<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
COMMERCE ONE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 68-0322810
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
----------------
1600 RIVIERA AVENUE
WALNUT CREEK, CALIFORNIA 94596
(925) 941-6000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
----------------
MARK B. HOFFMAN
CHIEF EXECUTIVE OFFICER
1600 RIVIERA AVENUE
WALNUT CREEK, CALIFORNIA 94596
(925) 941-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES TO:
DAVID J. SEGRE STEVEN M. SPURLOCK
Wilson Sonsini Goodrich & Rosati Gunderson Dettmer Stough
Professional Corporation Villeneuve Franklin & Hachigian, LLP
650 Page Mill Road 155 Constitution Drive
Palo Alto, California 94304 Menlo Park, California 94025
(650) 493-9300 (650) 321-2400
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock $0.0001 par value........................................ $64,400,000 $17,904
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 HEREAFTER 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 SUCH SECTION 8(a),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 26, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE CANNOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Shares
[LOGO]
Common Stock
-----------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and $
per share. We have applied to list the shares on The Nasdaq Stock Market's
National Market under the symbol "CMRC."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" starting on
page 5.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Commerce One
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>
Delivery of the shares of Common Stock will be made on or about ,
1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Donaldson, Lufkin & Jenrette
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 1999.
<PAGE>
[INSIDE FRONT COVER PAGES OF PROSPECTUS]
[THE GRAPHICS ON THE INSIDE FRONT COVER PAGES DEPICT THE COMMERCE CHAIN SOLUTION
BY SHOWING THE RELATIONSHIP OF OUR BUYSITE AND MARKETSITE PLATFORM PRODUCTS AND
THE MARKETSITE MARKETPLACES. THE PAGE ALSO INCLUDES THE LOGOS OF SOME OF OUR
CUSTOMERS AND TESTIMONIALS FROM CERTAIN INDUSTRY ANALYSTS AND SOME OF OUR
CUSTOMERS AND STRATEGIC PARTNERS.]
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY................ 1
RISK FACTORS...................... 5
USE OF PROCEEDS................... 18
DIVIDEND POLICY................... 18
CAPITALIZATION.................... 19
DILUTION.......................... 20
SELECTED CONSOLIDATED FINANCIAL
DATA............................ 21
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....... 23
BUSINESS.......................... 32
MANAGEMENT........................ 45
CERTAIN TRANSACTIONS.............. 56
PRINCIPAL STOCKHOLDERS............ 58
DESCRIPTION OF CAPITAL STOCK...... 61
SHARES ELIGIBLE FOR FUTURE SALE... 63
ADDITIONAL INFORMATION............ 65
UNDERWRITING...................... 66
NOTICE TO CANADIAN RESIDENTS...... 68
LEGAL MATTERS..................... 69
EXPERTS........................... 69
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS...................... F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Our principal executive offices are located at 1600 Riviera Avenue, Walnut
Creek, California 94596 and our telephone number is (925) 941-6000. Our Web site
is located at http://www.commerceone.com. Information contained on our Web site
does not constitute part of this prospectus.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE BUYING SHARES IN THE OFFERING. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
COMMERCE ONE, INC.
Commence One is a leading provider of e-commerce solutions that connect
buyers and suppliers of business goods and services into Internet trading
communities. Forrester Research estimates that, in the U.S. alone,
business-to-business e-commerce transactions will grow from $109 billion in 1999
to $1.3 trillion in 2003, more than ten times their $108 billion estimate for
business-to-consumer transactions in 2003. A significant portion of these
transactions will involve the procurement of indirect goods and services, which
include information technology and telecommunications equipment, office
equipment and supplies, travel and entertainment, professional services, and a
wide variety of other repeat purchase items.
Our products and services are designed to lower the overall costs of
business-to-business transactions by reducing the inefficiencies experienced by
both buyers and suppliers of goods and services. Using our Commerce Chain
Solution, multiple buyers and suppliers are able to connect to an electronic
marketplace supporting a variety of real-time commerce services.
The Commerce Chain Solution is comprised of our BUYSITE enterprise
procurement applications, our MARKETSITE PLATFORM, and our MARKETSITE COMMERCE
SERVICES. Taken together, these components are designed to support
business-to-business e-commerce for organizations ranging from small
corporations to large enterprises. BUYSITE is an intranet-based purchasing
application that allows users throughout an organization to make purchases over
the Internet through an easy-to-use desktop application that facilitates
automated access to and purchasing from the catalogs of multiple suppliers.
The MARKETSITE PLATFORM provides the foundation for commerce service
providers, including both our strategic partners and us, to create and maintain
electronic marketplaces and offer value-added services to the buyers and
suppliers that join these trading communities. Our own MARKETSITE.NET
marketplace is the first MARKETSITE marketplace, and we have developed strategic
relationships with British Telecommunications, plc ("BT") and Nippon Telephone
and Telegraph ("NTT") to create and operate MARKETSITE marketplaces in their
respective regional markets. By connecting to a MARKETSITE marketplace, trading
community members can take advantage of our MARKETSITE COMMERCE SERVICES,
including real-time transaction support, content management and order
availability and status tracking.
Our objective is to create the leading global, business-to-business trading
web, comprised of interoperable marketplaces in targeted regional and vertical
markets. We seek to obtain our objective by:
- establishing MARKETSITE.NET as the premier business-to-business e-commerce
portal for North America;
- driving global adoption of our solutions through strategic partnerships to
establish MARKETSITE marketplaces;
- empowering market-makers to establish vertical marketplaces;
- offering a single point of integration into our trading communities for
third-party value-added service providers;
- promoting entry into our MARKETSITE marketplaces through enhanced BUYSITE
functionality;
- leveraging our systems integration and technology partnerships; and
- leveraging our leading-edge XML technology and content management tools.
In addition to our strategic partnerships with BT and NTT, we have developed
key
1
<PAGE>
strategic relationships with PricewaterhouseCoopers, MCI Systemhouse and
Microsoft Corporation. Our customers include large enterprises in the public
sector, as well as the utilities, finance, telecommunications, information
services, travel and transportation industries. Among these customers are the
following enterprises: Booz-Allen Hamilton; California State University,
Fullerton; The County of Los Angeles; Eastman Chemical; Foundation Health; The
Idaho Power Company; MCI WorldCom; Pacific Bell Network Integration; Pacific Gas
and Electric; Promus Hotels; The SABRE Group; University of California, Los
Angeles; Warner-Lambert; The Boots Company; BT; NTT; and Schlumberger Oilfield
Services.
"COMMERCE ONE," "COMMERCE CHAIN," "BUYSITE," "MARKETSITE" and "VEO" are
registered trademarks of Commerce One. All other trademarks or service marks
appearing in this prospectus are trademarks or service marks of the respective
companies that use them.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered........................ shares
Common stock to be outstanding
after this offering....................... shares
Use of proceeds............................. For general corporate purposes, principally
working capital, capital expenditures,
geographic expansion of our operations,
potential acquisitions, and additional
sales and marketing efforts.
Proposed Nasdaq National Market symbol...... CMRC
</TABLE>
- --------------
This table is based on shares outstanding as of March 31, 1999. This table
excludes:
- 3,020,578 shares of common stock issuable upon the exercise of stock
options outstanding under our employee stock option plans, and 1,382,537
additional shares of common stock available for issuance under these stock
option plans,
- 150,000 shares of common stock available for issuance under our 1999
director stock option plan,
- 750,000 shares of common stock available for issuance under our 1999
employee stock purchase plan, and
- 710,435 shares of common stock issuable upon exercise of outstanding
warrants.
--------------
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS IS BASED ON THE
FOLLOWING FIVE ASSUMPTIONS:
- THE REINCORPORATION OF COMMERCE ONE INTO DELAWARE PRIOR TO THE
EFFECTIVENESS OF THIS OFFERING;
- A ONE-FOR-TWO REVERSE STOCK SPLIT OF THE COMMON STOCK IMMEDIATELY PRIOR TO
THE EFFECTIVENESS OF THIS OFFERING;
- THE CONVERSION OF ALL OUTSTANDING SHARES OF CONVERTIBLE PREFERRED STOCK
INTO SHARES OF COMMON STOCK, AT A RATE OF TWO SHARES OF CONVERTIBLE
PREFERRED STOCK CONVERTIBLE INTO ONE SHARE OF COMMON STOCK, IMMEDIATELY
PRIOR TO THE CLOSING OF THIS OFFERING;
- THE FILING OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION; AND
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- ---------- ---------- ----------- -----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues............................................... $ 812 $ 1,746 $ 2,563 $ 125 $ 2,104
Cost of revenues............................................. 782 2,887 4,369 674 1,668
--------- ---------- ---------- ----------- -----------
Gross profit (loss).......................................... 30 (1,141) (1,806) (549) 436
Loss from operations......................................... (1,780) (11,173) (24,796) (4,647) (12,327)
Net loss..................................................... (1,805) (11,164) (24,640) (4,632) (12,311)
Net loss per share:
Basic and diluted.......................................... $ (0.69) $ (4.21) $ (8.21) $ (1.58) $ (2.64)
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Weighted average shares.................................... 2,618 2,679 3,053 2,966 4,723
--------- ---------- ---------- ----------- -----------
--------- ---------- ---------- ----------- -----------
Pro forma net loss per share:
Basic and diluted (unaudited).............................. $ (2.55) $ (0.85)
---------- -----------
---------- -----------
Weighted average shares (unaudited)........................ 9,673 14,402
---------- -----------
---------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- --------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 7,839 $ 31,439
Working capital............................................................ 3,364 26,964
Total assets............................................................... 30,813 54,413
Long-term obligations, net of current portion.............................. 1,601 1,601 1,601
Redeemable convertible preferred stock..................................... 53,403 -- --
Total stockholders' equity (deficit)....................................... (30,479) 46,524
</TABLE>
- --------------------------------------------------------------------------------
See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
The Consolidated Balance Sheet Data table summarizes (1) actual consolidated
balance sheet data, (2) pro forma consolidated balance sheet data giving effect
to the sale of 2,758,819 shares of Series E redeemable convertible preferred
stock in April 1999 with net proceeds of approximately $23.6 million and the
conversion of all 12,273,571 outstanding shares of convertible and redeemable
convertible preferred stock (including the shares of Series E redeemable
convertible preferred stock) into 12,273,571 shares of common stock, and (3) pro
forma as adjusted consolidated balance sheet data, adjusted to give effect to
the sale by Commerce One of shares of common stock offered through this
prospectus at an assumed initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE BUYING SHARES
IN THIS OFFERING.
WE ARE AN EARLY STAGE COMPANY, WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE
LOSSES.
We have never been profitable, we expect to incur net losses for the
foreseeable future and we may never be profitable. We incurred net losses of
$12.3 million for the three months ended March 31, 1999, $24.6 million for 1998,
$11.2 million for 1997 and $1.8 million for 1996. As of March 31, 1999, we had
an accumulated deficit of $51.3 million. Net losses have increased for each of
the last five quarters and we expect this trend will continue.
We were founded in January 1994 and first shipped our current line of
products in 1998. We have a limited operating history that makes it difficult to
forecast our future operating results. We expect to substantially increase our
sales and marketing, product development and general and administrative
expenses. As a result we will need to generate significant additional revenues
to achieve and maintain profitability in the future. Although our revenues have
grown in recent quarters, we cannot be certain that such growth will continue or
that we will achieve sufficient revenues for profitability. If we do achieve
profitability in any period, we cannot be certain that we will sustain or
increase such profitability on a quarterly or annual basis. For more detailed
information regarding our operating results and financial condition, see
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS BECAUSE
OF MANY FACTORS AND ANY OF THESE COULD HARM OUR STOCK PRICE AND BUSINESS.
We have experienced, and expect to continue to experience, fluctuations in
sales and operating results from quarter-to-quarter. As a result, we believe
that quarter-to-quarter comparisons of our revenues and operating results are
not necessarily meaningful, and that such comparisons may not be accurate
indicators of future performance. The reasons for these fluctuations include,
but are not limited to:
- our ability to retain existing customers or attract new customers at a
steady rate and maintain customer satisfaction;
- the volume of transactions effected through our BUYSITE and MARKETSITE
PLATFORM products for which we receive transaction fees;
- the length of the sales cycle and implementation of our products;
- the announcement and introduction of new products by us or our
competitors;
- our ability to attract new personnel in a timely and effective manner;
- technical difficulties, systems failures or Internet downtime;
- the timing of large customer orders or the failure to enter into
additional strategic alliances or the failure of our existing partners to
develop trading communities based on our products;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our business, operations and infrastructure;
- changes in our pricing policies or our competitors' pricing policies;
- governmental regulation;
- our mix of domestic and international sales;
- unforeseen events affecting Internet-based, business-to-business
e-commerce;
- general economic conditions prevailing in the United States and globally;
and
- unanticipated changes in our revenue recognition policies due to new
accounting standards.
We plan to significantly increase our operating expenses to expand our sales
and
5
<PAGE>
marketing operations, broaden our customer support capabilities, and fund
greater levels of product development. Our operating expenses, which include
sales and marketing, product development and general and administrative
expenses, are based on our expectations of future revenues and are relatively
fixed in the short term. If revenues fall below our expectations and we are not
able to quickly reduce our spending in response, our business, operating results
and financial condition would be harmed. It is likely that in some future
quarter our operating results may be below the expectations of public market
analysts and investors and, as a result, the price of our common stock may fall.
WE DEPEND UPON OUR COMMERCE SERVICE PROVIDER PARTNERS TO DEVELOP AND OPERATE
MARKETSITE MARKETPLACES; IF THESE MARKETPLACES ARE NOT SUCCESSFUL, OUR
BUSINESS WILL SUFFER
We have established strategic relationships with British Telecommunications,
plc ("BT") and Nippon Telephone & Telegraph Corporation ("NTT"), who have
licensed our BUYSITE and MARKETSITE PLATFORM products in order to create
MARKETSITE marketplaces in certain defined regions. We cannot assure you that
these partners will be able to implement our products and services effectively,
that they will develop and launch MARKETSITE marketplaces or that buyers or
suppliers will participate in their MARKETSITE marketplaces. If these or any
other MARKETSITE marketplaces are not successful, our business, operating
results and financial condition will suffer. Neither BT nor NTT has launched a
MARKETSITE marketplace, and neither is obligated to develop and operate these
marketplaces. Additionally, although our technology architecture supports the
development of interoperable trading communities and we have attempted to
provide incentives for our partners to do so, we cannot assure you that their
marketplaces will be interoperable, or that such interoperability will scale on
a successful basis to include other geographic or vertical markets.
OUR STRATEGY OF ESTABLISHING MARKETSITE MARKETPLACES IS UNPROVEN AND MAY NOT BE
SUCCESSFUL.
As part of our business strategy, we intend, directly and through
relationships with our strategic partners, to establish and maintain MARKETSITE
marketplaces where buyers and suppliers can conduct business-to-business
e-commerce. This strategy is unproven and currently the only operating trading
community based on our products is MARKETSITE.NET, which we operate. We have
limited experience developing and operating MARKETSITE marketplaces, and we
cannot assure you that these trading communities will be operated effectively,
that buyers or suppliers will license our products and join and remain in these
trading communities, or that we will generate significant revenues from these
communities. To date, we have not generated significant revenue from
MARKETSITE.NET. If this business strategy is flawed, or if we are unable to
execute it effectively, our business, operating results and financial condition
will be substantially harmed.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE CANNOT ASSURE YOU THAT WE WILL BE ABLE
TO EFFECTIVELY COMPETE.
The market for Internet-based, business-to-business e-commerce solutions is
extremely competitive. We expect competition to intensify as current competitors
expand their product offerings and new competitors enter the market. We cannot
assure you that we will be able to compete successfully against current or
future competitors, or that competitive pressures faced by us will not harm our
business, operating results or financial condition. In addition, the market for
electronic procurement solutions is relatively new and underdeveloped. We cannot
be certain that our strategy of establishing Internet-based trading communities
will be successful, that it will be executed effectively by us and our partners
or that our solution will be widely adopted by businesses.
Our current and potential competitors include, among others, Ariba, Clarus,
Concur, Connect, Harbinger, IBM, Intellisys, Microsoft, Netscape, Oracle,
PeopleSoft, SAP and
6
<PAGE>
TRADE'ex. In addition, there are a number of companies developing and marketing
business-to-business e-commerce solutions targeted at specific vertical markets.
Because there are relatively low barriers to entry in the e-commerce market,
competition from other established and emerging companies may develop in the
future. In addition, our customers and partners may become competitors in the
future. Increased competition is likely to result in price reductions, lower
average sales prices, reduced margins, longer sales cycles and loss of market
share, any of which could harm our business, operating results or financial
condition. We cannot assure you that the business-to-business e-commerce
solutions offered by our competitors now or in the future will not be perceived
by buyers and suppliers as superior to ours. Many of our competitors have, and
new potential competitors may have, more experience developing Internet-based
software and end-to-end purchasing solutions, larger technical staffs, larger
customer bases, more established distribution channels, greater brand
recognition and greater financial, marketing and other resources than we do. In
addition, competitors may be able to develop products and services that are
superior to our products and services, that achieve greater customer acceptance
or that have significantly improved functionality as compared to our existing
and future products and services.
In addition, our dependence on negotiating and maintaining favorable
customer and strategic relationships is critical. Certain of our competitors may
be able to negotiate alliances with strategic partners on more favorable terms
than we are able to negotiate. Many of our competitors may also have
well-established relationships with our existing and prospective customers. We
cannot assure you that we will be able to compete successfully against current
and future competitors or that competition will not result in reduced margins,
loss of sales or decreased market share which in turn could harm our business,
operating results and financial condition.
OUR LENGTHY SALES AND IMPLEMENTATION CYCLE COULD CAUSE DELAYS IN REVENUE GROWTH.
The period between our initial contact with a potential customer and the
purchase of our products and services is often long and subject to delays
associated with the lengthy budgeting, approval, and competitive evaluation
processes that frequently accompany significant capital expenditures. We believe
that a customer's decision to purchase our products and services is
discretionary, involves a significant commitment of resources, and is influenced
by customer budgetary cycles. To successfully sell our products and services, we
generally must educate our potential customers regarding the use and benefit of
our products and services, which can require significant time and resources.
Many of our potential customers are large enterprises that generally take longer
to make significant business decisions. In addition, our solutions include
enterprise applications that take significant time to deploy successfully across
an organization. We believe that such lengthy deployments may have an impact on
the timing of our revenues, especially our realization of any transaction fee
based revenues, which could in turn harm our business, operating results and
financial condition.
IF OUR POTENTIAL CUSTOMERS ARE NOT WILLING TO SWITCH TO OR ADOPT OUR E-COMMERCE
SOLUTION, OUR BUSINESS WILL SUFFER.
Some of our business-to-business e-commerce competitors charge their
customers large sums of money upon the execution of customer agreements.
Businesses that have made substantial up-front payments for e-commerce solutions
may be reluctant to replace their current solution and adopt our solution. As a
result, our efforts to create a larger customer base may be more difficult than
expected even if we are deemed to offer products and services superior to those
of our competitors. In addition, our products are often purchased by procurement
professionals who may be at increased risk of losing their jobs as a result of
the automated features made possible by our solution. As a result, some
procurement professionals may choose not to purchase our products. This failure
to purchase our products
7
<PAGE>
could harm our business, operating results and financial condition.
Further, because the business-to-business e-commerce market is new and
underdeveloped, potential customers in this market may be confused or uncertain
about the relative merits of each e-commerce solution or which e-commerce
solution to adopt, if any. Confusion and uncertainty in the marketplace may
inhibit customers from adopting our solution, which could harm our business,
operating results and financial condition.
WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN OUR BUSINESS IN RECENT PERIODS AND
FAILURE TO MANAGE THIS GROWTH COULD HARM OUR BUSINESS.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations at a rapid rate. Our headcount has grown and will
continue to grow substantially. At December 31, 1998, we had a total of 156
employees and at March 31, 1999, we had a total of 209 employees. Future
expansion efforts could be expensive and put a strain on management and our
resources. To manage future growth effectively, we must maintain and enhance our
financial and accounting systems and controls, integrate new personnel and
manage expanded operations. If we do not manage growth properly, it could harm
our business, operating results and financial condition.
OUR CUSTOMER BASE IS CONCENTRATED AND OUR SUCCESS DEPENDS ON OUR ABILITY TO
RETAIN EXISTING CUSTOMERS AND ATTRACT NEW CUSTOMERS.
In the first quarter of 1999, The SABRE Group, Inc., Schlumberger Oilfield
Services, The Idaho Power Company and British Telecommunications, plc, each
accounted for more than 10% of our revenues, and together comprised
approximately 79% of our total revenues. In 1998, MCI Systemhouse Corporation,
Eastman Chemical, The County of Los Angeles and Foundation Health each accounted
for more than 10% of our revenues, and together comprised approximately 75% of
our total revenues. We do not have long-term contractual commitments from any of
our current customers and our customers may terminate their contracts with us
with little or no advance notice and without significant penalty to them. As a
result, we cannot assure you that any of our current customers will be customers
in future periods. With any such termination, not only do we lose business and
revenue, but we also lose customer references that are necessary for securing
future customers as well as any trading communities these customers may create.
In addition, regardless of whether we retain our current customers, we need to
attract new customers for our business to succeed. If one or more major
customers were to substantially reduce or stop their use of our products or
services, or if we do not attract significant numbers of new customers, our
business, operating results and financial condition would be harmed.
IF OUR MARKETSITE MARKETPLACE PRODUCT AND SERVICE OFFERINGS DO NOT EXPAND, OUR
BUSINESS WILL SUFFER.
As part of our strategy, we intend to expand the product and service
offerings available on the MARKETSITE marketplaces. To date, only a limited
number of suppliers of certain types of goods, such as office supplies, are
connected to MARKETSITE.NET. In addition, although we plan to make additional
value-added commerce related services available on MARKETSITE.NET, such as
shipping, payment and tax services in 1999, these services are not yet available
on any MARKETSITE marketplace. The availability of such value-added commerce
related services is a forward looking statement that is subject to risks and
uncertainties. The actual timing of their availability may differ materially
from these forward-looking statements as a result of a number of factors,
including our ability to timely source these services from third parties and
effectively integrate them into our products and services. In addition, we
cannot assure you that the goods and services currently available or made
available in the future on MARKETSITE
8
<PAGE>
marketplaces will be sufficient to attract and retain buyers or that we will be
able to make available the goods and services buyers will want in the future.
IF SUPPLIERS DO NOT PARTICIPATE IN THE MARKETSITE MARKETPLACES, OUR BUSINESS
WILL SUFFER.
MARKETSITE marketplaces will be attractive to suppliers only if a
significant number of buyers are willing to purchase goods and services through
the MARKETSITE marketplaces. Suppliers incur costs making information relating
to their goods and services available on these trading communities and thus must
realize additional revenues to justify their continued participation in these
trading communities. Although the number of participating suppliers has grown,
we cannot assure you that the suppliers will remain in the MARKETSITE
marketplaces or that new suppliers will join these communities. If an adequate
number of suppliers do not participate in the MARKETSITE marketplaces, our
business, operating results and financial condition will suffer.
OUR FUTURE REVENUES DEPEND UPON OUR ABILITY TO INCREASE TRANSACTION VOLUME ON
MARKETSITE MARKETPLACES.
We currently derive substantially all of our revenues from licensing our
BUYSITE solution to buyers and providing related services. However, our business
model calls for a significant portion of our revenues in the future to be based
upon a percentage of the transactions completed on MARKETSITE marketplaces
developed by current and future MARKETSITE PLATFORM licensees. Accordingly, our
future revenues will depend significantly on the number of transactions that are
successfully completed on the MARKETSITE marketplaces. If the transaction volume
on the MARKETSITE marketplaces does not grow, it is unlikely that we will ever
achieve or maintain profitability.
IF OUR E-COMMERCE PRODUCTS DO NOT CONTAIN THE FEATURES AND FUNCTIONALITY OUR
CUSTOMERS WANT, OUR CUSTOMERS WILL NOT BUY THEM.
Our success depends upon our ability to accurately determine the features
and functionality required by customers and to design and implement
business-to-business e-commerce products that meet these requirements in a
timely and efficient manner. To date, our products have been based on our
internal efforts and on feedback from a limited number of customers and
potential customers. We cannot assure you that we have determined or will
successfully determine customer requirements or that the features and
functionality of our future products and services will adequately satisfy
current or future customer demands. If we fail to accurately determine customer
feature and functionality requirements or enhance our existing products or
develop new products, our business, operating results and financial condition
will suffer.
IF OUR CURRENT OR POTENTIAL CUSTOMERS CANNOT OR DO NOT INTEGRATE OUR SOLUTIONS,
OUR BUSINESS WILL BE HARMED.
Our success depends upon the acceptance and successful integration by
customers and their suppliers of our BUYSITE and MARKETSITE PLATFORM products.
Our current customers and potential customers and their related suppliers often
rely on third-party systems integrators such as PricewaterhouseCoopers, MCI
Systemhouse and Cambridge Technology Partners and others to develop, deploy and
manage their Internet-based, business-to-business e-commerce platforms and
solutions. If a large number of our existing systems integrators fail to adopt
and support our solution, if any of our customers or suppliers are not able to
successfully integrate our solution or if we are unable to adequately train our
existing systems integration partners, our business, operating results and
financial condition will suffer.
9
<PAGE>
CONTINUED ADOPTION OF THE INTERNET AS A METHOD OF CONDUCTING BUSINESS IS
NECESSARY FOR OUR FUTURE GROWTH.
The market for Internet-based, business-to-business e-commerce products is
relatively new and is evolving rapidly. Our future revenues and any future
profits depend upon the widespread acceptance and use of the Internet as an
effective medium of business-to-business commerce, particularly as a medium to
perform indirect goods procurement and fulfillment functions. The failure of the
Internet to continue to develop as a commercial or business medium or of
significant numbers of buyers and suppliers of indirect goods to conduct
business-to-business commerce on the Internet would harm our business, operating
results and financial condition. The acceptance and use of the Internet for
business-to-business commerce could be limited by a number of factors, such as
the growth and use of the Internet in general, the relative ease of conducting
business on the Internet, the efficiencies and improvements that conducting
commerce on the Internet provides, concerns about transaction security and
taxation of transactions on the Internet.
OUR MARKET MAY UNDERGO RAPID TECHNOLOGICAL CHANGE AND OUR FUTURE SUCCESS WILL
DEPEND ON OUR ABILITY TO MEET THE CHANGING NEEDS OF OUR INDUSTRY.
We cannot predict with any certainty the present and future size of the
potential market for our products or its growth rate, if any, and we cannot
assure you that our products and services will achieve market acceptance.
Failure of the market for our products and services to develop and grow or our
failure to gain acceptance in this market would harm our business, operating
results and financial condition. Our market is characterized by rapidly changing
technology, evolving industry standards and frequent new product announcements.
To be successful, we must adapt to our rapidly changing market by continually
improving the performance, features and reliability of our products and
services. We could incur substantial costs to modify our products, services or
infrastructure in order to adapt to these changes. Our business, operating
results and financial condition could be harmed if we incur significant costs
without adequate results, or find ourselves unable to adapt rapidly to these
changes.
IF WE CANNOT DEVELOP OUR PRODUCTS IN A TIMELY AND EFFECTIVE MANNER, OUR BUSINESS
COULD SUFFER.
We currently expect to release new versions of our BUYSITE and MARKETSITE
PLATFORM products in the second half of 1999. The timing of this release is a
forward-looking statement that is subject to risks and uncertainties and the
actual timing of such release may differ materially from this as a result of a
number of factors. Due to the complexity of these products, internal quality
assurance testing and customer beta-testing may reveal product performance
issues or desirable feature enhancements that could lead us to postpone the
release of these new versions. In addition, the reallocation of resources
associated with any such postponement would likely cause delays in the
development and release of other future products or enhancements to our
currently available products. In the past, we have experienced delays releasing
new products. As a result, we cannot assure you that we will be able to
successfully complete the development of currently planned or future products in
a timely and efficient manner. Any such failure or further delay could cause our
business, operating results and financial condition to suffer.
IF OUR TECHNOLOGY DOES NOT PROVE TO BE EFFECTIVE, OUR BUSINESS WILL SUFFER.
In connection with our acquisition of VEO Systems, Inc., we acquired the
rights to their extensible markup language, or "XML," technology. XML is an
information modeling language for self-describing data exchange in e-commerce
applications. While we believe this technology is valuable and will be useful to
us in developing and enhancing our BUYSITE and MARKETSITE PLATFORM products and
related services, to date we have only limited experience utilizing this
technology. If this technology is not valuable, if we are unable to utilize it
effectively or if it is not compatible with our other technology, our business,
operating results and financial condition will be harmed.
10
<PAGE>
FAILURE TO EXPAND INTERNET INFRASTRUCTURE COULD LIMIT OUR FUTURE GROWTH.
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, its
infrastructure may not be able to support these demands and its performance and
reliability may decline. If outages or delays on the Internet occur frequently
or increase in frequency, overall Internet usage including usage of our products
and services could grow more slowly or decline. Our ability to increase the
speed and scope of our services to customers is ultimately limited by and
depends upon the speed and reliability of both the Internet and our customers'
internal networks. Consequently, the emergence and growth of the market for our
services depends upon improvements being made to the entire Internet as well as
to our individual customers' networking infrastructures to alleviate overloading
and congestion. If these improvements are not made, the ability of our customers
to utilize our solution will be hindered, and our business, operating results
and financial condition may suffer.
INCREASED SECURITY RISKS OF ONLINE COMMERCE MAY DETER FUTURE USE OF OUR PRODUCTS
AND SERVICES.
A fundamental requirement to conduct Internet-based, business-to-business
e-commerce is the secure transmission of confidential information over public
networks. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in a compromise or breach of the algorithms we use to protect content and
transactions on MARKETSITE marketplaces or proprietary information in our
databases. Anyone who is able to circumvent our security measures could
misappropriate proprietary, confidential customer information or cause
interruptions in our operations. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Further, a well-publicized compromise of security could deter people
from using the Internet to conduct transactions that involve transmitting
confidential information. Our failure to prevent security breaches, or well
publicized security breaches affecting the Web in general, could significantly
harm our business, operating results and financial condition.
IF OUR PRODUCTS CONTAIN DEFECTS, OUR BUSINESS COULD SUFFER.
Products as complex as ours often contain known and undetected errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction of new products or enhancements to
existing products. Although we attempt to resolve all errors that we believe
would be considered serious by our customers, our products are not error-free.
In the past, defects in our products have delayed their shipments. We cannot
assure you that undetected errors or performance problems will not be discovered
in the future or that known errors considered minor by us will not be considered
serious by our customers. This could result in lost revenues or delays in
customer acceptance and would be detrimental to our reputation which, in either
case, could cause our business to suffer.
WE MAY NOT BE ABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING AND TECHNICAL
PERSONNEL THAT WE NEED TO SUCCEED.
If we fail to hire and retain sufficient numbers of sales, marketing and
technical personnel, our business, operating results and financial condition
would be harmed. We need to substantially expand our sales operations and
marketing efforts, both domestically and internationally, in order to increase
market awareness and sales of our BUYSITE and MARKETSITE PLATFORM and the
related services we offer. These products and services require a sophisticated
sales effort targeted at multiple departments within an organization. We will
also need to increase our technical staff to support the growth of our business.
Hiring technical personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of the Internet. Competition for qualified sales, marketing and
technical personnel is intense, and we might not be able to hire and retain
sufficient numbers of such personnel to grow our business. In addition, our
competitors have in
11
<PAGE>
the past attempted to hire our employees away from us. We expect that they will
continue to attempt to do so in the future.
OUR EXECUTIVE OFFICERS AND CERTAIN KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS
AND THESE OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE.
Our future success depends upon the continued service of our executive
officers and other key personnel and none of our officers or key employees is
bound by an employment agreement for any specific term. If we lose the services
of one or more of our executive officers or key employees, or if one or more of
them decide to join a competitor or otherwise compete directly or indirectly
with us, our business, operating results and financial condition would be
seriously harmed. In particular, the services of Mark Hoffman, our Chief
Executive Officer, would be difficult to replace.
WE INTEND TO EXPAND INTERNATIONAL OPERATIONS AND UNCERTAINTY OF INTERNATIONAL
SALES EFFORTS COULD HARM OUR BUSINESS.
Although we have yet to generate any significant international revenues, we
are planning to increase our international operations and sales efforts.
International business is subject to inherent risks, including:
- unexpected changes in regulatory requirements and tariffs;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- greater difficulty in accounts receivable collection;
- potentially harmful tax consequences;
- fluctuating exchange rates;
- price controls or other restrictions on foreign currency; and
- difficulties in obtaining export and import licenses.
In addition, we have only limited experience in marketing, selling and
supporting our products and services in foreign countries. We do not have any
experience in developing foreign language versions of our products. This may be
more difficult or take longer than we anticipate especially due to international
problems, such as language barriers or currency exchange issues, and the fact
that the Internet infrastructure in such foreign countries may be less advanced
than the Internet infrastructure in the United States. We cannot assure you that
we will generate international revenues or that risks of international sales and
operations will not harm our business, operating results and financial
condition.
OUR ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE AND HARM OUR OPERATING RESULTS.
In January 1999, Commerce One acquired VEO Systems, Inc., a company
specializing in the creation of XML technology applications, to complement our
existing technologies. We expect to continue to review acquisition and strategic
investment prospects that would complement our existing product offerings,
augment our market coverage or enhance our technological capabilities. Future
acquisitions or investments could result in:
- potentially dilutive issuances of equity securities;
- large one-time write-offs relating to in-process research and development;
- the incurrence of debt and contingent liabilities;
- amortization expenses related to goodwill and other intangible assets;
- difficulties in the assimilation of operations, personnel, technologies,
products and the information systems of the acquired companies;
- the diversion of management's attention away from other business concerns;
12
<PAGE>
- the diversion of resources from our existing businesses, products or
technologies;
- the impairment of relationships with our existing customers;
- risks of entering geographic and business markets in which we have no or
limited prior experience; and
- the potential loss of key employees of acquired organizations.
We cannot assure you that we will be able to successfully integrate any
businesses, including VEO, products, technologies or personnel in any
acquisition. Our failure to do so could harm our business, operating results and
financial condition.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS WILL SUFFER.
Our success depends, in part, upon our proprietary technology and other
intellectual property rights. To date, we have relied primarily on a combination
of copyright, trade secret, and trademark laws, and nondisclosure and other
contractual restrictions on copying and distribution to protect our proprietary
technology. Some of our agreements with our customers and development partners
contain residual clauses regarding confidentiality and the rights of third
parties to obtain the source code for our products. These provisions may limit
our ability to protect our intellectual property rights in the future which
could seriously harm our business, operating results and financial condition. In
addition, the laws of certain foreign countries may not protect our intellectual
property rights to the same extent as do the laws of the United States. We
cannot assure you that our means of protecting our intellectual property rights
in the United States or abroad will be adequate.
Furthermore, litigation may be necessary to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of resources and could harm our business, operating results and
financial condition.
WE FACE RISKS OF CLAIMS FROM THIRD PARTIES FOR INTELLECTUAL PROPERTY
INFRINGEMENT THAT COULD HARM OUR BUSINESS.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. We have in
the past received letters suggesting that we are infringing the intellectual
rights of others, and we may from time to time encounter disputes over rights
and obligations concerning intellectual property. Although we believe that our
intellectual property rights are sufficient to allow us to market our existing
products without incurring liability to third parties, we cannot assure you that
our products and services do not infringe on the intellectual property rights of
third parties.
In addition, we have agreed, and may agree in the future, to indemnify
certain of our customers against claims that our products infringe upon the
intellectual property rights of others. We could incur substantial costs in
defending ourselves and our customers against infringement claims. In the event
of a claim of infringement, we and our customers may be required to obtain one
or more licenses from third parties. We cannot assure you that we or our
customers could obtain necessary licenses from third parties at a reasonable
cost or at all. Defense of any lawsuit or failure to obtain any such required
licenses would harm our business, operating results and financial condition.
IF WE ARE UNABLE TO LICENSE CERTAIN TECHNOLOGY FROM THIRD PARTIES IN THE FUTURE,
OUR BUSINESS WILL SUFFER.
We license and will continue to license certain technology integral to our
products and services from third parties, including value-added commerce related
products and services which may be integrated with internally developed
13
<PAGE>
products and used with our products to provide key content and services. We also
expect to require new licenses in the future as our business grows and
technology evolves. We cannot assure you that these third party product licenses
will continue to be available to us on commercially reasonable terms, if at all.
Our inability to acquire any of these licenses, or integrate the related third
party products into our products, could result in delays in product development
until equivalent products can be identified, licensed and integrated. Any such
delays in product development could cause our business, operating results and
financial condition to suffer.
SPENDING BY OUR CUSTOMERS TO EVALUATE AND ADDRESS YEAR 2000 COMPLIANCE COULD
RESULT IN LOWER DEMAND FOR OUR PRODUCTS AND SERVICES.
As the year 2000 approaches, there is a risk that orders for our products
and services will be reduced or delayed as information technology departments
within companies reallocate their capital expenditures to prepare for the year
2000 and resolve year 2000 problems. If companies do reduce or defer purchases
of our products and services because of such reallocation, our business,
operating results and financial condition could be harmed.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR INTERNAL OPERATING SYSTEMS OR THE SOFTWARE
PRODUCTS THAT WE SELL COULD CAUSE OUR BUSINESS TO BE HARMED.
Many currently installed computer systems, software products and other
control devices are unable to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to operate properly in the year 2000 and beyond.
We have designed and tested our products to be year 2000 compliant. However,
we cannot assure you that our current products do not contain undetected errors
or defects associated with year 2000 date functions. Further, we cannot assure
you that the technology we license from third parties and incorporate into our
products do not contain errors or defects. If any such errors or defects do
exist, we may incur material costs to resolve them. The internal systems used to
deliver our services utilize third-party hardware and software. Although we
believe that the costs of ensuring that these systems are year 2000 compliant
will not be material, we cannot assure you of this. If our systems are not year
2000 compliant by the year 2000, our business, financial condition and results
of operations could be harmed.
In addition, our customers' and commerce service provider partners' internal
operating systems and other software applications must operate effectively for
them to use our products and services effectively. If these systems or
applications are not year 2000 compliant, the customers may not use our products
and services and the commerce service provider partners may not be able to host
our solutions. We cannot predict to what extent our customers' and commerce
service provider partners' systems and applications are year 2000 compliant. If
they are not year 2000 compliant, our business, operating results and financial
condition could be harmed.
WE DO NOT HAVE A DISASTER RECOVERY PLAN OR BACK-UP SYSTEMS, AND A DISASTER COULD
SEVERELY DAMAGE OUR OPERATIONS.
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our service at an alternate site. A disaster could
severely harm our business because our service could be interrupted for an
indeterminate length of time. Our operations depend upon our ability to maintain
and protect our computer systems in our principal facilities in Walnut Creek,
California and Mountain View, California, which exist on or near known
earthquake fault zones. We depend on BT for hosting the MARKETSITE marketplace
in the United Kingdom, and we will depend on NTT for hosting the MARKETSITE
marketplace in Japan once the marketplace is developed and launched. Although
these systems are designed to be fault tolerant, they are vulnerable to damage
from fire, floods, earthquakes, power loss, telecommunications failures and
similar events. Any disruption to these systems could harm our
14
<PAGE>
business, operating results and financial condition.
IF WE PUBLISH INACCURATE CATALOG CONTENT DATA, OUR BUSINESS COULD SUFFER.
The accurate publication of catalog content is critical to our customers'
businesses. Our MARKETSITE PLATFORM product contains content management tools
that help suppliers manage the collection and publication of catalog content.
Any defects or errors in these tools or the failure of these tools to accurately
publish catalog content could deter businesses from participating in the
MARKETSITE marketplaces, damage our business reputation, harm our ability to win
new customers and potentially expose us to legal liability. In addition, from
time to time some of our customers may submit to us inaccurate pricing or other
catalog information. Even though such inaccuracies are not caused by our work
and are not within our control, such inaccuracies could deter current and
potential customers from using our products and could harm our business,
operating results and financial condition.
ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE OUR COSTS OF DOING BUSINESS.
The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or modification
of laws or regulations relating to the Internet could harm our business,
operating results and financial condition by increasing our costs and
administrative burdens. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel, consumer
protection and taxation apply to the Internet.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. We must comply with new regulations in
both Europe and the United States, as well as any other regulations adopted by
other countries where we may do business. The growth and development of the
market for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, as well as new laws
governing the taxation of Internet commerce. Compliance with any newly adopted
laws may prove difficult for us and may harm our business, operating results and
financial condition.
IF WE CANNOT MEET OUR FUTURE CAPITAL REQUIREMENTS, OUR BUSINESS WILL BE HARMED.
We currently anticipate that our available cash resources, combined with the
net proceeds from this offering and other currently available sources of
financing will be sufficient to meet our anticipated working capital and capital
expenditure requirements through at least the next twelve months. The estimate
of the time period in which our cash resources and proceeds from the offering
will be sufficient to meet our working capital and capital expenditure needs is
a forward-looking statement that is subject to risks and uncertainties. The
actual time period may differ materially from that indicated in the
forward-looking statement as a result of a number of factors so that we cannot
assure you that such resources will be sufficient for anticipated or
unanticipated working capital and capital expenditure requirements for this
period. We may need to raise additional funds through public or private debt or
equity financings in order to:
- take advantage of unanticipated opportunities, including more rapid
international expansion or acquisitions of complementary businesses or
technologies;
- develop new products or services; or
- respond to unanticipated competitive pressures.
We may also raise additional funds through public or private debt or equity
financings if such financings become available on favorable terms. We cannot
assure you that any additional financing we may need will be available on terms
favorable to us, if at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to take advantage of
unanticipated opportunities, develop new products or services or otherwise
respond to unanticipated competitive pressures. In such
15
<PAGE>
case, our business, operating results and financial condition could be harmed.
BECAUSE CERTAIN EXISTING STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING
STOCK, OTHER STOCKHOLDERS' VOTING POWER MAY BE LIMITED.
Following consummation of this offering, it is anticipated that our
officers, directors and % or greater stockholders will beneficially own or
control, directly or indirectly, shares of common stock, which in the
aggregate will represent approximately % of the outstanding shares of common
stock. If the underwriters' overallotment option is exercised in full, the
number of shares and percentage will decrease to and %,
respectively. As a result, if such persons act together, they will have the
ability to control all matters submitted to our stockholders for approval,
including the election and removal of directors and the approval of any merger,
consolidation or sale of all or substantially all of our assets. See "Principal
Stockholders."
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants in the
public market following this offering, the market price of our common stock
could fall. In addition, such sales could create the perception to the public of
difficulties or problems with our products and services. As a result, these
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options after , 1999. Of these shares,
the shares sold in this offering are freely tradable. The remaining
shares will become eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ----------------- -----------------------------------
<C> <S>
At the date of this prospectus
90 days after the date of this
prospectus
180 days after the date of this
prospectus subject to certain
restrictions under the federal
securities laws
More than 180 days after the date
of this prospectus, subject to
certain restrictions under the
federal securities laws
</TABLE>
The above table gives effect to certain lock-up arrangements with the
underwriters under which our directors, officers and stockholders have agreed
not to sell or otherwise dispose of their shares of common stock. The
underwriters may remove these lock-up restrictions prior to 180 days after the
offering without prior notice. See "Shares Eligible for Future Sale" and
"Underwriting" for more information about when and how shares of our common
stock may become available for sale in the public market.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
The majority of the net proceeds of this offering are not allocated for
specific uses other than working capital and general corporate purposes. Thus,
our management has broad discretion over how these proceeds are used and could
spend most of these proceeds in ways with which our stockholders may not agree.
We cannot assure you that the proceeds will be invested in a way that yields a
favorable return. See "Use of Proceeds" for more information about how we plan
to use our proceeds from this offering.
16
<PAGE>
OUR SECURITIES HAVE NO PRIOR MARKET, AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock and an active public market for our common stock may not develop or be
sustained after this offering. Further, the trading market price of our common
stock may decline below our initial public offering price. The initial public
offering price has been determined by negotiations between the representatives
of the underwriters and us. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
INTERNET RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE.
The stock market and specifically the stock prices of Internet related
companies have been very volatile. This volatility is often not related to the
operating performance of the companies. This broad market volatility and
industry volatility may reduce the price of our common stock, without regard to
our operating performance. Due to this volatility, the market price of our
common stock could significantly decrease.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value. If the
holders of outstanding options or warrants exercise those options or warrants,
you will incur further dilution. See "Dilution" for a calculation of the amount
of dilution you will incur.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such forward-
looking statements. This prospectus also contains forward-looking statements
attributed to certain third parties relating to their estimates regarding the
growth of business-to-business and business-to-consumer e-commerce and related
service markets and spending. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us are estimated to be $ , after deducting the underwriting
discount, estimated offering expenses and assuming no exercise of the
underwriters' over-allotment option to purchase shares from us.
We expect to use the proceeds of this offering for general corporate
purposes, principally working capital, capital expenditures, geographic
expansion of our operations, potential acquisitions, and additional sales and
marketing efforts. We currently have no commitments or agreements and are not
involved in any negotiations to do so. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. Our bank loan agreement restricts the payment of dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of March 31, 1999,
- our pro forma capitalization after giving effect to our sale of 2,758,819
shares of preferred stock on April 19, 1999, with net proceeds of
approximately $23.6 million, and the conversion of all outstanding shares
of redeemable convertible preferred stock and convertible preferred stock
into shares of common stock, and
- our pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at an assumed initial public offering price
of $ per share in this offering, less the underwriting discount and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, net of current portion........................ $ 1,601 $ 1,601 $ 1,601
Redeemable convertible preferred stock, $0.0001 par value, issuable
in series; 20,745,976 shares authorized, 9,177,912 shares issued
and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and as adjusted............................. 53,403 -- --
Stockholders' equity (deficit):
Convertible preferred stock; $0.0001 par value, 22,000,000 shares
authorized (including 20,745,976 shares designated as redeemable
convertible preferred), 336,840 shares issued and outstanding,
actual; 10,000,000 shares authorized, no shares issued or
outstanding, pro forma and pro forma as adjusted................... 487 -- --
Common stock, $0.0001 par value; 50,000,000 shares authorized,
5,499,255 shares issued and outstanding, actual; 250,000,000 shares
authorized, 17,772,826 shares issued and outstanding, pro forma;
250,000,000 shares authorized, shares issued and outstanding,
as adjusted........................................................ 23,592 101,082
Deferred stock compensation.......................................... (3,246) (3,246) (3,246)
Accumulated deficit.................................................. (51,254) (51,254) (51,254)
Accumulated other comprehensive loss................................. (58) (58) (58)
--------- ----------- -----------
Total stockholders' equity (deficit)................................. (30,479) 46,524
--------- ----------- -----------
Total capitalization................................................. $ 24,525 $ 48,125
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
This table excludes the following shares:
- 3,020,578 shares of common stock issuable upon the exercise of stock
options outstanding under our employee stock option plans, and 1,382,537
additional shares of common stock available for issuance under these stock
option plans,
- 150,000 shares of common stock available for issuance under our 1999
director stock option plan,
- 750,000 shares of common stock available for issuance under our 1999
employee stock purchase plan, and
- 710,435 shares of common stock issuable upon exercise of outstanding
warrants.
See "Management--Incentive Stock Plans," "Description of Capital Stock" and
Note 5 of Notes to Consolidated Financial Statements.
19
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock (after giving
effect to the conversion of all outstanding shares of our convertible preferred
stock and our sale of 2,758,819 shares of convertible preferred stock on April
19, 1999 for net proceeds of approximately $23.6 million) on March 31, 1999 was
approximately $28.5 million, or $1.60 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards. After giving effect to our sale of
shares of common stock offered by this prospectus at an assumed initial public
offering price of $ per share and after deducting the underwriting
discount and estimated offering expenses payable by us, our net tangible book
value would have been approximately $ , or $ per share. This
represents an immediate increase in net tangible book value of $ per share
to existing stockholders and an immediate dilution in net tangible book value of
$ per share to new investors purchasing shares of common stock in this
offering. The following table illustrates this dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..............................
Pro forma net tangible book value per share as of March 31, 1999........... $ 1.60
Increase per share attributable to new investors...........................
---------
Pro forma net tangible book value per share after the offering...............
---------
Dilution in pro forma net tangible book value per share to new investors..... $
---------
---------
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. See Note 5 to Notes to Consolidated Financial
Statements. The exercise of outstanding options and warrants having an exercise
price less than the offering price would increase the dilutive effect to new
investors.
The following table sets forth, as of March 31, 1999, on the pro forma basis
described above, the differences between the number of shares of common stock
purchased from us, the total price paid and average price per share paid by
existing stockholders and by the new investors in this offering at an assumed
initial public offering price of $ per share (before deducting the
estimated underwriting discount and offering expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------------ ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 17,772,826 100.0% $ 77,361,000 100.0% $ 4.35
New investors................................
------------ ----- ------------- -----------
Total.................................... 100.0% $ $ 100.0%
------------ ----- ------------- -----------
------------ ----- ------------- -----------
</TABLE>
If the underwriters over-allotment option is exercised in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
decrease to or approximately % of the total number of shares
of common stock outstanding, and
- the number of shares held by new public investors will increase to
or approximately % of the total number of shares of our common stock
outstanding after this offering.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical Selected Consolidated Financial Data as of and for
the years ended December 31, 1996, 1997 and 1998, is derived from our
Consolidated Financial Statements, which have been audited by Ernst & Young LLP,
independent auditors, and are included elsewhere in this prospectus. The
selected consolidated balance sheet as of December 31, 1994 and 1995 and the
unaudited pro forma Statement of Operations data for the year ended December 31,
1995 is derived from Financial Statements not included herein. The selected
consolidated statement of operations data for the year ended December 31, 1994
is derived from unaudited consolidated financial statements not included herein.
The pro forma statement of operations data for the year ended December 31, 1998
is derived from the selected unaudited pro forma condensed combined financial
information included elsewhere in this prospectus. The consolidated financial
data as of and for the three months ended March 31, 1998 and 1999 is derived
from unaudited financial statements included elsewhere in this prospectus. We
have prepared this unaudited information on the same basis as the audited
Consolidated Financial Statements and have included all adjustments, consisting
only of normal recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results for such periods.
When you read this selected consolidated financial data, it is important that
you also read the historical Consolidated Financial Statements and related Notes
included in this prospectus, as well as the section of this prospectus related
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Historical results are not necessarily indicative of future
results.
<TABLE>
<CAPTION>
THREE MONTHS
PRO FORMA ENDED MARCH
YEAR ENDED DECEMBER 31, YEAR ENDED 31,
----------------------------------------------------- DECEMBER 31, -------------
1994 1995 1996 1997 1998 1998(1) 1998
--------- --------- --------- --------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees......................... $ 112 $ 90 $ 152 $ 742 $ 1,633 $ 1,633 $ 5
Services............................. 108 349 660 1,004 930 3,720(3) 120
--------- --------- --------- --------- --------- ------------- -------------
Total revenues..................... 220 439 812 1,746 2,563 5,353 125
Cost of revenues....................... 181 232 782 2,887 4,369 5,530(4) 674
--------- --------- --------- --------- --------- ------------- -------------
Gross profit (loss).................... 39 207 30 (1,141) (1,806) (177) (549)
--------- --------- --------- --------- --------- ------------- -------------
Operating expenses:
Sales and marketing.................. 89 146 862 6,055 13,108 13,902 2,511
Product development.................. 179 314 516 2,172 6,839 8,013 1,157
General and administrative........... 25 57 432 1,805 1,941 3,727 331
Purchased in-process research and
development........................ -- -- -- -- -- -- --
Amortization of deferred stock
compensation....................... -- -- -- -- 1,102 1,102 99
Amortization of goodwill and other
intangible assets.................. -- -- -- -- -- 4,198 --
--------- --------- --------- --------- --------- ------------- -------------
Total operating expenses........... 293 517 1,810 10,032 22,990 30,942 4,098
--------- --------- --------- --------- --------- ------------- -------------
Loss from operations................... (254) (310) (1,780) (11,173) (24,796) (31,119) (4,647)
Interest income (expense), net......... -- (31) (25) 9 156 216 15
--------- --------- --------- --------- --------- ------------- -------------
Net loss............................... $ (254) $ (341) $ (1,805) $ (11,164) $ (24,640) $ (30,903) $ (4,632)
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Pro forma basic and diluted net loss
per
share(5)............................. $ (2.55)
---------
---------
Shares used in calculation of pro forma
basic and diluted net loss per
share(5)............................. 9,673
---------
---------
<CAPTION>
1999(2)
-----------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees......................... $ 1,456
Services............................. 648
-----------
Total revenues..................... 2,104
Cost of revenues....................... 1,668
-----------
Gross profit (loss).................... 436
-----------
Operating expenses:
Sales and marketing.................. 4,078
Product development.................. 3,362
General and administrative........... 827
Purchased in-process research and
development........................ 3,037
Amortization of deferred stock
compensation....................... 584
Amortization of goodwill and other
intangible assets.................. 875
-----------
Total operating expenses........... 12,763
-----------
Loss from operations................... (12,327)
Interest income (expense), net......... 16
-----------
Net loss............................... $ (12,311)
-----------
-----------
Pro forma basic and diluted net loss
per
share(5)............................. $ (0.85)
-----------
-----------
Shares used in calculation of pro forma
basic and diluted net loss per
share(5)............................. 14,402
-----------
-----------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 2 $ 230 $ 6,111 $ 9,367 $ 15,138 $ 7,839
Working capital (deficit)...................................... (299) (246) 5,209 7,194 11,777 3,364
Total assets................................................... 98 327 6,745 11,664 20,507 30,813
Long-term obligations, net of current portion.................. -- -- 199 1,096 1,896 1,601
Redeemable convertible preferred stock......................... -- -- 7,258 20,650 50,432 53,403
Total stockholders' equity (deficit)........................... (254) (157) (1,897) (13,040) (37,011) (30,479)
</TABLE>
- ------------------
(1) The pro forma statement of operations data gives effect to the VEO Systems,
Inc. acquisition which was effective January 15, 1999 as if it occurred on
January 1, 1998. See Selected Unaudited Pro Forma Condensed Combined
Financial Information.
(2) Includes the results of VEO's operations from January 15, 1999 (the date of
acquisition) through March 31, 1999. See Note 8 to Notes to Consolidated
Financial Statements.
(3) Pro forma services revenue includes revenue recognized by VEO under a cost
reimbursement revenue contract. The Company expects to account for such fees
as a reduction to product development expenses as of the date of
acquisition.
(4) Pro forma cost of revenues includes costs associated with the cost
reimbursement revenue contract as described above.
(5) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net loss per share.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Commerce One is a leading provider of e-commerce solutions that link buyers
and sellers of business goods and services into real-time trading communities.
We were founded under the name DistriVision Development Corporation in 1994. In
March 1997, we changed our name to Commerce One and embarked on an aggressive
product development effort, which culminated in the release of the BUYSITE and
MARKETSITE products in April 1998. We released subsequent versions of the
BUYSITE and MARKETSITE products in November 1998 and April 1999.
HISTORY OF LOSSES
We have never been profitable, we expect to incur net losses in the
foreseeable future and we may never be profitable. As of March 31, 1999, we have
an accumulated deficit of $51.3 million. Net losses have increased in the last
five quarters and we expect this trend will continue.
SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY
We generate revenues from multiple sources. License fees are generated from
licensing the BUYSITE and MARKETSITE products to end-user organizations,
primarily Fortune 1000 size enterprises. Professional service fees are received
from BUYSITE and MARKETSITE licensees and their suppliers for ERP integration,
installation, content aggregation, project management and other related
services. Software maintenance revenues are generated from product licensees
based on the scope of their implementation and the extent of the service
provided. Transaction fees are received from suppliers for purchase orders the
supplier receives through MARKETSITE. To date, transaction fees have been
immaterial.
We recognize revenues from license agreements upon delivery and acceptance
of the software if there is persuasive evidence of an arrangement, collection is
probable, the fee is fixed or determinable, and there is sufficient
vendor-specific objective evidence to support allocating the total fee to all
elements of multiple-element arrangements. If an acceptance period is required,
license revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
We recognize revenues from professional services as the services are
provided. If a transaction includes both license and service elements, the
license fee is recognized on delivery and acceptance of the software, provided
services do not include significant customization or modification of the base
product, and the payment terms for licenses are not subject to additional
acceptance criteria. In cases where license fee payments are contingent on the
acceptance of services, recognition of revenues is deferred for both the license
and the service elements until the acceptance criteria are met. Software
maintenance revenues are recognized ratably over the term of the support
contract, typically one year.
CUSTOMER CONCENTRATION
Our customer base is concentrated as sales to our top four customers has
accounted for a significant portion of our revenue. In the first quarter of
1999, The SABRE Group, Inc., Schlumberger Oilfield Services, The Idaho Power
Company and British Telecommunications, plc each accounted for more than 10% of
our revenues. Together, the sales to these four customers comprised
approximately 79% of our total revenues in the first quarter of 1999. In 1998,
MCI Systemhouse Corporation, Eastman Chemical, The County of Los Angeles and
Foundation Health each accounted for more than 10% of our revenues. Together,
the sales to these four customers comprised approximately 75% of our total
revenues in 1998.
LIMITED OPERATING HISTORY
We have a limited operating history that makes it difficult to forecast our
future operating results. We expect to continue to increase our
23
<PAGE>
sales and marketing, product development and general and administrative
expenses. As a result, we will need to generate significant additional revenues
to achieve and maintain profitability in the future. Although our revenues have
grown in recent quarters, we cannot be certain that such growth will continue or
that we will achieve sufficient revenues for profitability. If we do achieve
profitability in any period, we cannot be certain that we will sustain or
increase such profitability on a quarterly or annual basis.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES
Total revenues increased from approximately $125,000 for the three months
ended March 31, 1998 to approximately $2.1 million for the three months ended
March 31, 1999. For the three months ended March 31, 1998, license fees and
services revenues accounted for 4%, and 96% of total revenues, respectively. For
the three months ended March 31, 1999, license fees and services revenues
accounted for 69% and 31% of total revenues, respectively.
Revenues from license fees increased from approximately $5,000 for the three
months ended March 31, 1998 to approximately $1.5 million for the three months
ended March 31, 1999. The increase in revenues from license fees primarily
resulted from the release of the BUYSITE and MARKETSITE products in April 1998
and customer acceptance of these products.
Services revenues include revenue from professional services and maintenance
fees. Services revenues increased from approximately $120,000 for the three
months ended March 31, 1998 to approximately $648,000 for the three months ended
March 31, 1999. The increase in services revenues from 1998 to 1999 resulted
primarily from the increase in consulting, customer support and training
services associated with increased sales of our products and overall growth of
our installed base of customers during these periods.
COST OF REVENUES
Total cost of revenues increased from $674,000 for the three months ended
March 31, 1998 to approximately $1.7 million for the three months ended March
31, 1999. Cost of revenues consists primarily of consulting, customer support
and training costs. Cost of revenues also includes software media and
duplication and software documentation costs, although these costs have not been
material to date. The increase in cost of revenues resulted from the hiring and
training of consulting, support and training personnel to support our growing
customer base and increased use of third-party service providers.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of employee salaries,
benefits and commissions, and the costs of seminars, promotional materials,
trade shows and other sales and marketing programs. Sales and marketing expenses
increased from approximately $2.5 million for the three months ended March 31,
1998 to approximately $4.1 million for the three months ended March 31, 1999.
This increase was primarily attributable to an overall increase in the number of
sales and marketing personnel and the scope of our marketing efforts. The number
of employees engaged in sales and marketing increased from 41 at March 31, 1998
to 62 at March 31, 1999. Management expects that the dollar amount of sales and
marketing expenses will continue to increase due to the planned growth of our
sales force, including the establishment of sales offices in additional domestic
and international locations, and due to expected additional increases in
marketing programs and other promotional activities.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of personnel and related
costs associated with our product development efforts. Product development
expenses increased from approximately $1.2 million for the three months ended
March 31, 1998 to approximately $3.4 million for the three months ended
24
<PAGE>
March 31, 1999. The increase was primarily due to an increase in the number of
product development personnel employed, including the addition of 22 employees
from the acquisition of VEO Systems, Inc. in January 1999, to support
development of the BUYSITE and MARKETSITE products. The overall number of
employees engaged in product development increased from 22 at March 31, 1998 to
89 at March 31, 1999. Management believes that investments in product
development is essential to our future success and expects that the dollar
amount of product development expenses will increase in future periods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of employee salaries
and related expenses for executive, administrative and finance personnel.
General and administrative expenses increased from approximately $331,000 for
the three months ended March 31, 1998 to approximately $827,000 for the three
months ended March 31, 1999. This increase was primarily attributable to overall
business growth and to increased salary and related expenses in accounting,
operations and administration. The number of employees engaged in general and
administrative functions increased from 8 at March 31, 1998 to 15 at March 31,
1999. Management expects general and administrative expenses to increase in
dollar amount in future periods.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In January 1999, we acquired VEO Systems, Inc., a company specializing in
the creation of XML technology applications, to complement our existing
technologies. We accounted for the VEO acquisition as a purchase transaction.
Management estimated that approximately $3.0 million of the $23.2 million
purchase consideration represented purchased in-process research and development
that has not yet reached technological feasibility and has no alternative future
use. Accordingly, this amount was charged to operations in the three months
ended March 31, 1999.
A total of approximately $3.5 million of the purchase consideration was
allocated to other intangible assets, including existing technology ($2.3
million), assembled workforce ($541,000) and tradenames and patents ($693,000),
with these amounts being amortized over periods of four, two and five years,
respectively.
The value of the purchased in-process research and development was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the revenues and
resulting net cash flows from such projects, and discounting the net cash flows
back to their net present value. These estimates were based on several
assumptions, including those summarized below. If these projects to develop
commercial products based on the purchased in-process research and development
are not successfully completed, our operating results may be harmed in future
periods.
Revenues and operating profit attributable to the in-process research and
development were estimated over a five-year projection period. The resulting
projected net cash flows were discounted to their present value using a discount
rate, which was calculated based on the weighted average cost of capital,
adjusted for the technology risk associated with the purchased in-process
research and development. The technology risk was considered to be significant
due to the rapid pace of technological change in the electronic commerce
industry. See Note 8 of Notes to Consolidated Financial Statements.
STOCK-BASED COMPENSATION
In the three months ended March 31, 1999, we recorded aggregate deferred
stock compensation totaling approximately $2.0 million in connection with
certain stock option grants. The deferred stock compensation is being amortized
over the four year vesting period of the related options. During the three
months ended March 31, 1999, amortization of deferred stock compensation totaled
approximately $584,000. See Note 5 of Notes to Consolidated Financial
Statements.
25
<PAGE>
NET LOSS
Our net loss increased from approximately $4.6 million for the three months
ended March 31, 1998 to approximately $12.3 million for the comparable period in
1999.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Total revenues increased from approximately $812,000 in 1996 to
approximately $1.7 million in 1997, and 46.8% to approximately $2.6 million in
1998. For 1996, license fees and services revenues accounted for 19% and 81% of
total revenues, respectively. For 1997, license fees and services revenues
accounted for 42% and 58% of total revenues, respectively. For 1998, license
fees and services revenues accounted for 64% and 36% of total revenues,
respectively.
License fees revenues increased from approximately $152,000 in 1996 to
approximately $742,000 in 1997, and 120.1% to approximately $1.6 million in
1998. The increase in revenues from license fees from 1996 to 1997 primarily
resulted from increased licenses of the non-Web-based, client-server procurement
application that was historically offered by us. The increase in revenues from
license fees from 1997 to 1998 resulted from customer acceptance of the
Web-based BUYSITE and MARKETSITE products introduced in April 1998.
Services revenues increased from approximately $660,000 in 1996 to
approximately $1.0 million in 1997 and remained relatively flat at approximately
$930,000 in 1998. The increase in services revenues from 1996 to 1997 resulted
primarily from the increase in consulting customer support and training services
associated with our non-Web-based, client-server procurement applications
offered during this period. Services revenues did not continue to grow in 1998
compared to 1997 as we transitioned to our Web-based BUYSITE and MARKETSITE
products. This resulted in reduced services revenues associated with our
predecessor products in advance of growth in services revenues from our new
BUYSITE and MARKETSITE licensees.
COST OF REVENUES
Cost of revenues increased from approximately $782,000 in 1996 to
approximately $2.9 million in 1997 and 51.3% to approximately $4.4 million in
1998. The increase in dollar amount and as a percentage of revenues from 1996 to
1998 primarily resulted from the hiring and training of consulting, support and
training personnel to support our growing customer base and increased use of
third-party service providers.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased from approximately $862,000 in 1996
to approximately $6.1 million in 1997, and 116.5% to approximately $13.1 million
in 1998. The increases in sales and marketing expenses from 1996 to 1998
resulted primarily from investing in sales and marketing infrastructure, both
domestically and internationally, which included significant personnel-related
expenses, recruiting fees, travel expenses, and related facility and equipment
costs, as well as increased marketing activities, including trade shows, public
relations, direct mail campaigns and other promotional expenses.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased from approximately $516,000 in 1996
to approximately $2.2 million in 1997, and 214.9% to approximately $6.8 million
in 1998. The increases in product development expenses from 1996 to 1998 related
primarily to the increase in the number of software developers and quality
assurance personnel and outside contractors hired to support product development
and testing activities.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from approximately $432,000 in
1996 to approximately $1.8 million in 1997, and 7.5% to approximately $1.9
million in 1998. The increases in general and administrative expenses from 1996
to 1998 resulted primarily from the addition of finance, executive and
administrative
26
<PAGE>
personnel to support the growth of our business during these periods.
STOCK-BASED COMPENSATION
In 1998, we recorded aggregate deferred stock compensation totaling
approximately $3.0 million in connection with certain stock option grants.
Amortization of deferred stock compensation was approximately $1.1 million for
1998. See Note 5 of Notes to Consolidated Financial Statements.
NET LOSS
Our net loss increased from $1.8 million in 1996 to approximately $11.2
million in 1997 and approximately $24.6 million in 1998.
INCOME TAXES
From inception through December 31, 1998, we incurred net losses for federal
and state income tax purposes and have not recognized any income tax provision
or benefit. As of December 31, 1998, we had approximately $32.7 million of
federal and $16.6 million of state net operating loss carryforwards to offset
future taxable income which expire in varying amounts beginning in 2009 and
2002, respectively. Given our limited operating history, losses incurred to date
and the difficulty in accurately forecasting our future results, management does
not believe that the related deferred income tax asset meets the recognition
criteria required by generally accepted accounting principles. Accordingly, a
full valuation allowance has been recorded. Furthermore, as a result of changes
in our equity ownership from our convertible preferred stock financing and this
offering, utilization of the net operating losses and tax credits is subject to
substantial annual limitations. This is due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and tax credits before utilization. See Note 6 of Notes to Consolidated
Financial Statements.
27
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly results of operations
data for our five most recent quarters ended March 31, 1999. You should read the
following table in conjunction with our Consolidated Financial Statements and
related Notes thereto included elsewhere in this prospectus. We have prepared
this unaudited information on the same basis as the audited Consolidated
Financial Statements. This table includes all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair presentation
of our financial position and operating results for the quarters presented. We
have experienced and expect to continue to experience fluctuations in operating
results from quarter to quarter. We incurred net losses in each of the last five
quarters and expect to continue to incur losses for the foreseeable future. You
should not draw any conclusions about our future results from the results of
operations for any quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH SEPTEMBER MARCH
31, JUNE 30, 30, DECEMBER 31, 31,
1998 1998 1998 1998 1999
------- ---------- ------------ ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
REVENUES:
License fees..................... $ 5 $ 500 $ 450 $ 678 $1,456
Services......................... 120 198 276 336 648
------- ---------- ------------ ------------ -------
Total revenues................. 125 698 726 1,014 2,104
Cost of revenues................... 674 961 1,352 1,382 1,668
------- ---------- ------------ ------------ -------
Gross profit (loss)................ (549) (263) (626) (368) 436
------- ---------- ------------ ------------ -------
OPERATING EXPENSES:
Sales and marketing.............. 2,511 3,373 3,329 3,895 4,078
Product development.............. 1,157 1,494 1,724 2,464 3,362
General and administrative....... 331 461 534 615 827
Purchased in-process research and
development.................... -- -- -- -- 3,037
Amortization of deferred stock
compensation................... 99 226 348 429 584
Amortization of goodwill and
other intangible assets........ -- -- -- -- 875
------- ---------- ------------ ------------ -------
Total operating expenses....... 4,098 5,554 5,935 7,403 12,763
------- ---------- ------------ ------------ -------
Loss from operations............... (4,647) (5,817) (6,561) (7,771) (12,327)
Interest income (expense), net..... 15 (76) 73 144 16
------- ---------- ------------ ------------ -------
Net loss........................... ($4,632) $(5,893) $(6,488) $(7,627) $(12,311)
------- ---------- ------------ ------------ -------
------- ---------- ------------ ------------ -------
</TABLE>
28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through
private placements of equity securities and lease and debt financing. Through
March 31, 1999, we have raised approximately $73.9 million through equity
financing which included the sale of 2,758,819 shares of Series E preferred
stock for net proceeds of approximately $23.6 million. See Notes 5 and 8 of
Notes to Consolidated Financial Statements.
Net cash used in operating activities totaled approximately $1.3 million for
1996, approximately $10.6 million for 1997, approximately $21.3 million for 1998
and approximately $6.3 million for the three months ended March 31, 1999. Cash
used in operating activities for each period resulted primarily from net losses
in those periods.
Net cash used in investing activities totaled approximately $286,000 for
1996, approximately $924,000 for 1997, approximately $2.5 million for 1998 and
approximately $785,000 for the three months ended March 31, 1999. The increases
in each period resulted primarily from the acquisition of capital assets,
primarily computer and office equipment, and in the cash advances made to VEO in
1998. See Note 8 of Notes to Consolidated Financial Statements.
Net cash provided by financing activities totaled approximately $7.4 million
for 1996, approximately $14.8 million for 1997, and approximately $29.6 million
for 1998. In the three months ended March 31, 1999, we used approximately
$180,000 in financing activities. The increases in each period resulted
primarily from the net proceeds from issuances of convertible preferred stock
and from bank line of credit borrowings.
As of March 31, 1999, our principal sources of liquidity included
approximately $7.8 million of cash and cash-equivalents. On April 19, 1999 we
received net proceeds of approximately $23.6 from the sale of shares of our
Series E preferred stock. We anticipate an increase in our capital expenditures
consistent with anticipated growth in operations, infrastructure and personnel.
We believe that the net proceeds from this offering, combined with current
cash and cash equivalents, will be sufficient to meet our anticipated liquidity
needs for working capital and capital expenditures for at least twelve months
from the date of this prospectus. Our future liquidity and capital requirements
will depend upon numerous factors. The rate of expansion of our operations in
response to potential growth opportunities and competitive pressures will affect
capital requirements. Additionally, we may need additional capital to fund
acquisitions of complementary businesses and technologies. Our forecast of the
period of time through which its financial resources will be adequate to support
operations is a forward-looking statement that involves risks and uncertainties,
and actual results could vary materially as a result of the factors described
above. If we require additional capital resources, we may seek to sell
additional equity or debt securities or secure a bank line of credit. The sale
of additional equity or convertible debt securities could result in additional
dilution to our stockholders. We cannot assure you that any financing
arrangements will be available in amounts or on terms acceptable to us, if at
all.
YEAR 2000 ISSUES
Many currently installed computer systems, software products and other
control devices are unable to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to operate properly in the year 2000 and beyond.
We have designed our current products to be year 2000 compliant. However, we
cannot assure you that our current products do not contain undetected errors or
defects associated with year 2000 date functions. Further, we cannot assure you
that the technology we license from third parties and incorporate into our
products do not contain errors or defects. If any such errors or defects do
exist, we may incur substantial costs to resolve them.
The internal systems used to deliver our services utilize third-party
hardware and
29
<PAGE>
software. We have contacted these infrastructure products' vendors in order to
gauge their year 2000 compliance. Based on these vendors' representations, we
believe that there are a number of third-party hardware and software systems
that require some upgrade in order to be year 2000 compliant. We are currently
in the process of effecting these upgrades and currently estimate the costs of
such efforts to be less than $500,000. While we expect to be able to complete
these upgrades in a timely manner, we cannot assure you, however, that we will
timely complete these upgrades or that we will not experience unanticipated
problems, including material costs caused by undetected errors or defects in the
technology used in our internal systems.
In addition, our customers' and commerce service providers partners'
internal operating systems and other software applications must operate
effectively for them to use our products and services effectively. If these
systems or applications are not year 2000 compliant, our customers may not use
our products and services and the commerce service provider partners may not be
able to host our solutions. We cannot predict to what extent our customers' and
commerce service providers partners' systems and applications are year 2000
compliant.
As the year 2000 approaches, there is a risk that orders for our products
will be reduced or delayed as information technology departments within
companies reallocate their capital expenditures to prepare for the year 2000 and
resolve year 2000 problems. If companies do defer purchases of our products and
services because of such reallocation, such a resulting reduction in orders
could significantly impact our business.
We have no specific contingency plan to address the effect of year 2000
noncompliance. If, in the future, it comes to our attention that certain of our
products need modification, or certain of our third-party hardware and software
are not year 2000 compliant, then we will seek to make modifications. In such
case, we expect such modifications to be made on a timely basis, and we do not
believe that the cost of such modifications will have a material effect on our
operating results. We cannot assure you, however, that we will be able to modify
our products, services and systems in a timely and successful manner to comply
with the year 2000 requirements.
MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the Risk Factors section.
INTEREST RATE RISK
As of March 31, 1999, we had cash and cash equivalents of approximately $7.8
million which consist of cash and highly liquid short-term investments with
original maturities of three months or less at the date of purchase. We have
invested the proceeds of our recent preferred stock financing in similar
investments. These investments may be subject to interest rate risk and will
decrease in value if market interest rates increase. A hypothetical increase or
decrease in market interest rates by 10 percent from the market interest rates
at March 31, 1999 would cause the fair value of these short-term investments to
change by an immaterial amount. Declines in interest rates over time will,
however, reduce our interest income.
FOREIGN CURRENCY EXCHANGE RATE RISK
Substantially all of our revenues recognized to date have been denominated
in U.S. dollars and are primarily from customers in the United States. Although
revenues from international customers to date have not been substantial, we
expect that future license fees and services revenues derived from international
markets will be denominated in the currency of the applicable foreign market. As
a result, our operating results could become subject to significant fluctuations
based upon changes in the exchange rates of certain currencies in relation to
the U.S. dollar. Furthermore, to the extent that we engage in international
sales denominated in U.S. dollars,
30
<PAGE>
an increase in the value of the U.S. dollar relative to foreign currencies could
make our products less competitive in international markets. Although we will
continue to monitor our exposure to currency fluctuations, and, when
appropriate, may use financial hedging techniques in the future to minimize the
effect of these fluctuations, we cannot assure you that exchange rate
fluctuations will not harm our business in the future.
EQUITY PRICE RISK
We do not own any equity investments. Therefore, we are not currently
exposed to any direct equity price risk.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998. Based on our interpretation of Statement of Position
97-2 and Statement of Position 98-4, we believe our current revenue recognition
policies and practices, as discussed in "Management's Discussion and Analysis of
Financial Condition and Result of Operations -- Overview," are consistent with
Statement of Position 97-2 and Statement of Position 98-4. The American
Institute of Certified Public Accountants has also issued Statement of Position
98-9 which will be effective for us for transactions entered into beginning
January 1, 2000. However, full implementation guidelines for this standard have
not yet been issued. Once available, such implementation guidelines could lead
to unanticipated changes in our current revenue recognition policies, which
changes could materially adversely affect our business, financial condition or
operating results. See "Risk Factors -- Our Quarterly Financial Results Are
Subject to Significant Fluctuations Because of Many Factors and Any of These
Could Harm Our Stock Price and Business" and Note 1 of Notes to Consolidated
Financial Statements.
31
<PAGE>
BUSINESS
INDUSTRY BACKGROUND
The success of the Internet in streamlining business-to-consumer commerce is
encouraging companies to seek similar efficiencies in their transactions with
other businesses. Companies are increasingly using the Internet to enter new
markets, improve supply chains and meet the challenges of increased competition
and global markets. Forrester Research estimates that U.S.-based Internet
commerce between companies will grow from $109 billion in 1999 to $1.3 trillion
in 2003. Forrester Research further estimates that by 2003 this market for
business-to-business transactions will be more than ten times larger than the
related business-to-consumer transactions market.
EARLY ENTERPRISE COMMERCE AUTOMATION
Initial efforts by businesses to reduce transaction costs and increase
commerce efficiency focused on automating supply chains, particularly for the
purchase and sale of raw materials, unfinished items and other direct goods.
Most large companies have historically relied upon enterprise resource planning
("ERP") and supply chain automation systems to increase the efficiency of their
internal procurement processes for direct goods. These systems are based on
complex client-server architectures that are designed to be used by a relatively
small number of sophisticated users. In addition, since ERP solutions do not
typically tie the corporation with its suppliers or customers, they do not
address any transaction costs or inefficiencies that are external to the
organization.
A variety of point-to-point solutions have been developed to address
procurement cycle inefficiencies across both buyers and suppliers. The most
successful of these has been to integrate electronic data interchange ("EDI")
into existing ERP systems. EDI has gained wide acceptance in automating the sale
and procurement of selected direct goods, principally in environments
characterized by high dollar-volume transactions with a few suppliers. However,
because EDI relies on the execution of certain pre-defined transactions, it
typically is not well suited for situations involving many buyers and suppliers,
a wide variety of goods and services, or numerous low dollar-volume
transactions. Moreover, EDI does not support real-time interactions between
trading partners, making it difficult for buyers to obtain up to date supplier
information about price, availability and order status. Finally, the expense and
complexity associated with licensing, implementing and managing both ERP and EDI
solutions makes them unsuitable for all but the largest organizations.
FIRST GENERATION INDIRECT PROCUREMENT SOLUTIONS
Similar efforts have been made to improve the procurement process for
indirect goods and services, which include information technology and
telecommunications equipment, office equipment and supplies, travel and
entertainment, professional services and other repeat purchase items. The
purchase and sale of these goods comprise a large portion of
business-to-business transactions. The process of procuring these goods often
involves thousands of internal users, as numerous work groups, departments, and
divisions within an enterprise are involved in the purchase of indirect goods
and services. As a result, the indirect goods procurement process is also mired
in several inefficiencies, including high purchasing costs (as paper-based,
manual processes still dominate this process), wasted time on low value
activities within purchasing departments and poor communication between buyers
and suppliers.
A number of desktop-based requisitioning solutions have been introduced to
focus on automating the indirect goods and services procurement processes within
the enterprise. These solutions serve to enforce purchasing policies and improve
the efficiency of supplier management, buying authorization, approval routing
and order processing. However, these buyer-focused approaches offer limited
ability to address the costs and inefficiencies associated with the supplier
side of the transaction. They also typically lack the interactivity users need
to check prices, availability and order status, while they also generally fail
to provide a mechanism to automatically update supplier information
32
<PAGE>
relating to these areas. Consequently, both internal users and suppliers must
still rely upon costly, manual phone- and fax-based processes to interact and
conduct commerce.
In response to these limitations, some vendors have produced point-to-point
solutions that automate buying and selling among trading partners. These
solutions typically require compatible software to be deployed at both the buyer
and supplier, a costly and inefficient approach that is difficult to scale to a
large number of trading partners.
Indirect procurement is an ideal application for Internet-based e-commerce.
The Internet offers the potential to transform the indirect goods supply chain
into open marketplaces or trading communities by enabling companies to publish
information so that it is instantly available to all trading partners. Ideally,
these marketplaces should be open and interoperable, so that buyers and
suppliers can reach the largest number of trading partners, regardless of the
procurement applications they may be using or the trading communities to which
they belong.
THE COMMERCE ONE SOLUTION
Commerce One is a leading provider of e-commerce solutions that link buyers
and sellers of business goods and services into real-time trading communities.
Our solutions are architected to create a global web of interoperable
marketplaces, trading communities and commerce portals. We have developed the
Commerce Chain Solution to automate the procurement cycle between multiple
buyers and suppliers. The Commerce Chain Solution is comprised of the following
components: enterprise procurement applications consisting of BUYSITE,
ENTERPRISE EDITION and BUYSITE, HOSTED EDITION, THE MARKETSITE OPEN MARKETPLACE
PLATFORM, and MARKETSITE COMMERCE SERVICES. The Commerce Chain Solution is
designed to enable business-to-business e-commerce for a broad range of
organizations.
BUYSITE is an intranet-based purchasing application that enables users
throughout the enterprise to make purchases over the Internet. BUYSITE provides
access to and easy purchasing from catalogs of many different suppliers while
eliminating paperwork, automating the approval process, and enforcing the
purchasing policies that apply to each buyer and supplier.
The MARKETSITE PLATFORM provides the foundation for commerce service
providers to create and maintain regional and vertical marketplaces. We believe
this platform creates significant economies of scale for market participants by
centralizing content and transaction management services, eliminating the need
for buyers and suppliers to create point-to-point integration with each trading
partner. The first MARKETSITE marketplace operating on this platform is our
MARKETSITE.NET marketplace.
Key benefits of our approach include the following:
END-TO-END ENTERPRISE PURCHASING SOLUTION
We believe that the Commerce Chain Solution offers an end-to-end solution
that automates the procurement cycle for marketplace participants, including
buyers, suppliers, market-makers and value-added commerce service providers. Our
solution not only automates internal procurement functions within the
organization--replacing traditional methods such as phone, fax, simple email,
and EDI for communication between trading partners--but also offers the products
and services necessary for establishing real-time on-line trading communities.
SCALABLE ARCHITECTURE
The Commerce Chain Solution architecture allows buyers and suppliers to
perform a single integration of their systems with the MARKETSITE PLATFORM. The
MARKETSITE PLATFORM is designed to provide a centralized portal for all commerce
services and to enable business transactions between all trading partners within
the marketplace. This many-to-one-to-many architecture is highly scalable and is
designed to support trading communities. Moreover, individual trading
communities established on the MARKETSITE PLATFORM will be able to interoperate
to create marketplaces on a global scale.
33
<PAGE>
SUPERIOR SUPPLIER SOLUTION
Our MARKETSITE PLATFORM features a "publish once" content model and related
tools that enable suppliers to standardize their content presentation and
centralize the delivery of their catalogs. Purchasing enterprises in the trading
community can access this content and make purchases using our BUYSITE products,
providing suppliers with a large and expanding channel for reaching corporate
purchasers. We believe this approach, combined with a supplier's ability to
easily update pricing and availability information in real time, streamlines the
sales process and can lower the supplier's overall transaction costs.
MULTIPLE PROCUREMENT APPLICATION SUPPORT
In addition to our own BUYSITE applications, we also enable third-party
procurement applications to connect to the MARKETSITE PLATFORM. This extends the
leverage of our "publish once" content model for suppliers, greatly expanding
the number of potential participants in our trading communities. Enterprises
that have already deployed third-party applications within their organizations
are able to leverage these applications and still take advantage of our
marketplace solutions. In addition, we have acquired, and are in the process of
integrating, innovative XML technology which we expect will enable us to
incorporate additional third-party applications in the future.
GLOBAL MARKETPLACE SUPPORT
Our solution is designed to enable an enterprise buyer or supplier to use
our Commerce Chain Solution to access a global network of trading communities as
they are deployed, through a single Internet connection. We have established
strategic relationships with BT and NTT to host MARKETSITES in their regional
markets, and plan to pursue additional strategic relationships in the future. We
believe these global partnerships will be attractive to additional trading
partners, increasing the breadth and depth of our commerce service offerings and
accelerating the deployment of our Internet-based procurement applications. Most
importantly, we believe that our partners will benefit from increased commerce
traffic between trading partners, incremental revenue opportunities from
operating regional marketplaces and opportunities to provide new commerce
services.
VERTICAL TRADING COMMUNITIES
Our products are designed to create vertical trading communities for
specialized market segments. Our solutions are constructed to allow distributors
and aggregators to transform their existing customer and supplier relationships
into real-time trading communities, improving the efficiency of existing
business processes and creating opportunities to offer new value-added services.
Moreover, because marketplaces in different industries are designed to be
interoperable, market-makers will be able to significantly expand their supply
and distribution chains. Our MARKETSITE PLATFORM also enables market-makers
within defined trading communities to host transactions in their community on a
subscription basis in order to encourage electronic trading within their
specific industries.
ELECTRONIC TRADING COMMUNITY FOR ORGANIZATIONS OF ALL SIZES
For buyers and suppliers with limited in-house e-commerce capabilities, we
provide hosted applications that offer low cost, low risk access to electronic
trading communities. BUYSITE, HOSTED EDITION requires only a Web browser
interface and is an innovative platform for offering electronic procurement
solutions to small-to-medium size businesses on a subscription basis. Using
MARKETSITE.NET, these buyers can order products electronically from supplier
catalogs of any supplier on MARKETSITE.NET, pay for these products and arrange
for their shipment.
COMMERCE ONE STRATEGY
Our objective is to create the leading global business-to-business trading
web comprised of interoperable marketplaces, trading communities and commerce
portals operated by both our strategic partners and us in targeted regional and
vertical markets. We intend to create a global network effect by attracting the
world's largest buyers, suppliers and commerce service providers
34
<PAGE>
and providing the products and services necessary to create new economies of
scale for all these key participants. The infrastructure for this worldwide
trading web will be regional trading communities based in North America, Europe
and Asia. We will operate a North American marketplace, MARKETSITE.NET, while
European and Asian marketplaces will be delivered by our strategic partners who
will in turn drive adoption of our solution. Our strategy is to deliver the
world's largest and most valuable business-to-business marketplace by building
upon this infrastructure, delivering the products and services necessary for
creating new marketplaces, offering a platform for the easy integration of
third-party commerce services and extending the capabilities of our buying
solutions.
Key elements of our strategy include:
ESTABLISH MARKETSITE.NET AS THE PREMIER BUSINESS-TO-BUSINESS E-COMMERCE PORTAL
FOR NORTH AMERICA
Our MARKETSITE.NET, the first marketplace built upon the MARKETSITE
PLATFORM, is designed to be open to third party and proprietary buying
applications, including our BUYSITE application, selling applications, hosted
applications and value-added commerce services. We believe this open environment
creates new economies of scale for all participants. Suppliers will have access
to a larger selection of buyers, buyers will have a wider choice of suppliers
and commerce service providers will gain a single point of access to all trading
community members. We intend to leverage this network effect to establish
MARKETSITE.NET as the premier business-to-business e-commerce portal for North
America. We believe the value of MARKETSITE.NET will increase as both
complementary regional MARKETSITE marketplaces, planned to be operated by our
strategic partners, and specialized vertical trading communities, are added to
our global trading web.
DRIVE GLOBAL ADOPTION OF OUR SOLUTIONS THROUGH STRATEGIC PARTNERSHIPS
We license the MARKETSITE PLATFORM as an enabling technology for
market-makers to develop and deploy open trading communities that complement
MARKETSITE.NET. We intend to establish alliances with key participants in a
number of geographic markets to drive adoption of our solution on a global
basis. We further intend to license our BUYSITE solution for internal use by
these key geographic partners to drive adoption by their suppliers, and leverage
this adoption to create critical mass for a marketplace to be offered by our
partners to the geographic market. We expect that the value of this marketplace
will attract other buyers utilizing either our BUYSITE application or other
third-party buying applications. We believe commerce service providers will seek
to access the MARKETSITE marketplace to deliver their services to all
participating buyers and suppliers. Our strategic partners will also be able to
leverage our hosted capabilities to offer procurement and selling solutions to
small and medium size enterprises.
Earlier this year, we established an alliance with BT that includes licenses
to use our BUYSITE product and MARKETSITE PLATFORM internally and to host a
trading community built on the MARKETSITE PLATFORM in the United Kingdom. We
also recently established an alliance with NTT that includes licenses of our
MARKETSITE PLATFORM and BUYSITE products. This alliance also contemplates the
creation of a MARKETSITE trading community in Japan.
EMPOWER MARKET-MAKERS TO ESTABLISH VERTICAL MARKETPLACES
By licensing the MARKETSITE PLATFORM for the creation and deployment of new
vertical marketplaces, we intend to establish relationships with key industry
participants that have the resources and market position to drive adoption of
marketplaces in specific vertical markets. Vertical markets that we intend to
target include telecommunications, financial services, utilities, healthcare,
pharmaceuticals, hospitality, information technology, chemicals, and government.
The open, scalable nature of our MARKETSITE PLATFORM and BUYSITE products is
designed to enable trading across these vertical markets and with regional
MARKETSITE marketplaces. We believe the proliferation of vertical market
communities can substantially increase the value to all trading partners
participating in a community.
35
<PAGE>
OFFER A SINGLE POINT OF INTEGRATION FOR THIRD-PARTY VALUE-ADDED SERVICE
PROVIDERS
The MARKETSITE PLATFORM is designed to provide a single point of integration
for making new services available immediately across a MARKETSITE marketplace to
all users, alleviating the need for the point-to-point, application-to-
application integration required by competing solutions. We believe that this
capability will encourage MARKETSITE commerce service providers to offer a wide
variety of value-added commerce services, both creating more value for all
participants and extending the network effect of our solution. For example, we
expect third-party service providers to offer shipping, payment, travel and
taxation analysis services on MARKETSITE.NET beginning in the second half of
1999, and we intend to integrate additional value-added services in the future.
DRIVE ENTRY INTO OUR MARKETSITE MARKETPLACES THROUGH ENHANCED BUYSITE
FUNCTIONALITY
BUYSITE is the primary "on-ramp" that allows trading partners to access
MARKETSITE marketplaces. We plan to extend BUYSITE functionality to accomodate
additional services that become available on MARKETSITE marketplaces and to
automate the process of procuring other goods, such as direct goods. We also
will continue to develop our BUYSITE, HOSTED EDITION application, which permits
a buyer's employees to conduct commerce on the MARKETSITE PLATFORM from their
desktops via an Internet browser without the need to license BUYSITE, ENTERPRISE
EDITION and integrate it into the buyer's internal ERP system. We intend to
continue to extend BUYSITE'S functionality to further attract buying
organizations of all sizes, adding more value to MARKETSITE marketplaces and
extending the network effect of our solution.
36
<PAGE>
LEVERAGE SYSTEM INTEGRATION AND TECHNOLOGY PARTNERSHIPS
We intend to accelerate our penetration of the e-commerce marketplace
through strategic partnerships with large system integrators and technology
vendors that have established market presence with Fortune 1000 companies,
government entities and academic institutions. Our system integration partners
include PricewaterhouseCoopers, MCI Systemhouse and Cambridge Technology
Partners. We are also among the application vendors associated with Microsoft's
Commerce Alliance Program, developed to launch its e-commerce strategy.
LEVERAGE LEADING EDGE XML TECHNOLOGY AND CONTENT MANAGEMENT TOOLS
Our XML technology is designed to eliminate the need for expensive,
customized point-to-point integration of commercial data between buyers and
suppliers and to enable our solution to integrate with other e-commerce
solutions, software applications and platforms. Once implemented, this
technology is expected to enable buyers and suppliers to exchange commercial
information and conduct commerce through our MARKETSITE PLATFORM using
self-defining business documents. In addition, our content management tools
allow us to quickly and cost-effectively convert raw supplier product data into
a consistent, normalized XML format for use on MARKETSITE. We believe that XML
is emerging as the foundation of an industry standard for business-to-business
e-commerce.
PRODUCTS AND SERVICES
Our Commerce Chain Solution is comprised of BUYSITE, the MARKETSITE PLATFORM
and MARKETSITE COMMERCE SERVICES.
COMMERCE ONE BUYSITE
The Commerce One BUYSITE product currently consists of two offerings:
BUYSITE, ENTERPRISE EDITION and BUYSITE, HOSTED EDITION. Both applications offer
Web-based procurement capabilities that are designed to enable companies to
reduce their indirect goods purchasing costs while increasing their overall
supply chain efficiency. Cost reductions are achieved through user-friendly
application functionality designed to reduce off contract, or "rogue,"
purchases, automate unnecessary manual processes, improve leverage with
suppliers and provide links to a dynamic trading partner community.
BUYSITE, ENTERPRISE EDITION is typically installed and maintained at the
customer site. Key components of BUYSITE, ENTERPRISE EDITION include:
- An easy to use, Web-based interface that requires limited training and is
readily localized for international requirements.
- A powerful multi-supplier catalog with advanced search capabilities that
allow easy access to the requested item or service.
- A robust workflow module that automates and controls the requisition/order
routing, approval and preparation processes.
- An easily-configured business rules module designed to implement each
customer's business processes.
- Unique transaction capabilities that enable real-time connections to
suppliers for up-to-the-minute prices and availability, status and other
critical information.
- The ERP COMMERCE CONNECTOR that enables BUYSITE to readily integrate with
customers' ERP systems.
BUYSITE, HOSTED EDITION is designed to be offered by a commerce service
provider as a hosted service to customers that do not require an enterprise
application to be installed, BUYSITE, HOSTED EDITION includes added
functionality in the following areas:
- Support for multiple buying organizations in a single hosted environment.
- System and site monitoring designed to handle large volumes of users in a
distributed multi-organization environment.
37
<PAGE>
- Multi-level administration designed to support the large number of
operators and system administrators inherent in a multiple enterprise,
shared environment.
- Billing support for the commerce service providers' unique business
requirements.
Both of these applications are built on Microsoft's industry-leading Windows
NT platform and have an open standards-based architecture that facilitates our
rapid development of new features and functions. By implementing the BUYSITE
procurement product, customers are able to access our MARKETSITE marketplaces.
COMMERCE ONE MARKETSITE PLATFORM
The MARKETSITE PLATFORM is the enabling technology that provides for the
creation and management of open, interactive marketplaces. Future releases of
MARKETSITE PLATFORM will leverage our XML technology to enable real-time
transaction exchange among members of a marketplace.
Commerce One MARKETSITE.NET is the first available, open
business-to-business marketplace portal deployed using the MARKETSITE PLATFORM.
Primary features of MARKETSITE.NET include:
- compatibility with multiple buying and selling applications;
- real-time exchange of purchase orders, price, availability, status and
other information; and
- automated aggregation, normalization and updating of multiple supplier
catalog content.
HOSTED APPLICATIONS AND BUSINESS SERVICES PLATFORM
Our MARKETSITE PLATFORM can host e-commerce applications and business
services developed by Commerce One or third-party partners. A hosted content and
order management module called "Commerce One Supply Order" enables smaller
suppliers to integrate with a MARKETSITE marketplace in real-time. Users of
Commerce One Supply Order are able to publish their content on a MARKETSITE
marketplace using only a Web browser. In the future, we expect to add
third-party services including shipping, payment, travel and tax, and intend to
support new applications for the MARKETSITE PLATFORM.
AUTOMATED CONTENT MANAGEMENT
MARKETSITE COMMERCE SERVICES provide the tools to automate and aggregate
catalog content from multiple suppliers to create a scalable resource across the
marketplace. These tools provide both manual and automated options for acquiring
and aggregating the content from supplier catalogs.
PROFESSIONAL SERVICES
Our professional services organization helps customers maximize their
investments by providing tools and services that facilitate the Commerce Chain
Solution implementation process. By teaming with a range of leading services
partners, we deliver comprehensive systems integration, implementation,
technical support, supplier adoption, and education services and programs to
deploy our Commerce Chain Solution. Our professional services are grouped into
three catagories: implementation service packages, education and training
services, and support and maintenance services.
SERVICE PACKAGES
QUICKSTART PROGRAM. The QuickStart Program is designed to provide support,
guidance, education and product consulting during the initial implementation
phase of the Commerce Chain Solution. The primary goal is to create a working
environment that can confirm and quantify the requirements by the project team.
Through the Quickstart Program, customers often develop the ability to use our
solution within the first six months of licensing the software.
TRANSACTIVE CONTENT SERVICES PROGRAM. The Transactive Content Services
Program accelerates the addition of suppliers into a MARKETSITE marketplace by
normalizing and aggregating catalog content from multiple suppliers. The program
provides tools, consulting and other
38
<PAGE>
resources necessary to implement e-commerce trading relationships with strategic
suppliers.
SUPPLIER CONTENT MANAGEMENT SERVICES PROGRAM. The Supplier Content
Management Services Program provides processes and tools to replicate and
integrate data from multiple suppliers into a single catalog. Our automation
tools and services enable suppliers to provide content in a storable
environment, lowering the supplier's costs. We provide a methodology and tools
which offer a "publish once" content strategy that can be leveraged across many
buyers. Unlike competing solution providers, we accept catalog content in the
supplier's preferred format and then map the data into the buying customer's
preferred format.
EDUCATION AND TRAINING SERVICES
We are committed to delivering the knowledge and tools needed for the
successful implementation and deployment of the Commerce Chain Solution. We have
designed a comprehensive curriculum to meet the needs of our customers and
partners. The curriculum includes hands-on classes and Web-based training for
BUYSITE and MARKETSITE customers, methodology and process-centered seminars for
system integrators, detailed technical training for systems administrators, and
integration training for suppliers.
SUPPORT AND MAINTENANCE SERVICES
We have developed a portfolio of complementary support and maintenance
programs for our customers. Our customer support center uses on-line media
access, call tracking, and knowledge management systems, as well as remote
access to customer sites, to provide a comprehensive range of services. For the
successful ongoing operation of our solutions, we offer support programs
specifically designed for each BUYSITE customer and its suppliers.
STRATEGIC RELATIONSHIPS
We have entered into several strategic relationships that are integral to
establishing trading communities, implementing our solutions and developing our
products. The continued establishment of strategic partnerships is a fundamental
piece of our strategy as we expand our products and services and enter new
markets. Our strategic partners include the following:
BRITISH TELECOMMUNICATIONS, PLC
We have established a strategic relationship with BT in which we have:
- Granted BT a license to host the BT MARKETSITE service within the U.K.
- Granted BT the right to resell our BUYSITE products to customers in the
U.K.
- Received commitments from BT to designate MARKETSITE as its exclusive
solution for procurement of commoditized indirect goods in the U.K. This
service will be marketed under the BT brand and identified as powered by
Commerce One.
- Licensed BUYSITE, ENTERPRISE EDITION to BT for its internal use.
In addition, BT has invested $6.0 million in our recent preferred stock
financing and John Swingewood, Director of the Internet and Multimedia group at
BT, is a member of our board of directors.
NIPPON TELEPHONE AND TELEGRAPH
We have established a strategic relationship with NTT in which we have:
- Licensed BUYSITE, ENTERPRISE EDITION and the MARKETSITE PLATFORM to NTT
for internal use in the United States and Japan, including an exclusivity
arrangement within Japan. The exclusivity of portions of the license is
for a specified period of time.
- Agreed to enter into a strategic partnership with NTT relating to the
establishment of a hosted MARKETSITE service in Japan.
- Agreed to establish a joint development relationship to develop e-commerce
platform technologies for the Japanese market.
39
<PAGE>
In addition, NTT owns approximately 400,083 shares of our common stock that
it received in exchange for its equity stake in VEO at the time our acquisition
of VEO in January 1999.
PRICEWATERHOUSECOOPERS
We have entered into a Preferred Marketing Agreement with the management
consulting services group within PricewaterhouseCoopers. As part of this
agreement, this group has designated us as its preferred provider of
business-to-business e-commerce solutions for indirect goods procurement, and we
have designated this group as a preferred consulting and system integration
partner. In addition, this group also provides us with marketing support and has
dedicated over ten of their product development engineers to assist in the
development of our next generation e-commerce solutions at our facilities.
MCI SYSTEMHOUSE
We have also entered into a Preferred Marketing Agreement with MCI
Systemhouse, a wholly-owned subsidiary of MCI WorldCom. MCI Systemhouse has
designated us as its preferred provider of business-to-business e-commerce
solutions for indirect goods procurement and we have designated MCI Systemhouse
as a preferred consulting and system integration partner. MCI Systemhouse made a
$5.0 million equity investment in Commerce One through our preferred stock
financing in 1998.
MICROSOFT CORPORATION
We are among the selected application vendors associated with Microsoft's
Commerce Alliance Program, developed to launch Microsoft's e-commerce strategy.
This relationship fosters a range of benefits including participation in
Microsoft marketing activities and promotions, joint press releases, developer
conferences and access to beta releases of Microsoft software programs.
CUSTOMERS
As of March 31, 1999, we served organizations in a wide range of industries,
including government, utilities, finance, telecommunications, information
services, travel and transportation. Set forth below is a select list of our
customers who have licensed our products:
DOMESTIC
Booz-Allen Hamilton
California State University, Fullerton
The County of Los Angeles
CSC\Helix
Eastman Chemical
Foundation Health
The Idaho Power Company
MCI WorldCom
Pacific Bell Network Integration
Pacific Gas and Electric Company
Promus Hotels
The SABRE Group
University of California, Los Angeles
Warner-Lambert
INTERNATIONAL
The Boots Company
British Telecommunications
Nippon Telephone and Telegraph
Schlumberger Oilfield Services
The following case studies illustrate how some of our customers have used
the Commerce Chain Solution to address their indirect procurement needs.
COUNTY OF LOS ANGELES, CALIFORNIA. The County of Los Angeles is the largest
local government in the United States, with an annual budget of more than $12
billion and approximately 80,000 civil service employees. The county spends
nearly $700 million a year on the purchase of indirect goods and services to
meet the needs of 36 diverse departments (including county hospitals, police and
fire stations, and road works) that serve the needs of the county's nine million
people. Like other government organizations, many of the county's procurement
processes and procedures had been strained due to the lack of available
resources and technology. The county's goal was to implement an integrated,
Internet-based system
40
<PAGE>
for use by thousands of end-users and hundreds of suppliers that would expand
the local supply base and comply with the procurement objectives of small- and
minority-owned businesses. The county also required an automated system that
would allow delegation based on clearly-defined business rules to enable
distributed desktop requisition and procurement.
After evaluating numerous electronic commerce solutions, the County of Los
Angeles determined that the Commerce One solution was most suitable. The county
also worked with MCI Systemhouse's consultants to create an implementation that
efficiently utilized business rules and processes that were resident in the
county's ERP system.
THE SABRE GROUP INC. SABRE is a world leader in the electronic distribution
of travel, travel-related services, and information technology solutions for the
travel and transportation industries. Through SABRE's global distribution
system, more than one-third of the world's travel is booked annually. These
bookings are channeled through a comprehensive system of 30,000 travel agencies,
and 420 airlines, 50 car rental companies, 40,000 hotel properties and various
railways tour companies, passenger ferries and cruise lines on the supplier
side.
Our strategic relationship with SABRE as a complementary software provider
concerns SABRE Business Travel Solutions, a desktop solution for booking travel
that is used by corporations and travel agencies. SABRE Business Travel
Solutions will be fully integrated into the Commerce Chain Solution so customers
can automate the procurement of travel services directly through the Commerce
One BUYSITE solution. We believe the ability to book travel directly through a
solution like SABRE Business Travel Solutions will be a significant use of our
solution for many of our current and future customers.
SCHLUMBERGER OILFIELD SERVICES. Schlumberger Oilfield Services is a business
segment of Schlumberger Limited, a worldwide leader in technical services with
67,000 employees, operations in more than 100 countries and 1998 revenues
exceeding $11.82 billion. As a leading global provider of services and
technology to the international petroleum industry, Schlumberger Oilfield
Services' employees are frequently mobile or off-site at customer locations.
Schlumberger management sought a global electronic procurement system to
centralize and automate orders from widespread field locations and improve
accuracy and timeliness of the deliveries.
After reviewing alternatives, Schlumberger Oilfield Services chose our
solution. Through our solution's real-time, automated interaction with
suppliers, Schlumberger anticipates cost reductions by consolidating its
supplier base, improving order accuracy and field satisfaction and reducing
order cycle time and field inventories.
TECHNOLOGY
SCALABLE ARCHITECTURE
We are able to leverage our Microsoft Windows distributed Internet
applications framework into a unified architecture enabling us to focus on
creating additional business functionality in our solutions, rather than
building and maintaining complex infrastructure code. Additionally, we have
designed our solution to be able to grow our infrastructure through the simple
addition of low-cost systems that utilize Intel microprocessors and the NT
operating system. This framework allows us to leverage technologies such as
resource pooling message queueing, security services, and coordination and
distribution of transactions, components and services.
XML TECHNOLOGY PLATFORM
We utilize the XML technology platform to create an XML server that enables
the creation and secure transmission of XML documents over the Internet. This
server also provides software development capabilities for the creation of new
XML document-based services. In addition, we have developed an XML schema
language, "schema for object specification" or "SOX," that extends base XML
documents. We have also created a common business library (CBL) designed to
enable a common semantic framework for uniting disparate business document
types. We believe that XML is
41
<PAGE>
emerging as a foundation of an industry standard for business-to-business
e-commerce.
PROVEN DEVELOPMENT METHODOLOGY
Our product development team employs object-oriented analysis and design
principles to guide the development of an object-oriented system of software
code. Our methodology allows us to exploit the capabilities of object-oriented
programming languages like C++ and Java to build reusable components and
designs. This methodology also helps reduce the risks inherent in developing
complex system, and helps us design our solutions to meet the needs of our
trading partners.
SALES AND MARKETING
We market and sell our products and services to organizations through a
direct sales force. Our sales offices are located in the United States, the
United Kingdom, France and Switzerland. Since our products and services touch
upon multiple departments within an organization, our sales efforts are directed
at multiple decision makers, frequently including the chief financial officer,
chief information officer and vice president of procurement. We target our sales
efforts at Fortune 1000 enterprises and their suppliers and have initiated
vertical sales strategies targeted at the utilities, telecommunications,
government and oil and gas markets.
Our marketing activities include seminar programs, trade shows, Web-site
programs, public relation events and direct mailings. We are also engaged in an
on-going effort to maintain relationships with key industry analysts.
We have entered into a strategic relationship with BT which, among other
things, provides that BT will act as a reseller of our BUYSITE solution in its
market. In addition, our system integrators, including the management consulting
services group within PricewaterhouseCoopers, MCI Systemhouse and Cambridge
Technology Partners, provide us with sales and marketing support.
PricewaterhouseCoopers and MCI Systemhouse have each designated us as their
preferred provider of business-to-business e-commerce solutions for indirect
goods procurement. See "Strategic Relationships" for more information about
these relationships.
As of March 31, 1999, we had 62 employees in our sales and marketing
department.
INTELLECTUAL PROPERTY RIGHTS
Our future success depends in part on our proprietary rights and technology.
We rely on a combination of copyright, trademark and trade secret laws, employee
and third-party nondisclosure agreements and other methods to protect our
proprietary rights. In connection with the acquisition of VEO, we acquired three
patent applications relating to XML technology. We have not applied for any
patents on our other proprietary technology. It may be possible for unauthorized
third parties to copy certain portions of our products or reverse engineer or
obtain and use information that we regard as proprietary. Certain end user
license provisions protecting against unauthorized use, copying, transfer and
disclosure of the licensed program may be unenforceable under the laws of some
foreign countries. In addition, the laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the United
States. Some of our agreements with our customers and development partners
contain residual clauses regarding confidentiality and the rights of third
parties to obtain the source code for our products. These provisions may limit
our ability to protect our intellectual property rights in the future. We cannot
assure that our means of protecting our proprietary rights will be adequate or
that competing companies will not independently develop similar technology. If
any of these events happen, our business, operating results and financial
condition, could be harmed.
From time to time we may encounter disputes over rights and obligations
concerning intellectual property. Although we believe that our intellectual
property rights are sufficient to allow us to market our existing products
without incurring liability to third parties, we cannot assure you that we will
prevail in all such disputes. Failure to prevail in one or more such disputes
could impair our right to market our products which, in turn, could harm our
42
<PAGE>
business, results of operations and financial condition. We cannot assure you
that our products do not infringe upon issued patents that may relate to our
products or to the market for Internet-based business-to-business e-commerce
applications in general. In addition, because patent applications in the United
States are not publicly disclosed until the patent is issued, we may not be
aware of applications that have been filed which relate to our products. We have
agreed, and may agree in the future, to indemnify certain of our customers
against claims that its products infringe upon the intellectual property rights
of others. We could incur substantial costs in defending ourself and our
customers against infringement claims. In the event of a claim of infringement,
our customers and we may be required to obtain one or more licenses from third
parties. We cannot assure that such licenses could be obtained from third
parties at a reasonable cost or at all. Defense of any lawsuit or failure to
obtain any such required license could harm our business, operating results and
financial condition.
We license and will continue to license certain products integral to our
products and services from third parties, including products which are
integrated with internally developed products and used with our products to
provide key content and services. We cannot assure that these third party
product licenses will continue to be available to us on commercially reasonable
terms or that we will be able to successfully integrate such third party
products into our solutions. Such product licenses may expose us to increased
risks, including risks associated with the assimilation of new products, the
diversion of resources from the development of our products, the inability to
generate revenues from new products sufficient to offset associated acquisition
costs and the maintenance of uniform, appealing products. The inability to
obtain any of these licenses could result in delays in site development or
services until equivalent products can be identified, licensed and integrated.
Any such delays in site development or services could harm our business
operating results and financial condition.
COMPETITION
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. Our primary source of direct competition
comes from independent software vendors of procurement applications. We also
face indirect competition from potential customers' internal development efforts
and have to overcome potential customers' reluctance to move away from existing
systems and processes.
Our current and potential competitors include Ariba, Clarus, Concur,
Connect, Harbinger, IBM, Intellisys, Microsoft, Netscape, Oracle, PeopleSoft,
SAP and TRADE'ex. In addition, there are a number of companies developing and
marketing business-to-business e-commerce solutions targeted at specific
vertical markets. Some of these competitors offer Web-based solutions that are
designed to enable an enterprise to buy more effectively from its suppliers.
Other competitors are also attempting to migrate their technologies to an
Internet-enabled platform. Some of these competitors and potential competitors
include ERP vendors, that are expected to sell their procurement products along
with their application suites. These ERP vendors have a significant installed
customer base and have the opportunity to offer additional products to those
customers as additional components of their respective application suites.
We believe that the principal competitive factors for business-to-business
e-commerce solutions are breadth and scope of solution, depth of supplier
content, interoperability with existing information technology systems,
scalability, functionality, ease-of-use, ease-of-implementation, total cost of
ownership and installed base of referenceable customers. We believe we compete
favorably with our competitors in these areas.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do and may enter into
strategic or commercial relationships with larger,
43
<PAGE>
more established and well-financed companies. Some of our competitors may be
able to secure alliances with customers and affiliates on more favorable terms,
devote greater resources to marketing and promotional campaigns and devote
substantially more resources to systems development than we do. In addition, new
technologies and the expansion of existing technologies may increase competitive
pressures on us. We cannot assure you that we will be able to compete
successfully against current and future competitors, and competitive pressures
faced by us could harm our business operating results and financial condition.
EMPLOYEES
As of March 31, 1999, we had 209 full-time employees, 89 of whom were
engaged in product development, 62 in sales and marketing, 43 in professional
services and 15 in general administration. Our future success depends, in part,
on our continuing ability to attract, train and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and we cannot assure you that we will be able to recruit and retain
sufficient numbers of qualified personnel. None of our employees is represented
by a labor union or a collective bargaining agreement. We have not experienced
any work stoppages and consider our relations with our employees to be good.
FACILITIES
We lease a total of approximately 46,000 square feet of office space in two
buildings, one located in Walnut Creek, California and one in Mountain View,
California. We also lease sales offices in the United States, Switzerland, the
United Kingdom and France. We believe our current facilities and available
additional space will be adequate through at least 2000 and we may need to
locate additional space to meet our needs thereafter.
LEGAL PROCEEDINGS
Although we are not currently a party to any litigation, we may from time to
time become involved in litigation relating to claims arising from our ordinary
course of business.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of April 20, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Mark B. Hoffman........................... 52 Chairman of the Board, Chief Executive Officer and President
Peter F. Pervere.......................... 52 Vice President and Chief Financial Officer
Charles Donchess.......................... 44 Vice President, Marketing and Business Development
Mark S. Biestman.......................... 41 Vice President, Worldwide Sales
Kirby Coryell............................. 49 Vice President, Operations
Samuel C. Prather......................... 44 Vice President, Engineering
Carl O. Falk.............................. 49 Vice President, Procurement Solutions
Thomas J. Gonzales........................ 32 Director, Vice President and Chief Technology Officer
Robert M. Tarkoff......................... 31 Vice President, General Counsel and Secretary
Asim Abdullah............................. 35 Vice President and Director
Jay M. Tenenbaum.......................... 55 Chief Scientist and Director
John V. Balen(1).......................... 38 Director
William B. Elmore(2)...................... 46 Director
Kenneth C. Gardner........................ 48 Director
William J. Harding(2)..................... 51 Director
John P. Swingewood........................ 43 Director
Jeffrey T. Webber(1)...................... 46 Director
</TABLE>
- --------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
- --------------------------------------------------------------------------------
MARK B. HOFFMAN has served as President, Chief Executive Officer and
Chairman of the board of directors of Commerce One since December 1996. Prior to
joining Commerce One, Mr. Hoffman served as Chief Executive Officer and
President of Sybase, Inc., a company which he co-founded in 1984. Mr. Hoffman
currently serves on the board of directors and compensation committee of
Intraware, Inc. Mr. Hoffman earned a B.S. degree in Engineering from the U.S.
Military Academy at West Point and an M.B.A. degree from the University of
Arizona.
PETER F. PERVERE joined Commerce One in April 1997 as Vice President and
Chief Financial Officer. Prior to joining Commerce One, Mr. Pervere was at
Sybase, Inc. from October 1987 to April 1997, serving as Vice President and
Corporate Controller from 1991 to 1997. Mr. Pervere holds a B.A. degree in
History from Stanford University.
CHARLES DONCHESS has served as Vice President, Marketing of Commerce One
since December 1996. Prior to joining Commerce One, Mr. Donchess was Vice
President of Marketing and Business Development at Aurum Software, Inc., a
leading provider of sales information software, from March 1995 to November
1996. Prior to his tenure at Aurum Software, Inc., Mr. Donchess worked at
Sybase, Inc. from August 1989 to November 1994, most recently as Vice President
and General Manager of workgroup products from January 1994 to November 1994.
Mr. Donchess holds a B.A. degree from Brown University.
MARK S. BIESTMAN joined Commerce One in November 1997 as Vice President,
Worldwide
45
<PAGE>
Sales. Prior to joining Commerce One, Mr. Biestman was Vice President of Western
United States Sales for Netscape Communications Corporation from July 1995 to
November 1997. Prior to his tenure of Netscape Communications Corporation, Mr.
Biestman served as Vice President of Telecommunication Sales of Oracle
Corporation from November 1994 to July 1995. From November 1993 to November
1994, Mr. Biestman served as Vice President of Worldwide Sales of Metaphor, Inc.
Mr. Biestman serves as a member of the board of directors and compensation
committee of Prologic Management Systems, Inc. Mr. Biestman holds an A.B. degree
in Economics from the University of California, Berkeley.
KIRBY CORYELL has served as Vice President, Operations of Commerce One since
January 1997. Prior to joining Commerce One, Mr. Coryell was Vice President of
Manufacturing at NEC Technologies, Inc. from September 1995 to January 1997.
From September 1993 to September 1995, Mr. Coryell was Vice President of
Worldwide Operations of AST Research, Inc. Mr. Coryell holds a B.S. degree in
Mechanical Engineering from the University of Cincinnati.
SAMUEL C. PRATHER joined Commerce One as Vice President, Engineering in
December 1998. Prior to joining Commerce One, Mr. Prather was the Vice President
of Engineering at Resolute Software from February 1998 to December 1998 where he
built electronic commerce performance tools and products. Prior to joining
Resolute, Mr. Prather served as Senior Research and Development Manager at
Hewlett-Packard from October 1984 to February 1998, managing a wide variety of
software development programs and a business-to-consumer electronic commerce
service. Mr. Prather holds a B.S. degree in Electrical Engineering from the
University of Oklahoma.
CARL O. FALK joined Commerce One in May 1998 as Vice President, Product
Marketing and Procurement Solutions. Prior to joining Commerce One, Mr. Falk was
President of ACQUION, Inc., the Internet procurement subsidiary of Harbinger
Corporation, a worldwide supplier of electronic commerce software and services,
from August 1997 to May 1998. Prior to his tenure at Harbinger Corporation, Mr.
Falk was Vice President and General Manager of Fluor Daniel, Inc. from May 1989
to May 1994, when he founded ACQUION and became its President, a position he
held until August 1997 when ACQUION was sold to Harbinger. Mr. Falk holds a B.S.
degree in Mechanical Engineering from the University of Cincinnati and a J.D.
degree from Salmon Chase College of Law, N.K.U.
THOMAS J. GONZALES co-founded Commerce One in January 1994. He currently
serves as Vice President and Chief Technology Officer, a position he has held
since September 1996, and has also been a member of the board of directors since
April 1998. From January 1994 to September 1996, Mr. Gonzales served as
President and Chairman of the board of directors of Commerce One. Mr. Gonzales
attended the University of California, Berkeley.
ROBERT M. TARKOFF joined Commerce One in February 1999 as Vice President,
General Counsel and Secretary. Prior to joining Commerce One, Mr. Tarkoff was an
Associate at the law firm of Wilson Sonsini Goodrich & Rosati from August 1995
to January 1999 where he served as outside counsel to Commerce One. Mr. Tarkoff
received a B.A. degree from Amherst College in Political Science and Economics
and a J.D. degree from Harvard University.
ASIM ABDULLAH joined Commerce One as a Vice President and as a member of the
board of directors in January 1999. Prior to joining Commerce One, Mr. Abdullah
was the President and Chief Executive Officer of VEO Systems, Inc., from January
1997 to January 1999. Prior to joining VEO Systems, Inc., Mr. Abdullah was the
Executive Director of CommerceNet from January 1996 to January 1999. Prior to
his tenure at CommerceNet, Mr. Abdullah was the Manager of Development Relations
for Taligent from August 1993 to December 1995. Mr. Abdullah holds B.S. degrees
in Electrical and Computer Engineering from the University of Michigan and an
M.S. degree in Engineering Management from Stanford University.
46
<PAGE>
JAY M. TENENBAUM joined Commerce One as Chief Scientist and a member of the
board of directors in January 1999. Prior to joining Commerce One, Dr. Tenenbaum
was the Chairman of the board of directors and Chief Scientist of VEO Systems,
Inc. from January 1998 to January 1999. Prior to joining VEO Systems, Inc., Dr.
Tenenbaum formed CommerceNet, an industry association for Internet commerce,
where he served as Chairman of the board of directors and Chief Executive
Officer from May 1996 to January 1998. Prior to founding CommerceNet, Dr.
Tenenbaum served as Vice President of Strategic Technology for VeriFone, Inc.
from November 1995 to May 1996. In February 1991, Dr. Tenenbaum founded E.I.T.,
a company that engages in security and payment solutions for the Internet, where
he served as Chairman of the board of directors and Chief Executive Officer,
until November 1995. He holds B.S. and M.S. degrees in Electrical Engineering
from the Massachusetts Institute of Technology and a Ph.D. in Electrical
Engineering and Computer Science from Stanford University.
JOHN V. BALEN has served as a member of the board of directors of Commerce
One since December 1996 and as a member of Commerce One's compensation committee
since April 1999. Since September 1995, Mr. Balen has been a Principal at Canaan
Partners, a nationally focused, private venture capital firm. From June 1985 to
June 1995, Mr. Balen served as a Managing Director of Horsley Bridge Partners, a
private equity investment management firm. Mr. Balen currently serves on the
board of directors and compensation committee of Intraware, Inc. Mr. Balen has a
B.S. degree in Electrical Engineering and an M.B.A. from Cornell University.
WILLIAM B. ELMORE has served as a member of the board of directors of
Commerce One since October 1997 and as a member of Commerce One's audit
committee since April 1999. Since December 1995, Mr. Elmore has been a Manager
of Foundation Capital Management, L.L.C., the general partner of Foundation
Capital, L.L.P., a venture capital firm focused on early-stage information
technology companies. From 1987 to 1995, he was a General Partner of Inman &
Bowman, a venture capital firm. Mr. Elmore serves on the boards of directors of
Wind River Systems, Inc. and Onyx Software and on the board of directors and
compensation committee of Pilot Network Services. Mr. Elmore received his B.S.
and M.S. in Electrical Engineering from Purdue University and his M.B.A. from
Stanford University.
KENNETH C. GARDNER has served as a member of the board of directors of
Commerce One since September 1996. Since June 1995, Mr. Gardner has been
President and Chief Executive Officer of Sagent Technology, Inc. Prior to his
tenure at Sagent, Mr. Gardner served as Vice President of Products at Borland
International from April 1994 to June 1995. He is on the board of directors of
Data Sage, Inc. and ObjectSwitch Corporation. Mr. Gardner received a B.S. degree
in Finance from the University of Louisville.
WILLIAM J. HARDING has served as a member of the board of directors of
Commerce One since December 1996 and as a member of Commerce One's audit
committee since April 1999. Since 1994, Dr. Harding has been a General Partner
of Morgan Stanley Dean Witter Venture Partners. Prior to joining Morgan Stanley,
Dr. Harding was a General Partner of J.H. Whitney & Co. from 1985 to 1993. Dr.
Harding currently also serves on the board of directors and compensation
committee of ScanSoft, Inc. Dr. Harding received a B.S. degree in Engineering
Mathematics and an M.S. degree in Systems Engineering from the University of
Arizona and a Ph.D. in Engineering from Arizona State University.
JOHN P. SWINGEWOOD has served as a member of the board of directors of
Commerce One since April 1999. Mr. Swingewood currently serves as Director of
Internet and Multimedia Group of British Telecommunications, plc., a position he
has held since October 1997. From October 1992 to October 1997, Mr. Swingewood
served as General Manager of Broadcast Services, a division of British
Telecommunications, plc. Mr. Swingewood received his First Class Honors Degree
in Electronics from University of Surrey, U.K.
47
<PAGE>
JEFFREY T. WEBBER has served as a member of the board of directors and
compensation committee of Commerce One since 1995. Mr. Webber co-founded R.B.
Webber & Company, a company which provides strategic planning consulting
services to high technology companies, where he has served as President since
1991. He also serves as a General Partner of The Entrepreneurs' Fund, an early
stage venture capital fund, which position he has held since 1997. Mr. Webber
also serves on the board of directors of Sybase, Inc. and Sagent Technology,
Inc. Mr. Webber holds a B.A. degree from Yale University.
CLASSIFIED BOARD
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to one-year terms, two will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for three-
year terms. Messrs. Abdullah, Gonzales and Tenenbaum have been designated Class
I directors whose term expires at the 2000 annual meeting of stockholders.
Messrs. Gardner, Harding and Swingewood have been designated Class II directors
whose term expires at the 2001 annual meeting of stockholders. Messrs. Balen,
Elmore, Hoffman and Webber have been designated Class III directors whose term
expires at the 2002 annual meeting of stockholders. See "Description of Capital
Stock--Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
We established an audit committee in April 1999 and compensation committee
in October 1996.
Our audit committee consists of Messrs. Elmore and Harding. The audit
committee reviews our internal accounting procedures and consults with and
reviews the services provided our independent accountants.
Our compensation committee currently consists of Messrs. Balen and Webber.
The compensation committee reviews and recommends to the board of directors the
compensation and benefits of our employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from us for their
service as members of the board of directors. Under our amended and restated
1995 stock plan and 1997 incentive stock option plan, directors are eligible to
receive stock option grants at the discretion of the board of directors or other
administrator of the plan. See "Incentive Stock Plans."
During 1995, the board granted options to purchase an aggregate of 75,000
shares to Mr. Webber at an exercise price per share of $0.14. During 1996, the
board granted options to purchase an aggregate of 37,500 and 481,562 shares to
Messrs. Gardner and Hoffman, respectively, at an exercise price per share of
$0.20 and $0.22, respectively. During 1998 and 1999, the board granted options
to purchase an aggregate of 15,000 shares and 15,000 shares, respectively, to
Mr. Hoffman at exercise prices per share of $1.40 and $4.00, respectively.
48
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal year ended December 31, 1998 by our chief
executive officer and our next four most highly compensated executive officers
who earned more than $100,000 during the fiscal year ended December 31, 1998.
These executives are referred to as the Named Executive Officers elsewhere in
this prospectus.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- -------------------------------------------------- ------------- ----------- ------------- ---------------------
<S> <C> <C> <C> <C>
Mark B. Hoffman .................................. $ 155,688 -- 15,000 --
Chairman of the Board, Chief Executive Officer
and President
Peter F. Pervere ................................. 146,125 -- 15,000 $ 752
Vice President and Chief Financial Officer
Charles Donchess ................................. 164,333 -- 25,000 573
Vice President, Marketing
Mark S. Biestman ................................. 175,000 $ 162,829 140,000 --
Vice President, Worldwide Sales
Kirby Coryell .................................... 156,562 -- 15,000 777
Vice President, Operations
</TABLE>
- --------------------------------------------------------------------------------
(1) All other compensation represents group life insurance premiums paid by us.
49
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table describes certain information regarding stock options
granted to each of the Named Executive Officers in the fiscal year ended
December 31, 1998, including the potential realizable value over the ten-year
term of the options, based on assumed rates of stock appreciation of 5% and 10%,
compounded annually. These assumed rates of appreciation comply with the rules
of the Securities and Exchange Commission and do not represent our estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock.
In the fiscal year ended December 31, 1998, we granted options to purchase
up to an aggregate of 1,222,250 shares to employees, directors and consultants.
All options were granted under our 1997 incentive stock option plan at exercise
prices at the fair market value of our common stock on the date of grant, as
determined in good faith by the board of directors. All options have a term of
ten years. Optionees may pay the exercise price by cash, check, promissory note
or delivery of already-owned shares of our common stock. All options are
immediately exercisable upon grant; however, any unvested shares are subject to
repurchase by us at their cost if the optionee's service terminates. All option
shares vest over four years, with 25% of the option shares vesting one year
after the option grant date, and the remaining option shares vesting ratably
each month for the next 36 months.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE DEEMED VALUE PER OPTION TERM
GRANTED IN LAST PRICE SHARE ON DATE OF EXPIRATION ----------------------
NAME (#) FISCAL YEAR ($/SHARE) GRANT(1) DATE 5% 10%
- ---------------------- ----------- ------------- ----------- ------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark B. Hoffman....... 15,000 1.2% $ 1.40 $ 4.32 07/01/08 $ 84,552 $ 147,075
Peter F. Pervere...... 15,000 1.2 1.40 4.32 07/01/08 84,552 147,075
Charles Donchess...... 25,000 2.0 0.60 2.62 01/21/08 91,693 154,890
Mark S. Biestman...... 125,000 10.2 0.60 2.62 01/21/08 458,463 774,451
15,000 1.2 1.40 4.32 07/01/08 84,552 147,075
Kirby Coryell......... 15,000 1.2 1.40 4.32 07/01/08 84,552 147,075
</TABLE>
--------------
(1) The deemed value for the date of grant was determined after the date of
grant solely for financial accounting purposes.
50
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table describes for the Named Executive Officers their option
exercises for the fiscal year ended December 31, 1998, and exercisable and
unexercisable options held by them as of December 31, 1998. No options were
exercised by the Named Executive Officers during the fiscal year ended December
31, 1998.
The "Value of Unexercised In-the-Money Options at Fiscal Year End" is based
on a value of $6.78 per share, the fair market value of our common stock as of
December 31, 1998, as determined by the board of directors, less the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option. All options were granted under our 1997 incentive stock option plan and
amended and restated 1995 stock option plan. All options are immediately
exercisable; however, as a condition of exercise, the optionee must enter into a
stock restriction agreement granting us the right to repurchase the shares
issuable by such exercise at their cost if the optionee's employment terminates.
The shares vest over four years, with 25% of the shares vesting one year after
the grant date and the remaining shares vesting ratably each month thereafter.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)
------------------------ ------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mark B. Hoffman................................ 15,000 -- $ 80,700 --
Peter F. Pervere............................... 77,500 -- 479,450 --
Charles Donchess............................... 125,000 -- 792,500 --
Mark S. Biestman............................... 140,000 -- 853,200 --
Kirby Coryell.................................. 77,500 -- 479,450 --
</TABLE>
- --------------------------------------------------------------------------------
51
<PAGE>
INCENTIVE STOCK PLANS
1997 INCENTIVE STOCK OPTION PLAN
Our 1997 incentive stock option plan provides for the granting to employees
of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting to employees, outside
directors and consultants of nonstatutory stock options. The board of directors
approved the stock option plan in November 1997, and the stockholders approved
the stock option plan in December 1997. The board of directors approved an
amendment to the stock option plan in April 1999 and we anticipate that our
stockholders will approve the amendment in May 1999. Unless terminated sooner,
the stock option plan will terminate automatically in 2007. As of April 20,
1999, 1,639,473 shares of common stock were subject to outstanding options
previously granted under this plan. A total of 3,893,563 shares of common stock
is reserved for future issuance of options, for outstanding options previously
granted and in addition, plus annual increases equal to the lesser of:
- 1,250,000 shares;
- 5% of the outstanding shares on such date; or
- a lesser amount determined by the board.
The board of directors or a committee of the board of directors may
administer the stock option plan. The board or a committee of the board has the
power to determine the terms of the options granted, including the exercise
price, the number of shares subject to each option, the exercisability of the
options, and the form of consideration payable upon such exercise.
The stock option plan provides that if we merge with or into another
corporation or sell substantially all of our assets, each outstanding option
will be assumed or substituted for by the successor corporation. If the
outstanding options are not assumed or substituted by the successor corporation,
then they will become fully vested and exercisable.
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
Our amended and restated 1995 stock option plan provides for the granting to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for the granting to employees and
consultants of nonstatutory stock options. The board of directors and the
stockholders approved the amended and restated 1995 stock option plan in October
1995. Unless terminated sooner, the amended and restated 1995 stock option plan
will terminate automatically in 2005. As of April 20, 1999, a total of 723,893
shares of common stock are reserved for issuance pursuant to the exercise of
options outstanding under the amended and restated 1995 stock option plan,
although no future stock option grants will be made under the plan.
The board of directors or a committee of the board of directors may
administer the amended and restated 1995 stock option plan. The board or a
committee of the board has the power to determine the terms of the options
granted, including the exercise price, the number of shares subject to each
option, the exercisability of the options, and the form of consideration payable
upon such exercise.
The amended and restated 1995 stock option plan provides that if we merge
with or into another corporation or sell substantially all of our assets, each
outstanding option will be assumed or substituted for by the successor
corporation.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our 1999 employee stock purchase plan in
April 1999 and we anticipate that our stockholders will approve this plan in May
1999. A total of 750,000 shares of common stock has been reserved for issuance
under the purchase plan, plus annual increases equal to the lesser of:
- 300,000 shares;
- 1.5% of the outstanding shares on such date; or
52
<PAGE>
- a lesser amount determined by the board on the first day of each fiscal
year.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, contains successive twenty-four month
offering periods. The offering periods generally start on the first trading day
on or after May 15 and November 15 of each year, except for the first such
offering period which commences on the first trading day on or after the
effective date of this offering and ends on the last trading day on or before
.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be granted
options to purchase stock under the purchase plan:
- any employee who immediately after grant owns stock possessing 5% or more
of the total combined voting power or value of all classes of our capital
stock, or
- any employee whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.
Participants may purchase common stock through payroll deductions of up to
15% of the participant's compensation. The maximum number of shares a
participant may purchase during a single offering period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and the end of each
purchase period.
The purchase plan provides that, if we merge with or into another
corporation or sell substantially all of our assets, each outstanding option may
be assumed or substituted for by the successor corporation. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened and a new exercise date will
be set, which will occur before the proposed sale or merger.
The purchase plan will terminate in 2009. The board of directors has the
authority to amend or terminate the purchase plan, except that no such action
may adversely affect any outstanding rights to purchase stock.
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in our 1999 director
option plan. The board of directors adopted the director plan in April 1999 and
we anticipate that the stockholders will approve it in May 1999, but it will not
become effective until the date of this offering. The director plan has a term
of ten years, unless terminated sooner by the board. A total of 150,000 shares
of common stock have been reserved for issuance under the director plan.
The director plan provides for the automatic grant of 20,000 shares of
common stock to each non-employee director on the date on which such person
first becomes a non-employee director. After the 20,000 share option is granted
to the non-employee director, he or she shall automatically be granted an option
to purchase 10,000 shares each year on the date of our annual stockholder's
meeting, if on such date he or she shall have served on the board for at least
six months. Each option shall have a term of ten years. The exercise price of
all options shall be 100% of the fair market value per share of the common
stock, generally determined with reference to the closing price of the common
stock as reported on the Nasdaq National Market on the date of grant.
If we merge with or into another company or sell substantially all of our
assets and if the option is not assumed or substituted, each option shall become
fully vested and exercisable for a period of thirty days from the date the board
notifies the optionee of the option's full exercisability. If an option is
assumed or substituted and the optionee's service as a director is terminated,
other than upon a
53
<PAGE>
voluntary resignation, the option becomes fully vested. Options granted under
the director plan must be exercised within three months of the end of the
optionee's tenure as a director, or within twelve months after such director's
termination by death or disability, but not later than the expiration of the
option's ten year term.
401(k) PLAN
In January 1997, we adopted a 401(k) plan covering our full-time employees
located in the United States. The 401(k) plan is intended to qualify under
Section 401(k) of the Internal Revenue Code of 1986, as amended. Consequently,
contributions to the 401(k) plan by employees or by us, and the investment
earnings thereon, are not taxable to employees until withdrawn from the 401(k)
plan. Consequently, contributions by us, if any, will be deductible by us when
made. Employees may elect to reduce up to 15% of their current compensation by
up to the statutorily prescribed annual limit, which was $10,000 in 1998, and to
have the amount of such reduction contributed to the 401(k) plan. The 401(k)
plan permits, but does not require, additional matching contributions to the
401(k) plan by us on behalf of all participants in the 401(k) plan. To date, we
have not made any contributions to the 401(k) plan.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
On November 25, 1998, we entered into employment agreements with each of
Messrs. Abdullah and Tenenbaum pursuant to which each is entitled to a base
salary of $160,000 plus a bonus of up to 50% of his base salary. Under these
agreements, if either of Messrs. Abdullah or Tenenbaum is terminated not for
cause or as a result of constructive termination, he will be entitled to the
payment of six months of his base salary and twelve months of vesting
acceleration for his options.
We also entered into change of control severance agreements with certain of
our executive officers that commenced in January 1999. These agreements provide
that if there is a change of control of Commerce One, and any of such executive
officers are involuntarily terminated without cause within 12 months following
the change of control or the announcement of such change of control, he will be
provided the following:
- a cash payment equal to 50% of his annual compensation plus a pro rata
payment of the then current year bonus award based on the target bonus for
him;
- 100% of his health, dental and life insurance, including benefits paid to
any dependents, through the earlier of six months from the date of his
termination or the date he becomes covered by another employer's group
health, dental or life insurance plans providing comparable benefits and
coverage; and
- one year of additional vesting for his outstanding stock options.
Under our 1997 incentive stock option plan and 1999 director option plan, if
the options outstanding under such plans are not assumed or substituted in a
change-of-control merger or asset sale, each outstanding option will vest and
become exercisable in full. In addition, under our 1999 director option plan, if
the options are assumed or substituted and the optionee's service is terminated
other than upon a voluntary resignation, the options become fully vested.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
54
<PAGE>
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether our bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
55
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock had or will have
a director or indirect interest other than:
- compensation arrangements, which are described where required under
"Management," and
- the transactions described below.
For clarity of presentation, share numbers and per share prices for the
transactions described below are adjusted for the following:
- all subsequently occurring stock splits;
- the reverse two-for-one stock split of our common stock, to be effected
prior to the effective date of the registration statement of which this
prospectus is a part; and
- the conversion of all our preferred stock, at a rate of two shares of
preferred stock into one share of common stock, to automatically occur
upon the consummation of this offering.
SERIES B PREFERRED STOCK FINANCING ROUND. In December 1996 and January 1997,
we sold shares of Series B Preferred Stock, at a purchase price of $4.10 per
share, to the following investors, among others:
- 76,829 shares of Series B Preferred Stock to Mark B. Hoffman, our Chairman
of the Board, Chief Executive Officer and President.
- 19,823 shares of Series B Preferred Stock to entities affiliated with
Jeffrey Webber. Mr. Webber is a member of our board of directors.
- 2,439 shares of Series B Preferred Stock to Kenneth Gardner, a member of
our board of directors.
WARRANTS TO PURCHASE SERIES B PREFERRED STOCK. In connection with a bridge
loan made in September 1996, we issued warrants to purchase 121 shares of Series
B Preferred Stock to Kenneth Gardner, and warrants to purchase 365 shares of
Series B Preferred Stock to entities affiliated with Jeffrey Webber at an
exercise price of $4.10 per share.
SERIES C PREFERRED STOCK FINANCING ROUND. In October and December 1997, we
sold shares of Series C Preferred Stock, at a purchase price of $5.20 per share,
and warrants to purchase shares of Series C Preferred Stock, at an exercise
price of $10.40 per share, to the following investors, among others:
- 288,462 shares of Series C Preferred Stock and warrants to purchase 72,115
shares of our Series C Preferred Stock to an entity affiliated with Canaan
Partners, a 5% shareholder of us. John V. Balen, a principal at Canaan
Partners, is a member of our board of directors.
- 288,462 shares of Series C Preferred Stock and warrants to purchase 72,115
shares of Series C Preferred Stock to entities affiliated with Morgan
Stanley Venture Partners, a 5% shareholder of us. William J. Harding, a
General Partner of Morgan Stanley Venture Partners, is a member of our
board of directors.
- 59,134 shares of Series C Preferred Stock and warrants to purchase 14,783
shares of Series C Preferred Stock to entities affiliated with Jeffrey
Webber.
- 25,830 shares of Series C Preferred Stock and warrants to purchase 6,457
shares of Series C Preferred Stock to Mark Hoffman.
SERIES D PREFERRED STOCK FINANCING ROUND. In August 1998, we sold shares of
Series D Preferred Stock, at a purchase price of $6.98 per share, to the
following investors, among others:
- 143,336 shares of Series D Preferred Stock to an entity affiliated with
Canaan Partners.
56
<PAGE>
- 93,168 shares of Series D Preferred Stock to entities affiliated with
Morgan Stanley Venture Partners.
- 71,668 shares of Series D Preferred Stock to The Entrepreneurs' Fund, an
entity affiliated with Jeffrey Webber.
- 71,667 shares of Series D Preferred Stock to entities affiliated with
Foundation Capital, a 5% shareholder of us. William B. Elmore, a member of
Foundation Capital Management, L.L.C., the general partner of Foundation
Capital, L.L.P., is a member of our board of directors.
WARRANTS TO PURCHASE SERIES D PREFERRED STOCK. In connection with a bridge
loan made in July 1998, we issued warrants to purchase 3,581 shares of our
Series D Preferred Stock at an exercise price of $6.98 per share, to each of
Mark Hoffman and The Entrepreneurs' Fund, L.P., an entity affiliated with
Jeffrey Webber.
SERIES E PREFERRED STOCK FINANCING ROUND. In April 1999, we sold shares of
Series E Preferred Stock, at a purchase price of $9.06 per share, to the
following investors, among others:
- 110,375 shares of Series E Preferred Stock to an entity affiliated with
Canaan Partners.
- 33,112 shares of Series E Preferred Stock to entities affiliated with
Morgan Stanley Venture Partners.
- 30,352 shares of Series E Preferred Stock to entities affiliated with
Jeffrey Webber.
CONSULTING SERVICES RENDERED BY R.B. WEBBER & COMPANY. We are currently
under an agreement with R.B. Webber & Company, a management consulting firm, of
which Jeffrey Webber, a member of our board of directors, is President. As of
March 31, 1999, we owe approximately $40,000 to R.B. Webber & Company for
consulting services rendered in 1998 and 1999.
PARTNER AGREEMENT WITH FANTASTIC CORPORATION. In June 1997, we entered into
an agreement with Fantastic Corporation, a company incorporated under the laws
of Switzerland, of which Mark Hoffman is a member of its board of directors.
Under the agreement, Fantastic Corporation is to provide certain satellite
communications services to people who license certain of our products, and both
Fantastic Corporation and we are to promote the joint use of our respective
products.
SETTLEMENT AGREEMENT WITH TOM GONZALES, SR. On November 7, 1996, we made a
loan to Tom Gonzales, Sr. our former Executive Vice President, of $56,000
bearing 9% interest per year to enable Mr. Gonzales, Sr. to repay certain
personal tax liabilities. As of March 31, 1999, this loan has been repaid in
full. Mr. Gonzales, Sr. was terminated in April 1998, at which time we executed
a settlement agreement providing that each of us release the other from any and
all claims in any way arising from or related to Mr. Gonzales, Sr.'s former
employment relationship with us.
BUSINESS TRANSACTIONS WITH VERTICAL INTEGRATION TECHNOLOGIES. In June 1996,
we entered into several business transactions with Vertical Integration
Technologies, Inc., an entity owned by Thomas Gonzales. The total value of the
transactions involving Vertical Integration Technologies and us was
approximately $500,000.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of April 20, 1999, by the following
individuals or groups:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;
- each of the Named Executive Officers;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed in the
following table is c\o Commerce One, Inc., 1600 Riviera Avenue, Walnut Creek,
California 94596. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on
17,773,340 shares of common stock outstanding as of April 20, 1999, as adjusted
to reflect the conversion of all outstanding shares of preferred stock upon the
closing of this offering.
To the extent that any shares are issued upon exercise of options, warrants
or other rights to acquire our capital stock that are presently outstanding or
granted in the future or reserved for future issuance under our stock plans,
there will be further dilution to new public investors.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option. We have granted the underwriters an option to
purchase up to shares to cover over-allotments, if any.
PRINCIPAL STOCKHOLDERS TABLE
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING OFFERING
- ------------------------------------------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Entities affiliated with Canaan Partners(1)............ 1,345,996 7.54% %
Entities affiliated with Morgan Stanley Dean Witter
Venture Partners(2).................................. 1,218,565 6.82
Entities affiliated with Foundation Capital, L.P.(3)... 1,153,398 6.41
Thomas J. Gonzales, II................................. 967,119 5.44
Asim Abdullah.......................................... 600,125 3.38
Mark S. Biestman(4).................................... 157,207 *
Kirby Coryell(5)....................................... 132,759 *
Charles Donchess(6).................................... 140,000 *
Mark B. Hoffman(7)..................................... 624,261 3.50
Peter F. Pervere(8).................................... 105,000 *
Jay M. Tenenbaum(9).................................... 600,125 3.38
John V. Balen(10)...................................... -- --
William B. Elmore(11).................................. -- --
Kenneth C. Gardner(12)................................. 46,975 *
William J. Harding(13)................................. -- --
John P. Swingewood(14).................................
Jeffrey T. Webber(15).................................. 406,014 2.27
All directors and officers as a group
(17 persons)(16)..................................... 4,029,708 21.58
</TABLE>
- --------------
* Less than 1% of the outstanding shares of common stock.
58
<PAGE>
(1) Includes 72,115 shares issuable upon exercise of warrants exercisable
within 60 days of June 30, 1999. Mr. Balen is a principal of Canaan Equity
Partners, L.L.C., the general partner of Canaan Equity, L.P., Canaan
S.B.I.C., L.P., Canaan Capital Limited Partnership and Canaan Capital
Offshore Limited Partnership, C.V. Mr. Balen disclaims beneficial ownership
of the shares held by Canaan Equity L.P., Canaan S.B.I.C., L.P., Canaan
Capital Limited Partnership and Canaan Capital Offshore Limited
Partnership, C.V., except to the extent of his pecuniary interest arising
from his interest as a principal of Canaan Equity Partners, L.L.C., the
general partner of Canaan Equity Partners, L.P., Canaan S.B.I.C., L.P.,
Canaan Capital Limited Partnership and Canaan Capital Offshore Limited
Partnership, C.V. Mr. Balen is a member of the board of directors of
Commerce One.
(2) Includes 72,115 shares issuable upon exercise of warrants exercisable
within 60 days of June 30, 1999. Dr. Harding is a general partner of Morgan
Stanley Venture Partners II, L.P., the general partner of Morgan Stanley
Venture Capital Fund II Annex, L.P. and Morgan Stanley Venture Investors
Annex, L.P. Dr. Harding disclaims beneficial ownership of the shares held
by Morgan Stanley Venture Capital Fund II Annex, L.P. and Morgan Stanley
Venture Investors Annex, L.P., except to the extent of his pecuniary
interest arising from his interest as a general partner of Morgan Stanley
Venture Partners II, L.P., the general partner of Morgan Stanley Venture
Capital Fund II Annex, L.P. and Morgan Stanley Venture Investors Annex,
L.P. Dr. Harding is a member of the board of directors of Commerce One.
(3) Includes 216,346 shares issuable upon exercise of warrants exercisable
within 60 days of June 30, 1999. Mr. Elmore is a member of Foundation
Capital Management, L.L.C., the general partner of Foundation Capital,
L.L.P. and Foundation Capital Entrepreneurs Fund, L.L.C. Mr. Elmore
disclaims beneficial ownership of the shares held by Foundation Capital,
L.L.P. and Foundation Capital Entrepreneurs Fund, L.L.C., except to the
extent of his pecuniary interest arising from his interest as a member of
Foundation Capital Managment, L.L.C., the general partner of Foundation
Capital, L.L.P. and Foundation Capital Entrepreneurs Fund, L.L.C. Mr.
Elmore is a member of the board of directors of Commerce One.
(4) Includes 155,000 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999; if the option is exercised, 94,375 of
these shares would be subject to Commerce One's repurchase option should
Mr. Biestman's employment with Commerce One terminate.
(5) Includes 92,500 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999; if the option is exercised, 60,520 of
these shares would be subject to Commerce One's repurchase option should
Mr. Coryell's employment with Commerce One terminate.
(6) Includes 140,000 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999; if the option is exercised, 59,479 shares
would be subject to Commerce One's repurchase option should Mr. Donchess's
employment with Commerce One terminate.
(7) Includes 30,000 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999; if the option is exercised, 24,062 shares
would be subject to Commerce One's repurchase option should Mr. Hoffman's
employment with Commerce One terminate. Also includes 13,005 shares held
from the exercise of options which are unvested and subject to Commerce
One's repurchase option within 60 days of June 30, 1999 should Mr.
Hoffman's employment with Commerce One terminate.
(8) Includes 92,500 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999; if the option is exercised, 55,312 shares
would be subject to Commerce One's repurchase option should Mr. Pervere's
employment with Commerce One terminate.
(9) Includes 360,075 shares held by Arlene Tenenbaum 1997 Irrevocable Trust
dated November 7, 1997 and 240,050 shares held by Arlene Tenenbaum, spouse
of Mr. Tenenbaum.
(10) Represents shares held by certain entities affiliated with Canaan
Partners. See footnote 1 above. Mr. Balen is a principal of Canaan Equity
Partners, L.L.C., the general partner of these entities. Mr. Balen
disclaims beneficial ownership of the shares held by these entities,
except to the extent of his pecuniary interest arising from his interest
in these entities.
(11) Represents shares held by certain entities affiliated with Foundation
Capital, L.P. See footnote 3 above. Mr. Elmore is a member of Foundation
Capital Management, L.L.C., the general partner of these entities. Mr.
Elmore disclaims beneficial ownership of the shares, except to the extent
of his pecuniary interest arising from his interest in these entities.
(12) Includes 121 shares issuable upon exercise of warrants exercisable within
60 days of June 30, 1999. Includes 37,500 shares issuable upon exercise of
stock options exercisable within 60 days of June 30,
59
<PAGE>
1999; if the option is exercised, 10,156 of these would be subject to
Commerce One's repurchase option should Mr. Gardner's employment with
Commerce One terminate.
(13) Represents shares held by certain entities affiliated with Morgan Stanley
Dean Witter Venture Partners. See footnote 2 above. Dr. Harding is a
general partner of Morgan Stanley Venture Partners II, L.P., the general
partner of these entities. Dr. Harding disclaims beneficial ownership of
the shares held by these entities, except to the extent of his pecuniary
interest arising from his interest in these entities.
(14) Mr. Swingewood did not hold any shares of Commerce One's capital stock as
of April 20, 1999 and does not hold any options exercisable within 60 days
of June 30, 1999. Mr. Swingewood is the Director of the Internet and
Multimedia Group of British Telecommunications, plc. Mr. Swingewood
disclaims beneficial ownership of the shares held by Forres Holding
Limited, a wholly owned subsidiary of British Telecommunications, plc. Mr.
Swingewood is a member of the board of directors of Commerce One.
(15) Includes 75,000 shares issuable upon exercise of stock options exercisable
within 60 days of June 30, 1999. Includes 19,410 shares held by Jeffrey T.
Webber and Judith Jordan Webber, trustees of the Webber Living Trust
3/23/95, 14,369 shares held by Judith Jordan Webber, spouse of Mr. Webber,
of which 241 shares are issuable upon the exercise of warrants exercisable
within 60 days of June 30, 1999, and 174,958 shares held by the
Entrepreneurs' Fund of which 18,546 shares are issuable upon exercise of
warrants exercisable within 60 days of June 30, 1999.
(16) Includes 862,500 shares issuable upon exercise of stock options
exercisable within 60 days of June 30, 1999. See footnotes 4,5,6,7 and 8
above.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue
250,000,000 shares of common stock, $0.0001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.0001 par value. The following description of
our capital stock does not purport to be complete and is subject to and
qualified in its entirety by our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of April 20, 1999, there were 17,773,340 shares of common stock
outstanding which were held of record by approximately 106 stockholders, as
adjusted for the reverse two-for-one stock split of all outstanding common
stock, and assuming conversion of all outstanding shares of convertible
preferred stock into an aggregate of 12,214,060 shares of common stock upon the
closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel to us, shall opine
that the shares of common stock to be issued upon the closing of this offering,
when issued and sold in the manner described in this prospectus and in
accordance with the resolutions adopted by the board of directors, will be fully
paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. We cannot predict the effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of such preferred stock. However, the effects could include one or more
of the following:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of us without further action by
the stockholders.
Upon the closing no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.
WARRANTS
At April 20, 1999, there were warrants outstanding to purchase 13,781 shares
of Series B preferred stock, 646,790 shares of Series C preferred stock, and
43,409 shares of Series D preferred stock, which are convertible in the
aggregate into 703,980 shares of common stock.
REGISTRATION RIGHTS
The holders of 12,214,060 shares of common stock and the holders of warrants
to purchase preferred stock convertible into 703,980
61
<PAGE>
shares of common stock (the "registrable securities") are entitled to certain
rights with respect to registration of such shares under the Securities Act.
These rights are provided under the terms of an agreement between the holders of
registrable securities and us. Beginning 180 days following the date of this
prospectus, holders of at least 50% of the then outstanding registrable
securities may require on up to two occasions that we register their shares for
public resale. We are obligated to register these shares only if the outstanding
registrable securities have an anticipated public offering price of at least
$20,000,000. Also, holders of registrable securities may require on two separate
occasions within any twelve month period that we register their shares for
public resale on Form S-3 or similar short-form registration if the value of the
securities to be registered is at least $3,000,000, however we may defer such
registration for 120 days in view of market conditions. Furthermore, in the
event we elect to register any of our shares of common stock for purposes of
effecting any public offering, the holders of registrable securities are
entitled to include their shares of common stock in the registration, but we may
reduce the number of shares proposed to be registered in view of market
conditions. These registration rights have been waived with respect to this
offering. All expenses in connection with any registration, other than
underwriting discounts and commissions, will be borne by us. All registration
rights will terminate five years following the consummation of this offering,
or, with respect to each holder of registrable securities, at such time as the
holder is entitled to sell all of its shares in any 90 day period under Rule 144
of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:
- the acquisition of us by means of a tender offer;
- acquisition of us by means of a proxy contest or otherwise; or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
ELECTION AND REMOVAL OF DIRECTORS. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. See "Management--Classified
Board." This system of dividing directors into three classes may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us because it generally makes it more difficult for
stockholders to replace a majority of the directors.
STOCKHOLDER MEETINGS. Under our bylaws, only the board of directors, the
chairman of the board and the president may call special meetings of
stockholders.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
DELAWARE ANTITAKEOVER LAW. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the
62
<PAGE>
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an
anti-takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
ELIMINATION OF CUMULATIVE VOTING. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.
AMENDMENT OF CHARTER PROVISIONS. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Boston EquiServe,
L.P. of Massachusetts.
NASDAQ NATIONAL MARKET LISTING
We have applied for the listing of our shares on The Nasdaq National Market
under the symbol "CMRC."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through sale of our equity securities. As described below, no
shares currently outstanding will be available for sale immediately after this
offering because of certain contractual restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares of
common stock based upon shares outstanding as of April 20, 1999, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants prior to completion of this offering. Of these
shares, the shares sold in this offering will be freely tradable without
restriction under the Securities Act except for any shares purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act. The
remaining shares of common stock held by existing stockholders are
restricted shares as that term is defined in Rule 144. All such restricted
shares are subject to lock-up agreements providing that, with certain limited
exceptions, the stockholder will not offer, sell, contract to sell or otherwise
dispose of any common stock or any securities that are convertible into common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Credit Suisse First Boston. As a
63
<PAGE>
result of these lock-up agreements, notwithstanding possible earlier eligibility
for sale under the provisions of Rules 144, 144(k) and 701, of these shares
will be resellable until 181 days after the date of this prospectus. Beginning
181 days after the date of this prospectus, approximately restricted
shares will be eligible for sale in the public market, all of which are subject
to volume limitations under Rule 144, except shares eligible for sale
under Rule 144(k), Rule 701 or otherwise. On April 19, 2000, approximately
restricted shares will be eligible for sale in the public market, all of
which will be subject to volume limitations under Rule 144. In addition, as of
April 20, 1999, there were outstanding options and warrants to purchase
preferred stock convertible into shares of common stock, some of which
will be exercised prior to this offering. All such options and warrants are
subject to lock-up agreements. Credit Suisse First Boston may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements, however any release shall apply
pro-rata to all stockholders subject to the lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate of us at any time during the three months preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any employee, officer or director of or
consultant to us who purchased shares under a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements. Credit Suisse First Boston may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements.
Within 90 days following the effectiveness of this offering, we will file a
Registration Statement on Form S-8 registering 4,836,590 shares of common stock
subject to outstanding options or reserved for future issuance under our stock
plans. As of April 20, 1999, options to purchase a total of 2,968,937 shares
were outstanding and 967,653 shares were reserved for future issuance under our
stock plans. Common stock issued upon exercise of outstanding vested options or
issued under our purchase plan, other than common stock issued to our
affiliates, is available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
12,214,060 restricted
64
<PAGE>
shares and holders of warrants to purchase preferred stock convertible into
703,980 shares of common stock will be entitled to certain registration rights
for sale in the public market. See "Description of Capital Stock--Registration
Rights." Registration of such shares under the Securities Act would result in
such shares becoming freely tradable without restriction under the Securities
Act, except for shares purchased by affiliates, immediately upon the
effectiveness of such registration.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which is part of the registration
statement. For further information with respect to us and our common stock, see
the registration statement and the exhibits and schedules thereto. Any document
we file may be read and copied at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information about the public reference
rooms. Our filings with the Commission are also available to the public from the
Commission's Web site at http:\\www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the Web site of the Commission referred to above.
65
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation and U.S. Bancorp Piper Jaffray Inc. are acting
as representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
Credit Suisse First Boston Corporation..........................................................
Donaldson, Lufkin & Jenrette Securities Corporation ............................................
U.S. Bancorp Piper Jaffray Inc..................................................................
----------------
Total.......................................................................................
----------------
----------------
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option from the date of this
prospectus to purchase on a pro rata basis up to additional shares at
the initial public offering price less the underwriting discounts and
commissions. The option may be exercised only to cover over-allotments of common
stock.
The underwriters propose to offer the shares to the public initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Total
------------------------------
Without With
Per Share Over-allotment Over-allotment
----------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us...................... $ $ $
Expenses payable by us................................................. $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and several other stockholders have agreed
that we will not offer, sell, contract to sell, announce our intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to, any
additional shares of common stock or securities convertible into or exchangeable
or exercisable for any of our shares without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except in the case of issuances by us upon the exercise of employee
stock options outstanding on the date hereof.
The underwriters have reserved for sale, at the initial public offering
price to the public, up to shares of the common stock for employees,
directors and other persons associated with us that have expressed an interest
in purchasing common stock in the offering. The number of shares available for
sale
66
<PAGE>
to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our shares on The Nasdaq Stock Market's National
Market under the symbol "CMRC."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price has been determined by negotiation
between the representatives and us. The principal factors considered in
determining the public offering price included: the information in this
prospectus and available to the representatives; the history and the prospects
for the industry in which we will compete; our management's ability; the
prospects for our future earnings; the present state of our development and our
current financial condition; the general condition of the securities markets at
the time of this offering; and the recent market prices of, and the demand for,
publicly traded common stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Individuals affiliated with Credit Suisse First Boston purchased an
aggregate of 8,553 shares of our Series E preferred stock for a total purchase
price of $77,494.71. In addition, Credit Suisse First Boston received from us a
fee of approximately $1,200,000 for acting as placement agent in connection with
the private placement of our Series E preferred stock.
67
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, the purchaser is purchasing as principal and not as agent, and (3) the
purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein, as applicable, may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of process within
Canada upon the issuer or such persons. All or a substantial portion of the
assets of the issuer and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
68
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters will be passed upon for the Underwriters by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California. As of the date of this prospectus, investment partnerships composed
of certain current and former members of and persons associated with Wilson
Sonsini Goodrich & Rosati, Professional Corporation, as well as certain
individual attorneys of this firm, beneficially own an aggregate of 29,794
shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and financial statement schedule as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998,
and the financial statements of VEO Systems, Inc. as of and for the year ended
December 31, 1998, as set forth in their reports. We have included our financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's reports, given on their authority as experts in
accounting and auditing.
The financial statements of VEO Systems, Inc. as of December 31, 1997 and
for the period from January 16, 1997 (inception) through December 31, 1997
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.
69
<PAGE>
COMMERCE ONE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Commerce One, Inc.:
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit)................................................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
VEO Systems, Inc.:
Report of Ernst & Young LLP, Independent Auditors.................................... F-22
Report of PricewaterhouseCoopers LLP................................................. F-23
Balance Sheets....................................................................... F-24
Statements of Operations............................................................. F-25
Statements of Stockholders' Equity (Deficit)......................................... F-26
Statements of Cash Flows............................................................. F-27
Notes to Financial Statements........................................................ F-28
Selected Unaudited ProForma Condensed Combined Financial Information:
Introduction......................................................................... F-35
Statements of Operations............................................................. F-36
Notes to Selected Unaudited Pro Forma Condensed Combined Financial Information....... F-37
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Commerce One, Inc.
We have audited the accompanying consolidated balance sheets of Commerce
One, Inc. as of December 31, 1997 and 1998, and the related consolidated
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Commerce One, Inc. at December 31, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Walnut Creek, California
March 5, 1999, except for note 8, as to which the date is
April , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the
effectiveness of the stock split and approval of the certificate of
incorporation in the state of Delaware as described in Note 8 to the
consolidated financial statements.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
April 22, 1999
F-2
<PAGE>
COMMERCE ONE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
--------- --------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 9,367 $ 15,138 $ 7,839
Accounts receivable, less allowances of $70, $295 and $295 at
December 31, 1997 and 1998 and March 31, 1999, respectively... 234 1,200 1,068
Prepaid expenses and other current assets....................... 551 629 745
--------- --------- -----------
Total current assets.............................................. 10,152 16,967 9,652
Property and equipment, net....................................... 1,512 2,590 3,096
Note receivable from Veo Systems, Inc............................. -- 950 --
Intangible assets................................................. -- -- 18,065
--------- --------- -----------
Total assets...................................................... $ 11,664 $ 20,507 $ 30,813
--------- --------- -----------
--------- --------- -----------
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings under bank line of credit............................ $ 750 $ -- $ --
Accounts payable................................................ 662 709 1,124
Accrued compensation and related expenses....................... 239 352 568
Current portion of capital lease obligations.................... 280 448 466
Current portion of notes payable................................ 302 876 886
Deferred revenue................................................ 174 1,168 1,024
Other current liabilities....................................... 551 1,637 2,220
--------- --------- -----------
Total current liabilities......................................... 2,958 5,190 6,288
Capital lease obligations......................................... 359 309 212
Notes payable..................................................... 737 1,587 1,389
Commitments
Redeemable convertible preferred stock, no par value, issuable in
series: 20,745,976 shares authorized; 4,344,450, 8,777,829 and
9,177,912 shares issued and outstanding at December 31, 1997 and
1998 and March 31, 1999, respectively (none pro forma)
(aggregate liquidation preference of $51,558 at December 31,
1998)........................................................... 20,650 50,432 53,403 $ --
Stockholders' equity (deficit):
Convertible preferred stock, no par value; 22,000,000 shares
authorized (including 20,745,976 shares designated as
redeemable convertible preferred stock): 336,840 shares issued
and outstanding at December 31, 1997 and 1998 and March 31,
1999, (none pro forma) (aggregate liquidation preference of
$500 at December 31, 1998).................................... 487 487 487 --
Common stock, no par value; 50,000,000 shares authorized;
3,222,066, 3,299,068 and 5,499,255 shares issued and
outstanding at December 31, 1997 and 1998 and March 31, 1999,
respectively (15,014,007 pro forma)........................... 159 3,165 23,592 77,482
Deferred stock compensation..................................... -- (1,848) (3,246) (3,246)
Accumulated deficit............................................. (13,686) (38,765) (51,254) (51,254)
Accumulated other comprehensive loss............................ -- (50) (58) (58)
--------- --------- ----------- -------------
Total stockholders' equity (deficit).............................. (13,040) (37,011) (30,479) $ 22,924
--------- --------- ----------- -------------
-------------
Total liabilities, redeemable convertible preferred stock and
stockholders' equity (deficit).................................. $ 11,664 $ 20,507 $ 30,813
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
COMMERCE ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......................................... $ 152 $ 742 $ 1,633 $ 5 $ 1,456
Services.............................................. 660 1,004 930 120 648
--------- --------- --------- ----------- -----------
Total revenues.......................................... 812 1,746 2,563 125 2,104
--------- --------- --------- ----------- -----------
Cost of revenues........................................ 782 2,887 4,369 674 1,668
--------- --------- --------- ----------- -----------
Gross profit (loss)..................................... 30 (1,141) (1,806) (549) 436
Operating expenses:
Sales and marketing................................... 862 6,055 13,108 2,511 4,078
Product development................................... 516 2,172 6,839 1,157 3,362
General and administrative............................ 432 1,805 1,941 331 827
Purchased in-process research and development......... -- -- -- -- 3,037
Amortization of deferred stock compensation........... -- -- 1,102 99 584
Amortization of goodwill and other intangible
assets.............................................. -- -- -- -- 875
--------- --------- --------- ----------- -----------
Total operating expenses................................ 1,810 10,032 22,990 4,098 12,763
--------- --------- --------- ----------- -----------
Loss from operations.................................... (1,780) (11,173) (24,796) (4,647) (12,327)
Interest income (expense), net.......................... (25) 9 156 15 16
--------- --------- --------- ----------- -----------
Net loss................................................ $ (1,805) $ (11,164) $ (24,640) $ (4,632) $ (12,311)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Net loss per share:
Basic and diluted..................................... $ (0.69) $ (4.21) $ (8.21) $ (1.58) $ (2.64)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Pro forma basic and diluted........................... $ (2.55) $ (0.85)
--------- -----------
--------- -----------
Shares used in calculation of net loss per share:
Basic and diluted..................................... 2,618 2,679 3,053 2,966 4,723
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Pro forma basic and diluted........................... 9,673 14,402
--------- -----------
--------- -----------
</TABLE>
See accompanying notes
F-4
<PAGE>
COMMERCE ONE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------
REDEEMABLE SERIES A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------------- --------------------- ----------------------- DEFERRED STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION
---------- ----------- --------- ---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995... -- $ -- 296,440 $ 428 2,575,000 $ 10 $ --
Issuance of common stock...... -- -- -- -- 12,500 3 --
Issuance of common stock for
services.................... -- -- -- -- 64,702 10 --
Issuance of Series A
convertible preferred stock,
net of issuance costs....... -- -- 40,400 59 -- -- --
Issuance of Series B
redeemable convertible
preferred stock, net of
issuance costs.............. 1,780,488 7,251 -- -- -- -- --
Accretion of redeemable
preferred stock............. -- 7 -- -- -- -- --
Net loss and comprehensive
loss........................ -- -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------- -------
Balances at December 31, 1996... 1,780,488 7,258 336,840 487 2,652,202 23 --
Issuance of common stock upon
exercise of stock options... -- -- -- -- 569,864 136 --
Issuance of Series C
redeemable convertible
preferred stock, net of
issuance costs.............. 2,560,304 13,262 -- -- -- -- --
Issuance of Series B
redeemable convertible
preferred stock upon
exercise of warrants........ 3,658 15 -- -- -- -- --
Accretion of redeemable
preferred stock............. -- 115 -- -- -- -- --
Net loss and comprehensive
loss........................ -- -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------- -------
Balances at December 31, 1997... 4,344,450 20,650 336,840 487 3,222,066 159 --
Issuance of common stock upon
exercise of stock options... -- -- -- -- 77,002 56 --
Issuance of Series D
redeemable convertible
preferred stock, net of
issuance costs.............. 4,433,379 29,343 -- -- -- -- --
Accretion of redeemable
preferred stock............. -- 439 -- -- -- -- --
Deferred stock compensation... -- -- -- -- -- 2,950 (2,950)
Amortization of deferred stock
compensation................ -- -- -- -- -- -- 1,102
Foreign currency translation
adjustment.................. -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------- -------
Comprehensive loss.............. -- -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------- -------
Balances at December 31, 1998... 8,777,829 50,432 336,840 487 3,299,068 3,165 (1,848)
Issuance of common stock upon
exercise of stock options
(unaudited)................. -- -- -- -- 250,019 103 --
Issuance of shares in
connection with acquisition
of Veo Systems, Inc.
(unaudited)................. 400,083 2,793 -- -- 1,962,355 18,358 --
Repurchase of common stock
from terminated employees
(unaudited)................. -- -- -- -- (12,187) (16) --
Accretion of redeemable
preferred stock
(unaudited)................. -- 178 -- -- -- -- --
Deferred stock compensation
(unaudited)................. -- -- -- -- -- 1,982 (1,982)
Amortization of deferred stock
compensation (unaudited).... -- -- -- -- -- -- 584
Foreign currency translation
adjustment (unaudited)...... -- -- -- -- -- -- --
Net loss (unaudited).......... -- -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------- -------
Comprehensive loss
(unaudited)................. -- -- -- -- -- -- --
---------- ----------- --------- ---------- ---------- ----------- -------
Balances at March 31, 1999
(unaudited)................... 9,177,912 $ 53,403 336,840 $ 487 5,499,255 $ 23,592 $ (3,246)
---------- ----------- --------- ---------- ---------- ----------- -------
---------- ----------- --------- ---------- ---------- ----------- -------
<CAPTION>
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT LOSS TOTAL
------------ ----------------- ---------
<S> <C> <C> <C>
Balances at December 31, 1995... $ (595) $ -- $ (157)
Issuance of common stock...... -- -- 3
Issuance of common stock for
services.................... -- -- 10
Issuance of Series A
convertible preferred stock,
net of issuance costs....... -- -- 59
Issuance of Series B
redeemable convertible
preferred stock, net of
issuance costs.............. -- -- --
Accretion of redeemable
preferred stock............. (7) -- (7)
Net loss and comprehensive
loss........................ (1,805) -- (1,805)
------------ ----- ---------
Balances at December 31, 1996... (2,407) -- (1,897)
Issuance of common stock upon
exercise of stock options... -- -- 136
Issuance of Series C
redeemable convertible
preferred stock, net of
issuance costs.............. -- -- --
Issuance of Series B
redeemable convertible
preferred stock upon
exercise of warrants........ -- -- --
Accretion of redeemable
preferred stock............. (115) -- (115)
Net loss and comprehensive
loss........................ (11,164) -- (11,164)
------------ ----- ---------
Balances at December 31, 1997... (13,686) -- (13,040)
Issuance of common stock upon
exercise of stock options... -- -- 56
Issuance of Series D
redeemable convertible
preferred stock, net of
issuance costs.............. -- -- --
Accretion of redeemable
preferred stock............. (439) -- (439)
Deferred stock compensation... -- -- --
Amortization of deferred stock
compensation................ -- -- 1,102
Foreign currency translation
adjustment.................. -- (50) (50)
Net loss........................ (24,640) -- (24,640)
------------ ----- ---------
Comprehensive loss.............. -- -- (24,690)
------------ ----- ---------
Balances at December 31, 1998... (38,765) (50) (37,011)
Issuance of common stock upon
exercise of stock options
(unaudited)................. -- -- 103
Issuance of shares in
connection with acquisition
of Veo Systems, Inc.
(unaudited)................. -- -- 18,358
Repurchase of common stock
from terminated employees
(unaudited)................. -- -- (16)
Accretion of redeemable
preferred stock
(unaudited)................. (178) -- (178)
Deferred stock compensation
(unaudited)................. -- -- --
Amortization of deferred stock
compensation (unaudited).... -- -- 584
Foreign currency translation
adjustment (unaudited)...... -- (8) (8)
Net loss (unaudited).......... (12,311) -- (12,311)
------------ ----- ---------
Comprehensive loss
(unaudited)................. -- -- (12,319)
------------ ----- ---------
Balances at March 31, 1999
(unaudited)................... $ (51,254) $ (58) $ (30,479)
------------ ----- ---------
------------ ----- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMMERCE ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $ (1,805) $ (11,164) $ (24,640) $ (4,632) $ (12,311)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 130 470 1,026 280 403
Purchased in-process research and development..... -- -- -- -- 3,037
Amortization of deferred stock compensation....... -- -- 1,102 99 584
Amortization of goodwill and other intangible
assets.......................................... -- -- -- -- 875
Issuance of common stock for services............. 10 -- -- -- --
Changes in operating assets and liabilities:
Accounts receivable............................. (212) (21) (966) (134) 719
Prepaid expenses and other current assets....... (119) (425) (78) 11 (46)
Accounts payable................................ 182 476 47 (224) 415
Accrued compensation and related expenses....... 117 84 113 (12) (184)
Other current liabilities....................... 222 312 1,086 220 326
Deferred revenue................................ 197 (337) 994 246 (144)
--------- --------- --------- --------- ---------
Net cash used in operating activities............... (1,278) (10,605) (21,316) (4,146) (6,326)
INVESTING ACTIVITIES
Purchase of property and equipment, net............. (286) (924) (1,560) (53) (743)
Note receivable from VeoSystems, Inc................ -- -- (950) -- --
Acquisition of VeoSystems, Inc., net of cash
acquired.......................................... -- -- -- -- (42)
--------- --------- --------- --------- ---------
Net cash used in investing activities............... (286) (924) (2,510) (53) (785)
FINANCING ACTIVITIES
Borrowings under bank line of credit................ -- 750 -- -- --
Proceeds from issuance of preferred stock........... 7,310 13,277 29,343 -- --
Issuance of common stock, net....................... 3 136 56 1 87
Proceeds from borrowings on notes payable........... 227 955 1,014 -- --
Payments on notes payable........................... (94) (160) (340) (132) (188)
Payments on capital lease obligations............... (1) (173) (426) (94) (79)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities........................................ 7,445 14,785 29,647 (225) (180)
--------- --------- --------- --------- ---------
Effect of foreign currency translation on cash and
cash equivalents.................................. -- -- (50) (14) (8)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents.... 5,881 3,256 5,771 (4,438) (7,299)
Cash and cash equivalents at beginning of period.... 230 6,111 9,367 9,367 15,138
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.......... $ 6,111 $ 9,367 $ 15,138 $ 4,929 $ 7,839
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURES:
Interest paid..................................... $ 30 $ 192 $ 461 $ 82 $ 138
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred................ $ 50 $ 763 $ 554 $ 370 $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred compensation related to stock option
grants.......................................... $ -- $ -- $ 2,950 $ 826 $ 1,982
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Conversion of borrowings under bank line of credit
to note payable................................. $ -- $ -- $ 750 $ -- $ 750
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Commerce One, Inc. (the "Company") was incorporated in the State of
California in 1994. The Company provides electronic commerce solutions that use
the Internet to connect buyers and sellers and create online trading
communities.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company has incurred significant losses since inception. Its activities
to date have been financed primarily through private placements of equity
securities. The Company may seek to raise additional capital through the
issuance of debt or equity securities. However, there can be no assurance that
the Company will be able to obtain additional financing on acceptable terms, if
at all.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its consolidated financial position at that
date and its consolidated results of operations and cash flows for those
periods. Operating results for the three months ended March 31, 1999 are not
necessarily indicative of results that may be expected for any future periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, which consist of cash and highly liquid
short-term investments with insignificant interest rate risk and original
maturities of three months or less at date of purchase, are stated at cost,
which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets as follows:
computer and office equipment--three years; furniture and fixtures--five years;
and leasehold improvements--the shorter of the remaining term of the related
leases or the estimated economic useful lives of the improvements. Equipment
under capital leases is amortized over the shorter of the expected useful life
or the related lease term (see Note 4).
F-7
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," under
which certain software development costs incurred subsequent to the
establishment of technological feasibility are capitalized and amortized over
the estimated lives of the related products. Technological feasibility is
established upon completion of a working model. Through March 31, 1999,
development costs incurred subsequent to the establishment of technological
feasibility have not been significant, and all software development costs have
been charged to product development expense in the accompanying consolidated
statements of operations.
CONCENTRATION OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which potentially subject the Company to
concentrations of risk include cash and cash equivalents and accounts
receivable. The Company maintains its cash with two domestic financial
institutions.
For the years ended December 31, 1996 and 1997, one customer accounted for
10% and 12%, respectively, of the Company's revenues. For the year ended
December 31, 1998, four customers accounted for 12%, 18%, 21% and 24% of the
Company's revenues. At December 31, 1997 and 1998, these customers accounted for
20% and 13%, respectively, of accounts receivable. The Company performs ongoing
credit evaluations of its customers and does not require collateral or
guarantees. Management establishes an allowance for doubtful accounts when it
appears accounts receivable will not be collectible, and such losses to date
have been within management's expectations.
REVENUE RECOGNITION
The Company recognizes revenues from license agreements upon delivery and
acceptance of the software if there is persuasive evidence of an arrangement,
collection is probable, the fee is fixed or determinable, and there is
sufficient vendor-specific objective evidence to support allocating the total
fee to all elements of multiple-element arrangements. If an acceptance period is
required, license revenues are recognized upon the earlier of customer
acceptance or the expiration of the acceptance period.
The Company recognizes revenues from professional services as the services
are provided. If a transaction includes both license and service elements, the
license fee is recognized on delivery and acceptance of the software, provided
services do not include significant customization or modification of the base
product, and the payment terms for licenses are not subject to additional
acceptance criteria. In cases where license fee payments are contingent on the
acceptance of services, recognition of revenues is deferred for both the license
and the service elements until the acceptance criteria are met. Software
maintenance revenues are recognized ratably over the term of the support
contract, typically one year.
Effective January 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of Position
98-4 ("SOP 98-4") which were issued by the American Institute of Certified
Public Accountants ("AICPA"). The Company believes its current
F-8
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
revenue recognition policies and practices are consistent with SOP 97-2 and SOP
98-4. Additionally, the AICPA issued SOP 98-9 in December 1998, which provides
certain amendments to SOP 97-2, and is effective for transactions entered into
beginning January 1, 2000. Full implementation guidelines for this standard have
not yet been issued. Once available, such implementation guidelines could lead
to unanticipated changes in the Company's current revenue recognition policies,
which changes could affect the timing of the Company's future revenues and
results of operations.
Deferred revenue consists of prepaid fees for services and maintenance and
support agreements.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 ("APB 25")
and has adopted the disclosure-only alternative of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123") (Note 5).
INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes," which requires the use of the liability
method in accounting for income taxes. Under this method, deferred tax assets
and liabilities are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirements of FASB Statement No. 128, "Earnings per Share"
("FAS 128"). Basic earnings per share has been computed using the
weighted-average number of shares of common stock outstanding during the period,
less shares subject to repurchase, and excludes any dilutive effects of options,
warrants, and convertible securities. Potentially dilutive securities have also
been excluded from the computation of diluted net loss per share as their
inclusion would be antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the Company's initial public
offering, using the if-converted method (Note 5).
F-9
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, expect share and per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss................................ $ (1,805) $ (11,164) $ (24,640) $ (4,636) $ (12,311)
Preferred stock accretion............... (7) (115) (439) (61) (178)
--------- --------- --------- ----------- -----------
Loss available to common stockholders... $ (1,812) $ (11,279) $ (25,079) $ (4,697) $ (12,489)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Weighted average shares of common stock
outstanding........................... 2,618 2,818 3,257 3,223 4,950
Less: Weighted average shares subject to
repurchase............................ -- (139) (204) (257) (227)
--------- --------- --------- ----------- -----------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,618 2,679 3,053 2,966 4,723
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Basic and diluted net loss per share.... $ (0.69) $ (4.21) $ (8.21) $ (1.58) $ (2.64)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Pro forma:
Net loss................................ $ (1,805) $ (11,164) $ (24,640) $ (4,636) $ (12,311)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Weighted average shares used in
computing basic and diluted net loss
per share (from above)................ 3,257 4,950
Adjustment to reflect the effect of the
assumed conversion of preferred stock
from the date of issuance............. 6,416 9,452
--------- -----------
Weighted-average shares used in
computing pro forma basic and diluted
net per loss share.................... 9,673 14,402
--------- -----------
--------- -----------
Pro forma basic and diluted net loss per
share................................. $ (2.55) $ (0.85)
--------- -----------
--------- -----------
</TABLE>
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 112,000, 394,000, 1,346,000, 1,095,000, and 2,538,000 common
equivalent shares related to outstanding stock options and warrants not included
above (determined using the treasury stock method) for the years ended December
31, 1996, 1997 and 1998 and for the three months ended March 31, 1998 and 1999,
respectively.
F-10
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components in financial statements. The only item of other
comprehensive income (loss) which the Company currently reports is foreign
currency translation adjustments, which are included in accumulated other
comprehensive income (loss) in the consolidated statements of redeemable
convertible preferred stock and stockholders' equity (deficit).
The FASB issued Statement No. 131 ("FAS 131") "Disclosure about Segments of
an Enterprise and Related Information," which establishes standards for the way
public business enterprises report information in annual statements and interim
financial reports regarding operating segments, products and services,
geographic areas, and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. The Company adopted
FAS 131 in the year ended December 31, 1998 and operates in one business
segment, which is business-to-business electronic commerce solutions for
creating dynamic trading communities over the Internet.
RECLASSIFICATIONS
Certain prior amounts have been reclassified to conform to current year
presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer and office equipment............................... $ 1,688 $ 3,632
Furniture and fixtures...................................... 169 223
Leasehold improvements...................................... 159 258
--------- ---------
2,016 4,113
Less accumulated depreciation and amortization.............. 504 1,523
--------- ---------
$ 1,512 $ 2,590
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
3. NOTES PAYABLE
In May 1998, the Company entered into a loan agreement with a bank which
provides for a line of credit of $1,500,000, plus 75% of the Company's net
accounts receivable balance, up to a total of $3,000,000. Borrowings under the
line of credit bear interest at the bank's prime rate plus 1.0% (8.75% at
December 31, 1998). No borrowings were outstanding under the line of credit at
December 31, 1998. The loan agreement also provides for a revolving equipment
loan facility in the amount of $1,500,000. Borrowings under the equipment loan
facility bear interest at the bank's prime rate plus 1.5% (9.25% at December 31,
1998) and are to be repaid in monthly installments of principal and interest
over 36 months. Borrowings outstanding under the equipment facility at December
31, 1998 amounted to $1,371,000. The equipment facility is secured by
substantially all of the assets of the Company. In addition, the Company is
required to keep on deposit with the bank a minimum of $2,000,000. In connection
with the loan agreement, the Company granted the bank a warrant to purchase
6,446 shares of Series D preferred stock. The Company deemed the fair value of
the warrant to be minimal. The loan agreement expires on January 31, 2001.
In January 1997, the Company entered into revolving line of credit with the
same bank for the purchase of equipment. The agreement provided for borrowings
of up to $750,000 at 1.5% above the bank's prime rate (10% at December 31,
1997). In September 1998, the entire principal balance under the revolving line
of credit was repaid from proceeds of borrowings under the equipment loan
facility.
In 1997 and 1998, the Company entered into notes payable agreements with two
leasing companies. The notes accrue interest monthly based on effective interest
rates ranging from 13.75% to 15.01% and mature at various dates from January
2000 to December 2001. The notes are secured by the equipment acquired with the
proceeds from these notes. The principal amount outstanding at December 31, 1998
under these notes is $1,092,000.
Principal maturities of notes payable as of December 31, 1998 are as
follows: 1999--$876,000; 2000--$898,000; and 2001--$689,000.
4. LEASE OBLIGATIONS
The Company leases its principal office facilities under a non-cancelable
operating lease. Rent expense amounted to $199,000, $428,000 and $587,000 for
the years ended December 31, 1996, 1997 and 1998, respectively.
Capital lease obligations represent the present value of future rental
payments under capital lease agreements for equipment. The original cost and
accumulated depreciation on the equipment under capital leases is $813,000 and
$174,000, respectively, at December 31, 1997 and $1,367,000 and $610,000,
respectively, at December 31, 1998.
F-12
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
4. LEASE OBLIGATIONS (CONTINUED)
Future minimum payments under capital and operating leases at December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1999..................................................................... $ 622 $ 649
2000..................................................................... 317 223
2001..................................................................... 24 --
----- -----
Total minimum lease payments............................................. 963 $ 872
-----
-----
Less amounts representing interest....................................... 206
-----
Present value of minimum lease payments.................................. 757
Less current portion of capital lease obligations........................ 448
-----
$ 309
-----
-----
</TABLE>
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Preferred stock consists of the following by series:
<TABLE>
<CAPTION>
SHARES ISSUED
-------------------------------
DECEMBER 31,
AUTHORIZED -------------------- MARCH 31,
SERIES SHARES 1997 1998 1999
- ----------------------------------------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
A convertible.................................. 673,680 336,840 336,840 336,840
B redeemable convertible....................... 3,595,976 1,784,146 1,784,146 1,784,146
C redeemable convertible....................... 6,450,000 2,560,304 2,560,304 2,560,304
D redeemable convertible....................... 10,700,000 -- 4,433,379 4,833,462
--------- --------- --------- ---------
21,419,656 4,681,290 9,114,669 9,514,752
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The holders of the Series A, Series B, Series C and Series D preferred stock
are entitled to receive annual noncumulative dividends of $.12, $.328, $.40 and
$.56 per share, respectively, when and if declared by the Board of Directors.
These dividends are in preference to any declaration or payment of any dividend
on the common stock of the Company. No such dividends have been declared through
March 31, 1999.
Each share of the Series A, Series B, Series C and Series D preferred stock
is convertible, at the holder's option, into one share of the Company's common
stock, subject to certain antidilution provisions. The preferred stock will be
automatically converted into common stock based on the then applicable
conversion rate upon completion of an initial public offering of the Company's
common stock with proceeds to the Company of a minimum of $40 million at a
minimum offering price of
F-13
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
$13.96 per share. The holders of preferred stock are entitled to the number of
votes equal to the number of shares of common stock into which their preferred
stock is convertible.
At any time after November 30, 2003, or with the approval of the holders of
a majority of the then outstanding shares of the Series B, Series C and Series D
preferred stock, the Company may be required to redeem all or any part of the
then outstanding shares of Series B, Series C and Series D preferred stock at a
price equal to $4.45 per share, $5.72 per share and $7.68 per share,
respectively, plus all declared but unpaid dividends on such shares. The Company
is not required to redeem Series B, Series C or Series D preferred stock in
excess of one-third of the aggregate redemption prior to July 31, 2003, in
excess of two-thirds prior to July 31, 2004 or 100% prior to July 31, 2005. The
excess of the redemption value over the carrying value is being accreted by
periodic charges to the accumulated deficit over the period prior to the
redemption dates.
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of the Series A, Series B, Series C and Series D preferred stock
have a liquidation preference of $1.4844 $4.10, $5.20 and $6.9766 per share,
respectively, up to a maximum of three times that amount per share if available
for distribution, over holders of common stock plus any declared but unpaid
dividends.
WARRANTS
The Company had the following warrants outstanding at December 31, 1998 to
purchase shares of preferred stock:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PREFERRED PRICE PER EXPIRATION OF
SHARES STOCK SHARE WARRANTS
- ---------- ---------- ----------- ---------------------------------------------------------
<C> <C> <C> <S>
13,781 Series B $ 4.10 December 2003
6,730 Series C $ 5.20 Earlier of September 2007, or close of an initial public
offering
511,738 Series C $ 10.40 Earlier of October 2007, or close of an initial public
offering
128,331 Series C $ 10.40 Earlier of December 2007, or close of an initial public
offering
6,446 Series D $ 6.98 Earlier of May 2008, or close of an initial offering
36,246 Series D $ 6.98 Earlier of September 2008, or close of an initial public
offering
7,163 Series D $ 6.98 Earlier of December 2008, or close of an initial public
offering
- ----------
710,435
- ----------
- ----------
</TABLE>
In addition, the Company is obligated to issue a warrant to purchase 214,899
shares of Series D preferred stock at $6.98 per share to a system integration
partner if certain joint customer thresholds are not met by August 2000. If
issued, this warrant will expire three years from the date of grant.
F-14
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
Under the Company's 1995 and 1997 Stock Option Plans ("the Plans"),
2,700,000 shares of common stock have been reserved for the issuance of
incentive stock options (ISO) or non-statutory stock options (NSO) to employees,
officers, directors, and consultants. The ISOs may be granted at a price per
share not less than the fair market value on the date of the grant. The NSOs may
be granted at a price per share not less than 85% of the fair market value at
the date of grant. Options granted under the Plans are exercisable over a
maximum term of ten years from the date of grant and generally vest over periods
of up to four years. Under the 1995 Plan, the option holder may exercise
unvested options and obtain shares of stock that are subject to a repurchase
option by the Company at the original exercise price in the event of the
employee's termination. The repurchase rights lapse over the period that the
underlying options vest. Shares issued under the 1995 Plan are also subject to
various restrictions as to resale.
F-15
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the Company's stock option activity under the plans is set
forth below:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
----------- -----------------
<S> <C> <C>
Outstanding at December 31, 1995.................................................. 75,000 $ 0.14
Granted......................................................................... 1,032,687 0.26
Canceled........................................................................ (12,500) 0.14
----------- -----
Outstanding at December 31, 1996.................................................. 1,095,187 0.26
Granted......................................................................... 571,925 0.40
Exercised....................................................................... (569,864) 0.24
Canceled........................................................................ (131,021) 0.30
----------- -----
Outstanding at December 31, 1997.................................................. 966,227 0.34
Granted......................................................................... 1,222,750 1.16
Exercised....................................................................... (77,002) 0.34
Canceled........................................................................ (223,032) 0.64
----------- -----
Outstanding at December 31, 1998.................................................. 1,888,943 0.84
Granted and assumed (unaudited)................................................. 1,520,334 2.44
Exercised (unaudited)........................................................... (250,019) 0.48
Canceled (unaudited)............................................................ (138,680) 0.92
----------- -----
Outstanding at March 31, 1999 (unaudited)......................................... 3,020,578 $ 1.67
----------- -----
----------- -----
Exercisable and vested at December 31, 1998....................................... 590,522 $ 0.46
----------- -----
----------- -----
Exercisable and vested at March 31, 1999 (unaudited).............................. 1,360,423 $ 0.44
----------- -----
----------- -----
Outstanding shares of common stock subject to repurchase at December 31, 1998..... 130,015
-----------
-----------
Outstanding shares of common stock subject to repurchase at March 31, 1999
(unaudited)..................................................................... 194,348
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------
OPTIONS EXERCISABLE
AND VESTED
------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE CONTRACTUAL PRICE PER PRICE PER
PRICES NUMBER LIFE (YEARS) SHARE NUMBER SHARE
- ----------- --------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
0$.14-$0.40.. 711,263 7.86 $ 0.34 406,366 $ 0.30
0$.52-$0.60.. 494,076 8.98 $ 0.60 125,978 $ 0.60
1$.20-$1.80.. 683,604 9.53 $ 1.52 58,178 $ 1.30
--------- ---------
1,888,943 590,522
--------- ---------
--------- ---------
</TABLE>
F-16
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
The Company recorded deferred stock compensation of approximately $2,950,000
during the year ended December 31, 1998 and $1,982,000 during the three months
ended March 31, 1999 representing the difference between the exercise price and
the deemed fair value of certain of the Company's stock options granted to
employees. These amounts are being amortized by charges to operations over the
vesting periods of the individual stock options using a graded vesting method.
Such amortization amounted to approximately $1,102,000 for the year ended
December 31, 1998 and approximately $584,000 for the three months ended March
31, 1999.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1998, the Company has reserved shares of capital stock for
future issuance as follows:
<TABLE>
<CAPTION>
COMMON PREFERRED
STOCK STOCK
------------ ----------
<S> <C> <C>
Convertible preferred stock, including effect of preferred stock warrants.............. 10,040,003 --
Stock options outstanding.............................................................. 1,888,943 --
Stock options available for grant...................................................... 164,191 --
Warrants to purchase preferred stock................................................... -- 925,334
------------ ----------
12,093,137 925,334
------------ ----------
------------ ----------
</TABLE>
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK BASED COMPENSATION
Pro forma information regarding results of operations and net loss per share
is required by FAS 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options under the fair
value method of FAS 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option valuation model with the following
weighted-average assumptions: a risk-free interest rate of 6.0%, 6.2% and 5.8%
for the years ended December 31, 1996, 1997 and 1998, respectively, no dividend
yield or volatility factors of the expected market price of the Company's common
stock, and a weighted-average expected life of the option of 4.5 years.
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum value method of FAS 123, the Company's net loss and
basic and diluted net loss per share would have been
F-17
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
increased to the pro forma as adjusted amounts indicated below (in thousands
except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net loss--pro forma as adjusted................................. $ (1,811) $ (11,187) $ (25,123)
--------- --------- ---------
--------- --------- ---------
Net loss per share--pro forma as adjusted....................... $ (0.69) $ (4.18) $ (8.23)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.06, $0.10 and $2.98 for options
granted during the years ended December 31, 1996, 1997 and 1998, respectively.
The pro forma impact of options on the net loss for the years ended December
31, 1996, 1997 and 1998 is not representative of the effects on net income
(loss) for future years, as future years will include the effects of additional
years of stock option grants.
6. INCOME TAXES
There has been no provision of U.S. federal, state, or foreign income taxes
for any period as the Company has incurred operating losses in all periods.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 5,094 $ 12,687
Capitalized research and development..................... -- 474
Other.................................................... 254 642
--------- ---------
Total gross deferred tax assets............................ 5,348 13,803
Less valuation allowance................................... (5,348) (13,803)
--------- ---------
Net deferred tax assets.................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. During the years
ended December 31, 1997 and 1998, the valuation allowance on deferred tax assets
increased by $4,373,000 and $8,455,000, respectively.
F-18
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $32,723,000, which expire in the
years 2009 through 2018. The Company also had net operating loss carryforwards
for state income tax purposes of approximately $16,646,000 expiring in years
2002 through 2003. There can be no assurance that the Company will realize the
benefit of the net operating loss carryforwards.
Utilization of the Company's net operating loss is subject to a substantial
annual limitation due to the ownership change limitation provided by the
Internal Revenue Code and similar state provisions. Such an annual limitation
could result in the expiration of the net operating loss before utilization.
7. PROFIT SHARING PLAN
The Company has a profit sharing plan and trust under Section 401(k) of the
Internal Revenue Code which covers substantially all employees. Eligible
employees may contribute amounts to the plan via payroll withholdings, subject
to certain limitations. The Company does not match contributions by plan
participants.
8. SUBSEQUENT EVENTS
ACQUISITION
Effective January 15, 1999, the Company acquired VEO Systems, Inc. ("VEO"),
a company specializing in the creation of XML technology applications, in a
transaction accounted for as a purchase. The consolidated financial statements
include the operating results of VEO from the date of acquisition. The purchase
consideration was approximately $23.2 million consisting of 1,962,355 shares of
common stock with a value of $13.3 million, 400,083 shares of Series D prime
preferred stock (having the same rights as Series D with an aggregate
liquidation preference of $2,000,000) with a value of $2.8 million, 825,771
stock options with a value $5.1 million, $258,000 of assumed liabilities,
$400,000 in cash and $400,000 of acquisition costs. In addition, the Company
advanced $950,000 in cash to Veo under a note receivable during 1998. Contingent
consideration of an additional $400,000 in cash will be paid if certain
employees remain employed through January 2000.
F-19
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
The purchase consideration was allocated to the acquired assets and assumed
liabilities based on deemed fair values as follows (in thousands):
<TABLE>
<S> <C>
Cash............................................................... $ 358
Accounts receivables and other assets.............................. 823
Intangibles assets:
Purchased technology............................................. 2,274
Assembled workforce.............................................. 541
Tradenames/patents............................................... 693
Goodwill......................................................... 15,432
---------
Total intangible assets............................................ 18,940
---------
Purchased in-process research and development charged to operations
in the three months ended March 31, 1999......................... 3,037
---------
Total purchase consideration....................................... $ 23,158
---------
---------
</TABLE>
Goodwill arising from the acquisition will be amortized on a straight-line
basis over five years. Other intangible assets will be amortized over their
estimated useful lives ranging from two to five years.
The following unaudited pro forma adjusted summary represents the
consolidated results of operations for the year ended December 31, 1998 as if
the acquisition of VEO had occurred January 1, 1998 and are not intended to be
indicative of future results (in thousands, except per share amounts):
<TABLE>
<S> <C>
Pro forma adjusted net revenue.................................... $ 5,353
Pro forma adjusted net loss....................................... $ (30,903)
Pro forma adjusted net loss per share--basic and diluted.......... $ (7.73)
Number of shares used in pro forma share calculation--basic and
diluted......................................................... 3,998
</TABLE>
The pro forma results of operations include historical operations of the
Company and VEO adjusted to reflect certain pro forma adjustments, including
amortization of goodwill and other intangible assets arising from the
acquisition and do not include the charge for purchased in-process research and
development of $3,037,000 since it is a non-recurring charge. These results do
not purport to be indicative of what would have occurred had the acquisition
been made as of that date or the results of operations which may occur in future
periods.
SERIES E PREFERRED STOCK
In April 1999, the Company sold 2,758,819 shares of Series E redeemable
convertible preferred stock with gross proceeds to the Company of approximately
$24,994,900.
F-20
<PAGE>
COMMERCE ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND 1999 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
PROPOSED PUBLIC OFFERING OF COMMON STOCK
On April 9, 1999, the Board of Directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding preferred stock
will automatically convert to common stock. The unaudited pro forma
stockholders' equity (deficit) at March 31, 1999 gives effect to the conversion
of all outstanding shares of convertible preferred stock at that date into
shares of common stock upon the completion of the offering.
STOCK SPLIT
On April 9, 1999, the Board of Directors approved, subject to stockholder
approval, a one-for-two reverse stock split of issued and outstanding common and
preferred stock to be effective prior to the completion of the initial public
offering of its common stock. All common and preferred share prices, and amounts
associated with rights, preferences, dividends and privileges in the
accompanying financial statements have been retroactively adjusted to reflect
the stock split. In addition, the Board of Directors authorized an increase in
the number of authorized shares of common stock to 250,000,000 and a decrease in
the number of authorized shares of preferred stock to 10,000,000 shares, subject
to stockholder approval.
1997 INCENTIVE STOCK OPTION PLAN
Subsequent to December 31, 1998, the Company's Board of Director's reserved
subject to stockholder approval, an additional 2,600,000 shares of common stock
for issuance of stock options under the 1997 Incentive Stock Option Plan.
1999 DIRECTOR OPTION PLAN
On April 9, 1999, the Company's Board of Directors adopted, subject to the
stockholder approval, the 1999 Director Option Plan and reserved an aggregate of
150,000 shares of common stock for grants of stock options under such plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors on April 9, 1999, subject to stockholder approval, to be effective
upon the completion of the Company's initial public offering of its common
stock. The Company has reserved a total of 750,000 shares of common stock for
issuance under the plan. Eligible employees may purchase common stock at 85% of
the lesser of the fair market value of the Company's common stock on the first
day of the applicable two year offering period or the last day of the applicable
six month purchase period.
F-21
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
VEO Systems, Inc.
We have audited the accompanying balance sheet of VEO Systems, Inc. as of
December 31, 1998 and the related statements of operations, stockholders' equity
(deficit), and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VEO Systems, Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
March 5, 1999
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
VEO Systems, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of VEO Systems, Inc. (a company in the
development stage) at December 31, 1997, and the result of its operations and
cash flows for the period from January 16, 1997 (date of inception) to December
31, 1997, in conformity with generally accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses and
negative cash flows from operations since inception which raises substantial
doubt about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ PricewaterhouseCoopers LLP
May 8, 1998, except for the last paragraph of Note 10,
as to which the date is August 21, 1998
F-23
<PAGE>
VEO SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................... $ 1,444 $ 619
Accounts receivable, less allowance for doubtful accounts of $13 in 1997 and $16 in 1998.... 307 582
Prepaid expenses and other current assets................................................... 17 3
--------- ---------
Total current assets.......................................................................... 1,768 1,204
Property and equipment, net................................................................... 74 169
Other assets.................................................................................. 43 18
--------- ---------
Total assets.................................................................................. $ 1,885 $ 1,391
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................................................... $ 182 $ 225
Accrued compensation and related expenses................................................... 26 80
Capital lease obligation.................................................................... 4 --
Notes payable to stockholders............................................................... -- 750
Note payable to Commerce One, Inc........................................................... -- 950
Deferred revenue............................................................................ 294 --
--------- ---------
Total current liabilities..................................................................... 506 2,005
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, no par value; 423,334 shares authorized, issued and outstanding
at December 31, 1997 and 1998 (liquidation preference of $2,120 at December 31, 1998)..... 2,042 2,042
Common stock, no par value; 10,000,000 shares authorized; 1,565,000 and 1,396,750 shares
issued and outstanding at December 31, 1997 and 1998, respectively........................ 150 154
Deferred compensation....................................................................... (126) (92)
Notes receivable from stockholders.......................................................... (34) --
Accumulated deficit......................................................................... (653) (2,718)
--------- ---------
Total stockholders' equity (deficit).......................................................... 1,379 (614)
--------- ---------
Total liabilities and stockholders' equity (deficit).......................................... $ 1,885 $ 1,391
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-24
<PAGE>
VEO SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 16, 1997
(INCEPTION) YEAR ENDED
THROUGH DECEMBER DECEMBER 31,
31, 1997 1998
----------------- ------------
<S> <C> <C>
Services.......................................................................... $ 998 $ 2,790
Cost of revenues.................................................................. 613 1,161
----- ------------
Gross profit...................................................................... 385 1,629
Operating expenses:
Sales and marketing............................................................. 21 794
Product development............................................................. 272 1,174
General and administrative...................................................... 841 1,786
----- ------------
Total operating expenses.......................................................... 1,134 3,754
----- ------------
Loss from operations.............................................................. (749) (2,125)
Interest income (expense), net.................................................... (6) 10
Rental income..................................................................... 102 50
----- ------------
Net loss.......................................................................... $ (653) $ (2,065)
----- ------------
----- ------------
</TABLE>
See accompanying notes.
F-25
<PAGE>
VEO SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
---------------------- ----------------------- DEFERRED FROM ACCUMULATED
SHARES AMOUNT SHARES AMOUNT COMPENSATION STOCKHOLDERS DEFICIT
--------- ----------- ---------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
inception.................... -- $ -- 1,565,000 $ 15 $ -- $ -- $ --
Issuance of common stock for
notes receivable from
stockholders................. -- -- 300,000 3 -- (3) --
Repurchase of common stock via
forgiveness of notes
receivable from
stockholders................. -- -- (300,000) (3) -- 3 --
Issuance of Series A
convertible preferred stock
for note receivable from
stockholder, net of issuance
costs........................ 90,000 119 -- -- -- (119) --
Additional contribution by
Series A preferred
stockholder.................. -- 12 -- -- -- -- --
Repayment of note receivable
from stockholder via services
rendered..................... -- -- -- -- -- 85 --
Issuance of Series B
convertible preferred stock,
net of issuance costs........ 333,334 1,911 -- -- -- -- --
Deferred compensation related
to issuance of common
stock........................ -- -- -- 135 (135) -- --
Amortization of deferred
compensation................. -- -- -- -- 9 -- --
Net loss and comprehensive
loss......................... -- -- -- -- -- -- (653)
--------- ----------- ---------- ----- ----- ----- -------------
Balances at December 31,
1997......................... 423,334 2,042 1,565,000 150 (126) (34) (653)
Issuance of common stock upon
exercise of stock options.... -- -- 500 -- -- -- --
Issuance of common stock in
exchange for services........ -- -- 10,000 6 -- -- --
Repurchase of common stock..... -- -- (178,750) (2) -- -- --
Amortization of deferred
compensation................. -- -- -- -- 34 -- --
Repayment of note receivable
from stockholder via services
rendered..................... -- -- -- -- -- 34 --
Net loss and comprehensive
loss......................... -- -- -- -- -- -- (2,065)
--------- ----------- ---------- ----- ----- ----- -------------
Balances at December 31,
1998......................... 423,334 $ 2,042 1,396,750 $ 154 $ (92) $ -- $ (2,718)
--------- ----------- ---------- ----- ----- ----- -------------
--------- ----------- ---------- ----- ----- ----- -------------
<CAPTION>
TOTAL
---------
<S> <C>
Issuance of common stock at
inception.................... $ 15
Issuance of common stock for
notes receivable from
stockholders................. --
Repurchase of common stock via
forgiveness of notes
receivable from
stockholders................. --
Issuance of Series A
convertible preferred stock
for note receivable from
stockholder, net of issuance
costs........................ --
Additional contribution by
Series A preferred
stockholder.................. 12
Repayment of note receivable
from stockholder via services
rendered..................... 85
Issuance of Series B
convertible preferred stock,
net of issuance costs........ 1,911
Deferred compensation related
to issuance of common
stock........................ --
Amortization of deferred
compensation................. 9
Net loss and comprehensive
loss......................... (653)
---------
Balances at December 31,
1997......................... 1,379
Issuance of common stock upon
exercise of stock options.... --
Issuance of common stock in
exchange for services........ 6
Repurchase of common stock..... (2)
Amortization of deferred
compensation................. 34
Repayment of note receivable
from stockholder via services
rendered..................... 34
Net loss and comprehensive
loss......................... (2,065)
---------
Balances at December 31,
1998......................... $ (614)
---------
---------
</TABLE>
See accompanying notes.
F-26
<PAGE>
VEO SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 16, 1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................................................... $ (653) $ (2,065)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................... 11 56
Amortization of deferred compensation........................................... 9 34
Interest contribution by Series A preferred stockholder......................... 12 --
Allowance for doubtful accounts................................................. 13 3
Issuance of common stock and cancellation of note receivable in exchange for
services...................................................................... 85 40
Changes in operating assets and liabilities:
Accounts receivable........................................................... (320) (278)
Prepaid expenses and other current assets..................................... (17) 14
Other assets.................................................................. (44) (3)
Accounts payable and accrued liabilities...................................... 151 43
Accrued compensation and related expenses..................................... 26 54
Deferred revenue.............................................................. 294 (294)
------ -------------
Net cash used in operating activities............................................. (433) (2,396)
INVESTING ACTIVITIES
Purchase of property and equipment, net........................................... (46) (123)
------ -------------
Net cash used in investing activities............................................. (46) (123)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock......................................... 1,911 --
Proceeds from borrowings on notes payable......................................... -- 1,700
Proceeds from short-term loan..................................................... 100 --
Repayment of short-term loan...................................................... (100) --
Issuance (repurchase) of common stock, net........................................ 15 (2)
Payments on capital lease obligation.............................................. (3) (4)
------ -------------
Net cash provided by financing activities......................................... 1,923 1,694
------ -------------
Increase (decrease) in cash and cash equivalents.................................. 1,444 (825)
Cash and cash equivalents at beginning of period.................................. -- 1,444
------ -------------
Cash and cash equivalents at end of period........................................ $ 1,444 $ 619
------ -------------
------ -------------
SUPPLEMENTAL DISCLOSURES:
Interest paid................................................................... $ 12 $ 2
------ -------------
------ -------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation incurred............................................... $ 7 $ --
------ -------------
------ -------------
Property and equipment purchased under accounts payable......................... $ 31 $ --
------ -------------
------ -------------
Issuance of Series A preferred stock in exchange for note receivable from
stockholder................................................................... $ 131 $ --
------ -------------
------ -------------
Deferred compensation related to issuance of common stock....................... $ 135 $ --
------ -------------
------ -------------
</TABLE>
See accompanying notes.
F-27
<PAGE>
VEO SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
VEO Systems, Inc. (the "Company") was incorporated in the state of
California on January 16, 1997 under the name of CommerceNet Services, Inc. and
in March 1998 amended its name to VEO Systems, Inc. The Company operates in one
business segment, which is the development of a business integration platform
for communicating with customers and suppliers over the Internet. The Company
was in the development stage during 1997.
ACQUISITION BY COMMERCE ONE, INC.
Effective January 15, 1999, all of the Company's outstanding preferred and
common stock was acquired by Commerce One, Inc. ("Commerce One"). Prior to the
closing of the transaction, all of the Company's outstanding warrants were
exercised (Note 5). During 1998, Commerce One advanced $950,000 in cash to the
Company under a note payable, which was due in July 1999 with interest at 6% per
annum. The note was canceled in connection with the acquisition. The financial
statements do not include any adjustments to the recorded amounts of assets and
liabilities which may result from this transaction.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, which consist of cash and highly liquid
short-term investments with insignificant interest rate risk and original
maturities of three months or less at date of purchase, are stated at cost,
which approximates fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of three to five years.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," under which
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model. To date, costs incurred subsequent to the
establishment of technological feasibility have not been significant, and all
software development costs have been charged to product development expense in
the accompanying statements of operations.
F-28
<PAGE>
VEO SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
Costs related to advertising and promotion are charged to sales and
marketing expense as incurred. Advertising and promotion expense for 1997 and
1998 was $5,000 and $43,000, respectively.
CONCENTRATION OF CREDIT RISK AND CREDIT EVALUATIONS
Financial instruments which potentially subject the Company to
concentrations of risk include cash and cash equivalents and accounts
receivable. The Company's cash is invested in deposits with one financial
institution and such deposits may, at times, be in excess of insured limits.
Management believes that the financial institution which holds the Company's
cash and cash equivalents is financially sound and, accordingly, represents
minimal credit risk.
At December 31, 1997 and 1998, three and one customers accounted for 77% and
44%, respectively, of accounts receivable. For 1997 and 1998, six and two
customers accounted for 93% and 90%, respectively, of the Company's revenue. The
Company extends credit to customers for services performed and does not require
collateral or guarantees. Management establishes an allowance for doubtful
accounts for estimated uncollectible receivables, and such losses to date have
been within management's expectations.
REVENUE RECOGNITION
In August 1997, the Company was awarded a cost reimbursement government
contract by National Institute of Standards and Technology ("NIST") in the
amount of $4,800,000 for the period from October 1, 1997 through September 30,
1999. For 1997 and 1998, actual reimbursable costs incurred related to the
contract totaled $132,000 and $1,432,000, respectively, which amounts were
recorded as revenue as the costs were incurred.
The Company has also recognized revenue in connection with services provided
to non-governmental organizations. Revenue is generally recognized as milestones
are reached or on a percentage of completion basis based on costs incurred.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 ("APB 25")
and makes the pro forma disclosures required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"). The effect of applying the fair value method under FAS 123 to the
Company's stock options would result in pro forma net losses that are not
materially different from the historical amounts reported.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the use of the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
F-29
<PAGE>
VEO SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," which establishes standards for reporting
and displaying comprehensive income and its components in the financial
statements. The Company has no items of other comprehensive income and,
accordingly, its net loss is equal to its comprehensive loss.
The Financial Accounting Standards Board issued Statement No. 131 ("SFAS
131"), "Disclosure about Segments of an Enterprise and Related Information,"
which establishes standards for the way public business enterprises report
information in annual statements and interim financial reports regarding
operating segments, products and services, geographic areas, and major
customers. The Company adopted SFAS 131 in 1998. The Company operates in one
business segment.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1998, the AICPA issued Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Development or Obtained for
Internal Use." The Company is reviewing the impact of SOP 98-1, which will be
effective for the year ending December 31, 1999.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
----- ---------
<S> <C> <C>
Computer equipment............................................................. $ 34 $ 123
Property and fixtures.......................................................... 48 56
Software....................................................................... 2 28
--- ---------
84 207
Less accumulated depreciation.................................................. 10 38
--- ---------
$ 74 $ 169
--- ---------
--- ---------
</TABLE>
3. NOTES PAYABLE TO STOCKHOLDERS
In May 1998, the Company issued 6% convertible subordinated debentures in
the principal amount of $750,000 due December 31, 1998 to four investors in
exchange for cash. The investors also received attached warrants to acquire
12,501 shares of preferred stock. In connection with the acquisition by Commerce
One, the debentures were converted into 125,000 shares of the Company's Series B
preferred stock and the warrants were exercised.
F-30
<PAGE>
VEO SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LEASE OBLIGATIONS
The Company leases its principal office facilities under a non-cancelable
operating lease. Rent expense amounted to $155,000 and $462,000 for 1997 and
1998, respectively.
Future minimum payments under operating leases at December 31, 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- -------------------------------------------------------------------------------------
<S> <C>
1999............................................................................... $ 752
2000............................................................................... 447
---------
Total minimum lease payments......................................................... $ 1,199
---------
---------
</TABLE>
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
At December 31, 1997 and 1998, the Company had 90,000 and 333,334 shares of
Series A and B convertible preferred stock, respectively, authorized, issued and
outstanding. The holders of the Series A and B convertible preferred stock were
entitled to receive annual noncumulative dividends of $0.067 and $0.30 per
share, respectively, when and if declared by the Board of Directors. These
dividends were in preference to any declaration or payment of any dividend on
the common stock of the Company. As of December 31, 1998, no dividends had been
declared.
Each share of Series A and Series B preferred stock was convertible, at the
holder's option, subject to antidilution provisions, into the number of fully
paid and nonassessable shares of common stock, which resulted from dividing the
original issue price per share for each class of preferred stock by the
conversion price in effect at the time of conversion, which is $1.3375 and $6.00
for Series A and B preferred stock, respectively. The preferred stock was to be
automatically converted into common stock based on the then applicable
conversion rate upon completion of an initial public offering of the Company's
common stock with proceeds to the Company of a minimum of $7.5 million. The
holders of preferred stock were entitled to the number of votes equal to the
number of shares of common stock into which their preferred stock was
convertible.
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of the Series A and B preferred stock had a liquidation preference
of $1.3375 and $6.00 per share, respectively, over holders of common stock plus
any declared but unpaid dividends. After payment had been made to the holders of
the Series A and B preferred stock, the entire remaining assets and funds of the
Company legally available for distribution, if any, would have been distributed
ratably among the holders of Series A and B preferred and common stocks assuming
conversion of all preferred stock.
COMMON STOCK REPURCHASE AGREEMENT:
In 1997, the Company issued 1,565,000 shares of restricted common stock to
certain employees at a price of $0.01 per share. Under the stock purchase
agreement, the Company has the option to repurchase unvested common shares in
the event the employees cease to be employed by the Company. The Company's
repurchase rights generally lapse at a rate of 1/4 after the first 12 months and
1/48th for each month of full time employment with the Company until all shares
are released from the repurchase plan. At December 31, 1998, 610,000 unvested
common shares are subjected to repurchase.
F-31
<PAGE>
VEO SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
Under the Company's 1997 Stock Option Plan ("1997 Plan"), 981,500 shares of
common stock have been reserved for the issuance of incentive stock options
(ISO) or non-statutory stock options (NSO) to employees, officers, directors,
and consultants of the Company. The ISOs may be granted at a price per share not
less than the fair market value on the date of the grant. The NSOs may be
granted at a price per share not less than 85% of the fair market value at the
date of grant. Options granted under the 1997 Plan are exercisable over a
maximum term of ten years from the date of grant and generally vest over periods
of up to four years.
A summary of the Company's stock option activity under the plan is set forth
below:
<TABLE>
<CAPTION>
WEIGHTAED- AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
----------- -----------------
<S> <C> <C>
Granted......................................................... 165,000 $ 0.21
----------- ------
Outstanding at December 31, 1997................................ 165,000 0.21
Granted..................................................... 665,000 0.60
Exercised................................................... (500) 0.60
Canceled.................................................... (139,000) 0.43
----------- ------
Outstanding at December 31, 1998................................ 690,500 $ 0.54
----------- ------
----------- ------
Exercisable and vested at December 31, 1998..................... 89,427 $ 0.47
----------- ------
----------- ------
Available for grant at December 31, 1998........................ 290,500
-----------
-----------
</TABLE>
The weighted-average fair value at grant date of options granted during 1998
was $0.15 per share.
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AND
OPTIONS OUTSTANDING
------------------------------------------- VESTED
WEIGHTED- ----------------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE PRICE EXERCISE PRICE
EXERCISE PRICES NUMBER LIFE (YEARS) PER SHARE NUMBER PER SHARE
- --------------- --------- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.01 70,000 8.96 $ 0.01 19,323 $ 0.01
$ 0.60 620,500 9.50 $ 0.60 70,104 0.60
--------- -----------
690,500 89,427
--------- -----------
--------- -----------
</TABLE>
F-32
<PAGE>
VEO SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
The Company had the following warrants outstanding at December 31, 1998 to
purchase shares of capital stock:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES CLASS OF STOCK PER SHARE EXPIRATION OF WARRANTS
- ----------- ----------------- --------------- -------------------------------------------------------------------
<C> <S> <C> <C>
3,500 Common stock $ 1.00 Earlier of November 2002, or close of an initial public offering or
merger event
12,501 Preferred stock $ 0.60 Earlier of May 2003, or close of an initial public offering or
merger event
- -----------
16,001
- -----------
- -----------
</TABLE>
All warrants were exercised in January 1999 in connection with the
acquisition of the Company by Commerce One.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1998, the Company had reserved capital shares for future
issuance as follows:
<TABLE>
<CAPTION>
COMMON PREFERRED
STOCK STOCK
---------- -----------
<S> <C> <C>
Convertible preferred stock, including effect
of preferred stock warrants......................................... 435,835 --
Stock option plan..................................................... 981,000 --
Warrants.............................................................. 3,500 12,501
---------- -----------
1,420,335 12,501
---------- -----------
---------- -----------
</TABLE>
6. INCOME TAXES
There has been no provision of U.S. federal, state, or foreign income taxes
for any period as the Company has incurred losses in all periods.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 97 $ 986
Deferred revenue.................................................. 118 --
Research credits.................................................. 30 72
Other............................................................. 16 16
---------- ------------
Total gross deferred tax assets..................................... 261 1,074
Less valuation allowance............................................ (261) (1,074)
---------- ------------
Net deferred tax assets............................................. $ -- $ --
---------- ------------
---------- ------------
</TABLE>
F-33
<PAGE>
VEO SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. During the years
ended December 31, 1997 and 1998, the valuation allowance on deferred tax assets
increased by $261,000 and $813,000, respectively.
At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $2,505,000, which expire in the
years 2012 and 2018. There can be no assurance that the Company will realize the
benefit of the net operating loss carryforwards.
Utilization of the Company's net operating loss may be subject to a
substantial annual limitation due to the ownership change limitation provided by
the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.
7. RELATED PARTY TRANSACTIONS
In 1997, the Company issued 90,000 shares of Series A convertible preferred
stock in exchange for $119,480 receivable from a stockholder. The receivable is
reduced on a monthly basis as services are provided to the Company by the
stockholder. In addition, the Company provided $26,500 of consulting services to
this stockholder in 1997.
The Company entered into an arrangement to reimburse a stockholder for
operating expenses paid on behalf of the Company as a reduction to the note
receivable from stockholder balance. The total reimbursement approximated
$85,000 and $34,000 in 1997 and 1998, respectively.
One of the Company's preferred stockholders subleases office space from the
Company for which the Company recorded $50,000 in rental income in 1998. The
Company recorded revenue of $115,000 and $315,000 during 1997 and 1998 from the
stockholder in connection with a service contract.
8. PROFIT SHARING PLAN
The Company has a profit sharing plan and trust under Section 401(k) of the
Internal Revenue Code which covers substantially all employees. Eligible
employees may contribute amounts to the plan via payroll withholdings, subject
to certain limitations. The Company does not match contributions by plan
participants.
F-34
<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The selected unaudited pro forma condensed combined financial information
for the Company set forth below gives effect to the acquisition of VEO Systems,
Inc. ("VEO"). The historical financial information set forth below has been
derived from, and is qualified by reference to, the financial statements of the
Company and VEO and should be read in conjunction with those financial
statements and the notes thereto included elsewhere herein. The selected
unaudited pro forma combined financial information presents the combined results
of operations of the companies for the year ended December 31, 1998, giving
effect to the acquisition of VEO as if such acquisition had been consummated as
of January 1, 1998 under the purchase method of accounting. Pro forma condensed
combined balance sheet information has not been presented because the assets and
liabilities of VEO are included in the Company's unaudited consolidated balance
sheet at March 31, 1999, which is included elsewhere herein. The selected
unaudited pro forma condensed combined financial information reflects certain
adjustments, including adjustments to reflect the amortization of goodwill and
other intangible assets resulting from the acquisition. The information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Financial Statements--the Company and
VEO Systems, Inc." The selected unaudited pro forma condensed combined financial
information does not purport to represent what the consolidated results of
operations or financial condition of the Company would actually have been if the
VEO acquisition had in fact occurred on such date or to project the future
consolidated results of operations or financial condition of the Company.
F-35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
HISTORICAL BUSINESS
-------------------------------------- COMBINATION
COMMERCE ONE VEO COMBINED ADJUSTMENTS COMBINED
------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.............................. $ 1,633 $ -- $ 1,633 $ -- $ 1,633
Services.................................. 930 2,790 3,720 -- 3,720
------------ ------------ ---------- ------------ ------------
Total revenues.............................. 2,563 2,790 5,353 -- 5,353
Cost of revenues............................ 4,369 1,161 5,530 -- 5,530
------------ ------------ ---------- ------------ ------------
Gross profit (loss)......................... (1,806) 1,629 (177) -- (177)
Operating expenses:
Sales and marketing....................... 13,108 794 13,902 -- 13,902
Product development....................... 6,839 1,174 8,013 -- 8,013
General and administrative................ 1,941 1,786 3,727 -- 3,727
Amortization of deferred stock
compensation............................ 1,102 -- 1,102 -- 1,102
Amortization of goodwill and other
intangible assets....................... -- -- -- (4,198) 4,198
------------ ------------ ---------- ------------ ------------
Total operating expenses.................... 22,990 3,754 26,744 (4,198) 30,942
------------ ------------ ---------- ------------ ------------
Loss from operations........................ (24,796) (2,125) (26,921) (4,198) (31,119)
Interest income (expense), net.............. 156 60 216 -- 216
------------ ------------ ---------- ------------ ------------
Net loss.................................... $ (24,640) $ (2,065) $ (26,705) $ (4,198) $ (30,903)
------------ ------------ ---------- ------------ ------------
------------ ------------ ---------- ------------ ------------
Pro forma net loss per share................ $ (7.73)
------------
------------
Shares used in computing
pro forma net loss per share.............. 3,998
------------
------------
</TABLE>
F-36
<PAGE>
NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The pro forma business combination adjustments for the statement of operations
for the year ended December 31, 1998 reflect the amortization of goodwill and
other intangible assets arising from the VEO acquisition as follows:
<TABLE>
<CAPTION>
COST OVER THE
FAIR VALUE OF
NET ASSETS AMORTIZATION
ACQUIRED PERIOD
--------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill........................................ $ 15,432 5 years
Developed technology............................ 536 2 years
Core technology................................. 1,738 4 years
Assembled Workforce............................. 541 2 years
Tradenames and patents.......................... 693 5 years
</TABLE>
The pro forma results of operations do not include the charge for purchased
research and development of $3,037,000 since it is a non-recurring charge.
Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding plus common equivalent shares from
convertible preferred stock, that will be converted upon completion of the
Company's proposed initial public offering (using the if-converted method) and
common and convertible preferred shares issued to acquire the outstanding shares
of Veo. Such pro forma net loss per share reflects the impact of the adjustments
above.
F-37
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS]
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Commerce One in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ *
NASD filing fee................................................... *
Nasdaq National Market listing fee................................ *
Printing and engraving costs...................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses........................................ *
Transfer Agent and Registrar fees................................. *
Miscellaneous expenses............................................ *
Total............................................................. $ *
</TABLE>
- --------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) On January 18, 1994, Registrant issued and sold an aggregate of 50
shares of common stock to the founding officers and directors of the
Registrant for an aggregate purchase price of $2.00.
II-1
<PAGE>
(b) On December 21, 1995, Registrant issued and sold an aggregate of
336,840 shares of Series A preferred stock to 23 investors for $1.4844 per
share or an aggregate of $500,025. The foregoing purchases and sales were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof on the basis that the transaction did not involve a public offering.
(c) On December 6, 1996, Registrant issued and sold an aggregate of
1,780,488 shares of Series B preferred stock and warrants to purchase 13,781
shares of Series B Preferred Stock to a total of 28 investors for $4.10 per
share, or an aggregate of $7,300,000. The foregoing purchases and sales were
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof on the basis that the transaction did not involve a public offering.
(d) On October 7, 1997, October 10, 1997, October 17, 1997, October 31,
1997 and December 8, 1997, Registrant issued and sold an aggregate of
2,560,304 shares of Series C preferred stock, to a total of 38 investors and
warrants to purchase 640,069 shares of Series C Preferred stock for $5.20
per share, or an aggregate of $13,313,580. The foregoing purchases and sales
were exempt from registration under the Securities Act pursuant to Section
4(2) thereof on the basis that the transaction did not involve a public
offering.
(e) On August 10, 1998 and August 12, 1998, Registrant issued and sold
an aggregate of 4,433,379 shares of Series D preferred stock to a total of
30 investors for $6.9766 per share, or an aggregate of $30,929,912. The
foregoing purchases and sales were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
(f) On January 15, 1999, Registrant issued and sold an aggregate of
400,083 shares of Series D' preferred stock to Nippon Telegraph and
Telephone for $5.00 per share, or an aggregate of $2,000,415. The foregoing
purchases and sales were exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transaction did not
involve a public offering.
(g) On April 19, 1999, Registrant issued and sold an aggregate of
2,758,819 shares of Series E preferred stock to a total of 48 investors for
$9.06 per share, or an aggregate of $24,994,900. The foregoing purchases and
sales were exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
(h) As of April 20, 1999, an aggregate of 78,465 shares of common stock
had been issued upon exercise of options under the Registrant's 1997
Incentive Stock Option Plan. Except as indicated above, none of the
foregoing transactions involved any underwriters, underwriting discounts or
commissions, or any public offering, and the Registrant believes that each
transaction was exempt from the registration requirements of the Securities
Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder
or Rule 701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant, to
information about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization by and among the
Registrant, Blackhawk Acquisition Corporation, VEO Systems,
Inc., the Shareholders named therein, and U.S. Bank Trust,
N.A., dated November 25, 1998.
3.1 Restated Certificate of Incorporation of the Registrant to be
in effect after the closing of the offering made under this
Registration Statement.
3.2 Bylaws of the Registrant to be in effect after the closing of
the offering made under this Registration Statement.
4.1 Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 Form of 1997 Incentive Stock Option Plan and form of
agreements thereunder.
10.3 Form of 1999 Employee Stock Purchase Plan and form of
agreements thereunder.
10.4 Amended and Restated 1995 Stock Option Plan and form of
agreement thereunder.
10.5 Form of 1999 Director Option Plan and form of agreements
thereunder.
10.6 VEO Systems, Inc. Option Plan and form of agreement
thereunder.
10.7*+ Master Software License Agreement between the Registrant and
Nippon Telegraph and Telephone Corporation dated April 6,
1999.
10.8*+ Governance Agreement between the Registrant and British
Telecommunications, plc., dated March 26, 1999.
10.9*+ Marketing Agreement between the Registrant and British
Telecommunications, plc., dated March 26, 1999.
10.10*+ Market Site License Agreement between the Registrant and
British Telecommunications, plc., dated March 25, 1999.
10.11*+ Amended and Restated Trading Agreement between the Registrant
and British Telecommunications, plc., dated March 25, 1999.
10.12*+ Software License & Services Agreement between the Registrant
and MCI Telecommunications Corporation dated June 30, 1998.
10.13*+ Marketing Agreement between the Registrant and MCI Systemhouse
Corporation dated August 4, 1998.
10.14*+ Software License Agreement between the Registrant and MCI
Systemhouse Corporation dated August 4, 1998.
10.15*+ Maintenance and Support Agreement between the Registrant and
MCI Systemhouse Corporation dated August 4, 1998.
10.16*+ Agreement between the Registrant and PricewaterhouseCoopers
LLP dated September 2, 1998.
10.17*+ Master Services Agreement between the Registrant and Microsoft
Corporation dated August 7, 1998.
10.18*+ Independent Software Vendor Royalty License and Distribution
Agreement between the Registrant and Microsoft Corporation
dated December 23, 1998.
10.19*+ Amendment No. 1 to Independent Software Vendor Royalty License
and Distribution Agreement between the Registrant and
Microsoft Corporation dated December 23, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.3* Consent of Wilson Sonsini Goodrich & Rosati (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment.
(b) Consolidated Financial Statement Schedules
The following consolidated financial statement schedule of the Registrant is
filed as part of this Registration Statement and should be read in conjunction
with the Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
SCHEDULE PAGE
- --------------------------------------------------------------------------------------- -----
<S> <C>
II--Valuation and Qualifying Accounts.................................................. II-7
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Walnut
Creek, State of California, on the 26th day of April, 1999.
<TABLE>
<S> <C> <C>
COMMERCE ONE, INC.
By: /s/ MARK B. HOFFMAN
-----------------------------------------
MARK B. HOFFMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark B. Hoffman and Peter F. Pervere and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission granting
unto said attorneys-in-fact and agents the full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the foregoing, as to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ MARK B. HOFFMAN Officer and Chairman of
- ------------------------------ the Board (Principal April 26, 1999
MARK B. HOFFMAN Executive Officer)
Vice President and Chief
/s/ PETER F. PERVERE Financial Officer
- ------------------------------ (Principal Financial April 26, 1999
PETER F. PERVERE Officer)
/s/ ASIM ABDULLAH
- ------------------------------ Director April 26, 1999
ASIM ABDULLAH
/s/ JOHN V. BALEN
- ------------------------------ Director April 26, 1999
JOHN V. BALEN
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM B. ELMORE
- ------------------------------ Director April 26, 1999
WILLIAM B. ELMORE
/s/ KENNETH C. GARDNER
- ------------------------------ Director April 26, 1999
KENNETH C. GARDNER
- ------------------------------ Director
THOMAS GONZALES
/s/ WILLIAM J. HARDING
- ------------------------------ Director April 26, 1999
WILLIAM J. HARDING
- ------------------------------ Director
JOHN SWINGEWOOD
/s/ JAY M. TENENBAUM
- ------------------------------ Director April 26, 1999
JAY M. TENENBAUM
/s/ JEFFREY T. WEBBER
- ------------------------------ Director April 26, 1999
JEFFREY T. WEBBER
</TABLE>
II-6
<PAGE>
COMMERCEONE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCES
<TABLE>
<CAPTION>
BALANCES AT CHARGED TO BALANCES AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1996................................ $ -- $ 25 $ -- $ 25
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Year ended December 31, 1997................................ $ 25 $ 60 $ (15) $ 70
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
Year ended December 31, 1998................................ $ 70 $ 251 $ (26) $ 295
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization by and among the
Registrant, Blackhawk Acquisition Corporation, VEO Systems,
Inc., the Shareholders named therein, and U.S. Bank Trust,
N.A., dated November 25, 1998.
3.1 Restated Certificate of Incorporation of the Registrant to be
in effect after the closing of the offering made under this
Registration Statement.
3.2 Bylaws of the Registrant to be in effect after the closing of
the offering made under this Registration Statement.
4.1 Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 Form of 1997 Incentive Stock Option Plan and form of
agreements thereunder.
10.3 Form of 1999 Employee Stock Purchase Plan and form of
agreements thereunder.
10.4 Amended and Restated 1995 Stock Option Plan and form of
agreement thereunder.
10.5 Form of 1999 Director Option Plan and form of agreements
thereunder.
10.6 VEO Systems, Inc. Option Plan and form of agreement
thereunder.
10.7*+ Master Software License Agreement between the Registrant and
Nippon Telegraph and Telephone Corporation dated April 6,
1999.
10.8*+ Governance Agreement between the Registrant and British
Telecommunications, plc., dated March 26, 1999.
10.9*+ Marketing Agreement between the Registrant and British
Telecommunications, plc., dated March 26, 1999.
10.10*+ Market Site License Agreement between the Registrant and
British Telecommunications, plc., dated March 25, 1999.
10.11*+ Amended and Restated Trading Agreement between the Registrant
and British Telecommunications, plc., dated March 25, 1999.
10.12*+ Software License & Services Agreement between the Registrant
and MCI Telecommunications Corporation dated June 30, 1998.
10.13*+ Marketing Agreement between the Registrant and MCI Systemhouse
Corporation dated August 4, 1998.
10.14*+ Software License Agreement between the Registrant and MCI
Systemhouse Corporation dated August 4, 1998.
10.15*+ Maintenance and Support Agreement between the Registrant and
MCI Systemhouse Corporation dated August 4, 1998.
10.16*+ Agreement between the Registrant and PricewaterhouseCoopers
LLP dated September 2, 1998.
10.17*+ Master Services Agreement between the Registrant and Microsoft
Corporation dated August 7, 1998.
10.18*+ Independent Software Vendor Royalty License and Distribution
Agreement between the Registrant and Microsoft Corporation
dated December 23, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<C> <S>
10.19*+ Amendment No. 1 to Independent Software Vendor Royalty License
and Distribution Agreement between the Registrant and
Microsoft Corporation dated December 23, 1998.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.3* Consent of Wilson Sonsini Goodrich & Rosati (see Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------------
+ Certain portions of this exhibit have been granted confidential treatment by
the Commission. The omitted portions have been separately filed with the
Commission.
* To be filed by amendment.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
COMMERCE ONE, INC.,
BLACKHAWK ACQUISITION CORPORATION,
VEO SYSTEMS, INC.,
THE SHAREHOLDERS NAMED HEREIN
AND
U.S. BANK TRUST, N.A., AS ESCROW AGENT
Dated as of November 25, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
Dated as of November 25, 1998.................................................i
ARTICLE 1. THE MERGER.........................................................2
1.1 The Merger........................................................2
1.2 Effective Time....................................................2
1.3 Effect of the Merger..............................................2
1.4 Articles of Incorporation; Bylaws.................................2
1.5 Directors and Officers............................................3
1.6 Merger Consideration..............................................3
1.7 Dissenting Shares for Holders of VEO Capital Stock................7
1.8 Surrender of Certificates.........................................8
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF VEO AND THE PRINCIPAL
SHAREHOLDERS...........................................................10
2.1 Organization of VEO..............................................10
2.2 VEO Capital Structure............................................10
2.3 Subsidiaries.....................................................11
2.4 Authority........................................................12
2.5 No Conflict......................................................12
2.6 Consents.........................................................12
2.7 VEO Financial Statements.........................................13
2.8 No Undisclosed Liabilities.......................................13
2.9 No Changes.......................................................13
2.10 Tax Matters......................................................15
2.11 Restrictions on Business Activities..............................17
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment...........................................17
2.13 Intellectual Property............................................18
2.14 Agreements, Contracts and Commitments............................20
2.15 Interested Party Transactions....................................22
2.16 Governmental Authorization.......................................22
2.17 Litigation.......................................................22
2.18 Minute Books.....................................................22
2.19 Environmental Matters............................................23
2.20 Brokers' and Finders' Fees; Third Party Expenses.................23
2.21 Information Supplied.............................................24
2.22 Employee Benefit Plans and Compensation..........................24
2.23 No Interference or Conflict......................................27
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
2.24 Insurance........................................................27
2.25 Compliance with Laws.............................................27
2.26 Warranties; Indemnities..........................................27
2.27 Complete Copies of Materials.....................................27
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF C1 AND SUB......................28
3.1 Organization of C1...............................................28
3.2 C1 Capital Structure.............................................28
3.3 Subsidiaries.....................................................29
3.4 Authority........................................................29
3.5 No Conflict......................................................29
3.6 Consents.........................................................30
3.7 C1 Financial Statements..........................................30
3.8 No Undisclosed Liabilities.......................................30
3.9 Absence of Certain Changes or Events.............................31
3.10 Valid Issuance...................................................31
3.11 Litigation.......................................................31
3.12 Intellectual Property............................................31
3.13 Tax Matters......................................................32
3.14 Employee Benefit Plans and Compensation..........................32
3.15 Brokers' and Finders' Fees.......................................35
3.16 Information Supplied.............................................35
ARTICLE 4. CONDUCT PRIOR TO THE EFFECTIVE TIME...............................35
4.1 Conduct of Business of VEO.......................................35
4.2 Conduct of Business by C1........................................38
4.3 VEO Non-Solicitation.............................................39
4.4 C1 Non-Solicitation..............................................39
ARTICLE 5. ADDITIONAL AGREEMENTS.............................................40
5.1 Fairness Hearing; Shareholder Approval...........................40
5.2 Restrictions on Transfer.........................................41
5.3 Access to Information............................................42
5.4 Confidentiality..................................................43
5.5 Expenses.........................................................43
5.6 Public Disclosure................................................43
5.7 Consents.........................................................43
5.8 FIRPTA Compliance................................................43
5.9 Reasonable Efforts...............................................43
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
5.10 Notification of Certain Matters..................................43
5.11 Tax Free Reorganization..........................................44
5.12 Shareholder Agreement............................................44
5.13 Blue Sky Laws....................................................44
5.14 Bonus Payments...................................................44
5.15 Conversion of VEO Preferred Stock and VEO Convertible
Indebtedness.....................................................45
5.16 Notice to Holders of VEO Options.................................45
5.17 C1 Employee Benefits.............................................45
5.18 Directors' and Officers' Indemnification.........................46
5.19 Voting Agreements................................................46
ARTICLE 6. CONDITIONS TO THE MERGER..........................................46
6.1 Conditions to Obligations of Each Party to Effect the Merger.....46
6.2 Conditions to Obligations of C1 and Sub..........................47
6.3 Conditions to the Obligations of VEO and the Principal
Shareholders.....................................................49
ARTICLE 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW................50
7.1 Survival of Representations and Warranties.......................50
7.2 VEO Indemnification..............................................50
7.3 C1 Indemnification...............................................51
7.4 Escrow Arrangements..............................................51
7.5 Maximum Payments; Remedy.........................................58
7.6 Valuation of Shares for Indemnity................................58
ARTICLE 8. TAX MATTERS.......................................................59
8.1 Tax Periods Ending on or Before the Closing Date.................59
8.2 Cooperation on Tax Matters.......................................59
ARTICLE 9. TERMINATION, AMENDMENT AND WAIVER.................................59
9.1 Termination......................................................59
9.2 Effect of Termination............................................60
9.3 Amendment........................................................60
9.4 Extension; Waiver................................................61
ARTICLE 10. GENERAL PROVISIONS...............................................61
10.1 Notices..........................................................61
10.2 Interpretation...................................................62
10.3 Counterparts.....................................................62
10.4 Entire Agreement; Assignment.....................................63
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
10.5 Severability.....................................................63
10.6 Other Remedies...................................................63
10.7 Governing Law....................................................63
10.8 Rules of Construction............................................63
10.9 Attorneys' Fees..................................................63
-iv-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of November 25, 1998 by and among Commerce One, Inc., a
California corporation ("C1"), Blackhawk Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of C1 ("Sub"), VEO Systems, Inc., a
California corporation ("VEO"), Jay M. Tenenbaum ("MT"), Asim Abdullah ("AA,"
and together with MT, the "Principal Shareholders") and, with respect to Article
VII, U.S. Bank Trust, N.A. as Escrow Agent.
RECITALS
A. The Boards of Directors of each of C1, Sub, and VEO believe it is in
the best interests of each company and the shareholders of each company that C1
acquire VEO through the statutory merger of Sub with and into VEO (the "Merger")
and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of VEO (other than Dissenting Shares, as
defined in Section 1.7(a) herein and any shares owned by C1) and all options,
warrants and other rights to acquire any shares of VEO shall be converted into
the right to receive shares of capital stock of C1.
C. A portion of the shares of capital stock of C1 otherwise payable by C1
in connection with the Merger shall be placed in escrow and held by the Escrow
Agent pursuant to the escrow agreement set forth in Section 7.4 hereof and the
release of such shares shall be contingent upon certain events and conditions as
set forth in Section 7.4.
D. It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
E. Concurrent with the execution and delivery of this Agreement, as a
material inducement to C1 to enter into this Agreement, each of the Principal
Shareholders is entering into a Non-Competition Agreement in the form attached
hereto as Exhibit A-1 (the "Non-Competition Agreements") with C1, and each of
the Principal Shareholders is entering into an employment agreement in the form
attached hereto as Exhibit B, each of which shall become effective as of the
Effective Time (as defined herein).
F. VEO and the Principal Shareholders on the one hand, and C1 and Sub on
the other hand, desire to make certain representations, warranties, covenants
and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
<PAGE>
ARTICLE 1.
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California Corporations Code ("California Law"),
Sub shall be merged with and into VEO, the separate corporate existence of Sub
shall cease and VEO shall continue as the surviving corporation. The surviving
corporation after the Merger is sometimes referred to hereinafter as the
"Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 9.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California,
unless another place or time is agreed to in writing by C1 and VEO. The date
upon which the Closing actually occurs is herein referred to as the "Closing
Date." On the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing an Agreement of Merger in the form attached hereto as
Exhibit C (the "Merger Agreement") with the Secretary of State of the State of
California, in accordance with the relevant provisions of applicable law (the
time of acceptance by the Secretary of State of California of such filing being
referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of California Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of VEO and Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of VEO and Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by C1 prior to the Effective Time,
at the Effective Time, the Articles of Incorporation of Sub as in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until thereafter amended in accordance with
California Law and as provided in such Articles of Incorporation; provided,
however, that at the Effective Time, Article I of the Articles of Incorporation
of the Surviving Corporation shall be amended and restated in its entirety to
read as follows: "The name of the corporation is VEO Systems, Inc."
(b) Unless otherwise determined by C1 prior to the Effective Time,
the Bylaws of Sub as in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation at the Effective Time, until thereafter
amended in accordance with California Law and as provided in the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
-2-
<PAGE>
1.5 Directors and Officers. Unless otherwise determined by C1 prior to the
Effective Time, the directors of Sub immediately prior to the Effective Time
shall be the directors of Surviving Corporation, each to hold the office of a
director of the Surviving Corporation in accordance with the provisions of
California Law and the Articles of Incorporation and Bylaws of the Surviving
Corporation until their successors are duly elected and qualified. The officers
of Sub immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, each to hold office in accordance with the provisions of
the Bylaws of the Surviving Corporation.
1.6 Merger Consideration.
(a) Certain Definitions. For purposes of this Agreement, the
following terms shall have the following meanings:
"C1 Capital Stock" shall mean shares of C1 Common Stock, C1 Series A
Preferred Stock, C1 Series B Preferred Stock, C1 Series C Preferred Stock, C1
Series D Preferred Stock, C1 Series D' Preferred Stock and any other capital
stock of C1.
"C1 Common Stock" shall mean shares of common stock of C1.
"C1 Series A Preferred Stock" shall mean shares of Series A
Preferred Stock of C1.
"C1 Series B Preferred Stock" shall mean shares of Series B
Preferred Stock of C1.
"C1 Series C Preferred Stock" shall mean shares of Series C
Preferred Stock of C1.
"C1 Series D Preferred Stock" shall mean shares of Series D
Preferred Stock of C1.
"C1 Series D' Preferred Stock" shall mean shares of Series D'
Preferred Stock of C1 with the rights, privileges and preferences described in
the Series D' Term Sheet attached hereto as Exhibit D.
"C1 Stock Plans" shall mean C1's 1997 Incentive Stock Option Plan
and C1's Amended and Restated 1995 Stock Plan.
"Consideration" shall mean 6,376,417 shares of C1 Capital Stock,
consisting of shares of C1 Common Stock and shares of C1 Series D' Preferred
Stock sufficient to satisfy the requirements of Section 1.6(b) hereof.
"Consideration Shares" shall mean shares of C1 Common Stock and C1
Series D' Preferred Stock, as applicable, issued to the VEO Shareholders in the
Merger in respect of the VEO Capital Stock held by them.
"Escrow Amount" shall mean that number of shares of C1 Common Stock
and C1 Series D' Preferred Stock equal to fifteen percent (15%) of the
Consideration Shares.
-3-
<PAGE>
"Exchange Ratio" shall mean a number equal to the quotient obtained
by dividing (i) the Consideration by (ii) Total Outstanding Shares rounded to
four decimal places.
"GAAP" shall mean U.S. generally accepted accounting principles.
"Knowledge" shall mean, (i) with respect to VEO or C1, what is
within the actual knowledge of any of the officers of VEO or C1, as the case may
be, provided that such officers shall have made due and diligent inquiry of
those employees who such officers reasonably believe would have actual knowledge
of the matters represented and (ii) with respect to each Principal Shareholder,
what is within the actual knowledge of such Principal Shareholder.
"Material Adverse Effect" shall mean any change, event or effect
that is materially adverse to the business, assets (including intangible
assets), condition (financial or otherwise), or results of operations of VEO or
C1, as applicable.
"Total Outstanding Shares" shall mean the aggregate number of shares
of VEO Common Stock outstanding immediately prior to the Effective Time,
including VEO Common Stock issuable upon the exercise of VEO Options plus the
aggregate number of shares of VEO Common Stock issuable, with or without the
passage of time or satisfaction of other conditions, upon exercise of or
conversion of all VEO Convertible Securities and VEO Preferred Stock outstanding
immediately prior to the Effective Time (including VEO Preferred Stock issuable
upon the exercise of VEO Convertible Securities outstanding immediately prior to
the Effective Time). Notwithstanding the foregoing, shares of VEO Common Stock
or VEO Preferred Stock issuable upon conversion of the C1 Loan or any other
shares of VEO Capital Stock issuable in respect thereof shall not be included in
the calculation of Total Outstanding Shares outstanding immediately prior to the
Effective Time.
"VEO Capital Stock" shall mean shares of VEO Common Stock, VEO
Preferred Stock and any shares of other capital stock of VEO.
"VEO Common Stock" shall mean shares of common stock of VEO.
"VEO Convertible Indebtedness" shall mean all outstanding debts,
notes or other obligations to pay, the principal of which may be converted into
VEO Capital Stock pursuant to the terms thereof.
"VEO Convertible Securities" shall mean the VEO Convertible
Indebtedness and all VEO Options, VEO Warrants or other rights (other than VEO
Preferred Stock) to acquire or receive shares of VEO Capital Stock.
"VEO Options" shall mean all issued and outstanding options to
purchase or otherwise acquire VEO Capital Stock (whether or not vested) held by
employees or directors of or consultants to VEO and excluding all VEO Warrants
and VEO Preferred Stock.
-4-
<PAGE>
"VEO Preferred Stock" shall mean shares of VEO Series A Preferred
Stock and VEO Series B Preferred Stock.
"VEO Series A Preferred Stock" shall mean shares of Series A
Preferred Stock of VEO.
"VEO Series B Preferred Stock" shall mean shares of Series B
Preferred Stock of VEO.
"VEO Shareholders" shall mean holders of any shares of VEO Capital
Stock immediately prior to the Effective Time.
"VEO Warrants" shall mean all outstanding warrants to purchase VEO
Capital Stock.
(b) Effect on VEO Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of VEO or the VEO Shareholders,
each share of VEO Capital Stock issued and outstanding immediately prior to the
Effective Time (other than any Dissenting Shares, as defined in Section 1.7
hereof and any shares owned by C1, Sub or VEO or any direct or indirect wholly
owned subsidiary thereof) shall be canceled and extinguished and shall be
converted automatically into the right to receive, upon surrender of the
certificate representing such share of VEO Capital Stock and upon the terms and
subject to conditions set forth below and throughout this Agreement, including,
without limitation, Sections 1.6(g), (h) and (i) hereof and the escrow
provisions set forth in Article VII and/or described in Section 1.8(b) hereof, a
number of shares of C1 Common Stock or C1 Series D' Preferred Stock, as
applicable as provided in the last sentence of this Section 1.6(b), equal to the
Exchange Ratio, and provided that those shares of C1 Series D' Preferred Stock
that constitute a portion of the Consideration shall only be issued in exchange
for the shares of VEO Series B Preferred Stock outstanding immediately prior to
the Effective Time.
(c) Assumption of VEO Options. At the Effective Time, each
outstanding VEO Option issued pursuant to VEO's 1997 Stock Option Plan (the "VEO
Option Plan") or otherwise, whether vested or unvested, will be assumed or
replaced by C1 in connection with the Merger. Each VEO Option so assumed by C1
under this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the VEO Option Plan and/or as provided in the
respective option agreements immediately prior to the Effective Time (including,
without limitation, any vesting schedule or repurchase rights), except that (i)
each VEO Option will be exercisable for that number of whole shares of C1 Common
Stock equal to the product of the number of shares of VEO Common Stock that were
issuable upon exercise of such VEO Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, rounded down to the nearest whole number
of shares of C1 Common Stock, (ii) the per share exercise price for the shares
of C1 Common Stock issuable upon exercise of such assumed VEO Option will be
equal to the quotient determined by dividing the exercise price per share of VEO
Capital Stock at which such VEO Option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent, and
(iii) the vesting schedule of all VEO Options shall be amended to provide
-5-
<PAGE>
that 1/8th of the shares of VEO Capital Stock subject to the VEO Option shall
vest on the six-month anniversary of its original grant date by VEO and the
remainder of the shares subject to the VEO Option shall vest at the rate set
forth in the VEO Option Plan (1/48th of the shares subject to the VEO Option per
month thereafter).
(d) Assumption Agreement. As soon as practicable following the
Closing, C1 shall issue to each holder of a VEO Option to be assumed or replaced
by C1 a document evidencing the assumption or replacement of such VEO Option by
C1, and each former holder of a VEO Option so assumed or replaced by C1 shall
acknowledge the receipt of the same in exchange for the assumption or
replacement of such holder's VEO Option.
(e) Option Status. It is the intention of the parties hereto that
the VEO Options assumed by C1 following the Closing pursuant to this Section 1.6
will, to the extent permitted by applicable law, qualify as incentive stock
options as defined in Section 422 of the Code, to the extent any such VEO
Options qualified as incentive stock options immediately prior to the Effective
Time.
(f) Termination of VEO Warrants. C1 shall not assume any VEO
Warrants in connection with the Merger, and all VEO Warrants shall terminate at
the Effective Time. VEO shall and the Principal Shareholders shall cause VEO to
use its reasonable best efforts to effect the purpose of this Section 1.6(f),
including, without limitation, taking all actions necessary to cause all VEO
Warrants to expire at the Effective Time if not exercised prior thereto.
(g) Withholding Taxes. Any number of shares of C1 Common Stock
issuable pursuant to Section 1.6(b) shall be subject to, and reduced by, the
amount of any state, federal and foreign withholding taxes incurred (and not
previously paid by or on behalf of VEO) in connection with the acquisition of
VEO Capital Stock upon the exercise of VEO Options or VEO Warrants, the
acceleration of vesting of any VEO Capital Stock or VEO Options, or the payment
of a bonus in the form of VEO Capital Stock, if any.
(h) Shareholder Loans. In the event that any VEO Shareholder has
outstanding loans from VEO as of the Effective Time, the number of shares of C1
Common Stock or C1 Series D' Preferred Stock, as applicable, issuable pursuant
to Section 1.6(b) shall be reduced by an amount equal to the outstanding
principal plus accrued interest of such Shareholder's loans as of the Effective
Time.
(i) Fractional Shares. No fractional share of C1 Common Stock or C1
Series D' Preferred Stock, as applicable, shall be issued in the Merger. In lieu
thereof, any fractional share shall be rounded to the nearest whole share of C1
Common Stock or C1 Series D' Preferred Stock, as applicable (with .5 being
rounded up).
(j) Conversion of Convertible Indebtedness. Immediately prior to the
Closing, C1 shall cause all indebtedness outstanding under the Loan and Security
Agreement dated November 3,
-6-
<PAGE>
1998 by and between C1 and VEO (the "C1 Loan") to convert into VEO Capital Stock
in accordance with the terms and conditions of the Secured Convertible
Promissory Note dated November 3, 1998.
(k) Cancellation of C1-owned and VEO-owned Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of any of the
parties hereto, each share of VEO Capital Stock owned by C1, Sub, VEO, or any
direct or indirect wholly-owned subsidiary thereof immediately prior to the
Effective Time, shall be cancelled and extinguished without any conversion
thereof.
(l) Capital Stock of Sub. At the Effective Time, by virtue of the
Merger and without any action on the part of any of the parties hereto, each
share of capital stock of Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving Corporation.
Each stock certificate of Sub evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.
1.7 Dissenting Shares for Holders of VEO Capital Stock.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of VEO Capital Stock held by a holder who has demanded and perfected
appraisal rights for such shares in accordance with California Law and who, as
of the Effective Time, has not effectively withdrawn or lost such appraisal
rights ("Dissenting Shares"), shall not be converted into or represent a right
to receive C1 Common Stock or C1 Series D' Preferred Stock, as applicable,
pursuant to Section 1.6, but the holder thereof shall only be entitled to such
rights as are granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any holder
of shares of VEO Capital Stock who demands appraisal of such shares under
California Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive C1 Common Stock or C1
Series D' Preferred Stock, as applicable, as provided in Section 1.6 (and
subject to the provisions of Section 7.4 hereof), without interest thereon, upon
surrender of the certificate representing such shares.
(c) VEO shall give C1 (i) prompt notice of any written demands for
appraisal of any shares of VEO Capital Stock, withdrawals of such demands, and
any other instruments served pursuant to California Law and received by VEO and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under California Law. VEO shall not, except
with the prior written consent of C1, voluntarily make any payment with respect
to any demands for appraisal of capital stock of VEO or offer to settle or
settle any such demands.
-7-
<PAGE>
1.8 Surrender of Certificates.
(a) Exchange Agent. The Secretary of C1 shall serve as exchange
agent (the "Exchange Agent") in the Merger.
(b) C1 to Provide C1 Common Stock and C1 Series D' Preferred Stock.
Prior to the Closing, C1 shall make available to the Exchange Agent for exchange
in accordance with this Article I the shares of C1 Common Stock and C1 Series D'
Preferred Stock, as applicable, issuable to VEO Shareholders pursuant to Section
1.6 in exchange for outstanding shares of VEO Capital Stock, less the Escrow
Amount which C1 shall deposit into the Escrow Fund (as defined in Section 7.4(b)
hereof) on behalf of the VEO Shareholders. The portion of the Escrow Amount
contributed on behalf of each VEO Shareholder shall be in proportion to the
aggregate number of shares of C1 Common Stock and C1 Series D' Preferred Stock,
as applicable, each such VEO Shareholder would otherwise be entitled to receive
in the Merger (excluding any shares of C1 Common Stock issuable upon exercise of
any assumed VEO Options) by virtue of ownership of outstanding shares of VEO
Capital Stock immediately prior to the Effective Time.
(c) Exchange Procedures. Prior to the Closing, C1 shall cause to be
mailed to each VEO Shareholder (i) a letter of transmittal (which shall be in
such form and contain such provisions as C1 may reasonably specify and shall
specify that delivery shall be effected, and risk of loss and title to the
certificates (the "Certificates") which immediately prior to the Effective Time
represent outstanding shares of VEO Capital Stock whose shares are converted
into the right to receive such VEO Shareholder's pro rata portion of the
Consideration Shares pursuant to Section 1.6, shall pass, only upon delivery of
the Certificates to the Exchange Agent at the Closing), and (ii) instructions
for use in effecting the surrender at the Closing of the Certificates in
exchange for certificates representing such VEO Shareholder's pro rata portion
of the Consideration Shares. Upon surrender of a Certificate at the Closing for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by C1, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, the VEO
Shareholder shall be entitled to receive, and the Exchange Agent shall promptly
deliver in exchange therefor, a certificate bearing the legend set forth in
Section 5.2 hereof representing the number of whole Consideration Shares (less
the number of shares of C1 Common Stock and C1 Series D' Preferred Stock to be
deposited in the Escrow Fund on such holder's behalf pursuant to Section 1.8(b)
and Article VII hereof) to which such holder is entitled pursuant to Section
1.6, and the Certificate so surrendered shall forthwith be canceled. As soon as
practicable after the Effective Time, and subject to and in accordance with the
provisions of Article VII hereof, C1 shall cause to be distributed to the Escrow
Agent (as defined in Article VII) a certificate or certificates representing
that number of shares of C1 Common Stock and C1 Series D' Preferred Stock equal
to the Escrow Amount which shall be registered in the name of the Escrow Agent.
Such shares shall be beneficially owned by the holders on whose behalf such
shares were deposited in the Escrow Fund and shall be available to compensate C1
as provided in Article VII. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of VEO Capital Stock will
be deemed from and after the Effective Time, for all corporate purposes, other
than the payment of dividends, to evidence the ownership of the number of
-8-
<PAGE>
full shares of C1 Common Stock or C1 Series D' Preferred Stock, as applicable,
into which such shares of VEO Capital Stock shall have been so converted.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
C1 Common Stock or C1 Series D' Preferred Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of C1 Common Stock or C1 Series D' Preferred Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of C1 Common Stock or C1 Series D'
Preferred Stock issued in exchange therefor, plus the amount of dividends or
other distributions (without interest) with a record date after the Effective
Time theretofore paid with respect to such whole shares of C1 Common Stock or C1
Series D' Preferred Stock, as applicable.
(e) Transfers of Ownership. If any certificate for shares of C1
Common Stock or C1 Series D' Preferred Stock, as applicable, is to be issued in
a name other than that in which the Certificate surrendered in exchange therefor
is registered, it will be a condition of the issuance thereof that the
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid to
C1 or any agent designated by it any transfer or other taxes required by reason
of the issuance of a certificate for shares of C1 Common Stock or C1 Series D'
Preferred Stock, as applicable, in any name other than that of the registered
holder of the Certificate surrendered.
(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of VEO Capital Stock shall have been lost, stolen
or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen
or destroyed certificates, upon the delivery by the holder thereof of an
affidavit of that fact by the holder thereof containing customary
indemnification provisions.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, neither C1 nor any party hereto shall be liable to a holder of
shares of C1 Common Stock, C1 Series D' Preferred Stock or VEO Capital Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) No Further Ownership Rights in VEO Capital Stock. The shares of
C1 Common Stock and C1 Series D' Preferred Stock issued in accordance with the
terms hereof shall be deemed to be full satisfaction of all rights pertaining to
shares of VEO Capital Stock outstanding prior to the Effective Time, and there
shall be no further registration of transfers on the records of C1 of shares of
VEO Capital Stock that were outstanding prior to the Effective Time. If, after
the Effective Time, Certificates are presented to C1 for any reason, they shall
be canceled and exchanged as provided in this Article I.
-9-
<PAGE>
(i) Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations. Each party has consulted with its own tax advisers with
respect to the tax consequences of the Merger.
(j) Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of VEO, C1 and Sub, the officers and directors of VEO, C1 and Sub
are fully authorized in the name of their respective corporations or otherwise
to take, and will take, all such lawful and necessary action.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF VEO
AND THE PRINCIPAL SHAREHOLDERS
VEO and each of the Principal Shareholders hereby represents and warrants
to C1, subject to such exceptions as are disclosed in the VEO Disclosure
Schedule separately supplied by VEO and the Principal Shareholders to C1 (the
"VEO Disclosure Schedule"), that on the date hereof and as of the Effective Time
as though made at the Effective Time as follows:
2.1 Organization of VEO. VEO is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. VEO has
the corporate power to own its properties and to carry on its business as now
being conducted. VEO is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on VEO. VEO has delivered a true and
correct copy of its Articles of Incorporation and Bylaws, each as amended to
date, to C1. Section 2.1 of the VEO Disclosure Schedule lists the directors and
officers of VEO as of the date hereof. Except as set forth in Section 2.1 of the
VEO Disclosure Schedule, the operations now being conducted by VEO have not been
conducted under any other name.
2.2 VEO Capital Structure.
(a) The authorized capital stock of VEO consists of (i) 10,000,000
shares of authorized Common Stock, par value $0.001 per share, of which
1,396,250 are issued and outstanding as of the date hereof and (ii) 5,000,000
shares of Preferred Stock, par value $0.001 per share, of which 90,000 shares
have been designated "Series A Preferred Stock," all of which are issued and
outstanding as of the date hereof, and 533,334 shares have been designated
"Series B Preferred Stock," 333,334 shares of which are issued and outstanding
as of the date hereof. All holders of outstanding VEO Capital Stock, together
with their domicile addresses and the number of
-10-
<PAGE>
shares held by such persons, in each case as of the date hereof, are set forth
on Section 2.2(a) of the VEO Disclosure Schedule. The number of shares of VEO
Common Stock into which the VEO Preferred Stock is convertible is set forth in
Section 2.2(a) of the VEO Disclosure Schedule. All outstanding shares of VEO
Capital Stock are duly authorized, validly issued, fully paid and
non-assessable, are not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of VEO or any agreement to which VEO is a
party or by which it is bound and have been issued in compliance with federal
and state securities laws. There are no declared or accrued dividends with
respect to any shares of VEO Capital Stock. VEO has no other capital stock
authorized, issued or outstanding.
(b) Except for the VEO Option Plan, VEO has never adopted or
maintained any stock option plan or other plan providing for equity compensation
of any person. VEO has reserved 981,500 shares of VEO Common Stock for issuance
to employees and directors of, and consultants pursuant to the VEO Option Plan,
of which no shares have been exercised and 576,000 shares are subject to
outstanding, unexercised options as of the date hereof. Section 2.2(b) of the
VEO Disclosure Schedule sets forth for each VEO Option outstanding as of the
date hereof the name of the holder of such option, the domicile address of such
holder, the number of shares of VEO Capital Stock subject to such option, the
exercise price of such option and the vesting schedule for such option,
including the extent vested to date. Except as set forth on Section 2.2(b) of
the VEO Disclosure Schedule and except as provided in Section 1.6(c) hereof or
as otherwise contemplated hereby as a result of the transactions contemplated by
this Agreement, the vesting of the outstanding VEO Options (including rights of
repurchase with regard to shares of VEO Capital Stock) will not accelerate in
any respect. The number of shares of VEO Common Stock into which the VEO
Convertible Indebtedness is convertible in connection with the Merger is set
forth in Section 2.2(b) of the VEO Disclosure Schedule. Except for the VEO
Options and as set forth in Section 2.2(b) of the VEO Disclosure Schedule, as of
the date hereof, there are no other options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which VEO is a
party or by which it is bound obligating VEO to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of VEO Capital Stock or obligating VEO to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or other
similar rights with respect to VEO. Except as set forth in Section 2.2(b) of the
VEO Disclosure Schedule, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting stock of VEO. The
holders of VEO Options have been or will be given or shall have properly waived
any required notice prior to the Closing.
2.3 Subsidiaries. Except as set forth in Section 2.3 of the VEO Disclosure
Schedule, VEO does not have, and never has had, any subsidiaries or affiliated
companies and does not otherwise own, and has not otherwise owned, any shares in
the capital of or any interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
-11-
<PAGE>
2.4 Authority. VEO has all requisite power and authority to enter into
this Agreement and the Merger Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Merger Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of VEO, and no further action is required on the part of VEO to
authorize the Agreement, the Merger Agreement and the transactions contemplated
hereby and thereby, subject only to approval of this Agreement by VEO's
shareholders. This Agreement, the Merger Agreement and the Merger have been
approved by all members of the Board of Directors of VEO. This Agreement has
been duly executed and delivered by VEO and, assuming the due authorization,
execution and delivery by the other parties hereto, constitutes the valid and
binding obligation of VEO, enforceable in accordance with its terms, subject to
the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance, injunctive
relief or other equitable remedies. The Merger Agreement, when duly executed and
delivered by VEO, and assuming the due authorization, execution and delivery by
the other parties thereto, will constitute the valid and binding obligation of
VEO, enforceable in accordance with its terms, subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and to
rules of law governing specific performance, injunctive relief or other
equitable remedies.
2.5 No Conflict. Except as set forth in Section 2.5 of the VEO Disclosure
Schedule, the execution and delivery of this Agreement, and when executed and
delivered the Merger Agreement, by VEO do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Articles of Incorporation and Bylaws of
VEO, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, covenant or commitment (each
a "Contract") to which VEO or any of its properties or assets are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to VEO or its properties or assets, except in the case of clauses
(ii) and (iii) such Conflict which does not or is not reasonably likely to
result in a loss of material benefits or a material liability to VEO.
2.6 Consents. Except as set forth in Section 2.6 of the VEO Disclosure
Schedule, no consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party, including a party to any Contract with VEO (so as not to trigger
any Conflict), is required by or with respect to VEO and no consent, waiver or
approval of any party to any Contract is required for such Contract to remain in
effect without modification in connection with the execution and delivery of
this Agreement and the Merger Agreement or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable
-12-
<PAGE>
securities laws, including obtaining the California Permit (as defined in
Section 5.1(a)), (ii) the filing of the Merger Agreement with the Secretary of
State of the State of California, (iii) the approval of this Agreement by the
VEO Shareholders, and (iv) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be material
to VEO or have a material adverse effect on the ability of the parties to
consummate the Merger.
2.7 VEO Financial Statements. Section 2.7 of the VEO Disclosure Schedule
sets forth VEO's audited balance sheets as of December 31, 1997 and the related
audited statements of income and cash flow for the twelve-month period ended
December 31, 1997 (the "VEO Audited Financials") and VEO's unaudited balance
sheet as of October 31, 1998 (the "VEO Current Balance Sheet") and the related
unaudited statements of income and cash flow for the month then ended (the "VEO
Unaudited Financials" and, together with the Audited Financials, the "VEO
Financials"). The VEO Financials are correct in all material respects and have
been prepared in accordance with GAAP, applied on a basis consistent throughout
the periods indicated and consistent with each other except as may be indicated
therein. The VEO Financials present fairly the financial condition, operating
results and cash flows of VEO as of the dates and during the periods indicated
therein, subject in the case of the VEO Unaudited Financials, to normal year-end
adjustments, which will not be material in amount or significance.
2.8 No Undisclosed Liabilities. Except as set forth in Section 2.8 of the
VEO Disclosure Schedule, to the Knowledge of VEO and the Principal Shareholders,
VEO does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate (i) has not been reflected, reserved against or disclosed in the VEO
Current Balance Sheet or notes thereto, or (ii) has not arisen in the ordinary
course of business consistent with past practices since October 31, 1998.
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Schedule or as contemplated by this Agreement, since October 31, 1998, and until
the date hereof there has not been, occurred or arisen any:
(a) transaction by VEO except in the ordinary course of business as
conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of VEO except as comtemplated by the Loan Agreement between C1 and VEO dated
November 3, 1998;
(c) capital expenditure or commitment by VEO exceeding $10,000
individually or $25,000 in the aggregate;
(d) destruction of, damage to or loss of any material assets,
material business or material customer of VEO (whether or not covered by
insurance);
-13-
<PAGE>
(e) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by VEO other than as required
by GAAP;
(f) revaluation by VEO of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any VEO Capital
Stock, or any split, combination or reclassification in respect of any shares of
VEO Capital Stock, or any issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of VEO
Capital Stock, or any direct or indirect repurchase, redemption, or other
acquisition by VEO of any shares of VEO Capital Stock (or options, warrants or
other rights convertible into, exercisable or exchangeable therefor), except for
(i) repurchases of VEO Capital Stock upon the termination of service of any
service providers of VEO in accordance with the standard terms set forth in the
agreements governing such repurchases, all of which agreements have been
provided or made available to C1, (ii) conversions of VEO Preferred Stock and
(iii) exercises or conversions of VEO Convertible Securities;
(h) grant of any severance or termination pay (i) to any director or
officer or (ii) to any employee except payments made pursuant to standard
written agreements outstanding as of the date hereof, or increase in the salary
or other compensation payable or to become payable by VEO to any of its
officers, directors, employees or advisors, or the declaration, payment or
commitment or obligation of any kind for the payment, by VEO of a bonus or other
additional salary or compensation to any such person;
(i) sale, lease, license or other disposition of any of the material
assets or properties of VEO or any creation of any security interest in such
assets or properties;
(j) other than accounts receivable or accounts payable incurred in
the ordinary course of business, loan by VEO to any person or entity, incurring
by VEO of any indebtedness, guaranteeing by VEO of any indebtedness, issuance or
sale of any debt securities of VEO or guaranteeing of any debt securities of
others, except for advances to employees for travel and business expenses in the
ordinary course of business consistent with past practices and except in
connection with the C1 Loan;
(k) waiver or release of any material right or claim of VEO,
including any write-off or other compromise of any material account receivable
of VEO;
(l) issuance or sale, or contract to issue or sell, by VEO of any
shares of VEO Capital Stock or securities convertible into, or exercisable or
exchangeable for, shares of VEO Capital Stock, or any securities, warrants,
options or rights to purchase any of the foregoing, except for (i) issuances of
VEO Capital Stock upon the exercise of VEO Options or upon exercise or
conversion of VEO Convertible Securities or VEO Preferred Stock or (ii) the C1
Loan;
-14-
<PAGE>
(m) (i) sale, license or transfer to any person or entity of any
rights to any VEO Intellectual Property or entry into any agreement with respect
to the VEO Intellectual Property with any person or entity or with respect to
the Intellectual Property of any person or entity, other than Intellectual
Property Rights acquired under "shrink-wrap" which are not included in VEO's
products or technology (including products and technology currently available or
under development), or pursuant to consulting agreements set forth on the VEO
Disclosure Schedule, (ii) the entering into of any agreement with respect to the
development by VEO of any Intellectual Property with a third party or the
development by any third party of any Intellectual Property for VEO, or (iii)
changes in pricing or royalties charged by VEO to its customers or licensees, or
the pricing or royalties set or charged by persons who have licensed
Intellectual Property to VEO;
(n) change in any material election in respect of taxes, including
the adoption or change in any accounting method with respect to taxes, including
the entering into of any closing agreement, the settlement of any claim or
assessment in respect of taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of taxes;
(o) any event or condition of any character that has had or
reasonably would be expected to have a Material Adverse Effect on VEO; or
(p) any agreement by VEO or any officer or employees thereof to do
any of the things described in the preceding clauses (a) through (o) of this
Section 2.9.
2.10 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Section 2.10 of
the VEO Disclosure Schedule:
(i) As of the Effective Time, VEO will have prepared and
timely filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all material
Taxes concerning or attributable to VEO, or its
-15-
<PAGE>
operations and such Returns are true and correct in all material respects and
have been completed in accordance with applicable law.
(ii) As of the Effective Time, VEO (A) will have paid all
Taxes it is required to pay, (B) will have withheld and timely remitted with
respect to its employees all Federal and state income taxes, Federal Insurance
Contribution Act ("FICA"), Federal Unemployment Tax Act ("FUTA"), and other
Taxes required to be withheld and (C) will have accrued on the VEO Current
Balance Sheet all Taxes attributable to the period preceding the date of the VEO
Current Balance Sheet and has not and will not incur any liability for Taxes for
the period prior to the Effective Time other than in the ordinary course of
business.
(iii) VEO has not executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of VEO is
presently in progress, nor has VEO been notified of any request for such an
audit or other examination.
(v) VEO has no material liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in
accordance with GAAP on the VEO Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise.
(vi) VEO has made available to C1 or its legal counsel, copies
of all foreign, federal and state income and all state and local sales and use
Returns filed for all VEO periods since its inception.
(vii) There are (and immediately following the Effective Time
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of VEO relating to or attributable to Taxes other than
Liens for Taxes not yet due and payable.
(viii) Neither VEO nor the Principal Shareholders has
Knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of VEO.
(ix) None of VEO's assets are treated as "tax-exempt use
property," within the meaning of Section 168(h) of the Code.
(x) VEO has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by VEO.
(xi) VEO is not a party to any tax sharing, indemnification or
allocation agreement nor does VEO owe any amount under any such agreement.
-16-
<PAGE>
(xii) VEO's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on VEO's tax books and records.
(xiii) VEO is not, and has not been at any time, a "United
States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(c) Executive Compensation Tax. There is no contract, agreement,
plan or arrangement to which VEO is a party, including but not limited to the
provisions of this Agreement, covering any employee or former employee of VEO,
individually or collectively, that could give rise to the payment of any amount
that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the
Code.
2.11 Restrictions on Business Activities. There is no agreement
(non-competition or otherwise), commitment, judgment, injunction, order or
decree to which VEO is a party or otherwise binding specifically upon VEO that
has or may reasonably be expected to have the effect of prohibiting or impairing
any business practice of VEO, any acquisition of property (tangible or
intangible) by VEO or the conduct of business by VEO. Without limiting the
foregoing, VEO has not entered into any agreement under which VEO is restricted
from selling, licensing or otherwise distributing any of its technology or
products or providing services to customers or potential customers or any class
of customers, in any geographic area, during any period of time or in any
segment of the market.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) VEO does not own any real property, nor has it ever owned any
real property. Section 2.12(a) of the VEO Disclosure Schedule sets forth a list
of all real property currently leased by VEO, the name of the lessor, the date
of the lease and each amendment thereto and, with respect to any current lease,
the aggregate annual rental and/or other fees payable under any such lease. All
such current leases are valid and enforceable in accordance with their
respective terms, and there is not, under any of such leases, any existing
material default or event of default (or event which with notice or lapse of
time, or both, would constitute a material default).
(b) Except as set forth in Section 2.12(b) of the VEO Disclosure
Schedule, VEO has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used or held for use in its business, free and
clear of any Liens, except as reflected in the VEO Current Balance Sheet and
except for Liens for Taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which are not material in character, amount or
extent, and which do not materially detract from the value, or interfere with
the present use, of the property subject thereto or affected thereby.
-17-
<PAGE>
(c) Section 2.12(c) of the VEO Disclosure Schedule lists as of the
date hereof each item of equipment with a purchase price of more than $10,000
(the "Equipment") owned or leased by VEO. Such Equipment is (i) adequate in all
material respects for the conduct of the business of VEO as currently conducted
and (ii) in good operating condition, regularly and properly maintained, subject
to normal wear and tear.
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following (i)
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, records, data and mask works, (ii) inventions
(whether or not patentable), improvements, and technology, (iii) proprietary and
confidential information, trade secrets and know how, (iv) databases, data
compilations and collections and technical data, (v) logos, trade names, trade
dress, trademarks and service marks, (vi) domain names, web addresses and sites,
(vii) tools, methods and processes, and (viii) all instantiations of the
foregoing in any form and embodied in any media.
"VEO Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, VEO.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; (iv) any mask work registrations and applications to
register mask works; and (v) any other VEO Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued by, filed with, or recorded by, any state, government or other public
legal authority.
(b) Section 2.13(b) of the VEO Disclosure Schedule lists as of the
date hereof all Registered Intellectual Property owned by, licensed to or filed
in the name of, VEO (the "VEO Registered Intellectual Property"), and lists any
proceedings or actions before any court, tribunal (including the United States
Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the
world) related to any VEO Registered Intellectual Property.
(c) VEO (i) owns and has good and exclusive title to each item of
VEO Intellectual Property, including all VEO Registered Intellectual Property
listed on Section 2.13(b) of the VEO Disclosure Schedule, free and clear of any
Liens, (ii) except as set forth in Section 2.13(c) of the VEO Disclosure
Schedule, is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of VEO, including the
sale of any products
-18-
<PAGE>
or the provision of any services by VEO and (iii) owns exclusively, and has good
title to, all copyrighted works that are VEO products or other works of
authorship that VEO otherwise purports to own.
(d) To the extent that any VEO Intellectual Property has been
developed or created by a any person other than VEO for which VEO has directly
or indirectly paid, VEO has a written agreement with such person with respect
thereto and VEO thereby has obtained ownership of, and is the exclusive owner
of, all such VEO Intellectual Property by operation of law or by valid
assignment.
(e) Except as set forth in Section 2.13(e) of the VEO Disclosure
Schedule, as of the date hereof VEO has not transferred ownership of, or granted
any license of or right to use or authorized the retention of any rights to use,
any Intellectual Property that is or was VEO Intellectual Property, to any other
person.
(f) Other than "shrink-wrap" and similar widely available commercial
end-user licenses, the contracts, licenses and agreements listed in Section
2.13(f) of the VEO Disclosure Schedule include all contracts, licenses and
agreements, to which VEO is a party with respect to any Intellectual Property as
of the date hereof. No person other than VEO has ownership rights to
improvements made by VEO in Intellectual Property which has been licensed to
VEO.
(g) Section 2.13(g) of the VEO Disclosure Schedule lists all
contracts, licenses and agreements between VEO and any other person as of the
date hereof wherein or whereby VEO has agreed to, or assumed, any obligation or
duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise
assume or incur any obligation or liability or provide a right of rescission
with respect to the infringement or misappropriation by VEO or such other person
of the Intellectual Property of any person other than VEO.
(h) To the Knowledge of each of VEO and the Principal Shareholders,
the operation of the business of VEO as it currently is conducted, including but
not limited to VEO's design, development, manufacture, import, use and sale of
the products, technology or services (including products, technologies or
services currently under development) of VEO, does not infringe or
misappropriate the Intellectual Property of any other person, and VEO has not
received notice from any person claiming that such operation or any act, product
or service (including products, technologies or services currently under
development) of VEO infringes or misappropriates the Intellectual Property of
any other person.
(i) To the Knowledge of each of VEO and the Principal
Shareholders,VEO owns or has the right to all Intellectual Property necessary to
the conduct of its business as it is currently conducted including, without
limitation, the design, development, manufacture, use and sale of all products
and technology currently manufactured or sold by VEO or under development by VEO
and the performance of all services provided.
-19-
<PAGE>
(j) To the Knowledge of each of VEO and the Principal Shareholders,
each item of VEO Registered Intellectual Property is valid and subsisting. All
necessary registration, maintenance and renewal fees in connection with
Registered Intellectual Property have been paid and all necessary documents and
certificates in connection with such VEO Registered Intellectual Property have
been filed with the relevant patent, copyright, trademark or other authorities
in the United States or foreign jurisdictions, as the case may be, for the
purposes of maintaining such Registered Intellectual Property. In each case in
which VEO has been assigned or purchased any Intellectual Property rights from
any other person, VEO has obtained a valid and enforceable assignment sufficient
to irrevocably transfer all rights in such Intellectual Property (including the
right to seek past and future damages with respect to such Intellectual
Property) to VEO and, to the maximum extent provided for by, and in accordance
with, applicable laws and regulations, VEO has recorded each such assignment
with the relevant governmental authorities, including the PTO, the U.S.
Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between VEO and
any other person with respect to VEO Intellectual Property under which there is
any dispute known to VEO regarding the scope of such agreement, or performance
under such agreement including with respect to any payments to be made or
received by VEO thereunder.
(l) To the Knowledge of VEO and the Principal Shareholders, no
person is infringing or misappropriating any VEO Intellectual Property.
(m) VEO has taken all steps reasonably required to protect VEO's
rights in confidential information and trade secrets of VEO or provided by any
third party to VEO. Without limiting the foregoing, VEO has, and enforces, a
policy requiring each employee, consultant and contractor to execute proprietary
information and confidentiality and assignment agreements substantially in VEO's
standard forms, and all current and former employees, consultants and
contractors of VEO have executed such an agreement.
(n) No VEO Intellectual Property or product, technology or service
of VEO is subject to any proceeding or outstanding decree, order, judgment,
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by VEO or may affect the validity, use or enforceability of
such VEO Intellectual Property.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth on Section 2.12(a), 2.13(f), 2.13(g) or
2.14(a) of the VEO Disclosure Schedule, as of the date hereof VEO is not a party
to, nor is VEO bound by:
(i) any contract, license or agreement to which VEO is a party
(A) with respect to VEO Intellectual Property licensed or transferred to any
third party or (B) pursuant to which a third party has licensed or transferred
any Intellectual Property to VEO;
-20-
<PAGE>
(ii) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(iii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(iv) any fidelity or surety bond or completion bond;
(v) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000 individually or
$50,000 in the aggregate;
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of VEO's business;
(vii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit;
(viii) any purchase order or contract for the purchase of
materials involving more than $10,000 individually or $50,000 in the aggregate;
(ix) any construction contracts;
(x) any distribution, joint marketing or development
agreement; or
(xi) any other agreement, contract or commitment that involves
$5,000 or more or is not cancelable without penalty within thirty (30) days.
(b) VEO is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any Contract set forth or required to
be set forth in the VEO Disclosure Schedule (or any Contract entered into by VEO
after the date of this Agreement that would otherwise be required to be
disclosed) to which VEO is a party or by which it is bound, nor is VEO or any
Principal Shareholder aware of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both, and each
such scheduled Contract or Contract otherwise required to be scheduled (or any
Contract entered into by VEO after the date of this Agreement) is in full force
and effect. To the Knowledge of VEO and the Principal Shareholders, no party
obligated to VEO pursuant to any such scheduled Contract or Contract otherwise
required to be scheduled (or any
-21-
<PAGE>
Contract entered into by VEO after the date of this Agreement that would
otherwise be required to be disclosed) is subject to any default thereunder.
2.15 Interested Party Transactions. Other than a set forth in the VEO
Disclosure Schedule, no officer or director of VEO (nor, to the Knowledge of VEO
or the Principal Shareholders, any shareholder of VEO or any ancestor (up to
once removed), sibling, descendant (up to once removed), spouse, parent,
subsidiary or other affiliate of any officer, director or shareholder, or any
trust, partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) any interest in any
entity that furnished or sold, or furnishes or sells, services, products or
technology that VEO furnishes or sells, or proposes to furnish or sell, or (ii)
any interest in any entity that purchases from or sells or furnishes to VEO any
goods or services or (iii) a beneficial interest in any Contract other than
employment or consulting agreements with officers of VEO and indemnification
agreements with directors and officers of VEO, in each case previously provided
to C1; provided, however, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation and no more than 5% of
the outstanding equity of any other entity shall not be deemed an "interest in
any entity" for purposes of this Section 2.15.
2.16 Governmental Authorization. Section 2.16 of the VEO Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to VEO by a Governmental Entity (i) pursuant to which VEO
currently operates or holds any interest in any of its material properties or
(ii) which is required for the operation of its business or the holding of any
such interest (herein collectively called "VEO Authorizations"). VEO
Authorizations are in full force and effect in all material respects and
constitute all material VEO Authorizations required to permit VEO to operate or
conduct its business or hold any interest in its properties or assets.
2.17 Litigation. There is no action, suit or proceeding of any nature
commenced or pending, or to VEO's or the Principal Shareholders' Knowledge
threatened, against VEO, its properties or any of its officers or directors as
such, nor, to the Knowledge of VEO and the Principal Shareholders, is there any
reasonable basis therefor. There is no investigation pending or, to VEO's or the
Principal Shareholders' Knowledge threatened, against VEO, its properties or any
of its officers or directors as such (nor, to the best Knowledge of VEO and the
Principal Shareholders, is there any reasonable basis therefor) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of VEO to conduct its operations as presently or
previously conducted. VEO has not commenced any action, suit or proceeding of
any nature against any third party.
2.18 Minute Books. The minute books of VEO delivered or made available to
counsel for C1 are the only minutes of VEO as of the date hereof and contain a
reasonably accurate summary of all actions of the board of directors (or
committees thereof) of VEO and its shareholders taken at a meeting or actions by
written consent since the incorporation of VEO.
-22-
<PAGE>
2.19 Environmental Matters.
(a) Hazardous Material. VEO has not: (i) operated any underground
storage tanks at any property that VEO has at any time owned, operated, occupied
or leased; or (ii) illegally released any substance that has been designated by
any Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the Resource
Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "Hazardous Material"), but excluding office
and janitorial supplies properly and safely maintained. No Hazardous Materials
are present as a result of the deliberate actions of VEO or, to VEO's or the
Principal Shareholders' Knowledge, as a result of any actions of any other
person or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that VEO has at any time
owned, operated, occupied or leased.
(b) Hazardous Materials Activities. VEO has not transported, stored,
used, manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in material violation of any law in effect on or before the
Effective Time, nor has VEO disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (any or all of the foregoing being
collectively referred to as "Hazardous Materials Activities") in material
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. VEO currently holds all material environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of VEO's Hazardous Materials Activities and
other businesses of VEO as such activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
VEO's or the Principal Shareholders' Knowledge, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
VEO which if determined adversely would have a Material Adverse Effect on VEO.
Neither VEO nor the Principal Shareholders has any Knowledge of any fact or
circumstance which could involve VEO in any notice of environmental litigation
or impose upon VEO any material environmental liability.
2.20 Brokers' and Finders' Fees; Third Party Expenses. VEO has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
-23-
<PAGE>
2.21 Information Supplied. The information relating to VEO and the
shareholders of VEO included in the proxy statement/information statement (the
"Proxy Statement") to be sent to shareholders of VEO and to the shareholders of
C1 in connection with (i) the meeting of the shareholders of VEO (the "VEO
Meeting") to consider the approval and adoption of this Agreement and (ii) any
meeting or action by written consent of the shareholders of C1 (the "C1
Shareholder Action") which may be required in connection with the Merger, shall
not on the date the information is first mailed to the shareholders, at the time
of the VEO Meeting, at the time of the C1 Shareholder Action or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false and misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the VEO Meeting or with respect to the C1 Shareholder Action which
has become false or misleading. Notwithstanding the foregoing, VEO makes no
representation or warranty with respect to any information supplied by C1 which
is contained in the materials sent to VEO Shareholders specifically for the VEO
Meeting.
2.22 Employee Benefit Plans and Compensation.
(a) Definitions. For purposes of this Section 2.22, the following
terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with VEO within the meaning of Section 414(b), (c), (m) or (o) of
the Code and the regulations thereunder.
(ii) "Employee Plan" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, deferred compensation, pensions, retirement plans,
profit sharing, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
written or otherwise, funded or unfunded and whether or not legally binding,
including without limitation, any plan which is or has been maintained,
contributed to, or required to be contributed to, by VEO or any Affiliate for
the benefit of any Employee (as defined below), and pursuant to which VEO or any
Affiliate has or may have any material liability, contingent or otherwise; and
(iii) "Employee" shall mean any current, former, or retired
employee, consultant, officer, or director of VEO or any Affiliate.
(iv) "Employee Agreement" shall refer to each employment,
severance, consulting or similar agreement or contract between VEO or any
Affiliate and any Employee;
(b) Schedule. Section 2.22(b) of the VEO Disclosure Schedule
contains an accurate and complete list of each Employee Plan and each Employee
Agreement. VEO does not have any
-24-
<PAGE>
plan or commitment, whether legally binding or not, to establish any new
Employee Plan or Employee Agreement, to modify any Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Employee
Plan or Employee Agreement to the requirements of any applicable law), or to
enter into any new Employee Plan or Employee Agreement, nor does it have any
intention or commitment to do any of the foregoing.
(c) Documents. VEO has provided or made available to C1, (i) correct
and complete copies of each Employee Plan and each Employee Agreement and all
amendments thereto and copies of all forms of agreement and enrollment used
therewith; (ii) the three most recent annual reports (Series 5500 and all
schedules thereto), if any, required under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the Code in connection with each
Employee Plan or related trust; (iii) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Employee Plan; (iv) the most recent
IRS determination from the IRS with respect to any Employee Plan, and any
correspondence from the IRS or the Department of Labor ("DOL") with respect to
any Employee Plan or Employee Agreement (v) all material agreements and
contracts relating to each Employee Plan, including but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts; and (vi) all communications material distributed to any Employee or
Employees relating to any Employee Plan and any proposed Employee Plan, in each
case, relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any liability to VEO.
(d) Employee Plan Compliance. (i) VEO has performed in all material
respects all obligations required to be performed by it under each Employee
Plan, and each Employee Plan has been established and maintained in accordance
with its terms and in compliance with all applicable laws, statutes, orders,
rules and regulations, including ERISA and the Code; (ii) each Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination letter with respect to each such Employee Plan from the IRS or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination letter and make any
amendments necessary to obtain a favorable determination; (iii) to the Knowledge
of VEO, no non-exempt "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 or 407 of ERISA, has occurred with respect to
any Employee Plan; (iv) there are no actions, suits or claims pending, or, to
the Knowledge of VEO and the Principal Shareholders, threatened or anticipated
(other than routine claims for benefits), against any Employee Plan or against
the assets of any Employee Plan; (v) there are no inquiries or proceedings
pending or, to the Knowledge of VEO, the Principal Shareholders or any
Affiliates, threatened by the IRS or DOL with respect to any Employee Plan; and
(vi) neither VEO nor any Affiliate is subject to any material penalty or tax
with respect to any Employee Plan under Section 502(i) of ERISA or Section 4975
through 4980 of the Code.
-25-
<PAGE>
(e) Pension Plans. VEO does not now, and has never, maintained,
established, sponsored, participated in, or contributed to, any pension plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code.
(f) Multiemployer Plans. At no time has VEO contributed to or been
requested to contribute to any "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
(g) No Post-Employment Obligations. No Employee Plan provides, or
has any material liability to provide, life insurance, medical or other employee
benefits to any Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and VEO has not
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) No COBRA Violation. Neither VEO nor any Affiliate has, prior to
the Effective Time, violated in any material respect, any of the health care
continuation requirements of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, or any similar provisions of state law applicable to its
employees.
(i) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not constitute an
event under any Employee Plan or Employee Agreement, that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee.
(j) Employment Matters. VEO (i) is in compliance in all material
respects with all applicable laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees; (ii) has withheld all amounts required by
law or by agreement to be withheld from the wages, salaries and other payments
to Employees or other persons who by virtue of their activities performed on
behalf of VEO may be deemed employees within the meaning of applicable law;
(iii) is not liable for any arrears of wages or any taxes or any penalty for
failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees or other persons who by virtue of
their activities performed on behalf of VEO may be deemed employees within the
meaning of applicable law (other than routine payments to be made in the normal
course of business and consistent with past practice).
(k) Labor. No work stoppage or labor strike against VEO is pending,
or to the Knowledge of VEO or the Principal Shareholders, threatened. VEO is not
involved in or, to the Knowledge of VEO or the Principal Shareholders,
threatened with any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any Employee, including,
-26-
<PAGE>
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to VEO or C1. VEO has not engaged in
any unfair labor practices which could, individually or in the aggregate,
directly or indirectly result in a material liability to VEO, C1 or any
Affiliate. VEO is not presently, nor has it in the past, been a party to, or
bound by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by VEO.
2.23 No Interference or Conflict. To the Knowledge of VEO or the Principal
Shareholders, no shareholder, officer, employee or consultant of VEO is
obligated under any contract or agreement or subject to any judgment, decree or
order of any court or administrative agency, that would interfere with such
person's efforts to promote the interests of VEO or that would interfere with
VEO's business. Neither the execution nor delivery of this Agreement, nor the
carrying on of VEO's business as presently conducted or proposed to be conducted
nor any activity of such officers, directors, employees or consultants in
connection with the carrying on of VEO's business as presently conducted or
proposed to be conducted, will, to VEO's or the Principal Shareholders'
Knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract or agreement under
which any of such officers, directors, employees or consultants are currently
bound.
2.24 Insurance. Section 2.24 of the VEO Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of VEO. There is no
material claim by VEO pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and VEO is otherwise in compliance in all material
respects with the terms of such policies and bonds (or other policies and bonds
providing substantially similar insurance coverage). VEO has no Knowledge of any
threatened termination of, or premium increase with respect to, any of such
policies.
2.25 Compliance with Laws. VEO has complied in all material respects with,
is not in material violation of, and has not received any notices of violation
with respect to, any foreign, federal, state or local statute, law or
regulation.
2.26 Warranties; Indemnities. Other than as set forth in Section 2.26 of
the VEO Disclosure Schedule VEO has not given any warranties or indemnities
relating to products or technology sold or services rendered by VEO.
2.27 Complete Copies of Materials. VEO has delivered or made available to
C1 true and complete copies of each document listed or described in the VEO
Disclosure Schedule.
-27-
<PAGE>
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF C1 AND SUB
C1 and Sub hereby represent and warrant to VEO, subject to such exceptions
as are disclosed in the C1 Disclosure Schedule separately supplied by C1 to VEO
(the "C1 Disclosure Schedule"), that on the date hereof and as of the Effective
Time as though made at the Effective Time as follows:
3.1 Organization of C1. C1 is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. Sub is
a corporation duly organized, validly existing and in good standing under the
laws of California. Each of C1 and Sub has the corporate power to own its
properties, and to carry on its business as now being conducted and is duly
qualified to do business and in good standing in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect on C1 or Sub. C1
has delivered or made available to VEO a true and correct copy of the Amended
and Restated Articles of Incorporation and Bylaws of C1, each as amended to
date, and each such instrument is in full force and effect.
3.2 C1 Capital Structure
(a) The authorized capital stock of C1 consists of (i) 50,000,000
shares of authorized Common Stock, par value $0.001 per share, of which
6,556,185 are issued and outstanding as of the date hereof and (ii) 22,000,000
shares of Preferred Stock, par value $0.001 per share, of which 673,680 shares
have been designated "Series A Preferred Stock," all of which are issued and
outstanding as of the date hereof, 3,595,976 shares have been designated "Series
B Preferred Stock," 3,568,293 shares of which are issued and outstanding as of
the date hereof, 6,450,000 shares have been designed "Series C Preferred Stock,"
5,120,608 shares of which are issued and outstanding as of the date hereof, and
10,700,000 shares have been designated "Series D Preferred Stock," 8,866,757
shares of which are issued and outstanding as of the date hereof. As of the
Closing Date, that number of shares of C1 Series D' Preferred Stock as shall be
necessary to satisfy the requirements of Section 1.6(b) hereof will be
authorized, none of which will be issued and outstanding as of immediately prior
to the Closing. All outstanding shares of C1 Capital Stock are, and the C1
Series D' Preferred Stock at the Closing Date will be, duly authorized, validly
issued, fully paid and non-assessable, are not, and C1 Series D' Preferred Stock
will not be, subject to preemptive rights created by statute, the Articles of
Incorporation or Bylaws of C1 or, except as disclosed in Section 3.2 of the C1
Disclosure Schedule, any agreement to which C1 is a party or by which it is
bound and have been issued in compliance with federal and state securities laws.
As of the date hereof, there are no declared or accrued dividends with respect
to any shares of C1 Capital Stock. As of the date hereof, C1 has no other
capital stock authorized, issued or outstanding.
(b) Except for the C1 Stock Plans, C1 has never adopted or
maintained any stock option plan or other plan providing for equity compensation
of any person. C1 has reserved 5,400,000 shares of C1 Common Stock for issuance
to employees and directors of, and consultants pursuant to the C1 Stock Plans,
of which 1,271,780 shares have been exercised and 3,505,318 shares
-28-
<PAGE>
are subject to outstanding, unexercised options as of the date hereof. Except as
disclosed in Section 3.2 of the C1 Disclosure Schedule, as of the date hereof
there are no other options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which C1 is a party or by which it is
bound obligating C1 to issue, deliver, sell, repurchase or redeem, or cause to
be issued, delivered, sold, repurchased or redeemed, any shares of C1 Capital
Stock or obligating C1 to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. As of the date hereof, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or other
similar rights with respect to C1. Except as set forth in Section 3.2(b) of the
C1 Disclosure Schedule, as of the date hereof, there are no voting trusts,
proxies, or other agreements or understandings with respect to the voting stock
of C1.
3.3 Subsidiaries. Except as set forth in Section 3.3 of the C1
Disclosure Schedule, C1 does not have, and has never had, any subsidiaries and
does not otherwise own, and has not otherwise owned, any shares in the capital
of or any interest in, or control of, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity.
3.4 Authority. Each of C1 and Sub has all requisite corporate power
and authority to enter into this Agreement and the Merger Agreement and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Merger Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of C1 and Sub, subject only to approval
by the shareholders of C1 of the issuance of shares of C1 Common Stock in the
Merger, approval by the shareholders of C1 of an amendment (the "Articles
Amendment") to C1's Articles of Incorporation to exempt the issuance of
Consideration Shares in the Merger and any shares of C1 Common Stock and C1
Series D' Preferred Stock issued pursuant to Section 7.3 from the anti-dilution
protection rights of the C1 Preferred Stock and to authorize the C1 Series D'
Preferred Stock to be issued in connection with the Merger and approval of an
amendment to C1's Bylaws to increase the size of C1's Board of Directors (the
"Bylaw Amendment"). This Agreement has been duly executed and delivered by each
of C1 and Sub, assuming the due authorization, execution and delivery by VEO and
the Principal Shareholders, constitutes the valid and binding obligation of C1
and Sub, enforceable against each of C1 and Sub in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance injunctive relief or other equitable remedies. The Merger
Agreement, when executed by each of C1 and Sub, assuming the due authorization,
execution and delivery by VEO, will constitute the valid and binding obligation
of C1 and Sub, enforceable against each of C1 and Sub in accordance with its
terms, subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and to rules of law governing specific
performance injunctive relief or other equitable remedies.
3.5 No Conflict. Except as set forth in Section 3.5 of the C1
Disclosure Schedule, the execution and delivery of this Agreement and when
executed and delivered the Merger Agreement by each of C1 and Sub does not, and
the consummation of the transactions contemplated hereby and
-29-
<PAGE>
thereby, assuming approval by the shareholders of C1 of the Articles Amendment
and the Bylaw Amendment will not, conflict with (i) any provision of the
Articles of Incorporation and Bylaws of C1 or Sub, (ii) any Contract to which C1
or any of their properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to C1 or Sub or
their properties or assets, except in the case of clauses (ii) and (iii) such
Conflict which does not or is not reasonably likely to result in a loss of
material benefits or a material liability to either C1 or Sub.
3.6 Consents. Except as set forth in Section 3.6 of the C1
Disclosure Schedule, no consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required to
be obtained or made by either C1 or Sub in connection with the execution and
delivery of this Agreement or the Merger Agreement or the consummation of the
transactions contemplated hereby or thereby, including a party to any Contract
(so as not to trigger any Conflict), is required by or with respect to C1 or
Sub, and no consent, waiver or approval of any party to any Contract is required
for such Contract to remain in effect without modification in connection with
the execution and delivery with this Agreement or the Merger Agreement or the
consummation of the transactions contemplated hereby and thereby except for (i)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws,
including obtaining the California Permit (as defined in Section 5.1(a)), (ii)
the filing of the Merger Agreement with the Secretary of State of the State of
California, (iii) the approval of this Agreement, the Articles Amendment and the
Bylaw Amendment by the shareholders of C1, and (iv) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not be material to C1, Sub or VEO or have a material adverse effect
on the ability of the parties hereto to consummate the Merger.
3.7 C1 Financial Statements. Section 3.7 of the C1 Disclosure
Schedule sets forth C1's audited balance sheets as of December 31, 1997 and the
related audited statements of income and cash flow for the twelve-month period
ended December 31, 1997 (the "C1 Audited Financials") and C1's unaudited balance
sheet as of October 31, 1998 (the "C1 Current Balance Sheet") and the related
unaudited statements of income and cash flow for the nine months then ended (the
"C1 Unaudited Financials" and, together with the C1 Audited Financials, the "C1
Financials"). The C1 Financials are correct in all material respects and have
been prepared in accordance with GAAP, applied on a basis consistent throughout
the periods indicated and consistent with each other. The C1 Financials present
fairly the financial condition, operating results and cash flows of C1 as of the
dates and during the periods indicated therein, subject in the case of the C1
Unaudited Financials, to normal year-end adjustments, which will not be material
in amount or significance.
3.8 No Undisclosed Liabilities. Except as set forth in Section 3.8
of the C1 Disclosure Schedule, to the Knowledge of C1, neither C1 nor Sub has
any liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP), which individually or in the aggregate (i)
has not been reflected, reserved against or disclosed in the C1 Current Balance
Sheet or (ii) has not arisen in the
-30-
<PAGE>
ordinary course of business consistent with past practices since the date of the
C1 Current Balance Sheet.
3.9 Absence of Certain Changes or Events. Since September 30, 1998, as of
the date hereof there has not been: (i) any event or condition of any character
that has had or reasonably would be expected to have a Material Adverse Effect
on C1 or Sub; (ii) any material change by C1 in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP; (iii)
any revaluation by C1 of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (iv) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any C1 Capital Stock; (v) any purchase,
redemption or other acquisition by C1 or Sub of any C1 Capital Stock or any
other securities of C1 or any options, warrants, calls or rights to acquire any
such shares or other securities except for repurchases from employees following
their termination pursuant to the terms of the pre-existing stock option or
purchase agreements; or (vi) any split, combination or reclassification of any
of C1's Capital Stock.
3.10 Valid Issuance. The C1 Common Stock and the C1 Series D' Preferred
Stock to be issued in the Merger and any shares to be issued pursuant to Section
7.3, when issued in accordance with the provisions of this Agreement will be
validly issued, fully paid and non-assessable and will be issued free of any
preemptive rights.
3.11 Litigation. There is no action, suit or proceeding of any nature
pending, or to C1's Knowledge threatened, against either C1 or Sub, its
properties or any of its officers or directors, nor, to the Knowledge of C1, is
there any reasonable basis therefor. There is no investigation pending or, to
C1's Knowledge threatened, against C1, its properties or any of its officers or
directors (nor, to the best Knowledge of C1, is there any reasonable basis
therefor) by or before any Governmental Entity. No Governmental Entity has at
any time challenged or questioned the legal right of either C1 or Sub to conduct
its operations as presently or previously conducted. Neither C1 nor Sub has
commenced any action, suit or proceeding of any nature against any third party.
3.12 Intellectual Property.
(a) To the Knowledge of C1, the operation of the business of C1 as
such business currently is conducted, including C1's design, development,
manufacture, marketing and sale of the products or services of C1 (including
with respect to products currently under development) does not infringe or
misappropriate the Intellectual Property of any third party or, to its
Knowledge, constitute unfair competition or trade practices under the laws of
any jurisdiction.
(b) To the Knowledge of C1, neither C1 nor Sub has received notice
from any third party that the operation of the business of C1 or any act,
product or service of C1, infringes or misappropriates the Intellectual Property
of any third party or constitutes unfair competition or trade practices under
the laws of any jurisdiction.
-31-
<PAGE>
(c) To the Knowledge of C1, no person has or is infringing or
misappropriating any Intellectual Property that is owned by C1.
(d) To the Knowledge of C1, each of C1 and Sub owns or has the right
to all Intellectual Property necessary to the conduct of its business as it is
currently conducted including, without limitation, the design, development,
manufacture, use and sale of all products and technology currently manufactured
or sold by C1 or under development by C1 and the performance of all services
provided by C1.
3.13 Tax Matters.
(a) Tax Returns and Audits. Except as set forth in Section 3.13 of
the C1 Disclosure Schedule:
(i) As of the Effective Time, each of C1 and Sub will have
prepared and timely filed all required federal, state, local and foreign Returns
relating to any and all material Taxes concerning or attributable to C1 or its
operations and such Returns are true and correct in all material respects and
have been completed in accordance with applicable law.
(ii) As of the Effective Time, each of C1 and Sub will have
paid all Taxes it is required to pay, and there is no material Tax deficiency
outstanding, assessed or proposed against C1.
(iii) Neither C1 nor Sub has no material liabilities for
unpaid federal, state, local and foreign Taxes which have not been accrued or
reserved against in accordance with GAAP on the C1 Current Balance Sheet,
whether asserted or unasserted, contingent or otherwise.
3.14 Employee Benefit Plans and Compensation.
(a) Definitions. For purposes of this Section 3.14, the following
terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with C1 within the meaning of Section 414(b), (c), (m) or (o) of
the Code and the regulations thereunder.
(ii) "Employee Plan" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, deferred compensation, pensions, retirement plans,
profit sharing, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
written or otherwise, funded or unfunded and whether or not legally binding,
including without limitation, any plan which is or has been maintained,
contributed to, or required to be contributed to, by C1 or any Affiliate for the
benefit of any Employee (as defined below), and
-32-
<PAGE>
pursuant to which C1 or any Affiliate has or may have any material liability,
contingent or otherwise; and
(iii) "Employee" shall mean any current, former, or retired
employee, consultant, officer, or director of C1 or any Affiliate.
(iv) "Employee Agreement" shall refer to each employment, severance,
consulting or similar agreement or contract between C1 or any Affiliate and any
Employee;
(b) Schedule. Section 2.22(b) of the C1 Disclosure Schedule contains
an accurate and complete list of each Employee Plan and each Employee Agreement.
C1 does not have any plan or commitment, whether legally binding or not, to
establish any new Employee Plan or Employee Agreement, to modify any Employee
Plan or Employee Agreement (except to the extent required by law or to conform
any such Employee Plan or Employee Agreement to the requirements of any
applicable law), or to enter into any new Employee Plan or Employee Agreement,
nor does it have any intention or commitment to do any of the foregoing.
(c) Documents. C1 has provided or made available to VEO (i) correct
and complete copies of each Employee Plan and each Employee Agreement and all
amendments thereto and copies of all forms of agreement and enrollment used
therewith; (ii) the three most recent annual reports (Series 5500 and all
schedules thereto), if any, required under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the Code in connection with each
Employee Plan or related trust; (iii) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Employee Plan; (iv) the most recent
IRS determination from the IRS with respect to any Employee Plan, and any
correspondence from the IRS or the Department of Labor ("DOL") with respect to
any Employee Plan or Employee Agreement; (v) all material agreements and
contracts relating to each Employee Plan, including but not limited to,
administrative service agreements, group annuity contracts and group insurance
contracts; and (vi) all communications material distributed to any Employee or
Employees relating to any Employee Plan and any proposed Employee Plan, in each
case, relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any liability to C1.
(d) Employee Plan Compliance. (i) C1 has performed in all material
respects all obligations required to be performed by it under each Employee
Plan, and each Employee Plan has been established and maintained in accordance
with its terms and in compliance with all applicable laws, statutes, orders,
rules and regulations, including ERISA and the Code; (ii) each Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination letter with respect to each such Employee Plan from the IRS or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination letter and make any
amendments necessary to obtain a favorable determination; (iii) to the Knowledge
of C1, no non-
-33-
<PAGE>
exempt "prohibited transaction," within the meaning of Section 4975 of the Code
or Section 406 or 407 of ERISA, has occurred with respect to any Employee Plan;
(iv) there are no actions, suits or claims pending, or, to the Knowledge of C1,
threatened or anticipated (other than routine claims for benefits), against any
Employee Plan or against the assets of any Employee Plan; (v) there are no
inquiries or proceedings pending or, to the Knowledge of C1, threatened by the
IRS or DOL with respect to any Employee Plan; and (vi) neither C1 nor any
Affiliate is subject to any material penalty or tax with respect to any Employee
Plan under Section 502(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. C1 does not now, and has never, maintained,
established, sponsored, participated in, or contributed to, any pension plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code.
(f) Multiemployer Plans. At no time has C1 contributed to or been
requested to contribute to any "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
(g) No Post-Employment Obligations. No Employee Plan provides, or
has any material liability to provide, life insurance, medical or other employee
benefits to any Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and C1 has not
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) No COBRA Violation. Neither C1 nor any Affiliate has, prior to
the Effective Time, violated in any material respect, any of the health care
continuation requirements of the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, or any similar provisions of state law applicable to its
employees.
(i) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not constitute an
event under any Employee Plan or Employee Agreement, that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee.
(j) Employment Matters. C1 (i) is in compliance in all material
respects with all applicable laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees; (ii) has withheld all amounts required by
law or by agreement to be withheld from the wages, salaries and other payments
to Employees or other persons who by virtue of their activities performed on
behalf of C1 may be deemed employees within the meaning of applicable law; (iii)
is not liable for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing; and (iv) is not liable for any payment to
any trust or other fund or to any governmental or administrative
-34-
<PAGE>
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees or other persons who by virtue of
their activities performed on behalf of C1 may be deemed employees within the
meaning of applicable law (other than routine payments to be made in the normal
course of business and consistent with past practice).
(k) Labor. No work stoppage or labor strike against C1 is pending,
or to the Knowledge of C1, threatened. C1 is not involved in or, to the
Knowledge of C1, threatened with any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in any material liability to C1 or VEO. C1 has not
engaged in any unfair labor practices which could, individually or in the
aggregate, directly or indirectly result in a material liability to C1, VEO or
any Affiliate. C1 is not presently, nor has it in the past, been a party to, or
bound by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by C1.
3.15 Brokers' and Finders' Fees. Neither C1 nor Sub has incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
3.16 Information Supplied. The information relating to C1 and the
shareholders of C1 included in the Proxy Statement to be sent to VEO
Shareholders and to the shareholders of C1 in connection with (i) the VEO
Meeting to consider the approval and adoption of this Agreement and the approval
of the Merger and (ii) any C1 Shareholder Action which may be required in
connection with the Merger, shall not on the date the information is first
mailed to the shareholders, at the time of VEO Meeting, at the time of the C1
Shareholder Action or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false and misleading or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for VEO Meeting or
with respect to the C1 Shareholder Action which has become false or misleading.
Notwithstanding the foregoing, C1 makes no representation or warranty with
respect to any information supplied by VEO which is contained in the materials
sent to VEO Shareholders specifically for VEO Meeting.
ARTICLE 4.
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of VEO. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, VEO agrees and each Principal Shareholder agrees, to
carry on VEO's business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the debts and
Taxes of VEO
-35-
<PAGE>
when due, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practice and policies to preserve intact VEO's present business organization,
keep available the services of VEO's present officers and employees and preserve
VEO's relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired VEO's goodwill and ongoing business at the Effective Time.
Except as expressly contemplated by Section 4.1 of the C1 Disclosure Schedule or
as otherwise expressly provided in this Agreement, VEO shall not, without the
prior written consent of C1:
(a) other than performing the Contracts listed in the VEO Disclosure
Schedule in accordance with their terms existing on the date hereof, make any
expenditure or enter into any transaction exceeding $10,000 individually or
$50,000 in the aggregate or any commitment or transaction of the type described
in Section 2.9 hereof;
(b) (i) sell, license or transfer to any person or entity of any
rights to any VEO Intellectual Property or enter into any agreement with respect
to the VEO Intellectual Property with any person or entity other than
Intellectual Property Rights acquired under "shrink-wrap" which are not included
in VEO's products or technology (including products and technology currently
available or under development), or pursuant to Consulting agreements set forth
on the VEO Disclosure Schedule, (ii) enter into any agreement with respect to
the development by VEO of any Intellectual Property with a third party, or (iii)
make any change in pricing or royalties charged by VEO to its customers or
licensees, or the pricing or royalties set or charged by persons who have
licensed Intellectual Property to VEO;
(c) amend or change its Articles of Incorporation or Bylaws, other
than as required with respect to the C1 Loan;
(d) revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(e) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any VEO Capital
Stock, or split, combine or reclassify any shares of VEO Capital Stock, or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of VEO Capital Stock, or repurchase, redeem, or other
acquire, directly or indirectly, any shares of VEO Capital Stock (or options,
warrants or other rights convertible into, exercisable or exchangeable
therefor), except for (i) repurchases of VEO Capital Stock upon the termination
of service of any service providers of VEO in accordance with the standard terms
set forth in the agreements governing such repurchases, all of which agreements
have been provided or made available to C1, (ii) conversion of VEO Preferred
Stock and (iii) exercises or conversion of VEO Convertible Securities;
(f) grant any severance or termination pay (i) to any director or
officer or (ii) to any employee, except payments made pursuant to standard
written agreements outstanding as of the date
-36-
<PAGE>
hereof and disclosed on the VEO Disclosure Schedule, or increase in the salary
or other compensation payable or to become payable by VEO to any of its
officers, directors, employees or advisors, or declare, pay or make any
commitment or obligation of any kind for the payment by VEO of a bonus or other
additional salary or compensation to any such person, or adopt or amend any
employee benefit plan or enter into any employment contract;
(g) sell, lease, license or otherwise dispose of any of the assets
or properties of VEO which are not Intellectual Property other than in the
ordinary course of business and consistent with past practices, including but
not limited to the performance of obligations under contractual arrangements
existing as of the date hereof set forth on the VEO Disclosure Schedule, or
create any security interest in such assets or properties;
(h) grant any loan to any person or entity, incur any indebtedness
or guarantee any indebtedness, issue or sell any debt securities, guarantee any
debt securities of others, purchase any debt securities of others or amend the
terms of any outstanding agreements related to borrowed money, except for
advances to employees for travel and business expenses in the ordinary course of
business consistent with past practices and except in connection with the C1
Loan;
(i) issue, sell, grant, contract to issue, grant or sell, or
authorize the issuance, delivery, sale or purchase of any shares of VEO Capital
Stock or securities convertible into, or exercisable or exchangeable for, shares
of VEO Capital Stock, or any securities, warrants, options or rights to purchase
any of the foregoing, except for (i) VEO Options to purchase up to 100,000
shares of VEO Capital Stock which VEO Options vest at a rate no greater than one
eighth (1/8th) of the shares subject to the option six months after the date of
grant and the remainder vesting one forty-eighth (1/48th) per month thereafter
so that only after four years the shares subject to the option shall be fully
vested and which VEO Options have exercise prices equal to the fair market value
of the VEO Common Stock at the date of grant, (ii) issuances of VEO Capital
Stock upon the exercise thereof or upon exercise or conversion of VEO
Convertible Securities or VEO Preferred Stock outstanding on the date of this
Agreement or (iii) the C1 Loan;
(j) amend or otherwise modify (or agree to do so), or violate the
terms of any of the Contracts set forth or described in the VEO Disclosure
Schedule;
(k) commence or settle any litigation;
(l) acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities or, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to VEO's business;
(m) pay, discharge or satisfy, in an amount in excess of $10,000 (in
any one case) or $50,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or
-37-
<PAGE>
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of liabilities in the ordinary course of business and in a manner
consistent with past practice;
(n) make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(o) take any action to accelerate the vesting schedule of any of the
outstanding VEO Options or VEO Capital Stock;
(p) hire or terminate any employees other than for cause or
encourage any employees to resign from VEO; or
(q) take or agree in writing or otherwise to take any of the actions
described in the preceding clauses (a) through (p) of this Section 4.1 or any
other action that would prevent VEO from performing or cause VEO not to perform
its covenants hereunder.
4.2 Conduct of Business by C1. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms of
this Agreement and except as provided in Section 4.2 of the C1 Disclosure
Schedule, without the prior written consent of VEO (which consent shall not be
unreasonably withheld), C1 shall not, and shall not permit any of its
subsidiaries to, do any of the following:
(a) amend the charter documents, bylaws or other organizational
documents of C1, except in connection with the Merger Agreement;
(b) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(c) purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock of C1, except repurchases of unvested shares at cost
in connection with termination of the employment relationship with any employee
pursuant to stock option or purchase agreements in effect on the date hereof or
thereafter entered into in connection with a previous commencement of employment
or consultancy with C1;
(d) incur or guarantee any indebtedness, or any liabilities outside
the ordinary course of business; or
(e) propose, negotiate or authorize the issuance, delivery, sale or
purchase of any shares of C1 Capital Stock or securities convertible into, or
exercisable or exchangeable for, shares
-38-
<PAGE>
of C1 Capital Stock, or any securities, warrants, options or rights to purchase
any of the foregoing, except for (i) shares issuable upon exercise of the MCI
Warrant, (ii) the issuance of shares upon exercise of the PW Option, (ii) Series
C Preferred Stock issuable upon the exercise of warrants exercisable as $5.20
per share of Series C Preferred, (iv) the exercise of stock options to purchase
C1 Common Stock granted to employees, consultants and directors; or
(f) sell, lease or otherwise dispose of any of its material
properties or assets, except in the ordinary course of business consistent with
past practices.
4.3 VEO Non-Solicitation. Until the earlier of (i) the Effective Time, or
(ii) the date of termination of this Agreement pursuant to the provisions of
Section 8.1 hereof, neither VEO nor the Principal Shareholders shall (nor shall
VEO permit any of VEO's officers, directors, agents, representatives or
affiliates to) directly or indirectly, take any of the following actions with
any party other than C1 and its designees: (a) solicit, encourage, initiate or
participate in any inquiry, negotiations or discussions or enter into any
agreement with respect to any offer or proposal to acquire all or substantially
all of VEO's business and properties or a majority of the VEO Capital Stock
(whether or not outstanding) whether by merger, purchase of assets, tender offer
or otherwise, or effect any such transaction, (b) disclose any information not
customarily disclosed to such person concerning VEO's business, technologies, or
properties, or afford to any person or entity access to its properties,
technologies, books or records, not customarily afforded such access, (c) assist
or cooperate with any person to make any proposal to purchase all or any part of
the VEO Capital Stock (other than the NTT Loan or conversions or exercises of
VEO Preferred Stock or VEO Convertible Securities) or VEO's assets, other than
inventory in the ordinary course of business, or (d) solicit, negotiate or enter
into any agreement with any person providing for the acquisition of VEO (whether
by way of merger, purchase of assets, tender offer or otherwise). In the event
VEO or the Principal Shareholders shall receive, prior to the Effective Time or
the termination of this Agreement, any offer or proposal, directly or
indirectly, of the type referred to in clause (a) or (c) above, or any request
for disclosure or access pursuant to clause (b) above, VEO or the Principal
Shareholders, as applicable, shall immediately inform C1 as to any such offer or
proposal, including information as to the identity of the offeror or the party
making such offer or proposal and the specific terms of such offer or proposal,
as the case may be. The parties hereto agree that irreparable damage would occur
in the event that the provisions of this Section 4.3 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by VEO and the Principal Shareholders that C1 shall be
entitled to seek an injunction or injunctions to prevent breaches of the
provisions of this Section 4.3 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which C1 may be
entitled at law or in equity.
4.4 C1 Non-Solicitation. Until the earlier of (i) the Effective Time or
(ii) the date of termination of this Agreement pursuant to Section 8.1, C1 shall
not (nor will it permit any of its officers, directors, shareholders, agents,
representatives or affiliates to), directly or indirectly, take any of the
following actions with any party other than VEO and its designees: (a) solicit,
encourage, initiate or participate in any inquiry, negotiations or discussions
with respect to any offer or proposal
-39-
<PAGE>
to acquire all or substantially all of C1's business and properties or a
majority of the C1 Capital Stock (whether or not outstanding) whether by merger,
purchase of assets, tender offer or otherwise, or effect any such transaction,
(b) disclose any information not customarily disclosed to such person concerning
C1's business and properties, or afford to any person or entity access to its
properties, technologies, books or records, not customarily afforded such
access, (c) assist or cooperate with any person to make any proposal to purchase
all or a substantial portion of the C1 Capital Stock or C1's assets, other than
inventory in the ordinary course of business, (d) solicit, negotiate or enter
into any agreement with any person providing for the acquisition of C1 (whether
by way of merger, purchase of assets, tender offer or otherwise), or (e)
solicit, negotiate or enter into an agreement providing for the acquisition by
C1 (whether by way of merger, purchase of assets, tender offer or otherwise) of
a competitor of VEO. In the event C1 shall receive any offer or proposal,
directly or indirectly, of the type referred to in clause (a), (c), (d) or (e)
above or any request for disclosure or access pursuant to clause (b) above, it
shall immediately inform VEO as to any such offer or proposal and will cooperate
with VEO by furnishing any information it may reasonably request. The parties
hereto agree that irreparable damage would occur in the event that the
provisions of this Section 4.4 were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed by C1 that
VEO shall be entitled to seek an injunction or injunctions to prevent breaches
of the provisions of this Section 4.4 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which VEO may be
entitled at law or in equity.
ARTICLE 5.
ADDITIONAL AGREEMENTS
5.1 Fairness Hearing; Shareholder Approval.
(a) As soon as reasonably practicable following the execution of
this Agreement, C1 and VEO shall prepare the necessary documents and C1 shall
apply to obtain a permit (a "California Permit") from the Commissioner of
Corporations of the State of California (after a hearing before such Department)
pursuant to Section 25121 of the California Corporate Securities Law of 1968, so
that the issuance of C1 Common Stock in the Merger shall be exempt from
registration under Section 3(a)(10) of the Securities Act of 1933, as amended
(the "Securities Act"). VEO and C1 will respond to any comments from the
California Department of Corporations and use their commercially reasonable
efforts to have the California Permit granted as soon as practical after such
filing. As promptly as practical after the date of this Agreement, C1 and VEO
shall prepare and make such filings as are required under applicable Blue Sky
laws relating to the transactions contemplated by this Agreement.
(b) As promptly as practicable after the receipt of a California
Permit, VEO shall submit this Agreement and the transactions contemplated
hereby, including without limitation the Merger, to VEO's shareholders for
approval and adoption as provided by California Law and VEO's
-40-
<PAGE>
Articles of Incorporation and Bylaws. The materials submitted to VEO's
shareholders shall be subject to review and approval by C1 and include
information regarding VEO, the terms of the Merger and this Agreement and the
unanimous recommendation of the Board of Directors of VEO in favor of the
Merger, this Agreement and the transactions contemplated hereby.
(c) As promptly as practicable after the receipt of a California
Permit, C1 shall submit this Agreement and the transactions contemplated hereby,
including without limitation the Merger, this Agreement and the Articles
Amendment, to C1's shareholders for approval and adoption as provided by
California Law and C1's Articles of Incorporation and Bylaws.
5.2 Restrictions on Transfer.
(a) All certificates representing C1 Shares deliverable to any VEO
Shareholder pursuant to the Merger Agreement and in connection with the Merger
and any certificates subsequently issued with respect thereto or in substitution
therefor (including any shares issued or issuable in respect of any such shares
upon any stock split stock dividend, recapitalization, or similar event) shall
be stamped or otherwise imprinted with legends in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. THE
TRANSFER RESTRICTIONS APPLICABLE TO THESE SHARES ARE BINDING ON
TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED DIRECTLY OR INDIRECTLY FOR
SUCH PERIOD OF TIME NOT TO EXCEED ONE HUNDRED EIGHTY (180) DAYS
FOLLOWING THE EFFECTIVE DATE OF ANY REGISTRATION STATEMENT OF THE
ISSUER FILED UNDER THE SECURITIES ACT IN CONNECTION WITH THE INITIAL
PUBLIC OFFERING OF THE ISSUER'S COMMON STOCK.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO A
SHAREHOLDER'S AGREEMENT PURSUANT TO WHICH SUCH SHARES MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH A WRITTEN OPINION OF COUNSEL,
REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT SUCH
TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933.
-41-
<PAGE>
COPIES OF SUCH AGREEMENT ARE AVAILABLE FROM THE ISSUER.
(b) The certificates evidencing the Consideration Shares shall also
bear any legend required by the Commissioner of Corporations of the State of
California or such as are required pursuant to any state, local or foreign law
governing such securities.
(c) The Consideration Shares will not be registered under the
Securities Act.
(d) No VEO Shareholder shall be permitted to sell or otherwise
dispose of any Consideration Shares received in the Merger, unless C1 receives
an unqualified written opinion of counsel reasonably acceptable to it stating
that the proposed transfer of the C1 shares may be effected without registration
under the Securities Act, provided however that such opinion may not rely on
either (A) the exception provided by Section 3(a)(10) of the Securities Act or
(B) upon Rule 145 promulgated under the Securities Act until the later of (1)
the date one hundred eighty-one (181) days after the effective date of C1's's
initial public offering, and (2) such time as C1 is already subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended.
(e) Each VEO Shareholder agrees that, if requested by C1 or an
underwriter of Common Stock (or other securities) of C1 in connection with C1's
initial registered public stock offering, enter into an agreement not to sell or
otherwise transfer or dispose of any Preferred Stock or Common Stock (or other
securities) of C1 held by such holder during a period of time determined by C1
and its underwriters (not to exceed 180 days) following the effective date of
the registration statement of C1 filed under the Act relating to such public
offering. If requested by VEO or an underwriter of C1 Common Stock (or other
securities) of C1 in connection with a C1 initial registered public offering,
such agreement shall be in writing in a form reasonably satisfactory to C1 and
such underwriter. C1 may impose stop-transfer instructions with respect to the
C1 Common Stock (or securities) subject to the foregoing restriction until the
end of said period.
(f) The restrictions imposed by this Section 5.2 shall terminate,
without any action by C1 or the VEO Shareholders, upon the date one hundred
eighty-one (181) days after the effective date of the initial public offering of
C1 Common Stock.
5.3 Access to Information. VEO and C1 shall afford the other party and its
accountants, counsel and other representatives reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of C1
and VEO's properties, books, contracts, commitments and records, as applicable,
(b) all other information concerning the business, properties and personnel
(subject to restrictions imposed by applicable law) of VEO or C1 as applicable,
as each party may reasonably request and (c) all key employees of VEO and C1, as
determined by each party. Each of C1 and VEO agree to provide to the other party
and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request. No information or knowledge obtained
in any investigation pursuant to this Section 5.3 shall affect or be deemed to
-42-
<PAGE>
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.3 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidential Disclosure Agreement dated September 9, 1998 between VEO and C1.
5.5 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party hereto in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby or thereby, shall be the
obligation of the respective party incurring such fees and expenses; provided,
however, that in the event the Merger is consummated, C1 shall pay up to
$125,000 of Third Party Expenses incurred by VEO.
5.6 Public Disclosure. Unless otherwise required by law, no disclosure
(whether or not in response to an inquiry) of the subject matter of this
Agreement shall be made by any party hereto unless approved by the other party
prior to release; provided, however, that such approval shall not be
unreasonably withheld.
5.7 Consents. VEO and the Principal Shareholders shall use their
respective best efforts to obtain the consents, waivers and approvals under any
of the Contracts deemed appropriate or necessary by C1 in connection with the
Merger, including all such consents, waivers and approvals set forth in VEO
Disclosure Schedule, so as to preserve all rights of, and benefits to, C1
thereunder.
5.8 FIRPTA Compliance. On the Closing Date, VEO shall deliver to C1 a
properly executed statement in a form reasonably acceptable to C1 for purposes
of satisfying C1's obligations under Treasury Regulation Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings (including any filings or
registrations necessary to perfect C1's ownership of any VEO Registered
Intellectual Property after the Merger) and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement.
5.10 Notification of Certain Matters. VEO and the Principal Shareholders
shall give prompt notice to C1 of (i) the occurrence or non-occurrence of any
event, the occurrence or non-
-43-
<PAGE>
occurrence of which is likely to cause any representation or warranty of VEO and
C1, respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of VEO
or C1, as the case may be, to comply with or satisfy in all material respects
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.10 shall not limit or otherwise affect any remedies available to the
party receiving such notice. No disclosure by VEO pursuant to this Section 5.10
shall be deemed to amend or supplement the VEO Disclosure Schedule or prevent or
cure any misrepresentation, breach of warranty or breach of covenant.
C1 shall give prompt notice to VEO of (i) the occurrence or non-occurrence
of any event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of C1 and VEO, respectively, contained in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Time and (ii) any failure of C1 or VEO, as the case may be, to comply
with or satisfy in all material respects any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.10 shall not limit or
otherwise affect any remedies available to the party receiving such notice. No
disclosure by C1 pursuant to this Section 5.10 shall be deemed to amend or
supplement the C1 Disclosure Schedule or prevent or cure any misrepresentation,
breach of warranty or breach of covenant.
5.11 Tax Free Reorganization. The parties intend to adopt this Agreement
and the Merger as a tax-free plan of reorganization under Section 368(a) of the
Code. The parties shall not take a position on any tax return inconsistent with
this Section 5.12. Neither C1 nor VEO shall take any action that could
reasonably be expected to cause the Merger not to be treated as a reorganization
within the meaning of Section 368(a) of the Code.
5.12 Shareholder Agreement. VEO shall use its best efforts to deliver or
cause to be delivered to C1, as soon as practicable following delivery of the
Proxy Statement (and in each case prior to the Effective Time), from each of the
securityholders of VEO an executed Shareholder Agreement (the "Shareholder
Agreement") in the form attached hereto as Exhibit E.
5.13 Blue Sky Laws. C1 shall take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of the C1 Common Stock in connection with the Merger. VEO shall
use its reasonable efforts to assist C1 as may be necessary to comply with the
securities and blue sky laws of all jurisdiction which are applicable in
connection with the issuance of C1 Common Stock in connection with the Merger.
5.14 Bonus Payments. C1 shall cause bonus payments in the amounts set
forth in Schedule 5.14(a) to be made as of the Effective Time to those employees
of VEO and in those amounts listed in Schedule 5.14(a). In addition, C1 shall
cause cash payments ("Retention Cash") in the amounts set forth in Schedule
5.14(b) to be made to those employees of VEO listed in Schedule 5.14(b), subject
to such employee's continuous employment with C1 after the Closing Date and
through the earlier to occur (i) twelve (12) months after the Closing Date or
(ii) any termination
-44-
<PAGE>
not for "Cause" (as defined below), with such payment to be made on such date;
provided however that no Retention Cash shall be payable to those employees who
terminate their employment with VEO or C1 voluntarily or who are terminated for
Cause prior to the twelve-month anniversary of the Closing Date; provided
further that any amounts listed on Schedule 5.15(b) to be paid to any employees
who voluntarily terminate their employment or are terminated for Cause shall
remain the funds of C1; provided further, that no Retention Cash shall be
payable to any employee terminated without Cause unless such employee executes a
release of all claims against C1 in form and substance satisfactory to C1.
"Cause" shall be defined as any of the following: (i) the substantial and
continuing failure of the employee to render services to VEO or C1 in accordance
with the employee's assigned duties if such failure to render services to VEO or
C1 remains uncured for a period of thirty (30) days following delivery of notice
by the Board of Directors of VEO or C1 to the employee specifically identifying
the basis of such failure; (ii) the conviction of the employee of a felony under
the laws of the United States or any State thereof, either in connection with
the performance of the employee's obligations to VEO or C1 or which materially
and adversely affects the employee's ability to perform such obligations; (iii)
a willful act by the employee which constitutes gross negligence in the
performance of his duties hereunder and is injurious to VEO or C1 and which
remains uncured for a period of thirty (30) days following delivery of notice by
the Board of Directors of C1 or VEO to the employee; or (iv) the commission of
an act of fraud or embezzlement which results in a material loss, damage or
injury to VEO or C1.
5.15 Conversion of VEO Preferred Stock and VEO Convertible Indebtedness.
VEO shall use its best efforts to cause all of the outstanding shares of VEO
Series A Preferred Stock and outstanding VEO Convertible Indebtedness to be
converted into shares of VEO Common Stock as of immediately prior to the
Effective Time.
5.16 Notice to Holders of VEO Options. VEO shall give notice of the
transactions contemplated hereby to holders of VEO Options, VEO Warrants and VEO
Convertible Indebtedness in accordance with the terms of such VEO Options, VEO
Warrants and VEO Convertible Indebtedness or otherwise obtain the written waiver
of such notice obligations.
5.17 C1 Employee Benefits. As of the Effective Time, C1 shall have
authorized the participation of all employees of VEO as of the Effective Time in
the various benefit plans and programs maintained directly or indirectly for
C1's employees or in substantially similar programs, including any of the
following benefit plans maintained as of the Effective Time, in each case to the
extent a similarly situated C1 employee is entitled to participate therein:
medical/dental/vision care, life insurance, disability income, sick pay, holiday
pay and vacation pay, 401(k) plan coverage, Section 125 benefit arrangements,
bonus, profit sharing or other incentive plans, dependent care assistance and
severance benefits, to the extent the VEO employees meet the eligibility
requirements for each such plan or program and for so long as such plans and
programs are provided to the C1 employees, provided however, that VEO employees
shall be subject to any applicable waiting periods before enrollment imposed by
C1 benefit plans as of the date hereof. In addition, no VEO employee who
participates in any medical/health plan of VEO at the Effective Time shall be
denied coverage under the C1 medical/health plan by reason of any pre-existing
condition exclusions.
-45-
<PAGE>
5.18 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, C1 shall fulfill and honor
the obligations of VEO pursuant to any indemnification agreements between VEO
and its directors and officers existing prior to the date hereof.
(b) This Section 5.18 shall survive the consummation of the Merger,
is intended to benefit VEO, the Surviving Company and each indemnified party,
shall be binding, jointly and severally, on all successors and assigns of C1,
and shall be enforceable by the indemnified parties.
(c) Notwithstanding anything to the contrary in this Section 5.18,
C1 shall not be liable for any amounts payable resulting from any claim or
action brought against VEO's directors or officers by any officer or director of
VEO or any of their affiliates to the extent any of the same result from willful
misconduct.
(d) C1 shall have full recourse to the Escrow Fund (during the
Escrow Period (as defined in Section 7.4(b))) to recover any amounts payable by
it pursuant to this Section 5.18.
5.19 Voting Agreements. C1 shall use its best efforts to obtain executed
voting agreements in substantially the form attached hereto as Exhibit H from
each of its directors (or in the case of a director serving as representative of
an entity shareholder, such entity shareholder) and affiliates. VEO shall use
its best efforts to obtain executed voting agreements in substantially the form
attached hereto as Exhibit I from each of its directors (or in the case of a
director serving as representative of an entity shareholder, such entity
shareholder) and affiliates.
5.20 Non-Disclosure Agreements. VEO shall use its best efforts to obtain
executed Non-Disclosure Agreements from each of its contractors and employees.
ARTICLE 6.
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Shareholder Approval. This Agreement and the transactions
contemplated hereby, including without limitation the Merger, shall have been
duly approved, by requisite vote under applicable law by holders of VEO Capital
Stock. This Agreement and the transactions contemplated hereby, including
without limitation the Merger and the Articles Amendment and the Bylaws
Amendment shall have been approved by requisite vote under applicable law and
the Articles of Incorporation of C1 by shareholders of C1.
-46-
<PAGE>
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
(c) Articles of Incorporation. C1 shall have filed the Articles
Amendment with the Secretary of State of the State of California and such
amendment shall have been accepted.
(d) Permits. All approvals from government authorities, including
any requisite Blue Sky approvals, which are appropriate or necessary for the
consummation of the Merger, shall have been obtained.
(e) California Permit. The Commissioner of Corporations for the
State of California shall have approved the terms and conditions of the
transactions contemplated by this Agreement, and the fairness of such terms and
conditions pursuant to Section 25142 of the California Statute following a
hearing for such purpose, and shall have issued a Permit under Section 25121 of
the California Statute.
(f) Tax Opinions. C1 and VEO shall each have received written
opinions form their respective counsel, Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Latham & Watkins, dated as of the Closing Date and
based upon customary representations of C1, Sub and VEO, substantially to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
6.2 Conditions to Obligations of C1 and Sub. The obligation of C1 and Sub
to consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, exclusively
by C1 and Sub:
(a) Representations, Warranties and Covenants. The representations
and warranties of VEO and the Principal Shareholders in this Agreement shall
have been true and correct in all material respects on the date of this
Agreement and shall be true and correct in all material respects on and as of
the Effective Time (unless such representation or warranty is made as of a
particular date) as though such representations and warranties were made on and
as of such time (in each case except for such representations and warranties
qualified by reference to materiality, which representations and warranties
shall be true and correct in all respects), except in such cases where the
failure to be so true and correct would not have a Material Adverse Effect on
VEO, and VEO and the Principal Shareholders shall have performed and complied in
all material respects with all covenants and obligations of this Agreement
required to be performed and complied with by it as of the Effective Time.
-47-
<PAGE>
(b) No Material Adverse Changes. There shall not have occurred any
Material Adverse Effect on VEO.
(c) Legal Opinion. C1 shall have received a legal opinion from
Latham & Watkins, legal counsel to VEO, in form and substance mutually agreed
upon with counsel to C1.
(d) Amendment of Licensing Agreement. VEO and each of Nippon
Telegraph & Telephone Corporation ("NTT"), NEC Corporation, Oki Electric
Industry Co., Ltd., Mitsubishi Corporation, the Japan Research Group Institute,
Limited, and Nihon Unisys Limited (collectively, the "Seitai Parties") shall
have entered into an amendment to the System Development Agreement by and
between VEO, NTT, NEC Corporation, Oki Electric Industry Co., Ltd., Mitsubishi
Corporation, the Japan Research Group Institute, Limited, and Nihon Unisys
Limited, such amendment being in the form attached hereto as Exhibit E, with any
changes from such form mutually agreed to by C1, VEO and the Seitai Parties.
(e) Non-Competition Agreements. Each of the Principal Shareholders
shall have entered into Non-Competition Agreements in the form attached hereto
as Exhibit A-1 and such agreements shall be in full force and effect. Each of
the individuals listed on Exhibit A-2 hereto shall have entered into
non-competition agreements with C1 in form and substance mutually agreed to by
the respective parties thereto, and such agreements shall be in full force and
effect.
(f) 401(k) Plan. The Board of Directors of VEO shall have adopted
resolutions terminating VEO's 401(k) Plan in form and substance satisfactory to
C1.
(g) Conversion of VEO Preferred Stock. All holders of VEO Series A
Preferred Stock shall have converted their shares into VEO Common Stock in
accordance with Section 2 of VEO's Amended and Restated Articles of
Incorporation.
(h) Third Party Consents. Any and all consents, waivers, and
approvals listed in the VEO Disclosure Schedule shall have been obtained.
(i) VEO Board Approval of Schedule 5.14. The Board of Directors of
VEO shall have approved the bonus payments and Retention Cash payable pursuant
to Section 5.14 hereof.
(j) Certificate of VEO. C1 shall have been provided with a
certificate executed on behalf of VEO by the Chief Executive Officer or an
Executive Vice President of VEO to the effect that, as of the Effective Time:
(i) the conditions set forth in Section 6.2(a) have been
satisfied;
(ii) the condition set forth in Section 6.2 (b) has been
satisfied.
(k) Certificate of the Principal Shareholders. C1 shall have been
provided with a certificate executed by each of the Principal Shareholders to
the effect that, as of the Effective Time:
-48-
<PAGE>
(i) all representations and warranties made by the Principal
Shareholders in this Agreement were true and correct in all material respects on
the date of this Agreement and are true and correct in all material respects as
of the Effective Time as though made on and as of such time, except in such
cases where the failure to be so true and correct would not have a Material
Adverse Effect on VEO; and
(ii) all covenants and obligations of this Agreement to be
performed by the Principal Shareholders on or before such date have been so
performed in all material respects.
(l) Shareholder Approval. The holders of at least 90% of the
outstanding shares of VEO Capital Stock, including at least 90% of the
outstanding VEO Preferred Stock and 90% of the outstanding VEO Common Stock,
shall have approved, by requisite vote under applicable law, this Agreement and
the transactions contemplated hereby, including without limitation the Merger.
6.3 Conditions to the Obligations of VEO and the Principal Shareholders.
The obligations of VEO and the Principal Shareholders to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by VEO:
(a) Representations, Warranties and Covenants. The representations
and warranties of C1 and Sub in this Agreement shall have been true and correct
in all material respects on the date of this Agreement and shall be true and
correct in all material respects on and as of the Effective Time (unless such
representation or warranty is made as of a particular date) as though such
representations and warranties were made on and as of the Effective Time (in
each case except for such representations and warranties qualified by reference
to materiality, which representations and warranties shall be true in all
respects) except in such cases where the failure to be so true and correct would
not have a Material Adverse Effect on C1, and each of C1 and Sub shall have
performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by it
as of the Effective Time.
(b) Legal Opinion. VEO shall have received a legal opinion from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to C1, in
form and substance mutually agreed upon with counsel to VEO.
(c) No Material Adverse Changes. There shall not have occurred any
Material Adverse Effect on C1 or Sub.
(d) Employment and Severance Agreements. Each of the Principal
Shareholders shall have entered into an Employment Agreement in the form
attached hereto as Exhibit B and such agreements shall be in full force and
effect. Each of the individuals listed on Exhibit F hereto shall have entered
into employment and severance agreements with C1 in form and substance mutually
agreed to by the respective parties thereto, and such agreements shall be in
full force and effect.
-49-
<PAGE>
(e) Strategic Partnership Agreement. C1 shall have entered into a
Strategic Partnership Agreement with NTT in form and substance mutually
agreeable to each of the parties thereto.
(f) Board Observer Rights Letter. NTT shall have been given observer
rights in meetings of the C1 Board of Directors in accordance with the terms and
conditions set forth in a Board Observer Rights Letter to be executed by the
parties.
(g) Amendments to Voting, Registration Rights and Co-Sale
Agreements. C1 and the other parties named therein shall have entered into the
Third Amended and Restated Voting Agreement in the form attached hereto as
Exhibit G. C1 shall have amended the Second Amended and Restated Registration
Rights Agreement and the Third Amended and Restated Founders' Right of First
Refusal and Co-Sale Agreement to make NTT a "Holder" and a "Shareholder"
thereunder respectively in accordance with the terms of the Series D Term Sheet.
(h) Certificate of C1. VEO shall have been provided with a
certificate executed on behalf of C1 and Sub by its Chief Executive Officer to
the effect that, as of the Effective Time:
(i) the conditions set forth in Section 6.3(a) have been
satisfied;
(ii) the conditions set forth in Section 6.3(c) has been
satisfied.
ARTICLE 7.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. The representations,
warranties, covenants and other agreements in this Agreement of VEO and the
Principal Shareholders, on the one hand, and C1, on the other hand, or in any
certificate or other instrument delivered pursuant to this Agreement, shall
terminate on the earlier of (i) the fifteen (15) month anniversary of the
Closing Date, or (ii) such time as C1 completes its initial underwritten public
offering of C1 Common Stock pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
7.2 VEO Indemnification. VEO and the Principal Shareholders, severally but
not jointly, agree to indemnify and hold C1 and its officers, directors and
affiliates (the "Indemnified Parties") harmless against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation and defense (hereinafter
individually a "Loss" and collectively "Losses") incurred by C1, its officers,
directors, or affiliates directly or indirectly as a result of (i) any
inaccuracy or breach of a representation or warranty of VEO or the Principal
Shareholders contained in this Agreement (assuming for purposes hereof that
references to materiality and material adverse effect contained in such
representations and warranties are disregarded) or (ii) any failure by VEO or
the Principal Shareholders to perform or comply with any covenant contained in
this Agreement. The VEO Shareholders shall not have any right of
-50-
<PAGE>
contribution from VEO or C1 with respect to any Loss claimed by an Indemnified
Party after the Closing.
7.3 C1 Indemnification. C1 agrees to indemnify and hold VEO and its
officers, directors and affiliates (including the Principal Shareholders) (the
"VEO Indemnified Parties") harmless against all Losses incurred by VEO, its
officers, directors, or affiliates (including the Principal Shareholders)
directly or indirectly as a result of (i) any inaccuracy or breach of a
representation or warranty of C1 contained in this Agreement (assuming for
purposes hereof that references to materiality and material adverse effect
contained in such representation or warranty are disregarded), or (ii) any
failure by C1 to perform or comply with any covenant contained in this
Agreement. Notwithstanding the foregoing, in no event shall the indemnification
obligations of C1 exceed fifteen percent (15%) of the Consideration Shares
payable to the VEO Shareholders (each as measured pursuant to 7.6). Upon receipt
by C1 at any time on or before the last day of the Escrow Period (as defined
below) of a certificate signed by the Securityholder Agent (as defined in
Section 7.4(g)) (A) stating that a VEO Indemnified Party has paid or properly
accrued or reasonably anticipates that it will have to pay or accrue Losses, and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or properly accrued, or
the basis for such anticipated liability, and the nature of the
misrepresentations, breach of warranty or covenant to which such items is
related, C1 shall deliver to such indemnified party shares of C1 Common Stock in
an amount equal to such losses (as measured pursuant to Section 7.6); provided
that, C1 shall have thirty (30) days to object in a written statement to the
claim made in the certificate, in which event the parties shall resolve the
conflict pursuant to Section 7.4(f) hereof.
7.4 Escrow Arrangements.
(a) Escrow Fund. As security for the indemnity provided for in
Section 7.2 hereof and by virtue of this Agreement and the Merger Agreement, VEO
and the VEO Shareholders will be deemed to have received and deposited with the
Escrow Agent (as defined below) the Escrow Amount (as defined below) (plus any
additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by C1 after the Effective Time with respect to the
Escrow Amount) without any act of VEO or any VEO Shareholders. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
VEO Shareholders, will be deposited with U.S. Bank Trust, N.A. (or other
institution acceptable to C1 and the Securityholder Agent (as defined in Section
7.4(g) below)) as Escrow Agent (the "Escrow Agent"), such deposit to constitute
an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein.
Notwithstanding anything else herein, the Escrow Agent may execute this
Agreement following the date hereof and prior to the Effective Time, and such
latter execution shall not affect the binding nature of this Agreement as of the
date hereof among the signatories hereto. Nothing herein shall limit the
liability of C1, VEO or the Principal Shareholders for any breach of any
representation, warranty, or covenant contained in this Agreement if the Merger
does not close. C1 may not receive any shares from the Escrow Fund unless and
until Officer's Certificates (as defined in paragraph (d)(i) below) identifying
Losses, in excess of $100,000 (the "Threshold Amount") have been delivered to
the Escrow Agent as provided in paragraph (d) below, in which case C1 shall be
entitled to recover all
-51-
<PAGE>
Losses in excess of the Threshold Amount; provided, however, with respect to (i)
Third Party Expenses in excess of the $125,000 and, (ii) any amounts required to
be paid by C1 pursuant to Section 5.18, the aforementioned $100,000 Threshold
Amount shall not be applicable for purposes of claims of Losses against the
Escrow Amount. For purposes of the Escrow Fund, the representations and
warranties of VEO and the Principal Shareholders in this Agreement shall be read
without reference to materiality.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
P.S.T., on the date which is the fifteen (15) month anniversary after the
Closing Date (the "Escrow Period"); provided that the Escrow Period shall not
terminate with respect to such remaining portion of the Escrow Fund (or some
portion thereof) that in the reasonable judgment of C1, subject to the objection
of the Securityholder Agent (as defined below) and the subsequent arbitration of
the matter in the manner provided in Section 7.4(f) hereof, is necessary to
satisfy any then pending unsatisfied claims specified in any Officer's
Certificate delivered to the Escrow Agent prior to the termination of the Escrow
Period. At the termination of the Escrow Period, the Escrow Agent shall deliver
to the VEO Shareholders the portion of the Escrow Fund not required to satisfy
such claims. As soon as all outstanding claims have been resolved, the Escrow
Agent shall deliver to the VEO Shareholders any remaining portion of the Escrow
Fund not used to satisfy such claims. Deliveries of Escrow Amounts to the
Shareholders pursuant to this Section 7.4(b) shall be made in proportion to
their respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period and until such later time as all deliveries of the
Escrow Amount out of the Escrow Fund have been made, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of C1 and shall hold and dispose of the Escrow Fund only in accordance
with the terms hereof.
(ii) Any shares of C1 Common Stock or other equity securities
issued or distributed by C1 (including shares issued upon a stock split) ("New
Shares") in respect of C1 Common Stock in the Escrow Fund which have not been
released from the Escrow Fund shall be added to the Escrow Fund and become a
part thereof. New Shares issued in respect of shares of C1 Common Stock which
have been released from the Escrow Fund shall not be added to the Escrow Fund
but shall be distributed to the record holders thereof. Cash dividends on C1
Common Stock shall not be added to the Escrow Fund but shall be distributed to
the record holders thereof.
(iii) Each Shareholder shall have voting rights and the right
to distributions of cash dividends with respect to the shares of C1 Common Stock
contributed to the Escrow Fund by such Shareholders (and on any voting
securities added to the Escrow Fund in respect of such shares of C1 Common
Stock). As the record holder of such shares, the Escrow Agent shall vote such
-52-
<PAGE>
shares in accordance with the instructions of the Shareholders having the
beneficial interest therein and shall promptly deliver copies of all proxy
solicitation materials to such Shareholders. C1 shall show the C1 Common Stock
contributed to the Escrow Fund as issued and outstanding on its balance sheet.
(d) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any
time on or before the last day of the Escrow Period of a certificate signed by
any officer of C1 (an "Officer's Certificate"): (A) stating that C1 has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentations, breach of warranty or covenant to which such items is
related, the Escrow Agent shall, subject to the provisions of Section 7.4(e),
deliver to C1 out of the Escrow Fund as promptly as practicable, shares of C1
Common Stock held in the Escrow Fund in an amount equal to such Losses.
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent (or in the case of a claim of Fraudulent
Breach (as defined in Section 7.5 hereof), the Principal Shareholder(s) who is
or are the subject of such claim) and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to C1 of any Escrow
Amounts pursuant to Section 7.4(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agent (or in the case of
a claim of Fraudulent Breach, the Principal Shareholder(s) who is or are the
subject of such claim) to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of shares of C1
Common Stock from the Escrow Fund in accordance with Section 7.4(d) hereof,
provided that no such payment or delivery may be made if the Securityholder
Agent (or in the case of a claim of Fraudulent Breach, the Principal
Shareholder(s) who is or are the subject of such claim) shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent prior to the expiration
of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent (or in the case of a
claim of Fraudulent Breach, the Principal Shareholder(s) who is or are the
subject of such claim) shall so object in writing to any claim or claims made in
any Officer's Certificate, the Securityholder Agent (or in the case of a claim
of Fraudulent Breach, the Principal Shareholder(s) who is or are the subject of
such claim) and C1 shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Securityholder
Agent (or in the case of a claim of Fraudulent Breach, the Principal
Shareholder(s) who is or are the subject of such claim) and C1 should so agree,
a memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute shares of C1 Common Stock
from the Escrow Fund in accordance with the terms thereof.
-53-
<PAGE>
(ii) If no such agreement can be reached after good faith
negotiation, either C1 or the Securityholder Agent (or in the case of a claim of
Fraudulent Breach, the Principal Shareholder(s) who is or are the subject of
such claim) may demand arbitration of the matter unless the amount of the damage
or loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator mutually agreeable to C1 and
the Securityholder Agent (or in the case of a claim of Fraudulent Breach, the
Principal Shareholder(s) who is or are the subject of such claim). In the event
that within forty-five (45) days after submission of any dispute to arbitration,
C1 and the Securityholder Agent (or in the case of a claim of Fraudulent Breach,
the Principal Shareholder(s) who is or are the subject of such claim) cannot
mutually agree on one arbitrator, C1 and the Securityholder Agent (or in the
case of a claim of Fraudulent Breach, the Principal Shareholder(s) who is or are
the subject of such claim) shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrator or
majority of the three arbitrators, as the case may be, to discover relevant
information from the opposing parties about the subject matter of the dispute.
The arbitrator or a majority of the three arbitrators, as the case may be, shall
rule upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys' fees and costs, to the extent as a court
of competent law or equity, should the arbitrator or a majority of the three
arbitrators, as the case may be, determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of the arbitrator or a majority of the
three arbitrators, as the case may be, as to the validity and amount of any
claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in Section 7.4(e)
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in accordance
therewith. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s)
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Clara County, California under the rules then in effect of the
American Arbitration Association. The arbitrator(s) shall determine how all
expenses relating to the arbitration shall be paid, including without
limitation, the respective expenses of each party, the fees of each arbitrator
and the administrative fee of the American Arbitration Association.
(g) Securityholder Agent of the VEO Shareholders; Power of Attorney.
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any VEO Shareholders, AA shall be
appointed as agent and attorney-in-fact (the "Securityholder Agent") for each
VEO Shareholder, for and on behalf of VEO Shareholders, except as set forth
herein with respect to claims of Fraudulent Breach, to give and receive notices
-54-
<PAGE>
and communications, to authorize delivery to C1 of shares of C1 Common Stock
from the Escrow Fund in satisfaction of claims by C1, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the VEO Shareholders from time to
time upon not less than thirty (30) days prior written notice to C1; provided
that the Securityholder Agent may not be removed unless holders of a majority in
interest of the Escrow Fund agree to such removal and to the identity of the
substituted agent. No bond shall be required of the Securityholder Agent, and
the Securityholder Agent shall not receive compensation for his or her services.
Notices or communications to or from the Securityholder Agent shall constitute
notice to or from each of the VEO Shareholders.
(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good faith and
in the exercise of reasonable judgment. The VEO Shareholders on whose behalf the
Escrow Amount was contributed to the Escrow Fund shall severally indemnify the
Securityholder Agent and hold the Securityholder Agent harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent.
(h) Actions of the Securityholder Agent. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
VEO Shareholders for whom a portion of the Escrow Amount otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such VEO Shareholders, and the Escrow Agent and C1 may rely upon
any such decision, act, consent or instruction of the Securityholder Agent as
being the decision, act, consent or instruction of each and every such VEO
Shareholder. The Escrow Agent and C1 are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
(i) Third-Party Claims. In the event C1 becomes aware of a
third-party claim which C1 reasonably believes may result in a demand against
the Escrow Fund, C1 shall notify the Securityholder Agent (or in the case of a
claim of Fraudulent Breach, the Principal Shareholder(s) who is or are the
subject of such claim) of such claim, and the Securityholder Agent (or in the
case of a claim of Fraudulent Breach, the Principal Shareholder(s) who is or are
the subject of such claim) shall be entitled on behalf of the VEO Shareholders
(or in the case of a claim of Fraudulent Breach, the Principal Shareholder(s)
who is or are the subject of such claim) at their expense, to participate (but
not to determine or conduct) in any defense of such claim. C1 shall have the
right in its sole discretion to conduct the defense of and settle any such
claim; provided, however, that except with the prior written consent of the
Securityholder Agent (or in the case of a claim of Fraudulent Breach, the
Principal Shareholder(s) who is or are the subject of such claim), no settlement
of any such claim with third-party claimants shall be determinative of the
amount of any claim against the Escrow Fund. In the event that the
Securityholder Agent has consented in writing to any such settlement, the
-55-
<PAGE>
Securityholder Agent shall have no power or authority to object under any
provision of this Article VII to the amount of any claim by C1 against the
Escrow Fund consistent with such settlement.
(j) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of C1
and the Securityholder Agent (or in the case of a claim of Fraudulent Breach,
the Principal Shareholder(s) who is or are the subject of such claim), and may
rely and shall be protected in relying or refraining from acting on any
instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law or any
arbitrator(s) pursuant to Section 7.4(f) hereof, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court or
any arbitrator(s) pursuant to Section 7.4(f) hereof. In case the Escrow Agent
obeys or complies with any such order, judgment or decree of any court, the
Escrow Agent shall not be liable to any of the parties hereto or to any other
person by reason of such compliance, notwithstanding any such order, judgment or
decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder provided that the Escrow Agent acted
in good faith and in the exercise of reasonable judgment.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel.
-56-
<PAGE>
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of C1 Common Stock and may wait for settlement
of any such controversy by final appropriate legal proceedings or other means
as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite
what may be set forth elsewhere in this Agreement. In such event, the Escrow
Agent will not be liable for damages.
Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of C1 Common Stock held in escrow,
except all costs, expenses, charges and reasonable attorney fees incurred by the
Escrow Agent due to the interpleader action and which C1 agrees to pay. Upon
initiating such action, the Escrow Agent shall be fully released and discharged
of and from all obligations and liability imposed by the terms of this
Agreement.
(vii) C1 agrees to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to C1 and the Securityholder Agent;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as follows:
the parties shall use their best efforts to mutually agree on a successor escrow
agent within thirty (30) days after receiving such notice. If the parties fail
to agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the State of California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. Upon
appointment of a successor escrow agent, the Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by C1 in accordance with the standard fee schedule of
the Escrow Agent. It is understood that the fees and usual charges agreed upon
for services of the Escrow Agent shall be considered compensation for ordinary
services as contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Escrow Agent renders any
service not provided for in this Agreement, or if the parties request a
substantial modification of its terms, or if any controversy arises, or if the
Escrow Agent is made a party to, or intervenes in, any litigation
-57-
<PAGE>
pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy or litigation. C1
promises to pay these sums upon demand.
7.5 Maximum Payments; Remedy. If the Merger closes, the Escrow Fund shall
be the sole and exclusive remedy of C1 for breaches or inaccuracies of the
representations and warranties or breaches of covenants of VEO or the Principal
Shareholders contained in this Agreement, except to the extent set forth in this
Section 7.5 with respect to any willing, intentional or knowing breach or
inaccuracy of such representations and warranties and any willing, intentional
or knowing breach of such covenants by a Principal Shareholder (a "Fraudulent
Breach"). Each Principal Shareholder hereby agrees severally but not jointly to
indemnify each Indemnified Party for Losses suffered by such Indemnified Party
resulting from a Fraudulent Breach by such Principal Shareholder; provided that
(i) no Principal Shareholder shall be required to indemnify an Indemnified Party
with respect to Losses resulting from a Fraudulent Breach by any other Principal
Shareholder unless such Principal Shareholder also committed such Fraudulent
Breach and (ii) the maximum amount that a Principal Shareholder shall be
required to indemnify for Losses resulting from a Fraudulent Breach by such
Principal Shareholder shall not exceed an amount equal to that portion of the
Consideration received by such Principal Shareholder pursuant to Section 1.6 of
this Agreement and any amounts paid to such Principal Shareholder pursuant to
Section 5.15 of this Agreement.
7.6 Valuation of Shares for Indemnity. For purposes of the indemnity
obligation of VEO and C1 as set forth in Sections 7.2, 7.3 and 7.4 hereof, C1
Common Stock delivered in satisfaction of the indemnity obligations of such
party thereunder shall be valued as of the date of such claim for indemnity (the
"Claim Date") as follows:
(a) Each of the Chief Financial Officer of C1 (the "C1 CFO") and the
Securityholder Agent shall mutually agree on a per-share fair market value of
the C1 Common Stock as of the Claim Date. If, within twenty (20) days following
the Claim Date, the Securityholder Agent and the C1 CFO are unable to agree on
the fair market value of the shares of C1 Common Stock, the dispute will be
referred to an outside appraiser who shall be a "Big 5" accounting firm,
mutually agreeable to each of C1 and the Securityholder Agent (the "Appraiser").
Within forty-five (45) days after such referral, the Appraiser shall issue a
statement with the fair market value of the C1 Common Stock on the Claim Date.
Such determination by the Appraiser as to the fair market value of the C1 Common
Stock shall be conclusive and binding on the parties. In the event that the C1
CFO and the Securityholder Representative are unable to agree on the Appraiser,
then each party shall choose his or her own appraiser (the "Choice"), who shall
be a "Big 5" accounting firm, and the two Choices shall mutually select the
Appraiser within ten (10) days.
(b) If the parties are unable to reach a conclusive and binding
determination under the procedures as set forth in 7.6(a) above, then either the
C1 CFO or the Securityholder Agent may demand arbitration of the matter in
accordance with the procedures set forth in Section 7.4(f) of this Agreement.
-58-
<PAGE>
ARTICLE 8.
TAX MATTERS
8.1 Tax Periods Ending on or Before the Closing Date. C1 shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns for VEO for
all periods ending on or prior to the Closing Date which are filed after the
Closing Date. C1 shall permit the Principal Shareholders to review and comment
on each such Tax Return described in the preceding sentence prior to filing and
shall make such revisions to such Tax Returns as are reasonably requested by the
Principal Shareholders.
8.2 Cooperation on Tax Matters.
(a) C1 and the Principal Shareholders shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. C1 agrees (i) to retain all books and records with respect to Tax
matters pertinent to VEO relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (including any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the Principal Shareholders reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the Principal
Shareholders so request, C1 shall allow the Principal Shareholders to take
possession of such books and records.
(b) C1 and the Principal Shareholders further agree, upon request,
to use their commercially reasonable efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
ARTICLE 9.
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of VEO and C1;
(b) by C1 or VEO if: (i) the Effective Time has not occurred by
February 28, 1999; provided, however, that the right to terminate this Agreement
under this Section 9.1(b), (i) shall not
-59-
<PAGE>
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a breach of this Agreement;
(ii) there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; or (iii) there shall be any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity that would make consummation
of the Merger illegal;
(c) by C1 if there shall be any action taken other than by C1 or at
C1's behest, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity, which
would: (i) prohibit C1's ownership or operation of any portion of the business
of VEO or (ii) compel C1 to dispose of or hold separate all or a portion of the
business or assets of VEO or C1 as a result of the Merger;
(d) by C1 if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of VEO
and such breach has not been cured within twenty (20) calendar days after
written notice to VEO; provided, however, that, no cure period shall be required
for a breach which by its nature cannot be cured;
(e) by VEO if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of C1
and such breach has not been cured within twenty (20) calendar days after
written notice to C1; provided, however, that, no cure period shall be required
for a breach which by its nature cannot be cured;
Where action is taken to terminate this Agreement pursuant to this Section
9.1, it shall be sufficient (and required) for such action to be authorized by
the Board of Directors (as applicable) of the party taking such action.
9.2 Effect of Termination.
(a) In the event of termination of this Agreement as provided in
Section 9.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of C1, VEO, or their respective officers,
directors or shareholders provided, however, that each party shall remain liable
for any breaches of this Agreement prior to its termination; and provided,
further, that the provisions of Sections 5.4, 5.5, 5.6, this Section 9.2 and
Article X Miscellaneous of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
9.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
-60-
<PAGE>
9.4 Extension; Waiver. At any time prior to the Effective Time, C1 and VEO
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE 10.
GENERAL PROVISIONS
10.1 Notices. Every notice, consent and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed given if
delivered personally or by commercial messenger or courier service, or mailed by
registered or certified mail (return receipt requested) or sent via facsimile
(with acknowledgment of complete transmission) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice), provided, however, that notices sent by mail will not be deemed
guaranteed received:
(a) if to C1 to:
Commerce One, Inc.
1600 Riviera Avenue
Walnut Creek, CA 94596
Attention: Mark Hoffman
Telephone No.: (925) 941-6000
Facsimile No.: (925) 941-6060
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre, Esq.
Daniel R. Mitz, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
-61-
<PAGE>
(b) if to VEO, the Principal Shareholders or the Securityholder
Agent, to:
VEO Systems Inc.
2440 W. El Camino Real
Seventh Floor
Mountain View, CA 94040
Telephone No.: (650) 938-8400
Facsimile No.: (650) 938-8055
Attention: Asim Abdullah
Jay M. Tenenbaum
with a copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Telephone No.: (650) 328-4600
Facsimile No.: (650) 463-2600
Attention: Christopher L. Kaufman, Esq.
Ora T. Fisher, Esq.
(c) if to the Escrow Agent, to:
U.S. Bank Trust, N.A.
One California Street, Fourth Floor
San Francisco, CA 94111
Telephone No: (415) 273-4532
Facsimile No.: (415) 273-4593
Attention: Ann P. Gadsby
10.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
-62-
<PAGE>
10.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto,
the VEO Disclosure Schedule and the C1 Disclosure Schedule, and the documents
and instruments and other agreements among the parties hereto referenced herein:
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) may not be assigned unless agreed to by the other parties
hereto, except that C1 may assign its rights and delegate its obligations
hereunder to its affiliates provided that C1 remains contingently liable.
10.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any federal or state court within the Northern District, State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction, venue and such process.
10.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.9 Attorneys' Fees. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
-63-
<PAGE>
IN WITNESS WHEREOF, C1, Sub, VEO, the Principal Shareholders, the
Securityholder Agent and the Escrow Agent have caused this Agreement to be
signed by their duly authorized respective officers, all as of the date first
written above.
VEO SYSTEMS, INC. COMMERCE ONE, INC.
By: By:
----------------------------- ----------------------------
Title: Title:
--------------------------- ---------------------------
BLACKHAWK ACQUISITION CORPORATION
By:
-----------------------------
Title:
---------------------------
SECURITYHOLDER AGENT ESCROW AGENT
U.S. Bank Trust, N.A.
- ---------------------------------
By:
----------------------------
Title:
---------------------------
PRINCIPAL SHAREHOLDERS
- ---------------------------------
Asim Abdullah
- ---------------------------------
Jay M. Tenenbaum
***REORGANIZATION AGREEMENT***
-64-
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMMERCE ONE, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Mark B. Hoffman and Robert M. Tarkoff each hereby certifies:
(1) They are the President and Secretary, respectively, of Commerce One,
Inc., a corporation organized and existing under the General Corporation Law of
the State of Delaware (the "General Corporation Law");
(2) The original Certificate of Incorporation of this corporation,
originally filed on ___________ ____, 1999, is hereby amended and restated in
its entirety to read as follows:
FIRST: The name of this corporation is Commerce One, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is
Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The total
number of shares of all classes of stock which the Corporation has
authority to issue is Two Hundred Sixty Million (260,000,000),
consisting of Two Hundred Fifty Million (250,000,000) shares of
Common Stock, $0.0001 par value (the "Common Stock"), and Ten
Million (10,000,000) shares of Preferred Stock, $0.0001 par value
(the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized subject to
limitations prescribed by law, to fix by resolution or resolutions
the designations, powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each such
series of Preferred Stock, including without limitation authority to
fix by resolution or resolutions, the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or
prices, and liquidation
<PAGE>
preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the
designation thereof, or any of the foregoing.
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or
decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any series, the number of which
was fixed by it, subsequent to the issue of shares of such series
then outstanding, subject to the powers, preferences and rights, and
the qualifications, limitations and restrictions thereof stated in
the resolution of the Board of Directors originally fixing the
number of shares of such series. If the number of shares of any
series is so decreased, then the shares constituting such decrease
shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SEVENTH: The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of
the Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, alter, amend or repeal the Bylaws of the
Corporation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director.
The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of the
Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer or employee at
the request of the Corporation or any predecessor to the
Corporation.
Neither any amendment nor repeal of this Article, nor the adoption
of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article, shall eliminate or
reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim
-2-
<PAGE>
that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
TENTH: At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to one vote for each
share held. No stockholder will be permitted to cumulate votes at
any election of directors.
The number of directors which constitute the whole Board of
Directors of the Corporation shall be fixed exclusively by one or
more resolution adopted from time to time by the Board of Directors.
The Board of Directors shall be divided into three classes
designated as Class I, Class II, and Class III, respectively.
Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the
first annual meeting of stockholders following the date hereof, the
term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the date hereof, the
term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the date hereof, the
term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be
elected for a full term of three years to succeed the directors of
the class whose terms expire at such annual meeting.
Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by the
vote of a majority, although less than a quorum, of the directors
then in office, or by a sole remaining director.
ELEVENTH: Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation
may be kept (subject to any provision contained in the laws of the
State of Delaware) outside of the State of Delaware at such place or
places as may be designated from time to time by the Board of
Directors or in the Bylaws of the Corporation.
The stockholders of the Corporation may not take any action by
written consent in lieu of a meeting, and must take any actions at a
duly called annual or special meeting of stockholders and the power
of stockholders to consent in writing without a meeting is
specifically denied.
TWELFTH: Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent
provided in the Bylaws of the Corporation.
-3-
<PAGE>
THIRTEENTH: Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of
the holders of the capital stock required by law or this Restated
Certificate of Incorporation, the affirmative vote of the holders of
at least two-thirds (2/3) of the combined voting power of all of the
then-outstanding shares of the Corporation entitled to vote shall be
required to alter, amend or repeal Articles NINTH, TENTH, ELEVENTH
or TWELFTH hereof, or this Article THIRTEENTH, or any provision
thereof or hereof, unless such amendment shall be approved by a
majority of the directors of the Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by the laws
of the State of Delaware, and all rights conferred herein are
granted subject to this reservation.
(3) This Amended and Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of this Corporation in accordance with
Sections 242 and 245 of the General Corporation Law.
(4) This Amended and Restated Certificate of Incorporation has been duly
approved, in accordance with Section 242 of the General Corporation Law, by vote
of the holders of a majority of the outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Incorporation on this ____ day of _________, 1999.
---------------------------------
Mark B. Hoffman
President
- -----------------------------
Robert M. Tarkoff
Secretary
-4-
<PAGE>
BYLAWS
OF
COMMERCE ONE, INC.
(a Delaware corporation)
<PAGE>
BYLAWS OF
COMMERCE ONE, INC.
(a Delaware corporation)
TABLE OF CONTENTS
Page
----
ARTICLE I CORPORATE OFFICES....................................................1
1.1 REGISTERED OFFICE..................................................1
1.2 OTHER OFFICES......................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS............................................1
2.1 PLACE OF MEETINGS..................................................1
2.2 ANNUAL MEETING.....................................................1
2.3 SPECIAL MEETING....................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS...................................3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.......................3
2.6 QUORUM.............................................................4
2.7 ADJOURNED MEETING; NOTICE..........................................4
2.8 VOTING.............................................................4
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............5
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.........................5
2.11 PROXIES............................................................5
2.12 ORGANIZATION.......................................................5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE..............................6
ARTICLE III DIRECTORS..........................................................6
3.1 POWERS.............................................................6
3.2 NUMBER OF DIRECTORS................................................6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...........................6
3.4 RESIGNATION AND VACANCIES..........................................7
3.5 REMOVAL OF DIRECTORS...............................................8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...........................8
3.7 FIRST MEETINGS.....................................................8
3.8 REGULAR MEETINGS...................................................8
3.9 SPECIAL MEETINGS; NOTICE...........................................9
3.10 QUORUM.............................................................9
3.11 WAIVER OF NOTICE...................................................9
3.12 ADJOURNMENT........................................................9
3.13 NOTICE OF ADJOURNMENT.............................................10
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................10
3.15 FEES AND COMPENSATION OF DIRECTORS................................10
3.16 APPROVAL OF LOANS TO OFFICERS.....................................10
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION............10
ARTICLE IV COMMITTEES.........................................................11
4.1 COMMITTEES OF DIRECTORS...........................................11
4.2 MEETINGS AND ACTION OF COMMITTEES.................................11
4.3 COMMITTEE MINUTES.................................................12
ARTICLE V OFFICERS............................................................12
5.1 OFFICERS..........................................................12
5.2 ELECTION OF OFFICERS..............................................12
5.3 SUBORDINATE OFFICERS..............................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS...............................13
5.5 VACANCIES IN OFFICES..............................................13
5.6 CHAIRMAN OF THE BOARD.............................................13
5.7 PRESIDENT.........................................................13
5.8 VICE PRESIDENTS...................................................14
5.9 SECRETARY.........................................................14
5.10 CHIEF FINANCIAL OFFICER...........................................14
5.11 ASSISTANT SECRETARY...............................................15
5.12 ADMINISTRATIVE OFFICERS...........................................15
5.13 AUTHORITY AND DUTIES OF OFFICERS..................................15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS..................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................15
6.2 INDEMNIFICATION OF OTHERS.........................................16
6.3 INSURANCE.........................................................17
ARTICLE VII RECORDS AND REPORTS...............................................17
7.1 MAINTENANCE AND INSPECTION OF RECORDS.............................17
7.2 INSPECTION BY DIRECTORS...........................................18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS..................................18
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS....................18
7.5 CERTIFICATION AND INSPECTION OF BYLAWS............................18
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
ARTICLE VIII GENERAL MATTERS..................................................18
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.............18
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.........................19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED................19
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES..................19
8.5 SPECIAL DESIGNATION ON CERTIFICATES...............................20
8.6 LOST CERTIFICATES.................................................20
8.7 TRANSFER AGENTS AND REGISTRARS....................................21
8.8 CONSTRUCTION; DEFINITIONS.........................................21
ARTICLE IX AMENDMENTS.........................................................21
-iii-
<PAGE>
BYLAWS
OF
COMMERCE ONE, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of the stockholders of this corporation shall be held
each year on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders only (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the board of
directors or (c) by any stockholder of the corporation who was a stockholder of
record at the time of giving of notice provided for in these Bylaws, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
<PAGE>
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the preceding sentence, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation and such other business must otherwise be a proper matter for
stockholder action. To be timely, a stockholder's notice shall be delivered to
the secretary at the principal executive offices of the corporation at a time
when such stockholder is a stockholder of record of the corporation and shall be
so delivered not less than one hundred twenty (120) calendar days prior to the
first anniversary of the date on which the corporation first mailed its proxy
materials for the preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 30 days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of one hundred
twenty (120) calendar days in advance of such annual meeting or ten (10)
calendar days following the date on which the notice of meeting was mailed. In
no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (or any successor thereto) (the "Exchange Act")
and Rule 14a-11 thereunder (or any successor thereto) (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, and (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner. Notwithstanding any provision herein to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.2.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
meeting all information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (or any successor thereto) and
-2-
<PAGE>
Rule 14a-11 thereunder (or any successor thereto) (including such proposed
nominee's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business to be taken
at the meeting, a brief description of such business, the reasons for conducting
such business and any material interest in such business of the person or
persons calling such meeting and the beneficial owners, if any, on whose behalf
such meeting is called; and (c) as to the person or persons calling such meeting
and the beneficial owners, if any, on whose behalf the meeting is called (i) the
name and address of such persons, as they appear on the corporation's books, and
of such beneficial owners, and (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such persons and such
beneficial owners. No business may be transacted at such special meeting
otherwise than specified in such notice or by or at the direction of the
corporation's board of directors. The corporation's secretary shall cause notice
to be promptly given to the stockholders entitled to vote, in accordance with
the provisions of Sections 2.4 and 2.5, that a meeting will be held at the time
reasonably requested by the person or persons who called the meeting, not less
than 60 nor more than 90 days after the receipt of the request. If the notice is
not given within 20 days after the receipt of a valid request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph 2.3 shall be construed as limiting, fixing or affecting the time when
a meeting of stockholders called by action of the board of directors may be
held.
Only such business shall be conducted at a special meeting of stockholders
called by action of the board of directors as shall have been brought before the
meeting pursuant to the corporation's notice of meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given
in accordance with Sections 2.2 and 2.3 of these bylaws not less than ten (10)
nor more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
-3-
<PAGE>
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
-4-
<PAGE>
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
The stockholders may not take any action by written consent in lieu of a
meeting, and must take any actions at a duly called annual or special meeting of
stockholders and the power of stockholders to consent in writing is specifically
denied.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.11 PROXIES
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.12 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order
-5-
<PAGE>
of business and the procedures at the meeting, including such matters as the
regulation of the manner of voting and the conduct of business. The secretary of
the corporation shall act as secretary of all meetings of the stockholders, but
in the absence of the secretary at any meeting of the stockholders, the chairman
of the meeting may appoint any person to act as secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the certificate of incorporation or these bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board of
directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of ( ) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws or Article Tenth of the
certificate of incorporation of the corporation, directors shall be elected at
each annual meeting of stockholders to hold office until the next annual
meeting. Each director, including a director elected or appointed to fill a
vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
-6-
<PAGE>
Election of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Unless otherwise provided in the certificate
of incorporation or these bylaws, each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the
-7-
<PAGE>
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which election shall be
governed by the provisions of Section 211 of the General Corporation Law of
Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at the
annual meeting. In the event of the failure of the stockholders to fix the time
or place of such first meeting of the newly elected board of directors, or in
the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors. If
any regular meeting day shall fall on a legal holiday, then the meeting shall be
held at the same time and place on the next succeeding full business day.
-8-
<PAGE>
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
-9-
<PAGE>
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.9 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
-10-
<PAGE>
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13 (notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of
-11-
<PAGE>
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents (however denominated), one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these bylaws. Any number of offices may be
held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the corporation
in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
-12-
<PAGE>
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any contract
of employment, any Corporate Officer may be removed, either with or without
cause, by the board of directors at any regular or special meeting of the board
or, except in case of a Corporate Officer chosen by the board of directors, by
any Corporate Officer upon whom such power of removal may be conferred by the
board of directors.
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may
be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If there is
no president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation. He or
she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
-13-
<PAGE>
5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no chairman
of the board, the vice presidents, if any, in order of their rank as fixed by
the board of directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director for a purpose reasonably related to his
position as a director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall
-14-
<PAGE>
render to the president and directors, whenever they request it, an account of
all of his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers of
the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware as the same now exists or may
hereafter be amended, indemnify any
-15-
<PAGE>
person against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit, or proceeding in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was a director or officer of the corporation. For
purposes of this Section 6.1, a "director" or "officer" of the corporation shall
mean any person (i) who is or was a director or officer of the corporation, (ii)
who is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
or (iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
If a claim for indemnification or payment of expenses under this Article
is not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to
-16-
<PAGE>
indemnify any person (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding, in which such person was or is a party or
is threatened to be made a party by reason of the fact that such person is or
was an employee or agent of the corporation. The corporation's obligation, if
any, to indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or non-profit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation, partnership,
joint venture, trust, enterprise or non-profit enterprise. For purposes of this
Section 6.2, an "employee" or "agent" of the corporation (other than a director
or officer) shall mean any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent
-17-
<PAGE>
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the
-18-
<PAGE>
date so fixed are entitled to receive the dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
-19-
<PAGE>
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms
-20-
<PAGE>
and conditions as the board may require; the board may require indemnification
of the corporation secured by a bond or other adequate security sufficient to
protect the corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of the certificate or the issuance of the replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company -- either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
ARTICLE IX
AMENDMENTS
Any of these Bylaws may be altered, amended or repealed by the affirmative
vote of a majority of the members of the board of directors or, with respect to
Bylaw amendments, excluding amendments relating to Sections 2.2, 2.3, 2.9, 3.3,
3.5 or Article VI, placed before the stockholders for approval and except as
otherwise provided herein or required by law, by the affirmative vote of the
holders of a majority of the shares of the corporation's stock entitled to vote,
voting as one class, and with respect to Bylaw amendments relating to Sections
2.2, 2.3, 2.9, 3.3, 3.5 or Article VI placed before the stockholders for
approval and except as otherwise provided herein or required by law, by the
affirmative vote of the holders of at least two-thirds of the shares of the
corporation's stock entitled to vote, voting as one class.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
-21-
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER ___ _____ SHARES
COMMERCE ONE, INC.
THIS CERTIFIES THAT [NAME] IS THE REGISTERED HOLDER OF [NUMBER OF SHARES]
SHARES OF COMMON STOCK OF
Commerce One, Inc.
HEREINAFTER DESIGNATED "THE CORPORATION", TRANSFERABLE ON THE STOCK REGISTER OF
THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ASSIGNED.
This certificate and the shares of represented hereby are issued and shall
have the rights specified in and be held subject to all the provisions of the
Certificate of Incorporation and the Bylaws of said Corporation, and any
amendments thereof, to all of which the holder of this certificate, by
acceptance hereof, assents.
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes and series of the corporation's
capital stock and upon the holders thereof as established in the Certificate of
Incorporation, as amended, may be obtained, without charge, at the corporation's
principal office.
IN WITNESS WHEREOF, the undersigned officers have executed this certificate
this _____ day of _________ ____.
___________________________________ ___________________________________
Robert M. Tarkoff, Secretary Mark B Hoffman, President
and Chief Executive Officer
<PAGE>
FOR VALUE RECEIVED I DO HEREBY SELL, ASSIGN, AND TRANSFER UNTO____________
___________________________________ SHARES REPRESENTED BY THE WITHIN
CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
__________________________________ AS ATTORNEY TO TRANSFER THE SAID SHARES ON
THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION, WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED ______________, ____ _______________________________
(Shareholder)
___________________________ _______________________________
(Witness) (Shareholder)
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION, ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
<PAGE>
COMMERCE ONE, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of the ___
day of ____________ 1999 by and between Commerce One, Inc. a Delaware
corporation (the "Company") and ____________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other directors, officers,
employees, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires that
Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was
<PAGE>
serving at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity (hereinafter an "Indemnifiable Event") against
any and all expenses (including attorneys' fees and all other costs, expenses
and obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend, be
a witness in or participate in, any such action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five days after written demand by Indemnitee therefor
is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
-2-
<PAGE>
(c) Change in Control. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitees'
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any
-3-
<PAGE>
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under applicable law, shall be a defense to Indemnitee's
claim or create a presumption that Indemnitee has not met any particular
standard of conduct or did not have any particular belief. In connection with
any determination by the Reviewing Party or otherwise as to whether Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee counsel shall be at
the expense of the Company. The Company shall have the right to conduct such
defense as it sees fit in its sole discretion, including the right to settle any
claim against Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or
-4-
<PAGE>
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be relieved of liability under applicable law;
-5-
<PAGE>
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or in the right of the Company against Indemnitee,
Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent or fiduciary with
-6-
<PAGE>
respect to an employee benefit plan, its participants or its beneficiaries; and
if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed
to the best interests of the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
-7-
<PAGE>
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary of the Company or of any other enterprise at the
Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with
-8-
<PAGE>
any action or proceeding which arises out of or relates to this Agreement and
agree that any action instituted under this Agreement shall be commenced,
prosecuted and continued only in the Court of Chancery of the State of Delaware
in and for New Castle County, which shall be the exclusive and only proper forum
for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
COMMERCE ONE, INC.
By:
----------------------------------
Title:
-------------------------------
Address: 1600 Riviera Avenue
Walnut Creek, CA 94596
-----------------------------
AGREED TO AND ACCEPTED BY:
Signature:
---------------------
Printed Name:
------------------
Address:
-----------------------
-----------------------------------------------------------------
<PAGE>
Form of
COMMERCE ONE, INC.
1997 INCENTIVE STOCK OPTION PLAN
(as amended and restated May __, 1999)
1. PURPOSES OF THE PLAN. The purposes of this 1997 Incentive Stock
Option Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Commerce One, Inc., a California corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
<PAGE>
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1997 Incentive Stock Option Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
(cc) "SERVICE PROVIDER" means an Employee, Director or Consultant.
-3-
<PAGE>
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 3,893,563 Shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2000 equal
to the lesser of (i) 1,250,000 shares, (ii) 5% of the outstanding shares on
such date or (iii) a lesser amount determined by the board. The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); PROVIDED, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
-4-
<PAGE>
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
-5-
<PAGE>
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
-6-
<PAGE>
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 100,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of the
Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, 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, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
-7-
<PAGE>
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
-8-
<PAGE>
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
-9-
<PAGE>
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason
-10-
<PAGE>
(including death or Disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock Purchase Agreement shall be the original
price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Administrator.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
-11-
<PAGE>
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the
-12-
<PAGE>
determination shall be provided to each Optionee within a reasonable time
after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-13-
<PAGE>
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-14-
<PAGE>
FORM OF
COMMERCE ONE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Commerce One, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is
the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as
to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean Commerce One, Inc. and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds
90 days and the individual's right to reemployment is not guaranteed either
by statute or by contract, the employment relationship shall be deemed to
have terminated on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first day of each Offering
Period.
(i) "EXERCISE DATE" shall mean the last day of each Offering
Period.
<PAGE>
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day on the date of such determination, as
reported in THE WALL STREET JOURNAL or such other source as the Board deems
reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in THE WALL STREET JOURNAL or
such other source as the Board deems reliable,
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after April 15
and October 15 of each year and terminating on the last Trading Day in the
periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on
or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before October 15, 2000. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase period of any Offering Period shall commence
on the Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that the Purchase Price may be adjusted
by the Board pursuant to Section 20.
-2-
<PAGE>
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares
at the time such option is granted) for each calendar year in which such
option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the
first Trading Day on or after April 15 and October 15 each year, or on such
other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading
Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the
last Trading Day on or before October 15, 2000. The Board shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval
if such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
-3-
<PAGE>
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll
in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay
day during the Offering Period in an amount not exceeding fifteen percent (15%)
of the Compensation which he or she receives on each pay day during the
Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into
such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number
of participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the
rate provided in such participant's subscription agreement at the beginning
of the first Purchase Period which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section 10
hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on each
-4-
<PAGE>
Exercise Date during such Offering Period (at the applicable Purchase Price)
up to a number of shares of the Company's Common Stock determined by dividing
such Employee's payroll deductions accumulated prior to such Exercise Date
and retained in the Participant's account as of the Exercise Date by the
applicable Purchase Price; provided that in no event shall an Employee be
permitted to purchase during each Offering Period more than 5,000 shares of
the Company's Common Stock (subject to any adjustment pursuant to Section
19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for
future Offering Periods, increase or decrease, in its absolute discretion,
the maximum number of shares of the Company's Common Stock an Employee may
purchase during each Purchase Period of such Offering Period. Exercise of the
option shall occur as provided in Section 8 hereof, unless the participant
has withdrawn pursuant to Section 10 hereof. The option shall expire on the
last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or
her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in
a participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under
the Plan on the Enrollment Date of the applicable Offering period, or (ii)
the number of shares available for sale under the Plan on such Exercise Date,
the Board may in its sole discretion (x) provide that the Company shall make
a pro rata allocation of the shares of Common Stock available for purchase on
such Enrollment Date or Exercise Date, as applicable, in as uniform a manner
as shall be practicable and as it shall determine in its sole discretion to
be equitable among all participants exercising options to purchase Common
Stock on such Exercise Date, and continue all Offering Periods then in
effect, or (y) provide that the Company shall make a pro rata allocation of
the shares available for purchase on such Enrollment Date or Exercise Date,
as applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and
terminate any or all Offering Periods then in effect pursuant to Section 20
hereof. The Company may make pro rata allocation of the shares available on
the Enrollment Date of any applicable Offering period pursuant to the
preceding sentence, notwithstanding any authorization of additional shares
for issuance under the Plan by the Company's shareholders subsequent to such
Enrollment Date.
-5-
<PAGE>
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of the shares purchased upon exercise of
his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time within 30 days before
an Exercise Date by giving written notice to the Company in the form of
Exhibit B to this Plan. All of the participant's payroll deductions credited
to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the
Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period.
If a participant withdraws from an Offering Period, payroll deductions shall
not resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from
which the participant withdraws.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any
reason, he or she shall be deemed to have elected to withdraw from the Plan
and the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or
persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 750,000 shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2001 equal to the lesser
of (i) 300,000 shares, (ii) 1.5% of the outstanding shares on such date or
(iii) a lesser amount determined by the Board.
-6-
<PAGE>
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements
-7-
<PAGE>
shall set forth the amounts of payroll deductions, the Purchase Price, the
number of shares purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares
each participant may purchase each Purchase Period (pursuant to Section 7),
as well as the price per share and the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company after the closing of
the Company's first firmly underwritten public offering of its Common Stock;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the Board.
The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) MERGER OR ASSET SALE. 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, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, the
Purchase Periods then in progress shall be shortened by setting a new
Exercise Date (the "New Exercise Date") and any Offering Periods then in
progress shall end on the New Exercise Date. The New Exercise Date shall be
before the date of the Company's proposed sale or merger. The Board shall
notify each participant in writing, at least ten (10) business days prior to
the New Exercise Date, that the Exercise Date for the participant's option
has been changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior to
such date the participant has withdrawn from the Offering Period as provided
in Section 10 hereof.
-8-
<PAGE>
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and its
stockholders. Except as provided in Section 19 and Section 20 hereof, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or
any other applicable law, regulation or stock exchange rule), the Company
shall obtain shareholder approval in such a manner and to such a degree as
required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable,
modify or amend the Plan to reduce or eliminate such accounting consequence
including, but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
-9-
<PAGE>
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW OFFERING PERIOD. To the extent permitted
by any applicable laws, regulations, or stock exchange rules if the Fair
Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment
Date of such Offering Period, then all participants in such Offering Period
shall be automatically withdrawn from such Offering Period immediately after
the exercise of their option on such Exercise Date and automatically
re-enrolled in the immediately following Offering Period as of the first day
thereof.
-10-
<PAGE>
EXHIBIT A
COMMERCE ONE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Commerce One, Inc. 1999 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in a form as determined by the Company. .
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING
<PAGE>
WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF SHARES AND I WILL
MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON
STOCK. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which
I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ______________________________________________
(First) (Middle) (Last)
_________________________ __________________________________________
Relationship
__________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ __________________________________________
Signature of Employee
__________________________________________
Spouse's Signature (If beneficiary other than
spouse)
-3-
<PAGE>
EXHIBIT B
COMMERCE ONE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Commerce One,
Inc. 1999 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date: _______________________________
<PAGE>
COMMERCE ONE, INC.
AMENDED AND RESTATED 1995 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants
of the Company and its Subsidiaries and to promote the success of the
Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as
amended, and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Commerce One, Inc., a California corporation.
(g) "CONSULTANT" means any person who is engaged by the Company or
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that the
employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract, including Company policies. If reemployment upon
expiration of a leave of absence approved by the
<PAGE>
Company is not so guaranteed, on the 181st day of such leave any Incentive
Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option.
(i) "EMPLOYEE" means any person, including Officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in THE WALL STREET JOURNAL or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the Nasdaq National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination,
or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "OPTION" means a stock option granted pursuant to the Plan.
(p) "OPTIONED STOCK" means the Common Stock subject to an Option.
(q) "OPTIONEE" means an Employee or Consultant who receives an
Option.
-2-
<PAGE>
(r) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) "PLAN" means this Amended and Restated 1995 Stock Plan.
(t) "SECTION 16(b)" means Section 16(b) of the Securities Exchange
Act of 1934, as amended.
(u) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(v) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 4,200,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); PROVIDED,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon which
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE COMPANY
BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS. With respect to grants of Options to Employees who are also Officers
or directors of the Company, the Plan shall be administered by (A) the Board if
the Board may administer the Plan in compliance with the rules under Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3")
relating to the disinterested administration of employee benefit plans under
which Section 16(b) exempt discretionary grants and awards of equity securities
are to be made, or (B) a Committee designated by the Board to administer the
Plan, which Committee shall be constituted to comply with the rules under
-3-
<PAGE>
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without
cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules under
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made.
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director Officers and Employees who are neither directors nor
Officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND OTHER
EMPLOYEES. With respect to grants of Options to Employees or Consultants who
are neither directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code, and of any
applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to
be covered by each such award granted hereunder;
-4-
<PAGE>
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award
granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(ix) to provide for the early exercise of Options for the
purchase of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
(x) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value:
(i) of Shares subject to an Optionee's Incentive Stock
Options granted by the Company, any Parent or Subsidiary, which
(ii) become exercisable for the first time during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
-5-
<PAGE>
any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of
the Company, Options to purchase more than 100,000 Shares.
(ii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
(iii) If an Option is canceled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 5(d)(i)), the canceled Option will be counted against the
limit set forth in Section 5(d)(i). For this purpose, if the exercise price of
an Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Option is
granted, 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, the term of
the Option shall be five (5) years from the date of grant thereof or such
shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, 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, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
-6-
<PAGE>
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
-7-
<PAGE>
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the
grant of such Option, 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,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of the grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan, but in no case at a rate of less than 20% per year over five (5) years
from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the
-8-
<PAGE>
record date is prior to the date the stock certificate is issued, except as
provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company (but not in the event of an Optionee's change of
status from Employee to Consultant (in which case an Employee's Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the date
three (3) months and one day from the date of such change of status) or from
Consultant to Employee), such Optionee may, but only within such period of time
as is determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee as a
result of his or her disability, Optionee may, but only within twelve (12)
months from the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination; provided, however, that if such disability is
not a "disability" as such term is defined in Section 22(e)(3) of the Code, in
the case of an Incentive Stock Option such Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the day three months and
one day following such termination. To the extent that Optionee is not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) RULE 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be
-9-
<PAGE>
required thereunder to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or into
another corporation, the Option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger
-10-
<PAGE>
was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option for each
Share of Optioned Stock subject to the Option to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-11-
<PAGE>
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall not have
been obtained.
16. AGREEMENTS. Options shall be evidenced by written agreements in such
form as the Board shall approve from time to time.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee, not less frequently than annually, copies of annual
financial statements. The Company shall also provide such statements to each
individual who acquires Shares pursuant to the Plan while such individual
owns such Shares. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company
assure their access to equivalent information.
-12
<PAGE>
FORM OF
COMMERCE ONE, INC.
AMENDED AND RESTATED 1995 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Stock Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number
-----------------------------------
Date of Grant
-----------------------------------
Vesting Commencement Date
-----------------------------------
Exercise Price per Share $
-----------------------------------
Total Number of Shares Granted
-----------------------------------
Total Exercise Price $
-----------------------------------
Type of Option: Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date: 10 years from date of grant.
EXERCISE AND VESTING SCHEDULE:
This Option is exercisable immediately, in whole or in part, conditioned
upon Optionee entering into a Restricted Stock Purchase Agreement with respect
to any unvested Option Shares. The Shares subject to this Option shall vest
and/or be released from the Company's repurchase option, as set forth in the
Restricted Stock Purchase Agreement, according to the following schedule:
<PAGE>
Six forty-eighths (6/48) of the total number of Shares subject to Option
shall vest on the six month anniversary following the Vesting Commencement
Date. Thereafter, one forty-eighth (1/48) of the total number of Shares
subject to the Option shall vest monthly.
TERMINATION PERIOD:
You may exercise this Option for not more than 90 days after your
employment or consulting relationship with the Company terminates, or for such
longer period upon your death or disability as provided in the Plan. If your
status changes from Employee to Consultant or Consultant to Employee, this
Option Agreement shall remain in effect. In no case may you exercise this
Option after the Term/Expiration Date as provided above.
2. AGREEMENT
a. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 14(b) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an ISO as defined in Section 422
of the Code. However, if this Option is intended to be an ISO, to the extent
that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as
a Nonstatutory Stock Option ("NSO").
b. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 9 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(1) Subject to subsections 2(i)(b) through 2(i)(e) below,
this Option shall be exercisable cumulatively according to the vesting schedule
set out in the Notice of Grant. Alternatively, at the election of the Optionee,
this option may be exercised in whole or in part at any time as to Shares which
have not yet vested. Any unvested Shares shall be subject to the Company's
repurchase right (as set forth in the Restricted Stock Purchase Agreement,
attached hereto as EXHIBIT C-1).
(2) As a condition to exercising this Option with respect
to unvested Shares, the Optionee shall execute the Restricted Stock Purchase
Agreement.
-2-
<PAGE>
(3) This Option may not be exercised for a fraction of a
Share.
(4) In the event of Optionee's death, disability or other
termination of Optionee's employment or consulting relationship, the
exercisability of the Option is governed by the applicable provisions of the
Plan and this Option Agreement.
(5) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in the Notice of Grant.
(ii) METHOD OF EXERCISE. This Option is exercisable by delivery of
an exercise notice, in the form attached as EXHIBIT A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and, if applicable, together with an executed copy of the
Restricted Stock Purchase Agreement, shall be delivered in person or by
certified mail to the Secretary of the Company. The Exercise Notice and, if
applicable, Restricted Stock Purchase Agreement shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice and, if applicable, Restricted Stock Purchase Agreement
accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as EXHIBIT B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
i. cash;
ii. check;
-3-
<PAGE>
iii. surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
iv. delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, of if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination; provided, however, that
if such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically convert to a Nonstatutory Stock Option on the
day three months and one day following such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
8. DEATH OF OPTIONEE. In the event of termination of Optionee's
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a
-4-
<PAGE>
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
10. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement. The
limitations set out in Section 7 of the Plan regarding Options designated as
Incentive Stock Options and Options granted to more than ten percent (10%)
shareholders shall apply to this Option.
11. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercising a Nonstatutory Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then Fair Market Value of the
Shares over the exercise price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the
Optionee is an Employee, the Company will be required to withhold from
Optionee's compensation, or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, the Optionee may at some point be required to satisfy tax
withholding obligations with respect to the disqualifying disposition of an
Incentive Stock Option. The Optionee shall satisfy his or her tax withholding
obligation arising upon the exercise of this Option out of Optionee's
compensation or by payment to the Company.
12. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
i. EXERCISE OF ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability or California income tax
liability upon the exercise of the Option, although the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to the alternative minimum tax in the year
of exercise.
ii. EXERCISE OF ISO FOLLOWING DISABILITY. If the Optionee's
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within 90 days of such termination for the ISO to
be qualified as an ISO.
-5-
<PAGE>
iii. EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular
federal income tax liability and California income tax liability upon the
exercise of a Nonstatutory Stock Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee or a former Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
iv. DISPOSITION OF SHARES. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal and California income
tax purposes. In the case of an ISO, if Shares transferred pursuant to the
Option are held for at least one year after exercise and are disposed of at
least two years after the Date of Grant, any gain realized on disposition of
the Shares will also be treated as long-term capital gain for federal and
California income tax purposes. If Shares purchased under an ISO are
disposed of within such one-year period or within two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares.
v. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
13. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
COMMERCE ONE, INC.
a California corporation
By:
------------------------------
-6-
<PAGE>
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:
------------------------- --------------------------------------
Residence Address:
-7-
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of has read and hereby approves the terms and
conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
DATED:
----------------------
-----------------------------------
Spouse of Optionee
-8-
<PAGE>
EXHIBIT A
AMENDED AND RESTATED 1995 STOCK PLAN
EXERCISE NOTICE
Commerce One, Inc.
1600 Riviera Avenue
Walnut Creek, CA 94596
Attention: Secretary
a. EXERCISE OF OPTION. Effective as of today, , the undersigned
("Optionee"), hereby elects to exercise Optionee's option to purchase ________
shares of the Common Stock (the "Shares") of Commerce One, Inc. (the "Company")
under and pursuant to the Amended and Restated 1995 Stock Plan, (the "Plan") and
the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated _______ __,
19__ (the "Option Agreement").
b. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
c. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
d. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
<PAGE>
(1) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(2) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(3) PURCHASE PRICE. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(4) PAYMENT. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(5) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(6) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the
-2-
<PAGE>
Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the
terms of this Section.
(7) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares 90 days after the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
e. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
f. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(1) LEGENDS. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by the Company or by state
or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST
REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE
-3-
<PAGE>
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
(2) STOP-TRANSFER NOTICES. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(3) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
g. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
h. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
i. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
j. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
-4-
<PAGE>
k. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
l. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
m. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser
Submitted by: Accepted by:
OPTIONEE: COMMERCE ONE, INC.
By:
------------------------------
Its:
------------------------------
(Signature)
ADDRESS: ADDRESS:
1600 Riviera Avenue
Walnut Creek, CA 94596
-5-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : COMMERCE ONE, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities.
Optionee is acquiring these Securities for investment for Optionee's own account
only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
<PAGE>
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such
-3-
<PAGE>
transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature:
------------------------------------
Date:
------------------------
-4-
<PAGE>
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: RESTRICTION ON TRANSFER. (a) The issuer of any security upon
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at
the sale that transfer of the securities is restricted under this rule,
(ii) delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
EXHIBIT C-1
AMENDED AND RESTATED 1995 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an
Employee or Consultant of the Company, and the Purchaser's continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. REPURCHASE OPTION.
(a) In the event the Purchaser's Continuous Status as an Employee
or Consultant terminates for any or no reason (including death or disability)
before all of the Shares are released from the Company's Repurchase Option (see
Section 4), the Company shall, upon the date of such termination (as reasonably
fixed and determined by the Company) have an irrevocable, exclusive option (the
"Repurchase Option") for a period of sixty (60) days from such date to
repurchase up to that number of shares which constitute the Unreleased Shares
(as defined in Section 4) at the original purchase price per share (the
"Repurchase Price"). The Repurchase Option shall be exercised by the Company by
delivering written notice to the Purchaser or the Purchaser's executor (with a
copy to the Escrow Holder) AND, at the Company's option, (i) by delivering to
the Purchaser or the Purchaser's executor a check in the amount of the aggregate
Repurchase Price, or (ii) by canceling an amount of the Purchaser's indebtedness
to the Company equal to the aggregate Repurchase Price, or (iii) by a
combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such
notice and the payment of the
<PAGE>
aggregate Repurchase Price, the Company shall become the legal and beneficial
owner of the Shares being repurchased and all rights and interests therein or
relating thereto, and the Company shall have the right to retain and transfer
to its own name the number of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares
to be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. RELEASE OF SHARES FROM REPURCHASE OPTION.
(a) 6/48 of the total number of Shares shall be released from the
Company's Repurchase Option six months after the Vesting Commencement Date and
1/48 of the early exercised portion of the total number of Shares at the end of
each month thereafter, provided that the Purchaser's Continuous Status as an
Employee or Consultant has not terminated prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. RESTRICTION ON TRANSFER. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit C-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit C-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
-2-
<PAGE>
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit C-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. LEGENDS. The share certificate evidencing the Shares issued hereunder
shall be endorsed with the following legend (in addition to any legend required
under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that
-3-
<PAGE>
the Purchaser (and not the Company) shall be responsible for the Purchaser's
own tax liability that may arise as a result of the transactions contemplated
by this Agreement. The Purchaser understands that Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the
difference between the purchase price for the Shares and the Fair Market
Value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" includes the right of the Company to buy back the
Shares pursuant to the Repurchase Option. The Purchaser understands that the
Purchaser may elect to be taxed at the time the Shares are purchased rather
than when and as the Repurchase Option expires by filing an election under
Section 83(b) of the Code with the IRS within 30 days from the date of
purchase. The form for making this election is attached as Exhibit A-5
hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the laws of the State of
California. This Agreement, subject to the terms and conditions of the Plan and
the Notice of Grant, represents the entire agreement between the parties with
respect to the purchase of the Shares by the Purchaser. Subject to Section
14(b) of the Plan, in the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Agreement, the terms and
conditions of the Plan shall prevail. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this
Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are
-4-
<PAGE>
cumulative and shall not constitute a waiver of either party's right to
assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE
OR CONSULTANT AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED
OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD,
OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH
OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: COMMERCE ONE, INC.
By:
----------------------------------
Signature
Title:
-------------------------------
Print Name
-5-
<PAGE>
EXHIBIT C-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto __________________________________________________________________
______________________________________________________ (__________) shares of
the Common Stock of Commerce One, Inc. standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint
_________________________________________________________________to transfer the
said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between ________________________
_________________________________________ and the undersigned dated
______________, 19___.
Dated: _______________, 19___
Signature:______________________________
- -------------------------------------------------------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT C-3
JOINT ESCROW INSTRUCTIONS
________________ , 19___
Corporate Secretary
Commerce One, Inc.
1600 Riviera Avenue
Walnut Creek, CA 94596
Dear ____________________________:
As Escrow Agent for both Commerce One, Inc., a California corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities.
<PAGE>
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a shareholder of the Company while the stock is held
by you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: COMMERCE ONE, INC.
1600 Riviera Avenue
Walnut Creek, CA 94596
PURCHASER:
ESCROW AGENT: Coporate Secretary
1600 Riviera Avenue
Walnut Creek, CA 94596
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Very truly yours,
COMMERCE ONE, INC.
By:
--------------------------
Title:
-----------------------
PURCHASER:
-------------------------------
(Signature)
-------------------------------
(Typed or Printed Name)
ESCROW AGENT:
Corporate Secretary
-4-
<PAGE>
EXHIBIT C-4
CONSENT OF SPOUSE
I, ____________________, spouse of , have read and approve the foregoing
Restricted Stock Purchase Agreement (the "Agreement"). In consideration of
the Company's grant to my spouse of the right to purchase shares of Commerce
One, Inc. as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may
have any rights in said Agreement or any shares issued pursuant thereto under
the community property laws or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19___
Signature of Spouse
[Print Name]
-5-
<PAGE>
EXHIBIT C-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: ___________________ SPOUSE: ___________________________
ADDRESS:__________________________________________________________________
IDENTIFICATION NO.: TAXPAYER:________________ SPOUSE:____________________
TAXABLE YEAR: 19___
2. The property with respect to which the election is made is described as
follows: __________________________ shares (the "Shares") of the
Common Stock of Commerce One, Inc. (the "Company").
3. The date on which the property was transferred is: ________________, 19___.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: ___________________, 19____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ______________________________________
Spouse of Taxpayer
<PAGE>
Form of
COMMERCE ONE, INC
1999 DIRECTOR OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1999 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the common stock of the Company.
(d) "COMPANY" means Commerce One, Inc., a Delaware corporation.
(e) "DIRECTOR" means a member of the Board.
(f) "DISABILITY" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(g) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market
<PAGE>
trading day prior to the time of determination, as reported in THE WALL
STREET JOURNAL or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "INSIDE DIRECTOR" means a Director who is an Employee.
(k) "OPTION" means a stock option granted pursuant to the Plan.
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means a Director who holds an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(o) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Director Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 150,000 Shares (the "Pool"). The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 20,000 Shares (the "First Option") on the date on
which such person first becomes
-2-
<PAGE>
an Outside Director, whether through election by the shareholders of the
Company or appointment by the Board to fill a vacancy; provided, however,
that an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") on the date
of the annual meeting of the stockholders of each year provided he or she is
then an Outside Director and if as of such date, he or she shall have served on
the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to 12.5% of the Shares subject to the First Option on the
six-month anniversary of its date of grant, and as to 1/48 of the Shares subject
to the First Option each month thereafter, provided that the Optionee continues
to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 25% of the Shares subject to the Subsequent
Option on the six-month anniversary of its date of grant, and as to 1/24 of the
Shares subject to the Subsequent Option each month thereafter, provided that the
Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased
-3-
<PAGE>
under Options to exceed the Pool, then the remaining Shares available for
Option grant shall be granted under Options to the Outside Directors on a pro
rata basis. No further grants shall be made until such time, if any, as
additional Shares become available for grant under the Plan through action of
the Board or the shareholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as
-4-
<PAGE>
soon as practicable after exercise of the Option. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date
the stock certificate is issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for
-5-
<PAGE>
any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued Shares effected without receipt of consideration by the
Company after the closing of the Company's first firmly underwritten public
offering of its Common Stock; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall
terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
-6-
<PAGE>
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-7-
<PAGE>
COMMERCE ONE, INC.
DIRECTOR OPTION AGREEMENT
Commerce One, Inc., (the "Company"), has granted to ____________________________
(the "Optionee"), an option to purchase a total of [(______)] shares of the
Company's Common Stock (the "Optioned Stock"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1999 Director Option Plan (the "Plan") adopted by
the Company which is incorporated herein by reference. The terms defined in the
Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION. This Option is a nonstatutory option and is not
intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $_______ for each share of
Common Stock.
3. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the provisions of Section 8 of the Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option shall become exercisable in installments
cumulatively with respect to percent (%) of the Optioned Stock one year
after the date of grant, and as to an additional percent (____%) of the
Optioned Stock on each anniversary of the date of grant, so that one hundred
percent (100%) of the Optioned Stock shall be exercisable [_____] years after
the date of grant; provided, however, that in no event shall any Option be
exercisable prior to the date the stockholders of the Company approve the Plan.
(ii) This Option may not be exercised for a fraction of a
share.
(iii) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. METHOD OF PAYMENT. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check; or
-8-
<PAGE>
(c) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(d) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. TERM OF OPTION. This Option may not be exercised more than ten (10)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
-9-
<PAGE>
DATE OF GRANT: ______________
COMMERCE ONE, INC.,
a Delaware corporation
By: ___________________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached
hereto, and represents that he or she is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board upon any questions arising
under the Plan.
Dated: _________________
__________________________________________
Optionee
-10-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
COMMERCE ONE, INC.
1600 Riviera Avenue
Walnut Creek, CA 94596
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of Commerce One, Inc. (the "Company") under and pursuant to the
Company's 1999 Director Option Plan and the Director Option Agreement dated
_______________ (the "Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares must be held indefinitely unless they are registered under the Securities
Act of 1933, as amended (the "1933 Act"), or unless an exemption from such
registration is available, and that the certificate(s) representing the Shares
may bear a legend to that effect. Optionee understands that the Company is
under no obligation to register the Shares and that an exemption may not be
available or may not permit Optionee to transfer Shares in the amounts or at the
times proposed by Optionee.
4. TAX CONSEQUENCES. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. ENTIRE AGREEMENT. The Agreement is incorporated herein by reference.
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the subject matter hereof. This
Exercise Notice and the Agreement are governed by California law except for that
body of law pertaining to conflict of laws.
-11-
<PAGE>
Submitted by: Accepted by:
OPTIONEE: COMMERCE ONE, INC.
______________________________ By: _________________________________
Its:_________________________________
Address:
Dated:________________________ Dated:_______________________________
-12-
<PAGE>
VEO SYSTEMS, INC.
1997 STOCK PLAN
(as amended August 17, 1998)
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any other country or jurisdiction where Options or Stock Purchase Rights
are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the Board
in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means VEO Systems, Inc., a California corporation.
(h) "CONSULTANT" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "DIRECTOR" means a member of the Board of Directors of the
Company.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
<PAGE>
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
<PAGE>
(r) "OPTION AGREEMENT" means a written or electronic agreement between
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(s) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are exchanged for Options with a lower exercise price.
(t) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
(u) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(v) "PARENT" means a "parent corporation" whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "PLAN" means this 1997 Stock Plan.
(x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.
(y) "SECTION 16" means Section 16(b) of the Securities Exchange Act of
1934, as amended.
(z) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(aa) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(bb) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock
pursuant to Section 11 below.
(cc) "SUBSIDIARY" means a "subsidiary corporation" whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is nine hundred eighty-one thousand five hundred
(981,500) Shares. The Shares may be authorized but unissued, or reacquired
Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, theunpurchased Shares which were subject thereto shall become
available for future grant or sale
<PAGE>
under the Plan (unless the Plan has terminated). However, Shares that have
actually been issued under the Plan, upon exercise of either an Option or
Stock Purchase Right, shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares of
Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. The Plan shall be administered by the Board or a
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or Stock
Purchase Right granted hereunder. Such terms and conditions include, but are
not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
<PAGE>
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. TERM OF THE PLAN. The Plan shall become effective upon its adoption
by the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof.
<PAGE>
In the case of an Incentive Stock Option granted to an Optionee who, at the
time the Option is granted, 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, the term of the Option shall be five (5) years from the
date of grant or such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of grant of such
Option, 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, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
<PAGE>
(ii) In the case of a Nonstatutory Stock Option:
(A) granted to a Service Provider who, at the time of grant
of such Option, 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,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder shall be tolled during any unpaid leave of absence. An Option may not
be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
<PAGE>
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the Shares are issued,
except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in
the Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, aftertermination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
<PAGE>
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled topurchase, the price to be paid, and the time within which such person
must accept such offer. The terms of the offer shall comply in all respects
with Section 260.140.42 of Title 10 of the California Code of Regulations. The
offer shall be accepted by execution of a Restricted Stock purchase agreement in
the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
<PAGE>
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reasonthereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger
<PAGE>
or sale of assets, the option or right confers the right to purchase or
receive, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of
<PAGE>
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
<PAGE>
VEO SYSTEMS, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number
Date of Grant < < Date_of_grant > >
Vesting Commencement Date < < Vesting_date > >
Exercise Price per Share $< < price > >
Total Number of Shares Granted < < shares > >
Total Exercise Price $< < Total_price > >
Type of Option: |X| Incentive Stock Option
|_| Nonstatutory Stock Option
Term/Expiration Date: < < Expiration_date > >
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to Optionee's continuing to be a Service
Provider on such dates.
<PAGE>
Termination Period:
This Option shall be exercisable for three months after Optionee ceases to
be a Service Provider. Upon Optionee's death or Disability, this Option may be
exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by delivery
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver
-2-
<PAGE>
to the Company his or her Investment Representation Statement in the form
attached hereto as Exhibit B.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND
-3-
<PAGE>
REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of Nonstatutory Stock Option. There may be a regular
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
-4-
<PAGE>
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE: VEO SYSTEMS, INC.
By:
- --------------------------- --------------------------
< < Name > >
Title:
-----------------------
Address:
- ---------------------------
- ---------------------------
-5-
<PAGE>
EXHIBIT A
1997 STOCK PLAN
EXERCISE NOTICE
VEO Systems, Inc.
2440 W. El Camino Real, Suite 710
Mountain View, CA 94040
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ___________, ____, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_____________ shares of the Common Stock (the "Shares") of VEO Systems, Inc.
(the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the
Stock Option Agreement dated _______________, _____ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the
<PAGE>
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
-2-
<PAGE>
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND
RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
8. Successors and Assigns. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this
-3-
<PAGE>
Agreement shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE: VEO SYSTEMS, INC.
By:
- ---------------------------- -----------------------------
< < Name > >
Title:
--------------------------
Address: Address:
- ---------------------------- 2440 W. El Camino Real, Suite 710
Mountain View, CA 94040
- ----------------------------
---------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: < < Name > >
COMPANY: VEO Systems, Inc.
SECURITY: COMMON STOCK
AMOUNT: < < shares > >
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted
<PAGE>
securities" acquired, directly or indirectly from the issuer thereof, in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of the grant of
the Option to the Optionee, the exercise will be exempt from registration under
the Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
--------------------------------------
Name
Date:
------------------------------
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated March
5, 1999 (except for note 8, as to which the date is April , 1999) with respect
to the consolidated financial statements of Commerce One, Inc. as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998 and our report dated March 5, 1999 with respect to the financial
statements of Veo Systems, Inc. as of December 31, 1998 and for the year then
ended, in the Registration Statement (Form S-1) and the related Prospectus of
Commerce One, Inc. for the registration of shares of its common stock.
Our audits also included the financial statement schedule of Commerce One,
Inc. listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Walnut Creek, California
April , 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the
effectiveness of the stock split and approval of the certificate of
incorporation in the state of Delaware as described in Note 8 to the
consolidated financial statements.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
April 22, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1 of
our report dated May 8, 1998, except for the last paragraph of Note 10, as to
which the date is August 21, 1998, relating to the financial statements of VEO
Systems, Inc., which appear 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
San Jose, California
April 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS YEAR YEAR YEAR
3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998
DEC-31-1999
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998 JAN-01-1998
JAN-01-1999
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 MAR-31-1998
MAR-31-1999
<CASH> 0 9,367 15,138 0
7,839
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 0 234 1,200 0
1,068
<ALLOWANCES> 0 70 295 0
295
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 0 10,152 16,967 0
9,652
<PP&E> 0 1,512 2,590 0
3,096
<DEPRECIATION> 0 504 1,523 0
1,976
<TOTAL-ASSETS> 0 11,164 20,507 0
30,813
<CURRENT-LIABILITIES> 0 2,958 5,190 0
6,288
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 21,137 50,919 0
53,890
<COMMON> 0 159 3,165 0
23,592
<OTHER-SE> 0 0 (1,848) 0
(3,304)
<TOTAL-LIABILITY-AND-EQUITY> 0 11,664 20,507 0
30,813
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 812 1,746 2,563 125
2,104
<CGS> 782 2,887 4,369 674
1,668
<TOTAL-COSTS> 782 2,887 4,369 674
1,668
<OTHER-EXPENSES> 1,810 10,032 22,990 4,098
12,763
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 0 0 0 0
0
<INCOME-PRETAX> (1,805) (11,164) (24,640) (4,632)
(12,311)
<INCOME-TAX> 0 0 0 0
0
<INCOME-CONTINUING> (1,805) (11,164) (24,640) (4,632)
(12,311)
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (1,805) (11,164) (24,640) (4,632)
(12,311)
<EPS-PRIMARY> (.69) (4.21) (8.21) (1.58)
(2.64)
<EPS-DILUTED> (.69) (4.21) (8.21) (1.58)
(2.64)
</TABLE>
