Restricted Shares become nonforfeitable, the Company shall cause certificates
for such shares to be issued without such legend.
Article 9. Performance Units, Performance Shares and Cash-Based Awards
9.1. Grant of Performance Units and Performance Shares. Subject to the
terms of the Plan, Performance Units, Performance Shares or Cash-Based Awards
may be granted to any Eligible Person in such amounts and upon such terms, and
at any time and from time to time, as shall be determined by the Committee.
9.2. Value/Performance Goals. Each Performance Unit shall have an initial
value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. Each Cash-Based Award shall have a value as
determined by the Committee. The Committee shall set performance goals which,
depending on the extent to which they are met, will determine the number or
value of Performance Units, Performance Shares or Cash-Based Awards that will be
paid out to the Grantee. For purposes of this Article 9, the time period during
which the performance goals must be met shall be called a "Performance Period."
9.3. Earning of Performance Units, Performance Shares and Cash-Based
Awards. Subject to the terms of this Plan, after the applicable Performance
Period has ended, the holder of Performance Units, Performance Shares or Cash-
Based Awards shall be entitled to receive a payout based on the number and value
of Performance Units, Performance Shares or Cash-Based Awards earned by the
Grantee over the Performance Period, to be determined as a function of the
extent to which the corresponding performance goals have been achieved.
If a Grantee is promoted, demoted or transferred to a different business
unit of the Company during a Performance Period, then, to the extent the
Committee determines appropriate, the Committee may adjust, change or eliminate
the performance goals or the applicable Performance Period as it deems
appropriate in order to make them appropriate and comparable to the initial
performance goals or Performance Period.
9.4. Form and Timing of Payment of Performance Units, Performance Shares
and Cash-Based Awards. Payment of earned Performance Units, Performance Shares
or Cash-Based Awards shall be made in a lump sum following the close of the
applicable Performance Period. The Committee may pay earned Performance Units,
Performance Shares or Cash-Based Awards in cash or in Shares (or in a
combination thereof) which have an aggregate Fair Market Value
-19-
<PAGE>
equal to the value of the earned Performance Units, Performance Shares or Cash-
Based Awards at the close of the applicable Performance Period. Such Shares may
be granted subject to any restrictions deemed appropriate by the Committee. The
form of payout of such Awards shall be set forth in the Award Agreement
pertaining to the grant of the Award.
As determined by the Committee, a Grantee may be entitled to receive any
dividends declared with respect to Shares which have been earned in connection
with grants of Performance Units or Performance Shares but not yet distributed
to the Grantee. In addition, a Grantee may, as determined by the Committee, be
entitled to exercise his or her voting rights with respect to such Shares.
Article 10. Bonus Shares and Deferred Shares
10.1. Bonus Shares. Subject to the terms of the Plan, the Committee may
grant Bonus Shares to any Eligible Person, in such amount and upon such terms
and at any time and from time to time as shall be determined by the Committee.
10.2. Deferred Shares. Subject to the terms and provisions of the Plan,
Deferred Shares may be granted to any Eligible Person in such amounts and upon
such terms, and at any time and from time to time, as shall be determined by the
Committee. The Committee may impose such conditions or restrictions on any
Deferred Shares as it may deem advisable, including time-vesting restrictions
and deferred payment features. The Committee may cause the Company to establish
a grantor trust to hold Shares subject to Deferred Share Awards. Without
limiting the generality of the foregoing, the Committee may grant to any
Eligible Person, or permit any Eligible Person to elect to receive, Deferred
Shares in lieu of or in substitution for any other compensation (whether payable
currently or on a deferred basis, and whether payable under this Plan or
otherwise) which such Eligible Person may be eligible to receive from the
Company or a Subsidiary.
Article 11. Beneficiary Designation
Each Grantee under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Grantee, shall be in a form prescribed by the
Company, and will be effective only when filed by the Grantee in writing with
the Company during the Grantee's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Grantee's death shall be paid to
the Grantee's estate.
Article 12. Deferrals
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of Shares that would otherwise be due by virtue
of the exercise of an Option or SAR, the lapse or waiver of restrictions with
respect to Restricted Shares, the satisfaction of any requirements or goals with
respect to Performance Units, Performance Shares or Cash-Based Awards, the grant
of Bonus Shares or the expiration of the deferral period for Deferred Shares. If
-20-
<PAGE>
any such deferral is required or permitted, the Committee shall establish rules
and procedures for such deferrals.
Article 13. Rights of Employees and Consultants
13.1. No Right to Employment. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Grantee's employment
or consultancy at any time, nor confer upon any Grantee the right to continue in
the employ or as consultant of the Company.
13.2. No Right to Participation. No employee, director or consultant
shall have the right to be selected to receive an Award, or, having been so
selected, to be selected to receive a future Award.
Article 14. Change of Control and Certain Corporate Transactions
14.1. Change of Control. Except as otherwise provided in a Grantee's
Award Agreement or in an employment agreement between the Company and such
Grantee which addresses the effect of a Change of Control (as therein defined)
on benefits hereunder, if a Change of Control occurs, then:
(a) 50% of the Grantee's Restricted Shares that were forfeitable shall
thereupon become nonforfeitable, and the remaining 50% of the previously
forfeitable portion of such Restricted Shares shall become nonforfeitable
under the Change of Control Vesting Schedule (defined below);
(b) 50% of the Grantee's Deferred Shares that were forfeitable shall
thereupon become nonforfeitable and the Company shall immediately settle
all nonforfeitable Deferred Shares, whether or not previously forfeitable,
by delivery to such Grantee of unrestricted Shares equal to the aggregate
number of the Grantee's nonforfeitable Deferred Shares; and the remaining
50% previously forfeitable portion of such Deferred Shares shall become
nonforfeitable under the Change of Control Vesting Schedule;
(c) 50% of that portion of the Grantee's Options, ISOs or SARs that
are not already vested and exercisable on the date of such Change of
Control shall immediately become vested and exercisable; and the remaining
50% of the previously forfeitable portion of such Awards shall become
vested and exercisable under the Change of Control Vesting Schedule;
(d) notwithstanding subsections (a), (b) and (c), (i) if at the time
of the closing of the Change of Control there is not a binding agreement in
effect pursuant to which the Company or the successor of the Company
following such Change of Control either will continue Grantee's existing
Restricted Shares, Deferred Shares, Options, ISOs or SARs in effect or
award substitute Restricted Shares, Deferred Shares, Options, ISOs or SARs
to the Grantee, in either case with substantially the same vesting and
exercise schedule and substantially the same economic benefits to the
Grantee as was provided by the Restricted Shares, Deferred Shares, Options,
ISOs or SARs immediately prior to the Change in Control, then 100% of that
portion of the Grantee's Restricted Shares, Deferred Shares, Op-
-21-
<PAGE>
tions, ISOs or SARs that are not already vested and/or exercisable on the
date of such Change of Control shall immediately become vested and/or
exercisable; and (ii) if within 18 months after the Change of Control the
Grantee incurs an involuntary Termination of Affiliation by the Company
without Cause or the Grantee incurs a voluntary Termination of Affiliation
with Good Reason (as defined below), then 100% of that portion of the
Grantee's Restricted Shares, Deferred Shares, Options, ISOs or SARs that
are not already vested and/or exercisable on the date of such Termination
of Affiliation shall immediately become vested and/or exercisable; and
(e) the Company shall immediately pay to the Grantee, with respect to
any Performance Share, Performance Unit or Cash-Based Award with respect to
which the Performance Period has not ended as of the date of such Change of
Control, a cash payment equal to the product of (A) in the case of a
Performance Share, the Change of Control Value, (B) in the case of a
Performance Unit, the value of the Performance Unit specified in the Award
Agreement, or (c) in the case of a Cash-Based Award, the value of the Cash-
Based Award specified in the Award Agreement as applicable, multiplied
successively by each of the following:
(i) a fraction, the numerator of which is the number of whole and
partial months that have elapsed between the beginning of such
Performance Period and the date of such Change of Control and the
denominator of which is the number of whole and partial months in the
Performance Period; and
(ii) a percentage equal to the greater of (x) the target
percentage, if any, specified in the applicable Award Agreement or (y)
the maximum percentage, if any, that would be earned under the terms
of the applicable Award Agreement assuming that the rate at which the
performance goals have been achieved as of the date of such Change of
Control would continue until the end of the Performance Period;
(f) for purposes of this Section 14.1 the "Change of Control Vesting
Schedule" means the vesting, nonforfeitability, and exercisability of an
Award in equal monthly installments, as of the first day of each calendar
month subsequent to the Change of Control, over the period beginning with
the first day of the calendar month subsequent to the Change of Control,
and ending on the date when the Award would have become fully vested,
nonforfeitable or exercisable without regard to the Change of Control;
(g) for purposes of this Section 14.1 "Good Reason" means, unless
otherwise defined for a particular Grantee in an Award Agreement or in an
employment agreement between the Company and such Grantee which addresses
the effect of a Termination of Affiliation with Good Reason (as therein
defined) on benefits thereunder, the occurrence of any of the following
events
(i) any material reduction or failure to pay Grantee's base
salary or annual bonus; provided, however, that no such act or
omission shall constitute Good Reason unless the Grantee gives the
Company 10 days' prior written notice of such
-22-
<PAGE>
act or omission and the Company fails to cure such act or omission
within the 10-day period; or
(ii) requiring the Grantee to be principally based at any office
or location more than 50 miles from the current offices of the Company
in Chicago, Illinois.
In the event of the occurrence or omission constituting Good Reason,
Grantee may within 30 days after Grantee first obtains actual knowledge of
such event notify the Company of the events constituting such Good Reason
by a notice of Termination of Affiliation with Good Reason. A delay in the
delivery of such notice of Termination of Affiliation or a failure by
Grantee to include in the notice of Termination of Affiliation any fact or
circumstance which contributes to a showing of Good Reason shall not waive
any right of Grantee under this Plan or preclude Grantee from asserting
such fact or circumstance in enforcing rights under this Plan.
14.2. Pooling of Interests Accounting. If the Committee determines:
(a) that the consummation of a sale or merger of the Company (a
"Closing") is reasonably likely to occur but for the circumstances
described in this Section;
(b) that, based on the advice of the Company's independent accountants
and such other factors that the Committee deems relevant, the grant of any
Award or exercise of some or all outstanding Options or SARs would preclude
the use of pooling of interests accounting ("pooling") after the Closing;
and
(c) the preclusion of pooling can reasonably be expected to have a
material adverse effect on the terms of such sale or merger or on the
likelihood of a Closing (a "Pooling Material Adverse Effect"),
then the Committee may:
(i) make adjustments to such Options, ISOs, SARs or other Awards
(including the substitution, effective upon such Closing, of Options,
ISOs, SARs or other Awards denominated in shares or other equity
securities of another party to such proposed sale or merger
transaction) prior to the Closing so as to permit pooling after the
Closing,
(ii) cause the Company to pay the benefits attributable to such
Options, ISOs, SARs or other Awards (including for this purpose not
only the spread between the then Fair Market Value of the Shares
subject to such Options, ISOs or SARs and the Option Price or Strike
Price applicable thereto, but also the additional value of such
Options, ISOs or SARs in excess of such spread, as determined by the
Committee) in the form of Shares if such payment would not cause the
transaction to remain or become ineligible for pooling; or
(iii) provided that the Committee has determined, based on the
advice of the Company's independent accountants and such other factors
that the Committee deems relevant, that no reasonable alternative is
available to the Company to
-23-
<PAGE>
prevent such a Pooling Material Adverse Effect, cancel any or all such
Options, ISOs, SARs or other Awards without the consent of any
affected Grantee.
14.3. Substituting Awards in Certain Corporate Transactions. In connection
with the Company's acquisition, however effected, of another corporation or
entity (the "Acquired Entity") or the assets thereof, the Committee may, at its
discretion, grant Awards ("Substitute Awards") associated with the stock or
other equity interest in such Acquired Entity ("Acquired Entity Award") held by
a Grantee immediately prior to such Acquisition in order to preserve for Grantee
the economic value of all or a portion of such Acquired Entity Award at such
price as the Committee determines necessary to achieve preservation of economic
value.
Article 15. Amendment, Modification, and Termination
15.1. Amendment, Modification, and Termination. Subject to the terms of
the Plan, the Board may at any time and from time to time, alter, amend, suspend
or terminate the Plan in whole or in part without the approval of the Company's
stockholders.
15.2. Adjustments Upon Certain Unusual or Nonrecurring Events. The
Committee may make adjustments in the terms and conditions of Awards in
recognition of unusual or nonrecurring events (including the events described in
Section 4.2) affecting the Company or the financial statements of the Company or
of changes in applicable laws, regulations, or accounting principles, whenever
the Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of the Performance-Based Exception.
15.3. Awards Previously Granted. Notwithstanding any other provision of
the Plan to the contrary, no termination, amendment or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan, without the written consent of the Grantee of such Award, provided
that to the extent any Award shall be adversely affected by any amendment or
restatement to the Plan, the provisions of the Plan in effect as of the date of
Grant of such Award shall prevail.
Article 16. Withholding
16.1. Mandatory Tax Withholding
(a) Whenever under the Plan, Shares are to be delivered upon exercise
or payment of an Award or upon Restricted Shares becoming nonforfeitable,
or any other event with respect to rights and benefits hereunder, the
Company shall be entitled to require (x) that the Grantee remit an amount
in cash, or if determined by the Committee, Mature Shares, sufficient to
satisfy all federal, state, local and foreign tax withholding requirements
related thereto ("Required Withholding"), (y) the withholding of such
Required Withholding from compensation otherwise due to the Grantee or from
any Shares or other payment due to the Grantee under the Plan or (z) any
combination of the foregoing.
-24-
<PAGE>
(b) Any Grantee who makes a Disqualifying Disposition or an election
under Section 83(b) of the Code shall remit to the Company an amount
sufficient to satisfy all resulting Required Withholding; provided that, in
lieu of or in addition to the foregoing, the Company shall have the right
to withhold such Required Withholding from compensation otherwise due to
the Grantee or from any Shares or other payment due to the Grantee under
the Plan.
16.2. Notification under Code Section 83(b). If the Grantee, in connection
with the exercise of any Option, or the grant of Restricted Shares, makes the
election permitted under Section 83(b) of the Code to include in such Grantee's
gross income in the year of transfer the amounts specified in Section 83(b) of
the Code, then such Grantee shall notify the Company of such election within 10
days of filing the notice of the election with the Internal Revenue Service, in
addition to any filing and notification required pursuant to regulations issued
under Section 83(b) of the Code. The Committee may, in connection with the grant
of an Award or at any time thereafter prior to such an election being made,
prohibit a Grantee from making the election described above.
Article 17. Additional Provisions
17.1. Successors. All obligations of the Company under the Plan with
respect to Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise of all or substantially
all of the business or assets of the Company.
17.2. Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
17.3. Severability. If any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any other part of the Plan. Any Section or part
of a Section so declared to be unlawful or invalid shall, if possible, be
construed in a manner which will give effect to the terms of such Section or
part of a Section to the fullest extent possible while remaining lawful and
valid.
17.4. Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or stock
exchanges as may be required. Notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise, or receive benefits under,
any Award, and the Company shall not be obligated to deliver any Shares or other
benefits to a Grantee, if such exercise or delivery would constitute a violation
by the Grantee or the Company of any applicable law or regulation.
17.5. Securities Law Compliance.
(a) If the Committee deems it necessary to comply with any applicable
securities law, or the requirements of any stock exchange upon which Shares
may be listed, the Committee may impose any restriction on Shares acquired
pursuant to Awards under the
-25-
<PAGE>
Plan as it may deem advisable. All certificates for Shares delivered under
the Plan pursuant to any Award or the exercise thereof shall be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the SEC,
any stock exchange upon which Shares are then listed, any applicable
securities law, and the Committee may cause a legend or legends to be
placed on any such certificates to refer to such restrictions. If so
requested by the Company, the Grantee shall represent to the Company in
writing that he or she will not sell or offer to sell any Shares unless a
registration statement shall be in effect with respect to such Shares under
the Securities Act of 1933 or unless he or she shall have furnished to the
Company evidence satisfactory to the Company that such registration is not
required.
(b) If the Committee determines that the exercise of, or delivery of
benefits pursuant to, any Award would violate any applicable provision of
securities laws or the listing requirements of any stock exchange upon
which any of the Company's equity securities are then listed, then the
Committee may postpone any such exercise or delivery, as applicable, but
the Company shall use all reasonable efforts to cause such exercise or
delivery to comply with all such provisions at the earliest practicable
date.
17.6. No Rights as a Stockholder. A Grantee shall not have any rights as
a stockholder with respect to the Shares (other than Restricted Shares) which
may be deliverable upon exercise or payment of such Award until such shares have
been delivered to him or her. Restricted Shares, whether held by a Grantee or in
escrow by the Secretary of the Company, shall confer on the Grantee all rights
of a stockholder of the Company, except as otherwise provided in the Plan or
Award Agreement. Unless otherwise determined by the Committee at the time of a
grant of Restricted Shares, any cash dividends that become payable on Restricted
Shares shall be deferred and, if the Committee so determines, reinvested in
additional Restricted Shares. Except as otherwise provided in an Award
Agreement, any stock dividends and deferred cash dividends issued with respect
to Restricted Shares shall be subject to the same restrictions and other terms
as apply to the Restricted Shares with respect to which such dividends are
issued. The Committee may provide for payment of interest on deferred cash
dividends.
17.7. Nature of Payments. Awards (other than Cash-Based Awards) shall be
special incentive payments to the Grantee and shall not be taken into account in
computing the amount of salary or compensation of the Grantee for purposes of
determining any pension, retirement, death or other benefit under (a) any
pension, retirement, profit-sharing, bonus, insurance or other employee benefit
plan of the Company or any Subsidiary or (b) any agreement between (i) the
Company or any Subsidiary and (ii) the Grantee, except as such plan or agreement
shall otherwise expressly provide.
-26-
<PAGE>
17.8. Governing Law. The Plan shall be construed in accordance with and
governed by the laws of the State of Delaware other than its laws respecting
choice of law.
Executed this __ day of ___________, 2000.
OPEN PORT TECHNOLOGY, INC.
By: ___________________________
Its: _____________________
-27-
<PAGE>
Exhibit 10.4
OPEN PORT TECHNOLOGY, INC.
2000 OUTSIDE DIRECTORS STOCK OPTION PLAN
Article I
Introduction
------------
1.1 Plan. This Open Port Technology, Inc. 2000 Outside Directors Stock Option
Plan (as set forth in this document and as amended from time to time, the
"Plan"), is hereby established by Open Port Technology, Inc. (the
"Company"), effective (the "Effective Date") upon approval by the
stockholders of the Company. No Options shall be granted hereunder prior
to the IPO Date (as defined below).
1.2 Purpose. The purposes of the Plan are to encourage qualified persons to
become directors of the Company, to provide directors of the Company with a
more direct stake in its success, and to encourage them to remain directors
of the Company.
Article II
Definitions
-----------
As used in the Plan, the terms set forth below shall have the following
meanings:
2.1 "Annual Meeting" means an annual meeting of the stockholders of the
Company.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Change of Control Event" shall mean, and be deemed to have occurred:
(i) upon the acquisition at any time (excluding any acquisition in
connection with any public offering of equity securities of the Company
pursuant to a registration statement filed under the Securities Act) by a
person or group (as used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), excluding for this
purpose, the Company or any Subsidiary or any employee benefit plan of the
Company or any Subsidiary) of the beneficial ownership (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities representing fifty percent (50%) or more of the combined voting
power of the then-outstanding securities of the Company; except that no
Change of Control Event shall be deemed to have occurred solely by reason
of such beneficial ownership (A) by a corporation of which fifty percent
(50%) or more of the beneficial ownership is then held, directly or
indirectly, in substantially the same proportions by the persons who held
the beneficial ownership of the Company immediately before such
acquisition, or (B) resulting directly from an issuance of Common Stock by
the Company to such person; or
(ii) the Board's or the shareholders of the Company's approval of a
merger, consolidation, reorganization (other than a merger or share
exchange with a wholly-owned subsidiary), share exchange, or similar
transaction, or a plan or agreement for the sale or other disposition of
all or substantially all of the consolidated assets of the
<PAGE>
Company or a plan of liquidation of the Company, as a result of which
immediately following such transaction the shareholders of the Company
shall not hold, directly or indirectly, a majority of the voting power of
the then-outstanding securities of the surviving, or resulting or acquiring
corporation (or in the case of a sale or other disposition of assets, of
each surviving, resulting or acquiring corporation which immediately after
the transaction holds fifty percent (50%) of the former assets of the
Company).
2.4 "Common Stock" means the common stock, par value $.001 per share, of the
Company.
2.5 "Company" has the meaning prescribed for that term in Section 1.1.
2.6 "Director" means a member of the Board.
2.7 "Disability" means a mental or physical condition which, in the opinion of
the Board, renders an Eligible Director unable or incompetent to continue
acting as a Director and which is expected to be permanent or for an
indefinite duration.
2.8 "Eligible Director" means a Director who is not an employee of the Company
or any of its Subsidiaries as of the date of any grant of an Option
pursuant to Article V.
2.9 "Fair Market Value" of any security of the Company means, as of any
applicable date:
(i) if the security is listed for trading on the New York Stock
Exchange, the closing price, regular way, of the security as reported on
the New York Stock Exchange Composite Tape, or if no sale of the security
shall have been reported for such date, on the next preceding date on which
such a sale was reported, or
(ii) if the security is not so listed, but is listed on another
national securities exchange or authorized for quotation on the NASDAQ
National Market, the closing price, regular way, of the security on such
exchange or the NASDAQ National Market, as the case may be, or if no such
sale of the security shall have been reported for such date, on the next
preceding date on which such a sale was reported, or
(iii) if the security is not listed for trading on a national
securities exchange or authorized for quotation on the NASDAQ National
Market, the average of the closing bid and asked prices as reported by the
NASDAQ SmallCap Market or, if no such prices shall have been so reported
for such date, on the next preceding date on which such prices were so
reported, or
(iv) if the security is not listed for trading on the national
securities exchange and is not authorized for quotation on the NASDAQ
National Market or the NASDAQ SmallCap Market, the fair market value of the
security as determined in good faith by the Board;
provided, that the Fair Market Value of Common Stock as of the IPO Date
shall be the IPO price of such Common Stock (without regard to any
underwriting discount).
-2-
<PAGE>
2.10 "Grantee" means the holder of an Option or any person entitled to exercise
an Option under Article VI of this Plan.
2.11 "IPO" means the initial public offering of Common Stock as contemplated in
the registration statement on Form S-1 filed by the Company with the
Securities and Exchange Commission on April 5, 2000 and as subsequently
amended.
2.12 "IPO Date" means the closing date under the underwriting agreement between
the Company and the underwriters of the IPO with respect to Firm Shares
(as defined in the underwriting agreement).
2.13 "Mature Shares" means shares of Common Stock to which the holder thereof
has good and marketable title, free and clear of all liens and
encumbrances, and which such holder either (i) has held for at least six
months or (ii) has purchased on the open market.
2.14 "1934 Act" means the Securities Exchange Act of 1934.
2.15 "Plan" has the meaning prescribed for that term in Section 1.1.
2.16 "Option" means a right to purchase Common Stock granted under this Plan.
2.17 "Option Agreement" has the meaning prescribed for that term in
Section 5.5.
2.18 "Subsidiary" means, with respect to any person, (a) any corporation of
which more than 50% of the voting securities are at the time, directly or
indirectly, owned by such person, and (b) any partnership or limited
liability company in which such person has a direct or indirect interest
(whether in the form of voting power or participation in profits or capital
contribution) of more than 50%.
Article III
Administration
---------------
3.1 Rules; Interpretations; Determination. Subject to the provisions of the
Plan, the Board shall administer this Plan and shall have full authority to
interpret and administer the Plan, to establish, amend and rescind rules
for carrying out the Plan, to construe Option Agreements, and to make all
other determinations and to take all other actions that it deems necessary
or desirable for administering the Plan; provided, however, that no such
interpretation, rule or determination shall change criteria for the
determination of Eligible Directors to whom Options are be granted, the
amount or frequency of any grant of Options under the Plan, or the terms
upon which, or the times at which, or the period within which, Options may
be exercised. Each determination, interpretation or other action made or
taken by the Board shall be final and binding for all purposes and upon all
persons. The Board may delegate any or all of its powers and functions
under the Plan (other than the power to amend the Plan pursuant to Article
IX) to a committee of the Board.
3.2 Agents; Expenses. The Board may appoint agents (who may be employees of
the Company) to assist in the administration of the Plan, and may
authorize such persons to
-3-
<PAGE>
execute agreements or other documents on its behalf. The Board may employ
such legal counsel, consultants and agents as it may deem desirable for the
administration of the Plan, and may rely upon any opinion received from any
such counsel or consultant and any computation received from any such
consultant or agent. All expenses incurred in the administration of the
plan, including expenses for the engagement of any counsel, consultant or
agent, shall be paid by the Company.
3.3 No Liability. No Director or former Director or any agent designated
pursuant to Section 3.2 shall be liable for anything done or omitted to be
done in good faith by such Director or agent or by any other Director or
agent in connection with the Plan.
Article IV
Amount of Common Stock
----------------------
4.1 Number of Shares Available.
(a) Subject to increase as provided in Section 4.1(c) and to adjustment as
provided in Section 4.2, there are reserved for sale pursuant to the
exercise of Options under this Plan and for the grant of awards under the
Open Port Technology, Inc. 2000 Equity Incentive Plan (the "Equity
Incentive Plan") an aggregate number of shares of Common Stock equal to the
sum of:
(i) 1,866,667 shares of Common Stock, plus
(ii) the aggregate number of 2,595,385 of shares of Common Stock
which, as of the Effective Date described in Section 1.1 will have been
reserved pursuant to the Company's 1995 Incentive Stock Option Plan, as
amended, or the Company's 1995 Non-Employee Stock Option Plan, as amended
(such Plans, collectively, the "1995 Plans"), reduced by the aggregate
number of shares of Common Stock which, as of the Effective Date, have been
delivered pursuant to options granted under a 1995 Plan or are as of such
date subject to options outstanding under a 1995 Plan./1/
(b) In the event that at any time or from time to time after the Effective
Date any options or awards granted pursuant to this Plan, the Equity
Incentive Plan or a 1995 Plan shall for any reason be cancelled or expire
without having been exercised in full, the number of shares of Common Stock
subject to the cancelled or expired portion of such options or awards shall
also be reserved pursuant to Section 4.1(a).
(c) The number of shares of Common Stock reserved under this Section 4.1
shall automatically be increased as of each May 1, beginning on May 1,
2001, by a number of shares of Common Stock equal to the lesser of (i) 5%
of the number of shares of Common Stock outstanding as of the close of
business on such date, or (ii) 1,333,333 Shares.
- --------------
/1/ (As of April 30, 2000, 2,310,685 shares of Common Stock have been issued or
are subject to outstanding options under the 1995 Plans.)
-4-
<PAGE>
(d) In the event that from time to time any shares of Common Stock (whether
obtained pursuant to an award granted under this or any other plan, an
open-market purchase or otherwise) are tendered to, or withheld by, the
Company in connection with the exercise of an Option hereunder, or the
withholding of taxes related thereto, the number of shares of Common Stock
so tendered or withheld shall reduce the number of shares of Common Stock
deemed to have been delivered under this Plan. The Board may from time to
time determine the appropriate methodology for calculating the number of
shares of Common Stock delivered pursuant to the Plan.
(e) Shares of Common Stock available for Options may be either authorized
but unissued shares of Common Stock or previously-issued shares of Common
Stock that have been reacquired by the Company.
Article V
Grant and Terms of Options
--------------------------
5.1 Grants of Options.
(a) IPO Grants. On the IPO Date each Eligible Director shall
automatically be granted an Option to purchase 5,000 shares of Common
Stock.
(b) Annual Grants. On the date of the 2001 Annual Meeting and every
Annual Meeting thereafter, each Eligible Director who is then elected
or reelected to serve as a Director, or who continues as an Eligible
Director through the date of such Annual Meeting due to membership in
a previously elected class of Directors whose term does not expire at
such Annual Meeting, shall automatically be granted an Option to
purchase 5,000 shares of Common Stock.
(c) Appointment of Director. In the event an Eligible Director is
appointed by the Board to serve as a Director, such Eligible Director
shall automatically be granted on the date of such appointment an
Option to purchase a number of shares of Common Stock determined by
multiplying 5,000 by a fraction, the numerator of which is the number
of whole months until the date of the next Annual Meeting (as
determined by reference to the dates for Annual Meetings set by the
by-laws of the Company) and the denominator of which is 12.
5.2 Term of Options. Each Option shall have a term of 10 years from the date
of grant, unless earlier terminated as provided herein (such period, the
"Term").
5.3 Exercise Price. The Option exercise price per share for the Option grants
described in Section 5.1 above shall be, subject to adjustment pursuant to
Article VII, the Fair Market Value of a share of Common Stock on the date
of grant (such price, the "Exercise Price").
5.4 Vesting.
(a) Every Option granted under Section 5.1(a) or 5.1(b) of this Plan shall vest
and become exercisable in three installments as follows: (i) with respect
to a first installment of Options for 1,666-1/3 shares, on the earlier of
the first annual
-5-
<PAGE>
anniversary of the date of grant or the day before the first Annual
Meeting after the date of grant; (ii) with respect to a second
installment of Options for 1,666-1/3 shares, on the earlier of the
second annual anniversary of the date of grant or the day before the
second Annual Meeting after the date of grant, and (iii) with respect
to a third installment of Options for 1,666-1/3 shares, on the earlier
of the third annual anniversary of the date of grant or the day before
the third Annual Meeting after the date of grant; provided that the
Grantee has remained a Director at all times from the date of grant to
the date on which each such installment becomes vested and
exercisable.
(b) Every Option granted under Section 5.1(c) of this Plan shall vest and
become exercisable in three equal installments at the times described
in Section 5.4(a), provided that the Grantee has remained a Director
at all times from the date of grant to the date on which each such
installment becomes vested and exercisable.
(c) Notwithstanding paragraphs (a) and (b) above, any Option granted
hereunder shall become vested and exercisable upon the death or
Disability of the Grantee provided that the Grantee has remained a
Director at all times from the date of grant to the date of death or
Disability.
(d) Notwithstanding the foregoing provisions of this Section 5.4, all
unvested Options shall become fully vested and exercisable upon a
Change of Control Event.
5.5 Option Agreements. Each Option shall be evidenced by an agreement (an
"Option Agreement") in such form as the Board shall prescribe from time to
time and shall be consistent with the terms and conditions of the Plan. The
Board may amend an Option Agreement from time to time in any manner
consistent with the terms and conditions of the Plan, but no amendment of
an Option Agreement shall adversely affect the rights of any Grantee under
the Option without the consent of such Grantee.
Article VI
Exercise of Options
-------------------
6.1 Time to Exercise After Termination of Directorship. If a Grantee shall
cease to be a Director for any reason while holding an unexpired Option
that has not been fully exercised, such Option shall thereupon terminate,
provided that such Grantee, or in the case of his or her death or
adjudication of incompetency, his or her beneficiary, executor,
administrator, distributees, guardian or legal representative, as the case
may be, may, at any time until the earliest to occur of (i) if the Director
ceased to be a Director for any reason other than death or Disability, 90
days after the date such person ceased to be a Director, (ii) if the
Director ceased to be a Director on account of death or Disability, 180
days after the date such person ceased to be a Director, and (iii) the
expiration of the Term of such Option, exercise the Option to the extent
that it was vested and exercisable pursuant to Section 5.4 on the date the
person ceased to be a Director.
6.2 Manner of Exercise and Payment. An Option may be exercised by and only by
written notice of exercise delivered to the Company during the Term of the
Option, specifying
-6-
<PAGE>
the number of shares of Common Stock to be purchased, accompanied by
payment in full for the shares of Common Stock being acquired thereunder
made by cash, certified check, cashiers check or wire transfer made payable
to "Open Port Technology, Inc.," or, subject to the approval of the Board,
any one or more of the following means:
(i) Mature Shares valued at Fair Market Value on the date of
exercise, or if the date of exercise is not a business day, the
next succeeding day, or
(ii) pursuant to procedures approved by the Board, through the sale of
the Common Stock acquired on exercise of the Option through a
broker-dealer to whom the Grantee has submitted an irrevocable
notice of exercise and irrevocable instructions to deliver
promptly to the Company the amount of sale or loan proceeds
sufficient to pay for such Common Stock, together with, if
requested by the Company, the amount of federal, state, local or
foreign withholding taxes payable by Grantee by reason of such
exercise.
If Mature Shares are used to pay the Exercise Price, then if requested by
the Secretary or Assistant Secretary of the Company, the Grantee shall
deliver to the Secretary or Assistant Secretary the agreement evidencing
the Option and the Grantee's certificate that such shares have been held by
the Grantee for at least six months or were purchased on the open market
and such certificate shall identify the number of shares of Common Stock
and the stock certificate or other document or notation which evidences
such stock ownership. The number of Mature Shares being so used and the
number of shares of Common Stock purchased upon exercise may be evidenced
by a notation on the agreement and the agreement shall be returned to the
Grantee. No fractional shares of Common Stock (or cash in lieu of
fractional shares) shall be issued upon exercise of an Option and the
number of shares of Common Stock that may be purchased upon exercise shall
be rounded to the nearest number of whole shares.
6.3 Transfer of Options.
(a) Except as provided in subsection (b) below, each Option granted
hereunder shall by its terms not be assignable or transferable other than
by will or the laws of descent and distribution or by designation of a
beneficiary in accordance with Section 8.1 and may be exercised, during the
Grantee's lifetime, only by the Grantee.
(b) Notwithstanding subsection (a) above, a Grantee may transfer an
option in the manner prescribed by the Board, and subject to such terms and
conditions as may be prescribed by the Board, to any Permissible Transferee
(as defined below). For purposes of this Plan, "Permissible Transferee"
means any member of the Immediate Family (as defined below) of the Grantee
to whom such Option was granted, any trust the primary beneficiaries of
which consist exclusively of the Grantee or members of the Grantee's
Immediate Family or any corporation, partnership or similar entity, the
owners of which consist exclusively of the Grantee or members of the
Grantee's Immediate Family. For purposes of this Section, "Immediate
Family" means such Grantee's spouse, children, nieces, nephews,
grandchildren, great grandchildren, stepchildren, parents, stepparents,
grandparents, siblings, half siblings, and the spouses of such individuals.
-7-
<PAGE>
Article VII
Adjustments upon Changes in Capitalization
------------------------------------------
7.1 Adjustments in Authorized Shares. In the event that the Board determines
that any dividend or other distribution (whether in the form of cash,
shares of Common Stock, other securities, or other property),
recapitalization, stock split, reverse stock split, subdivision,
consolidation or reduction of capital, reorganization, merger, split-up,
spin-off or combination involving the Company or repurchase or exchange of
shares of Common Stock or other rights to purchase shares of Common Stock
or other securities of the Company, or other similar corporate transaction
or event (a "Transaction") that occurs at any time after the date on which
this Plan is approved by the Board affects the Common Stock such that any
adjustment is determined by the Board to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to
be made available under the Plan, then the Board shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of
shares of Common Stock (or other securities or property of the Company or
any person that is a party to a Transaction with the Company) with respect
to which Options may be granted, (ii) the number and type of shares of
Common Stock (or other securities or property of the Company or any person
that is a party to a Transaction with the Company) subject to outstanding
Options, (iii) the Exercise Price of any Option, and (iv) the vesting
schedule of each outstanding Option or Option subsequently granted under
this Plan; or, if deemed appropriate, make provision for a cash payment to
the holder of an outstanding Option or the substitution of other property
for Common Stock subject to an outstanding Option.
7.2 No Fractional Shares. If a fraction of a share would otherwise result from
any adjustment pursuant to Section 7.1, the adjusted share amount shall be
reduced to the next lower whole number.
Article VIII
Miscellaneous
-------------
8.1 Exercise after Death. Each Grantee under the Plan may, from time to time,
name any beneficiary or beneficiaries (who may be an individual or a trust
and who may be named contingently or successively) to exercise on such
beneficiary's behalf any Options that are outstanding and exercisable after
the death of the Grantee. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed by the
Company, and will be effective only when filed by the Grantee in writing
with the Company during the Grantee's lifetime. In the absence of any such
designation, the Option to the extent outstanding and exercisable after the
death of a Grantee may be exercised by his or her executors,
administrators, legatees or distributees of his or her estate as determined
under his or her will or by the laws of descent and distribution. If an
Option is exercised by the executors, administrators, legatees or
distributees of the estate of a deceased Grantee or by the guardian or
legal representative of a Grantee, the Company shall be under no obligation
to issue Common Stock thereunder unless and until it is satisfied that the
person or persons exercising the Option are the duly appointed beneficiary
or legal representatives of the Grantee or of the deceased Grantee's estate
or the proper legatees or distributees of such estate.
-8-
<PAGE>
8.2 Expenses. The expenses of the Plan shall be borne by the Company. Any taxes
imposed on a Grantee upon exercise of an Option shall be paid by such
Grantee.
8.3 No Right to Re-Election. Except as expressly provided for in the Plan, no
Director or other person shall have any right to be granted an Option.
Neither the Plan nor any action taken hereunder shall be construed as
giving any Director any right to be retained or re-elected as a Director.
8.4 Securities Registration. The Company shall not be obligated to deliver any
shares of Common Stock hereunder until they have been listed on each
securities exchange on which the Common Stock may then be listed, or until
there has been compliance with such state or federal laws, rules or
regulations as the Company may deem applicable.
8.5 Taxes. It shall be a condition to the obligation of the Company to issue
shares of Common Stock upon exercise of an Option that the Grantee pay to
the Company such amount, if any, as may be requested by the Company to
satisfy any obligation of the Company to withhold federal, state, local or
foreign income or other taxes relating to such exercise.
8.6 Rights as Stockholder. A Grantee shall not by reason of any Option have any
right as a stockholder of the Company with respect to the shares of Common
Stock which may be deliverable upon exercise of such Option until such
shares have been delivered to him or her.
8.7 Severability. If all or any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not
declared to be unlawful or invalid. Any Article or part of an Article so
declared to be unlawful or invalid shall, if possible, be construed in a
manner which will give effect to the terms of such Article or part of an
Article to the fullest extent possible while remaining lawful and valid.
8.8 Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of Delaware.
Article IX
Amendment
---------
The Plan may be amended at any time and from time to time by the Board as
it shall deem advisable including, but not limited to, amendments necessary to
qualify for any exemption or to comply with applicable law or regulations;
provided, however, that the Board may provide that any amendment to the Plan
shall not become effective unless approved by the stockholders of the Company.
No amendment of the Plan will adversely affect the rights of any Grantee under
an Option without the consent of such Grantee.
-9-
<PAGE>
Article X
Termination
-----------
The Plan shall terminate on the earliest of (i) the tenth annual
anniversary of the effective date described in Section 1.1, or (ii) the date the
Plan is terminated by the Board. Termination of the Plan shall not affect any
Option then outstanding.
Executed this ___ day of ___________, 2000.
OPEN PORT TECHNOLOGY, INC.
By: _____________________________________
-10-
<PAGE>
Exhibit 10.5
OPEN PORT TECHNOLOGY, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
OPEN PORT TECHNOLOGY, INC CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
I. Purpose and Effective Date
--------------------------
1.1 The purpose of the Open Port Technology, Inc. 2000 Employee Stock Purchase
Plan (the "Plan") is to provide an opportunity for eligible employees to
acquire a proprietary interest in the Open Port Technology, Inc. (the
"Company") through the purchase of shares of common stock of the Company.
1.2 The Company intends the Plan to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Plan shall be construed in a manner consistent with the
requirements of Section 423 of the Code.
1.3 The Plan shall be effective upon approval of the Company's stockholders.
No option shall be granted under the Plan after the earliest of (i) the day
before the tenth (10th) annual anniversary of the date on which the Plan is
approved by the Board, or (ii) the date on which the Plan is terminated by
the Board in accordance with Section 12.6 of the Plan.
II. Definitions
-----------
The following words and phrases, when used in this Plan, unless their
context clearly indicates otherwise, shall have the following respective
meanings:
2.1 "Base Earnings" means all compensation received by a Participant from the
Company or a Participating Subsidiary, including salary deferrals by the
Participant under Sections 401(k) and 125 of the Code, bonuses and overtime
pay, but excluding short-term disability, long-term disability or workers
compensation payments and similar amounts.
2.2 "Board" has the meaning prescribed for that term in Section 1.3.
2.3 "Code" has the meaning prescribed for that term in Section 1.1.
2.4 "Committee" means the committee of the Board appointed pursuant to Section
3.1.
2.5 "Common Stock" means the Company's common stock, $.001 par value.
2.6 "Company" has the meaning prescribed for that term in Section 1.1.
2.7 "Cut-Off Date" means the date established by the Committee from time to
time by which enrollment forms must be received prior to an Enrollment
Date.
2.8 "Effective Date" means the date described in Section 1.3.
<PAGE>
2.9 "Eligible Employee" means an Employee eligible to participate in the Plan
in accordance with Article V.
2.10 "Employee" means an individual who performs services for the Company or a
Participating Subsidiary pursuant to an employment relationship described
in Treasury Regulations Section 31.3401(c)-1 or any successor provision.
2.11 "Enrollment Date" means for any Employee who has completed the service
requirement for participation in the Plan prior to the first trading day
of an Enrollment Period, the first trading day of such Enrollment Period.
2.12 "Enrollment Period" means, as to the Company or a Participating
Subsidiary, a period of six months or such other duration not in excess of
27 months as shall be established from time to time by the Committee with
respect to the Employees of the Company or such Participating Subsidiary,
as applicable. Each Enrollment Period shall commence on a date specified
by the Committee. Enrollment Periods and the commencement dates for
Enrollment Periods may, but need not, be different for the Company and
each Participating Subsidiary. Unless otherwise specified by the
Committee, the initial Enrollment Period shall be the six-month period
commencing on the first day of the calendar quarter that begins at least
30 days after the IPO Date. Succeeding Enrollment Periods shall, unless
otherwise specified by the Committee, be six-month periods beginning on
each successive semiannual anniversary of the first day of the initial
Enrollment Period.
2.13 "Exchange Act" means the Securities Exchange Act of 1934.
2.14 "Fair Market Value" of any security of the Company means, as of any
applicable date:
(a) if the security is listed for trading on the New York Stock Exchange,
the closing price, regular way, of the security as reported on the
New York Stock Exchange Composite Tape, or if no sale of the security
shall have been reported for such date, on the next preceding date
for which such a sale was reported; or
(b) if the security is not so listed, but is listed on another national
securities exchange or authorized for quotation on the Nasdaq
National Market, the closing price, regular way, of the security on
such exchange or the Nasdaq National Market, as the case may be, or
if no such sale of the security shall have been reported for such
date, on the next preceding date for which such a sale was reported;
(c) if the security is not listed for trading on a national securities
exchange or authorized for quotation on the Nasdaq National Market,
the average of the closing bid and asked prices as reported by the
Nasdaq SmallCap Market or, if no such prices shall have been so
reported for such date, on the next preceding date for which such
prices were so reported, or
(d) if the security is not listed for trading on a national securities
exchange and is not authorized for quotation on the Nasdaq National
Market or the Nasdaq Small Cap
-2-
<PAGE>
Market, the fair market value of the security as determined in good
faith by the Committee.
2.15 "Grant Date" means a date on which an Eligible Employee is granted options
under the Plan.
2.16 "including" means "including without limitation".
2.17 "IPO" means the initial public offering of Common Stock as contemplated in
the registration statement on Form S-1 filed by the Company with the SEC
on April 5, 2000, and as subsequently amended.
2.18 "IPO Date" means the closing date under the underwriting agreement between
the Company and the underwriters of the IPO with respect to Firm Shares
(as defined in the underwriting agreement).
2.19 "Participant" means an Eligible Employee who has enrolled in the Plan
pursuant to Article VI.
2.20 "Participating Subsidiary" means a Subsidiary which has been designated by
the Committee in accordance with Section 3.3(e) as covered by the Plan.
2.21 "Purchase Date" means the specific trading day during an Enrollment Period
as may be established by the Committee from time to time prior to the
beginning of the Enrollment Period for all options to be granted during
such Enrollment Period on which shares of Common Stock are purchased in
accordance with Article IX of the Plan. Unless otherwise specified by the
Committee, the Purchase Date for each Enrollment Period shall be the last
day of such Enrollment Period, or, if such day is not a trading day, the
next day that is a trading day.
2.22 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange
Act.
2.23 "SEC" means the Securities and Exchange Commission.
2.24 "Securities Act" means the Securities Act of 1933.
2.25 "Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company, if as of the applicable Enrollment Date, each
of the corporations other than the last corporation in the chain owns
stock representing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
III. Administration
--------------
3.1 The Plan shall be administered by the Compensation Committee of the Board
which shall consist of not less than two persons who are directors of the
Company. Membership on the Committee shall be subject to such limitations
as the Board deems appropriate to
-3-
<PAGE>
permit transactions in Common Stock pursuant to the Plan to be exempt from
liability under Section 16(b) of the Exchange Act pursuant to Rule 16b-3
of the SEC thereunder.
3.2 The Committee may select one of its members as chairman and may appoint a
secretary. The Committee shall make such rules and regulations for the
conduct of its business as it shall deem advisable; provided, however,
that all determinations of the Committee shall be made by a majority of
its members.
3.3 The Committee shall have the power, subject to the express provisions of
the Plan:
(a) to determine from time to time the time or times when options shall
be granted;
(b) to construe and interpret the Plan and options granted under it, and
to establish, amend and revoke rules for its administration;
(c) to correct any defect, or supply any omission, or reconcile any
inconsistency in the Plan, in a manner and to the extent it shall
deem necessary or appropriate to carry out the intent of the Plan;
(d) to prescribe the terms and provisions for participation in the Plan;
(e) to designate from time to time which Subsidiaries of the Company
shall be Participating Subsidiaries; and
(f) to determine all questions of policy and expediency that may arise in
the administration of the Plan, and, generally, to exercise such
powers and perform such acts as are deemed necessary or expedient to
promote the best interests of the Company.
3.4 This Article III relating to the administration of the Plan may be amended
by the Board from time to time as may be desirable to satisfy any
requirements of or under the federal securities and/or other applicable
laws of the United States, or to obtain any exemption under such laws.
IV. Number of Shares
----------------
4.1 480,000 shares of Common Stock are reserved for sales and authorized for
delivery pursuant to the Plan. The number of shares of Common Stock
reserved shall increase as of each May 1, beginning May 1, 2001, by a
number of shares of Common Stock equal to the lesser of (a) one percent of
the number of shares of Common Stock outstanding as of the close of
business on such date, or (b) 266,667 shares of Common Stock. Subject to
the foregoing limitation, shares sold under the Plan may be newly-issued
shares or outstanding shares that have been reacquired by the Company in a
private transaction or open market purchases or both. If any option
granted under the Plan shall for any reason terminate without having been
exercised, the shares not purchased under such option shall again become
available for the Plan.
-4-
<PAGE>
4.2 In the event of any reorganization, recapitalization, stock split, reverse
stock split, stock dividend, combination of shares, merger, consolidation,
acquisition of property or shares, separation, asset spin-off, stock
rights offering, liquidation or other similar change in the capital
structure of the Company after the date on which the Board adopts this
Plan, the Committee shall make such adjustment, if any, as it deems
appropriate in the number, kind and purchase price of the shares available
for purchase under the Plan. In the event that, after a Grant Date, there
occurs a dissolution or liquidation of the Company, except pursuant to a
transaction to which Section 424(a) of the Code applies, each option to
purchase Common Stock shall terminate, but the Participant holding such
option shall have the right to exercise his or her option prior to such
dissolution or liquidation.
V. Eligibility Requirements
------------------------
5.1 Except as provided in Section 5.2, each Employee of the Company or a
Participating subsidiary shall become eligible to participate in the Plan
in accordance with Article VI on the first Enrollment Date following the
Employee's completion of six months of employment by the Company or a
Participating Subsidiary, as applicable, provided that the individual is
an Employee on that Enrollment Date. Participation in the Plan is
voluntary.
5.2 The following Employees are not eligible to participate in the Plan:
(a) Employees who, immediately upon enrollment in the Plan, would own
directly or indirectly, or hold options or rights to acquire, an
aggregate of 5% or more of the total combined voting power or value
of all outstanding shares of all classes of stock of the Company or
any Subsidiary (and for purposes of this paragraph, the rules of Code
Section 424(d) shall apply, and stock that the Employee may purchase
under outstanding options shall be treated as stock owned by the
Employee);
(b) Employees who are customarily employed by the Company or a
Participating Subsidiary for not more than five months in any
calendar year;
(c) Employees who are customarily employed by the Company or a
Participating Subsidiary for 20 hours or less per week;
(d) Employees who are prohibited by the laws of the nation of their
residence or employment from participating in the Plan; and
(e) Employees who are members of a collective bargaining unit covered by
a collective bargaining agreement; provided that participation in the
Plan has been specifically considered (after review of the terms of
the Plan) and rejected by the collective bargaining representative
representing such employees.
5.3 Employees who are also directors or officers (as defined in Rule 16a-1(f)
under the Exchange Act, as such rule may be amended from time to time) of
the Company may participate only in accordance with the requirements of
Rule 16b-3. The Plan is intended to conform to the extent necessary with
all provisions of the Securities Act and the
-5-
<PAGE>
Exchange Act and all regulations and rules promulgated by the SEC
thereunder, including Rule 16b-3. Notwithstanding anything herein to the
contrary, the Plan shall be administered, and the options shall be granted
and may be exercised, only in such a manner as to conform to such laws,
rules and regulations. To the extent permitted by applicable law, the Plan
and the options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
VI. Enrollment
----------
6.1 Any Eligible Employee may enroll in the Plan as of an Enrollment Date. In
order to enroll with respect to any Enrollment Period, an Eligible
Employee must complete, sign and submit to the Company an enrollment form
in such form as provided by the Committee which shall include, among other
items, the Eligible Employee's contribution election. Any enrollment form
received by the Company before the Cut-Off Date will be effective as of
the Enrollment Date to which it relates and shall continue in effect until
(i) the end of the last payroll period in the Enrollment Period and
succeeding Enrollment Periods unless the Employee has specified that the
enrollment form shall not continue in effect beyond a designated
enrollment period, (ii) the day before the start of a succeeding
enrollment period for which the Employee has submitted a new enrollment
form prior to the applicable Cut-Off Date, or (ii) the date during the
Enrollment Period that the Employee withdraws from the Plan or has a
termination of employment in accordance with Article X.
VII. Grant of Options on Enrollment
------------------------------
7.1 Enrollment by an Eligible Employee in the Plan as of an Enrollment Date
will constitute the grant by the Company to such Participant on the
Enrollment Date of an option to purchase shares of Common Stock from the
Company pursuant to the Plan.
7.2 An option granted to a Participant under the Plan shall give the
Participant a right to purchase on a Purchase Date any number of whole
shares of Common Stock which is not less than ten (10) and not more than
the lesser of the following amounts, whichever is applicable:
(a) the product of (i) the percentage of Base Earnings designated in the
Participant's enrollment form in accordance with Section 8.1 and (ii)
the Participant's semiannualized Base Earnings at the rate in effect
on the applicable Enrollment Date, divided by 85% of the Fair Market
Value of a share of Common Stock as of the Grant Date for the option.
For this purpose, the Base Earnings of an hourly-paid Employee shall
be the sum of such Employee's hourly rate of base pay as of the
beginning of the Enrollment Period multiplied by the number of
regularly scheduled hours, plus the Employee's overtime rate of pay
as of the beginning of the Enrollment Period multiplied by the number
of scheduled overtime hours, that the Employee is expected to work
during the Enrollment Period.
-6-
<PAGE>
(b) the dollar amount designated in the Participant's enrollment form in
accordance with Section 8.1, divided by 85% of the Fair Market Value
of a share of Common Stock as of the Grant Date for the option.
7.3 Each option granted under the Plan shall have the following terms:
(a) whether or not all shares subject thereto have been purchased, the
option will expire on the earliest to occur of (i) the completion of
the purchase of shares on the Purchase Date with respect to which
such option was granted; or (ii) the date on which participation of
such Participant in the Plan terminates for any reason;
(b) payment for shares purchased under the option will be made only in
accordance with Article VIII;
(c) purchase of shares upon exercise of the option will be accomplished
only in accordance with Article IX;
(d) the purchase price per share under the option will be determined as
provided in Article IX;
(e) notwithstanding Section 8.1, no Participant shall be granted an
option which permits the Participant's rights to purchase shares
under all employee stock purchase plans under Section 423 of the Code
of the Company and any Subsidiary to accrue at a rate which exceeds
$25,000 of Fair Market Value of such shares (determined at the time
such option is granted) for each calendar year in which such option
is outstanding at any time as determined in accordance with Section
423(b)(8) of the Code and the treasury regulations thereunder;
(f) the option will in all respects be administered so as to comply with
Section 423 of the Code; and
(g) the option will in all respects be subject to the terms and
conditions of the Plan, as amended from time to time and as
interpreted by the Committee from time to time.
VIII. Contributions
-------------
8.1 Each Participant may elect to make contributions at a rate equal to a
specified dollar amount or to any whole percentage of his or her Base
Earnings for each Enrollment Period, or such other lower maximum
percentage of Base Earnings as the Committee may establish from time to
time before the beginning of an Enrollment Period for all options to be
granted during such Enrollment Period. The maximum an Employee may elect
and authorize to have deducted for an Enrollment Period is the lesser of
(i) 10% of his Base Earnings for such Enrollment Period, or (ii) $15,000
(or such higher or lower amount established by the Committee from time to
time). The dollar amount or rate of contribution shall be designated by
the Participant in the enrollment form. Contributions shall be made only
through an Employee's authorizing payroll withholding on the enrollment
form.
-7-
<PAGE>
8.2 Contributions shall be credited to a recordkeeping account for each
Participant as soon as administratively feasible after withholding of Base
Earnings. The Company shall be entitled to use of the contributions and
shall have no obligation to set aside or pay interest on the contributions
to any Participant.
8.3 During an Enrollment Period, no Participant may elect to increase, reduce
or cease future contributions to the Plan for that Enrollment Period, but
any Participant may withdraw from the Plan for the remainder of such
Enrollment Period pursuant to Article X. A Participant may elect to
increase or decrease the rate of contribution for any future Enrollment
Period by delivery to the Company not later than the related Cut-Off Date
of a new enrollment form indicating the revised rate of contribution.
8.4 Neither the Company nor any Participating Subsidiary shall make
contributions to the Plan. No interest shall be credited to a
Participant's account.
IX. Purchase of Shares
------------------
9.1 Any option held by a Participant that was granted under this Plan and that
remains outstanding as of a Purchase Date shall be deemed to have been
exercised on such Purchase Date for the purchase of the number of whole
shares of Common Stock which the funds accumulated in his or her account
as of the Purchase Date will purchase at the applicable purchase price,
but not in excess of the number of shares for which options have been
granted to the Participant pursuant to Section 7.2. The applicable
purchase price for any shares purchased under any option shall, unless the
Committee in its discretion establishes a higher price, be 85% of the
lower of:
(a) the Fair Market Value of a share of Common Stock on the Grant Date
for such option; or
(b) the Fair Market Value of a share of Common Stock on the Purchase
Date.
9.2 Within a reasonable time after the Purchase Date, the Company shall cause
to be delivered to the Participant a certificate or certificates for the
number of shares purchased by the Participant unless the Company has made
arrangements to have the shares held at a bank or other appropriate
institution in non-certificated form. If any law or applicable rule or
regulation of the SEC or other body having jurisdiction shall require that
the Company or the Participant to take any action in connection with the
shares being purchased under the option, delivery of the certificate or
certificates for such shares shall be postponed until the necessary action
shall have been completed, which action shall be taken by the Company at
its own expense, without unreasonable delay.
9.3 Any amount less than the price of a whole share of Common Stock which
remains credited to a Participant's account on a Purchase Date shall be
carried forward in such account for application on the next Purchase Date.
9.4 In the case of Participants employed by a Participating Subsidiary, the
Committee may provide for Common Stock to be sold through the Subsidiary
to such Participants, to the extent consistent with Section 423 of the
Code.
-8-
<PAGE>
9.5 If the aggregate number of shares of Common Stock for which an option is
exercised on any Purchase Date in accordance with this Article IX, when
aggregated with all shares of Common Stock previously granted under this
Plan, would exceed the maximum number of shares reserved in Section 4.1,
the Company shall make a pro rata allocation of the shares available for
delivery and distribution in as nearly a uniform manner as shall be
practicable and as it shall determine to be equitable, and the balance of
payroll deductions credited to the account of each Participant under the
Plan shall be returned to him or her without interest as promptly as
possible.
9.6 If the payroll deductions credited to the account of the Participant
exceeds the cost of the maximum number of shares that can be purchased by
the Participant, the excess shall be returned to him or her without
interest as promptly as possible. The number of shares which a Participant
is permitted to purchase shall be further limited by the amount of payroll
deductions withheld as of the Purchase Date.
9.7 If a Participant or former Participant sells, transfers, or otherwise
disposes of Common Stock purchased pursuant to an option granted under the
Plan within two years after the date such option is granted or within one
year after the Purchase Date to which such option relates, such
Participant or former Participant shall notify the Company in writing of
such sale, transfer or other disposition within 10 days of the
consummation of such sale, transfer or other disposition, and shall remit
to the Company or authorize the Company to withhold from other sources
such amount as the Company may determine to be necessary to satisfy any
federal, state or local tax withholding obligations of the Company or
Participating Subsidiary. The Committee may from time to time establish
rules and procedures (including postponing delivery of shares until the
expiration of the two-year or one-year period) to cause the withholding
requirements to be satisfied.
X. Withdrawal From the Plan; Termination of
----------------------------------------
Employment and Leave of Absence
-------------------------------
10.1 Withdrawal from the Plan. A Participant may withdraw from the Plan in
full (but not in part) with respect to any Enrollment Period at any time
up to four weeks prior to a Purchase Date upon delivery to the Company of
a notice of withdrawal, or such shorter time in advance of a Purchase Date
as the Committee may permit. If notice is timely received, all funds
credited to a Participant's account shall not be used to purchase Common
Stock, but shall instead be distributed to him or her without interest as
soon as administratively feasible. An Employee who has withdrawn during an
Enrollment Period may not return funds to the Company during the same
Enrollment Period and require the Company to apply those funds to the
purchase of Common Stock. Any Eligible Employee who has withdrawn from the
Plan may, however, re-enroll in the Plan on the next subsequent Enrollment
Date following withdrawal in accordance with the provisions of Article VI.
10.2 Termination of Employment. Participation in the Plan terminates
immediately when a Participant ceases to be employed by the Company or
Participating Subsidiary for any reason whatsoever (including death or
disability, or upon his or her employer ceasing to be a Participating
Subsidiary for any reason including its ceasing to be a Subsidiary) or
-9-
<PAGE>
otherwise ceases to be an Eligible Employee. As soon as administratively
feasible after termination of participation, the Company shall pay to the
Participant or his or her beneficiary or legal representative all amounts
credited to the Participant's account, without interest.
10.3 Leave of Absence. Unless a Participant has voluntarily withdrawn from the
Plan, Common Stock will be purchased for the account of a Participant who
is on leave of absence on the Purchase Date next following the start of
that Participant's leave of absence. Participation of such Participant in
the Plan will terminate immediately after the purchase of shares on such
Purchase Date, unless:
(a) the leave of absence is due to illness, injury or other reason
approved by the Committee; or
(b) the Participant's right to return to active employment after such
leave is guaranteed by contract or statute.
XI. Designation of Beneficiary
--------------------------
11.1 Each Participant may designate in writing one or more beneficiaries to
receive the amount in his or her account in the event of death and may, in
his or her sole discretion, change such designation in writing at any time
without the consent of any designated beneficiary. Any such designation
shall be effective upon receipt by the Company and shall control over any
disposition by will or otherwise.
11.2 As soon as administratively feasible after the death of a Participant,
amounts credited to his or her account shall be paid (without interest) in
cash to the designated beneficiaries or, in the absence of a designation,
to the executor, administrator or other legal representative of the
Participant's estate. Such payment shall relieve the Company of further
liability with respect to the Plan on account of the deceased Participant.
If more than one beneficiary is designated, each beneficiary shall receive
an equal portion of the account unless the Participant has given express
contrary instructions.
11.3 No beneficiary shall, prior to the death of the Participant by whom he or
she has been designated, acquire any interest in the amounts credited to
the Participant's account under the Plan.
XII. Miscellaneous
-------------
12.1 Restrictions on Transfer. Options granted hereunder may not be
transferred otherwise than by will or the laws of descent and
distribution. An option may not be exercised during a Participant's
lifetime other than by the Participant. A Participant may direct the
Company in the enrollment form that share certificates issued by the
Company be issued to the Participant in the Participant's name, or if the
Participant so indicates in the enrollment form, in the Participant's name
together with the name of one or more other persons, in joint tenancy with
right of survivorship or spousal community property, or in certain forms
of trusts approved by the Committee. The rights of a Participant under the
Plan shall not be assignable by such Participant by operation of law or
otherwise.
-10-
<PAGE>
12.2 Administrative Assistance. If the Committee in its discretion so elects,
it may retain a brokerage firm, bank or other financial institution to
assist in the purchase of shares, delivery of reports or other
administrative aspects of the Plan. If the Committee so elects, each
Participant shall (unless prohibited by applicable law) be deemed upon
enrollment in the Plan to have authorized the establishment of an account
on his or her behalf at such institution. Shares purchased by a
Participant under the Plan shall be held in the account in the
Participant's name, or if the Participant so indicates in the enrollment
form, in the Participant's name together with the name of one or more
other persons, in joint tenancy with right of survivorship or spousal
community property, or in certain forms of trusts approved by the
Committee.
12.3 Costs. All costs and expenses incurred in administering the Plan shall be
paid by the Company, except that any stamp duties, transfer taxes and any
brokerage fees applicable to participation in the Plan shall be charged to
the account of such Participant by the Company.
12.4 Equal Rights and Privileges. All Eligible Employees shall have equal
rights and privileges with respect to the Plan so that the Plan qualifies
as an "employee stock purchase plan" within the meaning of Section 423 or
any successor provision of the Code and the related regulations.
Notwithstanding any term of the Plan, any provision of the Plan which is
inconsistent with Section 423 or any successor provision shall
automatically be reformed to comply with the requirements of Section 423.
12.5 Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of Delaware.
12.6 Amendment and Termination. The Board may amend, alter or terminate the
Plan at any time. No amendment shall be effective unless within one year
after it is adopted by the Board it is approved by the holders of a
majority of the voting power of the Company's outstanding shares, if such
amendment would require stockholder approval under Section 423 of the Code
or the requirements of any securities exchange or quotation system on
which the Common Stock is listed.
If the Plan is terminated, the Board may elect to terminate all
outstanding options either prior to their expiration or upon completion of
the purchase of shares on the next Purchase Date, or may elect to permit
options to expire in accordance with their terms (and participation to
continue through such expiration dates). If the options are terminated
prior to expiration, all funds contributed to the Plan that have not been
used to purchase shares shall be returned to the Participants without
interest as soon as administratively feasible.
12.7 No Right of Employment. Neither the grant nor the exercise of any rights
to purchase shares under this Plan nor anything in this Plan shall impose
upon the Company or any Participating Subsidiary any obligation to employ
or continue to employ any employee. The right of the Company and the
Participating Subsidiaries to terminate any employee shall not be
diminished or affected because any rights to purchase shares have been
granted to such employee.
-11-
<PAGE>
12.8 No Right as Stockholder. A Participant shall not by reason of any option
have any right as a stockholder of the Company with respect to shares of
Common Stock which may be purchased under the Plan until such shares have
been delivered to him or her.
12.9 Requirements of Law. The Company shall not be required to sell, issue, or
deliver any shares of Common Stock under this Plan if such sale, issuance,
or delivery might constitute a violation by the Company or the Participant
of any provision of applicable law. Unless a registration statement or
qualification under the Securities Act or any applicable state securities
law is in effect with respect to the shares of Common Stock proposed to be
delivered under the Plan, the Company shall not be required to deliver
such shares if, in the opinion of the Company's counsel, such issuance
could reasonably be expected to violate the Securities Act or such state
securities law, as applicable.
To the extent that such shares of Common Stock have not been
registered or qualified under the Securities Act or any applicable state
securities laws, the Company may impose restrictions upon the
hypothecation or further sale or transfer of such shares (including the
placement of appropriate legends on stock certificates) if, in the
judgment of the Company's counsel, such restrictions are necessary or
desirable to achieve compliance with the Securities Act or the securities
laws of any state. If, in the opinion of the Company's counsel, any legend
placed on a stock certificate for shares of Common Stock issued under the
Plan is no longer required by applicable securities or other laws, the
holder of such certificate shall be entitled to exchange such certificate
for an unlegended certificate for a like number of shares.
The Company shall use all reasonable efforts to register or qualify
the Common Stock to be sold pursuant to the Plan under the Securities Act
and any applicable state securities laws. The Company shall not be
obligated to take any other action to cause the grant or exercise of any
right or the issuance, sale, or deliver of shares pursuant to the exercise
of any right to comply with any law.
Executed this __________ day of __________, 2000.
OPEN PORT TECHNOLOGY, INC.
By: __________________________
Title: _______________________
May 18, 2000
-12-
<PAGE>
EXHIBIT 10.10
OPEN PORT TECHNOLOGY, INC.
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
January 27, 2000
<PAGE>
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Second Amended and Restated Registration Rights Agreement (this
"Agreement") is entered into as of the 27/th/ day of January, 2000, among Open
Port Technology, Inc., an Illinois corporation (the "Company") and the persons
and entities set forth on Schedule 1 hereto, which includes the investor (the
----------
"Series A Investor") party to the Series A Investment Agreement defined below
and designated as such on Schedule 1, the investors (the "Series B Investors")
----------
party to the Series B Investment Agreement defined below and designated as such
on Schedule 1, the investors (the "Series C Investors") party to the Series C
----------
Investment Agreement defined below and designated as such on Schedule 1, the
----------
investors (the "Series D Investors") party to the Series D Investment Agreement
defined below and designated as such on Schedule 1, and certain new investors
----------
(the "Series E Investors" and, together with the Series A Investor, the Series B
Investors, the Series C Investors and the Series D Investors, collectively, the
"Investors").
RECITALS
A. Pursuant to the terms of an investment agreement (the "Series A
Investment Agreement"), dated as of July 27, 1995, as amended as of March 12,
1996, between the Company and the Series A Investor, the Company sold shares of
Series A Convertible Participating Preferred Stock of the Company, par value
$.001 per share (the "Series A Preferred Stock"), to the Series A Investor.
B. Pursuant to the terms of an investment agreement (the "Series B
Investment Agreement"), dated as of March 12, 1996, as amended as of April 19,
1996, February 6, 1997, March 19, 1997, between the Company and the Series B
Investors, the Company sold shares of Series B Convertible Participating
Preferred Stock of the Company, par value $.001 per share (the "Series B
Preferred Stock"), to the Series B Investors.
C. Pursuant to the terms of an investment agreement (the "Series C
Investment Agreement"), dated as of June 15, 1998, as amended as of February 4,
1999, among the Company, the Series C Investors, the Series A Investor and the
Series B Investors, the Company sold shares of Series C Convertible
Participating Preferred Stock of the Company, par value $.001 per share (the
"Series C Preferred Stock"), to the Series C Investors.
D. Pursuant to the terms of an investment agreement (the "Series D
Investment Agreement"), dated as of April 29, 1999, among the Company, the
Series D Investors, the Series C Investors, the Series B Investors, and the
Series A Investor, the Company sold shares of Series D Convertible Preferred
Stock of the Company, par value, $.001 per share (the "Series D Preferred
Stock"), to the Series D Investors.
E. The Company, the Series A Investor, the Series B Investors, the Series
C Investors and the Series D Investors are parties to that certain Amended and
Restated Registration Rights Agreement, dated as of June 15, 1998, as amended
(the "Existing Registration Rights Agreement").
1
<PAGE>
F. The Series E Investors have agreed to purchase shares of Series E
Preferred Stock (as hereinafter defined) of the Company, pursuant to that
certain Series E Investment Agreement dated as of even date herewith (the
"Series E Investment Agreement") provided that the Company and the Investors
enter into this Agreement to amend and restate the Existing Amended and Restated
Registration Rights Agreement.
G. The Company and the Investors deem it desirable to (i) enter into this
Agreement in order to induce the Series E Investors to purchase the shares of
Series E Preferred Stock pursuant to the Series E Investment Agreement and (ii)
to amend and restate (and supersede and replace) the Existing Amended and
Restated Registration Rights Agreement.
H. The Company, in connection with certain financing arrangements has
issued warrants to acquire shares of Series C Preferred Stock to Third Coast
Venture Lease Partners I, L.P. ("Third Coast"), CID Mezzanine Capital, L.P.
("CIDMC") and Silicon Valley Bank (such warrants being collectively referred to
as the "Existing Warrants") and the Company may in the future enter into
additional financing arrangements pursuant to which the Company will issue
"Additional Warrants" (as that term is defined in Section 3.4 of the Series E
Investment Agreement); upon exercise of such Existing Warrants or such
Additional Warrants by the holder or holders thereof, such holder or holders
shall be deemed an "Investor" for all purposes hereof and Schedule 1 shall be
--------
amended to include such holder or holders designated as such without any action
of the Company or the other Investors.
TERMS AND CONDITIONS
In consideration of the mutual covenants and agreements contained in this
Agreement and the Series E Investment Agreement, and intending to be legally
bound, the parties hereto agree to, and agree to amend and restate (and
supersede and replace), as applicable, the Existing Registration Rights
Agreement as follows:
Section 1. Definitions. As used in this Agreement, the following terms
-----------
have the meanings indicated below or in the referenced sections of this
Agreement:
"Common Stock:" The Company's Common Stock, par value $.001 per share, as
------------
the same may be constituted from time to time.
"Conversion Stock:" The shares of the Common Stock that the Investors have
----------------
the right to acquire, or do acquire, pursuant to conversion of (a) the Series A
Preferred Stock of the Company acquired under the Series A Investment Agreement,
(b) the Series B Preferred Stock of the Company acquired under the Series B
Investment Agreement, (c) the Series C Preferred Stock of the Company acquired
under the Series C Investment Agreement, (d) the Series D Preferred Stock of the
Company acquired under the Series D Investment Agreement, (e) the Series E
Preferred Stock of the Company acquired under the Series E Investment Agreement,
(f) the Series C Preferred Stock of the Company issuable upon the exercise of
the Existing Warrants, (g) the Preferred Stock of the Company issuable upon the
exercise of any Additional
2
<PAGE>
Warrants, (h) any other shares of Preferred Stock or other securities of the
Company issued or acquired pursuant to any future agreement between or among any
of the Investors and the Company or any current shareholder of the Company, (i)
any shares of Preferred Stock issued or payable to the Investors in connection
with any stock dividend, stock split, or recapitalization of the Company, and
(j) any shares of Preferred Stock issued to the Investors in replacement of or
upon partial exercise of any conversion rights applicable to any of the shares
of Preferred Stock described in the preceding clauses.
"Demand Registration:" See Section 3(a) and Section 3(b).
------------------- ------------ ------------
"Exchange Act:" The Securities Exchange Act of 1934, as amended from time
------------
to time.
"Fully Diluted:" Assuming conversion into Common Stock of all shares that
-------------
are convertible into Common Stock and the exercise of all options and warrants
to purchase Common Stock.
"Initial Public Offering:" The first primary offering of Common Stock to
-----------------------
the public by the Company registered pursuant to the Securities Act.
"Majority of the Registrable Securities:" 51% or more of the Registrable
--------------------------------------
Securities being registered unless the text of this Agreement indicates that it
is 51% or more of the Registrable Securities then issued and outstanding.
"Non-Series E Registrable Securities:" All Registrable Securities other
-----------------------------------
than the Series E Registrable Securities.
"Person:" An individual, a partnership, a corporation, a limited liability
------
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, and a government entity or any department, agency,
or political subdivision thereof.
"Piggyback Registration:" See Section 4(a).
---------------------- ------------
"Preferred Stock:" The Series A Preferred Stock, the Series B Preferred
---------------
Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series
E Preferred Stock.
"Public Offering:" A primary offering of Common Stock by the Company
---------------
registered pursuant to the Securities Act.
"Registrable Securities:" The Conversion Stock.
----------------------
"Registration Expenses:" See Section 7.
--------------------- ---------
"Restricted Securities:" The Registrable Securities, subject to the
---------------------
provisions of Section 2(a).
------------
"SEC:" The United States Securities and Exchange Commission.
---
"Securities Act:" The Securities Act of 1933, as amended from time to
--------------
time.
3
<PAGE>
"Series E Preferred Stock:" The Company's Series E Convertible
------------------------
Participating Preferred Stock, par value $.001 per share, as the same may be
constituted from time to time.
"Series E Registrable Securities:" The Conversion Stock relating to the
-------------------------------
Series E Preferred Stock.
"Underwritten registration or underwritten offering:" A registration in
--------------------------------------------------
which securities of the Company are sold pursuant to a firm commitment
underwriting.
Section 2. Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. The securities entitled to the
----------------------
benefits of this Agreement are those Registrable Securities that are
Restricted Securities. A Registrable Security ceases to be a Restricted
Security when (i) it is registered under the Securities Act and disposed of
in accordance with the registration statement covering it, or (ii) it is
eligible to be sold or transferred in accordance with the requirements of
Section (k) (or similar provisions then in effect) of Rule 144 promulgated
by the SEC under the Securities Act ("Rule 144").
(b) Holders of Registrable Securities. A Person is deemed to be a
---------------------------------
holder of Registrable Securities whenever that Person owns, directly or
beneficially, or has the right to acquire Registrable Securities,
disregarding any legal restrictions upon the exercise of that right.
Section 3. Demand Registration.
-------------------
(a) Requests for Registration.
-------------------------
(i) At any time after the earlier of: (i) a Public Offering or
(ii) June 15, 2001, any stockholder or stockholders holding in the
aggregate at least 7.6% of the Non-Series E Registrable Securities (a
"Non-Series E Demand Registration") or at least 5% of the Series E
Registrable Securities (a "Series E Demand Registration"), may at any
time demand that the Company register all or part of his, her, or its
Registrable Securities under the Securities Act (Non-Series E Demand
Registrations and Series E Demand Registrations being collectively
referred to as a "Demand Registration") on Forms S-1, S-2, or S-3 (or
similar forms then in effect) promulgated by the SEC under the
Securities Act. Within ten days after receipt of a demand, the Company
will notify in writing all holders of Registrable Securities of the
demand. Any holder who wants to include his, her, or its Registrable
Securities in the Demand Registration must notify the Company within
ten business days of receiving the notice of the Demand Registration.
Except as provided in this Section 3, the Company will include in all
---------
Demand Registrations all Registrable Securities for which the Company
receives timely written demands for inclusion. All demands made
pursuant to this Section 3(a) must specify the number of Registrable
------------
Securities to be registered and the intended method of disposing of
the Registrable Securities.
4
<PAGE>
(ii) Notwithstanding anything to the contrary herein, the holders
of the Series E Registrable Securities shall have a special right to
require up to three demand registrations (the "Series E Special Demand
Registration") after an Initial Public Offering, which may be
exercised by holders of at least 5% of the Series E Registrable
Securities the first of which may be exercised not earlier then 120
days after the Company's Initial Public Offering; provided that this
special right shall expire when the holders of Common Stock issued
upon conversion of the Series E Preferred Stock are free to sell them
under Rule 144(k) or hold less than 1% of the outstanding Common Stock
of the Company. The Company shall use its best commercial efforts to
cause the first such registration statement to become effective on the
181st day after the effectiveness of the registration statement for
the Company's Initial Public Offering, or if later, not later than 60
days after the demand therefore is made. Each such registration
statement shall be on Form S-1 or S-3, if available, and shall remain
effective for 180 days, or if less, until the Common Stock registered
thereunder is sold. The holders of such Common Stock may, but shall
not be required to, sell the Common Stock in an underwritten offering
under this special registration right. Within ten days after receipt
of a demand, the Company will notify in writing all holders of Series
E Registrable Securities of the demand. Any holder who wants to
include his, her, or its Series E Registrable Securities in the Series
E Special Demand Registration must notify the Company within ten
business days of receiving the notice of the Series E Special Demand
Registration. Except as provided in this Section 3, the Company will
---------
include in all Series E Special Demand Registrations all Series E
Registrable Securities for which the Company receives timely written
demands for inclusion. Notwithstanding the foregoing, no Series E
Special Demand Registration shall be underwritten without the consent
of the holders of a majority of the shares of the Series E Preferred
Stock included in such registration.
(b) Form of Registration. The Demand Registration will be on Form
--------------------
S-3 whenever the Company is permitted to use that form, unless the holders
of a Majority of the Registrable Securities or the underwriter reasonably
request registration on an expanded form. The Company will use its best
commercial efforts to qualify for registration on Form S-3.
(c) Registration Expenses. The Company will pay all Registration
---------------------
Expenses for so many Demand Registrations as are demanded under Section
-------
3(a)(i), up to a maximum of four Demand Registrations and for so many
-------
Series E Special Demand Registrations as are demanded under Section
-------
3(a)(ii), up to a maximum of three Series E Special Demand Registrations;
--------
provided, however, that the total of Series E Demand Registrations and
Series E Special Demand Registrations shall not exceed four; and provided,
however, in the case of a Demand Registration, as applicable, not more than
two Non-Series E Demand Registrations shall be on Form S-1, and provided
further that, with respect to a Demand Registration on Form S-1, (i) the
Demand Registration includes at least that number of shares of Conversion
Stock equal to or greater than 5% of the shares of Common Stock then issued
and outstanding, fully diluted, and (ii) holders of at least a majority of
the Conversion Stock have approved the Demand Registration. A
5
<PAGE>
registration initiated as a Demand Registration will count for the purposes
of the first sentence of this Section 3(c) if the registration is withdrawn
------------
for any reason after such registration has been declared effective by the
SEC.
(d) Selection of Underwriters. If a Demand Registration or a Series E
-------------------------
Special Demand Registration is to be underwritten, the holders of a
Majority of the Registrable Securities requested to be included in the
Demand Registration or a Series E Special Demand Registration and the
Company shall mutually select the investment banker(s) and manager(s) that
will administer the offering, and the Company shall enter into a customary
underwriting agreement with those investment banker(s) and manager(s).
(e) Priority on Registrations. If, in connection with a Demand
-------------------------
Registration, the managing underwriters give the Company and the holders of
the Registrable Securities being registered a written opinion that the
number of Registrable Securities requested to be included exceeds the
number of securities that can be sold in the offering without having a
material adverse effect on the price of such Registrable Securities, the
Company will include in the registration only the number of Registrable
Securities that the underwriters believe can be sold. The number of
securities registered shall be allocated pro rata among the holders of
Registrable Securities on the basis of the total number of Registrable
Securities held by each holder requested to be included in the
registration. If a Series E Special Demand Registration is underwritten,
and the managing underwriters give the Company and the holders of the
securities being registered a written opinion that the number of Series E
Registrable Securities requested to be included in such Series E Special
Demand Registration exceeds the number of securities that can be sold in
the offering without having a material adverse effect on the price of such
Series E Registrable Securities, the Company will include in the
registration only the number of Series E Registrable Securities that the
underwriters believe can be sold.
(f) Delay in Filing.
---------------
(i) The Company may delay the filing of the registration
statement in connection with each Demand Registration for a period of
not more than 120 days upon the advice of the investment banker(s) and
manager(s) that will administer the offering that a delay is necessary
or appropriate under the circumstances. The Company may not use this
right to delay more than once with respect to any Demand Registration.
(ii) With respect to Series E Special Demand Registrations made
pursuant to Section 3(a)(ii) above, in the event that (i) the Company
would, in accordance with advice of its outside counsel, be required
to disclose in the prospectus contained in such registration
statements information not otherwise then required by law to be
publicly disclosed; and (ii) in the good faith judgment of the
Company's Board of Directors, in accordance with advice of its outside
counsel and financial advisors, there is reasonable likelihood that
such disclosure, or any other action to be taken in connection with
such prospectus, would materially and adversely affect or interfere
with any financing, acquisition, merger
6
<PAGE>
or similar transaction involving the Company, the filing or continued
effectiveness of the registration statements referred to above may be
delayed by the Company during no more than three non-consecutive
periods each aggregating not more than 30 days in any twelve-month
period, provided that in one circumstance during a twelve-month period
--------
two such 30-day periods may be consecutive; and provided that the
--------
Company shall delay during any such blackout period the filing or
effectiveness of any other registration statement required pursuant to
the registration rights of the holders of any other securities of the
Company.
(g) Limited Piggyback Right on Demand Registrations.
-----------------------------------------------
(i) Whenever the holders of Registrable Securities demand a
Demand Registration or a Series E Special Demand Registration, the
Company may notify in writing the other holders of securities of the
same type as the Registrable Securities or Series E Registrable
Securities, as applicable, that are to be registered not later than
the earlier to occur of (i) the 5th day following the Company's
receipt of notice of exercise of the Demand Registration or a Series E
Special Demand Registration right or (ii) 45 days prior to the
anticipated filing date.
(ii) The Company may include in the Demand Registration or a
Series E Special Demand Registration, as applicable, securities of the
same type and class held by other holders, but only, in the case of
either type of demand registration to be underwritten, to the extent
that the managing underwriters give the Company their written opinion
that the total number or dollar amount of securities requested to be
included can be sold in the offering without having a material adverse
effect on the price of such Registrable Securities or Series E
Registrable Securities, as applicable. If the number or dollar amount
of securities requested to be sold exceeds the amount that in the
opinion of the managing underwriters can be sold in the offering
without having a material adverse effect on the price of such
Registrable Securities or Series E Registrable Securities, as
applicable, the Company will include in the registration: (i) first,
all Registrable Securities or Series E Registrable Securities, as
applicable, and (ii) second, up to the full number or dollar amount of
securities requested to be included in the registration in excess of
the number or dollar amount of Registrable Securities or Series E
Registrable Securities, as applicable to be registered (allocated pro
rata among the holders of the securities in such proportions as the
Company and those holders may agree).
(iii) The holders of securities (including the Company) other
than Registrable Securities to be registered pursuant to this Section
-------
3(g) shall enter into the same agreement with the managing
----
underwriters as do the holders of the Registrable Securities.
(iv) If the Company registers any of its securities on its own
behalf in a Demand Registration or Series E Special Demand
Registration, as applicable (in
7
<PAGE>
accordance with the provisions of this Section 3(g)), that Demand
------------
Registration or Series E Special Demand Registration, as applicable
shall not count for the purpose of determining the number of Demand
Registrations or Series E Special Demand Registration, as applicable
for which the Company is required under Section 3(c) to pay all
------------
Registration Expenses, and the Company shall pay all of the
Registration Expenses of that registration.
(v) If any of the holders of any other securities of the
Company register those securities in a Demand Registration or Series E
Special Demand Registration in accordance with this Section 3(g),
------------
those holders shall pay the fees and expenses of their counsel and
their pro rata share of the Registration Expenses not paid by the
Company for any reason.
(vi) Holders of any other securities of the Company may register
such securities in a Series E Special Demand Registration in
accordance with this Section 3(g), provided that the holders of the
Series E Registrable Securities are not required to participate in an
underwritten public offering, and shall not be subject to any
underwriter cutback with respect to such Series E Special Demand
Registration unless the holders of the Series E Registrable Securities
request that their shares be underwritten.
Section 4. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register
------------------
any of its securities under the Securities Act (except for the registration
of securities to be offered pursuant to an employee benefit plan on Form S-
8, pursuant to a registration made on Form S-4, or any successor forms then
in effect) at any time other than pursuant to a Demand Registration or a
Series E Special Demand Registration and the registration form to be used
may be used for the registration of the Registrable Securities (a
"Piggyback Registration"), it will so notify in writing all holders of
Registrable Securities and all executive officers of the Company who are
also Founders (as defined in the Second Amended and Restated Voting and Co-
Sale Agreement of even date herewith) not later than the earlier to occur
of (i) the 5th day following the Company's receipt of notice of exercise of
other demand registration rights, or (ii) 30 days prior to the anticipated
filing date. The Common Stock owned by such Founders is hereafter referred
to as "Founder Securities." Subject to the provisions of Section 4(c) and
------------
Section 4(d), the Company will include in the Piggyback Registration all
------------
Registrable Securities and Founder Securities with respect to which the
Company has received written requests for inclusion within 15 business days
after the applicable holder's receipt of the Company's notice. The holders
of Registrable Securities and Founder Securities may withdraw all or any
part of the Registrable Securities or the Founder Securities from a
Piggyback Registration at any time before three business days prior to the
effective date of the Piggyback Registration. If a Piggyback Registration
is an underwritten offering effected under Section 4(c), all Persons whose
------------
securities are included in the Piggyback Registration must sell their
securities on the same terms and conditions as apply to the
8
<PAGE>
securities being issued and sold by the Company. If a Piggyback
Registration is an underwritten offering effected under Section 4(d), all
------------
Persons whose securities are included in the Piggyback Registration must
sell their securities on the same terms and conditions as apply to the
securities being sold by the Person(s) initiating the Piggyback
Registration. A registration of Registrable Securities and Founder
Securities pursuant to this Section 4 shall not be counted as a Demand
---------
Registration under Section 3.
---------
(b) Piggyback Expenses. The Company shall pay to the holders of the
------------------
Registrable Securities and the Founder Securities included in a Piggyback
Registration all Registration Expenses of those holders.
(c) Priority on Primary Registrations. If a Piggyback Registration is
---------------------------------
an underwritten primary registration on behalf of the Company and the
managing underwriters give the Company their written opinion that the total
number or dollar amount of securities requested to be included in the
registration exceeds the number or dollar amount of securities that can be
sold, the Company will include the securities in the registration in the
following order of priority: first, all securities the Company proposes to
sell; second, up to the full number or dollar amount of Registrable
Securities requested to be included in the registration (allocated pro rata
among the holders of Registrable Securities on the basis of the dollar
amount or number of Registrable Securities requested to be included);
third, up to the full number or dollar amount of Founder Securities
requested to be included in the registration (allocated pro rata among the
holders of Founder Securities on the basis of the dollar amount or number
of Founder Securities requested to be included); and fourth, any other
securities (provided they are of the same class as the securities sold by
the Company) requested to be included allocated among the holders of the
securities in such proportions as the Company and those holders may agree.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an underwritten secondary registration on behalf of holders of the
Company's securities, and the managing underwriters give the Company their
written opinion that the dollar amount or number of securities requested to
be included in the registration exceeds the dollar amount or number of
securities that can be sold, the Company will include in the registration:
(1) to the extent of 50% of the number or dollar amount of securities other
than Registrable Securities that in the underwriter's opinion can be sold,
the securities requested to be included in the registration, allocated
among the holders of those securities in such proportions as the Company
and those holders may agree, (2) to the extent of the balance, the
Registrable Securities requested to be included, allocated pro rata among
the holders of Registrable Securities on the basis of the dollar amount or
number of securities requested to be included, and (3) to the extent of the
balance, the Founder Securities requested to be included, allocated pro
rata among the holders of Founder Securities on the basis of the dollar
amount or number of securities requested to be included. If after including
all of the Registrable Securities and Founder Securities the underwriters
determine that there are additional securities that can be sold, then
securities other than Registrable Securities and Founder Securities may be
added to the registration.
9
<PAGE>
(e) Selection of Underwriters. If any Piggyback Registration is an
-------------------------
underwritten offering, the Company will select the investment banker(s) and
manager(s) that will administer the offering, as long as the investment
banker(s) and manager(s) are reasonably satisfactory to the holders of a
Majority of the Registrable Securities (including, for purposes of this
Section 4(e) only, the Founder Securities), and shall enter into a
------------
customary underwriting agreement with the investment banker(s) and
manager(s).
(f) Other Registrations. The Company agrees that after filing a
-------------------
registration statement with respect to Registrable Securities and, if
applicable Founder Securities, pursuant to Section 3 or this Section 4 that
--------- ---------
has not been withdrawn or abandoned, the Company will not register any of
its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act, whether on
its own behalf or at the request of any holder of those securities, until
at least three months has elapsed from the effective date of the previous
registration. This three-month hiatus does not apply to registrations of
securities to be issued in connection with employee benefit plans, to
permit exercise or conversions of previously issued options, warrants, or
other convertible securities, or in connection with a Demand Registration.
Section 5. Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Securities Holders. Each holder
-------------------------------------------------
of Registrable Securities whose securities are included in a registration
statement agrees not to make any public sale or distribution of equity
securities of the Company (except as part of the underwritten registration
or pursuant to registration on Form S-8 or any successor form), including a
sale pursuant to Rule 144, during the seven days prior to and the 180 days
after the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration unless the managing underwriters agree
otherwise; provided, however, that the holders of Series E Registrable
Securities shall only be subject to the foregoing holdback in respect of
the Initial Public Offering; and provided further, however, that nothing in
this Section 5(a) shall be deemed to in any way limit the rights of the
holders of Series E Registrable Securities under Section 3(a)(ii) hereof.
(b) Restrictions on Public Sale by the Company and Others. The
-----------------------------------------------------
Company agrees not to make any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or
exercisable for its equity securities, including a sale under Regulation D
of the SEC or under any exemption of the Securities Act (except as part of
the underwritten registration or pursuant to registrations on Form S-8 or
any successor form), during the seven days prior to and the 180 days after
the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration unless the managing underwriters agree
otherwise. The Company also agrees to use its best commercial efforts to
cause each holder of at least 5% (on a fully-diluted basis) of its equity
securities or any securities convertible into or exchangeable or
exercisable for its equity securities (other than Registrable Securities),
purchased from the Company at any time on or after the date of this
Agreement (other than in a registered public offering) to agree not to make
any public sale or distribution of those securities, including a sale
pursuant to Rule 144 (except as part of the underwritten registration, if
permitted), during
10
<PAGE>
the seven days prior to and the 180 days after the effective date of the
registration unless the managing underwriters agree otherwise.
Section 6. Registration Procedures.
-----------------------
(a) Best Commercial Efforts. Whenever the holders of Registrable Securities
-----------------------
request the registration of any Registrable Securities pursuant to this
Agreement, the Company shall use its best commercial efforts to register and to
permit the sale of the Registrable Securities in accordance with the intended
method of disposition. To carry out this obligation, the Company shall as
expeditiously as possible:
(i) prepare and file with the SEC, but in any event no later than 90
days (or such shorter period as required by Section 3(c)(ii) of this
Agreement) after receipt of a request to file a registration statement
(subject to Section 3(f)), a registration statement on the appropriate form
------------
and use its best commercial efforts to cause the registration
statement to become effective. At least three days before filing a
registration statement or prospectus or at least one business day before
filing any amendments or supplements thereto including Registrable
Securities, the Company will furnish to the counsel of the holders of a
Majority of the Registrable Securities being registered copies of all
documents proposed to be filed for that counsel's review and approval,
which approval shall not be unreasonably withheld or delayed;
(ii) notify immediately each seller of Registrable Securities of any
stop order threatened or issued by the SEC and take all actions reasonably
required to prevent the entry of a stop order or if entered to have it
rescinded or otherwise removed;
(iii) prepare and file with the SEC such amendments and supplements to
the registration statement and the corresponding prospectus necessary to
keep the registration statement effective for 90 days (or such longer
period as required by Section 3(c)(ii) of this Agreement) or such shorter
period as may be required to sell all Registrable Securities covered by the
registration statement; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by the
registration statement during each period in accordance with the sellers'
intended methods of disposition as set forth in the registration statement;
(iv) furnish to each seller of Registrable Securities a sufficient
number of copies of the registration statement, each amendment and
supplement thereto (in each case including all exhibits), the corresponding
prospectus (including each preliminary prospectus), and such other
documents as a seller may reasonably request to facilitate the disposition
of the seller's Registrable Securities;
(v) use its best commercial efforts to register or qualify the
Registrable Securities under securities or blue sky laws of jurisdictions
in the United States of
11
<PAGE>
America as any seller requests and will do any and all other acts and
things that may be necessary or advisable to enable the seller to
consummate the disposition of the seller's Registrable Securities;
(vi) use its best commercial efforts to cause the Registrable
Securities covered by the registration statement to be registered with or
approved by those governmental agencies or authorities necessary to enable
each seller to consummate the disposition of its Registrable Securities;
(vii) notify each seller of Registrable Securities, at any time when
a prospectus is required to be delivered under the Securities Act, of any
event as a result of which the prospectus or any document incorporated
therein by reference contains an untrue statement of a material fact or
omits to state any material fact necessary to make the statements therein
not misleading, and will prepare a supplement or amendment to the
prospectus or any such document incorporated therein by reference so that
thereafter the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(viii) cause all registered Registrable Securities covered by such
registration to be listed on each securities exchange, if any, on which
similar securities issued by the Company are then listed;
(ix) provide an institutional transfer agent and registrar and a
CUSIP number for all Registrable Securities on or before the effective date
of the registration statement;
(x) enter into such customary agreements (including an underwriting
agreement in customary form) and take all other actions in connection with
those agreements as the holders of the Registrable Securities b eing
registered or the underwriters, if any, reasonably request to expedite or
facilitate the disposition of the Registrable Securities;
(xi) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to
the registration statement, and any attorney, accountant, or other agent of
any seller of at least 5% of the securities being sold pursuant to the
Registration Statement or underwriter, all financial and other records,
pertinent corporate documents, and properties of the Company, and cause the
Company's officers, directors, and employees to supply all information
reasonably requested by any seller, underwriter, attorney, accountant, or
agent in connection with the registration statement; provided that an
appropriate confidentiality agreement is executed by any seller,
underwriter, attorney, accountant or other agent;
(xii) in connection with any underwritten offering, obtain a "cold
comfort" letter from the Company's independent public accountants in
customary
12
<PAGE>
form and covering those matters customarily covered by "cold comfort"
letters as the holders of the Registrable Securities being registered or
the managing underwriters reasonably request (and the letter shall be
addressed to holders of the Registrable Securities);
(xiii) furnish, at the request of any holder of Registrable Securities
being registered an opinion of the counsel representing the Company for the
purposes of the registration, in the form and substance customarily given
to underwriters in an underwritten public offering and satisfactory to the
counsel representing the holders of Registrable Securities being
registered, addressed to the underwriters, if any, and to the holders of
Registrable Securities being registered; and
(xiv) use its best commercial efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as practicable, an earnings statement complying with the
provisions of Section 11(a) of the Securities Act and covering the
-------------
period of at least twelve months, but not more than eighteen months,
beginning with the first month after the effective date of the Registration
Statement .
(b) Distribution of Securities. From time to time, the Company may require
--------------------------
each seller of Registrable Securities subject to the registration to furnish to
the Company information regarding the distribution of the securities subject to
the registration.
(c) Prospectus. Each holder of Registrable Securities agrees by acquisition
----------
of those securities that, upon receipt of any notice from the Company of any
event of the kind described in Section 6(a)(vii), the holder will
-----------------
discontinue disposition of Registrable Securities until the holder receives
copies of the supplemented or amended prospectus contemplated by Section
-------
6(a)(vii). In addition, if the Company requests, the holder will deliver
- ---------
to the Company (at the Company's expense) all copies, other than permanent file
copies then in the holder's possession, of the prospectus covering the
Registrable Securities current at the time of receipt of the notice. If the
Company gives any such notice, the time period mentioned in Section
-------
6(a)(iii) shall be extended by the number of days elapsing between the date
- ---------
of notice and the date that each seller receives the copies of the supplemented
or amended prospectus contemplated by Section 6(a)(iii).
-----------------
(d) Duty to Provide Information. Whenever the holders of Registrable
-------------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, those holders shall notify the Company, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event, which as to any holder of Registrable
Securities is to his or its respective knowledge, as a result of which the
prospectus included in the registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading.
13
<PAGE>
Section 7. Registration Expenses.
---------------------
(a) Defined. All Registration Expenses incident to the Company's
-------
performance of or compliance with this Agreement shall be paid as provided in
this Agreement. The term "Registration Expenses" includes without limitation all
registration filing fees, professional fees, and other expenses of compliance
with federal, state, and other securities laws (including fees and disbursements
of counsel for the underwriters in connection with state or other securities law
qualifications and registrations); printing expenses, messenger, telephone, and
delivery expenses; fees and disbursements of counsel for the Company and for the
sellers of the Registrable Securities (subject to the provisions of Section
-------
7(b)); fees and disbursements of all independent certified public accountants
- ----
(including the expenses of any audit or "cold comfort" letters required by or
incident to performance of the obligations contemplated by this Agreement); fees
and expenses of the underwriters (excluding discounts and commissions but
including liability insurance if the Company so desires or if the underwriters
so require); fees and expenses of any special experts retained by the Company at
the request of the managing underwriters in connection with the registration;
and fees and expenses of other Persons retained by the Company. The term
"Registration Expenses" does not include the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, and the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed, all of which shall be paid by
the Company under all circumstances.
(b) Legal Fees and Expenses. In connection with each registration for which
-----------------------
the Company is required to pay the Registration Expenses of the holders of
Registrable Securities, the Company will promptly reimburse those holders for
the reasonable fees and disbursements of one law firm, selected by the holders
of a Majority of the Registrable Securities, to serve as counsel to all the
holders.
(c) Expenses Not Covered. To the extent the Company is not required to pay
--------------------
Registration Expenses, each holder of securities included in any registration
will pay those Registration Expenses allocable to the holder's securities so
included, and any Registration Expenses not allocable will be borne by all
sellers in proportion to the number of securities each registers.
Section 8. Indemnification.
---------------
(a) Indemnification by Company. To the full extent permitted by law, the
--------------------------
Company agrees to indemnify each holder of Registrable Securities, its officers
and directors, and each Person who controls the holder (within the meaning of
the Securities Act and the Exchange Act) against all losses, claims, damages,
liabilities, and expenses caused by any untrue or allegedly untrue statement of
material fact contained in any registration statement, prospectus, or
preliminary prospectus or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the
14
<PAGE>
statements therein not misleading, except to the extent the untrue statement or
omission resulted from information that the holder furnished in writing to the
Company expressly for use therein or by the holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto to any purchaser after the Company has furnished the holder with the
relevant documents. In connection with a firm or best commercial efforts
underwritten offering, to the extent required by the managing underwriters, the
Company will indemnify the underwriters, their officers and directors, and each
Person who controls the underwriters (within the meaning of the Securities Act
and the Exchange Act), to the extent customary in such agreements.
(b) Indemnification by Holders of Securities. In connection with any
----------------------------------------
registration statement, each participating holder of Registrable Securities will
furnish to the Company in writing the information and affidavits that the
Company reasonably requests for use in connection with any registration
statement or prospectus and each holder agrees to indemnify, to the extent
permitted by law, the Company, its directors and officers, and each Person who
controls the Company (within the meaning of the Securities Act and the Exchange
Act) against any losses, claims, damages, liabilities, and expenses resulting
from any untrue or allegedly untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto necessary
to make the statements therein not misleading, but only to the extent that the
untrue statement or omission is contained in or omitted from any information or
affidavit the holder furnished in writing, or resulting from the holder's
failure to deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto to any purchaser after the Company has
furnished the holder with the relevant documents; provided, however, that the
liability of each such participating holder of Registrable Securities shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the shares
sold by such participating holder under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the net proceeds received by such participating holder from the
sale of Registrable Securities covered by such registration statement.
(c) Indemnification Proceedings. Any Person entitled to indemnification
---------------------------
under this Agreement will (i) give prompt notice to the indemnifying party of
any claim with respect to which it seeks indemnification, and (ii) unless in the
indemnified party's reasonable judgment a conflict of interest may exist between
the indemnified and indemnifying parties with respect to the claim, permit the
indemnifying party to assume the defense of the claim with counsel reasonably
satisfactory to the indemnified party. If the indemnifying party does not assume
the defense, the indemnifying party will not be liable for any settlement made
without its consent (but that consent may not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or will enter into any
settlement that does not include as an unconditional term the claimant's or
plaintiff's release of the indemnified party from all liability concerning the
claim or litigation. An indemnifying party who is not entitled to or elects not
to assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one
15
<PAGE>
counsel for all parties indemnified by the indemnifying party with respect
to the claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between the indemnified party and any other
indemnified party with respect to the claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of
additional counsel.
Section 9. Rule 144 and Rule 144A.
----------------------
(a) Company Obligations. If the Company files a registration statement
-------------------
pursuant to the requirements of the Securities Act or Section 12 of the
Exchange Act, the Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is
not required to file such reports, it will make publicly available other
information), and it will take such further action to enable the holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act as amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any holder of
Registrable Securities, the Company will deliver to the holder a written
statement as to whether it has complied with Rule 144 or any successor rule
requirements. The Company also covenants that it will provide all such
information and it will take such further action as any holder of
Registrable Securities reasonably may request to enable the holder to sell
Registrable Securities without registration under the Securities Act within
the limitation of Rule 144A under the Securities Act, as amended from time
to time, or any successor rule requirements.
(b) Reliance on Rule 144. If any proposed sale of Registrable Securities
--------------------
may be effected by the holders thereof pursuant to Rule 144(k) without any
adverse effect on the proposed sale, as determined by the holder in its
sole discretion, including without limitation the contemplated sale price
or the quantity of Registrable Securities to be sold, then the holders of
the Registrable Securities covenant to rely upon Rule 144(k) in the sale
thereof in lieu of requesting a Demand Registration; provided, however, the
holders of Registrable Securities shall not be obligated to take any action
so that they are eligible to use or rely upon Rule 144(k) in connection
with any sale or distribution.
Section 10. Participation in Underwritten Registrations. No Person may
-------------------------------------------
participate in any underwritten registration without (a) agreeing to sell
securities on the basis provided in underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements (the holders of the
Registrable Securities in a Demand Registration pursuant to Section 3(d) and the
------------
Company in a piggyback registration pursuant to Section 4(e)), and (b)
------------
completing and executing all questionnaires, powers of attorney, indemnities,
underwriting agreements, and other documents required by the underwriting
arrangements.
Section 11. Miscellaneous.
-------------
(a) Adjustments Affecting Securities. The Company will not take any action, or
--------------------------------
permit any change to occur, with respect to the Registrable Securities that
would affect
16
<PAGE>
adversely the ability of the holders to include those
securities in a registration undertaken pursuant to this Agreement or the
marketability of the Registrable Securities in any registration; provided,
however, that the Company shall be permitted to take such action or permit
such change if (i) the Board of Directors of the Company determines that
the action or change has a legitimate corporate purpose unrelated to the
effect such action or change would have on the ability of the holders of
Preferred Stock to include those securities in a registration undertaken
pursuant to this Agreement or the marketability of the Registrable
Securities in any registration and (ii) such action or change would not
have a material adverse effect on the ability of such holders to include
those securities in a registration undertaken pursuant to this Agreement or
the marketability of the Registrable Securities in any registration.
Nothing in this subsection 11(a) shall permit the Company to amend or
modify Section 3(f)(ii) of this Agreement without the consent of the
holders of a majority of the shares of Series E Preferred Stock.
(b) Amendment. This Agreement may not be amended or modified, and no
---------
provision hereof may be waived, without the written consent of the Company
and the holders of at least a majority of the outstanding Registrable
Securities; provided that with respect the amendment, modification or
waiver of any provision herein relating solely to the special rights
granted to the holders of the Series E Preferred Stock herein, such
amendment, modification or waiver shall require the written consent of the
Company and the holders of at least a majority of the Series E Preferred
Stock or Series E Registrable Securities, as applicable.
(c) Attorneys' Fees. In any legal action or proceeding brought to
---------------
enforce any provision of this Agreement, the prevailing party shall be
entitled to recover all reasonable expenses, charges, court costs, and
attorneys' fees in addition to any other available remedy at law or in
equity.
(d) Benefit of Parties: Assignability. All of the terms and provisions
---------------------------------
of this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including without
limitation all subsequent holders of securities entitled to the benefits of
this Agreement who agree in writing to become bound by the terms of this
Agreement; provided, however, the Company may not delegate its
responsibilities or assign its rights under this Agreement without the
prior written consent of the holders of a Majority of the Registrable
Securities then issued and outstanding .
(e) Cooperation. The parties agree that after execution of this
-----------
Agreement they will from time to time, upon the request of any other party
and without further consideration, execute, acknowledge, and deliver in
proper form any further instruments and take such other action as any other
party may reasonably require to carry out effectively the intent of this
Agreement.
(f) Cumulative Remedies and Survival. The rights and remedies
--------------------------------
specified in this Agreement shall not be exclusive of any other right or
remedy and shall be
17
<PAGE>
cumulative and in addition to every other right or remedy now or hereafter
existing at law or in equity or by statute or otherwise that may be
available to the Investors.
(g) Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
(h) Entire Agreement. This Agreement, the Series A Investment
----------------
Agreement the Series B Investment Agreement, the Series C Investment
Agreement, the Series D Investment Agreement, the Series E Investment
Agreement and the Second Amended and Restated Voting and Co-Sale Agreement
(as defined in the Series E Investment Agreement) contains the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no representations, promises, warranties, covenants, or
undertakings other than those expressly set forth or provided for herein or
therein.
(i) Governing Law. Illinois law shall govern the interpretation,
-------------
construction, and enforcement of this Agreement and all transactions and
agreements contemplated hereby, notwithstanding any state's choice of law
rules to the contrary .
(j) Interpretation. The terms and conditions of this Agreement
--------------
represent the results of bargaining and negotiations among the parties,
each of which has been represented by counsel of its own selection, and
none of which has acted under duress or compulsion, whether legal, economic
or otherwise, and represent the results of a combined draftsmanship effort.
Consequently, the terms and conditions hereof shall be interpreted and
construed in accordance with their usual and customary meanings and the
parties hereby expressly waive and disclaim in connection with the
interpretation and construction hereof any rule of law or procedures
requiring otherwise, specifically including but not limited to any rule of
law to the effect that ambiguous or conflicting terms or conditions
contained herein shall be interpreted or construed against the party whose
counsel prepared this Agreement or any earlier draft hereof.
(k) Listing. If the Common Stock is listed for trading on any national
-------
securities exchange, that listing shall include all shares of Conversion
Stock (to the extent permitted by the rules of the exchange).
(l) No Inconsistent Agreements. Except with the prior written consent
--------------------------
of the holders of a Majority of the Registrable Securities then issued and
outstanding, the Company will not enter into any agreement with respect to
its securities that shall grant to any Person registration rights that are
senior to, are in conflict with, or will interfere with the practical
realization of the rights provided under this Agreement.
(m) Notices. All notices, requests, demands, or other communications
-------
that are required or may be given pursuant to the terms of this Agreement
shall be in writing and delivery shall be deemed sufficient in all respects
and to have been duly given on the date of service if delivered personally
or by facsimile transmission if receipt is confirmed to the party to whom
notice is to be given, or on the third day after mailing if mailed by
18
<PAGE>
first-class mail, return receipt requested, postage prepaid, and properly
addressed to the addresses set forth in the Series E Investment Agreement
or to such other addresses as the respective parties hereto shall from time
to time designate to the others in writing.
(n) Specific Performance. Each of the parties agrees that damages for
--------------------
a breach of or default under this Agreement would be inadequate and that in
addition to all other remedies available at law or in equity the parties
and their successors and assigns shall be entitled to specific performance
or injunctive relief, or both, in the event of a breach or a threatened
breach of this Agreement.
(o) Table of Contents and Captions. The Table of Contents and captions
------------------------------
of the sections and subsections of this Agreement are solely for convenient
reference and shall not be deemed to affect the meaning or interpretation
of any provision of this Agreement.
(p) Validity of Provisions. Whenever possible, each provision of this
----------------------
Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law. Should any part of this Agreement for any
reason be declared by any court of competent jurisdiction to be invalid,
that decision shall not affect the validity of the remaining portion, which
shall continue in full force and effect as if this Agreement had been
executed with the invalid portion eliminated, it being the intent of the
parties that they would have executed the remaining portion of the
Agreement without including any part or portion that may for any reason be
declared invalid.
(q) Waiver of Breach. Neither any waiver of any breach of, nor any
----------------
failure to enforce any term or condition of, this Agreement shall operate
as a waiver of any other breach of any term or condition, nor constitute
nor be deemed a waiver or release of any other rights, in law or at equity,
or claims that any party may have against any other party for anything
arising out of, connected with, or based upon this Agreement. No waiver
shall be enforceable against any party hereto unless set forth in a written
instrument or agreement signed by that party. No waiver shall be deemed to
occur as a result of the failure of any party to enforce any term or
condition of this Agreement.
(r) Additional Investor. The Company, in connection with certain
-------------------
financing arrangements has issued warrants to acquire shares of Series C
Preferred Stock to Third Coast Venture Lease Partners I, L.P. ("Third
Coast"), CID Mezzanine Capital, L.P. ("CIDMC") and Silicon Valley Bank
(such warrants being collectively referred to as the "Existing Warrants")
and the Company may in the future enter into additional financing
arrangements pursuant to which the Company will issue "Additional Warrants"
(as that term is defined in Section 3.4 of the Series E Investment
Agreement); upon exercise of such Existing Warrants or such Additional
Warrants by the holder or holders thereof, such holder or holders shall be
deemed an "Investor" for all purposes hereof and Schedule 1 shall be
--------
amended to include such holder or holders designated as such without any
action of the Company or the other Investors.
19
<PAGE>
[END OF AGREEMENT]
[REST OF PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
Schedule 1
----------
TO SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<TABLE>
<CAPTION>
Aggregate Number of Shares of
Holders of Series A Convertible Series A Convertible Participating
Participating Preferred Stock Preferred Stock
- ------------------------------------------------------------------------------------
<S> <C>
CID Equity Capital III, L.P. 1,228,917
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of
Holders of Series B Convertible Series B Convertible Participating
Participating Preferred Stock Preferred Stock
- ------------------------------------------------------------------------------------
<S> <C>
Frontenac VI Limited Partnership 3,839,285
Joseph A. Piscopo 357,143
Royce J. Holland 44,643
Ronald and Kathy Kory, JTWROS 151,787
Ronald Kory as Trustee of the Kory Associates 116,070
Pension Plan
David Aniol 26,786
Robert Milburn 44,643
Alvon Ramp 26,786
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of
Holders of Series B Convertible Series B Convertible Participating
Participating Preferred Stock Preferred Stock
- -----------------------------------------------------------------------------------
<S> <C>
CID Equity Capital III, L.P. 1,607,142
CID Equity Capital V, L.P. 446,429
NEA Ventures 1997, L.P. 4,464
New Enterprise Associates VII, Limited 3,049,107
Partnership
MKW Partners, L.P. 475,793
Douglas Cogswell 21,628
Hollis Family Limited Partnership #1, f/k/a 163,294
Hollis Family Limited Partnership
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of
Holders of Series B Convertible Series B Convertible Participating
Participating Preferred Stock Preferred Stock
- ------------------------------------------------------------------------------------
<S> <C>
Battery Ventures III, L.P. 2,857,143
Jonathan N. Zakin 223,214
NEA Presidents' Fund, L.P. 71,429
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of
Holders of Series C Convertible Series C Convertible Participating
Participating Preferred Stock Preferred Stock
- -----------------------------------------------------------------------------------
<S> <C>
Microsoft Corporation 2,469,136
Oak Investment Partners VII, Limited 963,456
Partnership
Oak VII Affiliates Fund, Limited Partnership 24,198
Northwestern University 12,346
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Holders of Series D Convertible Aggregate Number of Shares of Series
Preferred Stock D Convertible Preferred Stock
- --------------------------------------------------------------------------------------
<S> <C>
New Enterprise Associates VII, Limited 204,241
Partnership
NEA Presidents' Fund, L.P. 3,118
Frontenac VI Limited Partnership 243,682
Battery Ventures III, L.P. 189,718
Donald R. Hollis 62,363
Hollis Family Limited Partnership I (f/k/a 93,546
Hollis Family Limited Partnership)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of
Holders of Series D Convertible Series D Convertible
Preferred Stock Preferred Stock
- ------------------------------------------------------------------------------
<S> <C>
Oak Investment Partners VII, Limited 48,550
Partnership
Joseph A. Piscopo 44,277
Royce J. Holland 2,945
Ronald Kory and Kathy Kory, JTWROS 41,795
Oak VII Affiliates Fund, L.P. 1,219
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of Series
Holders of Series E Convertible E Convertible Participating Preferred
Participating Preferred Stock Stock
- ---------------------------------------------------------------------------------------
<S> <C>
Crestwood Capital Partners, L.P. 161,491
Crestwood Capital Partners II, L.P. 105,590
Bridgewood Capital Partners, L.P. 26,708
Crestwood Capital International, Ltd. 16,770
Chelsey Capital 310,559
Kobrick Fund, L.P. 323,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of Series
Holders of Series E Convertible E Convertible Participating Preferred
Participating Preferred Stock Stock
- ---------------------------------------------------------------------------------------
<S> <C>
Kobrick Investment Fund, LP 236,000
Kobrick Offshore Fund, Ltd. 62,118
Crown Growth Partners, L.P. 465,839
Parson Finance Limited 155,279
Roundtable Associates, LLP 62,112
Hare & Co. as nominee for John Hancock Global 527,950
Technology Fund
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of Series
Holders of Series E Convertible E Convertible Participating Preferred
Participating Preferred Stock Stock
- ---------------------------------------------------------------------------------------
<S> <C>
Bluestone AFA Fund 248,447
Open Tech LLC 776,398
Winfield Capital Corp. 621,118
United States Development Capital Portfolio 683,230
Company
Battery Ventures III, L.P. 504,947
Brookside Capital Partners Fund, L.P. 6,211,180
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of Series
Holders of Series E Convertible E Convertible Participating Preferred
Participating Preferred Stock Stock
- ---------------------------------------------------------------------------------------
<S> <C>
WPG Software Fund, L.P. 317,857
WPG Institutional Software Fund, L.P. 722,981
WPG Raytheon Software Fund, L.P. 511,957
WPG Institutional Networking Fund, L.P. 48,157
WPG Networking Fund, L.P. 430,013
WPG Raytheon Networking Fund, L.P. 1,065,308
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of Series
Holders of Series E Convertible E Convertible Participating Preferred
Participating Preferred Stock Stock
- ---------------------------------------------------------------------------------------
<S> <C>
Raj Mehra 9,317
CID Equity Capital V L.P. 265,944
CID Mezannine 180,850
Frontenac VI Limited Partnership 408,817
MKW Partners, L.P. 48,447
Microsoft Corporation 179,841
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number of Shares of Series
Holders of Series E Convertible E Convertible Participating Preferred
Participating Preferred Stock Stock
- ---------------------------------------------------------------------------------------
<S> <C>
New Enterprise Associates VII, Limited 348,508
Partnership
Oak Investment Partners VII, Limited 81,450
Partnership
2,046
Oak VII Affiliates Fund Limited Partnership
74,281
Joseph A. Piscopo
264,409
Essex Private Placement Fund III - A, Limited
Partnership
Essex Private Placement Fund III - B, Limited 977,827
Partnership
</TABLE>
<PAGE>
Exhibit 10.15
================================================================================
NOTE AND WARRANT
PURCHASE AGREEMENT
by and between
OPEN PORT TECHNOLOGY, INC.
and
CID MEZZANINE CAPITAL, L.P.
Dated as of June 22, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I DEFINITIONS.............................................. 2
Section 1.1. Definitions......................................... 2
Section 1.2. Accounting Terms.................................... 5
ARTICLE II PURCHASE, SALE AND TERMS OF NOTE; PAYMENTS............... 5
Section 2.1. Description of Notes................................ 5
Section 2.2. Commitment.......................................... 6
Section 2.3. Issue Price; Original Issue Discount................ 6
Section 2.4. Use of Proceeds..................................... 6
Section 2.5. Prepayment.......................................... 6
Section 2.6. Payments and Endorsements........................... 7
Section 2.7. Maximum Legal Rate of Interest...................... 7
Section 2.8. Payment on Non-Business Days........................ 7
Section 2.9. Transfer and Exchange of Note....................... 7
Section 2.10. Replacement of Note................................. 7
Section 2.11. Subordination....................................... 8
Section 2.12. Commitment Fee...................................... 8
Section 2.13. Default Rate of Interest............................ 8
ARTICLE III PURCHASE, SALE AND TERMS OF WARRANTS..................... 8
Section 3.1. The Warrants........................................ 8
Section 3.2. Purchase and Sale of Warrants....................... 9
ARTICLE IV CONDITIONS TO PURCHASER'S OBLIGATION..................... 9
Section 4.1. Representations and Warranties...................... 9
Section 4.2. Documentation at Closing............................ 9
Section 4.3. No Default..........................................10
Section 4.4. Equity Investment...................................10
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..........10
Section 5.1. Representations and Warranties of the Purchaser.....10
Section 5.2. Transferees Bound...................................11
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............12
Section 6.1. Organization, Good Standing, and Qualification.......12
Section 6.2. Capital Structure of the Company
and Investments in the Company......................12
Section 6.3. Title to the Notes and the Warrants..................13
Section 6.4. Compliance with Securities Laws......................13
Section 6.5. Authority............................................14
Section 6.6. Validity; No Violation...............................14
Section 6.7. No Equity Investments................................15
Section 6.8. Financial Statements.................................15
Section 6.9. No Material Adverse Change...........................15
Section 6.10. Absence of Undisclosed Liabilities and Encumbrances..15
Section 6.11. Tax Matters..........................................15
Section 6.12. Title to Property and Related Matters................16
Section 6.13. Real Property Owned..................................16
Section 6.14. Real Property Leased.................................16
Section 6.15. Intellectual Property................................17
Section 6.16. Contracts, Agreements, and Commitments...............18
Section 6.17. Litigation...........................................19
Section 6.18. Compliance; Governmental Authorization...............19
Section 6.19. Labor Relations......................................20
Section 6.20. Compensation.........................................21
Section 6.21. Benefit Plans........................................21
Section 6.22. Related Transactions.................................21
Section 6.23. Broker's or Finder's Fees............................21
Section 6.24. Minute Books and Stock Record Books..................22
Section 6.25. Registration Rights..................................22
Section 6.26. Qualified Small Business Stock.......................22
Section 6.27. Disclosure...........................................22
Section 6.28. Customers, Vendors, and Suppliers....................22
ARTICLE VII COVENANTS OF THE COMPANY..................................23
Section 7.1. Affirmative Covenants of the Company
Other Than Reporting Requirements...................23
Section 7.2. Negative Covenants of the Company....................28
ARTICLE VIII EVENTS OF DEFAULT.........................................32
Section 8.1. Events of Default....................................32
Section 8.2. Remedies.............................................33
Section 8.3. Annulment of Defaults................................34
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IX MISCELLANEOUS............................................34
Section 9.1. Amendment and Certain Waivers........................34
Section 9.2. Benefit of Parties; Assignability....................34
Section 9.3. Confidentiality......................................34
Section 9.4. Cooperation..........................................34
Section 9.5. Counterparts.........................................35
Section 9.6. Cumulative Remedies and Survival.....................35
Section 9.7. Entire Agreement.....................................35
Section 9.8. Governing Law and Choice of Forum....................35
Section 9.9. Indemnification......................................35
Section 9.10. Interpretation.......................................36
Section 9.11. Knowledge of the Company.............................36
Section 9.12. Notices..............................................36
Section 9.13. Payments in Respect of Notes.........................37
Section 9.14. Payments in Respect of Warrant.......................37
Section 9.15. Severability.........................................37
Section 9.16. Table of Contents and Captions.......................38
Section 9.17. Validity of Provisions...............................38
Section 9.18. Waiver of Breach.....................................38
</TABLE>
-iii-
<PAGE>
NOTE AND WARRANT PURCHASE AGREEMENT
This Note and Warrant Purchase Agreement ("Agreement") is entered into as
of June 22, 1998, by and between CID Mezzanine Capital, L.P., a Delaware limited
partnership ("CID"), and Open Port Technology, Inc., an Illinois corporation
(the "Company").
Preliminary Statements
----------------------
The Company is principally engaged in the development, production,
distribution, sale, and support of computer software and related hardware
products. The Company is interested in obtaining additional private funding and
CID is willing to provide that funding on the terms and conditions set forth in
this Agreement.
Terms and Conditions
--------------------
In consideration of the mutual covenants, agreements presentations, and
warranties contained in this Agreement and intending to be legally bound, CID
and the Company agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1. Definitions. As used herein, the following terms have the
meanings indicated, which apply equally to both the singular and plural forms of
the terms defined:
"Affiliate" means, as to any specified Person, any other Person
controlling, controlled by or under common control with the specified Person.
"Amended and Restated Registration Rights Agreement" means the Amended and
Restated Registration Rights Agreement dated as of June 15, 1998 by and among
the Company, and Microsoft Corporation; Oak Investment Partners; New Enterprise
Associates VII, Limited Partnership; NEA Presidents' Fund, L.P.; NEA Ventures
1997, L.P.; Frontenac VI Limited Partnership; CID Equity Capital III, L.P.; CID
Equity Capital V, L.P.; Battery Ventures III, L.P.; MKW Partners, L.P.;
Jonathan N. Zakin; Kory Associates Pension Plan; Ronald Kory and Kathy Kory;
Joseph A. Piscopo; Royce J. Holland; Hollis Family Limited Partnership;
Northwestern University; David Aniol; Douglas Cogswell; Robert Milburn; and
Alvon Ramp (collectively, the "Preferred Shareholders").
"Amended and Restated Voting and Co-Sale Agreement" means the Amended and
Restated Voting and Co-Sale Agreement dated as of June 15, 1998 by and among the
Company, the Preferred Shareholders, and Antonio Dutra, Gordon K. Kapes,
Omprasad S. Nandyal, Randy S. Storch, and Martin T. Wegner.
"Applicable Laws" has the meaning assigned to that term in Section 6.5.
<PAGE>
"Bank" means the Silicon Valley National Bank d/b/a Silicon Valley East and
its successors and assigns.
"Bank Subordination Agreement" means the Subordination Agreement by and
between the Bank and CID, dated as of June 19, 1998.
"Business Day" means any day other than a Saturday, Sunday, and public
holiday or the equivalent for banks under the laws of the States of Illinois or
Indiana.
"Change in Control" means any consummation of an agreement to or
transaction whereby (a) the Company merges, consolidates, or exchanges at least
a majority of its shares with, or sells all or substantially all of its assets
to another person or entity, or (b) any transaction or any event as a result of
which any one or more Persons (other than the Purchaser or a stockholder of the
Company on the Closing Date) acquires or for the first time controls or is able
to vote (directly or through nominees or beneficial ownership) after the Closing
Date (other than as the direct result of a transfer by descent or distribution
of a decedent's estate) 50% or more of any class of stock of the Company
outstanding at the time having power ordinarily to vote for directors of the
Company.
"Closing" has the meaning assigned to that term in Article IV.
"Closing Date" has the meaning assigned to that term in Section 2.2.
"Code" has the meaning assigned to that term in Section 2.3.
"Commission" means the United States Securities and Exchange Commission (or
any other federal agency at that time administering the Securities Act).
"Common Stock" means and includes (a) the Company's common stock, as
authorized on the date of this Agreement, and (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after the
date hereof, the holders of which shall have the right, without limitation as to
amount per share, either to all or to a share of the balance of current
dividends and liquidating distributions after the payment of dividends and
distributions on any shares entitled to preference in payment, and the holders
of which shall ordinarily, in the absence of contingencies, be entitled to vote
for the election of directors of the Company (even though the right to vote may
have been suspended by the happening of a contingency), and (c) any other
securities into which or for which any of the securities described in (a) or (b)
above may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets, or otherwise.
"ERISA" has the meaning assigned to that term in Section 6.21.
"Events of Default" has the meaning assigned to that term in Section 8.1.
-2-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, as in effect at the time.
"Financial Statements" has the meaning assigned to that term in Section
6.8.
"Funded Indebtedness" means all Indebtedness for borrowed money (including
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or that may be renewed or extended at the option of the
debtor to a date one year or more from the date of creation or incurrence
thereof, all Indebtedness under revolving credit arrangements extending over a
year or more, and all capitalized lease obligations.
"GAAP" means generally accepted accounting principles recognized by the
American Institute of Certified Public Accountants. Unless otherwise
specifically stated herein, use of the term "GAAP" means that those principles
are applied and maintained on a consistent basis for the Company and its
Subsidiaries throughout the period indicated and consistent with the prior
financial practices of the Company and its Subsidiaries as reflected on the
Financial Statements so as to properly reflect the financial condition, and the
results of operations and cash flow of the Company and its Subsidiaries.
"Indebtedness" means all obligations, contingent and otherwise, that
should, in accordance with GAAP, be classified upon the obligor's balance sheet
as liabilities, but in any event including, without limitation, liabilities
secured by any mortgage on property owned or acquired subject to that mortgage,
whether or not the liability secured thereby shall have been assumed, and also
including, without limitation, (i) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not they
are or should be so reflected in the balance sheet, except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (ii) the present value of
any lease payments due under leases required to be capitalized and determined in
accordance with applicable Statements of Financial Accounting Standards.
"Investment Documents" has the meaning set forth in Section 6.5.
"Major Event of Default" means (A) a breach of any of the following
covenants contained in this Agreement: Section 7.1(f) or (l); Section 7.2(b),
(c), (d), (e), (f), (g) or (h); or (B) an Event of Default existing under
Section 8.1(a), (b) or (h).
"Note" and "Notes" have the meaning assigned to those terms in Section 2.1.
"Permitted Liens" has the meaning assigned to that term in Section 7.2(a).
"Person" means and includes an individual, a corporation, a partnership, a
joint venture, a trust, an unincorporated organization, or a government or any
agency or political subdivision thereof.
-3-
<PAGE>
"Preferred Stock" means the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock.
"Purchase Date" has the meaning set forth in Section 2.2.
"Purchaser" means and includes CID, and any other holder or holders from
time to time of the Note or Warrants.
"Qualified IPO" means the closing of a public offering pursuant to an
effective registration statement under the Securities Act covering the offer and
sale of Common Stock for the account of the Company if: (i) the price per share
of the Common Stock of the Company is at least $2.80 (as appropriately adjusted
for any stock dividends, combinations, splits, and the like with respect to the
Common Stock); and (ii) the net proceeds to the Company after all costs and
expenses, including but not limited to underwriting discounts and commissions,
will be at least $20,000,000.
"Securities" means collectively the Note, the Warrants, and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, as in effect at the time.
"Senior Debt" means (i) all Indebtedness of the Company and any of its
Subsidiaries for money borrowed from banks or institutional lenders, including
any extensions or renewals thereof, whether outstanding on the date hereof or
hereafter created or incurred, that is not by its terms subordinate and junior
to the Note and that is disclosed on the Financial Statements or is permitted by
this Agreement at the time it is created or incurred, (ii) all Indebtedness of
the Company and any of its Subsidiaries incurred to refinance any of the
Indebtedness referred to in item (i) above, where the security securing that
Indebtedness is substantially the same security as that securing the
Indebtedness being refinanced, (iii) all capitalized lease obligations of the
Company and any of its Subsidiaries that are permitted by this Agreement at the
time they are incurred, and (iv) all guarantees by the Company and any of its
Subsidiaries that are not by their terms subordinate and junior to the Note and
that are permitted hereby at the time they are made of Indebtedness of any
Subsidiary if that Indebtedness would have been Senior Debt pursuant to the
provisions of clause (i), (ii), (iii) or (iv) of this sentence had it been
indebtedness of the Company.
"Series A Preferred Stock" has the meaning set forth in Section 6.2.
"Series B Preferred Stock" has the meaning set forth in Section 6.2.
"Series C Preferred Stock" has the meaning set forth in Section 6.2.
"Stock Option Plan" means the Company's (i) employee stock option plan for
the benefit of the Company's officers, directors and employees, and (ii) non-
employee stock option plan for the benefit of members of the Board of Directors,
consultants, suppliers and contractors.
-4-
<PAGE>
"Subordinated Debt" means all Indebtedness of the Company and any of its
Subsidiaries for money borrowed from any Person, including any extensions or
renewals thereof, whether outstanding on the date hereof or hereafter created or
incurred, that is by its terms subordinate and junior to Senior Debt on terms
acceptable to the holders of Senior Debt and that is permitted by this Agreement
at the time it is created or incurred, including, without limitation, the Notes
as subordinated to the Bank pursuant to the Subordination Agreement.
"Subsidiary" or "Subsidiaries" means (i) any corporation more than 50% of
whose stock of any class or classes having by the terms thereof ordinary voting
power to elect a majority of the directors of that corporation (irrespective of
whether or not at the time stock of any class or classes of that corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time owned directly or indirectly by the Company and/or
any one or more of its Subsidiaries, and (ii) any partnership, association,
joint venture or other entity in which the Company and/or one or more of its
Subsidiaries has more than a 50% equity interest at the time.
"Transaction" has the meaning set forth in Section 7.2.
"Warrant Shares" has the meaning assigned to that term in Section 3.1.
"Warrants" has the meaning assigned to that term in Section 3.1.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement and all financial tests to be
calculated in accordance with this Agreement shall be prepared and calculated in
accordance with GAAP.
ARTICLE II
PURCHASE, SALE AND TERMS OF NOTE; PAYMENTS
------------------------------------------
Section 2.1. Description of Notes. The Company has authorized the issuance
and sale to the Purchaser of up to $3,000,000 aggregate principal amount of its
11% Subordinated Notes (individually, a "Note" and collectively, the "Notes").
The Notes shall be substantially in the form set forth as Exhibit 2.1 (including
any Note or Notes delivered in exchange or replacement therefor). The Notes
shall be due and payable on July 1, 2001, except to the extent they are subject
to earlier acceleration as provided therein. The Notes shall become immediately
due and payable upon any Change in Control of the Company; provided, however,
that a reincorporation by the Company under the laws of the State of Delaware,
or a merger into a newly-formed corporation incorporated under Delaware law,
shall not trigger acceleration of the Notes. The Notes shall bear interest
(based on a 360-day year counting actual days elapsed) on the unpaid principal
amount thereof until due and payable at the rate of 11% per annum. Interest
shall accrue from the date of issuance of the Notes and be payable (y) monthly
in arrears on the first day of each month, commencing on the first day of
-5-
<PAGE>
the first month following execution and delivery of each Note, and (z) at
maturity or prior prepayment of the Notes in full.
Section 2.2. Commitment. The Company agrees to issue and sell to the
Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions contained in this Agreement, the Purchaser agrees to
purchase the Notes as set forth below:
(a) Initial Funding. On the date on which this Agreement is executed and
delivered (the "Closing Date"), the Company shall sell and the Purchaser shall
purchase a Note in the original principal amount of not less than $1,500,000.
(b) Subsequent Funding. For a period of 12 months after the Closing Date,
subject to the terms and conditions set forth in this Agreement and the Notes,
the Company may request that the Purchaser purchase additional Notes in an
aggregate original principal amount of up to $1,500,000. The Company shall
determine the amount and dates of these subsequent purchases of the Notes (each,
a "Purchase Date") by delivering in writing to the Company no later than ten
Business Days prior to each requested Purchase Date. Each subsequent Note, if
any, shall be in an aggregate principal amount of not less than $500,000.
Purchaser's obligation to purchase Notes on any Purchase Date shall be expressly
conditioned upon the Company's ongoing compliance with all of the terms and
conditions set forth in this Agreement and the other Investment Documents.
(c) Minimum Balance Outstanding. During the term of the Notes, the Company
shall maintain a minimum, aggregate, outstanding balance due and payable under
the Notes of $1,500,000.
Section 2.3. Issue Price; Original Issue Discount. Having considered all
facts relevant to a determination of the value of the Notes and the Warrants
being acquired by the Purchaser, including among other things the leveraged
nature of the Company's capitalization and the nature of its business and
prospects, the Company and the Purchaser have concluded and do hereby agree
that, within the meaning of Section 1273 of the Internal Revenue Code of 1986,
as amended (the "Code"), the issue price for the aggregate principal amount of
the Notes is $2,850,000, and this amount will be allocated pro rata based on the
principal amount of each Note issued pursuant to this Agreement. The Company and
the Purchaser recognize that this Agreement creates original issue discount in
the aggregate amount of $150,000 (and this amount will be allocated pro rata
based on the principal amount of each Note issued pursuant to this Agreement),
which is the amount to be taken into account by the Company and the Purchaser
for federal income tax purposes on the Notes, and they agree to adhere to this
Agreement for that purposes and not to take any action inconsistent herewith.
Section 2.4. Use of Proceeds. The Company agrees to use the full proceeds
from the sale of the Notes for working capital and general corporate purposes
and for any other purposes approved by the Board of Directors.
Section 2.5. Prepayment. The Company may prepay all or any portion of the
unpaid principal balance and accrued interest of any Note without premium or
penalty. However, all sums received
-6-
<PAGE>
in prepayment shall first be applied in payment of accrued but unpaid interest,
and the excess, if any, shall then be applied to the unpaid principal balance
due under the Note.
Section 2.6. Payments and Endorsements. Payments of principal and interest
on the Notes shall be made without setoff or counterclaim directly by wire
transfer of funds to the account or accounts designated in writing by the
Purchaser, without any presentment or notation of payment, except that prior to
any transfer of the Notes, the holder thereof shall endorse on that Note a
record of the date to which interest has been paid and all payments made on
account of principal of that Note. If at any time more than one Note is
outstanding, then all payments and prepayments of principal of and interest on
the Notes shall be applied (to the extent thereof) to all holders of the Notes
pro rata based on the principal amount outstanding and held by each holder.
Section 2.7. Maximum Legal Rate of Interest. Nothing in this Agreement or
in the Notes shall require the Company to pay interest at a rate in excess of
the maximum rate permitted by applicable law.
Section 2.8. Payment on Non-Business Days. Whenever any payment is due on a
day other than a Business Day, that payment may be made on the next succeeding
Business Day, and the extension of time shall be included in the computation of
interest due.
Section 2.9. Transfer and Exchange of Note. The Notes may not be sold,
transferred, assigned, hypothecated or otherwise disposed prior to maturity or
prepayment thereof, without the prior consent of the Company; provided, however,
that the Purchaser may transfer or assign the Notes, or its interest therein, to
a limited partner or general partner of the Purchaser in connection with the
liquidation, dissolution, or winding up of the affairs of the Purchaser
("Permitted Transfer"). In the event of a Permitted Transfer, the holder
desiring to transfer or exchange any Note shall first notify the Company in
writing of that transfer or exchange at least two Business Days prior to the
desired date of transfer or exchange (the "Transfer Notice"). Within a
reasonable time after the Transfer Notice and without expense (other than
transfer taxes, if any) to that holder, the Company shall issue in exchange
therefor subject to Section 5.1, another Note or Notes, in the denominations as
requested by the holder, for the same aggregate principal amount, as of the date
of the issuance, as the unpaid principal amount of the Note or Notes surrendered
and having the same maturity and rate of interest, containing the same
provisions, and subject to the same terms and conditions as the Note or Notes
surrendered. Each new Note shall be made payable to that Person or Persons, or
assigns, as the holder of that surrendered Note or Notes may designate, and that
transfer or exchange shall be made in a manner so that no gain or loss of
principal or interest shall result therefrom.
Section 2.10. Replacement of Note. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction, or mutilation of any Note and, if
requested in the case of any loss, theft, or destruction, upon delivery of an
indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any mutilation, upon surrender and cancellation of
the Note, the Company will issue a new Note, at the expense of the holder, of
like tenor and amount and dated the date to which interest has been paid, in
lieu of that lost, stolen, destroyed, or mutilated
-7-
<PAGE>
Note. If any Note of which the Purchaser, its nominee, or any of its partners is
the holder is lost, stolen, or destroyed, the affidavit of an authorized partner
or officer of the holder setting forth the circumstances with respect to that
loss, theft, or destruction shall be accepted as satisfactory evidence thereof,
and no indemnification bond or other security shall be required as a condition
to the execution and delivery by the Company of a new Note in replacement of
that lost, stolen, or destroyed Note other than the holder's written agreement
to indemnify the Company.
Section 2.11. Subordination. The indebtedness evidenced by the Notes and
the rights and remedies of the Purchaser under this Agreement and the Investment
Documents shall be subordinate and junior to certain indebtedness of the Company
to the Bank in the manner and to the extent provided in the Notes and the Bank
Subordination Agreement.
Section 2.12. Commitment Fee. The Company has agreed to pay to Purchaser a
commitment fee of $15,000 payable on the Closing Date, plus one percent (1%) of
the amount of each additional Note purchased pursuant to Section 2.2(b) of this
Agreement, payable at the Closing for such Note, as consideration for
Purchaser's reservation of sufficient funds to lend the principal amount of the
Notes to the Company and for entering into the Investment Documents (the
"Commitment Fee"). The Commitment Fee may be paid to the Purchaser by means of a
deduction from the proceeds from the Note or Notes purchased at the Closing.
Section 2.13. Default Rate of Interest. If an Event of Default occurs and
is continuing, from and after the date that the Event of Default occurs the
entire outstanding unpaid principal balance of the Notes and any unpaid interest
from time to time due thereon shall bear interest, payable on demand, at the
rate of 13.0% per annum, or the lower rate as then may be the maximum rate
permitted by applicable law; provided, however, that upon the cessation or cure
of the Event of Default, if no other Event of Default is then continuing, the
Note shall again bear interest at the rate of 11% per annum as set forth in
Section 2.1.
ARTICLE III
PURCHASE, SALE AND TERMS OF WARRANTS
------------------------------------
Section 3.1. The Warrants. The Company has authorized the issuance and sale
to the Purchaser of the Company's Series C Preferred Stock Purchase Warrants
(the "Warrants") for the purchase (subject to adjustment as provided therein) of
up to an aggregate of 222,186 shares of Series C Preferred Stock of the Company
(the "Warrant Shares"). As of the date of this Agreement, the Warrants represent
0.6% of the fully-diluted outstanding shares of the Common Stock. The Warrants
shall be substantially in the form set forth as Exhibit 3.1. The Warrants may be
referred to herein individually as a "Warrant" and shall also include any
warrants of the Company delivered in or replacement therefor. The Warrants shall
be exercisable at a purchase price, subject to adjustment, of $0.01 per Warrant
Share.
-8-
<PAGE>
Section 3.2. Purchase and Sale of Warrants. On the Closing Date, the
Company agrees to issue and sell to the Purchaser, and, subject to and in
reliance upon the representations, warranties, terms, and conditions of this
Agreement, the Purchaser agrees to purchase, a Warrant entitling the Purchaser
(subject to the terms and conditions provided therein) to acquire up to 111,093
Warrant Shares. The Warrant shall represent not less than 0.3% of the fully-
diluted outstanding shares of the Common Stock as of the date of this Agreement.
Upon and concurrent with the purchase of additional Notes, the Purchaser shall
purchase additional Warrants for up to an aggregate 111,093 Warrant Shares
(representing up to 0.3% of the fully-diluted outstanding shares of the Common
Stock as of the date of this Agreement) on a pro rata basis.
ARTICLE IV
CONDITIONS TO PURCHASER'S OBLIGATION
------------------------------------
The obligation of the Purchaser to purchase and pay for the Notes and
Warrants at the closing of the transactions contemplated by this Agreement (the
"Closing") is subject to the following conditions, all or any of which the
Purchaser may waive in writing:
Section 4.1. Representations and Warranties. Each of the representations
and warranties of the Company set forth in Article VI shall be true and correct
in all respects at the time of, and immediately after giving effect to, each
sale of the Notes and the Warrants as contemplated by this Agreement.
Section 4.2. Documentation at Closing. The Purchaser shall have received
prior to or at the Closing all of the following, each in form and substance
satisfactory to the Purchaser and its counsel:
(a) A certificate from a duly authorized officer of the Company stating
that the representations and warranties contained in Article VI and any other
Investment Documents are true and correct and that no condition or event has
occurred or is continuing or will result from the execution and delivery of this
Agreement or the Investment Documents that constitutes an Event of Default or
would constitute an Event of Default but for the requirement that notice be
given, or time elapse, or both.
(b) Execution and delivery of the Bank Subordination Agreement in form and
substance satisfactory to Purchaser and its counsel.
(c) Payment of the Commitment Fee identified in Section 2.12 as to which
the Purchaser gives the Company notice at the Closing.
(d) Any consents required for the Company to enter into this Agreement and
satisfy its obligation hereunder.
-9-
<PAGE>
(e) Those other documents referenced in any schedule hereto or relating to
the transactions contemplated by this Agreement as the Purchaser or its counsel
may reasonably request.
Section 4.3. No Default. At the time of and immediately after giving effect
to the sale of the Notes and the Warrants there shall exist no Event of Default
and no condition, event or act that, with the giving of notice or lapse of time,
or both, would constitute an Event of Default.
Section 4.4. Equity Investment. The Company shall have completed the
proposed investment transaction with Microsoft Corporation and Oak Investment
Partners VII, Limited Partnership concurrently with or prior to the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
Section 5.1. Representations and Warranties of the Purchaser. As a material
inducement to the Company to enter into and consummate the transactions
contemplated by this Agreement, the Purchaser hereby represents and warrants
that:
(a) The Purchaser has duly authorized, executed, and delivered this
Agreement and those Investment Documents that require execution by the
Purchaser.
(b) It is the Purchaser's present intention to acquire the Securities for
its own account.
(c) The Securities are being and will be acquired for the purpose of
investment and not with a view to distribution or resale thereof.
(d) The Purchaser acknowledges that it has reviewed and discussed the
Company's business, affairs, and current prospects with those officers and
others as it has deemed appropriate or desirable in connection with the
transactions contemplated by this Agreement. The Purchaser further acknowledges
that it has requested, received, and reviewed that information, and that it has
undertaken an investigation and made further inquiries of officers of the
Company and others as it has deemed appropriate or desirable in connection with
the transactions; provided, however, that no investigation made at any time by
or on behalf of the Purchaser shall have any effect whatsoever on the
representations and warranties of the Company hereunder, which will survive any
investigation.
(e) The Purchaser understands that it must bear the economic risk of its
investment for an indefinite period of time because the Securities are not, and
will not be, registered under the Securities Act or any applicable state
securities laws and may not be resold unless subsequently registered under the
Securities Act and any other laws or unless an exemption from registration is
available. The Purchaser also understands that it is not contemplated that any
registration will be made under the Securities Act or any state securities laws,
or that the Company will take all
-10-
<PAGE>
reasonable steps which will make the provisions of Rule 144 under the Securities
Act available to permit resale of the Securities.
(f) The Purchaser represents that it has sufficient knowledge and
experience in financial and business matters so that it is capable of evaluating
the merits and risks of its investment in the Securities. The Purchaser further
represents that it is an "accredited investor" as that term is defined in Rule
501 of Regulation D of the Commission under the Securities Act and Indiana Code
23-2-1-1-(a) with respect to the purchase of the Securities.
(g) No Person has or will have, as a result of the transactions
contemplated by this Agreement any rights, interest or valid 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 Purchaser or any agent of the
Purchaser except as provided in Section 2.12.
(h) The Purchaser hereby acknowledges that the Notes, the Warrants, each
certificate representing Warrant Shares, and any other securities issued in
respect of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, or similar event (unless no longer required in the
opinion of counsel to the Company) shall bear a legend substantially in the
following form:
[THIS] [NOTE] [WARRANT] [HAS] [THESE SHARES HAVE] NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, OR ASSIGNED EXCEPT (i)
PURSUANT TO REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) IF, IN
THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THE PROPOSED
TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS,
WITHOUT REGISTRATION.
The acquisition by the Purchaser of the Securities shall constitute a
confirmation by it of the foregoing representations.
Section 5.2. Transferees Bound. The Purchaser understands and acknowledges
with the Company that the Company shall not issue or transfer any Note, Warrant,
or Warrant Shares unless the Person to whom they are being issued or transferred
shall deliver to the secretary of the Company written representations
substantially similar to those in Section 5.1 or other representations of its
investment intent and experience as are reasonably acceptable to counsel for the
Company.
-11-
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As a material inducement to the Purchaser to enter into and consummate the
transactions contemplated by this Agreement, the Company represents and warrants
to the Purchaser as follows:
Section 6.1. Organization, Good Standing, and Qualification. The Company is
duly incorporated, validly existing, and in good standing under the laws of the
State of Illinois, without limitation on the duration of its corporate
existence, and has filed all reports that it is required to file with the
Secretary of State of the State of Illinois and all other governmental
authorities as required to maintain its corporate existence. The Company has all
requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as it is now conducted and as it is now
proposed to be conducted. The Company is qualified as a foreign corporation and
is in good standing in each state or jurisdiction where the failure to so
qualify would have a material adverse effect on the Company. The Company has
previously delivered to the Purchaser complete and correct copies of its Amended
and Restated Articles of Incorporation and Bylaws, as amended, copies of which
are attached as Exhibits 6.1(a) and 6.1(b), respectively. The Company is not in
violation of its Amended and Restated Articles of Incorporation or its Bylaws.
Section 6.2. Capital Structure of the Company and Investments in the
Company.
(a) The authorized capitalization of the Company consists of 46,491,917
shares of Common Stock, par value $.001 per share (the "Common Stock") and
18,466,778 shares of Preferred Stock, of which 1,228,917 shares have been
designated as Series A Preferred Stock, 13,526,786 shares have been designated
as Series B Preferred Stock, and 3,711,075 shares have been designated as Series
C Preferred Stock. Immediately prior to the Closing, 12,019,842 shares of Common
Stock, 1,228,917 shares of Series A Preferred Stock, and 13,526,786 shares of
Series B Preferred Stock and 3,469,136 shares of Series C Preferred Stock will
be validly issued and outstanding, fully paid and nonassessable.
(b) All of the issued and outstanding shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock were issued by the Company in
compliance with all applicable laws and regulations, including but not limited
to all federal, state, and other securities laws and regulations. The Notes and
the Warrants, when issued pursuant to this Agreement, shall be duly and validly
issued and shall be issued by the Company in reliance on the representations and
warranties of the Purchaser and any transferees in compliance with all
applicable laws and regulations, including but not limited to all federal,
state, and other securities laws and regulations. The Warrant Shares, when
issued pursuant to the Warrants, shall be duly and validly issued, shall be
fully paid and nonassessable, and shall be issued by the Company in compliance
with all applicable laws and regulations, including but not limited to federal,
state, and other securities laws and regulations. All Shares of Series C
Preferred Stock and Common Stock issuable upon conversion of the Series C
Preferred Stock, when issued, shall be duly and validly issued, fully paid and
nonassessable and issued in compliance with
-12-
<PAGE>
all applicable laws and regulations, including but not limited to federal,
state, and other securities laws and regulations.
(c) The owners of record or beneficially of the outstanding shares of
Common Stock and options or warrants to acquire Common Stock, including the
number of shares owned or subject to option or to a warrant, are set forth in
Schedule 6.2. The Company has no treasury stock.
(d) Except as contemplated by or referred to in this Agreement or set
forth in Schedule 6.2, the Company has no outstanding options, warrants,
conversion rights, agreements, or commitments for the issuance, transfer, or
sale of any security of the Company.
(e) Except as set forth in the Amended and Restated Voting and Co-Sale
Agreement and pursuant to proxies granted under the terms of the Company's Stock
Option Plan, there exists no restrictive stock transfer, voting trust, or other
agreement or commitment relating to the transfer or voting of any equity
security of the Company.
(f) The Company has granted no registration rights or preemptive rights
with respect to any of the Company's securities, except as contemplated by this
Agreement, the Amended and Restated Voting and Co-Sale Agreement and the Amended
and Restated Registration Rights Agreement.
Section 6.3. Title to the Notes and the Warrants. Company shall issue the
Notes and the Warrants to the Purchaser free and clear of all liens,
encumbrances, equitable rights of third parties, options, claims, pledges, and
other limitations on the ownership, exercisability, or ability to transfer the
Notes and the Warrants, except as created by the Purchaser, contemplated by the
Investment Documents, or as imposed by applicable securities laws. The Company
shall issue the Warrant Shares pursuant to the Warrants free and clear of all
liens, encumbrances, equitable rights of third parties, options, claims,
pledges, and other limitations on the ownership, voting, or ability to transfer
the Warrant Shares, except as created by the Purchaser, contemplated by the
Investment Documents, or as imposed by applicable securities laws.
Section 6.4. Compliance with Securities Laws. Assuming the accuracy of the
representations and warranties of the Purchaser and any transferees hereunder,
and compliance by Purchaser with the terms of the Warrant, the transactions
provided for in or contemplated by this Agreement, including but not limited to
the issuance of the Notes, the Warrants, and the Warrant Shares, are exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended ("Securities Act"), and any securities registration or
prospectus delivery requirements under applicable state or other securities
laws, including but not limited to the Indiana Securities Law, as amended, and
the Illinois Securities Act, as amended, and the Company has complied with and
shall comply with all requirements of the exemptions from registration and
prospectus delivery under federal, state, or other securities laws upon which
the Company is relying.
-13-
<PAGE>
Section 6.5. Authority. The execution and delivery of this Agreement by the
Company, the issuance of the Notes, the Warrants, and the Warrant Shares by the
Company, and the execution and delivery of each of the other agreements and
documents executed and delivered by the Company in connection with the
transactions provided for in or contemplated by this Agreement (collectively
this Agreement, the Notes, the Warrants, and all other documents delivered by or
on behalf of the Company at the Closing in connection therewith are hereinafter
referred to as the "Investment Documents"), and the consummation of the
transactions provided for in or contemplated by the Investment Documents have
been duly authorized by all necessary corporate action of the Board of Directors
and the shareholders of the Company. As of the Closing, no holder of any
securities of the Company will have any appraisal or dissenters' rights as a
result of the adoption of the Amended and Restated Articles of Incorporation or
as a result of any of the transactions contemplated by this Agreement.
Section 6.6. Validity; No Violation.
(a) The Investment Documents represent or will represent valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms. Except as set forth in Schedule 6.6, neither the
execution and delivery of each of the Investment Documents by the Company nor
the consummation by the Company of the transactions provided for in or
contemplated by any of the Investment Documents will:
(1) conflict with or result in a breach of any provision of the
Amended and Restated Articles of Incorporation or the Bylaws of the
Company, or constitute a material default under or give rise to any right
of termination, cancellation, or acceleration under any of the terms,
conditions, or provisions of any note, lien, bond, mortgage, indenture,
license, lease, agreement, or other instrument or obligation to which the
Company is a party, or by which the Company or any of its properties or
assets is bound;
(2) violate any judgment, order, writ, injunction, or decree of any
court, administrative agency, or governmental body applicable to the
Company or any of its properties, assets, or outstanding debt or equity
securities; or
(3) cause, or give any person grounds to cause (with or without
notice, the passage of time, or both), the maturity of any material
liability or obligation of the Company to be accelerated or increased.
(b) Except as has been already obtained by the Company, no consent or
approval by any governmental authority or any other person or entity is required
in connection with the Company's execution and delivery of each of the
Investment Documents or the consummation by the Company of the transactions
provided for in or contemplated by the Investment Documents, including but not
limited to the issuance of the Notes, the Warrants, and the Warrant Shares by
the Company to the Purchaser.
-14-
<PAGE>
Section 6.7. No Equity Investments. Except as set forth in Schedule 6.7,
the Company does not hold, own, or control, directly or indirectly, any debt or
equity interest in any corporation, partnership, joint venture, or other entity.
Section 6.8. Financial Statements. Attached as Exhibit 6.8 are true and
complete copies of the unaudited balance sheet of the Company as of March 31,
1998, and the draft audited balance sheet of the Company as of December 31, 1997
(the "Balance Sheets"), and related statements of income and cash flows,
unaudited as of March 31, 1998 and draft audited as of December 31, 1997
(collectively, with the Balance Sheets, the "Financial Statements"). The
Financial Statements (including any related schedules and notes) are true,
correct, and complete in all material respects, and present fairly the financial
position and results of operations and cash flows of the Company on the dates
and for the periods indicated. Without limiting the generality of the foregoing,
the Balance Sheets included in the Financial Statements disclose all of the
material debts, liabilities, and monetary obligations of any nature (whether
absolute, accrued, or contingent and whether due or to become due) of the
Company as of their respective dates that, in accordance with generally accepted
accounting principles, are required to be disclosed in the Balance Sheets.
Section 6.9. No Material Adverse Change. Since May 31, 1998, there has been
no material adverse change in the financial condition, operating results,
assets, operations, business prospects, employee relations, or customer or
supplier relations of the Company.
Section 6.10. Absence of Undisclosed Liabilities and Encumbrances. Except
for those liabilities and obligations disclosed on the Balance Sheet or set
forth in Schedule 6.10 or Schedule 6.16, the Company has no obligations or
liabilities, fixed or contingent, choate or inchoate, in the individual amount
of $25,000 or more or in an aggregate amount of $50,000 or more. Except as
listed in Schedule 6.10, the Company has granted no, and is not subject to any,
liens or encumbrances on any of its assets or properties.
Section 6.11. Tax Matters. Except as set forth in Schedule 6.11:
(a) all applicable federal, state, local, and foreign tax returns and tax
reports required to be filed by the Company have been filed with the appropriate
governmental agencies in all jurisdictions in which those returns and reports
are required to be filed and all of those returns and reports were true,
correct, and complete in all material respects when filed and on the date of
this Agreement;
(b) all applicable federal, state, local, and foreign income, profits,
franchise, sales, use, occupation, property, excise, payroll, and other taxes
(including interest and penalties) due and payable from the Company have been
fully paid;
(c) neither the Internal Revenue Service nor any state, local, or foreign
taxing authority has raised any issues with respect to any tax return, report,
election, or filing, or any tax matter of the
-15-
<PAGE>
Company and, to the knowledge of the Company, there is no unpaid assessment or
any basis for assessment by any taxing authority; and
(d) neither the Internal Revenue Service nor any state, local, or foreign
taxing authority has advised the Company that it has examined any federal,
state, local, or foreign income tax or franchise tax returns of or in respect of
the Company.
Section 6.12. Title to Property and Related Matters. The Company has good
and marketable title to all of its assets and properties (or interests therein),
real or personal, tangible or intangible, that it owns or leases, free and clear
of all mortgages and all liens, pledges, charges, security interests,
encumbrances, easements, encroachments, rights of third parties, and other
interests of any kind or character, except:
(a) those set forth in Schedule 6.12; and
(b) liens for real and personal property taxes not yet due and payable.
Except as set forth in Schedule 6.12, the assets and properties of the
Company are in a condition reasonably suitable for its operations and no
condition exists that materially interferes with the use of any of the Company's
assets or properties in the ordinary course of its business.
Section 6.13. Real Property Owned. The Company does not own any real
property.
Section 6.14. Real Property Leased. The Company leases all real property
necessary to carry on its business as its is presently conducted and as
presently proposed to be conducted by the Company. With respect to all real
property leased by the Company:
(a) the Company is the owner and holder of the entire interest in the
leasehold estates purported to be granted by the leases;
(b) the Company is not in material default under any lease and each lease
constitutes a valid and binding obligation of the Company;
(c) there are no declared defaults currently existing, the Company has not
received any notices of default, and, to the knowledge of the Company, no events
have occurred that with notice, the lapse of time, or otherwise would constitute
a material default under any of the real estate leases to which the Company is a
party; and
(d) except as set forth in Schedule 6.14, all improvements owned by the
Company (including buildings and other structures) on the real estate leased by
the Company conform in all material respects to applicable federal, state,
local, and foreign laws and regulations (including, but not limited to, those
relating to environmental protection, conservation, occupational safety and
health, zoning, and building) and the real estate leased by the Company is zoned
for the purpose for
-16-
<PAGE>
which the Company uses or presently proposes to use it. All improvements
(including buildings and other structures) owned by the Company on the real
estate leased by the Company are in good condition and repair (ordinary wear and
tear excepted) and there does not exist any condition that materially interferes
with the economic value or the use thereof as presently used or as presently
proposed to be used by the Company.
Section 6.15. Intellectual Property.
(a) Except as provided in Schedule 6.15, the Company owns or has an
irrevocable license to use all patents, trade secrets, copyrights, trademarks,
service marks, trade names, trade dress, inventions, discoveries, improvements,
processes, formulae, compositions, proprietary rights or data, shop rights,
ideas or know-how, computer software, data, and documentation, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, and technical data, whether
patentable or not, and other intellectual property necessary to carry on its
business as it is presently conducted by the Company (collectively the
"Intellectual Property"). Set forth in Schedule 6.15 is a true and complete list
of:
(i) all patents, trademarks, service marks, trade names, and
registered copyrights and registrations and applications therefor owned,
held, or used by the Company; and
(ii) all licenses related to the Intellectual Property to which the
Company is a party (including as to each license the name of the licensor
or licensee, as applicable, a description of the subject matter of the
license, basic royalty rate, termination date, renewal option, and whether
any advance royalty payments are required).
(b) Except as set forth in Schedule 6.15 the Company owns or has the
unqualified right to use all of the Intellectual Property and registrations and
applications therefor free and clear of all liens, encumbrances, or rights of
any other person, corporation, or other entity. Except as set forth in Schedule
6.15, all Intellectual Property and applications and registrations therefor are
duly authorized, issued, valid, and have not been canceled, amended, or
modified, and the Company is not aware of any facts that would invalidate or
render any of them unenforceable. Except as set forth in Schedule 6.15, the
Intellectual Property contains no components that the Company does not have the
right to use.
(c) All personnel who have participated in the development of proprietary
works for the Company either have been party to a for-hire relationship or have
assigned to the Company all title in such proprietary works. Except as set forth
in Schedule 6.15, no third party has at any time had access to the Intellectual
Property except for persons who have entered into, and who are in full
compliance with, confidentiality and nondisclosure agreements with regard to the
Intellectual Property. Except as set forth in Schedule 6.15, no person has
asserted any royalty claim or other claim whatsoever, including but not limited
to claims of ownership, direct or indirect, in respect of the Intellectual
Property, in respect of which or by reason of which the Company is, or may
become, indebted in any respect whatsoever to any person, or his or her heirs or
assigns. Except as set forth
-17-
<PAGE>
in Schedule 6.15, the Company is not, nor has the Company received any notice
alleging that it is, infringing, likely to infringe, or otherwise acting
adversely to any known right or claimed right of any person under or with
respect to any Intellectual Property. None of the employees of the Company is
subject to any contractual or other arrangements with any other company that
restrict the activities in which they engage or propose to engage in on behalf
of the Company and the activities of the current employees to date in connection
with their employment by the Company will not give rise to any valid claim by a
former employer that the current employees or the Company have appropriated or
used any intellectual property of the former employer.
Section 6.16. Contracts, Agreements, and Commitments. Except as set forth
in Schedule 6.16, the Company is not a party to, or bound by any written or
oral:
(a) contract with or commitment to any labor union;
(b) contract or commitment for the employment of any shareholder,
director, officer, or employee or any other type of contract or understanding
with any shareholder, director, officer, or employee that the Company cannot
immediately terminate without cost or other liability;
(c) profit-sharing, bonus, stock option, pension, retirement, stock
purchase, or similar plan or agreement, formal or informal, providing benefits
to any current or former shareholder, director, officer, or employee;
(d) contract or commitment of any other nature with any current or former
shareholder, director, officer, or employee;
(e) indenture, mortgage, promissory note, loan agreement, or other
agreement or commitment for the borrowing of money, incurrence of debt, or the
use of credit;
(f) contract or commitment continuing over a period of more than six
months from the date of this Agreement for the future purchase of materials,
supplies, equipment, or services involving in the aggregate more than $5,000 or
for a quantity in excess of normal operating requirements;
(g) contract or commitment for charitable contributions;
(h) contract or commitment for capital expenditures involving more than
$5,000;
(i) contract or commitment with any dealer, sales representative, broker,
distributor, jobber, advertiser, or sales agency;
(j) joint venture contract, affiliation contract, or other commitment or
arrangement involving a sharing of profits or expenses;
-18-
<PAGE>
(k) contract or commitment limiting the freedom of the Company to compete
in any line of business, in any geographic area, or with any person;
(l) contract or commitment with respect to the acquisition of the
business, assets, properties, or equity securities of any other person or
entity;
(m) contract or commitment for the sale of any of its assets, property, or
rights other than in the ordinary course of the Company's business;
(n) guaranty of the obligations of third parties;
(o) policy of insurance or surety; or
(p) warranty agreement with respect to its services rendered or its
products sold or leased.
The contracts, agreements, and commitments listed on Schedule 6.16
("Material Contracts") constitute all of the Material Contracts to which the
Company is a party, and each such Material Contract represents a binding
obligation of the parties thereto enforceable against the parties in accordance
with their respective terms and conditions, and, except as disclosed in Schedule
6.16, there is no material breach or default of any provision of any Material
Contract by the Company, or to its knowledge, by any party thereto. No event has
occurred that, with notice or the lapse of time or both, would constitute a
material breach or default by the Company, or to its knowledge, by any party
thereto, to any Material Contract or would cause or permit acceleration of any
Material Contract or the creation of any lien, encumbrance, or security interest
in or upon any of the assets or properties of the Company.
Section 6.17. Litigation. Except as set forth in Schedule 6.17, there are
no actions, suits, legal or administrative proceedings, investigations, or
claims pending or to the knowledge of the Company threatened against the
Company, or involving or affecting any of its assets or properties, whether at
law or in equity, whether civil or criminal in nature or whether before or by a
federal, state, municipal, or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign. Neither the Company nor
any of its assets is subject to any judicial or administrative order, judgment,
or decree. In addition, except as set forth on Schedule 6.17, the Company is not
aware of any facts that might result in or form the basis for any action, suit,
or other proceeding, and the Company has not received notice of any violation or
investigation of any violation of any law, regulation, ordinance, order, or
other requirement relating to the operations of the Company. The designation in
Schedule 6.17 of whether a claim is insured or uninsured is true and correct.
Section 6.18. Compliance; Governmental Authorization. Except as set forth
in Schedule 6.18, the Company:
(a) has complied with all federal, state, local, and foreign laws,
regulations, ordinances, and orders (including without limitation, those
relating to environmental protection, conservation,
-19-
<PAGE>
occupational safety and health, and equal employment opportunity) ("Laws") that
apply to the Company and its business, the violation of which would have a
material adverse effect on the Company;
(b) has not received or been made the subject of any claims, charges, or
investigations, or threats of claims, charges, or investigations, alleging the
failure of the Company to comply with any Laws;
(c) has never made any illegal payment of any kind, directly or
indirectly, including, without limitation, payments, gifts or gratuities, to any
United States or foreign national, any state or local government officials, or
their employees or agents;
(d) has all federal, state, local, and foreign governmental licenses,
franchises, consents, and permits ("Permits") the lack of which would have a
material adverse effect on the Company, its business and the business it
proposes to conduct, and those Permits are in full force and effect, no
violations have been recorded in respect of those Permits, and no proceeding is
pending or threatened to revoke or limit any of those Permits; and
(e) has complied with all judicial or administrative orders, writs,
injunctions, and decrees applicable to the Company or to any of the Company's
operations, assets, or properties.
Section 6.19. Labor Relations. Except as set forth in Schedule 6.19, the
Company:
(a) has paid in full all wages, salaries, commissions, bonuses, and other
compensation due and owing for all services performed for it by its employees;
(b) is in compliance with all federal, state, local, and foreign laws,
regulations, and ordinances respecting employment and employment practices,
terms, and conditions of employment, and wages and hours the failure of which
would have a material adverse effect on the Company;
(c) does not have any unfair labor practice complaint pending or, to the
knowledge of the Company, threatened against it before the National Labor
Relations Board and has no representation question pending or, to the knowledge
of the Company, threatened against it with respect to its employees;
(d) has no labor strike, dispute, slowdown, or stoppage pending, or, to
the knowledge of the Company, threatened against it;
(e) has no grievance pending or, to the knowledge of the Company,
threatened against it;
(f) is not currently negotiating any collective bargaining agreement; and
-20-
<PAGE>
(g) is not aware that any executive or key employee of the Company or any
group of employees of the Company has any current or immediate plans to
terminate employment with the Company.
Section 6.20. Compensation. Set forth in Schedule 6.20 is a true and
complete list of all shareholders, directors, officers, and employees of the
Company who during the twelve month period following the Closing Date will be
entitled to receive direct or indirect remuneration from the Company, including
but not limited to bonuses and the fair market value of all options, shares, and
all other property, in an aggregate amount in excess of $100,000.
Section 6.21. Benefit Plans. Except as set forth on Schedule 6.21(a), the
Company has not established, or maintained, contributed to, and has no legal
obligation to contribute to or any liabilities with respect to any (a) "employee
welfare benefit plan" (as defined in Section 3 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), including, but not limited to, any
multiemployer plan (as defined in Section 3 of ERISA), or (b) any "employee
pension benefit plan" (as defined in Section 3 of ERISA), including, but not
limited to, any multi-employer plan (as defined in Section 3 of ERISA). Set
forth on Schedule 6.21(b) is a true and complete list of all health care plans,
insurance plans, severance plans, vacation plans, deferred compensation plans,
bonus plans, stock option plans, retiree health or other benefit plans, and
other employee benefit plans, agreements, practices, or commitments by or of the
Company (collectively the "Plans"). The Plans have been administered in
compliance with all applicable laws.
Section 6.22. Related Transactions. Except as set forth in Schedule 6.22:
(a) no current or former shareholder, director, officer, or employee of
the Company is presently, or has been, a party to any transaction with the
Company (including but not limited to any contract, agreement, or other
arrangement providing for the furnishing of services by, or the rental of real
or personal property from, or otherwise requiring payments to, any such
shareholder, director, officer, or employee), except for employment arrangements
for the payment of cash compensation in the ordinary course of the Company's
business and the purchase by certain shareholders and directors prior hereto of
equity securities of the Company; and
(b) to the best of the Company's knowledge, no director, officer, or
employee of the Company, or current shareholder of the Company, is the direct or
indirect owner of any interest in any corporation, firm, association, or
business organization that competes with or supplies materials to the Company,
nor does any such person receive income from any source other than the Company
that relates to the business of, or should properly accrue to, the Company,
except for ownership of not more than 5% of any corporation traded on a national
securities exchange or an automated inter-dealer quotation system (e.g.,
NASDAQ).
Section 6.23. Broker's or Finder's Fees. Except as set forth in Section
2.12, no agent, broker, investment banker, person, or firm acting on behalf of
or under the authority of the Company is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or
-21-
<PAGE>
indirectly from the Company in connection with any of the transactions
contemplated by the Investment Documents.
Section 6.24. Minute Books and Stock Record Books. The minute books of the
Company contain complete and accurate records of all meetings and other
corporate actions of its shareholders and its Board of Directors, including but
not limited to committees of its Board of Directors. The stock record books of
the Company contain complete and accurate records of all transactions involving
equity securities of the Company.
Section 6.25. Registration Rights. Except as contemplated by the Amended
and Restated Registration Rights Agreement, the Company has not agreed to
register any of its securities under the Securities Act of 1933, as amended, or
under any state or other securities laws.
Section 6.26. Qualified Small Business Stock.
(a) As of and immediately following the Closing, the shares of Preferred
Stock will meet each of the requirements for qualification as "qualified small
business stock" set forth in Section 1202(c) of the Internal Revenue Code of
1986, as amended (the "Code"), including without limitation the following: (i)
the Company will be a domestic C corporation, (ii) the Company will not have
made any purchases of its own shares described in Code Section 1202(c)(3)(B)
during the one-year period preceding the Closing, and (iii) the Company's (and
any predecessor's) aggregate gross assets, as defined in Code Section
1202(d)(2), at no time between June 1, 1997, through the Closing have exceeded
or will exceed $50 million, taking into account the purchase price paid for the
Notes under this Agreement and taking into account the assets of any
corporations required to be aggregated with the Company in accordance with Code
Section 1202(d)(3).
(b) As of the Closing, (i) at least 80% (by value) of the assets of the
Company are used by it in the active conduct of one or more qualified trades or
businesses, as defined in Code Section 1202(e)(3), (ii) no more than 10% of the
total value of the Company's assets consists of real property which is not used
in the active conduct of a qualified trade or business, as defined in Code
Sections 1202(e)(3) and 1202(e)(7), and (iii) the Company is an eligible
corporation, as defined in Code Section 1202(e)(4).
Section 6.27. Disclosure. The Company has not withheld from the Purchaser
any material facts relating to the assets, properties, operations, financial
condition, or prospects of the Company. No representation or warranty of the
Company in any of the Investment Documents, and no statement contained in any
certificate or other instrument delivered by the Company in connection with the
transactions contemplated by any of the Investment Documents contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading.
Section 6.28. Customers, Vendors, and Suppliers. None of the ten largest
customers of the Company (based on total sales volume for the latest full fiscal
year) or five largest vendors or
-22-
<PAGE>
suppliers of merchandise or supplies (based on total purchase volume for the
latest full fiscal year) to the Company has canceled or otherwise terminated or
made any threat to cancel or otherwise terminate its relationship with the
Company, nor has any customer, vendor or supplier indicated an intent or desire
to materially decrease its sales volume or purchase volume, as the case may be,
with the Company.
ARTICLE VII
COVENANTS OF THE COMPANY
------------------------
The Company shall comply with, and the officers shall cause the Company to
comply with, each of the following covenants:
Section 7.1. Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants, and provisions hereof, the
Company covenants, and agrees that until repayment in full of the aggregate
outstanding principal balance of the Notes together with all interest, and
premium, if any, due thereon, it will perform and observe the following
covenants and provisions:
(a) Punctual Payment. Pay the principal of, and interest on the Notes at
the times, and place, and in the manner provided in the Notes and in this
Agreement.
(b) Maintenance of Corporate Status. The Company shall preserve, and
maintain its corporate existence, rights, franchises, and privileges in the
jurisdiction of its incorporation, and qualify, and remain qualified, as a
foreign corporation in each jurisdiction in which qualification is necessary or
desirable in view of its business, operations, or the ownership of its
properties, except where the failure to remain so qualified would not, either
individually or in the aggregate, have a material adverse effect; provided,
however, that nothing herein contained shall prevent the Company from
reincorporating under the laws of the State of Delaware. The Company shall
preserve and maintain all licenses and other rights to use patents, processes,
licenses, trademarks, trade names, inventions, intellectual property rights, or
copyrights owned or possessed by it and necessary to the conduct of its business
except where the failure to do so should not have a material adverse effect.
(c) Compliance with Governing Documents. The Company shall comply with all
of its obligations under its Amended and Restated Articles of Incorporation, its
Bylaws, and the other Investment Documents.
(d) Reservation of Series C Preferred Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Series C Preferred Stock, solely for the purpose of issuance upon the exercise
of the Warrants, up to 222,186 shares of Series C Preferred Stock (as adjusted
for any stock dividends, combinations, splits and the like with respect to the
Series C Preferred Stock). The Company shall take all actions necessary to
assure that all Warrant Shares may be issued without violation of any applicable
law or regulation or any requirements of any
-23-
<PAGE>
domestic securities exchange upon which shares of Series C Preferred Stock may
be listed (except for official notice of issuance, which the Company shall
transmit to the Purchaser immediately upon receipt).
(e) Meetings of the Board of Directors. The Company agrees to furnish to
the Purchaser written notice of and an agenda prior to each regularly scheduled
meeting of the Board of Directors or any committee thereof. The Company shall
provide the Purchaser with a copy of all notices, agendas, and minutes of all
meetings of the Board of Directors, including reports given to or prepared by
the Board of Directors or any committee thereof. The Company shall pay all
reasonable travel expenses of any director related to attending meetings of the
Board of Directors or committees thereof. The Board of Directors shall meet at
least once every three months.
(f) Compensation Committee of the Board. The Company shall take all steps
and complete all actions necessary to maintain the Compensation Committee of the
Board of Directors (the "Compensation Committee"). The Compensation Committee
shall consist of four members of the Board of Directors, one of whom shall be
the Series A Director (as that term is defined in the Amended and Restated
Voting and Co-Sale Agreement), one of whom shall be a Series B Director (as that
term is defined in the Amended and Restated Voting and Co-Sale Agreement), and,
until an initial public offering of securities of the Company, one of whom shall
be the Chief Executive Officer of the Company. Except as provided in the
foregoing sentence with respect to the Chief Executive Officer of the Company,
no member of the Compensation Committee shall be an employee or officer of the
Company. The Compensation Committee shall make recommendations as to the
compensation of all officers and employees with aggregate annual compensation
from the Company in excess of $80,000 and shall make recommendations about the
establishment and continuation of benefit, stock option, or bonus programs
applying generally to all employees or any class of employees of the Company.
All actions of the Compensation Committee shall require the affirmative vote of
a majority of the members thereof. All recommendations of the Compensation
Committee shall be subject to approval by the Board of Directors at any annual,
regular or special meeting thereof.
(g) Audit Committee of the Board. The Company shall take all steps and
complete all actions necessary to maintain the Audit Committee of the Board of
Directors (the "Audit Committee"). The Audit Committee shall consist of three
members of the Board of Directors, one of whom shall be the Series A Director,
and one of whom shall be a Series B Director. No member of the Audit Committee
shall be an employee or officer of the Company. The Audit Committee shall make
recommendations for the appointment of the Company's independent accountants to
examine and audit the books and accounts of the Company and shall review the
nature of non-audit related services to be rendered by the Company's independent
public accountants and the fees to be paid for those services, the auditing
arrangements and the scope of the independent public accountants' examination of
the books, the results of the audits, and any problems identified by the
independent public accountants regarding internal controls. The Audit Committee
also shall meet with the Company's Chief Financial officer regarding internal
auditing matters and controls. All actions of the Audit Committee shall require
the affirmative vote of a majority of the members thereof. All
-24-
<PAGE>
recommendations of the Audit Committee shall be subject to approval by the Board
of Directors at any annual, regular, or special meeting.
(h) Operating Plan and Budget. At least 30 days prior to the beginning of
each fiscal year, the Company shall in good faith prepare, submit for approval
of the Board of Directors, and deliver to the Purchaser an operating plan and a
budget for that fiscal year. Based upon all information then available to the
Company, the operating plan shall set forth in reasonable detail a summary of
the intended operations of the Company for the fiscal year. The budget shall
contain estimated statements of monthly revenues, expenses, and cash flow.
(i) Accounts and Records. The Company shall maintain its financial
accounts and records in conformity with generally accepted accounting principles
applied on a consistent basis and all such accounts and records shall be true,
correct, and complete in all material respects.
(j) Information, and Financial Reports. The Company shall:
(i) deliver to the Purchaser as soon as available, and in any event
within 90 days after the close of each fiscal year of the Company, (i) an
audited balance sheet of the Company as of the close of that fiscal year,
and audited statements of income, cash flows, and shareholders' equity of
the Company for the fiscal year then ended, and accompanied by an
unqualified audit report thereon containing an opinion of a firm of
independent certified public accountants, which must be a nationally
recognized "Big Six" accounting firm; and (ii) a copy of that accounting
firm's annual management letter to the Company's Board of Directors; and
(ii) deliver to the Purchaser within 20 days after the end of each
calendar month of each fiscal year of the Company, unaudited financial
statements of the Company, including a balance sheet as of the end of that
month, and statements of income and cash flows for that month and for the
period from the beginning of the fiscal year to the end of that month. Each
statement shall set forth in comparative form the figures for the
corresponding periods of the preceding fiscal year, and for the
corresponding periods reflected in the annual budget of the Company, and
shall include a brief management report discussing the Company's results of
operations and all material developments in the financial affairs of the
Company.
All financial statements of the Company shall be prepared and shall report
the information contained therein in conformity with generally accepted
accounting principles applied on a consistent basis, subject to customary year-
end adjustments. If any accounting principle, method of valuation, or government
regulation followed in preparation of the Company's financial statements is
modified to any extent, the Company shall so notify the Purchaser, and shall
disclose in writing to the Purchaser the effect that the modification will have
on the financial position or results of operations of the Company. All audited
financial statements of the Company delivered to the Purchaser pursuant to this
Agreement shall be accompanied by a letter of the firm of certified public
accountants certifying the same, and stating that the statements have been
prepared in compliance with the provisions of this Section 7.1. Other financial
statements of the Company and reports delivered to
-25-
<PAGE>
the Purchaser pursuant to this Agreement shall be accompanied by a certificate
signed by the Company's Chief Financial Officer certifying that they have been
prepared in compliance with the provisions of this Section 7.1.
(k) Litigation. The Company shall promptly notify the Purchaser in writing
of all litigation where the amount in controversy exceeds $25,000 or the
aggregate amount in any 12 month period exceeds $150,000, and all proceedings
before any governmental or regulatory body to which the Company is a party or as
a result of which the Company's assets, properties, or operations may be
affected.
(l) Inspection Rights. At any reasonable time and from time to time and
upon reasonable advance notice, the Company shall permit the Purchaser or any of
their agents or representatives, to examine and make copies of and extracts from
the records and books of account of, and visit and inspect the properties of,
the Company and to discuss the affairs, finances and accounts of the Company
with any of their officers or directors and independent accountants. All
reasonable out-of-pocket expenses of the Purchaser (or their agents or
representatives), or the Company incurred in connection with any such inspection
following an Event of Default shall be borne by the Company.
(m) Requests for Information; Notices. The Company shall promptly furnish
to the Purchaser any information reasonably requested by the Purchaser to
determine whether the Company is complying with the provisions of this Agreement
or any of the other Investment Documents. The Company shall notify the Purchaser
promptly in writing of the occurrence of any "Event of Default," as defined in
Section 8.1 of this Agreement, or of any event that could become an Event of
Default with the lapse of time or otherwise.
(n) Compliance with Laws. The Company shall comply with all applicable
federal, state, local, foreign, and other laws, regulations, and ordinances, and
with all federal, state, local, and foreign governmental licenses, and permits
necessary for conducting its business. The Company shall not knowingly engage in
any activities that infringe upon the intellectual property rights of any other
person, corporation, partnership, or other entity.
(o) Disclosure of Information by the Purchaser. Notwithstanding any
confidentiality provisions of Section 9.3 or any other agreement entered into by
the Purchaser in favor of the Company, the Company consents to disclosure by the
Purchaser of any of the Company's financial or other information provided under
this Agreement that is not a trade secret of the Company, (i) to the partners,
advisory board members, and legal, accounting, insurance, and investment banking
advisers of the Purchaser, (ii) to appropriate federal, state, local, and
regulatory authorities as and to the extent required by law, and (iii) to any
transferee of the Notes, the Warrants or the Warrant Shares; provided, however,
that if the recipient is a person listed in part (i) or part (iii) of this
Section 7.1, the recipient shall have been advised of the Purchaser's
confidentiality obligations with respect to the information to be disclosed.
-26-
<PAGE>
(p) Payment of Taxes, and Trade Debt. The Company shall pay, and
discharge, all taxes, assessments, and governmental charges or levies lawfully
imposed upon it or upon its income or profits or business, or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims that, if unpaid, would by law be a lien or charge upon any
properties of the Company, provided that the Company shall not be required to
pay any tax, assessment, charge, levy, or claim that is being contested in good
faith and by appropriate proceedings if the Company shall have set aside on its
books adequate reserves with respect thereto. The Company shall pay, when due,
or in conformity with customary trade terms, all lease obligations, all trade
debt, and all other Indebtedness incident to the operations of the Company,
except those being contested in good faith, and by appropriate proceedings if
the Company shall have set aside on its books adequate reserves with respect
thereto.
(q) Maintenance of Properties.
(i) The Company shall maintain all tangible personal property used in
the business of the Company in good operating condition (ordinary wear and
tear excepted), and shall make all repairs, renewals, replacements,
additions, and improvements to those properties as are necessary or
appropriate.
(ii) The Company shall maintain all Intellectual Property, and all
applications and registrations therefor owned or held by the Company or
hereafter owned or held by the Company in full force and effect in the
United States of America, and except where application, registration, or
maintenance of any registration or patent would not be cost-effective, in
other countries in which the Company shall engage in business, including
but not limited to the prosecution of applications to register or perfect
rights or claims in, and to any Intellectual Property, the registration of
license agreements, the timely filing of affidavits of use, renewals, or
other maintenance filings, and the timely payment of filing, issue, and
maintenance fees. The Company shall not abandon or let lapse or pass to the
public domain any of the Intellectual Property now or hereafter owned or
held by the Company, shall not encumber or license others to use the
Intellectual Property rights owned by it except in the ordinary course of
the Company's business, and shall maintain the confidentiality and trade
secret status of all Intellectual Property that is confidential except
where disclosure is necessary to obtain copyright registrations or patents,
or is necessary or desirable in the prudent conduct of the Company's
business.
(r) Insurance. The Company shall maintain, with financially sound and
reputable insurers, insurance with respect to its assets, properties, and
business against those casualties and contingencies, and in those types and
amounts as would be deemed necessary or advisable by prudent persons engaged in
similar businesses. The Company shall furnish to the Purchaser upon request a
schedule of insurance, specifying risks covered, the amounts of coverage, the
names of insurers, and the costs of the insurance. At least annually, the
Company shall review the insurance coverage, and shall modify the scope and
magnitude of the coverage commensurate with the growth of the Company and
consistent with prudent business practices. Upon the request of the Purchaser
from
-27-
<PAGE>
time to time, the Company shall promptly supplement the insurance schedules to
reflect any change in insurance coverage.
(s) Bonding. The Company shall continue to maintain a fidelity bond upon
officers and employees having access to cash on hand or on deposit of the
Company, in such amounts and form as is reasonable under customary business
practices in the industry in which the Company intends to do business.
(t) Life Insurance. The Company shall continue to maintain in full force,
a life insurance policy in an amount of not less than $1,000,000 on the life of
Martin T. Wegner. The Company shall be the sole owner and beneficiary of the
group term life insurance policy. The Company shall deliver a certificate of
insurance to the Purchaser evidencing the policy. The Company shall also use its
reasonable commercial efforts to renew a life insurance policy in an amount of
not less than $1,000,000 on the life of Randy S. Storch.
(u) Use of Proceeds. The Company shall use proceeds from the sale of the
Notes and the Warrants to the Purchaser hereunder and the sale of the Warrant
Shares pursuant to the Warrants for general working capital to be allocated for
research, development, distribution, marketing, and sales of software products
and related hardware products, and payment of costs and expenses related to the
preparation, execution, and delivery of the Investment Documents and to the
transactions contemplated by the Investment Documents and for any other purposes
approved by the Board of Directors.
(v) Certificate of the Chief Executive Officer and Chief Financial
Officer. In connection with the delivery to the Purchaser of the Company's
annual audited financial statements, the Company shall deliver to the Purchaser
a certificate of the Company's Chief Executive Officer and its Chief Financial
Officer stating that the Company has observed and complied with the covenants
set forth in Section 7.1 and Section 7.2 during the preceding fiscal year.
(w) Notice. Notwithstanding any other provision of this Agreement, for as
long as an Affiliate of Purchaser is represented on the Board of Directors of
the Company, the Company's obligations to provide notices and/or other documents
to the Purchaser under Section 7.1(e) and (j) will be satisfied if the Company
provides such Affiliate with such notices and/or other documents.
Section 7.2. Negative Covenants of the Company. Without limiting any other
covenants, and provisions hereof, the Company covenants and agrees that until
repayment in full of the aggregate outstanding principal balance of the Notes
together with all interest, and premium, if any, due thereon, it will comply
with and observe the following covenants and provisions:
(a) Amendments. The Company shall not amend, modify, or repeal any
provision of the Amended and Restated Articles of Incorporation or the Bylaws,
and the Company shall not amend the Amended and Restated Registration Rights
Agreement or the Amended and Restated Voting and Co-Sale Agreement except in
accordance with their respective terms and conditions thereof.
-28-
<PAGE>
(b) Certain Transactions. The Company shall not, directly or indirectly,
become a party to, be the subject of, or engage in any "Transaction," as
hereinafter defined. The term "Transaction" shall mean a single transaction or a
series of related transactions constituting (i) a sale or lease of all or
substantially all of the assets of the Company except in the ordinary course of
business; (ii) a merger or consolidation with the Company or to which the
Company is a party; (iii) a share exchange in which stock of the Company will be
acquired by another corporation or the stock of the Company will be issued to
shareholders of another corporation; (iv) the purchase of any assets, properties
or shares of capital stock of or from any individual, corporation, partnership,
or other entity except in the ordinary course of business; (v) a joint venture
with any other person involving an aggregate consideration exceeding $100,000 in
any one transaction or exceeding $100,000 in any 12 month period; or (vi) the
acquisition of a subsidiary or creation of any subsidiary of the Company that is
not wholly-owned.
(c) New Securities. The Company shall not authorize or issue (i) any
equity securities; (ii) any notes, debentures, evidences of indebtedness, or
other debt securities of the Company, including debt securities convertible into
equity securities of the Company, but excluding evidences of indebtedness under
the terms of Section 7.2(l) of this Agreement; or (iii) rights, options, or
warrants convertible, exchangeable, or exercisable into equity or debt
securities of the Company; provided, however, notwithstanding the foregoing, the
Company may issue the Warrants to the Purchaser as contemplated by this
Agreement, a warrant or warrants to purchase up to 19,753 shares of Series C
Preferred Stock to Third Coast Venture Lease Partners I, L.P. in connection with
its providing equipment lease financing to the Company, options pursuant to the
Stock Option Plan (and Common Stock upon exercise of those options), Common
Stock upon conversion of Preferred Stock, and Common Stock or Series C Preferred
Stock, as applicable, upon exercise of the Warrants issued to Comdisco, Inc.,
Third Coast Venture Lease Partners I, L.P., and the Purchaser.
(d) Senior Securities. The Company shall not create (by classification or
otherwise) any new class or series of shares having rights, preferences, or
privileges senior to or on a parity with the Series C Preferred Stock.
(e) Redemption and Dividends. Except as permitted or required by the
Investment Documents and/or the Stock Option Plan, the Company shall not apply
any of its assets to the redemption, retirement, purchase, or acquisition,
directly or indirectly, through subsidiaries (as defined in Section 425 of the
Code) or otherwise, of any shares of its capital stock. The Company shall not
declare or pay any dividends or make any distributions with respect to any
shares of capital stock except for dividends or distributions with respect to
the Series A Preferred Stock, the Series B Preferred Stock, and the Series C
Preferred Stock upon declaration by the Board of Directors.
(f) Preservation of Small Business Stock Status. After the Closing, the
Company shall not (i) elect under Code Section 1362 to be treated as an S
corporation; (ii) fail to use at least 80% (by value) of its assets in the
active conduct of one or more qualified trades or businesses within the meaning
of Code Section 1202(e)(3) for the entire five year period following the
Closing; (iii) cease to be a C corporation which is an eligible corporation as
defined in Code Section 1202(e)(4); or (iv)
-29-
<PAGE>
perform any act, or omit any act, if such act or omission would preclude the
Purchaser from claiming the exclusion set forth at Code Section 1202(a). The
Company shall submit such reports as the Secretary of the United States Treasury
shall prescribe pursuant to Code Section 1202(d)(1)(C) or 1202(k) to carry out
the purposes of Code Section 1202.
(g) Issue and Transfer of Shares. The Company shall not issue or transfer
on its records any shares of Common Stock, or other equity securities of the
Company held by a shareholder who is a party to the Amended and Restated Voting
and Co-Sale Agreement unless, if required by the Amended and Restated Voting and
Co-Sale Agreement, the transferee has agreed in writing to become a
"Shareholder" as that term is defined in the Amended and Restated Voting and Co-
Sale Agreement, and the Company has verified that the transferring shareholder
has complied with that shareholder's obligations under the Amended and Restated
Voting and Co-Sale Agreement.
(h) Change in Operations. The Company shall not change in any material
respect, by internal expansion or by any form of acquisition, any line of
business not directly related to development, production, distribution, sale or
support of computer software and related hardware and information systems and
integrating the foregoing with third party network systems.
(i) Defaults and Breaches. The Company shall not permit to exist any
default or breach by the Company of any contract provision beyond any grace
period provided for in any contract if the breach or default may result in an
amount in excess of $50,000 becoming due and payable by the Company prior to its
stated maturity; provided, however, that the existence of any default or breach
may be contested in good faith by the Company by appropriate proceedings if
adequate reserves (as determined in accordance with GAAP, consistently applied)
have been established on its books with respect thereto.
(j) Investments. The Company shall not invest in or otherwise divert any
of the funds of the Company to any individual, corporation, or business entity,
except in the ordinary course of business and consistent with prudent business
practices.
(k) Indebtedness. The Company shall not create, assume, incur, or in any
manner become liable in respect of any debt except for (i) indebtedness with
respect to trade payables or other expenses incurred in the ordinary course of
business; (ii) indebtedness with respect to equipment acquisition or leasing or
the lease of office or other space, in the ordinary course of business; and
(iii) money borrowed by the Company from financial institutions providing
financing to the Company in the ordinary course of business.
(l) Liens and Encumbrances. The Company shall not create, incur, assume,
or suffer to exist any mortgage, pledgee lien, or other encumbrance of any kind
on the Company's assets or properties now owned or hereafter acquired, other
than those encumbrances (i) identified under Section 6.11 of this Agreement;
(ii) incurred in connection with financing from financial institutions permitted
by Section 7.2(k); (iii) with respect to secured equipment financing or
equipment lease transactions permitted by this Agreement; (iv) imposed by any
governmental authority for taxes,
-30-
<PAGE>
assessments, or charges not yet due or which are being contested in good faith
and by appropriate proceedings; (v) pledges or deposits under workers
compensation or other employee-related legislation; and (vi) cash deposits to
secure performance of leases, surety and appeal bonds, and other obligations of
a substantially similar nature incurred in the ordinary course of business.
Notwithstanding the foregoing, the Company shall not create, incur, assume, or
suffer to exist any mortgage, pledge, lien, or encumbrance of any kind with
respect to any Intellectual Property or with respect to the life insurance
policy required by Section 7.1(t), other than those encumbrances incurred in
connection with financing from financial institutions permitted by Section
7.2(k).
(m) Guarantees and Loans. The Company shall not guarantee or endorse an
obligation of, or make an advance or loan to, any individual, corporation, or
other business entity, or assume any contingent liability, except for (i) the
endorsement of negotiable instruments for deposit or collection in the ordinary
course of the Company's business; (ii) the advancement of travel expense,
relocation costs, or compensation in the ordinary course of the Company's
business and consistent with prudent business practices; and (iii) advance
payments to third parties for materials or services to the extent required to
obtain those materials or services in the ordinary course of business, and (iv)
advances against anticipated future license fees or royalties in connection with
acquisitions of software products or licensing rights with respect to software
products.
(n) Affiliate Transactions. Other than as provided on Schedule 7.2(n), the
Company shall not enter into or commit directly or indirectly to any arrangement
whereby the Company shall purchase, rent, or lease property or assets from, or
sell, transfer, or dispose of any properties or assets (regardless of whether in
the ordinary course of business or not) to any affiliate of the Company or any
shareholder, director, officer, or employee of the company, or any affiliate of
any of them. As used in this Section 7.2(n), the term "affiliate" means any
person or entity that directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the person or entity
specified; provided, however, that for purposes of this Section 7.2(n), the term
"affiliate" does not include wholly-owned subsidiaries of the Company.
(o) Transfer, Voting and Registration Rights Agreements. Except as set
forth on Schedule 7.2(o) or as contemplated by this Agreement and the other
Investment Documents, or the Amended and Restated Voting and Co-Sale Agreement
or Amended and Restated Registration Rights Agreement, the Company shall not
enter into any shareholder agreement, buy-sell agreement, restrictive share
transfer agreement, voting agreement, voting trust, or other agreement or
commitment relating to the transfer or voting of any equity securities of the
Company or any agreement providing registration rights to holders or prospective
holders of securities of the Company.
(p) Liquidation. The Company shall not liquidate, dissolve or effect a
recapitalization in any form of transaction.
-31-
<PAGE>
ARTICLE VIII
EVENTS OF DEFAULT
-----------------
Section 8.1. Events of Default. Each of the following events constitute
"Events of Default" for purposes of this Agreement:
(a) The Company fails to pay any installment of principal of or interest
on the Notes when due, and that failure continues for ten days.
(b) Any representation or warranty made by the Company in this Agreement
(or by any of its officers) in any certificate, instrument, or written statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement, proves to have been incorrect in any material respect when made.
(c) The Company fails to perform or observe any other term, covenant or
agreement contained in this Agreement, the Notes, or the Warrants on its part to
be performed or observed, and any that failure remains unremedied for (i) ten
days after the Company receives written notice from the registered holder of the
Notes as to a payment default, and (ii) 30 days after the Company receives
written notice from the registered holder of the Notes as to defaults other than
payment defaults.
(d) The Company fails to pay any Indebtedness for borrowed money exceeding
$250,000 (other than as evidenced by the Notes) owing by the Company, or any
interest or premium thereon, when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether the Indebtedness
shall become due by scheduled maturity, by required prepayment, by acceleration,
by demand or otherwise.
(e) The Company fails to perform any material term, covenant, or agreement
on its part to be performed under any agreement or instrument (other than this
Agreement or the Notes) evidencing or securing or relating to any Indebtedness
owing by the Company, as the case may be, when required to be performed (or, if
permitted by the terms of the relevant document, within any applicable grace
period), if the effect of the failure to pay or perform is to accelerate, or to
permit the holder or holders of the Indebtedness, or the trustee or trustees
under any agreement or instrument to accelerate the maturity of the
Indebtedness, unless the holder or holders of the Indebtedness or the trustee or
trustees waive the failure to pay or perform.
(f) The Company has financial difficulties as exclusively evidenced by (i)
its failure generally to pay or its inability to pay its debts as they become
due; (ii) admitting in writing its inability to pay its debts generally as they
become due; (iii) commencement of a voluntary case under Title 11 of the United
States Code ("Title 11") as from time to time in effect, or by its authorizing,
by appropriate proceedings of its board of directors or other governing body,
the commencement of a voluntary case; (iv) filing an answer or other pleading
admitting or failing to deny the material
-32-
<PAGE>
allegations of a petition filed against it commencing an involuntary case under
Title 11, or seeking, consenting to or acquiescing in the relief therein
provided or by its failing to controvert timely the material allegations of any
petition; (v) the entry of an order for relief in any involuntary case commenced
under Title 11; (vi) seeking relief as a debtor under any applicable law, other
than Title 11, of any jurisdiction relating to the liquidation or reorganization
of debtors or to the modification or alteration of the rights of creditors, or
by its consenting to or acquiescing in that relief; (vii) the entry of an order
by a court of competent jurisdiction (a) finding it to be bankrupt or insolvent,
(b) ordering or approving its liquidation, reorganization, or any modification
or alteration of the rights of its creditors, or (c) assuming custody of, or
appointing a receiver or other custodian for, all or a substantial part of its
property; or (viii) making an assignment for the benefit of, or entering into a
composition with, its creditors, or appointing or consenting to the appointment
of a receiver or other custodian for all or a substantial part of its property.
(g) Any judgment, writ, warrant of attachment or execution or similar
process is issued or levied against a substantial part of the property of the
Company, and that judgment, writ, or similar process is not released, vacated,
or fully bonded within 60 days after its issue or levy.
(h) The Company breaches any of its material obligations under the Amended
and Restated Voting and Co-Sale Agreement, or the Amended and Restated
Registration Rights Agreement.
Section 8.2. Remedies. If an Event of Default occurs and is continuing,
then:
(a) the Purchaser may, by notice to the Company, declare the entire unpaid
principal amount of the Note, all interest accrued, and unpaid thereon, and all
other amounts payable under this Agreement to be forthwith due, and payable,
whereupon the Note, all accrued interest, and all those amounts shall become and
be forthwith due and payable (unless an Event of Default has occurred under
Subsection 8.1(h) in which case all those amounts shall automatically become due
and payable), without presentment, demand, protest, or further notice of any
kind, all of which the Company hereby expressly waives; and
(b) the Purchaser may proceed to protect and enforce its rights by suit in
equity (including without limitation a suit for rescission), action at law,
and/or other appropriate proceeding either for specific performance of any
covenant, provision, or condition contained or incorporated by reference in this
Agreement or any term of the Articles of Incorporation of the Company, or in aid
of the exercise of any power granted in this Agreement or in the Amended and
Restated Articles of Incorporation of the Company, and, immediately, in the case
of Section 8.1(h).
Without in any way limiting the rights of the holders of the Note, the
Company hereby agrees that the holders of the Warrants or the Warrant Shares
would have no adequate remedy at law, for monetary compensation or otherwise,
for the damages that would be suffered if the Company failed to comply with its
obligations under the Warrants, and that the Company therefore agrees that the
-33-
<PAGE>
holders of the Warrants and the Warrant Shares shall be entitled to obtain
specific performance of the Company's obligations under the Warrants and this
Agreement.
Section 8.3. Annulment of Defaults. Section 8.1 is subject to the condition
that if there is an Event of Default, then, and in every case the holders of
66.67% or more in principal amount of all Notes then outstanding may, by written
instrument filed with the Company, rescind, and annul the declaration and its
consequences; but, no rescission or annulment shall extend to or affect any
subsequent default or Event of Default or impair any other right of the
Purchaser.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. Amendment and Certain Waivers. This Agreement may be amended
or modified only by a written agreement executed by the Company and (i) as to
the Notes, the holder or holders of at least 66.67% in principal amount of all
Notes then outstanding, and (ii) in the case of the Warrants or Warrant Shares,
the holder or holders of at least 66.67% of the Warrant Shares issued and
issuable upon exercise of the Warrants. In each case of an amendment or
modification, copies of the consents of the holder(s) of the Notes and the
Warrants or Warrant Shares, as the case may be, shall be delivered to each other
holder of the Notes and the Warrants or Warrant Shares. No consent will be
effective to reduce or to postpone the date fixed for the payment of the
principal (including any required redemption) or interest payable on any Notes
without the consent of the holder thereof or to alter or amend the consent
mechanism provided for under this Section 9.1.
Section 9.2. Benefit of Parties; Assignability. All of the terms and
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns; provided, however, that
the Company may not delegate its responsibilities or assign its rights under
this Agreement without the prior written consent of (i) as to the Notes, the
holder or holders of at least 66.67% in principal amount of all Notes then
outstanding, and (ii) in the case of the Warrants or Warrant Shares, the holder
or holders of at least 66.67% of the Warrant Shares issued and issuable upon
exercise of the Warrants.
Section 9.3. Confidentiality. Except as specified in Section 7.1(h), the
Purchaser agrees to use reasonable efforts to keep confidential all information
provided to it under the terms and conditions of this Agreement and which is not
in the public domain. No party to this Agreement shall make any public
announcement of the transactions provided for in or contemplated by this
Agreement unless the form and substance of the announcement is mutually agreed
upon by all parties, which agreement shall not be unreasonably withheld or
delayed, or unless public disclosure is required by law.
Section 9.4. Cooperation. The parties agree that after the Closing they
will from time to time, upon the request of any other party and without further
consideration, execute, acknowledge, and deliver in proper form any further
instruments and take such other action as any other party may
-34-
<PAGE>
reasonably require to carry out effectively the transactions contemplated by
this Agreement and the Investment Documents.
Section 9.5. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 9.6. Cumulative Remedies and Survival. The rights and remedies
specified in this Agreement shall not be exclusive of any other right or remedy
and shall be cumulative and in addition to every other right or remedy now or
hereafter existing at law or in equity or by statute or otherwise that may be
available to the Purchaser and the holders of the Notes, Warrants, and Warrant
Shares. All representations and warranties of the Company in this Agreement and
the Investment Documents shall indefinitely survive the execution and delivery
of this Agreement and the Investment Documents. No investigation or review
carried out by or on behalf of the Purchaser shall impair the right of the
Purchaser to rely upon the representations and warranties in this Agreement and
the Investment Documents in accordance with their terms.
Section 9.7. Entire Agreement. This Agreement (including the Schedules
referred to and incorporated by reference herein that form a part of this
Agreement), and the Investment Documents contain the entire understanding of the
parties with respect to the subject matter hereof and thereof. There are no
representations, promises, warranties, covenants, or undertakings other than
those expressly set forth or provided for herein and therein. This Agreement and
the Investment Documents supersede all prior agreements and understandings
between the parties with respect to the transactions contemplated by this
Agreement and the Investment Documents, including but not limited to the
commitment letter between the Company and the Purchaser.
Section 9.8. Governing Law and Choice of Forum. All questions concerning
the relative rights of the Company and its shareholders shall be governed by the
laws of the State of Illinois. Illinois law shall govern the interpretation,
construction, and enforcement of this Agreement and all transactions and
agreements contemplated hereby, notwithstanding any state's choice of law rules
to the contrary.
Section 9.9. Indemnification. The Company agrees to indemnify, and hold
harmless the Purchaser, its subsidiaries, directors, officers, partners,
counsel, and employees (each, an "Indemnified Person"), from, and against any,
and all liability (including, without limitation, reasonable legal fees incurred
in defending against any liability) under, arising out of or are based upon (i)
the falsity or incorrectness as of the Closing Date of any representation or
warranty of the company contained in or made pursuant to the Investment
Documents; or (ii) the existence of any condition, event, or fact constituting,
or which with notice or passage of time, or both, would constitute a default in
the observance of any of the Company's undertakings or covenants under or
pursuant to the Amended and Restated Articles of Incorporation.. The obligations
of the Company under this Section 9.9 shall survive, and continue to be in full
force, and effect notwithstanding (a) the repayment of the Notes, and (b) the
termination of this Agreement. If any litigation or proceeding is brought
against any
-35-
<PAGE>
Indemnified Person in respect of which indemnity may be sought against the
Company pursuant to this Section 9.9, the Indemnified Person shall promptly
notify the Company in writing of the commencement of the litigation or
proceeding. In case any litigation or proceeding shall be brought against any
Indemnified Person, and the Indemnified Person shall notify the Company of the
commencement of the litigation or proceedings, the Company shall be entitled to
participate in the proceedings, and, to the extent that it wishes, jointly with
any other similarity notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Person.
Section 9.10. Interpretation. The terms and conditions of this Agreement
represent the results of bargaining and negotiations among the parties, each of
which has been represented by counsel of its own selection, and none of which
has acted under duress or compulsion, whether legal, economic or otherwise, and
represent the results of a combined draftsmanship effort. Consequently, the
terms and conditions hereof shall be interpreted and construed in accordance
with their usual and customary meanings and the parties hereby expressly waive
and disclaim in connection with the interpretation and construction hereof any
rule of law or procedures requiring otherwise, specifically including but not
limited to any rule of law to the effect that ambiguous or conflicting terms or
conditions contained herein shall be interpreted or construed against the party
whose counsel prepared this Agreement or any earlier draft hereof.
Section 9.11. Knowledge of the Company. As used in this Agreement, the
phrase "to the knowledge of the Company" and phrases of similar import shall
mean, and shall for all purposes be construed as, the collective actual
knowledge of the officers and directors of the Company other than those
directors representing the Purchaser.
Section 9.12. Notices. All notices, requests, demands, or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and delivery shall be deemed sufficient in all
respects and to have been duly given on the date of service if delivered
personally or by facsimile transmission if receipt is confirmed to the party to
whom notice is to be given, or on the third day after mailing if mailed by
first-class mail, return receipt requested, postage prepaid, and properly
addressed as follows:
If to the Company: Open Port Technology, Inc.
676 North St. Clair, 9/th/ Floor
Chicago, Illinois 60611
Attention: Chief Executive Officer
Facsimile: (312) 867-5101
With a copy to: Gordon & Glickson, P.C.
444 North Michigan Avenue, Suite 3600
Chicago, Illinois 60611-3903
Attention: Mark L. Gordon
Facsimile: (312) 321-9324
-36-
<PAGE>
If to Purchaser: CID Mezzanine Capital, L.P.
One American Square, Suite 2850
Box 82074
Indianapolis, Indiana 46282
Attention: John C. Aplin
Facsimile: (317) 269-2355
With a copy to: Ice Miller Donadio & Ryan
One American Square
Box 82001
Indianapolis, Indiana 46282
Attention: Elizabeth A. Smith
Facsimile: (317) 236-2219
or, as to each of the foregoing, at any other address as shall be designated by
that Person in a written notice to the other party complying as to delivery with
the terms of this Section.
Section 9.13. Payments in Respect of Notes. The Purchaser, and any
successor holder of the Notes, by their acceptance thereof, agree that, with
respect to all sums received by them applicable to the payment of principal of
or interest on the Notes, equitable adjustment will be made among them so that,
in effect, all sums shall be shared ratably by all of the holders of the Notes
whether received by voluntary payment, by realization upon security, by the
exercise of the right of setoff, by counterclaim or cross-action or by the
enforcement of any or all of the Notes. If any holder of the Notes receives any
payment on its Notes in excess of its pro rata portion, then the holder
receiving the excess payment shall purchase for cash from the other holders an
interest in their Notes in those amounts as shall result in a ratable
participation by all of the holders in the aggregate unpaid amount of Notes then
outstanding. The Company shall not have any obligation to any Person under this
Section 9.14.
Section 9.14. Payments in Respect of Warrant. The Purchaser, and any
successor holder of the Warrants, by their acceptance thereof, agree that, with
respect to the sale to, or repurchase by, the Company or any Person directly or
indirectly affiliated with the Company or any of its directors, officers, or
shareholders, of the Warrants, equitable adjustment will be made among the
holders of the Warrants so that in effect all sums so received shall be shared
ratably in proportion to their respective holdings of Warrants. If any holder of
the Warrants receives any sum in respect of its Warrants in excess of its pro
rata portion, then the holder receiving the excess shall purchase for cash from
the other holders of the Warrants an interest in their Warrants in that amount
as shall result in a ratable participation of all of the holders in the
aggregate of all Warrants then outstanding. The Company shall not have any
obligation to any Person under this Section 9.15.
Section 9.15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, that provision will be
-37-
<PAGE>
ineffective only to the extent of the prohibition or invalidity, without
invalidating the remainder of this Agreement.
Section 9.16. Table of Contents and Captions. The Table of Contents and
captions of the Articles and Sections of this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any provision of this Agreement.
Section 9.17. Validity of Provisions. Should any part of this Agreement for
any reason be declared by any court of competent jurisdiction to be invalid,
that decision shall not affect the validity of the remaining portion, which
shall continue in full force and effect as if this Agreement had been executed
with the invalid portion eliminated, it being the intent of the parties that
they would have executed the remaining portion of the Agreement without
including any part or portion that may for any reason be declared invalid.
Section 9.18. Waiver of Breach. Neither any waiver of any breach of, nor
any failure to enforce any term or condition of, this Agreement shall operate as
a waiver of any other breach of any term or condition, nor constitute nor be
deemed a waiver or release of any other rights, in law or at equity, or claims
that any party or any holder of Notes, Warrants, or Warrant Shares may have
against any other party or holder of Notes, Warrants, or Warrant Shares for
anything arising out of, connected with, or based upon this Agreement. No waiver
shall be enforceable against any person unless set forth in a written instrument
or agreement signed by that person. No waiver shall be deemed to occur as a
result of the failure of any party to enforce any term or condition of this
Agreement.
-38-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
OPEN PORT TECHNOLOGY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CID NEZZANINE CAPITAL, L.P.
By: CID Mezzanine Partners, L.P.,
as General Partner
By:
----------------------------------
John C. Aplin, General Partner
-39-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 4, 2000, relating to the financial statements of Open Port
Technology, Inc., which appears in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
May 19, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> DEC-31-1999 MAR-31-2000
<CASH> 277 13,436
<SECURITIES> 0 0
<RECEIVABLES> 801 1,439
<ALLOWANCES> 319 332
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,127 15,086
<PP&E> 5,624 6,453
<DEPRECIATION> (3,608) (3,897)
<TOTAL-ASSETS> 4,705 19,269
<CURRENT-LIABILITIES> 11,774 4,097
<BONDS> 0 0
36,449 99,541
0 0
<COMMON> 13 13
<OTHER-SE> (48,459) (89,300)
<TOTAL-LIABILITY-AND-EQUITY> 4,705 19,269
<SALES> 2,350 1,353
<TOTAL-REVENUES> 2,350 1,353
<CGS> 3,070 946
<TOTAL-COSTS> 16,863 5,004
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,322) (300)
<INCOME-PRETAX> (15,835) (3,951)
<INCOME-TAX> 25 6
<INCOME-CONTINUING> (15,860) (3,957)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (15,860) (3,957)
<EPS-BASIC> (1.64) (11.39)
<EPS-DILUTED> (1.64) (11.39)
</TABLE>
