<PAGE>
As filed with the Securities and Exchange Commission on April 18, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
MARKETFIRST SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 7372 77-0436821
(State or Other
Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or
Organization) Classification Number) Identification No.)
</TABLE>
---------------
485 Clyde Avenue
Mountain View, California 94043
(650) 691-6200
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------
Peter R. Tierney
President and Chief Executive Officer
485 Clyde Avenue
Mountain View, California 94043
(650) 691-6200
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
---------------
Copies to:
<TABLE>
<S> <C>
John D. Hudson, Esq. Tracy K. Edmonson, Esq.
Paul A. Rowe, Esq. Tad J. Freese, Esq.
Hewitt & McGuire, LLP Deborah J. Kawamura, Esq.
19900 MacArthur Blvd., Suite 1050 Latham & Watkins
Irvine, California 92612 505 Montgomery Street, Suite 1900
(949) 798-0500 San Francisco, California 94111
(415) 391-0600
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value.............. $57,500,000 $15,180
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- APRIL 18, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 2000
[MARKETFIRST LOGO]
Shares of Common Stock
- --------------------------------------------------------------------------------
MarketFirst Software,
Inc.:
. We provide a
comprehensive
e-marketing solution
that enables
organizations to
execute interactive
marketing campaigns
over the Internet.
. MarketFirst
Software, Inc. 485
Clyde Avenue
Mountain View, CA
94043 (650) 691-6200
Proposed Symbol and
Market:
. MKTF/Nasdaq National
Market
The Offering:
. We are offering
shares of our common
stock.
. The underwriters
have an option to
purchase an
additional
shares from us to
cover over-
allotments.
. This is our initial
public offering of
common stock.
. We plan to use the
net proceeds from
this offering for
working capital and
other general
corporate purposes.
. Closing: ,
2000.
-----------------------------------------------
<TABLE>
<S> <C> <C>
Per Share Total
------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to MarketFirst:
------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page 7.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Dain Rauscher Wessels
SG Cowen
DLJdirect Inc.
<PAGE>
Description of Inside Front Cover:
This page contains a picture of a sphere with a section removed, showing several
layers of the sphere to its core. An arrow with the label "Professional
Services" points to the outer layer of the sphere. An arrow with the label
"Application Hosting" points to next inner layer of the sphere. An arrow with
the label "eMarketing Blueprints" points to the next inner layer of the sphere.
An arrow with the label "e-marketing Platform" points to the core of the sphere,
which also contains the three rainbow lines of the MarketFirst logo. There is
also a smaller sphere overlapping the main sphere. The smaller sphere is labeled
"myMarketFirst.com." The page has the MarketFirst logo in the upper left corner
and the label "eMarketing for eBusiness TM" in the upper right corner. Below the
graphics is the following text:
"MarketFirst's comprehensive e-marketing solution is comprised of the following
offerings:
Our e-marketing software platform is at the core of our solution and provides an
interactive design environment to define, execute and launch automated
Internet-based marketing campaigns. eMarketing Blueprints are pre-built
e-marketing campaign templates based on marketing best practices. MarketFirst's
professional services include our hosted application services and e-marketing
consulting services which manage the integration of technology and enable
customers to focus on the maximum use of e-marketing campaigns to achieve
desired results.
myMarketFirst.com is a destination site where new customers can test
MarketFirst's e-marketing solutions through trial or pay-per-use campaigns."
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward- Looking Statements....................... 17
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business .................................................................. 29
Management ................................................................ 42
Certain Transactions ...................................................... 54
Principal Stockholders .................................................... 56
Description of Capital Stock .............................................. 58
Shares Eligible for Future Sale ........................................... 61
Underwriting .............................................................. 63
Legal Matters ............................................................. 66
Experts.................................................................... 66
Additional Information..................................................... 66
Index to Financial Statements.............................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our financial statements and the related notes appearing elsewhere
in this prospectus.
MarketFirst Software, Inc.
We are a leading provider of a comprehensive hosted e-marketing solution that
enables organizations to execute interactive marketing campaigns over the
Internet. Our solution, an integrated offering of comprehensive hosted e-
marketing software and strategic e-marketing consulting services, enables
organizations to design, execute and measure the effectiveness of e-marketing
campaigns that combine innovative on-line and proven marketing strategies and
tactics. We believe our integrated solution helps our customers rapidly capture
market share and build stronger customer relationships.
The growth of on-line commerce is generating tremendous competition for on-
line market share and on-line customers. Businesses are spending large amounts
of money to build web sites and on-line business operations that will attract
customers, to advertise those web sites and on-line businesses and effectively
position them in the marketplace, to generate customer orders and revenues from
on-line traffic and to retain existing on-line customers. At the same time,
marketing is shifting from off-line one-directional mass marketing programs to
interactive, dynamic and personalized on-line marketing tactics and strategies,
often referred to as "e-marketing."
In addition, an increasing number of organizations are leveraging the
Internet to outsource the management of business applications through hosted
services. In a hosted environment, the network and hardware infrastructures are
provided by a third party at a central, off-site location, and the software
applications are accessed remotely through web browsers. We believe that e-
marketing represents a significant hosted application market opportunity. A
hosted e-marketing solution can allow organizations to more quickly capture
market opportunities, a critical differentiator in today's competitive on-line
markets. In addition, marketing departments are often overwhelmed by the
demands and growth of on-line commerce and welcome a solution that requires
minimal initial personnel and capital resource commitments.
Our comprehensive e-marketing solution is comprised of four core components:
an e-marketing software platform; software templates for e-marketing campaigns
called eMarketing Blueprints; a hosted service; and strategic e-marketing
consulting and implementation services. We believe our solution enables
organizations to:
. Accelerate "Time-to-Value." Our solution helps our customers quickly
launch effective e-marketing campaigns to capture new market
opportunities.
. Focus on e-Marketing. By providing a hosted service, we allow our
customers to focus on creating more effective, innovative and targeted
marketing messages and campaigns.
. Implement High Quality e-Marketing Campaigns. We believe the knowledge
and experience of our consulting organization can assist our customers in
designing and implementing more effective e-marketing campaigns.
. Improve Personalized Interactive Relationships. Our solution allows
organizations to personalize their e-marketing campaigns based on
authorized information generated through on-line interaction with their
customers or prospects.
3
<PAGE>
. Centralize e-Marketing Control. With our solution, an organization's
marketing campaigns can be centrally managed through its web site.
. Analyze Real-time e-Marketing Performance and Feedback. Our solution
provides important and timely insight on the effectiveness of e-marketing
campaigns.
We offer our comprehensive e-marketing solution as a hosted service or as a
traditional software license and through our destination site,
myMarketFirst.com. We have over 30 customers, including such recognized
industry leaders as General Electric Company, GTE, NorthPoint Communications,
Quantum Corporation and Rhythms NetConnections. We primarily utilize a direct
sales force to market our products and services in the United States. We have
sales offices in Mountain View, California; Seal Beach, California; Bellevue,
Washington; Dallas, Texas; Atlanta, Georgia; Natick, Massachusetts; and Iselin,
New Jersey.
Our objective is to become the leading provider of comprehensive hosted e-
marketing software solutions. The key elements of our strategy include
capitalizing on our leading market position, leveraging the growing demand for
hosted applications, expanding our strategic e-marketing consulting services,
developing key strategic partnerships, targeting international markets, and
utilizing myMarketFirst.com as an education and distribution channel.
Acquisition of FusionDM
In April 2000, we entered into an agreement to acquire Times Direct
Marketing, Inc., also known as FusionDM, a direct marketing consulting agency.
FusionDM represents a new breed of marketing professional services that
combines Internet technology services with traditional marketing services such
as strategic consulting, creative services, media planning and database
marketing. We believe these services will complement our hosted e-marketing
solution and provide us with new sales and marketing opportunities. At the same
time, we believe our solution will provide new service offerings for the
customer base of FusionDM. We believe the expected acquisition of FusionDM will
augment our e-marketing campaign design and execution expertise and enhance our
e-marketing consulting services. FusionDM had revenues of $2.2 million in 1998
and $5.5 million in 1999, and has customers such as 3Com, 21st Century
Insurance and eBay.
We plan to account for the acquisition as a purchase. Under the terms of the
acquisition agreement, we will pay the following:
. $2.5 million to be paid at the close of the acquisition, and additional
cash consideration to be paid over two years based on the achievement of
certain operating objectives of FusionDM; and
. Up to an estimated 1,568,628 shares of our common stock consisting of
784,314 shares to be issued at the close of the acquisition, with the
remaining 784,314 shares to be placed in escrow to be released ratably,
subject to the achievement of certain operating objectives of FusionDM,
on an annual basis over the next three years.
Corporate Information
We were incorporated in the State of Delaware on August 8, 1996 as Cybernate
Technology, Inc. and changed our name to MarketFirst Software, Inc. on
September 4, 1997. Our executive offices are located at 485 Clyde Avenue,
Mountain View, California 94043, and our telephone number is (650) 691-6200.
Unless otherwise indicated, all information in this prospectus assumes the
effectiveness of our amended and restated certificate of incorporation in the
State of Delaware upon the completion of this offering.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered....................... shares
Common stock to be outstanding after this
offering.................................. shares
Use of proceeds............................ We intend to use the net proceeds
for working capital and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol..... MKTF
</TABLE>
Unless otherwise indicated, all information in this prospectus:
. assumes no exercise of the underwriters' option to purchase an over-
allotment of up to additional shares of our common stock;
. gives effect to a one-for-two and one-half reverse split of our common
stock effected in April 2000;
. gives effect to the conversion of all shares of our preferred stock
outstanding into an aggregate of 15,812,117 shares of common stock, which
will occur prior to the closing of this offering;
. gives effect to the issuance of 784,314 shares of common stock in
connection with our expected acquisition of FusionDM; and
. gives effect to the exercise of an outstanding warrant into 301,719
shares of Series D preferred stock at an exercise price of $1.065 per
share and conversion of these shares into 120,688 shares of common stock
prior to the close of this offering.
The number of shares of common stock to be outstanding after the offering is
based on 5,223,575 shares of our common stock outstanding as of March 31, 2000.
The number of shares of our common stock to be outstanding after this offering
excludes:
. 2,440,965 shares of common stock issuable upon exercise of outstanding
options as of March 31, 2000, with a weighted average exercise price of
$0.57 per share;
. 28,000 shares of common stock issuable upon the exercise of a warrant
outstanding as of March 31, 2000 at an exercise price equal to 85% of the
initial public offering price; and
. 4,800,000 shares reserved for future issuance under our stock plans upon
the close of this offering.
5
<PAGE>
Summary Financial Data
(In thousands, except per share data)
The following tables summarize our financial data. The unaudited pro forma
information in the statement of operations data gives effect to the acquisition
of FusionDM as if the acquisition had occurred on January 1, 1999. The
unaudited pro forma basic and diluted net loss per share has been calculated
assuming the conversion of all shares of our preferred stock outstanding into
an aggregate 15,812,117 shares of common stock and the exercise and conversion
of an outstanding Series D preferred stock warrant into 120,688 shares of
common stock, as if the shares had converted immediately upon issuance.
<TABLE>
<CAPTION>
Pro Forma
Year Ended December 31, Year Ended
------------------------- December 31,
1997 1998 1999 1999
------- ------- ------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software hosting..................... $---- $ -- $ 339 $ 339
Software licenses.................... -- 20 369 369
Professional services................ -- 17 556 6,026
------- ------- ------- --------
Total revenues...................... -- 37 1,264 6,734
Gross profit.......................... -- 33 799 3,443
Operating loss........................ (1,268) (6,661) (10,301) (13,882)
Net loss.............................. $(1,270) $(6,569) $(9,998) $(13,381)
Pro forma basic and diluted net loss
per share............................ $ (0.68)
Shares used in pro forma per share
computation.......................... 14,677
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments.................................. $ 13,316 $ 10,938 $
Working capital............................... 13,219 9,582
Total assets.................................. 15,033 29,265
Redeemable convertible preferred stock and
warrants..................................... 30,879 30,879
Total stockholders' equity (deficit).......... (16,878) (6,878)
</TABLE>
The pro forma column of the balance sheet data reflects the payment of $2.5
million cash and the issuance of 784,314 shares of common stock in connection
with our expected acquisition of FusionDM, and the related pro forma combining
adjustments. The pro forma as adjusted column of the balance sheet data
reflects the conversion of all of our outstanding shares of preferred stock,
the exercise and conversion of an outstanding Series D preferred stock warrant
into 120,688 shares of common stock immediately prior to the completion of this
offering and the $ net proceeds from the sale of the shares of common
stock offered hereby, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before buying shares in this offering. These risks and uncertainties are not
the only ones facing our company. Additional risks and uncertainties that we
are unaware of or currently deem immaterial may also become important factors
that may harm our business. The trading price of our common stock could decline
due to any of these risks and uncertainties, and you may lose part or all of
your investment.
Risks Related to Our Business
Because of our limited operating history and the emerging nature of our
industry, any predictions about our future revenues and expenses may not be as
accurate as they would be if we had a longer business history.
We were incorporated in August 1996 and first recorded revenues in June 1998.
Our limited operating history makes financial forecasting and evaluation of our
business difficult. Since we have limited financial data, any predictions about
our future revenues and expenses may not be as accurate as they would be if we
had a longer business history. Because of the emerging nature of the e-
marketing industry, we cannot readily determine trends that may emerge in our
market or affect our business. The revenue and income potential of the e-
marketing industry and our business are unproven.
We have a history of losses, we expect continuing losses, and we may never
achieve profitability.
We incurred a net loss of $10.0 million in 1999, and we had an accumulated
deficit of $18.0 million as of December 31, 1999. Although our revenues grew
rapidly in 1999, we cannot assure you that our revenues will continue to grow
or that we will achieve or maintain profitability in the future. In addition,
we expect that our expenditures for sales and marketing, research and
development and general administration will increase significantly in the
future. Accordingly, we will need to significantly increase our revenues to
achieve and maintain profitability, which we may be unable to do.
We expect our operating results to fluctuate, and our stock price may decline
if we fail to meet the expectations of analysts and investors.
We expect that our revenues, margins and operating results will fluctuate
significantly due to a variety of factors, many of which are outside of our
control. These factors include, among others:
. varying size, timing and contractual terms of orders for our products and
services;
. timing and significance of the commercial release of new or enhanced
products and services by us and our competitors;
. demand for our e-marketing products and services and price competition;
. changes in our operating expenses as we expand operations; and
. general economic factors.
As a result, our operating results are difficult to predict and may not meet
the expectations of securities analysts or investors. If this occurs, the price
of our common stock would likely decline.
7
<PAGE>
We are implementing a new business model involving a web-hosted solution, and
this model may not be successful.
The web-hosted business model is unproven for us, and we may be unsuccessful
in implementing it. Historically, e-marketing solutions have been offered
primarily on a license basis. In January 1999, we began to market our web-
hosted solution, which is based on a monthly subscription fee. To date we have
30 customers to whom we have sold our web-hosted solution, and in 1999,
revenues from our hosted solution represented only 27% of our revenues. Our
efforts to develop this business will also require substantial management time
and attention. In addition, current license customers and prospective customers
may not accept our hosting fee structure, and our revenue and gross margins may
decline or become less predictable as a result.
If we fail to expand our sales, marketing and customer support activities, we
may be unable to increase revenues.
If we do not successfully expand our sales, marketing and customer support
activities, we cannot increase revenues. The complexity of our products and
services requires us to have highly trained sales, marketing and customer
support personnel to educate prospective customers regarding the use and
benefits of our products and services, and provide effective customer support.
Consequently, we have considerable need to recruit, train and retain qualified
staff. Any delays or difficulties we encounter in these staffing efforts could
impair our ability to attract new customers and to enhance our relationships
with existing customers. This in turn would adversely impact the timing and
extent of our revenues. Because the majority of our sales, marketing and
customer support personnel have recently joined MarketFirst and have limited
experience working together, our sales, marketing and customer support groups
may not be able to compete successfully against bigger and more experienced
groups of our competitors.
Our business could suffer if we lose the services of key employees or if we are
unable to attract and retain additional qualified personnel.
Our future success depends to a significant degree on the skills, experience
and efforts of our key employees. In particular, we depend upon the continued
services of Peter Tierney, our President and Chief Executive Officer, and
Anurag Khemka, our Chief Technology Officer and co-founder, whose vision for
our company, knowledge of our business and technical expertise would be
extremely difficult to replace. If we lose any of our key employees, our
ability to expand our business could be compromised, and we could be materially
adversely affected. In addition, we have not obtained life insurance benefiting
MarketFirst on any of our key employees.
Our business will also suffer if we are unable to continue to attract and
retain qualified personnel, particularly those with sales, marketing and
technical expertise. Competition for such personnel is intense, especially in
the San Francisco Bay Area. Many of the companies competing for these
individuals have more established businesses and can offer greater financial
and other incentives to qualified prospects. In addition, we expect to face
greater difficulty attracting qualified personnel with equity incentives as a
public company than we did as a privately held company. We cannot assure you
that we will continue to attract or retain qualified personnel.
If we fail to execute our strategy to expand into new markets, the market for
our services and our potential revenue growth will be limited.
The majority of our e-marketing customers to date have been on-line business-
to-consumer retailers. We intend to expand our presence among customers in
other consumer markets and in markets where the customers are businesses rather
than consumers. If this strategy fails, the market for our services and our
potential revenue growth will be limited. We have limited experience in these
markets and may encounter obstacles that we have not anticipated.
8
<PAGE>
If we are unable to manage our growth effectively, we may not be able to
successfully implement our business plan.
We have grown rapidly, with total revenues increasing from $37,000 in 1998 to
$1.3 million in 1999. Our ability to successfully implement our business plan
requires effective planning and management of our future growth. Since we began
operations, we have significantly increased the size of our operations and our
operating expenses. The number of our employees has increased from 50 as of
December 31, 1998 to 76 as of December 31, 1999. We expect to continue to hire
new employees at a rapid pace. For example, the number of our employees
increased by 38 between January 1, 2000 and March 31, 2000, and we expect to
add over 60 new employees as a result of the FusionDM acquisition. This growth
has placed, and we expect that any future growth will continue to place, a
significant strain on our management, systems and other resources. To manage
the anticipated growth of our operations, we may be required to improve
existing and implement new operational, financial and management information
controls, reporting systems and procedures. Any failure to manage growth
effectively could negatively affect the quality of our products and services,
our ability to respond to customers and retain key personnel and our business
generally.
The data center for our hosted applications is located at facilities provided
by a third party, and if this party is unable to adequately protect the data
center, our reputation may be harmed and we may lose customers and revenues.
Under an Internet hosting agreement with Exodus Communications, all of our
servers for our hosted applications are maintained at Exodus Communications'
data center. This data center is critical to our ongoing hosting operations.
Our business depends on Exodus Communications' ability to protect the data
center from damage or interruption from human error, hardware failure, break-
ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. If Exodus Communications is unable to adequately protect and maintain
the operations of the data center and information is lost or our ability to
deliver our services is interrupted, our reputation may be harmed, and we may
lose customers and revenues.
We may pursue acquisitions that could dilute our existing stockholders, cause
us to incur significant expenses or otherwise harm our business, and we may not
be able to successfully integrate the acquisitions that we complete.
We expect to continue to seek selective acquisitions of complementary
businesses as an element of our growth strategy. It is possible that these
acquisitions could have an adverse effect upon our operating results,
particularly in the quarters immediately following the completion of such
acquisitions, while the operations of the acquired entities are being
integrated into our operations. Acquisitions involve risks that could cause our
actual growth to differ from our expectations. For example:
. We may not be able to successfully integrate acquired businesses in a
timely manner. We may also incur substantial costs, delays or other
operational or financial problems during the integration process and our
operating results could be adversely affected during the integration
process.
. We may not be able to identify suitable acquisition candidates or to
complete acquisitions on favorable terms.
. To finance any acquisitions, it may be necessary for us to raise
additional funds through public or private equity or debt financings.
Additional funds may not be available on terms that are favorable to us,
if at all, and, in the case of equity financings, may result in dilution
to our stockholders.
9
<PAGE>
Once we acquire FusionDM, the size of our organization will increase
significantly, and we may have problems managing disparate corporate cultures.
Moreover, we expect a significant portion of our future revenues to come from
more traditional marketing services, an area in which we have had limited
experience to date. If we are unable to retain FusionDM's customers and key
personnel or manage the operation and integration of FusionDM with our existing
operations, our business could be materially harmed. In addition, we cannot
assure you that our existing customers will be interested in the services
currently offered by FusionDM or that FusionDM's existing customers will be
interested in the services we currently provide.
If any of the third party technologies we use become unavailable to us, we will
not be able to operate our business until equivalent technology can be
obtained.
We are highly dependent on technologies we license from Oracle, Sun
Microsystems and Microsoft, which enable us to send e-mail through the Internet
and allow us to offer a variety of targeted marketing capabilities. In
addition, our market is evolving, and we may need to license additional
technologies to remain competitive. However, we may not be able to license
these technologies on commercially reasonable terms or at all. Our inability to
obtain any of these licenses or the loss of existing licenses could delay the
development of our services until equivalent technology can be identified,
licensed or developed and integrated, which could materially adversely affect
us.
If we are unable to safeguard the confidential information in our data
warehouse, our reputation may be harmed and we may be exposed to liability.
We currently retain highly confidential customer information in a secure data
warehouse. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this data warehouse. If any
compromise or breach of security were to occur, it could harm our reputation
and expose us to possible liability. Any unauthorized access to our data
warehouse could result in the misappropriation of confidential customer
information or cause the interruption of our services. It is also possible that
one of our employees could attempt to misuse confidential customer information,
exposing us to liability. In addition, our reputation may be harmed if we lose
customer information maintained in our data warehouse due to systems
interruptions or other reasons.
Activities of our customers could damage our reputation or give rise to legal
claims against us.
Our customers' promotion of their products and services may not comply with
federal, state and local laws. We cannot predict whether our role in
facilitating these marketing activities would expose us to liability under
these laws. Any claims made against us could be costly and time-consuming to
defend. If we are exposed to this kind of liability, we could be required to
pay substantial fines or penalties, redesign our services, discontinue some of
our services or otherwise expend resources to avoid liability.
Our services involve the transmission of information over the Internet. Our
services could be used to transmit harmful applications, negative messages,
unauthorized reproduction of copyrighted material, inaccurate data or computer
viruses to end-users in the course of delivery. Any transmission of this kind
could damage our reputation or could give rise to legal claims against us. We
could spend a significant amount of time and money defending against these
legal claims.
We may be unable to protect our proprietary technology rights.
Our success depends to a significant degree upon the protection of our
software and other proprietary technology rights. We rely on trade secret,
copyright and trademark laws and confidentiality agreements with employees and
third parties, all of which offer only limited
10
<PAGE>
protection. We have no patented technology that would preclude or inhibit
competitors from entering our market. We also cannot assure you that our
competitors will not independently develop technologies that are substantially
equivalent or superior to our technologies. The reverse engineering,
unauthorized copying or other misappropriation of our proprietary technology
could enable third parties to benefit from our technology without paying us for
it. This could have a material adverse effect on us. Legal proceedings to
enforce our intellectual property rights could divert the time and attention of
management, be expensive and involve uncertainty of success.
Claims by other companies that our products infringe their proprietary rights
could adversely affect our business.
From time to time, we may have disputes over rights and obligations
concerning intellectual property. If any of our products are alleged to violate
proprietary rights of third parties, we may be required to develop non-
infringing technology or enter into licenses, which might not be available on
acceptable terms, or at all. If a successful claim of infringement were made
against us and we could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective basis, our
business could be significantly harmed.
Our business could be adversely affected if our products fail to perform
properly.
Software products as complex as ours may contain undetected errors, or bugs,
which result in product failures, or otherwise fail to perform in accordance
with customer expectations. Our products may be particularly susceptible to
bugs or performance degradation because of the emerging nature of Internet
technologies and the stress that may be placed on our products by the full
deployment of our products over the Internet. Product performance problems
could result in loss of or delay in revenues, loss of market share, failure to
achieve market acceptance, diversion of development resources, or injury to our
reputation, any of which could have a material adverse effect on us.
We are recording a significant amount of stock-based compensation expense
relating to recent stock option grants. The amortization of this compensation
expense will result in a charge to our earnings over the next four years.
Amortization of stock-based compensation represents an expense associated
with the amortization of the difference between the deemed fair market value of
common stock at the time of an option grant and the option exercise price.
Stock-based compensation is amortized over the life of the options which is
generally four years. The amortization of stock-based compensation will result
in a charge to our earnings over the next four years, which will harm our
operating results. For fiscal 1999, we recorded stock-based compensation
charges of $820,000. In addition, we expect to record an additional stock-based
compensation charge relating to option grants made after December 31, 1999 but
prior to the completion of the offering. We estimate the charge relating to
additional grants made in the quarter ending March 31, 2000 to be approximately
$7.1 million amortized over four years.
Risks Related to Our Industry
If the delivery of our e-mails is limited or blocked, our customers may
discontinue the use of our services, thereby harming our business.
Our business model relies on our ability to deliver e-mails to recipients
over the Internet through Internet service providers, commonly referred to as
ISPs, and to recipients in major corporations. In particular, a significant
percentage of our e-mails is sent to recipients who use America Online. We do
not have, and we are not required to have, an agreement with America Online to
deliver e-mails to their customers. However, America Online uses a proprietary
set of technologies to handle and
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<PAGE>
deliver e-mail and the value of our services will be reduced if we are unable
to provide e-mails compatible with these technologies. America Online and other
ISPs are able to block unwanted messages to their users. In addition, certain
currently available Internet browsers allow users to modify their browser
settings to return unwanted e-mails. If these companies or individual users
limit or halt the delivery of our e-mails, or if we fail to deliver e-mails in
such a way as to be compatible with these companies' e-mail handling
technologies, demand for our products could decrease, which would have a
material adverse effect on us.
Our business will be harmed if we fail to keep pace with rapid technological
changes.
To be competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our products and services. The
Internet and the e-marketing industry are characterized by rapid technological
change, changes in user and customer requirements and preferences, frequent new
product and service introductions and the emergence of new industry standards
and practices. The evolving nature of the Internet could render our existing
proprietary technology and systems obsolete. Our success will depend, in part,
on our ability to develop, license or acquire leading technologies useful in
our business, enhance our existing products and services, develop new products
and services and technology that address the increasingly sophisticated and
varied needs of our current and prospective users, and respond to technological
advances and emerging industry and regulatory standards and practices in a
cost-effective and timely manner. Our ability to remain technologically
competitive may also require substantial expenditures and lead-time. Our
failure to keep pace with technological changes in our industry could have a
material adverse effect on us.
If businesses and consumers fail to accept e-marketing, demand for our services
may not develop.
The market for e-marketing is new and rapidly evolving, and our business will
be harmed if sufficient demand for our products and services does not develop
as anticipated. If the market for e-marketing software does not grow as quickly
or become as large as we anticipate, our revenues will not increase as
anticipated. Demand for e-marketing, including our products and services, may
not materialize because:
. businesses that have already invested substantial resources in other
methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods;
. businesses may not understand the benefits of using our products and
services;
. consumers and businesses may choose not to accept e-marketing messages;
. businesses may elect not to engage in e-marketing because consumers may
confuse permission-based e-mail with unsolicited commercial e-mail; and
. the effectiveness of direct marketing through the use of e-mails may
diminish significantly if the volume of direct marketing saturates
consumers.
Intense competition could reduce our market share and harm our business.
The market for Internet-based e-marketing solutions is becoming intensely
competitive. If we are unable to compete effectively, we will be materially
adversely affected. Some of our current and potential competitors have greater
name recognition and substantially greater financial, technical, marketing and
other resources than we do. Therefore, they may be able to respond more quickly
than we can to new or changing opportunities, technologies, standards or
customer requirements.
In addition, we expect that new competitors will enter the market with
competing products and services as the size and visibility of the market
opportunity increases. We also expect that competition will increase as a
result of consolidations and formations of alliances among industry
12
<PAGE>
participants. Increased competition could result in reduced market share,
pricing pressures, reduced margins and failure of our products and services to
achieve or maintain market acceptance, all of which could harm our business.
Our business will be adversely affected if Internet solutions are not widely
adopted.
Because our products and services address the emerging market for Internet
marketing solutions, our future success depends in part upon the widespread
adoption of the Internet as a primary medium for commerce and business
applications. The failure of this market to develop, or a delay in the
development of this market, would have a material adverse effect on us. The
Internet has experienced, and is expected to continue to experience,
significant user and traffic growth, which has, at times, caused user
frustration with slow access and download times. Our success depends, in part,
on the Internet infrastructure, which may not be able to support the demands
placed on it by the continued user and traffic growth. Changes in, or
insufficient availability of, telecommunications services to support the
Internet could also result in slower response times and adversely affect usage
of the Internet generally. Moreover, critical issues concerning the commercial
use of the Internet, such as security, reliability, cost, accessibility,
taxation of e-commerce and quality of service, remain unresolved and may
negatively affect the growth of Internet use or the attractiveness of commerce
and business communication over the Internet. For example, the Internet could
suffer declines in its viability due to delays in the development or adoption
of new standards and protocols to handle increased activity or due to increased
government regulation and taxation of Internet commerce. Our business,
financial condition and results of operations would be seriously harmed if:
. use of the Internet, the Web and other on-line services does not continue
to increase or increases more slowly than expected;
. the infrastructure for the Internet, the Web and other on-line services
does not effectively support expansion that may occur; or
. the Internet, the Web and other on-line services do not become a viable
commercial marketplace, which would inhibit the development of electronic
commerce and of the need for our e-marketing products and services.
Our business is subject to government regulation of the Internet and other
legal uncertainties, which could negatively impact our operations.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. Recently, various states have
enacted, and other states have proposed, legislation to regulate or prohibit
unsolicited commercial e-mail. In addition, legislation is pending on the
federal level and certain countries around the world have enacted prohibitions
or regulations restricting the sending of unsolicited commercial e-mail. We do
not send unsolicited commercial e-mail and, where possible, we prohibit our
customers from doing so contractually. Nonetheless, there is a risk that these
new laws or regulations could impair our customers' marketing efforts and
reduce the demand for our products and services. Moreover, due to the increased
use of the Internet, it is likely that additional laws and regulations will be
adopted, covering issues such as privacy, pricing, content, copyrights,
distribution, taxation, antitrust, characteristics and quality of services and
consumer protection. The adoption or modification of laws or regulations may
impair the growth of the Internet or e-marketing, which would, in turn, harm
our business.
Privacy concerns and legislation may limit the information our customers can
gather, which could reduce the demand for our products and services.
Privacy concerns may cause Internet users to resist providing personal data
or avoid web sites that track the Internet behavioral information necessary to
support on-line profiling capabilities. Even
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<PAGE>
the perception of security or privacy concerns, whether or not valid, may have
a similar effect. The European Union recently adopted a directive addressing
data privacy that may limit the collection and use of certain information
regarding Internet users. This directive may limit our customers' ability to
target advertising or collect and use information in certain European
countries. In addition, legislative or regulatory requirements may heighten
these concerns if businesses must notify web site users that the data captured
after visiting their web sites may be used to direct product promotion and
advertising to that user. Other countries and political entities, such as the
European Union, have adopted these types of restrictions. The United States may
adopt similar legislation or regulatory requirements. The Federal Trade
Commission and several states are investigating the use by Internet companies
of personal information. If privacy legislation is enacted or consumer privacy
concerns are not adequately addressed, our business could be harmed.
Risks Relating to this Offering
The price of our common stock may be volatile, and you may not be able to sell
your shares at or above the offering price.
Prior to this offering, our common stock has not been publicly traded, and an
active trading market may not develop or be sustained after this offering. The
initial public offering price will be determined by negotiations between the
representatives of the underwriters and us. In addition, you may not be able to
sell your shares at or above the offering price. The stock markets have in
general, and with respect to Internet-related technology companies in
particular, recently experienced extreme stock price and volume volatility,
often unrelated to the financial performance of particular companies. The price
at which our common stock will trade after this offering is likely to also be
highly volatile and may fluctuate substantially due to factors such as the
following:
. actual or anticipated fluctuations in our operating results;
. changes in or our failure to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new products and services by us or our competitors;
. conditions and trends in the Internet and other technology industries;
. future sales of equity or debt securities; and
. general economic and market conditions.
Our executive officers, directors and major stockholders will retain
significant control over us after this offering, which may lead to conflicts
with other stockholders over corporate governance matters.
After this offering, our executive officers, directors and current holders of
5% or more of our outstanding common stock will, in the aggregate, own
approximately % of our outstanding common stock. These stockholders would be
able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
delay, deter or prevent a change in our control and may make some transactions
more difficult or impossible to complete without the support of these
stockholders.
Substantial sales of our common stock into the market in the near future may
cause the market price of our common stock to drop significantly.
Sales in the market of a substantial number of shares of our common stock
after the offering could adversely affect the market price of our common stock
and could impair our ability to raise
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<PAGE>
capital through the sale of additional equity securities. On completion of this
offering, we will have shares of common stock outstanding, or
shares if the underwriters' option to purchase additional shares is exercised
in full. The shares sold in this offering, which will be
shares if the underwriters' option to purchase additional shares is exercised
in full, will be freely tradable without restriction or further registration
under the federal securities laws unless purchased by our "affiliates" as that
term is defined in Rule 144 of the Securities Act. The remaining shares
of our common stock outstanding on completion of this offering will be
"restricted securities" as that term is defined in Rule 144.
Substantially all of the holders of our common stock and stock options are
subject to agreements that limit their ability to sell common stock. These
holders cannot sell or otherwise dispose of any shares of common stock for a
period of at least 180 days after the date of this prospectus without the prior
written approval of Donaldson, Lufkin & Jenrette Securities Corporation.
However, if the average price of our shares appreciates by a specified amount
following the date of this prospectus, those holders who are not officers of
MarketFirst may be eligible to sell up to 25% of their shares either 90 days
after the date of this prospectus or on the second trading day following the
release of our next quarterly financial statements, whichever day comes later.
Under these agreements, such holders may also be eligible to sell an additional
25% of their shares 135 days after the date of this prospectus if the average
price of our shares continues to equal or exceed the targeted amount. When
these agreements expire, all of the shares of common stock and the shares
underlying the options will become eligible for sale, in most cases only
pursuant to the volume, manner of sale and notice requirements of Rule 144. See
"Shares Eligible for Future Sale" and "Underwriting."
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock plans.
Based upon the number of shares subject to outstanding options currently
reserved for issuance under both of these plans, this registration statement
would cover approximately 4,800,000 shares. Shares registered under the
registration statement will generally be available for sale in the open market
immediately after the 180-day lock-up agreements expire.
In addition, some of our stockholders have registration rights with respect
to approximately 18,152,917 shares of common stock and common stock
equivalents. Registration of these registrable securities under the Securities
Act of 1933 would result in those shares becoming freely tradeable without
restriction under the Securities Act of 1933. See "Description of Capital
Stock--Registration Rights" for a description of our outstanding registration
rights.
You will experience immediate and substantial dilution upon completion of this
offering.
The initial public offering price of the common stock is substantially higher
than the pro forma net tangible book value per share of our outstanding common
stock. As a result, you will incur immediate and substantial dilution of $
per share based upon an initial public offering price of $ per share. In
the event we issue additional shares of common stock in the future, you may
experience further dilution. Furthermore, we have issued options to purchase
common stock at prices significantly below the initial public offering price.
To the extent such options are exercised, you will experience further dilution.
We plan to adopt anti-takeover provisions that could affect the market price of
our common stock or our ability to sell our business.
Certain provisions of our amended and restated certificate of incorporation
and our bylaws, which will be in effect upon the closing of this offering,
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. Upon the closing of this offering, our
board of directors will have the authority to issue up to five million shares
of preferred
15
<PAGE>
stock. Our board of directors can fix the price, rights, preferences,
privileges and restrictions of the preferred stock without any further vote or
action by our stockholders.
The issuance of shares of preferred stock may delay or prevent a change in
control transaction. As a result, the market price of our common stock and the
voting and other rights of our stockholders may be adversely affected. The
issuance of preferred stock may result in the loss of voting control to other
stockholders. We have no current plans to issue any shares of preferred stock.
Our charter documents also contain other provisions which may discourage,
delay or prevent a merger or acquisition, including:
. only one of the three classes of directors is elected each year;
. our stockholders have no right to remove directors without cause;
. our stockholders have no right to act by written consent;
. our stockholders have no right to call a special meeting of stockholders;
and
. stockholders must comply with advance notice requirements to nominate
directors or submit proposals for consideration at stockholder meetings.
Our management has broad discretion over use of the proceeds from this offering
and may use the proceeds in ways with which you do not agree.
The net proceeds of this offering are estimated to be approximately $
million after deducting the underwriting discount and estimated offering
expenses. Our management will retain broad discretion as to the allocation of
some of the proceeds of this offering and may apply the proceeds in ways with
which you do not agree. The failure of management to apply these funds
effectively could materially harm our business.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. All forward-looking statements contained in this prospectus are
subject to numerous risks and uncertainties. Actual events or results may
differ materially. In evaluating these statements you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We are under no duty
to update any of the forward-looking statements after the date of this
prospectus.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of shares of common
stock we are selling in this offering will be approximately $ million, at
an assumed initial public offering price of $ per share, after deducting
estimated offering expenses of approximately $ million and underwriters'
discounts and commissions payable by us. If the underwriters exercise their
over-allotment option in full, then the net proceeds will be approximately
$ million.
We expect to use the net proceeds of this offering for working capital and
other general corporate purposes, including expanding our sales and marketing
efforts, capital expenditures and strategic acquisitions, although we currently
have no commitments to make any additional acquisitions. As of the date of this
prospectus, we cannot specify with certainty the particular uses for the net
proceeds we will receive upon the completion of this offering. Accordingly, our
management will have broad discretion in the application of the net proceeds.
Pending these uses, we intend to invest the net proceeds from this offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends on our capital stock in the
foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and short term
investments and our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the payment of $2.5 million cash and the
issuance of 784,314 shares of common stock in connection with our
expected acquisition of FusionDM and the related pro forma combining
adjustments; and
. on a pro forma as adjusted basis to reflect the conversion of our
outstanding preferred stock and a warrant to purchase Series D preferred
stock into 15,932,805 shares of common stock immediately prior to the
completion of this offering, and the $ net proceeds from the sale of
the shares of common stock offered hereby, at an assumed initial public
offering price of $ per share, after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us.
The table below does not include:
. 2,440,965 common shares issuable upon the exercise of outstanding options
as of March 31, 2000, with a weighted average exercise price of $0.57 per
share;
. 28,000 common shares issuable upon the exercise of a warrant outstanding
as of March 31, 2000 at an exercise price equal to 85% of the initial
public offering price; and
. 4,800,000 shares reserved for future issuance under our stock plans upon
the close of this offering.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents and short-term
investments................................... $ 13,316 $ 10,938 $
======== ========= =====
Redeemable convertible preferred stock and
warrant, $0.001 par value; 44,640,000 shares
authorized, 39,530,294 shares issued and
outstanding, actual and pro forma; no shares
authorized, issued and outstanding, pro forma
as adjusted................................... $ 30,879 $ 30,879 --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value; no shares
authorized, issued or outstanding, actual and
pro forma, 5,000,000 shares authorized, none
issued and outstanding, pro forma as
adjusted..................................... -- -- --
Common stock, $.001 par value; 45,000,000
shares authorized, actual and pro forma;
4,889,838 and 5,674,152 shares issued and
outstanding, actual and pro forma; and
70,000,000 shares authorized and issued
and outstanding, pro forma as adjusted....... 5 5
Additional paid-in capital.................... 3,262 13,262
Deferred stock compensation................... (1,950) (1,950)
Notes receivable from stockholders............ (207) (207)
Accumulated deficit........................... (17,988) (17,988)
-------- --------- -----
Total stockholders' equity (deficit)......... (16,878) (6,878)
-------- --------- -----
Total capitalization........................ $ 14,001 $ 24,001 $
======== ========= =====
</TABLE>
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999 was $ million, or approximately $ per share. Pro forma net
tangible book value per share represents our total pro forma stockholders'
equity less pro forma intangible assets divided by the number of shares of
common stock outstanding, giving effect to the issuance and conversion of all
outstanding shares of our preferred stock into shares of our common stock.
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 estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book
value would have been $ million, or approximately $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $ per share to new investors of common stock in
this offering. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $
Pro forma net tangible book value per share as of March 31, 1999...... $
Increase per share attributable to new investors......................
---
Pro forma net tangible book value per share after this offering........
---
Dilution per share to new investors.................................... $
===
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, before deducting underwriting discounts and commissions and estimated
offering expenses payable by us, at an assumed initial public offering price of
$ per share.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- -------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New investors .......................
---- ----- ----- -----
Total............................... 100.0% 100.0%
==== ===== ===== =====
</TABLE>
To the extent that any shares are issued upon exercise of options and
warrants that were outstanding as of March 31, 1999 or granted after that date,
or reserved for future issuance under our stock plans, there will be further
dilution to new investors.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and the related notes as well as "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this prospectus. The statement of operations data presented for
the years ended December 31, 1997, 1998 and 1999 and the balance sheet data as
of December 31, 1998 and 1999 are derived from our audited financial
statements, which have been audited by KPMG LLP, our independent auditors, and
are included elsewhere in this prospectus. The statement of operations data for
the period from inception through December 31, 1996 and the balance sheet data
as of December 31, 1996 and 1997 are derived from our audited financial
statements not included in this prospectus.
<TABLE>
<CAPTION>
Period from
August 9, 1996 Year Ended December 31,
(Inception) to --------------------------
December 31, 1996 1997 1998 1999
----------------- ------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Software hosting............... -- -- -- 339
Software licenses.............. $ -- $ -- $ 20 $ 369
Professional services.......... -- -- 17 556
------ ------- ------- --------
Total revenues................ -- -- 37 1,264
------ ------- ------- --------
Cost of revenues:
Software hosting............... -- -- -- 150
Software licenses.............. -- -- 2 29
Professional services.......... -- -- 2 286
------ ------- ------- --------
Total cost of revenues........ -- -- 4 465
------ ------- ------- --------
Gross profit................... -- -- 33 799
Operating expenses:
Research and development....... 45 751 2,245 3,470
Sales and marketing............ -- 103 3,384 5,600
General and administrative..... 25 384 974 1,210
Stock-based compensation....... -- 30 91 820
------ ------- ------- --------
Total operating expenses...... 70 1,268 6,694 11,100
------ ------- ------- --------
Operating loss................ (70) (1,268) (6,661) (10,301)
Interest (expense) income, net.. (1) (2) 92 303
------ ------- ------- --------
Net loss........................ (71) (1,270) (6,569) (9,998)
Accretion and dividend on
redeemable convertible
preferred stock................ -- (56) -- (24)
------ ------- ------- --------
Net loss attributable to common
stockholders................... $ (71) $(1,326) $(6,569) $(10,022)
====== ======= ======= ========
Basic and diluted net loss per
share attributable to common
stockholders................... $(0.16) $ (0.78) $ (2.37) $ (2.96)
====== ======= ======= ========
Shares used in per share
computations................... 446 1,696 2,770 3,381
Pro forma basic and diluted net
loss per share................. $ (0.68)
========
Shares used in pro forma per
share computation.............. 14,677
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------
1996 1997 1998 1999
---- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments................................ $225 $ 421 $ 261 $ 13,316
Total assets................................ 236 495 961 15,033
Working capital (deficit)................... 178 340 (640) 13,219
Redeemable convertible preferred stock and
warrants................................... 239 1,581 7,634 30,879
Total stockholders' deficit................. (50) (1,264) (7,714) (16,878)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial
statements and the related notes included elsewhere in this prospectus. This
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
We are a leading provider of a comprehensive hosted e-marketing solution that
enables organizations to execute interactive marketing campaigns over the
Internet. Our solution, an integrated offering of comprehensive hosted e-
marketing software and strategic e-marketing consulting services, enables
organizations to design, execute and measure the effectiveness of e-marketing
campaigns that combine innovative on-line and proven marketing strategies and
tactics. We believe our solution helps our customers rapidly capture market
share and build stronger customer relationships. Our comprehensive e-marketing
solution is comprised of four core components: an e-marketing software
platform; software templates for e-marketing campaigns called eMarketing
Blueprints; a hosted service; and strategic e-marketing consulting and
implementation services.
From inception in August 1996 through December 1998, we primarily focused on
research and development activities, building our corporate infrastructure and
raising capital. In March 1998, we released our first commercial product,
MarketFirst version 1.0, which we sold on a license basis. In the second half
of 1998, we completed our development work on the hosted version of our product
and in November 1998, released our hosted product, MarketFirst version 1.5. We
continued our development efforts and released version 2.0 in July 1999. We
have subsequently issued upgrade releases through version 2.3. In addition, in
September 1999, we unveiled our myMarketFirst.com destination site, where
potential customers who are exploring the benefits of e-marketing solutions can
test our e-marketing solution through a trial campaign or on a pay-per-use
basis before committing to a long-term hosted or installed implementation. In
1999, we significantly expanded our sales, marketing and customer support
efforts in conjunction with the launch of our hosted service. To facilitate our
growth and infrastructure needs, we have increased our employee base from 12 at
December 31, 1997 to 76 at December 31, 1999. In addition, our employee base
increased by 38 employees in the period January 1, 2000 to March 31, 2000.
We derive our revenues from three sources: hosted service, software licenses
and professional services.
Hosting Revenues. We derive hosting revenues from hosting the software
application for our customers on servers in our data center, managing the
installation, upgrade and maintenance of the software and hardware, and
providing the program deployment through a secure Internet connection. We base
the pricing of our hosted service on a combination of items, including the size
of the organization, which is based on the number of employees and/or annual
revenues, the level of service and database management required, and the
campaign activity volume. We recognize revenues for our hosted service on a
monthly basis, as the service is provided over the term of the agreement, which
is generally six to twelve months.
License Revenues. We derive software license revenues from the sale of
perpetual licenses of our product for in-house installation. We recognize
software license revenues upon shipment, provided that a signed contract is in
place, the fee is fixed and determinable, and collection of the resulting
receivable is probable.
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Professional Services Revenues. We derive professional services revenues from
consulting services provided to our customers on either a fixed fee or time and
materials basis. These services include developing e-marketing strategies,
campaign design, media selection and planning, marketing campaign management
and measurement techniques as well as systems implementation and maintenance.
We recognize revenues for services on a monthly basis as the services are
provided. Maintenance revenues from annual post-contract support services for
license sales, which are billed in advance and are non-refundable, are included
in our professional services revenues. We recognize maintenance revenues
ratably over the period of the maintenance contract, which is typically one
year.
We have incurred net losses in each fiscal quarter since inception, and as of
December 31, 1999, had an accumulated deficit of $18.0 million. These losses
resulted from costs incurred in the development and sale of our products and
services. We expect that our operating expenses will increase substantially in
the foreseeable future as we continue to expand product development, sales and
marketing capacity, hosting infrastructure and professional services efforts.
As a result, even though we anticipate revenue growth, we will continue to
generate net losses for the foreseeable future.
We believe that period-to-period comparisons of our operating results are not
meaningful and should not be relied upon as an indication of our future
performance. Our limited operating history makes prediction of future operating
results difficult. Our prospects must be considered in light of the risks,
expenses and difficulties typically encountered by companies transitioning from
the development phase into operations, particularly companies in new and
rapidly evolving markets like ours.
Acquisition of FusionDM
In April 2000, we entered into an agreement to acquire Times Direct
Marketing, Inc., also known as FusionDM, a direct marketing consulting agency,
pursuant to a merger of FusionDM with and into our wholly-owned subsidiary. We
plan to account for the acquisition as a purchase. Under the terms of the
merger agreement, the two shareholders of FusionDM will be paid in the
aggregate the following:
. $2.5 million to be paid at the close of the acquisition, and additional
cash consideration to be paid over two years based on the achievement of
certain operating objectives of our wholly-owned subsidiary, the
surviving corporation in the merger; and
. Up to an estimated 1,568,628 shares of our common stock, consisting of
784,314 shares to be issued at the close of the acquisition, with the
remaining 784,314 shares to be placed in escrow to be released ratably,
subject to the achievement of certain operating objectives of our wholly-
owned subsidiary, on an annual basis over the next three years. The
actual number of shares to be issued could be greater than the estimated
1,568,628 shares and is dependent, in part, on the initial filing range
to be provided to the SEC in connection with this offering.
We expect to allocate the purchase price to acquired tangible assets of $3.9
million, offset by assumed liabilities of $4.1 million, and goodwill and
intangible assets of $12.8 million. The intangible assets, compromising
assembled workforce, customer lists, tradenames and FusionDM's marketing
process, aggregating $5.8 million, and goodwill of $7.0 million will be
amortized over useful lives of two to four years. Annual amortization will
approximate $3.4 million.
Times Direct Marketing, Inc. was incorporated in California in March 1992.
Its revenues totaled $2.2 million in 1998 and $5.5 million in 1999. Revenues
were comprised primarily of service fees delivered on a time and materials or
fixed fee basis. Time and material services are recognized monthly, based on
costs incurred, as services are provided. Revenue from fixed fee agreements are
recognized ratably over the life of the contract on a percentage of completion
basis. Revenue for services is presented net of reimbursed costs. These costs
includes printing, postage, prizes and other
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direct out-of-pocket expenses. On a pro forma basis, the combined revenues of
MarketFirst and FusionDM were $6.7 million in 1999.
Results of Operations
Years Ended December 31, 1997, 1998 and 1999
Revenues
Total Revenues. Total revenues increased from $37,000 in 1998 to $1.3 million
in 1999, as we only began recognizing revenues in the second half of 1998. We
did not recognize revenues in 1997 as we were still in a research and
development stage. Two customers represented all of our total revenues in 1998,
and a different customer represented 15% of our total revenues in 1999.
Hosting. In March 1999, we began recognizing hosting revenues, which totaled
$339,000 in 1999.
License. In August 1998, we began recognizing license revenues, which
increased from $20,000 in 1998 to $369,000 in 1999.
Professional Services. Professional services revenues increased from $17,000
in 1998 to $556,000 in 1999. In June 1998, we began recognizing service
revenues, and in November 1998, we began recognizing maintenance revenues.
Cost of Revenues
Total Cost of Revenues. Total cost of revenues was $4,000 in 1998 and
$465,000 in 1999. We did not recognize any cost of revenues in 1997 as we were
still in a research and development stage. The increase in cost of revenues was
due to the launch of our hosted service at the beginning of 1999 and the
significant growth in 1999 sales over 1998.
Hosting. Cost of hosting revenues consists primarily of depreciation of
capital equipment used to host our product, monthly recurring data center
costs, royalties for third-party software used in our product and personnel
costs. Cost of hosting revenues was $150,000 in 1999 . Cost of hosting revenues
included start-up costs primarily related to investments in purchased software
and hardware required for the deployment of our hosted service. These costs are
capitalized and amortized to cost of sales over the useful lives of the
software and equipment, generally two years. Periodically, we expect to acquire
new software and hardware supporting our servers and Internet connections to
facilitate ongoing customer growth. However, as economies of scale begin to
build, we anticipate that cost of revenues for hosting will decline as a
percentage of total hosting revenues over time.
License. Cost of license revenues consists primarily of royalties for the
sublicensing of third-party software included with our product, packaging and
documentation. Cost of license revenues was $2,000 and $29,000 in 1998 and
1999. The increase in cost of license revenues was primarily attributable to an
increase in the number of licenses sold in 1999.
Professional Services. Cost of professional services revenues consists
primarily of personnel costs for consulting, support, maintenance and upgrades,
and training. Cost of professional services revenues was $2,000 in 1998 and
$286,000 in 1999. The increase in cost of professional services revenues was
primarily attributable to the increase in consulting and maintenance activities
for new customers added in 1999 and an increase in the number of personnel
supporting these activities.
Operating Expenses
Research and Development. Research and development expenses are associated
with the development of new products, quality assurance and testing costs
incurred prior to commercial
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production. These expenses consist primarily of personnel, development tools
and equipment. Research and development expenses were $751,000, $2.2 million
and $3.5 million in 1997, 1998 and 1999. The increase for each of the periods
was primarily due to an increase in personnel, the increased use of consulting
services for engineering and software development and the acquisition of new
development hardware.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel expenses, sales commissions, travel, public relations, trade shows
and brand development. Sales and marketing expenses were $103,000, $3.4 million
and $5.6 million in 1997, 1998 and 1999. The increase for each of these periods
was primarily due to an increase in personnel and a significant increase in
sales and marketing activities in conjunction with the launch of the
MarketFirst 1.5 and 2.0 products in 1999.
General and Administrative. General and administrative expenses consist
primarily of personnel and other related costs for executive management,
finance, human resources, facilities management, accounting, tax, legal and
other professional fees and services. General and administrative expenses were
$384,000, $1.0 million and $1.2 million in 1997, 1998 and 1999. The significant
increase in general and administrative expenses from 1997 to 1998, was
primarily due to an increase in personnel as well as increases in legal,
recruiting, travel, and general facilities and office expenses. We expect
general and administrative expenses to increase in 2000 to support our planned
growth.
Amortization of Stock-based Compensation. We recorded $30,000, $91,000 and
$820,000 of stock-based compensation expenses in operating expenses in 1997,
1998 and 1999. These non-cash expenses represent the difference between the
exercise price and the estimated fair value of our common stock at the date the
related stock options were granted, and are expensed over the vesting period,
which is typically four years. Stock-based compensation on unvested options is
deferred and included as a component of stockholders' equity. The stock-based
compensation totaled $2.0 million as of December 31, 1999, and will result in
additional charges to operations through 2003.
Interest Income. We derived interest income primarily from short-term
investments of cash balances resulting from equity financings and receivables.
Interest income was $5,000, $101,000 and $312,000 in 1997, 1998 and 1999.
Net Operating Loss Carryforwards. As of December 31, 1999, we had net
operating loss carryforwards for Federal and state tax purposes of
approximately $14.8 million and $10.1 million, respectively that expire on
various dates beginning in 2003. The Internal Revenue Code of 1986
substantially restricts the ability of a corporation to utilize existing net
operating losses in the event of a significant change in ownership. Upon the
occurrence of certain events, including a change in ownership, utilization of
our net operating losses may be subject to limitations in future years.
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Quarterly Results of Operations
The following table sets forth the unaudited statement of operations data for
the four quarters ended December 31, 1999. We have derived this information
from our unaudited quarterly financial statements, which in management's
opinion, have been prepared on the same basis as our audited annual financial
statements and include all adjustments necessary for the fair presentation of
the information when read in conjunction with the audited financial statements
and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
--------- -------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Software hosting................. $ 3 $ 41 $ 100 $ 195
Software licenses................ 32 30 167 140
Professional services............ 42 161 142 211
------- ------- ------- -------
Total revenues.................. 77 232 409 546
------- ------- ------- -------
Cost of revenues:
Software hosting................. 2 12 58 78
Software licenses................ 20 3 3 3
Professional services............ 15 42 98 131
------- ------- ------- -------
Total cost of revenues.......... 37 57 159 212
------- ------- ------- -------
Gross profit...................... 40 175 250 334
------- ------- ------- -------
Operating expenses:
Research and development......... 905 883 796 886
Sales and marketing.............. 1,292 1,108 1,316 1,884
General and administrative....... 278 325 296 311
Stock-based compensation......... 85 122 212 401
------- ------- ------- -------
Total operating expenses........ 2,560 2,438 2,620 3,482
------- ------- ------- -------
Operating loss.................... (2,520) (2,263) (2,370) (3,148)
Interest income................... 43 35 39 195
Interest and other expense........ (3) (4) (1) (25)
------- ------- ------- -------
Net Loss.......................... $(2,480) $(2,232) $(2,332) $(2,978)
======= ======= ======= =======
</TABLE>
We experienced significant growth in sales and operating expenses in 1999 as
we developed our customer base, added employees and expanded our
infrastructure. From December 31, 1998 until December 31, 1999, the number of
our customers increased from 2 to 32. Total revenues increased quarter over
quarter in 1999 as a direct result of increased sales of licenses, hosted
services and professional services. In general, total revenues grew each
quarter in relation to the expansion of our customer base. We completed a large
project for one of our early customers in the quarter ended June 30, 1999 and
as a result professional services revenues for that quarter were slightly
higher than for the quarter ended September 30, 1999. Overall, cost of revenues
grew each quarter in relation to the increase in revenues. Operating expense
growth, particularly in the quarter ended December 31, 1999, was primarily the
result of increased personnel costs to support our sales, consulting and
customer support services and increased sales and marketing expenditures as we
expanded our sales and marketing efforts. Research and development expenses
decreased slightly in the quarters ending June 30, 1999 and September 30, 1999,
primarily due to temporary reductions in personnel.
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Our operating results have varied on a quarterly basis during our short
operating history. We expect to experience significant fluctuations in our
future operating results due to a variety of factors, many of which are outside
of our control. Factors that may affect our operating results include, among
others:
. varying size, timing and contractual terms of orders for our products and
services;
. timing and significance of the commercial release of new or enhanced
products and services by us and our competitors;
. demand for our e-marketing products and services and price competition;
. changes in our operating expenses as we expand operations; and
. general economic factors.
Unfavorable changes in any of the above factors could materially and
adversely affect our revenues, gross margins, results of operations in future
periods and the market price of our common stock. As a result, you should not
rely upon period-to-period comparisons of our results of operations as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year.
Liquidity and Capital Resources
Since our inception, we have financed our operations with $31.5 million
raised through the private sale of our equity securities. As of December 31,
1999, we had available $13.3 million in cash, cash equivalents and short-term
investments.
Net cash used for operating activities was $1.2 million, $5.6 million and
$9.5 million in 1997, 1998 and 1999. Net cash used for operating activities was
primarily to fund net losses from operations.
Net cash used for investing activities was $16,000, $608,000 and $6.6 million
in 1997, 1998 and 1999. Since 1997, our investing activities have primarily
consisted of equipment purchases to facilitate research and development,
implementation of our hosting infrastructure and employee growth. Net cash used
for investing activities was primarily the result of $669,000 in purchases of
equipment, investments of $9.9 million of proceeds from equity financings into
short-term investments and $4.0 million of maturities in short-term-investments
in 1999. We expect to make material capital expenditures in the near future to
expand our hosted infrastructure to accommodate future growth and for our
expansion into new corporate headquarters.
Net cash provided by financing activities was $1.4 million in 1997, $6.0
million in 1998 and $23.2 million in 1999. Substantially all of the net cash
provided by financing activities resulted from sales of our preferred stock.
In January 2000, we put in place an irrevocable letter of credit for $1.2
million as security against the lease of our new corporate office facility.
This letter of credit will remain in place for seven years. The dollar
requirement is reduced in the fifth year to approximately $833,000 and in the
seventh year to approximately $416,000.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents and short-term investments, will be
sufficient to meet our anticipated cash needs for working capital and expense
requirements for at least the next twelve months. Thereafter, we may find it
necessary to raise additional equity or debt financing. However, we may also
find it necessary to raise additional funds sooner to provide for additional
expansion, develop new or enhanced services, respond to competitive pressures
or facilitate acquisitions. If adequate funds are not available on acceptable
terms, our business may be harmed.
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Year 2000 Compliance
In late 1999, we completed a review of our product and internal systems for
year 2000 compliance. We experienced no significant disruptions in our products
or with our information technology and non-information technology systems and
believe that these systems successfully responded to the year 2000 date change.
We incurred approximately $35,000 in connection with this review. We are not
aware of any material problems resulting from year 2000 issues, either with our
products, our internal systems or the products or services of third parties we
utilize.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No,
133, "Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative securities
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. We do not believe that this will have a
material effect on our financial statements as we do not hold any derivative
financial instruments and do not engage in hedging activities. We will adopt
SFAS No. 133 as required for years beginning after June 15, 2000.
In March 2000, the Emerging Issues Task Force (EITF) published their
consensus on EITF Issue No. 00-2, Accounting for Web Site Development Costs,
which requires that costs incurred during the development of web site
applications and infrastructure, involving developing software to operate the
web site, including graphics that affect the "look and feel" of the web page,
and all costs relating to software used to operate a web site should be
accounted for under Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use (SOP 98-1). However,
if a plan exists or is being developed to market the software externally, the
costs relating to the software should be accounted for pursuant to FASB
Statement No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed (SFAS No. 86). We will be required to adopt EITF
No. 00-2 in its first fiscal quarters, beginning after June 30, 2000, although
earlier application is encouraged. To date, we have not entered into activities
covered by EITF 00-2, as all software developed internally has been offered
under license to customers.
In March 2000, the EITF published their consensus on EITF Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. The issue states that a software element covered by SOP 97-2
is only present in a hosting arrangement if the customer has the contractual
right to take possession of the software at any time during the hosting period
without significant penalty and it is feasible for the customer to either run
the software on its own hardware or contract with another party unrelated to
the vendor to host the software. Our hosting arrangements generally do not
allow customers the contractual right to take possession of the software
without significant penalty.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements as amended by SAB 101A, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
We will adopt SAB 101 effective April 1, 2000, as required. We do not expect
the adoption of SAB 101 to have a material effect on our consolidated financial
position or results of operations.
Qualitative and Quantitative Disclosures About Market Risk
To date, we have provided our products and services primarily to customers in
the United States. As a result, it is unlikely, at this time, that our
financial results could be directly affected by
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factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. All of our sales are currently denominated in
U.S. dollars.
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we earn on our
short-term investment portfolio. We plan to ensure the safety and preservation
of our invested funds by limiting default risk, market risk and reinvestment
risk by investing in high credit quality securities.
Inflation and Foreign Currency Risk
Inflation has not had a significant impact on our operations during the
periods covered by the financial statements included in this prospectus.
Additionally, we are not presently subject to significant foreign exchange
risk. If we are affected by inflation or foreign currency fluctuations in the
countries where we expect to have operations, we could be adversely affected.
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BUSINESS
We are a leading provider of a comprehensive hosted e-marketing solution that
enables organizations to execute interactive marketing campaigns over the
Internet. Our solution, an integrated offering of comprehensive hosted e-
marketing software and strategic e-marketing consulting services, enables
organizations to design, execute and measure the effectiveness of e-marketing
campaigns that combine innovative on-line and proven marketing strategies and
tactics. Using our solution, organizations can initiate a broad range of
proactive customer interactions, improve the value of each interaction,
capitalize on new market opportunities, and measure e-marketing effectiveness.
We offer our comprehensive e-marketing solution as a hosted service or as a
traditional software license and through our destination site,
myMarketFirst.com. We have over 30 customers, including such recognized
industry leaders as General Electric Company, GTE, NorthPoint Communications,
Quantum Corporation and Rhythms NetConnections. As a result of our planned
acquisition of FusionDM, we expect to add additional customers such as 3Com,
21st Century Insurance and eBay.
Industry Background
The Importance of Effective e-Marketing
The Internet is transforming the way business is conducted across many
different industries, and it is allowing companies to reach a broader base of
customers globally. The immediate availability of information on the Internet
is allowing businesses to create new, large scale and highly efficient markets
or exchanges where business transactions and relationships are conducted
electronically. International Data Corporation, or IDC, estimates that the
total value of goods and services purchased by businesses and consumers over
the Internet will increase from approximately $111 billion in 1999 to $1.3
trillion in 2003. In addition, IDC expects that 58% of total on-line commerce
in 1999 will be attributable to on-line business-to-business commerce, which
will grow to 74% of total on-line commerce by 2003.
The growth of on-line commerce is generating tremendous competition for on-
line market share and on-line customers. New, often well-funded, Internet-based
businesses, referred to as ".coms," are seeking to quickly gain scale and
differentiate themselves from numerous other on-line businesses. At the same
time, established businesses are seeking to defend their business franchises
and customer bases from new on-line competitors, and they are trying to capture
a large share of on-line revenues themselves. As a result of the intense
competition for on-line market presence and customers, effective on-line
marketing is increasing in strategic importance. Businesses are spending
significant amounts of money to build web sites and on-line business operations
that will attract customers, to advertise those web sites and on-line
businesses and effectively position them in the marketplace, to generate
customer orders and revenues from on-line traffic, and to retain existing
on-line customers.
At the same time, the nature of the Internet has dramatically expanded the
complexity and potential of marketing. Marketing is shifting from off-line one-
directional mass marketing programs to interactive, dynamic and personalized
on-line marketing tactics and strategies, often referred to as "e-marketing."
Over the Internet, organizations can customize marketing messages to better
communicate their value propositions, develop deeper relationships with their
key customers, partners, and prospects, and more effectively track and measure
customer behavior and marketing effectiveness. The Direct Marketing
Association, or DMA, estimates that Internet-based interactive direct marketing
expenditures will reach $9 billion by 2004.
The Emergence of Internet Applications and Hosted Services
As the functionality and security of the Internet have increased, many
organizations have begun to deploy and access business applications on-line.
More recently, an increasing number of
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organizations are leveraging the Internet to outsource the management of
business applications. Historically, corporate software deployment has been a
time-consuming and costly process, and enterprise software applications
typically required large initial investments in software licenses and hardware
equipment, and entailed lengthy implementation periods and substantial
dedicated information technology, or IT, resources for upgrade and maintenance.
In contrast, in a hosted environment, the network and hardware infrastructures
are provided by a third-party at a central, off-site location, and the software
applications are accessed remotely through web browsers. This affords
organizations the following benefits:
. increased availability as users can access applications from anywhere
where a standard web browser is available;
. the ability to scale to accommodate a large number of users;
. shorter implementation cycles as applications can be configured centrally
and rapidly deployed;
. reduced need and associated costs for in-house IT personnel to implement
and manage the applications; and
. lower initial investment and total cost of ownership.
Forrester Research estimates that worldwide spending on hosted applications
will grow from $700 million in 1999 to $6 billion by 2003.
We believe that e-marketing represents a significant hosted application
market opportunity. A hosted e-marketing solution can allow organizations to
more quickly capture market opportunities, a critical differentiator in today's
competitive on-line markets. In addition, marketing departments are often
overwhelmed by the demands and growth of on-line commerce and welcome a
solution that requires minimal initial personnel and capital resource
commitments.
Limitations of Existing Solutions
While organizations have invested in software applications to manage
Internet-based transactions, analyze data generated from web site visits, and
automate customer support, they have had limited success in utilizing the
Internet to improve e-marketing effectiveness. We believe this has been due to
the following factors:
Personalized Interaction. Many existing solutions deliver untargeted, mass e-
mails, and are not developed for a higher degree of personalized customer
interaction and education. The need for interactive and educated selling is
especially critical in business-to-business transactions and high-end consumer
marketing.
Multi-Channel Integration. Many existing solutions frequently cannot
integrate existing marketing channels such as print, fax and broadcast with
Internet channels, nor do they adequately leverage existing customer
information generated from non-Internet based marketing activities.
Campaign Best Practices. Many existing solutions do not provide "out-of-the-
box" functionality that incorporates marketing best practices to assist
organizations in rapidly creating effective e-marketing campaigns.
Campaign Measurement. Many existing solutions lack the capability to measure
return on marketing investment. Without this capability, organizations are
unable to test and measure the effectiveness of a marketing campaign in real-
time, and thus cannot modify marketing tactics to optimize the marketing
effort.
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Hosted Services. Many existing marketing solutions are not offered as a
hosted service, which makes it difficult for time and resource constrained
marketing departments to implement e-marketing campaigns rapidly.
Strategic e-Marketing Consultation. Many existing solutions do not provide
strategic consulting services to ensure the successful design and
implementation of effective e-marketing campaigns.
The MarketFirst Solution
We provide an e-marketing solution that we believe helps our customers
rapidly capture market share and build stronger customer relationships. Our
solution, an integrated offering of comprehensive hosted e-marketing software
with strategic e-marketing consulting services, enables organizations to
design, execute and measure the effectiveness of e-marketing campaigns that
combine innovative on-line and proven marketing strategies and tactics. Using
our solution, organizations can initiate a broad range of proactive customer
interactions, improve the value of each interaction, capitalize on new market
opportunities and measure e-marketing effectiveness.
Our comprehensive e-marketing solution is comprised of four core components:
. Our e-marketing software platform is the foundation of our solution and
provides an easy-to-use, interactive design environment to design and
execute automated e-marketing campaigns.
. Our eMarketing Blueprints are software templates that provide pre-built
e-marketing campaigns based upon e-marketing best practices.
. Our hosted service allows our customers to focus on improving the value
of their marketing investments, while eliminating the need to manage the
underlying information technology.
. Our strategic e-marketing consulting services extend our e-marketing
expertise to our customers, enabling the creation, implementation and
measurement of innovative and effective e-marketing campaigns and
strategies to maximize the return on their marketing investment.
We believe our e-marketing solution provides our customers with the following
key benefits:
Accelerate "Time-to-Value." Our solution helps our customers quickly launch
effective e-marketing campaigns to capture new market opportunities. The "best
practices" knowledge contained within our eMarketing Blueprints allows
organizations to quickly create, test and launch e-marketing campaigns. Typical
implementation times for our e-marketing campaigns range from three to 30 days.
The easy-to-use interface of our e-marketing platform also allows organizations
to build sophisticated campaigns quickly by using visual elements like forms
and flowchart blocks.
Focus on e-Marketing. By using our hosted service, our customers can leverage
their constrained IT resources, reduce their technical risk and outsource non-
core technology competencies. We manage the installation, program deployment,
and upgrade and maintenance of our applications through a secure Internet
connection. Our customers do not need to lease, buy or continually upgrade
existing software and hardware, or recruit and retain systems engineers and
administrative personnel to support their e-marketing campaigns. As a result,
our customers can focus on creating more effective, innovative and targeted
marketing messages and campaigns. We also partner with a leading Internet
service provider, which allows us to scale to the high-volume demands of
Internet use.
Implement High Quality e-Marketing Campaigns. We have a team of highly
experienced marketing professionals that offers our customers a range of e-
marketing consulting services, including marketing campaign management,
strategic marketing, direct marketing, database marketing, campaign design,
media selection and planning, channel development and Internet technology
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services. We assist our customers in measuring the relative performance of all
media to clearly identify which media are the most cost effective and can
maximize the return on their marketing investment. We believe the knowledge and
experience of our consulting organization can assist our customers in designing
and implementing more effective e-marketing campaigns.
Improve Personalized Interactive Relationships. Our solution allows
organizations to personalize their e-marketing campaigns based on authorized
information generated through on-line interaction with their customers or
prospects. Our solution goes beyond one-directional, mass e-mail campaigns by
enabling two-way dialogues that provide increased value to both the
organization and its customer or prospect as they exchange information. We
believe this interaction often builds customer loyalty and allows for
collaborative relationship building between an organization and its customers.
Our solution can be especially valuable to organizations marketing high-value
goods and services, which may require a higher degree of personalized
interaction and education for potential customers.
Centralize e-Marketing Control. With our solution, an organization's
marketing campaigns can be centrally managed through its web site.
Organizations have made significant investments in traditional broadcast,
print, telemarketing, e-mail, direct mail campaigns and web banner ads. By
directing respondents from these campaigns to a web site and through our
centralized e-marketing platform, organizations are able to manage personalized
interactions with their new and existing customers and to measure the
effectiveness of these campaigns. In addition, our solution is able to
integrate internal and external sources of customer information with their e-
marketing campaign results to build a more comprehensive customer knowledge
base.
Analyze Real-time e-Marketing Performance and Feedback. Our solution provides
important and timely insight on the effectiveness of e-marketing campaigns.
This allows marketing departments to continuously refine their understanding of
each customer, thereby improving their ability to provide up-to-date and
personalized recommendations to their customers. In addition, this real-time
feedback can assist marketing departments in determining which campaigns
generate better leads and revenue opportunities.
Growth Strategy
Our objective is to become the leading provider of comprehensive hosted e-
marketing software solutions. The key elements of our strategy include:
Capitalize on Our Leading Market Position. We believe that the e-marketing
software application market has just begun to emerge and will grow as
organizations recognize the strategic importance of developing one-to-one
customer relationships. Since we were among the first to market a comprehensive
hosted e-marketing solution, we have the opportunity to establish our products
and services as the leading solution for comprehensive and effective e-
marketing. We have over 30 customers, including such recognized industry
leaders as General Electric Company, GTE, NorthPoint Communications, Quantum
Corporation and Rhythms NetConnections. As a result of our planned acquisition
of FusionDM, we expect to add additional customers such as 3Com, 21st Century
Insurance and eBay. We intend to leverage these relationships to generate new
customers.
Leverage the Growing Demand for Hosted Applications. We continue to leverage
the growing demand for hosted applications. Many of our customers have
purchased a hosted version of our e-marketing solution because it can be
implemented rapidly and can reduce IT costs. We believe the hosted model
provides benefits for organizations of all sizes and can increase our customer
penetration across industries. In addition, we believe our hosted application
service provides us with a highly attractive recurring revenue stream that
affords a higher degree of predictability than the typical license software
model. We believe this predictability will allow us to better plan our
operations and resource needs.
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Expand Our Strategic e-Marketing Consulting Services. We intend to increase
our strategic consulting services through internal expansion and additional
acquisitions of e-marketing agencies. Our strategic consulting group helps
companies find innovative ways to use our solution, which can lead to increased
adoption of our products and services and provides us with ideas for future
product development. We believe our expected acquisition of FusionDM will
augment our e-marketing campaign design and execution expertise.
Develop Key Strategic Partnerships. We intend to continue to enter into
strategic relationships that expand our marketing and distribution channels and
provide us with differentiating technology. We have entered into joint sales
and marketing programs with Personify, an e-business software company, and
Clarify, a customer support software company, and marketing service provider
programs with US Web/CKS, now known as marchFIRST, and Acxiom. These partners
also use our solution to help their customers implement e-marketing campaigns
as part of larger strategic initiatives.
Target International Markets. We believe international markets represent a
significant opportunity for us. We are currently marketing the first bilingual
(English and German) e-marketing application and intend to further pursue
multi-language functionality. We also plan to expand our direct sales,
marketing and support presence in selected European markets and develop
alliances with international distributors and partners.
Utilize myMarketFirst.com as an Education and Distribution Channel. We plan
to leverage our destination site, myMarketFirst.com, as an education and
distribution channel for new and existing customers. myMarketFirst.com is a web
site where potential customers who are exploring the benefits of e-marketing
solutions can test our e-marketing solution through a trial campaign or on a
pay-per-use basis before committing to a long-term hosted or installed
implementation. This enables our customers and potential customers to utilize
our products and services and generate demonstrable results in their own
environment, which we believe will lead to increased customer penetration. We
also intend to utilize customer leads generated from the site and up-sell
customers to our other product and service offerings.
Products and Services
We offer our comprehensive e-marketing solution as a hosted service or as a
traditional software license and through myMarketFirst.com. Our hosted service
runs on MarketFirst-managed servers and is available through a reliable, high-
performance, secure global Internet network. Our network architecture is
designed to ensure responsiveness and allows customers to easily define which
marketing personnel will have access to hosted servers to maintain application
integrity and to secure campaign information.
e-Marketing Software Platform
The core of our comprehensive solution is our e-marketing software platform.
This platform provides an easy-to-use, interactive design environment to define
the launch and execution of e-marketing programs. With our software platform,
an organization's marketing campaigns can be managed centrally through its web
site. The platform utilizes easy-to-use graphical and editing components to
build marketing applications quickly. The platform is comprised of the
following campaign management components:
Live Marketing Calendar. Graphically represents all marketing programs and
campaigns and allows customers to view the activity and status of their e-
marketing campaigns.
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Audience Management. Builds and manages a contact database, including the
gathering of customer contacts, profiles and behavioral information. The module
allows users to organize data for targeted marketing programs.
Document Management. Enables the importation and creation of documents for e-
marketing campaigns that can be delivered on a personalized level, such as
interactive web pages, e-mails and faxes.
Program Design and Management. Allows marketing professionals to design
marketing campaigns visually through a graphical interactive process flow
application.
Reporting and Analysis. Provides reporting and analysis capabilities to
assess the effectiveness of marketing programs. Reports are accessible on-line
in real-time and may also be scheduled on a periodic basis or triggered by
specific events.
Marketing KnowledgeBase. The primary repository of all data collected with or
used by the MarketFirst solution. This data includes customer and prospect
information from both historical and real-time interactions, marketing
documents and templates, campaign information, results and metrics.
Administrative Control. Provides access to all campaigns through multi-level
security. Campaigns can be developed, launched, suspended, altered, archived
and re-used under a permission model.
eMarketing Blueprints
Our comprehensive e-marketing solution includes a library of predefined and
easy-to-customize marketing campaign templates, called eMarketing Blueprints,
that are designed to use the capabilities of the e-marketing software platform.
Our eMarketing Blueprints automate and optimize the steps in the e-marketing
campaign process. We design these Blueprints for use by marketing departments
without the need for dedicated IT staff support. The Blueprints include
easy-to-use templates and sample documents, based on marketing best practices
from a wide range of industries. Our customers can integrate their own
information into the templates for rapid execution of marketing campaigns or
they can customize the tools and templates to suit their specific marketing
practices. The Blueprints enable organizations to target and qualify their
customers and prospects, distribute and manage leads effectively, maintain
personalized customer relationships, and identify and manage their channel and
e-commerce trading partners. We offer the following eMarketing Blueprints:
eDirect Marketing. Creates, designs and executes multi-channel promotional
campaigns through the Web, e-mail and fax. This Blueprint enables our customers
to segment their target audience so that they can personalize their
communications and ensure that the right message reaches the intended
recipient. Using this Blueprint, users can save information on each prospect's
personal preferences and perform real-time reporting and analysis to test and
evaluate campaigns.
Automated Lead Qualification and Distribution. Enables our customers to
qualify and distribute leads to their direct sales channel, efficiently and
cost-effectively. This Blueprint helps organizations nurture leads and turn
them into sales by maintaining personalized contact with prospects and
educating them about the organization's products and services.
Channel Lead Management. Monitors and analyzes the conversion of leads in
indirect sales or distribution channels. This Blueprint allows organizations'
sales and marketing managers to monitor the source of the leads, manage the
distribution of the leads to channel partners and measure lead
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conversion by each channel partner. This Blueprint's monitoring and analyzing
capabilities enable organizations to evaluate and improve their lead generation
and customer acquisition programs so that they can generate more productive
leads and deliver better returns on their channel marketing investments.
Media Response Blueprint. Customizes each visitor's experience at web sites
while gathering and aggregating relevant web site visitor information. Using
this Blueprint, organizations can identify the best leads coming through the
Web and evaluate which of their on-line media placements, such as web banner
advertisements, are more effective.
Automated Web Seminar Management. Enables our customers to target, invite and
register their best prospects for scheduled seminars conducted over the
Internet. This Blueprint allows our customers to conduct an interactive
dialogue with attendees after the seminar through web-based surveys and e-
mails. This Blueprint also includes reporting capabilities that allow our
customers to assess and analyze the success of their web seminar programs at
any stage.
Partner and Channel Management. Develops, manages and maintains a directory
of information for a network of indirect channels of sales and marketing
partners. This Blueprint allows organizations to maintain up-to-date
information about their channel partners.
Event Management. Automates the event management process, from design,
promotion and registration through final billing and individualized follow-up.
This Blueprint provides a set of documents for personalized on-line
communications with invitees. Our customers' prospects automatically receive
announcements, special offers, literature fulfillment and responses to their
requests. This Blueprint enables our customers to measure the results of each
event they sponsor through customer satisfaction surveys and customizable
reports that provide information which can be used to design future events.
E-commerce Trading Partner Development. Allows users to develop and manage e-
commerce trading communities. Organizations can engage in on-line dialogue with
promising partners, use web-based surveys to assess their e-commerce
capabilities, and provide the prospective partners with educational information
through the Web, e-mail, print or fax. This Blueprint supplies processes and
guidelines to measure the success of their e-commerce partner relationships and
in real-time, track revenues and return on investment by trading partner,
company and other criteria.
Technology
Our solution is based on core technologies that integrate our e-marketing
software platform and the eMarketing Blueprints into a seamless application.
The primary components are listed below:
Application Server. This is the central workflow engine of the MarketFirst
platform. The Application Server is written in C++ and supports both Windows NT
and Solaris platforms. We use commercial componentry software for our
Application Server to provide advanced scalability, reliability and
functionality.
Automated Program Director. The Automated Program Director, or APD, enables
multiple media distribution and input to the Application Server. Written
completely in Java, the APD supports both Windows NT and Solaris platforms. The
APD recognizes media preferences stored in the MarketFirst KnowledgeBase for
individual targets and automatically formats and manages communications to that
target according to the designated media preference.
Report Server. Our Report Server automates the reporting process. By using
the Report Server, our customers can access reports from any Internet-enabled
device through a standard browser. The
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Report Server supports dynamic analysis and enables real-time reporting. Our
Report Server is based on the industry leading Microsoft Excel Reporting and
the SQRIBE Technologies Reporting Server from Brio Corporation.
MarketFirst KnowledgeBase and the MarketFirst DataMart. These databases house
all of the information for our applications. The KnowledgeBase supports both
Oracle and Microsoft SQL servers and contains all imported list and
segmentation data, the generated application business rules and objects, and
the marketing content files, such as letters, e-mails and text files. The
MarketFirst DataMart contains extracted data from the KnowledgeBase for
reporting purposes.
Professional Services
To complement our product and service offerings, we provide a variety of
professional services to our customers to assist them in the rapid
implementation of our e-marketing solution and to support them as they design
and execute e-marketing campaigns.
e-Marketing Consulting. We bring extensive e-marketing expertise to our
customers by providing a full-range of e-marketing consulting services designed
to assist them in optimizing their marketing initiatives and the use of our
products and services. We work closely with our customers to develop integrated
e-marketing strategies, customer segmentation models, event-driven campaign
designs, and effective campaign test and measurement techniques.
Implementation. We provide customer-specific implementation services, which
include user, technical and systems orientation, hosted operational support and
campaign administration. By using our implementation services, our customers
can deploy and manage their e-marketing campaigns more quickly and effectively.
Training. We provide training and other educational services to our
customers. By attending our training classes, our customers' marketing
professionals can become proficient at using our products and services to
design and launch effective marketing campaigns.
Support and Maintenance. We offer support and maintenance services, which
provide our customers with hotline technical support and remote dial-in
services to maintain and enhance the performance of our solution.
Customers
As of March 31, 2000, more than 30 customers have purchased our e-marketing
services. The following is a list of our customers:
<TABLE>
<S> <C> <C>
. Autodesk .Luna .Rhythms
. Castelle .Marathon .SalesLogix
. Clarify .Marimba .SAP AG
. CommVault Systems .Micron .ShopNow.com
. Dynamic Web Enterprises .Niku .Sun Microsystems
. Ernst & Young .Nortel Networks .Synopsis
. Excite .NorthPoint Communications .University of Phoenix
. GE Plastics . Orbit Commerce .web2web Conversion
. GTE .QDecor.com .WR Hambrecht
. Hire.com .Quantum .ZipGive
. Kellogg Northwestern .Reach .Ziplink
</TABLE>
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The following case studies illustrate how some companies are using our e-
marketing solution.
GTE: Building Customer Loyalty and Retention
GTE.net, GTE's Internet Service Provider, offers dial-up access to consumers
and small businesses.
Business Challenge. GTE found the highest attrition rates occurred in its
customer base within the first three months of service and wanted to provide
new customers during those first three months with pertinent suggestions for
using their new access to the Internet. To meet its customer retention
objectives, GTE required a national on-line marketing program that would build
a one-to-one relationship with each customer so that GTE could personalize its
service to each individual's preferences. GTE believed that if it could provide
relevant usage suggestions, customers would obtain additional value from GTE's
services, thereby increasing customer loyalty and improving overall customer
retention rates.
Solution. GTE selected us to build its personalized relationships through an
e-marketing campaign. Within 30 days of selecting us, GTE implemented a series
of e-mail campaigns, beginning with a welcome letter sent to over 20,000 new
customers every week. Following the welcome letter, weekly e-mail updates were
provided to gather personalized web user information through a series of
multiple-choice questions. These questions initially related to things such as
demographics and familiarity with the Internet, and subsequently became more
specific over time to identify purchasing interests. Using our hosted solution
and the eDirect Marketing Blueprint, GTE was able to analyze responses that
were captured in a dynamic database, which allowed GTE to deploy targeted
ongoing communication. GTE believes that it significantly reduced account
attrition as a result of its new e-marketing campaigns.
NorthPoint Communications: Quick Access to Widely Distributed Markets
NorthPoint Communications provides high-speed Internet access using Digital
Subscriber Lines, or DSL.
Business Challenge. NorthPoint needed to manage and effectively distribute
new DSL customer leads to its extensive partner network, track closing rates
and measure return on investment. The desired solution would drive potential
customers to NorthPoint's web site, educate them, capture geographical
information and automatically respond with the available DSL speeds in their
area. The solution would then automatically distribute individual leads to the
appropriate channel partners and allow for easy follow-up. NorthPoint also
required the ability to measure campaign and partner effectiveness quickly.
Solution. NorthPoint employed our Channel Lead Management Blueprint to manage
its customer leads with its indirect channel partners. When a prospect visits
NorthPoint's web site inquiring about DSL service, a MarketFirst-generated lead
qualification process is initiated. This process includes integration with an
existing program that evaluates DSL availability in specific geographical
regions and uses that information to return a personalized response to the
prospect. Prospects can educate themselves on DSL, understand what options they
have in their specific region and request additional information. After
requesting additional information, the prospects become qualified leads.
NorthPoint's partners receive these leads through e-mail or by visiting a
password-protected web site hosted by MarketFirst. Leads are distributed to
partners using NorthPoint's business rules, and partners are automatically
contacted for follow-up regarding the outcome of each lead, providing
NorthPoint with valuable information on which campaigns are effective and which
partners are experiencing success. Within the first six months of using
MarketFirst, Northpoint generated approximately 100,000 leads. NorthPoint
believes that this program helped it more than double the size of its lead
database.
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Quantum Corporation: From Web Advertising to Customer Interaction
Quantum Corporation's Snap Division is a provider of network-attached storage
devices.
Business Challenge. On-line media in the form of web banner advertising is a
key component of Quantum's marketing mix. Quantum needed to track how prospects
reached its web site, qualify their buying potential, and ultimately distribute
leads to the appropriate channel. Quantum believed that a dynamic and
personalized interaction with its prospects would yield higher quality leads.
In addition, with a diverse customer base, ranging from small businesses to
Fortune 1000 companies, and several hundred channel partners, it was critical
for Quantum to distribute leads efficiently.
Solution. Using MarketFirst's hosted solution, Quantum can track which web
banner or other marketing campaigns generated traffic to its web site, allowing
Quantum to provide its prospects with a personalized response. MarketFirst
provides additional qualification questions focused on the prospects' product
interests and storage needs. Depending on the responses to these questions,
prospects are categorized and ranked as leads and then routed to the
appropriate sales channel based on Quantum's business rules. By using
MarketFirst to manage this web-driven lead qualification and distribution
campaign, Quantum has efficiently distributed hundreds of high quality leads to
the appropriate sales channel, resulting in a significant increase in its
customer base.
Sales and Marketing
We primarily utilize a direct sales force to market our products and services
in the United States. We have sales offices in Mountain View, California; Seal
Beach, California; Bellevue, Washington; Dallas, Texas; Atlanta, Georgia;
Natick, Massachusetts; and Iselin, New Jersey. We generally sell to senior
marketing management, or, in some organizations, a senior manager of an e-
commerce business unit. Each potential customer's IT group often plays an
advisory role in evaluating our products and services. Our professional
services group also often participates in the sales process by defining
implementation and integration requirements based on an individual customer's
needs. The sales process generally ranges from one to three months.
Our marketing department builds market awareness of our company, our brand
and products and services through web-based seminars, e-mail newsletters and e-
marketing campaigns. We conduct the web seminars twice a month, with attendance
ranging from 25 to over 100 participants. We use these programs to generate and
confirm registrations and to implement follow-up programs. In addition, we
market through traditional direct marketing techniques, such as print
advertisements, billboards, telemarketing, targeted direct mailing and a
variety of trade shows and seminars.
Strategic Relationships
We intend to continue to develop strategic relationships to enhance our e-
marketing solution. These relationships enhance the breadth and depth of our
product and service offerings and complement our sales, marketing and
implementation efforts. We invest in relationships that provide meaningful
value to our business and customers. Our strategic relationships include:
Hosting Relationship. We have a strategic agreement with Exodus
Communications to be an Internet service provider for our hosted customers.
Exodus enhances the reliability of our e-marketing service by providing
continuous management of our hosted application servers and by increasing the
Internet bandwidth available for our customers' solutions.
Technology Relationships. We have formed, and intend to expand, our technical
support relationships with vendors whose products complement our offerings.
These vendors include Acxiom Corporation, zapdata Corporation and SQRIBE
Technologies Corp., a subsidiary of Brio Corporation.
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Joint Sales and Marketing Relationships. We have formed, and are currently
expanding, joint sales and marketing relationships under which we will offer
the MarketFirst solution to the customer base of our partners, or together with
the products of our partners, to create an integrated solution that our
partners can sell to their customers. We currently have joint sales and
marketing relationships with Personify Corporation, Clarify Corporation, SAP
Labs, Inc. and US Web Cornerstone. Although we believe these relationships can
provide meaningful value to our business and customers, to date, we have not
sold any of our products or services as a result of these relationships. In
addition, some of these relationships are terminable by either partner upon 30
days' notice.
Professional Consulting Relationships. We work with Ernst & Young on a
project-by-project basis for implementation and value-added consulting
services. We intend to develop more relationships with selected professional
consulting firms to expand the consulting services available to our customers.
Research and Development
We focus our research and development efforts on enhancing our technology and
existing products and developing additional applications that enable
organizations to manage their marketing campaigns. Members of our research and
development group have extensive experience in Internet-based technology,
customer/server database applications and connectivity technologies. Our
engineering team is responsible for enhancing our current products, and
exploring and developing new product technologies. We supplement our internal
software development efforts with outside contractors who can perform discrete
programming tasks effectively. Our software development approach consists of a
well-defined methodology that provides guidelines for planning, controlling and
implementing projects. Our engineering teams work closely with our quality
assurance teams in an effort to ensure quality product releases. When each
product approaches release, the software undergoes rigorous, interactive
testing, code stabilization and documentation. Our future success depends
largely on our ability to continue enhancing existing products and to develop
new ones that reinforce our competitive position and our value proposition to
customers. We will continue to make substantial financial and organizational
investments in research and development.
Competition
The market for e-marketing solutions is highly competitive and subject to
rapid technological change, and we expect competition to continue and to
increase in the future.
We believe that the principal competitive factors affecting our market are:
. ability to provide a cost-effective solution;
. speed of implementation of e-marketing campaigns;
. reliability, scalability and ease-of-use of products;
. quality of professional services and customer support; and
. quality and effectiveness of e-marketing campaigns.
Although we believe that our solution currently competes favorably as to each
of these factors, our market is evolving rapidly and we may not be able to
maintain our current competitive position against existing and new competitors.
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While we compete primarily with providers of e-marketing solutions, such as
Annuncio Software Inc. and Rubric, a subsidiary of Broadbase, we expect to
compete with additional companies which may include:
. e-mail marketing application companies, such as Digital Impact, Post
Communications and Responsys.com;
. data-mining and data warehouse companies, such as E.piphany and
Broadbase;
. traditional campaign management companies, such as Prime Response and
Exchange Applications; and
. existing sales force automation and customer support software companies,
such as Siebel, Vantive and Clarify.
Many of our competitors and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do. As a result, they may be able to respond more quickly
than we can to changes in technology or customer requirements, undertake more
extensive promotional activities, offer more attractive pricing terms, and
bundle their product and service offerings in a manner that would put us at a
competitive disadvantage.
Intellectual Property and Proprietary Rights
We regard our technology as proprietary and attempt to protect it by relying
on trademark, service mark, copyright and trade secret laws, confidentiality
agreements and other methods.
We hold United States federal and Canadian trademark registrations for
"MarketFirst." We have applied for registration of other of our marks in the
United States. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are
distributed or made available over the Internet, and policing unauthorized use
of our proprietary information is difficult. We currently have no patents or
patents pending and do not anticipate that patents will become a significant
part of our intellectual property in the foreseeable future
We also generally enter into confidentiality or license agreements with our
customers, employees and consultants, and generally control access to and
distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our proprietary information without authorization or to develop
similar technology independently. Furthermore, the validity, enforceability and
scope of protection of intellectual property in Internet-related industries is
uncertain and still evolving. The laws of some foreign countries do not protect
intellectual property to the same extent as do the laws of the United States.
We may have to enter into litigation to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others with respect to our rights. Litigation is generally very expensive and
can divert the attention of management from daily operations. Accordingly,
intellectual property litigation could harm our business.
We are not aware of any case in which we are infringing the proprietary
rights of others. However, third parties may bring infringement claims against
us. Any such claim is likely to be time consuming and costly to defend, could
cause product delays and could force us to enter into unfavorable royalty or
license agreements with third parties. A successful infringement claim against
us could require us to enter into a license or royalty agreement with the
claimant or develop alternative technology. However, we may not be able to
negotiate favorable license or royalty
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agreements, if any, in connection with such claims, and we may fail to develop
alternative technology on a timely basis. Accordingly, a successful product
infringement claim against us could harm our business.
Employees
As of March 31, 2000, we had 114 full-time employees, including 31 in
engineering, 46 in sales and marketing, 9 in finance and administration, and 28
in customer support and professional services. In addition, as a result of our
expected acquisition of FusionDM, we plan to add over 60 new employees. Based
on our growth plans, we anticipate hiring a significant number of employees
over the next 12 months. From time to time we also employ independent
contractors to support our research and development, marketing, sales, support
and administrative companies. As of March 31, 2000, we employed 20 contractors,
10 of which supported our research and development efforts. Our employees are
not represented by any collective bargaining unit, and we have never
experienced a work stoppage. We believe our relations with our employees to be
good.
Facilities
Our corporate headquarters are currently located in a leased facility in
Mountain View, California and consist of approximately 7,500 square feet of
office space. The facility is under a two-year operating lease, which expires
in April 2000. We have entered into a seven-year lease on a new facility, which
will replace our existing headquarters. This new facility is located in
Mountain View, California and consists of approximately 66,000 square feet of
office space. We believe that our existing facilities are adequate to meet our
current needs and that suitable additional space will be available in the
future, if necessary, on commercially reasonable terms.
Legal Proceedings
We currently are not a party to any material litigation. We may in the future
be party to litigation in the course of our business.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of our executive
officers and directors as of April 7, 2000. The background of each person
listed in the table is described below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <S> <C>
Officers:
Peter R. Tierney.................... 55 President, Chief Executive Officer and Director
Anurag Khemka....................... 35 Chief Technology Officer and Director
Tommy Hawkins....................... 45 Vice President of Engineering
Ray S. Rike......................... 37 Vice President of Sales and Business Development
Robert W. Sator..................... 40 Vice President of Finance and Administration
Dean Geannacopulos.................. 44 Vice President of Technical Services
Matthew D. Kuckuk................... 41 Vice President of Professional Services
Directors:
Douglas A. Lindgren(a).............. 38 Director
Alexander Rosen..................... 32 Director
Randall C. Bolten(a)(b)............. 47 Director
Stephen R. Chapin, Jr.(b)........... 36 Director
James D. Power III(b)............... 68 Director
</TABLE>
- -------------------------
(a) Member of Compensation Committee
(b) Member of Audit Committee
Officers
Peter R. Tierney has served as our President, Chief Executive Officer and
director since July 1998. From April 1998 to May 1998, Mr. Tierney served as a
consultant to Siebel Systems Corporation, a salesforce automation company. From
January 1991 to March 1998, Mr. Tierney served as Chairman, President and CEO
of Inference Corporation, a provider of self-service and knowledge management
tools for the customer service and help desk industries. From January 1986 to
January 1991, Mr. Tierney served as Senior Vice President of Oracle
Corporation, a software company, where he was responsible for worldwide
marketing and served as a member of the Oracle Management Committee. Mr.
Tierney holds a B.S./B.A. in Management and Economics from Northeastern
University.
Anurag Khemka is one of our founders, has served as a director and in many
executive positions since our inception in August 1996 and is currently our
Chief Technology Officer. From February 1995 to June 1996, Mr. Khemka was the
Director of Research and Development at Cambio Networks, a network management
software company. From February 1989 to February 1995, he held several
positions with UB Networks, a computer network company, including software
engineer, Engineering Development Manager and Chief Product Architect for
enterprise-wide customer/server and network management products. Mr. Khemka
holds a Bachelor of Technology in Electrical Engineering from the Indian
Institute of Technology, New Delhi and an M.S. in Computer Science from the
University of Southwestern Louisiana, Lafayette.
Tommy Hawkins has served as Vice President of Engineering since November
1998. From May 1998 to June 1998, Mr. Hawkins was Vice President of Engineering
of Front Office Technologies, a software company. From March 1996 to April
1998, he was President of Hawkins Consulting, an independent software
consulting firm. From February 1993 to February 1996, Mr. Hawkins held several
positions with Visigenic Software Incorporated, a software company, including
Vice President of Engineering and Director of Engineering. Mr. Hawkins holds a
B.S. in Information and Computer Science from the Georgia Institute of
Technology and an M.S. in Medical Information Science from the University of
California at San Francisco.
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Ray S. Rike has served as Vice President of Sales and Business Development
since February 1998. From June 1996 to December 1997, Mr. Rike was the Vice
President of Marketing and Sales at Actra Business Systems, an Internet
commerce joint venture between Netscape and General Electric. From June 1988 to
June 1996, Mr. Rike served in multiple sales and marketing management roles
with GE Information Services. Mr. Rike holds a B.S. in Computer Science and a
B.A. in Operations Management from Ohio State University.
Robert W. Sator has served as Vice President of Finance and Administration
since July 1998. From July 1994 to June 1998, Mr. Sator served as Vice
President of Finance and Operations of WorldPlay Entertainment, an on-line
interactive software developer and a wholly-owned subsidiary of America On-
line. From October 1993 to June 1994, Mr. Sator served as controller for
Woodside Technologies, a developer and reseller of UNIX-based software. From
May 1985 to September 1993, he served as controller for The Prometheus Company,
a diversified real estate development and investment service company. Mr. Sator
began his career with Arthur Andersen & Company, where he served as a senior
auditor advising both hardware and software companies. Mr. Sator is a C.P.A.
and earned a B.S. in Business Administration and Accounting from Cal Poly, San
Luis Obispo.
Dean Geannacopulos has served as Vice President of Technical Services since
August 1999. From June 1997 to August 1999, he was our Director of Engineering
Operations. From January 1997 to June 1997, Mr. Geannocopulos was an
engineering manager at Uniteq Application Systems, a software development
company. From October 1996 to January 1997, Mr. Geannacopulos was an
independent engineering consultant principally designing software products.
From July 1994 to October 1996, he was a senior consultant for EnaTec, a
software development company, in connection with its acquisition by Wonderware,
and following the acquisition he consulted with Wonderware to support
integration of EnaTec's products. Mr. Geannacopulos holds a B.S. in Biology
from San Jose State University.
Matthew D. Kuckuk has served as Vice President of Professional Services since
December 1999. From August 1999 to December 1999, Mr. Kuckuk was the managing
director of e-commerce at IDLX Technology Partners, an IT consulting firm. From
October 1988 to August 1999, he was a Vice President of American Management
Systems, a technology consulting and software company. From September 1983 to
September 1988, Mr. Kuckuk served as a Senior Project Manager of Fair, Isaac
Co., a consulting firm. Mr. Kuckuk holds a Masters in Operations Research from
the University of California-Berkeley and a B.S. in Industrial Engineering from
the University of Wisconsin-Madison.
Directors
Douglas A. Lindgren has served as a director of MarketFirst since October
1999. Since April 1995, Mr. Lindgren has held several positions with United
States Trust Company of New York and currently is Managing Director. He has
also served as Chief Investment Officer of Excelsior Private Equity Fund II,
Inc. since its inception in April 1997 and is Excelsior's designee on our
board. From January 1988 through March 1995, Mr. Lindgren served in various
capacities for Inco Venture Capital Management, Inc., including the positions
of President and Managing Principal from January 1993 through March 1995.
Before joining Inco Venture Capital Management, Inc., Mr. Lindgren was employed
at Salomon Brothers Inc and Smith Barney, Harris Upham & Co., Inc. He is an
Adjunct Professor of Finance at Columbia University's Graduate School of
Business, where he has been teaching courses on venture capital since 1993. Mr.
Lindgren currently serves on the board of directors of LifeMinders.com, Inc.
Mr. Lindgren holds an A.B. in Economics and an M.B.A. from Columbia University.
Alexander Rosen has served as a director of MarketFirst since March 2000. Mr.
Rosen has been with the Sprout Group, a venture capital firm, since 1996, most
recently as a general partner. From July 1993 to August 1994, he served as an
associate of General Atlantic Partners, a venture capital firm, focusing on
software investments. He is also a director of Quintus Corporation. Mr. Rosen
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<PAGE>
received a B.S. in Electrical Engineering and Economics from the Massachusetts
Institute of Technology and an M.B.A. from Stanford University Graduate School
of Business.
Randall C. Bolten has served as a director of MarketFirst since March 2000.
Since September 1, 1995, Mr. Bolten has served in several positions with
Broadvision Inc., a software company, and he is currently their Executive Vice
President and Chief Financial Officer. From 1994 to 1995, Mr. Bolten served as
a financial consultant to various entrepreneurial enterprises. From 1992 to
1994, Mr. Bolten served as Chief Financial Officer of BioCAD Corporation, a
supplier of drug discovery software products. From 1990 to 1992, Mr. Bolten
served as Chief Financial Officer, Business Development Unit and then Vice
President, Finance of Teknekron, a company engaged in the management of various
high technology companies. Mr. Bolten has also held financial management
positions at Oracle Corporation and Tandem Computers Incorporated. He received
an A.B. in Economics from Princeton University and an M.B.A. from Stanford
University.
Stephen R. Chapin, Jr. has served as a director of MarketFirst since March
2000. Mr. Chapin co-founded LifeMinders.com, Inc. in August 1996 and has served
as its President, Chief Executive Officer and Chairman of the Board since
August 1996. From September 1995 to October 1996, Mr. Chapin served as a Vice
President at First USA Bank. From September 1993 to September 1995, Mr. Chapin
was a management consultant at McKinsey & Company. From 1985 to 1990, Mr.
Chapin served in the U.S. Navy, as the Secretary of the Navy's liaison to
Congress and as a naval engineering and weapons officer. Mr. Chapin received a
B.S. in Engineering from the U.S. Naval Academy and an M.B.A. from the Harvard
Business School.
James D. Power III has served as a director of MarketFirst since April 2000.
Mr. Power founded J.D. Power and Associates, a marketing information company.
Mr. Power has served as Chief Executive Officer of J.D. Power since its
inception in 1968, and as Chairman of the Board since 1996. He is also a
director of The Cobalt Group, Inc. Mr. Power holds an M.B.A. from The Wharton
School of Business and a B.A. from the College of the Holy Cross.
All executive officers are appointed annually by, and serve at the discretion
of, our board of directors.
Classified Board
Our certificate of incorporation provides that the board of directors will be
divided into three classes. The term of office of directors assigned to class I
will expire at the annual meeting of stockholders in 2001 and at each third
succeeding annual meeting after that. The term of office of directors assigned
to class II will expire at the annual meeting of stockholders in 2002 and at
each third succeeding annual meeting after that. The term of office of
directors assigned to class III will expire at the annual meeting of
stockholders in 2003 and at each third succeeding annual meeting after that.
Our board has resolved that Messrs. Bolten, Chapin and Power will serve as
class I directors, Messrs. Lindgren and Rosen will serve as class II directors,
and Messrs. Tierney and Khemka will serve as class III directors.
Committees of the Board of Directors
The board of directors has established an audit committee and a compensation
committee. Messrs. Bolten, Chapin and Power are members of the audit committee.
The functions of the audit committee include recommending to the board of
directors the selection and retention of independent auditors, reviewing the
scope of the annual audit undertaken by our independent auditors and the
progress and results of their work, and reviewing the financial statements and
internal accounting and auditing procedures.
44
<PAGE>
Messrs. Bolten and Lindgren are members of the compensation committee. The
functions of the compensation committee include establishing the compensation
of the Chief Executive Officer, reviewing and approving executive compensation
policies and practices, reviewing salaries and bonuses for executive officers,
and considering such other matters as may, from time to time, be delegated to
the compensation committee by the board of directors.
Director Compensation
All non-employee directors will receive $2,000 for each meeting they attend
after the close of this offering. We reimburse our directors for all reasonable
and out-of-pocket expenses incurred in connection with their attendance at
board meetings. In addition, each of Messrs. Chapin, Bolten and Power was
granted an option to purchase 40,000 shares of our common stock at an exercise
price of $2.87 per share upon his joining our board of directors. Such options
vest over four years and terminate ten years from the date of grant.
Compensation Committee Interlocks and Insider Participation
Our compensation committee consists of Messrs. Lindgren and Bolten. No
executive officer has served as a director or member of the compensation
committee, or other committee serving an equivalent function, of any entity
whose executive officers served as a member of the compensation committee of
our board of directors. The full board of directors has in the past made all
decisions regarding executive officer compensation and the granting of stock
options.
Indemnification
Our amended and restated certificate of incorporation provides that no
director shall be personally liable to us or any of our stockholders for
monetary damages or breach of fiduciary duty as a director, except for
liability for (i) breach of their duty of loyalty to us or our stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) unlawful payment of dividends or
unlawful stock repurchases or redemptions, or (iv) any transaction from which
the director derived an improper personal benefit.
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<PAGE>
Executive Compensation
The following table sets forth the aggregate compensation earned by our
President and Chief Executive Officer and each of our other four most highly
compensated executive officers (the "Named Executive Officers") for services
rendered in all capacities for the year ended December 31, 1999. The
compensation table excludes other compensation in the form of perquisites and
other personal benefits that constitutes the lesser of $50,000 or 10% of the
total salary and bonus earned by each of the Named Executive Officers in 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options Compensation
- --------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Peter R. Tierney................ $208,000 $54,538 225,581 $18,000(4)
President and Chief Executive
Officer(1)
Ray S. Rike..................... 175,000 55,474(3) 40,000 --
Vice President of Sales and
Business Development
Russell J. Henry(2)............. 151,250 59,993 230,000 --
Vice President of Marketing
Anurag Khemka................... 150,000 16,627 40,000 --
Chief Technology Officer
Tommy Hawkins................... 150,000 16,627 52,877 --
Vice President of Engineering
</TABLE>
- -----------------
(1) Does not include $99,000 of his 1998 base salary paid in 1999.
(2) Mr. Henry joined us in February 1999.
(3) Represents sales commissions.
(4) Consists of an automobile allowance.
46
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information concerning grants of
options to the Named Executive Officers during 1999. No stock appreciation
rights were granted to the Named Executive Officers during 1999.
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates of
Stock
Appreciation for
Individual Grants Option Term(4)
---------------------------------- -----------------
Numbers of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price/ Expiration
Name Granted(1) Fiscal Year(2) Share(3) Date 5% 10%
- ---- ---------- -------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Peter R. Tierney........ 65,581 4.2 $0.18 1/31/09
160,000 10.3 0.18 6/30/09
Ray S. Rike............. 40,000 2.6 0.18 10/4/09
Russell J. Henry........ 200,000 12.9 0.18 1/31/09
30,000 1.9 0.18 10/4/09
Anurag Khemka........... 40,000 2.6 0.18 10/4/09
Tommy Hawkins........... 12,877 0.8 0.18 1/31/09
40,000 2.6 0.18 10/4/09
</TABLE>
- --------
(1) Options were granted under our 1996 Equity Incentive Plan and generally
vest over four years from the date of grant. To the extent not already
exercisable, the options generally become exercisable upon a dissolution or
liquidation of MarketFirst, a merger or consolidation of MarketFirst in
which we are not the surviving corporation, or the sale of substantially
all of our assets, unless the options are assumed by the successor
corporation or substantially similar consideration is provided to the
optionees as was provided to our stockholders. However, certain of the
options granted to the Named Executed Officers vest upon such an
acquisition whether or not their options are assumed or similar
consideration is provided. See "Management--Employment and Severance
Arrangements."
(2) Based on an aggregate of 1,550,496 options granted by us in the year ended
December 31, 1999 to our employees, directors and consultants, including
the Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value
per share of common stock on the grant date, as determined by our board of
directors.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant, or 10 years.
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth information regarding option exercises by the
Named Executive Officers during 1999 and options held by them on December 31,
1999.
There was no public trading market for our common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the
initial public offering price of $ per share, less the applicable exercise
price per share, multiplied by the number of shares underlying such options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options at
Shares End Fiscal Year End
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter R. Tierney........ -- $ -- 16,666 208,915 $ $
Ray S. Rike............. -- -- -- 40,000
Russell J. Henry........ -- -- -- 230,000
Anurag Khemka........... -- -- -- 40,000
Tommy Hawkins........... 43,333 -- -- 169,544
</TABLE>
Employment and Severance Arrangements
In July 1998, MarketFirst and Mr. Tierney entered into an employment
agreement for a period of four years plus extensions and renewals. As amended
as of January 1, 2000, this agreement provides Mr. Tierney with a base salary
of $218,000, an annual car allowance of $21,600 and a target bonus of $82,000
per year, payable quarterly upon satisfaction of performance goals mutually
agreed upon by Mr. Tierney and our board of directors. In addition, the
agreement provides other benefits during its term and upon the termination of
the employment of Mr. Tierney. If we terminate Mr. Tierney's employment without
cause, or if he terminates his employment voluntarily for good reason, then he
is entitled to six months of base salary if he is terminated prior to July 1,
2001, or twelve months of base salary if he is terminated after July 1, 2001.
Upon a change in control, 50% of the portion of Mr. Tierney's stock options
which are unvested on the date of such change in control shall immediately
vest, and the remaining 50% of such unvested portion shall continue to vest in
accordance with their terms. The employment agreement also includes provisions
regarding the protection of our confidential information and indemnification of
Mr. Tierney by us.
Upon the sale of substantially all of our assets or a merger or consolidation
of MarketFirst ("Merger Event") in which our stockholders prior to the Merger
Event own less than a majority of the outstanding shares of the surviving
corporation, 50% of then unvested options of the following Named Executive
Officers shall be accelerated with respect to the following option grants
pursuant to their employment offers:
<TABLE>
<CAPTION>
Number of
Securities
Option Grant Underlying
Name Date Options Granted
- ---- ------------ ---------------
<S> <C> <C>
Ray Rike........................................... 3/26/98 250,002
Russ Henry......................................... 3/10/99 200,000
Tommy Hawkins...................................... 11/9/98 160,000
</TABLE>
48
<PAGE>
Benefit Plans
2000 Stock Incentive Plan and 1996 Equity Incentive Plan
Introduction
The 2000 Stock Incentive Plan is intended to serve as the successor program
to our 1996 Equity Incentive Plan. The 2000 Stock Incentive Plan was adopted by
the board in April 2000 and is subject to stockholder approval. The 2000 Stock
Incentive Plan will become effective when the underwriting agreement for this
offering is signed. At that time, all outstanding options granted under our
1996 Equity Incentive Plan will be transferred to the 2000 Stock Incentive
Plan, and no further option grants will be made under the predecessor plan. The
transferred options will continue to be governed by their existing terms,
unless our compensation committee decides to extend one or more features of the
2000 Stock Incentive Plan to those options. Except as otherwise noted below,
the transferred options have substantially the same terms as will be in effect
for grants made under the discretionary option grant program of our 2000 Stock
Incentive Plan.
Share Reserve
4,000,000 shares of our common stock have been authorized for issuance under
the 2000 Stock Incentive Plan. This share reserve consists of the number of
shares we estimate will be carried over from the 1996 Equity Incentive Plan
plus an additional increase of approximately 2,800,000 shares. The share
reserve under our 2000 Stock Incentive Plan will automatically increase on the
first trading day in January each year, beginning with calendar year 2001, by
an amount equal to 5% of the total number of shares of our common stock
outstanding on the last trading day of December in the prior year, but in no
event will this annual increase exceed 2,500,000 shares. In addition, no
participant in the 2000 Stock Incentive Plan may be granted stock options or
direct stock issuances for more than 1,000,000 shares of common stock in total
in any calendar year.
Programs
Our 2000 Stock Incentive Plan has three separate programs:
. the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
. the stock issuance program, under which eligible individuals may be
issued shares of common stock which will vest upon the attainment of
performance milestones or upon the completion of a period of service or
which are fully vested at issuance as a bonus for past services; and
. the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition of
special below market stock option grants.
Eligibility
The individuals eligible to participate in our 2000 Stock Incentive Plan
include our officers and other employees, our board members and any consultants
we hire.
Administration
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances under
those programs, the time or times when the grants or
49
<PAGE>
issuances are to be made, the number of shares subject to each grant or
issuance, the status of any granted option as either an incentive stock option
or a nonstatutory stock option under the federal tax laws, the vesting schedule
to be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding. The compensation committee
will also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
Plan Features
Our 2000 Stock Incentive Plan will include the following features:
. The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
. The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1996 Equity Incentive Plan, in return for
the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market value
of our common stock on the new grant date.
. Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. No stock appreciation rights are
outstanding under our 1996 Equity Incentive Plan.
Change in Control
The 2000 Stock Incentive Plan will include the following change in control
provisions which may result in the accelerated vesting of outstanding option
grants and stock issuances:
. In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will immediately become
exercisable for all the option shares, and all outstanding unvested
shares will immediately vest, except to the extent our repurchase rights
with respect to those shares are to be assigned to the successor
corporation.
. The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under our 2000 Stock Incentive Plan may
be accelerated upon similar terms and conditions.
. The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. Such accelerated
vesting may occur either at the time of such transaction or upon the
subsequent termination of the individual's service.
. The options currently outstanding under our 1996 Equity Incentive Plan
will generally vest immediately in the event of a merger or consolidation
of MarketFirst in which we are not the surviving corporation, or the sale
of substantially all of our assets, unless those options are assumed by
the successor company or substantially similar consideration is provided
to the optionees as was provided to our stockholders.
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Salary Investment Option Grant Program
In the event the compensation committee decides to put this program into
effect for one or more calendar years, each of our executive officers and other
highly compensated employees may elect to reduce his or her base salary for the
calendar year by an amount not less than $10,000 nor more than $50,000. Each
selected individual who makes such an election will automatically be granted,
on the first trading day in January of the calendar year for which his or her
salary reduction is to be in effect, an option to purchase that number of
shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of our common stock on the grant
date. The option will have an exercise price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal
to the amount of the salary reduction. The option will become exercisable in a
series of twelve equal monthly installments over the calendar year for which
the salary reduction is to be in effect.
Additional Program Features
Our 2000 Stock Incentive Plan will also have the following features:
. Outstanding options under the salary investment option grant program will
immediately vest if we are acquired by a merger or asset sale or if there
is a successful tender offer for more than 50% of our outstanding voting
stock or a change in the majority of our board through one or more
contested elections.
. Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program, and
these rights may also be granted to one or more officers as part of their
option grants under the discretionary option grant program. Options with
this feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
. The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than April 7, 2010.
2000 Employee Stock Purchase Plan
Introduction
Our 2000 Employee Stock Purchase Plan was adopted by the board in April 2000
and is subject to stockholder approval. The plan will become effective
immediately upon the signing of the underwriting agreement for this offering.
The plan is designed to allow our eligible employees and the eligible employees
of our participating subsidiaries to purchase shares of common stock, at semi-
annual intervals, with their accumulated payroll deductions.
Share Reserve
800,000 shares of our common stock will initially be reserved for issuance.
The reserve will automatically increase on the first trading day in January
each year, beginning in calendar year 2001, by an amount equal to 1 1/2% of the
total number of outstanding shares of our common stock on the last trading day
in December in the prior year. In no event will any such annual increase exceed
800,000 shares.
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<PAGE>
Offering Periods
The plan will have a series of successive offering periods, each with a
maximum duration of 24 months. The initial offering period will start on the
date the underwriting agreement for this offering is signed and will end on the
last business day in May 2002. The next offering period will start on the first
business day in June 2002, and subsequent offering periods will be set by our
compensation committee.
Eligible Employees
Individuals who have completed at least 90 days of service with MarketFirst
and are scheduled to work more than 20 hours per week for more than five
calendar months per year may join an offering period on the start date or any
quarterly entry date within that period. Quarterly entry dates will occur on
the first business day of March, June, September and December each year.
Individuals who become eligible employees after the start date of an offering
period may join the plan on any subsequent quarterly entry date within that
offering period.
Payroll Deductions
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each quarterly purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the quarterly purchase date. Quarterly purchase dates
will occur on the last business day of February, May, August and November each
year. In no event, however, may any participant purchase more than 5,000 shares
on any purchase date, and not more than 800,000 shares may be purchased in
total by all participants on any purchase date.
Reset Feature
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day. All
participants in the terminated offering will be transferred to the new offering
period.
Change in Control
Should we be acquired by merger or sale of substantially all of our assets or
more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the participant's entry date into the offering period in which an
acquisition occurs or, if lower, 85% of the fair market value per share
immediately prior to the acquisition.
Plan Provisions
The plan will terminate no later than the last business day of April 7, 2010.
In addition, the board may at any time amend, suspend or discontinue the plan.
Certain amendments may require stockholder approval.
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<PAGE>
401(k) Plan
Effective January 1, 1997, we established an employee savings and retirement
plan covering all of our employees. Pursuant to our 401(k) Plan, employees who
have attained age 18 may elect to reduce their current compensation by up to
15% of compensation, which will not exceed the annual limit prescribed by
statute of $10,500 in 2000, and contribute the amount of such reduction to the
401(k) Plan. The 401(k) Plan allows for matching contributions to the 401(k)
Plan by us, such matching and the amount of such matching to be determined at
the sole discretion of our board of directors. The 401(k) Plan also allows us
to make contributions to the 401(k) Plan in the sole discretion of our board of
directors. To date, no matching contributions or other discretionary
contributions have been made with respect to the 401(k) Plan. The trustee under
the 401(k) Plan, at the direction of each participant, invests the assets of
the 401(k) Plan in various investment options. Participants generally may
obtain a 401(k) Plan distribution upon termination of employment, at age 65 or
upon financial hardship. Distributions can be made in one lump sum payment or
in installments. Loans are available to participants from the 401(k) Plan. The
401(k) Plan is intended to qualify under Section 401 of the Code so that
contributions by employees to the 401(k) Plan, and income earned on plan
contributions, are not taxable until withdrawn, and so that the contributions
by employees will be deductible by MarketFirst when made.
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<PAGE>
CERTAIN TRANSACTIONS
Preferred Stock Transactions
In March, April and May 1998 and January, February and March 1999, we issued
to various investors an aggregate of 19,882,358 shares of Series C preferred
stock at a purchase price of $0.68 per share. In September and October 1999, we
issued to various investors an aggregate of 15,407,936 shares of Series D
preferred stock at a purchase price of $1.065 per share. Each share of each
series of preferred stock will convert into 0.4 shares of common stock
simultaneously with the closing of this public offering. Listed below are those
directors, officers and stockholders who beneficially own 5% or more of our
securities who participated in these financings. We believe that the shares
issued in these transactions were sold at the then fair market value and that
the terms of these transactions were no less favorable than we could have
obtained from unaffiliated third parties.
<TABLE>
<CAPTION>
Series C Series D Aggregate
Preferred Preferred Cash
Preferred Stockholder Stock Stock Consideration
- --------------------- --------- --------- -------------
<S> <C> <C> <C>
Holders of More than 5%:
Entities Associated with The Sprout Group(1)
(2)........................................ 9,395,345 3,340,872 $9,946,863
Enterprise Partners IV, L.P.(3)............. 4,779,413 1,699,500 5,059,968
Excelsior Private Equity Fund II, Inc.(4)... -- 4,694,407 4,999,543
SAP America, Inc............................ 3,676,472 938,967 3,500,000
Officers:
Peter R. Tierney............................ 91,912 20,300 84,120
Ray S. Rike................................. 39,706 -- 27,000
</TABLE>
- --------
(1) Mr. Rosen, a member of our board of directors, is a general partner of the
Sprout Group and a general partner of DLJ Associates VII, L.P. Mr. Rosen
disclaims beneficial ownership of these securities, except for his
proportionate pecuniary interest in certain of the entities associated with
The Sprout Group. See "Principal Stockholders."
(2) In September 1999, Donaldson, Lufkin and Jenrette Securities Corporation
was also issued a warrant to purchase 301,719 shares of Series D preferred
stock at an exercise price of $1.065 per share.
(3) Includes 4,397,060 shares and 382,353 shares of Series C Preferred Stock
held by Enterprise Partners IV, L.P. and Enterprise Partners IV Associates,
L.P., respectively, and includes 1,563,540 shares and 135,960 shares of
Series D Preferred Stock held by Enterprise Partners IV, L.P. and
Enterprise Partners IV Associates, L.P., respectively.
(4) Douglas Lindgren, a director of our company, serves as the Chief Investment
Officer of Excelsior Private Equity Fund II, Inc. (Excelsior). Mr. Lindgren
disclaims beneficial ownership of the securities held by Excelsior, except
to the extent of his proportionate pecuniary interest in Excelsior. See
"Principal Stockholders."
Option Grants
We have granted options to our directors and executive officers, and we
intend to grant additional options to our directors and executive officers in
the future. See "Management--Option Grants in Last Fiscal Year" and
"Management--Director Compensation."
Employment and Indemnification Agreements
We have entered into an employment agreement with Mr. Tierney and severance
arrangements with certain of the other executive officers, as described in
"Management--Employment and Severance Arrangements."
We plan to enter into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, will indemnify
54
<PAGE>
our directors and executive officers for certain expenses, including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by us arising out of such
person's services as our director or executive officer, any of our subsidiaries
or any other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
Other Related Party Transactions
In July 1998, we made a loan to Mr. Tierney in order to fund the exercise of
certain of the stock options held by him. The loan, in the amount of $156,000,
was made under a full-recourse promissory note secured by a pledge of the
purchased shares. The note will mature on July 30, 2002, and bears interest at
a rate of 5.69% per year. We have the right to repurchase unvested shares if
Mr. Tierney's employment is terminated under certain circumstances.
Effective January 24, 2000, we entered into a Software License Agreement with
SAP AG Inc. under which SAP AG Inc. has agreed to pay $409,000 for our products
and services. SAP AG Inc. is an affiliate of SAP America, Inc., which owns in
excess of five percent of our outstanding capital stock.
We have entered into an agreement with the founders of MarketFirst and the
preferred stockholders described above pursuant to which these and other
preferred stockholders will have registration rights with respect to their
shares of common stock following this offering. For a description of these
registration rights, see "Description of Capital Stock--Registration Rights."
Upon the completion of this offering, all shares of our outstanding preferred
stock will be automatically converted into shares of common stock.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us, with respect to
beneficial ownership of our common stock as of March 31, 2000 for:
.each stockholder known by us to own beneficially more than 5% of our
common stock;
.each of our directors;
.each of the Named Executive Officers; and
.all of our executive officers and directors as a group.
The number of shares beneficially owned and percentage of shares beneficially
owned by each stockholder listed below are based on 21,940,694 shares of common
stock outstanding as of March 31, 2000 assuming conversion of all shares of
preferred stock outstanding as of that date, and shares of common
stock outstanding upon the closing of this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock options or warrants
that are currently exercisable or exercisable within 60 days of March 31, 2000
are deemed to be outstanding and to be beneficially owned by the person holding
such options or warrants for the purpose of computing the percentage ownership
of such person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons listed below
have sole voting and investment power with respect to their shares of common
stock, except to the extent spouses share authority under applicable law.
Unless otherwise indicated, the address of each of the individuals listed in
the table is 485 Clyde Avenue, Mountain View, California 94043.
<TABLE>
<CAPTION>
Shares Beneficially Percent Before Percent After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------------- -------------- -------------
<S> <C> <C> <C>
Entities Associated with The
Sprout Group(1)............. 5,215,174 23.8% %
277 Park Avenue, 42nd Floor
New York, NY 10172
Enterprise Partners IV,
L.P(2)...................... 2,591,565 11.8
7979 Ivanhoe Avenue, Suite
550
La Jolla, CA 92037
Excelsior Private Equity Fund
II, Inc.(3)................. 1,877,763 8.6
c/o U.S. Trust Corporation
114 West 47th Street
New York, NY 10036
SAP America, Inc. ........... 1,846,176 8.4
3999 West Chester Pike
Newton Square, PA 19073
Alexander Rosen(4)........... 5,215,174 23.8
Douglas A. Lindgren(3)....... 1,877,763 8.6
Anurag Khemka(5)............. 1,540,800 7.0
Peter R. Tierney(6).......... 1,175,886 5.4
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Percent Before Percent After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------------- -------------- -------------
<S> <C> <C> <C>
Ray S. Rike(7)............... 265,885 1.2% %
Tommy Hawkins(8)............. 64,024 * *
Russell J. Henry(9).......... 62,500 * *
Stephen R. Chapin, Jr........ -- -- --
Randall C. Bolten............ -- -- --
James D. Power III........... -- -- --
All directors and executive
officers as a group
(13 persons)(10)............ 9,984,746 45.5% %
</TABLE>
- --------
* Represents beneficial ownership of less than one percent.
(1) Includes 62,915 shares held by DLJ Capital Corporation. Also includes
120,688 shares to be held by Donaldson, Lufkin & Jenrette Securities
Corporation upon the closing of this offering as a result of their
expected exercise of a warrant to purchase Series D preferred stock prior
to this offering. DLJ Capital Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation are wholly-owned subsidiaries of Donaldson, Lufkin
& Jenrette, Inc. Also includes 2,446,046 shares held by Sprout Capital
VII, L.P. Also includes 118,085 shares held by Sprout Venture Capital,
L.P. Also includes 1,968,082 shares held by Sprout Capital VIII, L.P. Also
includes 46,350 and 453,008 shares held by Sprout CEO Fund, L.P. and DLJ
ESC II, L.P., respectively. DLJ ESC II, L.P. is an Employees' Securities
Corporation as defined in the Investment Company Act of 1940. The general
partner of DLJ ESC II, L.P. is DLJ LBO Plans Management Corporation, and
the limited partners of DLJ ESC II, L.P. are current or former employees
of Donaldson, Lufkin & Jenrette, Inc. and its affiliates. DLJ Capital
Corporation is the managing general partner of Sprout Capital VII, L.P.,
the managing general partner of Sprout Capital VIII, L.P., the general
partner of Sprout Venture Capital, L.P., and the general partner of Sprout
CEO Fund, L.P. DLJ Capital Corporation has the power to vote and dispose
of its shares, as well as those held by Sprout Venture Capital, L.P.,
Sprout Capital VII, L.P., Sprout Capital VIII, L.P. and Sprout CEO Fund,
L.P. Donaldson, Lufkin & Jenrette Securities Corporation has the power to
vote and dispose of its shares. DLJ LBO Plans Management Corporation has
the power to vote and dispose of shares held by DLJ ESC II, L.P.
(2) Includes 2,384,240 shares and 207,325 shares held by Enterprise Partners
IV, L.P. and Enterprise Partners IV Associates, L.P., respectively.
(3) Douglas Lindgren, a director of our company, serves as the Chief
Investment Officer of Excelsior Private Equity Fund II, Inc.
("Excelsior"). Mr. Lindgren disclaims beneficial interest of the
securities held by Excelsior, except to the extent of his pecuniary
interest therein.
(4) Includes 5,215,174 shares held by entities affiliated with DLJ Capital
Corporation. See Note 1 above. Mr. Rosen is an affiliate of DLJ Capital
Corporation. Mr. Rosen disclaims beneficial ownership of these shares,
except to the extent of his proportionate pecuniary interest arising from
his interests in the entities named in Note 1 above.
(5) All of these shares are held jointly by Mr. Khemka and his spouse, and
47,830 of such shares are unvested and subject to MarketFirst's repurchase
option.
(6) All of these shares are held in the Peter and Gail Tierney Family Trust,
and 709,314 of such shares are unvested and subject to MarketFirst's
repurchase option.
(7) Includes 88,542 shares which are held in the Rike Family Trust, and
includes 119,793 of Mr. Rike's individual shares which are unvested and
subject to MarketFirst's repurchase option.
(8) Includes 20,691 shares underlying options which are exercisable within 60
days of March 31, 2000.
(9) Includes 12,500 shares underlying options which are exercisable within 60
days of March 31, 2000.
(10) Includes 55,691 shares underlying options which are exercisable within 60
days of March 31, 2000.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the consummation of this offering, the authorized
capital stock of MarketFirst will consist of 70,000,000 shares of common stock,
par value $.001 per share, and 5,000,000 shares of preferred stock, par value
$.001 per share. As of March 31, 2000, and assuming completion of this
offering, there were outstanding shares of common stock, outstanding
options to purchase 2,440,965 shares of common stock and an outstanding warrant
to purchase 28,000 shares of common stock.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation and our bylaws to be effective after the
closing of this offering and the provisions of applicable Delaware law.
Common Stock
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as our board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative
voting for the election of directors is not provided for in our certificate of
incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon the occurrence of a liquidation, dissolution or winding-up,
the holders of shares of common stock would be entitled to share ratably in the
distribution of all of our assets remaining available for distribution after
satisfaction of all our liabilities and the payment of the liquidation
preference of any outstanding preferred stock. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and non-assessable.
Preferred Stock
Our board of directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one or more
classes or series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could have the effect of decreasing the market price of the
common stock and could adversely affect the voting and other rights of the
holders of common stock.
Options
As of March 31, 2000, options to purchase a total of 2,440,965 shares of
common stock were outstanding and up to 4,000,000 additional shares of common
stock may be subject to options granted in the future under the 2000 Stock
Incentive Plan. All of the options contain standard anti-dilution provisions.
See "Management--Benefit Plans" and "--Summary of Compensation" for a
description of the "2000 Stock Incentive Plan."
Warrants
As of March 31, 2000, we had one outstanding warrant to purchase a total of
28,000 shares of common stock at an exercise price per share equal to eighty-
five percent (85%) of the initial public offering price, which expires on March
6, 2005.
58
<PAGE>
In addition, we have assumed throughout this prospectus the pre-offering cash
exercise of a warrant to purchase a total of 301,719 shares of Series D
preferred stock at $1.065 per share.
Registration Rights
As of the completion of this offering, the holders of an aggregate of
18,152,917 shares of common stock will be entitled to registration rights as
described below. These rights are provided under the terms of an investor
rights agreement between MarketFirst and the holders of the registrable
securities. This agreement provides demand registration rights to substantially
all former holders of our preferred stock. In addition, the holders of all of
the registrable securities are entitled under the agreement, subject to some
limitations, to require us to include their registrable securities in future
registration statements that we may file. Registration of shares of common
stock pursuant to the rights granted in this agreement would result in such
shares becoming freely tradable without restriction under the Securities Act of
1933. However, the agreement provides us the right to delay any registration
request until six months after the effective date of this prospectus. All
registration expenses incurred in connection with the above registrations will
be borne by us.
Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws,
Delaware Law
Our certificate of incorporation authorizes the board to establish one or
more series of undesignated preferred stock, the terms of which can be
determined by the board at the time of issuance. See "--Preferred Stock." In
addition, the certificate of incorporation and bylaws do not permit
stockholders of MarketFirst to call a special meeting of stockholders. Only our
Chief Executive Officer, President, Chairman of the Board or a majority of the
board are permitted to call a special meeting of stockholders. The certificate
of incorporation also provides that the board is divided into three classes,
with each director assigned to a class with a term of three years, and that the
number of directors may only be determined by the board of directors. The
bylaws also require that stockholders give advance notice to our Secretary of
any nominations for director or other business to be brought by stockholders at
any stockholders' meeting, and that the Chairman has the authority to adjourn
any such meeting. The bylaws also require a supermajority vote of stockholders
or a majority vote of the board of directors to amend the bylaws. These
provisions of the restated certificate of incorporation and the bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of MarketFirst. These provisions also may have the effect of
preventing changes in the management of MarketFirst. See "Risk Factors--Our
executive officers, directors and major stockholders will retain significant
control over us after this offering, which may lead to conflicts with other
stockholders over corporate governance matters."
MarketFirst is subject to Section 203 of the Delaware General Corporation
Law, which, subject to limited exceptions set forth in the Delaware General
Corporation Law, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder,
unless:
(i) prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned:
(a) by persons who are directors and also officers; and
(b) by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or
59
<PAGE>
(iii) on or subsequent to that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines "business combination" to include the following:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to some exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
Listing
MarketFirst intends to apply for quotation on the Nasdaq National Market
under the symbol "MKTF."
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock outstanding. Of the total outstanding shares,
the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares held by our affiliates, as that term is defined under the Securities
Act, may generally only be sold in compliance with the limitations of Rule 144
as described below.
Sales of Restricted Shares
The remaining shares of common stock held by existing stockholders
were issued and sold by us in reliance on exemptions from the registration
requirements of the Securities Act. All of these shares will be subject to
"lock-up" agreements providing that the stockholder will not offer, sell or
otherwise dispose of any of the shares of common stock owned by them for a
period of 180 days after the date of this offering. However, holders of such
restricted shares who have not been officers of MarketFirst on or since the
date of this prospectus may offer, sell or otherwise dispose of 25% of their
shares on the earlier of 90 days after the date of this offering or on the
second trading day after the first public release of MarketFirst's quarterly
results if the last recorded sale price on the Nasdaq National Market for 20 of
the 30 trading days ending on such date is at least twice the price per share
in the initial public offering. These stockholders may also offer, sell or
otherwise dispose of an additional 25% of their shares 135 days after the date
of this offering if the price per share of common stock has achieved the same
target level. However, Donaldson, Lufkin & Jenrette Securities Corporation may
in its sole discretion, at any time without notice, release all or any portion
of the shares subject to lock-up agreements. Upon expiration of the lock-up
agreements, shares will become eligible for sale pursuant to Rule
144(k), shares will become eligible for sale under Rule 144 and
shares will become eligible for sale under Rule 701.
Eligibility of Restricted Shares for Sale in the Public Market
(Listed by date upon which shares become saleable)
<TABLE>
<CAPTION>
Number
of
Date Shares Comments
- ---- ------ --------
<S> <C> <C>
At the effective date....... Shares restricted under lock-up provision
90 days after the effective Shares saleable under Rule 701
date or second trading day
following first public
release of quarterly
earnings(1)................
135 days after the effective Shares saleable under Rule 701
date(1)....................
180 days after the effective
date (expiration of lock-
up)........................ Shares saleable under Rule 144, 144(k), 701
, 2001................ Shares saleable under Rule 144
</TABLE>
- --------
(1) The number of shares listed may be offered, sold or traded provided that
the last recorded sale price per share for 20 of the 30 trading days ending
on such date is at least twice the initial public offering price per share.
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock plans.
Based upon the number of shares subject to outstanding options as of March 31,
2000 and currently reserved for issuance under both of these plans, this
registration statement would cover approximately shares. Shares
registered under the registration statement will generally be available for
sale in the open market immediately after the 180-day lock-up agreements
expire.
61
<PAGE>
Rule 144
In general, under Rule 144 as currently in effect, a person including an
affiliate, who has beneficially owned shares of our common stock for at least
one year would be entitled to sell in "broker's transactions" or to market
makers, 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 in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current
public information about MarketFirst.
Rule 144(k)
Under Rule 144(k), a person who is deemed to have not been our affiliate 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, is entitled to
sell such shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of Rule 144.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or directors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144.
However, holders of shares that would otherwise be saleable under Rule 701 are
subject to the contractual restrictions described above which restrict the sale
or disposition of such shares for 180 days following the effective date.
In addition, some of our stockholders have registration rights with respect
to approximately 18,152,917 shares of common stock and common stock
equivalents. Registration of these registrable securities under the Securities
Act of 1933 would result in those shares becoming freely tradeable without
restriction under the Securities Act of 1933. See "Description of Capital
Stock--Registration Rights" for a description of our outstanding registration
rights.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 2000, the underwriters named below, for whom Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), Dain Rauscher Incorporated, SG Cowen
Securities Corporation and DLJdirect Inc. are acting as representatives, have
severally agreed to purchase, and we have agreed to sell to them, severally,
the respective number of shares of common stock set forth opposite the names of
such underwriters below:
<TABLE>
<CAPTION>
Number
of Shares
---------
<S> <C>
Underwriters:
Donaldson, Lufkin & Jenrette Securities Corporation................
Dain Rauscher Incorporated.........................................
SG Cowen Securities Corporation....................................
DLJdirect Inc. ....................................................
----
Total............................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to other
specified conditions. The underwriters are obligated to purchase and accept
delivery of all the shares, other than those shares covered by the
overallotment option described below, if they purchase any of the shares.
The underwriters initially propose to offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives may change the public offering price and such concessions
at any time without notice.
An electronic prospectus will be available on the web sites maintained by
DLJdirect Inc., an affiliate of DLJ. The information on this web site relating
to the offering is not part of this prospectus and has not been approved or
endorsed by MarketFirst or the underwriters, and should not be relied on by
prospective investors.
We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase, from time to time, in whole or in part,
up to additional shares at the public offering price less the
underwriting fees. The underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise such option, each underwriter will become
obligated, subject to specified conditions, to purchase a number of additional
shares approximately proportionate to such underwriter's initial purchase
commitment.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share..................................................
Total....................................................
</TABLE>
63
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, shares of the common stock for employees, directors and other
persons associated with us who have expressed an interest in purchasing such
shares of common stock in this offering. The number of shares of common stock
available for sale to the general public in this offering will be reduced to
the extent such persons purchase the reserved shares. Any reserved shares not
so purchased will be offered by the underwriters to the general public on the
same terms as the other shares offered hereby.
We have agreed to indemnify the underwriters against specified civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
of any of those liabilities.
We estimate that expenses of the offering will total $ .
Each of MarketFirst, our executive officers and directors and certain of our
stockholders have agreed that, subject to some exceptions for a period of 180
days from the date of this prospectus, we will not, without the prior written
consent of DLJ:
. Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock;
. Purchase any option or contract to sell any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock;
. Grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock; or
. Enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock or any securities convertible into or exercisable or exchangeable
for common stock, regardless of whether any of the transactions described
above is to be settled by the delivery of common stock, or such other
securities, in cash or otherwise.
However, 25% of the shares of common stock subject to the restrictions
described above (other than shares owned by officers) will be released from
these restrictions if the reported last sale price of the common stock on the
Nasdaq National Market is at least twice the initial public offering price for
20 of the 30 consecutive trading days ending on the last trading day of the 90-
day period after the date of this prospectus. These shares will be released on
the later to occur of the 90-day period after the date of this prospectus and
the second trading day after the first public release of our quarterly results.
An additional 25% of the shares subject to the restrictions described above
will be released from these restrictions if the reported last sale price of the
common stock on the Nasdaq National Market is at least twice the initial public
offering price for 20 of the 30 consecutive trading days ending on the last
trading day of the 135-day period after the date of this prospectus.
In addition, during such 180-day period, we also have agreed not to file any
registration statement with respect to, and each of our executive officers and
directors and several of our stockholders have agreed not to make any demand
for, or exercise any right with respect to, the registration of any shares of
common stock or any securities convertible into or exercisable or exchangeable
for common stock without the prior written consent of DLJ.
An application will be made for quotation of our common stock on the Nasdaq
National Market under the symbol "MKTF."
64
<PAGE>
The representatives of the underwriters have advised us that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.
DLJ Capital Corporation, Sprout Capital VII, L.P., Sprout Capital VIII, L.P.,
Sprout Venture Capital, L.P., Sprout CEO Fund, L.P. and DLJ ESC II, L.P.,
collectively referred to as the "Sprout Entities," are affiliates of Donaldson,
Lufkin & Jenrette Securities Corporation, one of the underwriters. As described
under "Principal Stockholders," Donaldson, Lufkin and Jenrette Securities
Corporation and the Sprout Entities beneficially own an aggregate of 5,215,174
shares of the outstanding common stock, which represent more than 10% of the
outstanding common stock. Donaldson, Lufkin and Jenrette Securities Corporation
and the Sprout Entities intend to place a sufficient number of their shares in
a voting trust so that upon the closing of this offering, Donaldson, Lufkin and
Jenrette Securities Corporation and the Sprout Entities will exercise voting
control over less than five percent of the outstanding common stock. The shares
subject to the voting trust will be held and voted by an independent third
party, , as voting trustee. Employees of DLJ beneficially own an aggregate
of 70,416 shares of our Series D preferred stock, each share of which is
convertible into 0.4 shares of our common stock. Alexander Rosen, an affiliate
of DLJ Capital Corporation, is a member of our board of directors.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus. This prospectus is not an offer to sell or
a solicitation of an offer to buy any shares of common stock included in this
offering in any jurisdiction where that would not be permitted or legal.
In connection with this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot this offering, thereby creating a
syndicate short position. In addition, the underwriters may bid for and
purchase shares of common stock in the open market to cover such syndicate
short position or to stabilize the price of the common stock. These activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Because the Sprout Entities affiliated with Donaldson, Lufkin & Jenrette
Securities Corporation beneficially own more than 10% of the outstanding common
stock, this offering is being conducted in accordance with Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc., which
provides that the public offering price of an equity security be no higher than
that recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, will assume the
responsibilities of acting as qualified independent underwriter and will
recommend a price in compliance with the requirements of Rule 2720. As
compensation for its services as qualified independent underwriter, we have
agreed to pay $ to on the closing of this offering.
65
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by Hewitt & McGuire, LLP, Irvine, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Latham & Watkins, San Francisco, California.
EXPERTS
The balance sheets of MarketFirst as of December 31, 1998 and 1999, and the
statements of operations, stockholders' equity (deficit) and cash flows for
each of the years in the three year period ended December 31, 1999 have been
included herein and in the registration statement in reliance upon the report
of KPMG LLP, independent auditors, and upon the authority of said firm as
experts in accounting and auditing.
The balance sheets of Times Direct Marketing, Inc. as of December 31, 1998
and 1999, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years then ended, have been included herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent auditors, and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and exhibits thereto. For
further information with respect to MarketFirst and the shares to be sold in
the offering, reference is made to the registration statement and exhibits
thereto. Statements contained in this prospectus regarding the contents of any
contract, agreement or other document to which reference is made are not
necessarily complete, and in each instance where a copy of such contract,
agreement or other document has been filed as an exhibit to the registration
statement, reference is made to the copy so filed, each such statement being
qualified in all respects by such reference.
We will be filing quarterly and annual reports, proxy statements and other
information with the SEC. A copy of the registration statement and the exhibits
thereto may be inspected without charge at the Public Reference Room of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
of all or any part of the registration statement may be obtained from the
Public Reference Section of the SEC upon the payment of the fees prescribed by
the SEC. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as MarketFirst,
that file electronically with the SEC.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
MarketFirst Software, Inc. Financial Statements
Form of Independent Auditors' Report..................................... F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' Equity (Deficit)............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
Times Direct Marketing, Inc. (d.b.a. FusionDM) Financial Statements
Independent Auditors' Report............................................. F-20
Balance Sheets........................................................... F-21
Statements of Operations................................................. F-22
Statements of Stockholders' Equity (Deficit)............................. F-23
Statements of Cash Flows................................................. F-24
Notes to Financial Statements............................................ F-25
Pro Forma Combined Condensed Financial Statements
Introduction to Unaudited Pro Forma Combined Condensed Financial
Statements.............................................................. F-31
Unaudited Pro Forma Combined Condensed Balance Sheet..................... F-32
Unaudited Pro Forma Combined Condensed Statement of Operations........... F-33
Notes to Unaudited Pro Forma Combined Condensed Financial Statements..... F-34
</TABLE>
F-1
<PAGE>
The Board of Directors and Stockholders
MarketFirst Software, Inc.:
We have audited the accompanying balance sheets of MarketFirst Software, Inc.
(the Company), as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three year period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MarketFirst Software, Inc. as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the years in the three year period ended December 31, 1999,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
March 20, 2000, except as to Note 8,
which is as of April 13, 2000
F-2
<PAGE>
MARKETFIRST SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, Pro Forma as of
------------------------- December 31,
1998 1999 1999
----------- ------------ ---------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ 261,000 $ 7,427,000
Short-term investments............. -- 5,889,000
Accounts receivable, net of
allowance for doubtful accounts of
$10,000 as of December 31, 1999... 12,000 694,000
Prepaid expenses and other......... 128,000 241,000
----------- ------------
Total current assets.............. 401,000 14,251,000
Property and equipment, net......... 500,000 781,000
Other assets........................ 60,000 1,000
----------- ------------
Total assets...................... $ 961,000 $ 15,033,000
=========== ============
Liabilities, Redeemable Convertible
Preferred Stock, and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable................... $ 510,000 $ 305,000
Accrued liabilities................ 531,000 431,000
Deferred revenue................... -- 296,000
----------- ------------
Total current liabilities......... 1,041,000 1,032,000
Commitments
Redeemable convertible preferred
stock and warrant, $0.001 par
value; actual--44,640,000 shares
authorized; 13,137,056 and
39,530,294 shares issued and
outstanding as of December 31, 1998
and 1999, respectively; aggregate
liquidation preference of
$31,539,000 as of December 31,
1999; pro forma--no shares
authorized, issued or outstanding.. 7,634,000 30,879,000 $ --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value;
actual--no shares authorized,
issued or outstanding; pro forma--
5,000,000 shares authorized; no
shares issued or outstanding
Common stock, $0.001 par value;
actual--45,000,000 shares
authorized; 4,510,242 and
4,889,838 shares issued and
outstanding as of December 31,
1998 and 1999, respectively; pro
forma--70,000,000 shares
authorized; 20,822,643 shares
issued and outstanding............ 5,000 5,000 21,000
Additional paid-in capital......... 497,000 3,262,000 34,125,000
Deferred stock-based compensation.. (51,000) (1,950,000) (1,950,000)
Notes receivable from
stockholders...................... (199,000) (207,000) (207,000)
Accumulated deficit................ (7,966,000) (17,988,000) (17,988,000)
----------- ------------ ------------
Total stockholders' equity
(deficit)........................ (7,714,000) (16,878,000) 14,001,000
----------- ------------ ============
Total liabilities, redeemable
convertible preferred stock, and
stockholders' equity (deficit)... $ 961,000 $ 15,033,000 $ 14,001,000
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MARKETFIRST SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Software hosting..................... $ -- $ -- $ 339,000
Software licenses.................... -- 20,000 369,000
Professional services................ -- 17,000 556,000
----------- ----------- ------------
Total revenues...................... -- 37,000 1,264,000
----------- ----------- ------------
Cost of revenues:
Software hosting..................... -- -- 150,000
Software licenses.................... -- 2,000 29,000
Professional services................ -- 2,000 286,000
----------- ----------- ------------
Total cost of revenues.............. -- 4,000 465,000
----------- ----------- ------------
Gross profit........................ -- 33,000 799,000
Operating expenses:
Research and development............. 751,000 2,245,000 3,470,000
Sales and marketing.................. 103,000 3,384,000 5,600,000
General and administrative........... 384,000 974,000 1,210,000
Stock-based compensation............. 30,000 91,000 820,000
----------- ----------- ------------
Total operating expenses............ 1,268,000 6,694,000 11,100,000
----------- ----------- ------------
Operating loss...................... (1,268,000) (6,661,000) (10,301,000)
Interest income....................... 5,000 101,000 312,000
Interest expense...................... (5,000) (8,000) (4,000)
Other expense......................... (2,000) (1,000) (5,000)
----------- ----------- ------------
Net loss............................ (1,270,000) (6,569,000) (9,998,000)
Accretion and dividend on redeemable
convertible preferred stock.......... (56,000) -- (24,000)
----------- ----------- ------------
Net loss attributable to common
stockholders....................... $(1,326,000) $(6,569,000) $(10,022,000)
=========== =========== ============
Basic and diluted net loss per share
attributable to common stockholders.. $ (0.78) $ (2.37) $ (2.96)
=========== =========== ============
Shares used in computing basic and
diluted net loss per share
attributable to common stockholders.. 1,696,000 2,770,000 3,381,000
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MARKETFIRST SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Deferred Receivable Stockholders'
----------------- Paid-in Stock-based from Accumulated Equity
Shares Amount Capital Compensation Stockholders Deficit (Deficit)
--------- ------ ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December
31, 1996............... 1,440,000 $1,000 $ 20,000 $ -- $ -- $ (71,000) $ (50,000)
Issuance of restricted
stock to officer....... 860,800 1,000 101,000 (102,000) -- -- --
Issuance of common stock
for cash............... 480,000 1,000 59,000 -- -- -- 60,000
Non-employee stock
compensation........... 80,000 -- 10,000 -- -- -- 10,000
Common stock contributed
by founder............. (40,000) -- -- -- -- -- --
Exercise of common stock
options................ 249,220 -- 22,000 -- -- -- 22,000
Amortization of stock-
based compensation..... -- -- -- 20,000 -- -- 20,000
Dividend on Series A
redeemable convertible
preferred stock........ -- -- -- -- (56,000) (56,000)
Net loss................ -- -- -- -- -- (1,270,000) (1,270,000)
--------- ------ ---------- ----------- --------- ------------ ------------
Balances as of December
31, 1997............... 3,070,020 3,000 212,000 (82,000) -- (1,397,000) (1,264,000)
Exercise of common stock
options for cash and
note receivable........ 1,440,222 2,000 225,000 -- (199,000) -- 28,000
Non-employee stock
compensation........... -- -- 60,000 -- -- -- 60,000
Amortization of stock-
based compensation..... -- -- -- 31,000 -- -- 31,000
Net loss................ -- -- -- -- -- (6,569,000) (6,569,000)
--------- ------ ---------- ----------- --------- ------------ ------------
Balances as of December
31, 1998............... 4,510,242 5,000 497,000 (51,000) (199,000) (7,966,000) (7,714,000)
Exercise of common stock
options for cash and
notes receivable....... 379,596 -- 46,000 -- (8,000) -- 38,000
Deferred stock
compensation related to
employee stock option
grants................. -- -- 2,719,000 (2,719,000) -- -- --
Amortization of stock-
based compensation..... -- -- -- 820,000 -- -- 820,000
Accretion on Series D
redeemable convertible
preferred stock........ -- -- -- -- -- (24,000) (24,000)
Net loss................ -- -- -- -- -- (9,998,000) (9,998,000)
--------- ------ ---------- ----------- --------- ------------ ------------
Balances as of December
31, 1999............... 4,889,838 $5,000 $3,262,000 $(1,950,000) $(207,000) $(17,988,000) $(16,878,000)
========= ====== ========== =========== ========= ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MARKETFIRST SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(1,270,000) $(6,569,000) $(9,998,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......... 16,000 160,000 388,000
Amortization of stock-based
compensation......................... 20,000 31,000 820,000
Issuance of stock and stock options to
nonemployees for services............ 10,000 60,000 --
Changes in operating assets and
liabilities:
Accounts receivable.................. -- (12,000) (682,000)
Prepaid expenses and other assets.... (32,000) (155,000) (54,000)
Accounts payable and accrued
liabilities......................... 43,000 908,000 (305,000)
Deferred revenue..................... -- -- 296,000
----------- ----------- -----------
Net cash used in operating
activities......................... (1,213,000) (5,577,000) (9,535,000)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.... (16,000) (608,000) (669,000)
Purchases of short-term investments.... -- -- (9,869,000)
Maturities of short-term investments... -- -- 3,980,000
----------- ----------- -----------
Net cash used in investing
activities......................... (16,000) (608,000) (6,558,000)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from sale of redeemable
convertible preferred stock and
warrants.............................. 1,083,000 5,997,000 23,221,000
Issuance of common stock............... 82,000 28,000 38,000
Repayment of preferred stockholder
notes receivable...................... 260,000 -- --
----------- ----------- -----------
Net cash provided by financing
activities......................... 1,425,000 6,025,000 23,259,000
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 196,000 (160,000) 7,166,000
Cash and cash equivalents at beginning
of year................................ 225,000 421,000 261,000
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 421,000 $ 261,000 $ 7,427,000
=========== =========== ===========
Supplemental disclosures of noncash
investing and financing activities:
Common stock issued in exchange for
notes receivable...................... $ -- $ 199,000 $ 8,000
=========== =========== ===========
Restricted stock issued to officer..... $ 102,000 $ -- $ --
=========== =========== ===========
Accretion and dividends on redeemable
convertible preferred stock........... $ 56,000 $ -- $ 24,000
=========== =========== ===========
Deferred stock-based compensation
related to employees stock option
grants................................ $ -- $ -- $ 2,719,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1998 and 1999
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
MarketFirst Software, Inc. (the Company) provides a comprehensive software
and hosted e-marketing solution that enables organizations to execute
interactive marketing campaigns over the Internet. The MarketFirst solution is
comprised of four core components: an e-marketing software platform; software
templates for e-marketing campaigns called eMarketing Blueprints; a hosted
service; and strategic e-marketing consulting and implementation services.
The Company was incorporated in Delaware on August 8, 1996, with headquarters
in Mountain View, California.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining maturities
of three months or less at the date of purchase to be cash equivalents. As of
December 31, 1999, cash equivalents consisted of money market funds, corporate
bonds and municipal bonds. As of December 31, 1998, cash equivalents consisted
solely of money market funds. The Company is exposed to credit risk in the
event of default by the financial institutions or the issuers of these
investments to the extent of the amounts recorded on the balance sheets in
excess of amounts that are insured by the FDIC.
(c) Short-Term Investments
Investments in debt securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value with any unrealized
gains or losses recorded as a component of other comprehensive income (loss).
To date, unrealized gains or losses have not been significant. Gains and losses
are calculated using the specific identification method.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on estimated useful lives, generally two years for
computer equipment and software and five years for furniture and fixtures.
(e) Impairment of Long-Lived Assets
The Company reviews the recoverability of the carrying amount of its long-
lived assets whenever events or changes in circumstances indicate that the
carrying amount of an asset might not be recoverable. In the event that facts
and circumstances indicate that the carrying amount of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with
assets to be held and used would be compared to the asset's carrying amount to
determine if a write-down to fair value is required. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
assets.
F-7
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(f) Software Development Costs
Capitalization of software development costs begins upon the establishment of
technological feasibility. Historically, technological feasibility on software
releases has coincided with the general release of the product for sale because
no beta version was developed. Accordingly, software development costs incurred
subsequent to the establishment of technological feasibility have not been
material.
(g) Stock-Based Compensation
The Company uses the intrinsic-value method to account for its employee
stock-based compensation plans. As such, compensation expense is recorded for
stock options granted to employees when the fair value of the underlying stock
exceeds the exercise price at the grant date. The Company amortizes deferred
stock-based compensation over the vesting period on an accelerated basis in
accordance with Financial Accounting Standards Board (FASB) Interpretation
No. 28.
(h) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities. A valuation allowance is recorded to reduce
deferred tax assets to an amount more likely than not to be recovered.
(i) Revenue Recognition
The Company obtains revenue from software licenses, software hosting
services, professional services and maintenance and support. The Company
accounts for software license fees in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9. SOP 97-2, as
amended, generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on the relative fair
value of the elements. The fair value of professional services and maintenance
and support has been determined based on Company specific objective evidence of
fair value based on the price charged when these elements are sold separately.
Accordingly, license revenue is recorded under the residual method described in
SOP 98-9 for arrangements in which licenses are sold with these elements.
Revenue from software license fees is recognized when evidence of an
arrangement exists, delivery of the product has occurred, acceptance is
certain, the fee is fixed or determinable and collection is probable. The
Company's software does not involve significant production, customization or
modification. In situations where the Company licenses its software in
connection with a software hosting arrangement, software license revenue is
only recognized if the customer has the right to take possession of the
software and host the application on its own or with another hosting vendor
without substantial cost or penalty. If the customer does not have the right to
take possession of the software, then the fees related to the arrangement are
deferred and recognized over the hosting term. Software maintenance and support
fees are included with professional services on the accompanying statements of
operations, and are recognized ratably over the term of the maintenance and
support period.
Revenue from software hosting services is recognized ratably over the hosting
term, typically 6 to 12 months. The Company earns additional fees when a
customer exceeds a specified usage limit.
F-8
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
These fees are recorded in the period in which the customer incurs the fee;
however, such fees have not been significant to date. Initial set-up fees are
deferred and amortized over the hosting term or the estimated term of the
customer relationship, if longer.
Revenue from professional services consists of the Company's consulting
services and is comprised primarily of time and expense arrangements. Revenue
is recognized as time and expenses are incurred.
Deferred revenue includes amounts billed to customers for which revenues have
not been recognized and generally results from the following: (1) deferred
maintenance and support, (2) hosting set-up fees, (3) prepaid hosting fees and
(4) consulting services not yet rendered.
(j) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(k) Comprehensive Loss
The Company did not have any significant components of other comprehensive
loss for any periods presented.
(l) Concentrations of Credit Risk
The Company sells its products primarily to customers in North America. The
Company's products are concentrated in the Internet commerce industry, which is
highly competitive and subject to rapid technological changes. The Company
performs ongoing evaluations of its customers' financial condition and
generally requires no collateral. The Company has not had any write-offs of
accounts receivable in 1999, and has recorded a $10,000 allowance for doubtful
accounts during 1999.
(m) Net Loss per Share
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock, excluding common stock subject to
repurchase. Diluted net loss per share is computed using the weighted-average
number of outstanding shares of common stock and, when dilutive:
(a) potential common shares from options and warrants to purchase common
stock, using the treasury stock method;
(b) common stock subject to repurchase using the treasury stock method;
and
(c) convertible securities using the as-if converted basis.
All potential common shares have been excluded from the computation of
diluted net loss per share for all periods presented because the effect would
have been antidilutive.
F-9
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Diluted net loss per share does not include the effect of the following
antidilutive common equivalent shares:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Shares issuable under stock options......... 749,400 1,157,586 2,041,332
Shares of restricted common stock subject to
repurchase................................. 693,422 1,561,911 839,724
Shares of redeemable convertible preferred
stock on an "as if converted" basis........ 1,696,000 5,254,822 15,812,117
Shares issuable pursuant to a warrant....... -- -- 120,688
</TABLE>
The weighted-average exercise price of outstanding stock options was $0.13,
$0.15 and $0.18 for the years ended December 31, 1997, 1998, and 1999,
respectively. The weighted-average purchase price of restricted stock was
$0.06, $0.15 and $0.16 for the years ended December 31, 1997, 1998, and 1999,
respectively. The effective exercise price of the common shares issuable under
the warrant was $2.663 at December 31, 1999.
Pro forma basic and diluted net loss per share attributable to common
stockholders for the year ended December 31, 1999, reflects per share data
assuming the conversion of all outstanding redeemable convertible preferred
shares on a basis of one common share for 2.5 shares of preferred stock, and
the exercise and conversion of an outstanding Series D preferred stock warrant
into 120,688 shares of common stock, as if the conversion had taken place at
the beginning of 1999 or at the date of issuance, if later. This data is
unaudited.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Net loss used in computing pro forma basic and diluted
net loss per share
Net loss attributable to common stockholders............. $(10,022,000)
Add: Accretion of redeemable convertible preferred
stock................................................... 24,000
------------
$ (9,998,000)
============
Shares used in computing pro forma basic and diluted net
loss per share
Shares used in net loss per share calculation............ 3,381,000
Weighted-average shares of redeemable convertible
preferred stock and warrant assuming conversion......... 11,296,000
------------
14,677,000
============
Pro forma basic and diluted net loss per share........... $ (0.68)
============
</TABLE>
(n) Fair Value of Financial Instruments
The value of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable and accounts payable
approximate their carrying values due to their short maturity.
(o) Initial Public Offering and Unaudited Pro Forma Balance Sheet Information
In April 2000, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC), that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO).
F-10
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Following the closing of the IPO, the Company's number of authorized shares of
preferred and common stock will be 5,000,000 and 70,000,000, respectively. If
the offering is consummated under the terms presently anticipated, all the then
outstanding shares of the Company's redeemable convertible preferred stock will
automatically convert into shares of common stock on a one-for-2.5 basis and
the warrant to purchase Series D preferred shares will be exercised and
converted to common stock upon the closing of the proposed IPO. The unaudited
pro forma balance sheet information reflects the exercise of the warrant and
the conversion of all of the redeemable convertible preferred stock as if it
has occurred on December 31, 1999.
(p) Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. This statement will be effective for all
annual and interim periods beginning after January 1, 2001. Management does not
believe the adoption of SFAS No. 133 will have a material effect on the
Company's consolidated financial position or results of operations.
In March 2000, the Emerging Issues Task Force (EITF) published their
consensus on EITF Issue No. 00-2, Accounting for Web Site Development Costs,
which requires that costs incurred during the development of web site
applications and infrastructure, involving developing software to operate the
web site, including graphics that affect the "look and feel" of the web page
and all costs relating to software used to operate a web site should be
accounted for under Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use, (SOP 98-1). However,
if a plan exists or is being developed to market the software externally, the
costs relating to the software should be accounted for pursuant to FASB
Statement No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed (SFAS No. 86). The Company will be required to
adopt EITF No. 00-2 in its first fiscal quarter, beginning after June 30, 2000,
although earlier application is encouraged. To date, the Company has not
entered into activities covered by EITF 00-2, as all software developed
internally has been offered under license to customers.
In March 2000, the EITF published their consensus on EITF Issue No. 00-3,
Application of AICPA Statement of Position 97-2, Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware. The Issue states that a software element covered by SOP 97-2
is only present in a hosting arrangement if the customer has the contractual
right to take possession of the software at any time during the hosting period
without significant penalty and it is feasible for the customer to either run
the software on its own hardware or contract with another party unrelated to
the vendor to host the software. The Company's hosting arrangements generally
do not allow customers the contractual right to take possession of the software
without significant penalty.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements as amended by SAB 101A, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
The Company will adopt
F-11
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
SAB 101 effective April 1, 2000, as required. The Company does not expect the
adoption of SAB 101 to have a material effect on its consolidated financial
position or results of operations.
(2) PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1998 and 1999,
follows:
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
Computer equipment and software........................ $ 395,000 $ 993,000
Office furniture and equipment......................... 282,000 341,000
--------- ----------
677,000 1,334,000
Less accumulated depreciation and amortization......... 177,000 553,000
--------- ----------
$ 500,000 $ 781,000
========= ==========
</TABLE>
(3) ACCRUED LIABILITIES
A summary of accrued liabilities as of December 31, 1998 and 1999, follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Compensation and related benefits......................... $409,000 $248,000
Consulting and professional fees.......................... 65,000 68,000
Software royalties........................................ -- 54,000
Other..................................................... 57,000 61,000
-------- --------
$531,000 $431,000
======== ========
</TABLE>
(4) REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(a) Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock and a warrant to purchase Series D
redeemable convertible preferred stock outstanding as of December 31, 1999,
follows:
<TABLE>
<CAPTION>
Shares Issued and Liquidation Carrying
Designated Outstanding Preference Value
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Series:
A........................... 2,140,000 2,040,000 $ 510,000 $ 555,000
B........................... 3,000,000 2,200,000 1,100,000 1,082,000
C........................... 21,500,000 19,882,358 13,520,000 13,444,000
D........................... 18,000,000 15,407,936 16,409,000 15,615,000
Warrants...................... -- -- -- 183,000
---------- ---------- ----------- -----------
44,640,000 39,530,294 $31,539,000 $30,879,000
---------- ---------- ----------- -----------
</TABLE>
The rights, preferences and privileges of the holders of Series A, B, C and D
preferred stock are as follows:
. Dividends are noncumulative and payable only upon declaration by the
Company's Board of Directors at a rate of $0.0125, $0.025, $0.034 and
$0.053 per share for Series A, B, C and D preferred stock, respectively.
If, after dividends in the full preferential amount have been paid to the
holders of Series A, B, C and D preferred stock, the Board of Directors
declares additional dividends, then such additional dividends shall be
declared on the common and preferred stock on a pro rata basis.
F-12
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
. The holders of Series A, B, C and D preferred stock have a liquidation
preference of $0.25, $0.50, $0.68 and $1.065 per share, respectively,
plus any declared but unpaid dividends.
. Each share of preferred stock is convertible at any time into common
stock on a basis of one common share for 2.5 preferred shares, subject to
certain antidilution provisions.
. The holders of preferred stock have voting rights equal to common stock
on an "as if converted" basis.
. At any time after December 31, 2002, the Company is required to redeem,
at the option of any holder of at least 1,000,000 shares of preferred
stock, all or any portion of the holder's shares. The redemption price is
equal to the original issue price plus all declared and unpaid dividends
on the shares of preferred stock.
(b) Warrant
On September 15, 1999, the Company issued a fully vested warrant in exchange
for services provided in connection with the Company's Series D preferred stock
financing. The warrant entitles the holder to purchase up to 301,719 shares of
the Company's Series D preferred stock at a price of $1.065 per share. The
warrant must be exercised before the earliest to occur (a) the closing of an
acquisition of the Company, (b) the closing of the Company's IPO or (c) the
expiration date of September 15, 2004. Upon the exercise of the warrant, the
shares of Series D preferred stock will be convertible into 120,688 shares of
common stock. The fair value of the warrants issued, calculated using the
Black-Scholes option pricing model, using $1.065 as the fair value of the
underlying redeemable convertible preferred stock, and the following
assumptions: no dividends; contractual life of five years; risk-free interest
rate of 5.94%; expected volatility of 60%; was $183,000. This amount will be
accreted to the carrying value of Series D redeemable convertible preferred
stock so that the carrying value of preferred stock will equal its redemption
value on December 31, 2002.
(c) 1996 Equity Incentive Plan
In 1996, the Company adopted the 1996 Equity Incentive Plan (the Plan), as
amended on October 20, 1999, pursuant to which incentive stock options and
nonstatutory stock options may be granted to employees and consultants of the
Company. The exercise price for incentive stock options is at least 100% of the
fair market value on the date of grant for employees owning less than 10% of
the voting power of all classes of stock and at least 110% of the fair market
value on the date of grant for employees owning more than 10% of the voting
power of all classes of stock. For nonstatutory stock options, the exercise
price is at least 110% of the fair market value on the date of grant for
employees owning more than 10% of the voting power of all classes of stock and
at least 85% for employees owning less than 10% of the voting power of all
classes of stock. Options generally expire in 10 years; however, they may be
limited to 5 years if the optionee owns stock representing more than 10% of the
Company. Vesting periods are determined by the Company's Board of Directors and
generally provide for ratable vesting over 4 years. As of December 31, 1999,
4,590,123 shares of common stock were reserved for issuance under the Plan, and
479,753 shares were available for grants. Certain shares were issued to
officers upon exercise of stock options for full recourse promissory notes with
an aggregate principal amount of $207,000, interest rates ranging from 5.00% to
5.69% and terms of four years.
(d) Stock-Based Compensation
The Company uses the intrinsic-value method in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for any of its stock
F-13
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
options granted or restricted stock sold because the exercise price of each
option or purchase price of each share of restricted stock equaled or exceeded
the fair value of the underlying common stock as of the grant date for each
stock option or purchase price of each restricted stock share, except for
860,800 shares of restricted stock sold in 1997 and stock options granted from
January 1, 1999 through December 31, 1999. With respect to the stock options
granted from January 1, 1999 to December 31, 1999, the Company recorded
deferred stock compensation of $2,719,000 for the difference at the grant or
issuance date between the exercise price of each stock option granted and the
fair value of the underlying common stock. This amount is being amortized on an
accelerated basis over the vesting period, generally four years, consistent
with the method described in FASB Interpretation No. 28. Amortization of the
December 31, 1999 balance of deferred stock-based compensation for fiscal 2000,
2001, 2002 and 2003, will approximate $1,199,000, $501,000, $214,000 and
$36,000, respectively. The amortization of deferred stock compensation combined
with the expense associated with stock options granted to nonemployees, relates
to the following items in the accompanying consolidated statements of
operations:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cost of revenues................................... $ -- $ -- $ 7,000
Research and development........................... 20,000 31,000 192,000
Sales and marketing................................ -- -- 369,000
General and administrative......................... -- 60,000 252,000
------- ------- --------
$20,000 $91,000 $820,000
======= ======= ========
</TABLE>
Had compensation costs been determined in accordance with SFAS No. 123, for
all of the Company's stock-based compensation plans, net loss attributable to
common stockholders (in thousands) and basic and diluted net loss per share
attributable to common stockholders, would have been as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Net loss attributable to common
stockholders:
As reported............................ $1,326,000 $6,569,000 $10,022,000
Pro forma.............................. 1,333,000 6,580,000 10,051,000
Basic and diluted net loss per share:
As reported............................ 0.78 2.37 2.96
Pro forma.............................. 0.79 2.38 2.97
</TABLE>
The fair value of each option was estimated on the date of grant using the
minimum-value method with the following weighted-average assumptions: no
dividends; risk-free interest rate of 6.1%, 4.4%, and 5.73% for the years ended
December 31, 1997, 1998 and 1999, respectively; and expected life of four
years.
(e) Reverse Stock Split and Dividend on Redeemable Convertible Preferred Stock
In conjunction with the 1997 Series B redeemable convertible preferred stock
financing, the two common stockholders who each owned 50% of the outstanding
shares of common stock, each returned an equal number of shares to the Company.
This transaction has been reflected in the accompanying financial statements as
a 1-for-2.2 reverse stock split. The outstanding shares of Series A redeemable
convertible preferred stock were not subject to this split, thereby increasing
the
F-14
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Series A stockholders' ownership interest on an "as-if-converted" basis. The
additional economic benefit to the Series A stockholders of $56,000 was
recognized as a dividend equal to the fair value of the conversion benefit. The
stock split has been presented as if it had occurred as of December 31, 1996.
(f) Restricted Common Stock
In 1997, 860,800 shares of restricted common stock were issued to an officer.
These shares vest ratably over three years, with unvested shares subject to
repurchase by the Company at $0.025 per share. Deferred stock compensation was
recorded based on the fair value of the common stock at the date of issuance.
As of December 31, 1999, 119,556 shares are subject to repurchase. The Company
also has 720,168 additional shares of restricted stock outstanding subject to
repurchase at $0.07 per share as of December 31, 1999. These shares were sold
to officers in 1998 at fair value and vest over a four-year period.
Stock option activity is presented below:
<TABLE>
<CAPTION>
1997 1998 1999
------------------- --------------------- --------------------
Weighted- Weighted- Weighted-
Number average average average
of Exercise Number Exercise Number of Exercise
Shares Price of Shares Price Shares Price
-------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 240,000 $0.08 749,400 $0.13 1,157,585 $0.15
Granted................. 814,620 0.10 2,192,410 0.18 1,550,496 0.18
Exercised............... (249,220) 0.08 (1,440,222) 0.15 (379,596) 0.15
Canceled................ (56,000) 0.13 (344,002) 0.15 (287,153) 0.18
-------- ---------- ---------
Outstanding, end of
year................... 749,400 0.13 1,157,586 0.15 2,041,332 0.18
======== ========== =========
Exercisable, end of
year................... 276,400 0.10 246,865 0.10 208,620 0.15
======== ===== ========== ===== ========= =====
Weighted-average fair
value of options
granted during the year
with exercise price
equal to fair value at
date of grant.......... 814,620 $0.03 2,192,410 $0.03 -- $ --
Weighted-average fair
value of options
granted during the year
with exercise price
less than fair value at
date of grant.......... -- -- -- -- 1,550,496 $1.78
</TABLE>
Information regarding the stock options outstanding as of December 31, 1999,
is summarized below:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------------------- -----------------
Weighted-
average
Remaining Weighted- Weighted-
Number of Contractual average Number average
Options Life Exercise of Exercise
Exercise Prices Outstanding (Years) Price Options Price
--------------- ----------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.08.................... 105,566 7.33 $0.08 42,233 $0.08
0.13.................... 120,334 7.69 0.13 47,167 0.13
0.18.................... 1,815,432 8.77 0.18 119,220 0.18
--------- -------
2,041,332 0.18 208,620 0.15
========= ======= =====
</TABLE>
F-15
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(5) LEASE COMMITMENTS
The Company leases its corporate facilities under an operating lease
agreement that expires on April 5, 2000. Future minimum lease payments under
this lease in 2000 total $43,000. The Company leases sales offices in Natick,
MA and Dallas, TX under operating lease agreements that expire on November 30,
2000 and April 30, 2000, respectively. Future minimum lease payments under
these leases in 2000 total $19,000. Total rent expense for the years ended
December 31, 1998 and 1999, was approximately $133,000 and $197,000,
respectively.
(6) INCOME TAXES
The Company has not recognized income tax expense for the years ended
December 31, 1997, 1998 and 1999. The reconciliation of the Company's income
tax expense for the years ended December 31, 1997, 1998 and 1999 to income
taxes computed using the Federal statutory rate of 34% is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Federal income tax benefit at the
statutory rate...................... $(432,000) $(2,233,000) $(3,399,000)
Net operating loss not benefited..... 421,000 2,212,000 3,212,000
Other................................ 11,000 21,000 187,000
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves............................ $ 120,000 $ 177,000
Depreciation and amortization.................... 1,011,000 811,000
Net operating loss and credit carryforwards...... 2,424,000 6,413,000
----------- -----------
Total deferred tax assets...................... 3,555,000 7,401,000
Less valuation allowance......................... (3,555,000) (7,401,000)
----------- -----------
Net deferred tax assets........................ $ -- $ --
=========== ===========
</TABLE>
Management has established a valuation allowance for the portion of deferred
tax assets for which realization is uncertain. The net change in the total
valuation allowance for the years ended December 31, 1997, 1998 and 1999 was
$542,000, $2,989,000 and $3,846,000, respectively.
As of December 31, 1999, the Company has net operating loss carryforwards for
Federal and state income tax purposes of approximately $14,789,000 and
$10,057,000, respectively, available to reduce future income subject to income
taxes. The Federal net operating loss carryforwards expire beginning in 2013
through 2019. State net operating loss carryforwards expire beginning in 2003
through 2005.
As of December 31, 1999, the Company has research and other credit
carryforwards for Federal and California income tax purposes of approximately
$163,000 and $185,000 available to reduce future income taxes. The Federal
research and other credit carryforwards expire in 2019.
F-16
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
The Internal Revenue Code of 1986 substantially restricts the ability of a
corporation to utilize existing net operating losses in the event of an
"ownership change" of the corporation. If such ownership changes occur,
utilization of the net operating losses will be subject to an annual limitation
in future years.
(7) SEGMENT REPORTING
SFAS No, 131, Disclosure About Segments of an Enterprise and Related
Information, establishes standards for the reporting by public companies of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.
The Company's chief operating decision maker is considered to be the
Company's chief executive officer (CEO). The CEO reviews financial information
presented for purposes of making decisions and assessing financial performance.
The financial information reviewed by the CEO is identical to the information
presented in the accompanying consolidated statements of operations, and the
Company has no significant foreign operations. Therefore, the Company operates
in a single operating segment. Disaggregated product information is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1998 1999
-------- ----------
<S> <C> <C>
Revenues:
Software hosting........................................ $ -- $ 339,000
Software licenses....................................... 20,000 369,000
Professional services................................... 17,000 556,000
-------- ----------
$ 37,000 $1,264,000
======== ==========
</TABLE>
Significant customer information is as follows:
<TABLE>
<CAPTION>
Percentage of
Total Revenue Accounts
Years Ended Receivable
December 31, as of
------------- December 31,
1998 1999 1999
------ ------ ------------
<S> <C> <C> <C>
Customer A.................................... 54% -- --
Customer B.................................... 46% -- --
Customer C.................................... -- 15% --
Customer D.................................... -- -- 25%
Customer E.................................... -- -- 13%
</TABLE>
F-17
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(8) SUBSEQUENT EVENTS
(a) Lease Commitment
In January 2000, the Company entered into a non-cancelable operating lease
for a new corporate headquarters in Mountain View, California. Future minimum
lease payments under the lease total:
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000............................................................ $ 1,666,000
2001............................................................ 2,558,000
2002............................................................ 2,637,000
2003............................................................ 2,717,000
2004............................................................ 2,796,000
-----------
Total.......................................................... $12,374,000
===========
</TABLE>
Under the terms of the lease, the Company is required to maintain an
irrevocable letter of credit in the amount of $1,249,000 to be drawn on an FDIC
insured financial institution with the landlord named as the beneficiary.
(b) Acquisition of FusionDM
In April 2000, MarketFirst entered in an agreement to acquire Times Direct
Marketing, Inc., also known as FusionDM, a direct marketing consulting agency.
Under the terms of the acquisition agreement, we will pay the following:
. $2.5 million to be paid at the close of the acquisition, and additional
cash consideration to be paid over two years based on the achievement of
certain operating objectives of FusionDM; and
. up to an estimated 1,568,628 shares of our common stock consisting of
784,314 shares to be issued at the close of the acquisition, with the
remaining 784,314 shares to be placed in escrow to be released ratably,
subject to the achievement of certain operating objectives of FusionDM,
on an annual basis over the next three years. The actual number of
shares to be issued could be greater than 1,568,628 shares and is
dependent, in part, on the Company's initial filing range to be provided
to the Securities and Exchange Commission in connection with its initial
public offering.
Cash and common stock issued subject to these contingencies will be recorded
as additional acquisition costs based on the fair value of the consideration on
the date issued.
(c) Stock-based compensation
For the period January 1, 2000 to March 31, 2000, the Company granted to
employees options to purchase 809,450 shares of common stock at a weighted
average exercise price of $1.38 per share. These options vest over a four year
period. In connection with these option grants, the Company recorded deferred
stock-based compensation of $7,065,000. This deferred stock-based compensation
will be amortized on an accelerated basis over a four year period. Amortization
expense related to these options will approximate $3,743,00, $2,066,000,
$936,000, $313,000 and $7,000 in each of the years in the five-year period
ended December 31, 2004.
F-18
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(d) Stock-split
On April 13, 2000, the Board of Directors and stockholders approved a 1 for
2.5 reverse stock split. All share amounts have been adjusted to reflect this
stock split.
(e) 2000 Stock Incentive and Employee Stock Purchase Plans
In April 2000, the Company's Board of Directors approved, subject to
stockholder approval and subject to the closing of an initial public offering,
the 2000 Stock Incentive Plan (2000 Incentive Plan) which will be the successor
to the 1996 Equity Incentive Plan (1996 Plan). All options available for grant
under the 1996 Plan will be transferred to the 2000 Incentive Plan on its
effective date and will continue to have substantially the same terms. Common
stock authorized for issuance under the 2000 Incentive Plan is 4,000,000 shares
which will automatically increase annually by an amount equal to 5% of the
total number of shares of common stock outstanding on the last trading day of
December of the previous year, but in no event will this annual increase exceed
2,500,000 shares.
The 2000 Plan allows (1) option grants to employees with exercise prices at
not less than the fair market value of these shares, (2) issuance of shares to
individuals which will vest upon performance or completion of a service period
or as a bonus for past services, and (3) a salary investment program for highly
compensated employees to apply a portion of their base salary to purchase
special below market stock options.
Also in April 2000, the Company's Board of Directors approved, subject to
stockholder approval and subject to the closing of an initial public offering,
the 2000 Employee Stock Purchase Plan (2000 Purchase Plan) that will allow
employees to purchase shares of common stock, at quarterly intervals, with
accumulated payroll deductions. Common stock authorized for issuance under the
2000 Purchase Plan is 800,000 shares which will automatically increase annually
by an amount equal to 1.5% of the total number of shares outstanding on the
last trading day of December of the previous year. In no event will any annual
increase exceed 800,000 shares.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Times Direct Marketing, Inc. d.b.a. FusionDM:
We have audited the accompanying balance sheets of Times Direct Marketing,
Inc. d.b.a. FusionDM (the Company) as of December 31, 1998 and 1999, and the
related statements of operations, stockholders' equity (deficit), and cash
flows for each of the years 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 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 preservation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Times Direct Marketing, Inc.
d.b.a. FusionDM, as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the years then ended, in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
San Francisco, California
April 7, 2000
F-20
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................. $ -- $ 122,000
Accounts receivable, less allowance for doubtful
accounts of $0 in 1998 and $50,000 in 1999........... 778,000 2,450,000
Cost in excess of billings on contracts in progress... 10,000 298,000
Prepaid expenses and other current assets............. 12,000 13,000
---------- ----------
Total current assets................................. 800,000 2,883,000
Deposits and other assets.............................. 47,000 263,000
Property and equipment, net............................ 568,000 801,000
---------- ----------
Total assets......................................... $1,415,000 $3,947,000
========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable...................................... $ 656,000 $1,064,000
Accrued liabilities................................... 675,000 2,133,000
Current portion of capital lease obligations.......... 57,000 114,000
Billing in excess of costs on contracts in progress .. 124,000 609,000
Line of credit........................................ 89,000 --
---------- ----------
Total current liabilities............................ 1,601,000 3,920,000
Long-term portion of capital lease obligation.......... 55,000 212,000
---------- ----------
Total liabilities.................................... 1,656,000 4,132,000
Stockholders' deficit:
Common stock, $1.00 par value; 100,000 shares
authorized; 25,858 shares issued and outstanding as
of December 31, 1998 and 1999........................ 26,000 26,000
Additional paid-in capital ........................... 34,000 34,000
Accumulated deficit................................... (301,000) (245,000)
---------- ----------
Total stockholders' deficit.......................... (241,000) (185,000)
---------- ----------
Total liabilities and stockholders' deficit.......... $1,415,000 $3,947,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December
31,
-----------------------
1998 1999
----------- ----------
<S> <C> <C>
Revenue for services, net of reimbursed costs of
$4,788,000 in 1998 and $7,076,000 in 1999........... $ 2,222,000 $5,470,000
Cost of services..................................... 1,447,000 2,826,000
----------- ----------
Gross profit....................................... 775,000 2,644,000
Operating expenses:
Sales and marketing................................. 93,000 194,000
General and administrative.......................... 2,020,000 2,592,000
----------- ----------
Total operating expenses........................... 2,113,000 2,786,000
----------- ----------
Operating loss..................................... (1,338,000) (142,000)
Other income (expense):
Interest and other income........................... -- 298,000
Interest expense.................................... (34,000) (65,000)
Loss on disposal of fixed assets.................... -- (19,000)
----------- ----------
Income (loss) before income taxes................... (1,372,000) 72,000
Income tax expense.................................. -- 16,000
----------- ----------
Net (loss) income.................................... $(1,372,000) $ 56,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Retained
Common stock Additional Earnings Total
-------------- Paid-in (Accumulated Stockholders'
Shares Amount Capital Deficit) Equity (Deficit)
------ ------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance as of December
31, 1997............... 21,979 $22,000 $ -- $ 1,071,000 $ 1,093,000
Issuance of common stock
for services........... 3,879 4,000 34,000 -- 38,000
Net loss................ -- -- -- (1,372,000) (1,372,000)
------ ------- ------- ----------- -----------
Balance as of December
31, 1998............... 25,858 26,000 34,000 (301,000) (241,000)
Net income.............. -- -- -- 56,000 56,000
------ ------- ------- ----------- -----------
Balance as of December
31, 1999............... 25,858 $26,000 $34,000 $ (245,000) $ (185,000)
====== ======= ======= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December
31,
-----------------------
1998 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................... $(1,372,000) $ 56,000
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization....................... 189,000 228,000
Loss on disposal of fixed asset..................... -- 19,000
Allowance for bad debts............................. -- 50,000
Employee stock based compensation................... 38,000 --
Changes in operating assets and liabilities:
Accounts receivable................................ 852,000 (1,722,000)
Prepaid expenses and other assets.................. (12,000) (135,000)
Cost in excess of billings......................... (10,000) (288,000)
Accounts payable................................... (24,000) 408,000
Accrued liabilities................................ 147,000 1,458,000
Billing in excess of cost on contracts in
progress.......................................... 124,000 485,000
----------- ----------
Net cash (used in) provided by operating
activities....................................... (68,000) 559,000
----------- ----------
Cash flows used in investing activities:
Purchases of property and equipment................... (113,000) (191,000)
Other assets.......................................... (22,000) (82,000)
----------- ----------
Net cash used in investing activities............. (135,000) (273,000)
----------- ----------
Cash flows (used in) provided by financing activities:
Capital lease payments................................ (39,000) (75,000)
Proceeds/payments from line of credit................. 89,000 (89,000)
----------- ----------
Net cash provided by (used in) financing
activities 50,000 (164,000)
----------- ----------
Net (decrease) increase in cash and cash equivalents.. (153,000) 122,000
Cash and cash equivalents, beginning of year.......... 153,000 --
----------- ----------
Cash and cash equivalents, end of year................ $ -- $ 122,000
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during year for interest................... $ 17,000 $ 23,000
=========== ==========
Noncash investing and financing activities:
Property and equipment obtained under capital lease.. $ 82,000 $ 289,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Basis of Presentation
Times Direct Marketing, Inc., d.b.a. FusionDM (the Company), was incorporated
in California on March 5, 1992. The Company is a direct marketing consulting
agency providing marketing professional services that combine Internet
technology services with traditional marketing services, such as strategic
consulting, creative services, media planning and database marketing.
(b) Contract Accounting
Revenue from time and material contracts for services is recognized based on
contract costs incurred during the year. Contract costs include direct
materials, labor, and subcontracting costs, and those indirect costs related to
contract performance such as indirect labor and supply costs. General and
administrative costs are charged to expenses as incurred.
Revenue from fixed fee contracts for services is recognized ratably over the
life of the contract. Contract costs are recognized when incurred. Contract
costs include all direct material, labor, and subcontracting costs, and those
indirect costs related to contract performance such as indirect labor and
supply costs. General and administrative costs are charged to expense as
incurred.
Provision for estimated losses on contracts in progress are made in the
period in which such losses are determined. Changes in contract requirements,
estimated profitability, and final contract settlements may result in revisions
to costs and revenues and are recognized in the period in which the revisions
are determined.
Revenue for services is presented net of reimbursed costs. These costs
include printing, postage, prizes and other direct out-of-pocket expenses
specifically associated with contracts.
The asset "costs in excess of billings on contracts in progress" represents
costs incurred in advance of billings. The liability "billings in excess of
costs and estimated earnings on contracts in progress" represents billings in
excess of income recognized.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities of less than 90 days at the date of purchase. The Company
is exposed to credit risk in the event of default by the financial institutions
or the issuers of these investments to the extent of the amounts recorded on
the balance sheet in excess of amounts that are insured by the FDIC. As of
December 31, 1998 and 1999, cash equivalents consisted principally of a money
market account.
(d) Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and
amortization. Depreciation is calculated using the double-declining balance
method over the estimated useful lives of the respective assets, generally
three to four years. Leasehold improvements and capital leased equipment are
amortized on a straight-line basis over the shorter of the estimated useful
lives of the assets or the lease term.
F-25
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(e) Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(f) Advertising Costs
The Company's policy is to expense advertising costs as incurred. The
Company's advertising and promotion expense was $36,000 and $6,000 for the
years ended December 31, 1998 and 1999, respectively.
(g) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(h) Income Taxes
As of December 31, 1998, the Company was a "C" Corporation. During 1998,
income taxes were accounted for under the assets and liability method. Deferred
tax assets and liabilities were recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities were
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences were expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates was recognized in income in the period that includes the enactment date.
Valuation allowances were established when necessary to reduce deferred tax
assets to the amounts to be recovered. During 1999, the Company converted from
a "C" Corporation to "S" Corporation status for federal income tax purposes. As
a result, there is no provision for federal income tax expense in 1999. State
franchise tax for "S" Corporation is assessed at the rate of 1.5% at the
corporate level.
(i) Comprehensive Income (Loss)
The Company did not have any significant components of other comprehensive
income (loss) for the years ended December 31, 1998 and 1999.
(j) Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of trade accounts receivable.
The Company has not experienced significant credit losses in the past. Based on
an ongoing evaluation of its accounts receivable collectibility and customer
credit worthiness, the Company has recorded $50,000 of allowance for doubtful
accounts during the period ended December 31, 1999.
F-26
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(k) Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards for derivative
financial instruments and hedging activities related to those instruments, as
well as other hedging activities. Because the Company does not currently hold
any derivative instruments and does not engage in hedging activities, the
Company expects that the adoption of SFAS No. 133 will not have a material
impact on its financial position, results of operations, or cash flows. The
Company will be required to adopt SFAS No. 133 in fiscal 2001.
(2) PROPERTY AND EQUIPMENT
Property and equipment, net, consisted of the following for the years ended
December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Computer equipment and office equipment............... $ 496,000 $ 803,000
Software.............................................. 95,000 122,000
Furniture and fixtures................................ 166,000 258,000
Leasehold improvements................................ 257,000 276,000
---------- ----------
1,014,000 1,459,000
Accumulated depreciation and amortization............. 446,000 658,000
---------- ----------
$ 568,000 $ 801,000
========== ==========
</TABLE>
Equipment under capital leases aggregated $158,000 and $447,000 as of
December 31, 1998 and 1999, respectively. Accumulated amortization on the
assets under capital leases aggregated $31,000 and $80,000 as of December 31,
1998 and 1999, respectively.
(3) LEASES
The Company has a noncancelable operating lease for office space. The office
space lease was entered into in May 1999 and extends for five years. The
Company also entered into several capital leases for equipment.
Future minimum lease payments as of December 31, 1999, were as follows:
<TABLE>
<CAPTION>
Capital Operating
Year Ended December 31, Leases Lease
----------------------- -------- ----------
<S> <C> <C>
2000................................................. $150,000 $ 388,000
2001................................................. 123,000 388,000
2002................................................. 87,000 388,000
2003................................................. 29,000 388,000
2004................................................. 9,000 128,000
-------- ----------
Total minimum lease payments......................... 398,000 $1,680,000
==========
Less amount representing imputed interest............ 72,000
--------
Present value of minimum lease payments.............. 326,000
Less current portion................................. 114,000
--------
Capital lease obligation, less current portion....... $212,000
========
</TABLE>
F-27
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's rent expense was $210,000 and $366,000 for the years ended
December 31, 1998 and 1999, respectively.
(4) CREDIT FACILITIES
The Company has two lines of credit with Merrill Lynch totaling $700,000. The
lines of credit bear interest at the 30-Day Commercial Paper Rate plus 3.30%
per year, 9.17% and 9.32% as of December 31, 1998 and 1999, respectively. As of
December 31, 1999, no amounts were outstanding under these lines of credit. The
lines of credit are secured by first liens and security interests in collateral
granted to the financial institution. One of the lines of credit is personally
guaranteed by the CEO. The line of credit for $500,000 is subject to yearly
renewal; the line of credit for $200,000 expires in May 2002.
(5) STOCKHOLDERS' DEFICIT
In June 1992, the founders contributed approximately $5,000 in cash and
$17,000 in furniture and equipment to the Company in return for 21,979 shares
of the Company.
In April 1998, the Company granted a 15% interest in the Company to the chief
operating officer (COO) as part of the COO's employment agreement. The value of
this ownership interest was based on the fair value of the common stock on the
date of issue. These shares of common stock were vested upon grant.
Accordingly, the Company granted 3,879 shares of common stock to the COO valued
at $38,000 which was recorded as compensation expense during the year ended
December 31, 1998.
(6) INCOME TAXES
Income tax expense for the years ended December 31, 1998 and 1999 consisted
of:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ -------
<S> <C> <C>
Current:
Federal........................................................ $ -- $ --
State.......................................................... -- 16,000
------ -------
Total current tax expense....................................... -- 16,000
Deferred:
Federal........................................................ -- --
State.......................................................... -- --
------ -------
Total deferred tax expense...................................... -- --
------ -------
Total tax expense............................................... $ -- $16,000
====== =======
</TABLE>
F-28
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The types of temporary differences that give rise to significant portions of
the Company's deferred tax assets and liabilities are set out below:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
--------- --------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves..................................... $ 325,000 $ 28,000
Net operating loss and credit carryforwards............... 487,000 --
--------- --------
Gross deferred tax assets.................................. 812,000 28,000
Valuation allowance........................................ (799,000) (26,000)
--------- --------
Total deferred tax assets.................................. 13,000 2,000
Deferred tax liabilities:
Plant and equipment....................................... (13,000) (2,000)
--------- --------
Total deferred tax liabilities............................. (13,000) (2,000)
--------- --------
Net deferred tax assets (liabilities) $ -- $ --
========= ========
</TABLE>
The Company elected S corporation status on March 1, 1999. Prior to the
election, the Company's year end had been February 28. The provision for income
taxes at December 31, 1998 has been calculated as if the Company had a calendar
year end.
The decrease in the valuation allowance of $773,000 is due to the reduction of
federal and partial state deferred income tax assets and liabilities as of
December 31, 1999 as a result of the S Corporation status election.
The Company has net operating loss carryforwards through February 1999 for
federal and state income tax purposes of approximately $1,300,000 and $652,000,
respectively. However, due to the S Corporation election, the losses are
suspended until such time the company changes to a C Corporation. The Federal
net operating loss carryforwards expire in 2019. The California net operating
loss carryforwards expire in 2004.
(7) SEGMENT REPORTING
SFAS No. 131, Disclosure About Segments of an Enterprise and Related
Information, establishes standards for the reporting by public companies of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance.
The Company's chief operating decision maker is considered to be the
Company's chief executive officer (CEO). The CEO reviews financial information
presented for purposes of making decisions and assessing financial performance.
The financial information reviewed by the CEO is identical to the information
presented in the accompanying statements of operations, and the Company has no
significant foreign operations. Therefore, the Company operates in a single
operating segment.
F-29
<PAGE>
TIMES DIRECT MARKETING, INC.
(d.b.a. FusionDM)
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of net sales to major customers that exceed 10% of total revenues
for services during each of the years in the two-year period ended December 31,
1999, and the amount due from these customers as of December 31, 1999, follows:
<TABLE>
<CAPTION>
Net Sales
--------- Accounts
1998 1999 Receivable
---- ---- ----------
<S> <C> <C> <C>
Customer A.............................................. 23% 18% --
Customer B.............................................. 13% 13% 6%
Customer C.............................................. -- 12% 10%
Customer D.............................................. -- 10% --
</TABLE>
(8) EMPLOYEE BENEFIT PLAN
In July 1997, the Company adopted a 401(k) employee retirement plan under
which eligible employees may contribute up to 15% of their annual compensation
on a pre-tax basis. The administrative costs of this plan are paid by the
Company. Employees vest immediately in their contributions and earnings
thereon. The plan allows for, but does not require, Company matching
contributions. As of December 31, 1999, the Company has not made any such
contributions.
(9) SUBSEQUENT EVENTS
(a) Line of Credit Increase
In January 2000, the Company increased the amount of one of its lines of
credit from $500,000 to $750,000.
(b) Agreement to be Acquired by MarketFirst
In April 2000, the Company entered into an agreement to be acquired by
MarketFirst Software, Inc. (MarketFirst). Under the terms of this agreement,
the Company's shareholders will receive the following:
. $2.5 million to be received at the close of the transaction, and
additional cash consideration to be paid over two years based on the
achievement of certain operating objectives; and
. up to an estimated 1,568,628 shares of common stock of MarketFirst
consisting of 784,314 shares to be received at the close of the
transaction, with the remaining 784,314 shares to be placed in escrow to
be released ratably, subject to the achievement of certain operating
objectives, on an annual basis over the next three years. The actual
number of shares to be received could be greater than 1,568,628 shares
and is dependent, in part, on MarketFirst's initial filing range to be
provided to the Securities and Exchange Commission in connection with
its initial public offering.
F-30
<PAGE>
MARKETFIRST SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
In April 2000, MarketFirst entered in an agreement to acquire Times Direct
Marketing, Inc., also known as FusionDM, a direct marketing consulting agency.
Under the terms of the acquisition agreement, we will pay the following:
. $2.5 million to be paid at the close of the acquisition, and additional
cash consideration to be paid over two years based on the achievement of
certain operating objectives of FusionDM; and
. up to an estimated 1,568,628 shares of our common stock consisting of
784,314 shares to be issued at the close of the acquisition, with the
remaining 784,314 shares to be placed in escrow to be released ratably,
subject to the achievement of certain operating objectives of FusionDM,
on an annual basis over the next three years. The actual number of
shares to be issued could be greater than 1,568,628 shares and is
dependent, in part, on MarketFirst's initial filing range to be provided
to the Securities and Exchange Commission in connection with its initial
public offering.
The following unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations for future periods, or
the results of operations, or financial position that actually would have been
realized had MarketFirst and FusionDM been a combined company during the
specified periods. The unaudited pro forma combined condensed financial
statements, including the related notes, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical financial
statements and related notes thereto of MarketFirst and FusionDM, included
elsewhere in this filing. The following unaudited pro forma combined condensed
financial statements give effect to the acquisition of FusionDM by MarketFirst
using the purchase method of accounting. The unaudited pro forma combined
condensed financial statements are based on the respective historical audited
financial statements and related notes of MarketFirst and FusionDM.
The pro forma adjustments are preliminary and based on management's estimates
of the value of the tangible and intangible assets acquired. The actual
adjustments may differ materially from those presented in these pro forma
financial statements. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to the long-
term tangible and intangible assets, or in some circumstances, resulting in a
change to the statement of operations. The effect of these changes on the
statement of operations will depend on the nature and amounts of the assets and
liabilities adjusted.
The unaudited pro forma combined condensed balance sheet assumes that the
acquisition took place on December 31, 1999, and combines MarketFirst's audited
December 31, 1999 balance sheet with FusionDM's audited December 31, 1999
balance sheet. The unaudited pro forma combined condensed statement of
operations assumes the acquisition took place on January 1, 1999, and combines
MarketFirst's audited statement of operations for the year ended December 31,
1999 with FusionDM's audited statement of operations for the year ended
December 31, 1999.
Finally, only a portion of the total consideration will be conveyed at the
acquisition date. The remaining consideration is subject to performance
contingencies over three years. Accordingly, the common shares issued as
contingent consideration will be recorded as an additional cost of the
acquisition at the date the shares become distributable during the three-year
period, at the then fair value of those shares. The effect of this contingent
consideration is unknown, but could materially impact the values assigned to
long-term intangible assets and significantly increase the amount of annual
amortization (see Note 3 to the unaudited pro forma combined condensed
financial statements).
F-31
<PAGE>
MARKETFIRST SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ ------------------------------
MarketFirst FusionDM Adjustments Combined
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 7,427,000 $ 122,000 $(2,500,000)(1a) $ 5,049,000
Short-term
investments........... 5,889,000 -- -- 5,889,000
Accounts receivable,
net................... 694,000 2,450,000 -- 3,144,000
Other.................. 241,000 311,000 -- 552,000
------------ ---------- ------------ ------------
Total current assets.. 14,251,000 2,883,000 (2,500,000) 14,634,000
Property and equipment,
net.................... 781,000 801,000 -- 1,582,000
Other assets............ 1,000 263,000 -- 264,000
Goodwill and other
intangible assets,
net.................... -- -- 12,785,000(1a) 12,785,000
------------ ---------- ------------ ------------
Total assets........ $ 15,033,000 $3,947,000 $ 10,285,000 $ 29,265,000
============ ========== ============ ============
Liabilities, Redeemable
Convertible Preferred
stock, and
Stockholders' Deficit
Current liabilities:
Accounts payable....... $ 305,000 $1,064,000 $ -- $ 1,369,000
Accrued liabilities and
other................. 431,000 2,247,000 100,000(1a) 2,778,000
Deferred revenue and
billings in excess
of costs.............. 296,000 609,000 -- 905,000
------------ ---------- ------------ ------------
Total current
liabilities.......... 1,032,000 3,920,000 100,000 5,052,000
Long term obligations... -- 212,000 -- 212,000
Redeemable convertible
preferred stock and
warrants............... 30,879,000 -- -- 30,879,000
Stockholders' deficit:
Common stock........... 5,000 26,000 (26,000) 5,000
Additional paid-in
capital............... 3,262,000 34,000 10,000,000 (1a) 13,262,000
(34,000)
Deferred stock-based
compensation.......... (1,950,000) -- -- (1,950,000)
Notes receivable from
stockholders.......... (207,000) -- -- (207,000)
Accumulated deficit.... (17,988,000) (245,000) 245,000(1a) (17,988,000)
------------ ---------- ------------ ------------
Total stockholders'
deficit.............. (16,878,000) (185,000) 10,185,000 (6,878,000)
------------ ---------- ------------ ------------
Total liabilities,
redeemable convertible
preferred stock and
stockholders' deficit.. $ 15,033,000 $3,947,000 $ 10,285,000 $ 29,265,000
============ ========== ============ ============
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-32
<PAGE>
MARKETFIRST SOFTWARE, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ -----------------------------
MarketFirst FusionDM Adjustments Combined
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Software hosting....... $ 339,000 $ -- $ -- $ 339,000
Software licenses...... 369,000 -- -- 369,000
Professional services.. 556,000 5,470,000 -- 6,026,000
------------ ---------- ----------- ------------
Total revenues........ 1,264,000 5,470,000 -- 6,734,000
Cost of revenues:
Software hosting....... 150,000 -- -- 150,000
Software licenses...... 29,000 -- -- 29,000
Professional services.. 286,000 2,826,000 -- 3,112,000
------------ ---------- ----------- ------------
Total cost of
revenues............. 465,000 2,826,000 -- 3,291,000
------------ ---------- ----------- ------------
Gross profit.......... 799,000 2,644,000 -- 3,443,000
Operating expenses:.....
Research and
development........... 3,470,000 -- -- 3,470,000
Sales and marketing.... 5,600,000 194,000 -- 5,794,000
General and
administrative........ 1,210,000 2,592,000 -- 3,802,000
Stock-based
compensation.......... 820,000 -- -- 820,000
Amortization of
goodwill and other
intangible assets..... -- -- 3,439,000 (2b) 3,439,000
------------ ---------- ----------- ------------
Total operating
expenses............. 11,100,000 2,786,000 3,439,000 17,325,000
------------ ---------- ----------- ------------
Operating loss........ (10,301,000) (142,000) (3,439,000) (13,882,000)
Interest and other,
net.................... 303,000 198,000 -- 501,000
------------ ---------- ----------- ------------
Net income (loss)..... (9,998,000) 56,000 (3,439,000) (13,381,000)
Accretion and dividend
on redeemable
convertible preferred
stock.................. (24,000) -- -- (24,000)
------------ ---------- ----------- ------------
Net loss attributable
to common
stockholders......... (10,022,000) 56,000 (3,439,000) (13,405,000)
============ ========== =========== ============
Basic and diluted net
loss per share
attributable to
common stockholders.. $ (2.96) $ (3.22)
============ ============
Shares used to compute
basic and diluted net
loss per share
attributable to
common stockholders.. 3,381,000 784,000 (2c) 4,165,000
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-33
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Year Ended December 31, 1999
(1) UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The pro forma combined condensed balance sheet as of December 31, 1999 gives
effect to the acquisition as if it had occurred on December 31, 1999.
The following adjustment has been reflected in the unaudited pro forma
combined condensed balance sheet:
(a) To record consideration to be issued by MarketFirst at the close of the
acquisition and applicable purchase accounting entries for the acquisition of
FusionDM. This adjustment does not reflect the additional consideration that
may be paid subject to the achievement of certain operating objectives.
Under purchase accounting, the total purchase price will be allocated to
FusionDM's assets and liabilities based on their relative fair values. Amounts
allocated to assembled workforce will be amortized on a straight-line basis
over an estimated useful life of three years. Amounts allocated to customer
lists will be amortized over two years. Amounts allocated to tradenames,
FusionDM's proprietary marketing process and goodwill will be amortized over an
estimated useful life of four years. Allocations are subject to valuations as
of the date of the consummation of the acquisition. The amounts and components
of the estimated purchase price, along with the preliminary allocation of the
estimated purchase price to assets purchased, are as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 2,500,000
Common stock.................................................... 10,000,000
Estimated transaction costs..................................... 100,000
-----------
Total purchase price........................................... $12,600,000
===========
Cash and cash equivalents....................................... $ 122,000
Accounts receivable............................................. 2,450,000
Prepaid expenses and other current assets....................... 311,000
Deposits and other assets....................................... 263,000
Property and equipment.......................................... 801,000
Accounts payable................................................ (1,064,000)
Accrued liabilities and other................................... (2,247,000)
Deferred revenue................................................ (609,000)
Long-term obligations........................................... (212,000)
-----------
Fair value of net tangible assets of FusionDM.................. (185,000)
Assembled workforce............................................. 1,641,000
Customer lists.................................................. 420,000
Tradenames...................................................... 662,000
Marketing process............................................... 3,079,000
Goodwill........................................................ 6,983,000
-----------
Net assets acquired............................................ $12,600,000
===========
</TABLE>
F-34
<PAGE>
MARKETFIRST SOFTWARE, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS (Continued)
The actual allocation of the purchase price will depend upon the composition
of FusionDM's net assets on the closing date and MarketFirst's evaluation of
the fair value of the net assets as of the date indicated. Consequently, the
actual allocation of the purchase price could differ from that presented above.
(2) UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The pro forma combined condensed statement of operations gives effect to the
acquisition as if it had occurred on January 1, 1999.
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(b) Adjustment to record the amortization of goodwill and intangible assets
resulting from the preliminary allocation of the FusionDM purchase price
calculated as follows:
<TABLE>
<CAPTION>
Estimated
Useful Annual
Value Life (Years) Amortization
---------- ------------ ------------
<S> <C> <C> <C>
Assembled workforce..................... $1,641,000 3 $ 547,000
Customer lists.......................... 420,000 2 210,000
Tradenames.............................. 662,000 4 166,000
Marketing process....................... 3,079,000 4 770,000
Goodwill................................ 6,983,000 4 1,746,000
----------
$3,439,000
==========
</TABLE>
(c) To reflect the shares of common stock to be issued as consideration for
the acquisition of FusionDM.
(3) EFFECT OF CONTINGENT CONSIDERATION
Assuming all of the contingent share consideration becomes issuable, the
following table presents the potential increases to long-term intangible
assets, and the resulting increases to the annual amortization presented in
2(c) above based upon varying common stock fair values. The common stock fair
values presented do not purport to represent the potential range of fair values
possible at each contingent consideration measurement date during the three-
year contingent consideration measurement period:
<TABLE>
<CAPTION>
Increase to
Assumed Fair Value per Increase to Long-term Annual
Share of Common Stock Intangible Assets Amortization
---------------------- --------------------- ------------
<S> <C> <C>
$10.00................................ $10,340,000 $1,961,000
$15.00................................ 14,262,000 2,941,000
$20.00................................ 18,183,000 3,922,000
$25.00................................ 22,105,000 4,902,000
$50.00................................ 41,713,000 9,804,000
</TABLE>
F-35
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, 2000
[MARKETFIRST LOGO]
Shares of Common Stock
---------------------
PROSPECTUS
---------------------
Donaldson, Lufkin & Jenrette
Dain Rauscher Wessels
SG Cowen
DLJdirect Inc.
- -------------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of
MarketFirst have not changed since the date hereof.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock 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 their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
<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 in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission, NASD and Nasdaq National Market
fees. All of the expenses below will be paid by MarketFirst.
<TABLE>
<CAPTION>
Amount
to be
Paid
-------
<S> <C>
Registration fee.................................................... $15,180
NASD filing fee..................................................... $ 6,250
Nasdaq National Market listing fee..................................
Blue sky fees and expenses..........................................
Director and Officer Liability Insurance............................
Printing and engraving expenses.....................................
Legal fees and expenses.............................................
Accounting fees and expenses........................................
Transfer Agent and Registrar fees...................................
Miscellaneous.......................................................
-------
Total............................................................... $
=======
</TABLE>
Item 14. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of MarketFirst under certain conditions and subject
to certain limitations. Section 145 of the Delaware General Corporation Law
also provides that a corporation has the power to purchase and maintain
insurance on behalf of its officers and directors against any liability
asserted against such person and incurred by him or her in 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 Section 145 of the Delaware General Corporation Law.
Article VII, Section 6 of the Amended and Restated Bylaws of MarketFirst
provides that MarketFirst shall indemnify its directors to the fullest extent
allowed by the Delaware General Corporation Law. The rights to indemnity
thereunder continue as to a person who has ceased to be a director and inure to
the benefit of the heirs, executors and administrators of the person. In
addition, expenses incurred by a director in defending any civil, criminal,
administrative or investigative action, suit or proceeding by reason of the
fact that he or she is or was a director of MarketFirst (or was serving at
MarketFirst's request as a director or officer of another corporation) shall be
paid by MarketFirst in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by MarketFirst as authorized by the relevant section
of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article VIII of MarketFirst's Restated Certificate of Incorporation provides
that a director of MarketFirst shall not be personally liable for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to MarketFirst or its
stockholders, (ii) for acts or omissions not in good faith or acts or omissions
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived any improper personal benefit.
II-1
<PAGE>
MarketFirst intends to enter into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
will attempt to provide the maximum protection permitted by Delaware law as it
may be amended from time to time. Moreover, the indemnification agreements will
provide for certain additional indemnification. Under such additional
indemnification provisions, however, an individual will not receive
indemnification for judgments, settlements or expenses if he or she is found
liable to MarketFirst (except to the extent the court determines he or she is
fairly and reasonably entitled to indemnity for expenses), for settlements not
approved by MarketFirst or for settlements and expenses if the settlement is
not approved by the court. The indemnification agreements with provide for
MarketFirst to advance to the individual any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending any
such action, suit or proceeding. In order to receive an advance of expenses,
the individual must submit to MarketFirst copies of invoices presented to him
or her for such expenses. Also, the individual must repay such advances upon a
final judicial decision that he or she is not entitled to indemnification.
MarketFirst plans to purchase directors' and officers' liability insurance.
Item 15. Recent Sales of Unregistered Securities
(a) In the past three years, we have issued and sold the securities described
below:
(1) In June 1997, we issued and sold 40,000 shares of unregistered
Series A preferred stock at a price per share of $0.25 to one investor for
aggregate cash consideration of $10,000. These shares were sold pursuant to
a Series A preferred stock purchase agreement between the investor and us.
We relied upon Section 4(2) of the Securities Act of 1933, in connection
with the sale of these securities.
(2) In September 1997, we issued and sold 480,000 shares of unregistered
common stock at a price per share of $0.125 per share to two consultants
for aggregate cash consideration of $60,000. These shares were sold
pursuant to restricted purchase agreements between these consultants and
us. We relied upon Section 4(2) of the Securities Act of 1933, in
connection with the sale of these securities.
(3) In October 1997, we issued and sold 80,000 shares of unregistered
common stock to one of our stockholders in consideration for the
stockholder obtaining a release of certain claims against him and us. We
relied upon Section 4(2) of the Securities Act of 1933, in connection with
the sale of these securities.
(4) In October 1997, we issued and sold 2,200,000 shares of unregistered
Series B preferred stock at a price per share of $0.50 to nine investors
for aggregate cash consideration of approximately $1,100,000. These shares
were sold pursuant to a Series B preferred stock purchase agreement between
such investors and us. We relied upon Section 4(2) of the Securities Act of
1933 and Regulation D, Rule 506, in connection with the sale of these
securities.
(5) In March, April and May 1998, we issued and sold 8,897,058 shares of
unregistered Series C preferred stock at a price per share of $0.68 to 13
investors for aggregate cash consideration of approximately $6,050,000.
These shares were sold pursuant to a Series C preferred stock purchase
agreement between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.
(6) In January, February and March 1999, we issued and sold 10,985,300
shares of unregistered Series C preferred stock at a price per share of
$0.68 to 15 investors for aggregate cash consideration of $7,470,004. These
shares were sold pursuant to a Series C preferred stock purchase agreement
between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.
II-2
<PAGE>
(7) In September and October 1999, we issued and sold 15,407,936 shares
of unregistered Series D preferred stock at a price per share of $1.065 to
31 investors for aggregate cash consideration of approximately $16,410,000.
These shares were sold pursuant to a Series D preferred stock purchase
agreement between such investors and us. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.
(8) In September 1999, in connection with the sale of the Series D
preferred stock discussed above, we issued an unregistered warrant to
purchase an aggregate of 301,719 shares of unregistered Series D preferred
stock, with an exercise price per share of $1.065, to Donaldson, Lufkin &
Jenrette Securities Corporation. We relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the
sale of these securities.
(9) In March 2000, in connection with the purchase of our e-marketing
services pursuant to the terms of a Warrant Purchase Agreement, we issued
unregistered warrants to purchase an aggregate of 70,000 shares of
unregistered common stock to General Electric Company. The exercise price
per share shall be equal to eighty-five percent (85%) of our offering price
in our initial public offering. We relied upon Section 4(2) of the
Securities Act of 1933, in connection with the sale of these securities.
(10) As of March 31, 2000, we have issued options to purchase an
aggregate of 5,606,976 shares of common stock to certain of our employees,
directors and consultants under our 1996 Equity Incentive Plan, with
exercise prices ranging from $0.025 to $1.15 per share. None of the
optionees paid any cash consideration for such options. As of March 31,
2000, we have issued and sold an aggregate of 2,242,775 shares of
unregistered common stock pursuant to exercises of stock options for
aggregate cash consideration of approximately $351,900 of which
approximately $207,000 is subject to outstanding promissory notes payable
to us. As to each of our directors, officers, employees, former employees
and consultants who were issued such securities, we relied upon Rule 701 of
the Securities Act of 1933. Each such person purchased our securities
pursuant to a written contract between such person and us. In addition, we
met the conditions imposed under Rule 701(b).
The recipients of securities in each transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof. Appropriate legends were
affixed to the share certificates issued in the transactions described above.
All recipients had adequate access, though their relationships with us or by
information furnished by us to them, to information about us.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Agreement of Merger and Plan of Reorganization dated April 14, 2000,
by and among the Company, FusionDM, Inc., Times Direct Marketing,
Inc., Christopher E. Peterson and Thierry Zamora
3.1 Amended and Restated Certificate of Incorporation of the Company as
filed with the Delaware Secretary of State in September 1999
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Company, as filed with the Delaware Secretary of
State in April 2000
3.3 Amended and Restated Certificate of Incorporation of the Company, to
be filed with the Delaware Secretary of State upon consummation of
this offering
3.4 Amended and Restated Bylaws of the Company
4.1* Specimen certificate representing shares of common stock of the
Company
4.2 Fifth Amended and Restated Investor Rights Agreement dated as of
September 10, 1999, by and among the Company and certain investors
4.3 Warrant to Purchase Series D Preferred Stock dated as of September 15,
1999 issued to Donaldson, Lufkin & Jenrette Securities Corporation
5.1* Form of Opinion of Hewitt & McGuire, LLP
10.1 Form of Indemnification Agreement to be entered into between the
Company and each of its directors and executive officers
10.2 Amended and Restated Employment Agreement dated as of January 1, 2000,
by and between Peter R. Tierney and the Company
10.3 1996 Equity Incentive Plan
10.4 2000 Stock Incentive Plan
10.5 2000 Employee Stock Purchase Plan
10.6 Amended and Restated Secured Full Recourse Promissory Note made by
Peter R. Tierney in favor of the Company
10.7 Software License Agreement dated as of January 24, 2000, by and
between the Company and SAP AG Inc.
10.8 Office Lease Agreement dated January 24, 2000, by and between EOP-
Shoreline Technology Park, L.L.C., and the Company
21.1* List of Subsidiaries
23.1 Consent of KPMG LLP (MarketFirst)
23.2 Consent of KPMG LLP (Times Direct Marketing)
23.3* Consent of Hewitt & McGuire, LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (contained on signature page on page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
II-4
<PAGE>
Item 17. Undertakings
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mountain View, State of
California, on the 18th day of April, 2000.
MARKETFIRST SOFTWARE, INC.
/s/ Peter R. Tierney
By: ________________________________
Peter R. Tierney
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and appoint
Peter R. Tierney and Robert W. Sator, and each of them, his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, or any related registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents, or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-1 has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Peter R. Tierney Chairman of the Board, April 18, 2000
____________________________________ President, and Chief
Peter R. Tierney Executive Officer
(principal executve
officer)
/s/ Anurag Khemka Chief Technology Officer and April 18, 2000
____________________________________ Director
Anurag Khemka
/s/ Robert W. Sator Vice President, Finance and April 18, 2000
____________________________________ Administration (principal
Robert W. Sator financial and accounting
officer)
/s/ Stephen R. Chapin, Jr. Director April 18, 2000
____________________________________
Stephen R. Chapin, Jr.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Alexander Rosen Director April 18, 2000
____________________________________
Alexander Rosen
/s/ Douglas A. Lindgren Director April 18, 2000
____________________________________
Douglas A. Lindgren
/s/ Randall C. Bolten Director April 18, 2000
____________________________________
Randall C. Bolten
/s/ James D. Power III Director April 18, 2000
____________________________________
James D. Power III
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Agreement of Merger and Plan of Reorganization dated April 14, 2000,
by and among the Company, FusionDM, Inc., Times Direct Marketing,
Inc., Christopher E. Peterson and Thierry Zamora
3.1 Amended and Restated Certificate of Incorporation of the Company as
filed with the Delaware Secretary of State in September 1999
3.2 Certificate of Amendment to Amended and Restated Certificate of
Incorporation of the Company, as filed with the Delaware Secretary of
State in April 2000
3.3 Amended and Restated Certificate of Incorporation of the Company, to
be filed with the Delaware Secretary of State upon consummation of
this offering
3.4 Amended and Restated Bylaws of the Company
4.1* Specimen certificate representing shares of common stock of the
Company
4.2 Fifth Amended and Restated Investor Rights Agreement dated as of
September 10, 1999, by and among the Company and certain investors
4.3 Warrant to Purchase Series D Preferred Stock dated as of September 15,
1999 issued to Donaldson, Lufkin & Jenrette Securities Corporation
5.1* Form of Opinion of Hewitt & McGuire, LLP
10.1 Form of Indemnification Agreement to be entered into between the
Company and each of its directors and executive officers
10.2 Amended and Restated Employment Agreement dated January 1, 2000 by and
between Peter R. Tierney and the Company
10.3 1996 Equity Incentive Plan
10.4 2000 Stock Incentive Plan
10.5 2000 Employee Stock Purchase Plan
10.6 Amended and Restated Secured Full Recourse Promissory Note made by
Peter R. Tierney in favor of the Company
10.7 Software License Agreement dated as of January 24, 2000, by and
between the Company and SAP AG Inc.
10.8 Office Lease Agreement dated January 24, 2000, by and between EOP-
Shoreline Technology Park, L.L.C., and the Company
21.1* List of Subsidiaries
23.1 Consent of KPMG LLP (MarketFirst)
23.2 Consent of KPMG LLP (Times Direct Marketing)
23.3* Consent of Hewitt & McGuire, LLP (contained in Exhibit 5.1)
24.1 Power of Attorney (contained on signature page on page II-6)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
By and Among
MARKETFIRST SOFTWARE, INC.,
FUSIONDM, INC.,
TIMES DIRECT MARKETING, INC.,
and
CHRISTOPHER E. PETERSON and THIERRY ZAMORA
Dated as of April 14, 2000
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is made and entered into as of April 14, 2000, by and among
---------
MARKETFIRST SOFTWARE, INC., a Delaware corporation ("Parent"), FUSIONDM, INC., a
------
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"), TIMES
----------
DIRECT MARKETING, INC., a California corporation (the "Company"), and
-------
CHRISTOPHER E. PETERSON and THIERRY ZAMORA (individually, a "Shareholder" and
-----------
collectively, the "Shareholders"). Merger Sub and the Company are sometimes
------------
collectively referred to herein as the "Constituent Corporations."
------------------------
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is in the best interest of their respective
companies and in the best interest of their respective stockholders to
consummate the business combination transaction provided for herein in which the
Company will, subject to the terms and conditions set forth herein, merge with
and into Merger Sub (the "Merger"); and
------
WHEREAS, pursuant to the Merger, among other things, all of the
outstanding shares of Common Stock, without par value, of the Company ("Company
-------
Common Stock") shall be converted into the Merger Consideration (as defined
- ------------
herein) in this Agreement.
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a tax-free reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
----
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
----------
Agreement, in accordance with the applicable provisions of the General
Corporation Law of the State of Delaware (the "DGCL") and the General
----
Corporation Law of the State of California ("CGCL"), at the Effective Time (as
----
defined in Section 1.3 hereof), the Company shall merge with and into Merger
Sub. Merger Sub shall be the surviving company (hereinafter sometimes called the
"Surviving Corporation") in the Merger and shall continue its corporate
---------------------
existence under the laws of the State of Delaware. Upon consummation of the
Merger, the separate corporate existence of the Company shall terminate, and the
Surviving Corporation shall be a wholly-owned subsidiary of Parent.
1.2 Closing. The closing of the transactions contemplated hereby (the
-------
"Closing") shall take place as soon as practicable after the satisfaction or
waiver of each of the
<PAGE>
conditions set forth in Article VII hereof or at such other time as the parties
hereto agree (the "Closing Date"), provided, however, that the parties shall use
------------
reasonable commercial efforts to effect the Closing on or prior to April 30,
2000. The Closing shall take place at the offices of Hewitt & McGuire, LLP,
19900 MacArthur Blvd., Suite 1050, Irvine, California or at such other location
as the parties hereto agree.
1.3 Effective Time. The Merger shall become effective upon the filing
--------------
of a Certificate of Merger with the Secretary of State of the State of Delaware
and the California Secretary of State in such form as is required by, and
executed in accordance with the relevant provisions of, the DGCL and the CGCL on
the Closing Date (the "Certificate of Merger"). The term "Effective Time" shall
--------------------- --------------
be the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and the California Secretary of
State, or such later time as is specified in the Certificate of Merger.
1.4 Effects of the Merger. At and after the Effective Time, the
---------------------
Merger shall have the effects set forth in this Agreement, the Certificate of
Merger and the applicable provisions of the DGCL and the CGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws. At the Effective Time, the
------------------------------------
Certificate of Incorporation of Merger Sub, as in effect at the Effective Time,
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law. At the Effective Time, the
Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.6 Directors and Officers. The persons set forth on Section 1.6 of
----------------------
the Parent Disclosure Schedule shall be the directors and officers of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
1.7 Merger Consideration; Conversion and Cancellation of Company
------------------------------------------------------------
Common Stock. By virtue of the Merger without any action on the part of Parent,
- ------------
Merger Sub, the Company or the Shareholders:
(a) Conversion of Company Common Stock. Subject to the terms and
----------------------------------
conditions of this Agreement, at the Effective Time, the shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time and
all rights in respect thereof shall be converted into the right to receive in
the aggregate the following (the "Merger Consideration"): (i) $2,500,000 in
--------------------
cash; (ii) 1,568,628 shares of Parent Common Stock; and (iii) as provided in
Article II, the right to receive a share of the First Earnout, if any, the
Second Earnout, if any, and the Third Earnout, if any.
2
<PAGE>
(b) Cancellation of Company Common Stock. At the Effective Time,
------------------------------------
all shares of Company Common Stock converted into the right to receive the
Merger Consideration pursuant to this Article I shall no longer be outstanding
and shall automatically be canceled and shall cease to exist, and each
certificate (each a "Certificate") previously representing any such shares of
-----------
Company Common Stock shall thereafter only represent the right to receive the
Merger Consideration. Certificates previously representing shares of Company
Common Stock shall be exchanged for shares of Parent Common Stock upon surrender
of such Certificates in accordance with Section 1.8 hereof, without any
interest.
(c) Fractional Shares. No fraction of a share of Parent Common
-----------------
Stock will be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) $12.75.
1.8 Exchange of Shares.
------------------
(a) Delivery of Initial Merger Consideration. Immediately
----------------------------------------
following the Merger, upon surrender by the Shareholders of the certificates
representing the Company Common Stock, Parent shall (i) pay each Shareholder, by
wire transfer to such Shareholder's bank account of immediately available funds,
his proportionate share of cash pursuant to Section 1.7(a)(i) above based upon
the number of such Shareholder's shares of Company Common Stock (i.e.,
$2,125,000 to Christopher E. Peterson and $375,000 to Thierry Zamora), and (ii)
cause to be issued to each Shareholder shares of Parent Common Stock represented
by certificates evidencing his proportionate share of Parent Common Stock
pursuant to Section 1.7(a)(ii) above based upon the number of such Shareholder's
shares of Company Common Stock (i.e., 666,667 shares of Parent Common Stock
issued to Christopher E. Peterson and 117,647 shares of Parent Common Stock
issued to Thierry Zamora) (the consideration provided in clauses (i) and (ii) is
sometimes hereinafter collectively referred to as the "Initial Merger
--------------
Consideration"), and (iii) cause to be issued to each Shareholder shares of
- -------------
Parent Common Stock ("Earnout Shares") represented by 3 certificates (the
"Earnout Certificates") issued to such Shareholder, evidencing, in the
aggregate, the maximum number of shares of Parent Common Stock which such
Shareholder would be entitled to receive from the Escrow (as defined below)
under the First Earnout, the Second Earnout, and the Third Earnont, pursuant to
Section 2.1(a)(ii), 2.1(b)(ii), and 2.1(c) based on the number of such
Shareholder's shares of Company Common Stock (i.e., an aggregate of 666,667
Earnout Shares issued to Christopher E. Peterson, with each of his three Earnout
Certificates representing one-third (each) of his Earnout Shares, and an
aggregate of 117,647 Earnout Shares issued to Thierry Zamora, with each of his
three Earnout Certificates representing one-third (each) of his Earnout Shares).
All of the shares of Parent Common Stock issued to the Shareholders, pursuant to
clauses (ii) and (iii) of this Section 1.8(a), immediately following the Merger,
shall be issued and outstanding on the balance sheet of the Parent and shall be
legally outstanding Parent Common Stock under applicable state law. Upon
issuance, immediately following the Merger, of the Earnout Shares described in
clause (iii) of this Section 1.8(a), each Shareholder shall deposit each of his
Earnout Certificates, representing the Earnout Shares issued to him, with the
Escrow Agent to be held in escrow (the "Escrow") in accordance
3
<PAGE>
with the terms and conditions of the Escrow Agreement attached hereto as Exhibit
A (the "Escrow Agreement").
(b) Transfer Restrictions; Legends. The shares of Parent Common
------------------------------
Stock issued in the Merger shall not be transferable in the absence of an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or an exemption therefrom. In the absence of an
--------------
effective registration statement under the Securities Act, neither such shares
of Parent Common Stock nor any interest therein shall be sold, transferred,
assigned or otherwise disposed of, unless Parent shall have previously received
an opinion of counsel knowledgeable in Federal securities law, in form and
substance reasonably satisfactory to Parent, to the effect that registration
under the Securities Act is not required in connection with such disposition.
Parent shall be entitled to give stop transfer instructions to its transfer
agent with respect to such shares of Parent Common Stock in order to enforce the
foregoing restrictions.
The certificate or certificates representing the shares of Parent
Common Stock issued in the Merger shall bear the following legend restricting
the transfer thereof, in addition to any other legend required by applicable
law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS IN EFFECT UNDER
SUCH ACT, (2) SUCH TRANSFER IS PURSUANT TO RULE 144 UNDER SUCH
ACT OR (3) THE HOLDER HEREOF FURNISHES TO THE ISSUER AN OPINION
OF COUNSEL, WHICH COUNSEL AND WHICH OPINION SHALL BE REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION UNDER SUCH ACT IS
NOT REQUIRED."
(c) Common Stock Value. For all purposes of this Agreement and
------------------
the Escrow Agreement, the term "Parent Common Stock Value" shall mean and refer
to $12.75 per share of Parent Common Stock.
(d) Capital Changes. For all purposes of this Agreement, the
---------------
specified number of shares of Parent Common Stock issuable hereunder and the
Parent Common Stock Value (as defined in Section 1.8(c)) shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Parent Common Stock resulting from any split-up,
combination or exchange of shares, consolidation, spin-off or recapitalization
of shares or any like capital adjustment or the payment of any stock dividend.
1.9 Tax Consequences. It is intended by the parties hereto that the
----------------
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code.
1.10 Exemption from Registration. Assuming the accuracy of the
---------------------------
representations contained in the Shareholder Representation Agreements delivered
to Parent by the Shareholders pursuant to Section 7.2 hereof, the shares of
Parent Common Stock to be issued
4
<PAGE>
in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act.
ARTICLE II
ADDITIONAL PAYMENTS
2.1 Earnouts. In addition to the cash amounts and shares of Parent
--------
Common Stock to be paid to the Shareholders immediately following the Merger
pursuant to Article I, each Shareholder shall be entitled to receive as
additional consideration for such Shareholder's shares of Company Common Stock a
share of the following contingent payments equal to such Shareholder's
percentage ownership interest in the outstanding Company Common Stock (a
"Prorata Share"):
-------------
(a) First Earnout. Upon completion of the twelve months ended
-------------
December 31, 2000 ("FY 2000"), and contingent on the Company's Net Income (as
-------
defined below) for FY2000 being at least breakeven, the Shareholders in the
aggregate shall be entitled to receive the following cash payment and to receive
the following shares of Parent Common Stock from Escrow (the "First Earnout"):
-------------
(i) Cash equal to the product of (A) $1,250,000 multiplied
by (B) the Gross Revenue (as defined below) in FY2000, divided by the projected
Gross Revenue for FY2000 as provided in Schedule 2.1 (the "Projected 2000
--------------
Revenue"); and
- -------
(ii) the number of shares of Parent Common Stock equal to
the product of (A) the Gross Revenue in FY2000 divided by the Projected 2000
Revenue, times (B) 261,438 shares of Parent Common Stock; provided, however, in
no event shall the quotient determined in clause (A) be greater than 1.
All of the Gross Revenue in FY2000 is used in determining the earnout payments
for each of Sections 2.1(a)(i) and 2.1(a)(ii).
(b) Second Earnout. Upon completion of the twelve months ended
--------------
December 31, 2001 ("FY 2001"), and contingent on the Company's Net Income for
-------
FY2001 being at least breakeven, the Shareholders shall be entitled to receive
the following cash payment and to receive the following shares of Parent Common
Stock from Escrow (the "Second Earnout"):
--------------
(i) Cash equal to the product of (A) $1,250,000 multiplied
by (B) the Gross Revenue in FY2001, divided by the projected Gross Revenue for
FY2001 as provided in Schedule 2.1 (the "Projected 2001 Revenue"); and
----------------------
(ii) the number of shares of Parent Common Stock equal to
the product of (A) the Gross Revenue for FY2001 divided by the Projected 2001
Revenue, times (B) 261,438 shares of Parent Common Stock; provided, however, in
no event shall the quotient determined in Clause (A) exceed 1.
5
<PAGE>
All of the Gross Revenue in FY2001 is used in determining the earnout payments
for each of Sections 2.1(b)(i) and 2.1(b)(ii).
(c) Third Earnout. Upon completion of the twelve months ended
-------------
December 31, 2002 ("FY 2002"), and contingent on the Company's Net Income for
-------
FY2002 being at least breakeven, the Shareholders shall be entitled to receive
from Escrow the number of shares of Parent Common Stock equal to the product of
(A) the Gross Revenue for FY2002 divided by the Projected Gross Revenue for
FY2002 as provided in Schedule 2.1, times (B) 261,438 shares of the Parent
Common Stock; provided, however, in no event shall the quotient determined in
clause (A) exceed 1 (the "Third Earnout").
-------------
No cash payments under this Section 2.1 shall be made and no shares
shall be released from Escrow for any fiscal year if the Company's Net Income
for that year is less than zero.
2.2 Payment of Cash Earnouts. Subject to Section 2.5, Parent shall
------------------------
pay each Shareholder the amount due such Shareholder under Sections 2.1(a)(i)
and 2.1(b)(i), if any, as follows:
(a) First Earnout. Parent shall pay each Shareholder such
-------------
Shareholder's Prorata Share of the cash portion of the First Earnout within five
(5) business days after the First Earnout has been determined in accordance with
Sections 2.1 and 2.3; provided, however, Parent shall advance to the
Shareholders $625,000 of the cash portion of the First Earnout (the "First
-----
Earnout Cash Advance") in equal monthly payments beginning on the completion of
- --------------------
the first full calendar month following the Closing and ending on December 31,
2000. This First Earnout Cash Advance shall be deducted from the total cash
portion of the First Earnout payable after completion of FY2000. If the First
Earnout Cash Advance exceeds the amount of the cash portion of the First
Earnout, the amount of such excess shall be repaid by the Shareholders to Parent
within five (5) business days after the First Earnout has been determined in
accordance with Sections 2.1 and 2.3.
(b) Second Earnout. Parent shall pay each Shareholder such
--------------
Shareholder's Prorata Share of the cash portion of the Second Earnout within
five (5) business days after the Second Earnout has been determined in
accordance with Sections 2.1 and 2.3; provided, however, Parent shall advance to
the Shareholders $625,000 of the cash portion of the Second Earnout (the "Second
------
Earnout Cash Advance") in twelve (12) equal monthly payments beginning on
- --------------------
January 31, 2001 and ending on December 31, 2001. This Second Earnout Cash
Advance shall be deducted from the total cash portion of the Second Earnout
payable after completion of FY2001. If the Second Earnout Cash Advance exceeds
the amount of the cash portion of the Second Earnout, the amount of such excess
shall be repaid by the Shareholders to Parent within five (5) business days
after the Second Earnout has been determined in accordance with Sections 2.1 and
2.3.
2.3 Procedures for Determination of Earnout Payments. The
------------------------------------------------
determination of all cash amounts, if any, to be paid and all shares, if any, to
be released from Escrow pursuant to the Earnouts shall be made as soon as
practicable, but in no event more than 60 days after the
6
<PAGE>
end of each period upon which such Earnout payments are based. All such
determinations shall be made in good faith by Parent. Upon completing the
determination of amounts due, if any, for any period pursuant to the Earnouts,
Parent shall notify the Shareholders in writing of such determination. The
Shareholders shall have thirty (30) days from their receipt of such written
notification in which to review the contents thereof and to notify Parent in
writing as to whether they agree with the determinations made. If the
Shareholders agree with such determinations, or if they shall fail to notify
Parent in writing of their disagreement with such determinations within 30 days
of their receipt of written notification thereof, all determinations of Parent's
auditors made pursuant to this Section 2.3 shall be deemed binding and
conclusive. If the Shareholders disagree with Parent's determinations and so
notify Parent in writing within such 30-day period, then Parent and the
Shareholders shall promptly cause their respective auditors to mutually select a
third firm of independent certified public accountants to review Parent's
determinations and, within thirty (30) days of its selection, report to Parent
and the Shareholders its determinations with respect thereto, which
determinations shall, in the absence of manifest error, be binding and
conclusive. Parent shall bear fifty percent (50%) of the costs and expenses
associated with the retention of such firm of accountants, with the Shareholders
each to bear their Prorata Share of the remaining fifty percent (50%) of such
costs and expenses.
2.4 Accounting and Financial Adjustments With Respect to Earnouts.
-------------------------------------------------------------
For purposes of determining the Earnouts, the following shall apply:
(a) The "Company," for purposes of this Article II only, shall
-------
include the Company prior to the Effective Time and the Surviving Corporation
thereafter.
(b) "Net Income" shall mean the net income of the Company,
----------
determined in accordance with generally accepted accounting principles ("GAAP"),
----
subject to the additional accounting and financial adjustments provided in this
Section 2.4.
(c) "Gross Revenues" shall mean the gross receipts or sales of
--------------
the Company, determined in accordance with GAAP, subject to the additional
accounting and financial adjustments provided in this Section 2.4.
(d) Gross Revenues shall not include any direct pass throughs of
costs and expenses. For example, assume the Company conducts a direct mail
campaign for a client; the Company pays all of the costs for the mailing
material (e.g., letters and postage) required in such campaign and then invoices
the client for the amount of its services plus the amount of the costs for the
mailing materials, together with a 10% mark-up on such mailing material costs.
The costs for the mailing materials would not be included in Gross Revenues, but
the 10% mark-up would be included in Gross Revenues.
(e) The amount of payments or provisions for taxes based upon or
measured by income for any period upon which the Net Income of the Company are
based shall be calculated utilizing a tax rate equal to the actual tax rate that
would be applicable to the Surviving Corporation under applicable law assuming
the Surviving Corporation were required to file a separate tax return under such
law; provided, however, any taxes imposed on the Surviving Corporation for
periods after the Closing Date relating to an adjustment under
7
<PAGE>
Section 481 of the Code shall not be included for purposes of determining Net
Income. No Shareholder-level taxes (such as on pass-through income of the
Company) shall be taken into account as an expense in determining Net Income.
(f) No amounts paid or payable in respect of Earnout payouts
shall reduce the Net Income of the Company for any year.
(g) For purposes of determining the Net Income of the Company
for any year, there shall not be any deduction in such year for the amortization
of any amounts payable as Merger Consideration (e.g., amortization of goodwill
under purchase accounting).
(h) No indemnity payment made pursuant to the Agreement will be
treated as an expense or revenue.
(i) There will be no charge against income for the payment or
accrual of any component of the Merger Consideration, any borrowings to finance
the Merger Consideration, or any transactional expenses related to the
transactions contemplated by the Agreement, including without limitation any
party's fees for legal counsel, accountants, consultants, or filing fees.
(j) Other than normal fees for normal year-end audit procedures,
the fees and expenses of accountants in connection with making any determination
of the Earnout payments will not be treated as an expense and any costs and
expenses incurred by the Parent or Merger Sub in pursuing any indemnity claim
under the Agreement shall not be treated as an expense.
(k) Any and all costs or expenses with respect to any investment
that the management of the Surviving Corporation and Parent reasonably agree in
writing to characterize as outside of the Surviving Corporation's operating plan
will not be treated as an expense.
(l) Any expense associated with stock options or restricted
stock will not be treated as an expense, nor shall any amounts paid or accrued
on account of any phantom equity/deferred compensation plan be treated as an
expense.
(m) Any depreciation or amortization charges resulting from a
write-up of any of the Company's assets above its value as shown on the
Company's books immediately prior to the Closing Date will not be treated as an
expense.
(n) Intercompany management/service fees charged by Parent or
its subsidiaries taken into account in determining Net Income will not exceed
reasonable market rates.
2.5 Right to Withhold and Offset. Notwithstanding anything to the
----------------------------
contrary in this Agreement, if Parent is obligated to pay the Shareholders any
cash amounts, or shares of Parent Common Stock are to be released from Escrow,
in respect of the First Earnout, the Second Earnout or the Third Earnout (any
such amounts, the "Earnout Amounts"), Parent shall
---------------
8
<PAGE>
be entitled to (i) offset and retain from such Earnout Amounts the full amount
of any and all Agreed Claims not previously paid by the Shareholders, in which
event Parent shall remit the Earnout Amounts remaining, if any, after such
offset and retention to the Shareholders in accordance with Section 2.2 (if cash
is used to offset) and/or the Escrow Agreement (if shares of Parent Common Stock
are used to offset), and (ii) withhold from such Earnout Amounts the full amount
of any pending indemnification claims of Parent which are the subject of a
Certificate; provided, however, the withholding of any shares of Parent Common
Stock from the Earnout Amounts shall be subject to the terms of the Escrow
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
The Company and each of the Shareholders, jointly and severally,
represent and warrant to Parent and Merger Sub that, except as disclosed in the
disclosure schedule attached hereto (the "Company Disclosure Schedule"):
---------------------------
3.1 Corporate Organization.
----------------------
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. The
Company has the corporate power and authority to own or lease its properties and
assets and to carry on its business as it is now being conducted, and is
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such qualification necessary. The copies of
the Articles of Incorporation and Bylaws of the Company which have previously
been delivered to Parent are true and correct copies of such documents as in
effect as of the date of this Agreement.
(b) Except as set forth in Section 3.1(b) of the Company
Disclosure Schedule, the Company owns no equity interests in any corporation,
partnership or other entity.
3.2 Capitalization. The authorized capital stock of the Company
--------------
consists of 100,000 shares of Company Common Stock, without par value. There are
(i) 25,858 shares of Company Common Stock outstanding, all of which are held by
the Shareholders, and (ii) no shares of Preferred Stock outstanding. Except as
set forth in Section 3.2 of the Company Disclosure Schedule, all of the issued
and outstanding shares of Company Common Stock were duly authorized and validly
issued and are fully paid and nonassessable and are free of any liens or
encumbrances created by or resulting from the actions of the Company, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Articles of Incorporation or Bylaws of the Company or any agreement to which
the Company or any Shareholder is a party or by which it is bound. All
outstanding shares of Company Common Stock were issued in compliance with all
applicable federal and state securities laws. Except as described in this
Section 3.2 or reflected in Section 3.2 of the Company Disclosure Schedule, the
Company does not have and is not bound by any outstanding subscriptions,
options, warrants, convertible securities, calls, commitments, agreements or
obligations of any character calling for the purchase, redemption or issuance of
any shares of Company Common Stock or any other equity
9
<PAGE>
security of the Company or any securities representing the right to purchase or
otherwise receive any shares of Company Common Stock or any other equity
security of the Company.
3.3 Authority; No Violation.
-----------------------
(a) The Company has full corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors and shareholders of the
Company. No other corporate proceedings on the part of the Company are necessary
to approve this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Company and each of the Shareholders and (assuming due authorization, execution
and delivery by Parent and Merger Sub) constitutes the valid and binding
obligation of the Company and each of the Shareholders, enforceable against the
Company and each of the Shareholders, in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 3.3(b) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement by the
Company and each of the Shareholders, nor the consummation by the Company and
each of the Shareholders of the transactions contemplated hereby, nor compliance
by the Company and each of the Shareholders with any of the terms or provisions
hereof, will (i) violate any provision of the Articles of Incorporation or
Bylaws of the Company or (ii) assuming that the consents and approvals referred
to in Section 3.4 hereof are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to the Company or any of the Shareholders or any of their respective
properties or assets, or (y) violate, materially conflict with, result in a
material breach of any provision of or the loss of any material benefit under,
constitute a material default (or an event which, with notice or lapse of time,
or both, would constitute a material default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of the Company
or any of the Shareholders under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, sublicense, lease,
agreement or other instrument or obligation to which the Company or any of the
Shareholders is a party, or by which the Company or any of the Shareholders or
any of their respective properties or assets may be bound or affected.
3.4 Consents and Approvals. Except for (a) the filing of a
----------------------
Certificate of Merger with the Secretary of State of the States of Delaware and
California pursuant to Section 252 of the DGCL and Section 1108 of the CGCL, and
(b) such filings, authorizations or approvals as may be set forth in Section 3.4
of the Company Disclosure Schedule, no consents or approvals orders or
authorizations of or filings or registrations with any court, administrative
agency or commission or other governmental or quasi-governmental authority or
instrumentality, whether in the United States of America or otherwise (each a
"Governmental Entity") or with
-------------------
10
<PAGE>
any third party are necessary with respect to the Company or any of the
Shareholders in connection with (1) the execution and delivery of this Agreement
and (2) the consummation of the Merger and the other transactions contemplated
hereby.
3.5 Financial Statements. Set forth in Section 3.5 of the Company
--------------------
Disclosure Schedule are true and correct copies of (a) audited balance sheets of
the Company at December 31, 1998 and 1999, together with related audited
statements of operations, shareholders' equity and cash flows for the fiscal
years then ended, and (b) the Company's unaudited balance sheet as of February
29, 2000 (the "Reference Balance Sheet") (collectively, the "Financial
----------------------- ---------
Statements"). Such Financial Statements have been prepared in accordance with
- ----------
generally accepted accounting principles ("GAAP") (except that the unaudited
----
Financial Statements do not contain all footnotes required by GAAP and are
subject to normal year-end audit adjustments that in the aggregate will not be
material) applied on a consistent basis throughout the periods indicated and
with each other. The Financial Statements fairly present the financial condition
and operating results of the Company in all material respects in accordance with
GAAP as of the dates, and for the periods indicated therein, subject to normal
year-end audit adjustments. The books and records of the Company have been, and
are being, maintained in all material respects in accordance with GAAP and any
other applicable legal and accounting requirements.
3.6 Absence of Undisclosed Liabilities. The Company has no material
----------------------------------
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent, including without limitation any obligations or liabilities as
guarantor or indemnitor of any other person, firm, partnership or corporation
("Person")) other than (i) those set forth or adequately provided for in the
------
Reference Balance Sheet, (ii) those incurred in the ordinary course of business
and not required to be set forth in the Reference Balance Sheet under GAAP,
(iii) those incurred in the ordinary course of business since the Reference
Balance Sheet Date and consistent with past practice, (iv) those set forth in
Section 3.6 of the Company Disclosure Schedule, and (v) those incurred in
connection with the execution of this Agreement.
3.7 Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Section 3.7 of the Company Disclosure Schedule, since the Reference Balance
Sheet Date, the Company has conducted its business in the ordinary course
consistent with past practice, and except as contemplated by this Agreement,
there has not occurred (i) any purchase or other acquisition of, sale, lease,
disposition, or other transfer of, or mortgage, pledge or subjection to any
material encumbrance or lien on, any material asset, tangible or intangible, of
the Company, other than in the ordinary course of business; (ii) any change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or any revaluation by the Company
of any of its assets; (iii) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of the Company Common
Stock, or any split-up or other recapitalization in respect of the Company
Common Stock, or any direct or indirect redemption, purchase or other
acquisition by the Company of any shares of Company Common Stock; (iv) any
material contract entered into by the Company, other than in the ordinary course
of business and as provided to Parent, or any amendment or termination of, or
default under, any material contract to which the Company is a party or by which
it is bound; (v) any amendment or change to the Articles of Incorporation or
Bylaws of the Company; (vi) any material increase in
11
<PAGE>
or modification of the compensation or benefits payable or to become payable by
the Company to any of their respective officers, directors or employees; (vii)
any issuance, transfer, sale or pledge by the Company or any Shareholder of any
shares of Company Common Stock or other securities or of any commitment, option,
right or privilege under which the Company is or may become obligated to issue
any shares of Company Common Stock or other securities; (viii) any indebtedness
for borrowed money incurred by the Company, except such as may have been
incurred or entered into in the ordinary course of business not exceeding
$50,000; (ix) any loan made or agreed to be made by the Company, nor has the
Company become liable or agreed to become liable as a guarantor with respect to
any loan; (x) any waiver or compromise by the Company of any right or rights or
any payment, direct or indirect, of any material debt, liability or other
obligation, other than in the ordinary course of business; (xi) any sale,
assignment, or transfer of any patents, trademarks, copyrights, trade secrets or
other intangible assets, other than in the ordinary course of business; (xii)
any actual or, to the knowledge of the Company or either of the Shareholders,
threatened termination or loss of (a) any material contract, lease, license or
other agreement to which the Company was or is a party; (b) any certificate,
license or other authorization required for the continued operation by the
Company of any portion of any of its business; or (c) any customer or other
revenue source, which termination or loss could reasonably be expected to result
in loss of revenues to the Company in excess of $75,000 per year, and the
Company has no knowledge of any event (other than the transactions contemplated
hereby, with respect to which the Company has not received any written notice
from any customer or other revenue source of an intention to terminate any
arrangement as a result of the transactions contemplated hereby) which could
reasonably be expected to result in any such termination or loss; (xiii) any
resignation of employment of any key officer or employee of the Company, or to
the knowledge of the Company, any impending resignation of employment of any
such officer or employee; (xiv) any negotiation by any executive officer of the
Company or any agreement by the Company to do any of the things described in the
preceding clauses (i) through (xiii) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this Agreement);
or (xv) any other event or circumstance that will have or, to the knowledge of
the Company could reasonably be expected to have a Material Adverse Effect on
the Company. For purposes of this Agreement, an action, event or occurrence has
a "Material Adverse Effect" if it has a material adverse effect on the assets,
-----------------------
liabilities, business, financial condition or results of operations of the
Company or Parent, as the case may be.
3.8 Legal Proceedings. Except as set forth in Section 3.8 of the
-----------------
Company Disclosure Schedule, there are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the knowledge of the Company or either of the Shareholders,
threatened against the Company or any of its properties, assets or business in
which an unfavorable outcome, ruling or finding would have a Material Adverse
Effect and to the knowledge of the Company and the Shareholders there exist no
facts which could reasonably be expected to result in any such action, suit or
other proceeding or which would challenge the validity or propriety of the
transactions contemplated by this Agreement. The Company is not in default with
respect to any judgment, order or decree of any court or any governmental agency
or instrumentality which would have a Material Adverse Effect on the Company.
The foregoing includes, without limiting the generality thereof, pending or
threatened
12
<PAGE>
actions involving the Company's use in connection with the Company's business of
any information or techniques allegedly proprietary to a former employee.
3.9 Restrictions on Business Activities. Except as set forth in
-----------------------------------
Section 3.9 of the Company Disclosure Schedule, there is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current business practice of the Company, any acquisition of property by the
Company, the ability of the Company to compete with any other person or the
conduct of business by the Company as currently conducted by the Company.
3.10 Governmental Authorization. The Company has obtained each
--------------------------
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which the
Company currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of the Company's business or the holding
of any such interest ((i) and (ii) herein collectively called the "Company
-------
Authorizations"), and all of such Company Authorizations are in full force and
- --------------
effect, except where the failure to obtain or have any such Company
Authorizations could not reasonably be expected to have a Material Adverse
Effect on the Company.
3.11 Title and Condition of Personal Property. The Company has good
----------------------------------------
and marketable title to all personal property owned by it and reflected in the
Reference Balance Sheet or acquired after the Reference Balance Sheet Date
(other than property sold or otherwise disposed of since the Reference Balance
Sheet Date in the ordinary course of business), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character or claims
thereto, except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties, (iii) liens securing debt which is reflected on the Reference
Balance Sheet, and (iv) as set forth in Section 3.11 of the Company Disclosure
Schedule. The property and equipment of the Company that is used in the
operations of its business are in all material respects in good operating
condition and repair. All properties used in the operations of the Company are
reflected in the Reference Balance Sheet to the extent GAAP require the same to
be reflected.
3.12 Real and Leased Property.
------------------------
(a) The Company does not own any fee simple interest in real
property. The Company does not lease or sublease any real property other than as
set forth on Section 3.12 of the Company Disclosure Schedule. Section 3.12 of
the Company Disclosure Schedule sets forth the street address of each parcel of
real property leased or subleased by the Company (the "Leased Property"). The
---------------
Company has previously delivered to Parent a true and complete copy of all of
the lease and sublease agreements, as amended to date (the "Leases") relating to
the Leased Property. Except as provided in Section 3.12 of the Company
Disclosure Schedule, the Company enjoys a peaceful and undisturbed possession of
the Leased Property held by it, subject to the terms of the Leases. All
improvements located on the Leased Property are in a state of good maintenance
and repair and in a condition adequate and suitable for the
13
<PAGE>
effective conduct therein of the business conducted and proposed to be conducted
by the Company. To the knowledge of the Company or either of the Shareholders,
except as provided in Section 3.12 of the Company Disclosure Schedule, no person
other than the Company has any right to use or occupy any part of the Leased
Property, whether pursuant to sublease, license or otherwise. The Leases are
valid, binding and in full force and effect, all rent and other sums and charges
payable thereunder are current, no notice of default or termination under any of
the Leases is outstanding, no termination event or condition or uncured default
on the part of the Company or, to the knowledge of the Company or either of the
Shareholders, on the part of the landlord or sublandlord, as the case may be,
thereunder, exists under the Leases, and to the knowledge of the Company or
either of the Shareholders, no event has occurred and no condition exists which,
with the giving of notice or the lapse of time or both, would constitute such a
default or termination event or condition. In the event that any of the Leases
is a sublease, the Company, as sublessee or sublessor, as the case may be, has
obtained the required consent of the prime landlord to such sublease, and such
prime lease is in full force and effect, there are no outstanding uncured
notices of default or termination, and no right of the Company in any such
sublease conflicts with such prime lease. Except as provided in Section 3.12 of
the Company Disclosure Schedule, all of the Leased Property is used in the
conduct of the Company's business.
(b) The heating, ventilation, air conditioning, plumbing,
electrical systems and telephone systems at the Leased Property are in a
condition adequate and suitable for the effective conduct therein of the
business conducted and proposed to be conducted by the Company and will be so
adequate and suitable on the Closing Date. The Company has not experienced any
material interruption in the services provided to any of the Leased Property
within the last six (6) months. To the knowledge of the Company or either of the
Shareholders, except as provided in Section 3.12 of the Company Disclosure
Schedule, no landlord under the Leases has any plans to make any material
alterations to any of the Leased Property, the construction of which would
interfere with the use of any portion of the Leased Property. To the knowledge
of the Company or either of the Shareholders, except as provided in Section 3.12
of the Company Disclosure Schedule, no landlord under the Leases has any plans
to make any material alterations to any of the buildings in which Leased
Property is located, the costs of which alterations would be borne in any part
by a tenant under the applicable Lease.
(c) Section 3.12 of the Company Disclosure Schedule sets forth
all material permits, licenses, franchises, approvals and authorizations
(collectively, the "Real Property Permits") issued to the Company by all
---------------------
Governmental Entities having jurisdiction over each Leased Property and by all
insurance companies and fire rating and other similar boards and organizations
(collectively, the "Insurance Organizations"). All such Real Property Permits
-----------------------
required or appropriate have been lawfully issued to the Company to enable each
Leased Property to be lawfully occupied and used for all of the purposes for
which they are currently occupied and useful and are, as of the date hereof, in
full force and effect. The Company has not received or been informed by a third
party of the receipt by it of any notice from any Governmental Entity having
jurisdiction over any Leased Property or from any Insurance Organization
threatening a suspension, revocation, modification or cancellation of any Real
Property Permit or of any insurance policies and, to the knowledge of the
Company or either of the Shareholders, there is no basis for the issuance of any
such notice or the taking of any such
14
<PAGE>
action. No action is required in order for all Real Property Permits and
liability and casualty insurance policies required under any of the Leases to
remain Real Property Permits and insurance policies of the Surviving
Corporation.
(d) To the knowledge of the Company or either of the
Shareholders, except as provided in Section 3.12 of the Company Disclosure
Schedule, there are no liabilities (other than rent and other sums and charges
regularly payable) associated with any of the Leases including, without
limitation, any liability under any Environmental Law or regulation, which is or
which may become payable by the Surviving Corporation.
3.13 Intellectual Property.
---------------------
(a) Section 3.13(a) of the Company Disclosure Schedule sets
forth an accurate and complete description of (i) all trademarks, service marks,
trade names, brands and copyrights of the Company which are registered or issued
or for which registration or issuance is pending with any Governmental Entity
specifying as to each such item, as applicable, the jurisdiction(s) by or in
which such trademark or copyright has been issued or registered or in which an
application for such issuance or registration has been filed or proposed,
including the registration or application number; (ii) substantially all
franchises, licenses, sublicenses, contracts, options and agreements pursuant to
which any person other than the Company is authorized to use any trademarks,
trade names, service marks, brands, copyrights, and any applications therefor,
maskworks, net lists, URLs, domain names, schematics, technology, know-how,
trade secrets, inventory, ideas, algorithms, processes, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material ("Intellectual
------------
Property") owned by the Company; and (iii) substantially all franchises,
- --------
licenses, sublicenses, contracts, options and agreements, other than shrink-wrap
software licenses, pursuant to which the Company is authorized to use any such
Intellectual Property not owned by the Company ("Third Party Intellectual
------------------------
Property Rights") including, with respect to (ii) or (iii), the identity and
- ---------------
location (city, state and country) of all parties thereto. The Company does not
own or use any patents.
(b) Except as set forth in Section 3.13(b) of the Company
Disclosure Schedule, to the knowledge of the Company or either of the
Shareholders, the Company owns or has the right to use all of the Intellectual
Property necessary for the conduct of its business as currently conducted by it,
including, without limitation, all network operating system and database
softwares or other Intellectual Property used by the Company. The Company has
taken commercially reasonable measures to maintain and protect the Intellectual
Property that it owns or has the right to use.
(c) Except for third party licenses listed in Section 3.13(c) of
the Company Disclosure Schedule, to the knowledge of the Company or either of
the Shareholders, the Company is the sole and exclusive owner of its
Intellectual Property including, but not limited to, those listed or described
on the Company Disclosure Schedule, or has the right to the use thereof for the
material covered thereby in connection with the services or products in respect
to which they have been or are now being used.
15
<PAGE>
(d) Except as set forth in Section 3.13(d) of the Company
Disclosure Schedule, the Company (i) is not the subject of any pending
litigation or, to the knowledge of the Company or either of the Shareholders,
any claim regarding infringement of or misappropriation or misuse of any
Intellectual Property of the Company or other tangible right of any other
person, (ii) has no knowledge of any such infringement, whether or not claimed
by any other person, (iii) has no knowledge of any infringement by any other
person of the Intellectual Property of the Company, and (iv) has no knowledge of
any facts or circumstances which would reasonably lead the Company to conclude
that the continued operation and conduct of any aspect of its business would
result in any such litigation or claim. To the knowledge of the Company or
either of the Shareholders, except as set forth in Section 3.13(d) of the
Company Disclosure Schedule, there is no other person that is operating under or
otherwise using any name confusingly similar with any trade names, trademarks,
service names, service marks, URLs, domain names or logos included in the
Intellectual Property owned by the Company. To the knowledge of the Company or
either of the Shareholders, no Intellectual Property licensed by the Company
from a third party is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company. Except as
set forth in Section 3.13(d) of the Company Disclosure Schedule, no Intellectual
Property of the Company is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company. Except as
set forth in Section 3.13(d) of the Company Disclosure Schedule, the Company has
not entered into any agreement to indemnify any other person against any charge
of infringement of any Third Party Intellectual Property.
(e) To the knowledge of the Company or either of the
Shareholders, except as set forth in Section 3.13(e) of the Company Disclosure
Schedule, there has been no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of the Company, any trade
secret material to the Company, or any Intellectual Property right of any third
party to the extent licensed by or through the Company, by any third party,
including any employee or former employee of the Company.
3.14 Taxes.
-----
(a) Except as set forth in Section 3.14(a) of the Company
Disclosure Schedule, the Company has duly and timely filed (including applicable
extensions granted without penalty) all material Tax Returns (as hereinafter
defined) required to be filed at or prior to the Effective Time, and such Tax
Returns are true and correct in all material respects, and the Company has paid
in full or made adequate provision in the Financial Statements for all material
Taxes (as hereinafter defined) shown to be due on such Tax Returns except where
failure to do so would not have a Material Adverse Effect. In addition, the
Company has made adequate provision in the Financial Statements for all Taxes
for the fiscal year ended December 31, 1999 except where the failure to do so
would not have a Material Adverse Effect. Except as set forth in Section 3.14(a)
of the Company Disclosure Schedule, as of the date hereof (i) the Company has
not requested any extension of time within which to file any Tax Returns in
respect of any fiscal year which have not since been filed and no request for
waivers of the time to assess any Taxes are pending or outstanding, (ii) no
claim for Taxes has become a lien against the property of the Company or is
being asserted against the Company other than liens for Taxes not yet due and
payable, (iii) no audit of any Tax Return of the Company is being conducted by a
Tax
16
<PAGE>
authority, (iv) no extension of the statute of limitations on the assessment of
any Taxes has been granted to the Company and is currently in effect, and (v)
there is no agreement, contract or arrangement to which the Company is a party
that may result in the payment of any amount that would not be deductible by
reason of Sections 280G, 162 or 404 of the Code. Except as set forth in Section
3.14(a) of the Company Disclosure Schedule, the Company has not been or will be
required to include any adjustment in taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(b) For the purposes of this Agreement, "Taxes" shall mean all
-----
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax Return"
----------
shall mean any return, report, information return or other document (including
any related or supporting information) filed or required to be filed with a
Governmental Entity with respect to Taxes.
3.15 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
-----------------------------
federal, state, local or foreign laws, ordinances, codes, regulations, rules,
policies and orders that are intended to assure the protection of the
environment, or that classify, regulate, call for the remediation of, require
reporting with respect to, or list or define air, water, groundwater, solid
waste, hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees, workers
or other persons, including the public.
(ii) "Property" shall mean all real property leased or
--------
owned by the Company either currently or in the past.
(iii) "Facilities" shall mean all buildings and improvements
----------
on the Property of the Company.
(b) (i) the Company has not received notice (oral or written) of
any noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (ii) no notices, administrative actions or suits
are pending or, to the knowledge of the Company or either of the Shareholders,
threatened relating to a violation of any Environmental and Safety Laws; (iii)
the Company's uses of and activities within the Facilities have at all times
complied with all Environmental and Safety Laws; and (iv) the Company has all
the permits and licenses required to be issued and are in full compliance with
the terms and conditions of those permits.
3.16 Major Customers and Suppliers; Supplies. Parent has been provided
---------------------------------------
with a list of customers of the Company and all suppliers of significant goods
or services to the
17
<PAGE>
Company for the year ended December 31, 1999 and the two (2) months ended
February 29, 2000. Section 3.16 of the Company Disclosure Schedule identifies
those suppliers of significant goods or services with respect to which
alternative sources of supply are not readily available on reasonably comparable
terms and conditions. Except as indicated in Section 3.16 of the Company
Disclosure Schedule, (i) all supplies and services necessary for the conduct of
the business of the Company as presently conducted, may be obtained from
alternate sources on terms and conditions comparable to those presently
available to the Company, and (ii) no facts, circumstances or conditions exist
which create a reasonable basis for believing that the Company will be unable to
continue to procure the supplies and services necessary to conduct its business
on substantially the same terms and conditions as such supplies and services are
currently procured. To the knowledge of the Company or either of the
Shareholders, there has not been, and there will not be, any material adverse
change in the relations of the Company with any of its suppliers, contractors,
creditors, and lessors, as a result of the announcement or consummation of the
transactions contemplated by this Agreement.
3.17 List of Accounts. Set forth in Section 3.17 of the Company
----------------
Disclosure Schedule is: (a) the name and address of each bank or other
institution in which the Company maintains an account (cash, securities or
other) or safe deposit box; (b) the name, phone number and telefax number of the
contact person at such bank or institution and (c) the account number of the
relevant account, a description of the type of account and a list of the
authorized signatories on such account.
3.18 Employment Agreements. Section 3.18 of the Company Disclosure
---------------------
Schedule contains the names, start dates, contracts dates, job descriptions,
annual salary rates and other compensation of all officers, directors and
employees of the Company or consultants being paid more than $75,000 a year by
the Company (including compensation paid or payable by the Company under the
Company Employee Plans). Section 3.18 of the Company Disclosure Schedule
contains a list of all employee policies, employee manuals or other written
statements of rules or policies as to hiring practices and procedures, working
conditions, vacation and sick leave, a complete copy of each of which has been
made available to Parent. Except as set forth in Section 3.18 of the Company
Disclosure Schedule, there are no employment, consulting, severance or
indemnification arrangements, agreements or understandings between the Company
and any officer, director, consultant or employee including, without limitation,
any contracts to employ executive officers, any severance, change in control or
similar arrangements with any officers, employees or agents of the Company that
will result in any obligation (absolute or contingent) of the Company to make
any payment to any officer, employee or agent of the Company following either
the consummation of the transactions contemplated hereby, termination of
employment, or both ("Company Employment Agreements").
-----------------------------
3.19 Employee Benefit Plans.
----------------------
(a) Section 3.19(a) of the Company Disclosure Schedule lists,
with respect to the Company (i) all material employee benefit plans (as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) maintained, sponsored or contributed to or required to be
-----
contributed to by the Company, (ii) each loan to a non-officer employee in
excess of $10,000, loans to officers and directors and any stock option,
18
<PAGE>
stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of the Company and that do not generally apply to all employees, and (v) any
current or former employment or executive compensation or severance agreements,
written or otherwise, as to which unsatisfied obligations of the Company of
greater than $10,000 remain for the benefit of, or relating to, any present or
former employee, consultant or director of the Company (together, the "Company
-------
Employee Plans"). There is no trade or business (whether or not incorporated)
- --------------
which is treated as a single employer with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
(b) The Company has furnished to Parent a copy of the Company
Employee Plans and related plan documents, to the extent reduced to writing
(including trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and, to the extent
still in its possession, any material employee communications relating thereto)
and has, with respect to each Company Employee Plan which is subject to ERISA
reporting requirements, provided copies of the Form 5500 reports filed for the
last three plan years. The Company has, with respect to any Company Employee
Plan intended to be qualified under Section 401(a) of the Code, either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or applied to the
Internal Revenue Service for such a determination letter prior to the expiration
of the requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination letter
and to make any amendments necessary to obtain a favorable determination. The
Company has also furnished Parent with the most recent Internal Revenue Service
determination letter issued with respect to each such Company Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Code Section 401(a).
(c) Except as disclosed in Section 3.19(c) of the Company
Disclosure Schedule, (i) none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Company Employee Plan,
for which no exemption exists; (iii) each Company Employee Plan has been
administered substantially in accordance with its terms and in substantial
compliance with the requirements prescribed by any applicable statutes, rules
and regulations (including applicable provisions of ERISA and the Code); (iv)
the Company has performed substantially all obligations required to be performed
by them under, are not in any material respect in default under or violation of,
and have no knowledge of any material default or violation by any other party
to, any of the Company Employee Plans; (v) to the knowledge of the Company or
either of the Shareholders, the Company is not subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Company Employee
19
<PAGE>
Plans, other than obligations for the payment of benefits in the normal
operation of the Plan; (vi) all material contributions required to be made by
the Company to any Company Employee Plan have been made on a timely basis and
any accruals required by GAAP for contributions to each Company Employee Plan
for the current plan years are reflected on the financial statements of the
Company; (vii) with respect to each Company Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred with respect to any Company Employee Plan subject to Title IV
of ERISA; (viii) the Company has not incurred any liability under Title IV of
ERISA or Section 412 of the Code and (ix) no Company Employee Plan which is
subject to Title IV or ERISA has an "unfunded benefit liability" within the
meaning of Section 4001(a)(18) of ERISA. With respect to each Company Employee
Plan subject to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, the Company has prepared in good faith and timely filed
all requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Company Employee Plan. No suit, administrative proceeding,
action or other litigation has been brought, or to the knowledge of the Company
or either of the Shareholders is threatened, against or with respect to any such
Company Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor. The Company has no liability (including current or
potential withdrawal liability) with respect to any "multiemployer plan" as such
term is defined in Section 3(37) of ERISA. Each Company Employee Plan can be
amended, terminated or otherwise discontinued after Closing in accordance with
its terms without material liability (other than expenses typically incurred in
a termination event). The consummation of the transactions contemplated by this
Agreement will not entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment, except as
provided by this Agreement or the schedules attached hereto.
(d) With respect to each Company Employee Plan, the Company has
complied with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder, (ii) the applicable requirements of the Family
Leave Act of 1993 and the regulations thereunder and (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996.
(e) Except as set forth in Section 3.19(e) of the Company
Disclosure Schedule, consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of the Company to severance benefits or any other payment, or (ii)
increase the amount of compensation due any such employee or service provider.
(f) Except as disclosed in Section 3.19(f) of the Company
Disclosure Schedule, there has been no amendment to, written interpretation or
announcement (whether or not written) by the Company relating to, or change in
participation or coverage under, any Company Employee Plan which would increase
the expense of maintaining such Plan above the
20
<PAGE>
level of expense incurred with respect to that Plan for the most recent fiscal
year included in the Company's financial statements, other than increases
resulting from premium increases or the employment of additional employees, in
each case in the ordinary course of business.
3.20 Labor Matters. Except as set forth in Section 3.20 of the
-------------
Company Disclosure Schedule, (a) the Company is not, and has not been, a party
to or otherwise bound by or threatened by with any collective bargaining
agreement or other labor union contract and to the knowledge of the Company or
either of the Shareholders currently there are no organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining unit which could affect the Company; (b) there are no controversies,
strikes, slowdowns, work stoppages or labor disturbances pending or to the
knowledge of the Company or either of the Shareholders threatened between the
Company and any of its employees, and the Company has not experienced any such
controversy, strike, slowdown, work stoppage or labor disturbances within the
past three years; (c) there are no unfair labor practice complaints pending
against the Company before the National Labor Relations Board or any other
Governmental Entity or any current union representation questions involving
employees of the Company; (d) there are no pending claims against the Company
under any workers' compensation plan or policy or for long-term disability; (e)
to the knowledge of the Company or either of the Shareholders, the Company has
no obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder; (f) the Company is currently in compliance with all
applicable Laws relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by the appropriate Governmental Entity and has withheld
and paid to the appropriate Governmental Entity or is holding for payment not
yet due to such Governmental Entity all amounts required to be withheld from
employees of the Company and is not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing; (g) the
Company has paid in full to all its employees or adequately accrued for in
accordance with GAAP all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees, including all
compensation owing and due for over-time work; (h) the Company has provided its
employees with all relocation benefits, stock options, bonuses and incentives,
and all other compensation that such employee has earned up through the date of
this Agreement or that such employee was otherwise promised in their employment
agreements with the Company; (i) there is no claim with respect to payment of
wages, salary or overtime pay that has been asserted or is now pending or to the
knowledge of the Company or either of the Shareholders threatened before any
Governmental Entity with respect to any Persons currently or formerly employed
by the Company; (j) the Company is not a party to, or otherwise bound by, any
consent decree with, or citation by, any Governmental Entity relating to
employees or employment practices; (k) there is no charge or proceeding with
respect to a violation of any occupational safety or health standards that has
been asserted or is now pending or to the knowledge of the Company or either of
the Shareholders threatened with respect to the Company; (l) there is no charge
of discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which has been asserted or is now pending or threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Entity in any jurisdiction in which the Company has employed or
currently employs any Person; (m) the Company is in compliance in all material
respects with the requirements of the Americans With Disabilities Act
21
<PAGE>
and any similar law of any Government Entity; and (n) the Company is in
compliance with the requirements of the Workers Adjustment and Retraining
Notification Act ("WARN") and each has no liabilities pursuant to WARN.
----
Except as set forth in Section 3.20 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
severance benefits or any other payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any current or former director, employee or other service
provider of the Company or any other ERISA Affiliate, (ii) increase any benefits
otherwise payable by the Company or (iii) result in the acceleration of the time
of payment or vesting of any such benefits, or any options or warrants to
purchase Company Capital Stock, or any increase in the amount of compensation of
benefits due any such person.
3.21 Contracts and Commitments. Section 3.21 of the Company
-------------------------
Disclosure Schedule contains a complete and accurate list of all contracts and
agreements (including, without limitation, oral and informal arrangements) of
the following categories to which the Company is a party or by which it is bound
as of the date of this Agreement.
(a) labor contracts;
(b) material manufacturing, distribution, franchise, license,
sales, agency or advertising contracts;
(c) contracts which require the payment in excess of $50,000
per year for (i) the purchase of inventory, materials, supplies or equipment
which are not cancelable (without material penalty, cost or other liability)
within one (1) year, (ii) management, consulting, service or other similar
contracts, (iii) advertising or marketing agreements or arrangements, and (iv)
other contracts made in the ordinary course of business involving annual
expenditures or liabilities in excess of $50,000 which are not cancelable
(without material penalty, cost or other liability) within ninety (90) days,
other than purchase orders made in the ordinary course of business consistent
with past practice;
(d) promissory notes, loans, agreements, indentures, evidences
of indebtedness or other instruments proving for the lending of money, whether
as borrower, lender or guarantor;
(e) contracts (other than Leases) containing covenants limiting
the freedom of the Company to engage in any line of business or compete with any
Person or operate at any location;
(f) joint venture or partnership agreements or joint
development or similar agreements;
(g) agreement, contract or other arrangement with (i) the
Company or any affiliate of the Company or (ii) any current or former officer,
director or employee of the
22
<PAGE>
Company or any affiliate of the Company (other than non-compete or intellectual
property agreements);
(h) material lease or similar agreement with any person under
which (i) the Company is lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible property owned by any person or (ii) the Company is a
lessor or sublessor of, or makes available for use by any person, any tangible
personal property owned or leased by the Company, in any such case which has an
aggregate future liability or receivable, as the case may be, and is not
terminable by the Company by notice of not more than sixty (60) days;
(i) contracts or other instruments (including so-called
take-or-pay or keepwell agreements) under which (i) any person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the Company or
(ii) the Company has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person (in each case other than endorsements for the
purpose of collection in the ordinary course of business);
(j) contracts or other instruments under which the Company has,
directly or indirectly, made any advance, loan, extension of credit or capital
contribution to, or other investment in, any person involving aggregate payments
in excess of $50,000;
(k) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any property of the
Company;
(l) agreement or instrument involving aggregate payments in
excess of $50,000 providing for indemnification of any person with respect to
liabilities relating to any current or former business of the Company, or any
predecessor person;
(m) contract for the acquisition, sale or lease of any assets
or capital stock or other ownership interests outside the ordinary course of the
business or involving aggregate payments in excess of $50,000 or to effect any
merger of the Company; and
(n) any exclusive retainer agreement or arrangement with
attorneys, accountants, actuaries, appraisers, investment bankers or other
professional advisors.
(o) any agreements or arrangements with respect to
telecommunications, web hosting or similar or related matters involving payments
in excess of $50,000.
True copies of the written contracts identified in Section 3.21 of the
Company Disclosure Schedule have been made available to Parent.
3.22 Absence of Breaches or Defaults. The Company is not, and, to the
-------------------------------
knowledge of the Company or either of the Shareholders, no other party is, in
default under, or in breach or violation of, any contract to which the Company
is a party, including, without limitation, those identified on Section 3.21 of
the Company Disclosure Schedule and, to the knowledge of the Company or either
of the Shareholders, no event has occurred which, with the giving of notice or
passage of time or both would constitute a default under any contract
23
<PAGE>
identified on Section 3.21 of the Company Disclosure Schedule, except in each
case set forth above for defaults, breaches, violations or events which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. Other than contracts which have terminated or expired in accordance
with their terms, each of the contracts identified on Section 3.21 of the
Company Disclosure Schedule is valid, binding and enforceable in accordance with
its terms (subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered on a proceeding in equity or at law)) and is in full force and
effect, and assuming all consents required by the terms thereof or applicable
law have been obtained, such contracts will continue to be valid, binding and
enforceable in accordance with their respective terms and in full force and
effect immediately following the consummation of the transactions contemplated
hereby, in each case except where the failure to be valid, binding, enforceable
and in full force and effort would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. No event has occurred which either
entitles, or would, on notice or lapse of time or both, entitle the holder of
any indebtedness for borrowed money affecting the Company (except for the
execution or consummation of this Agreement) to accelerate, or which does
accelerate, the maturity of any indebtedness affecting the Company, except as
set forth in Section 3.22 of the Company Disclosure Schedule.
3.23 Interested Party Transactions. Except as set forth in Section
-----------------------------
3.23 of the Company Disclosure Schedule, the Company is not indebted to any
director, officer, employee or agent of the Company (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to the Company. Except as set forth in Section 3.23 of
the Company Disclosure Schedule, no affiliate of the Company or any Shareholder
has, or has had, any interest in any material property (whether real, personal,
or mixed and whether tangible or intangible), used in or pertaining to the
Company.
3.24 Compliance with Applicable Law. The Company holds, and has at
------------------------------
all times held, all licenses, franchises, permits and authorizations which (a)
are necessary for it to engage in the business currently conducted by it and (b)
if not possessed by the Company would have a Material Adverse Effect. The
Company has complied with and is not in default in any respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to the Company except where the failure to do so
would not have a Material Adverse Effect and the Company has not received notice
of any violations of any of the above.
3.25 Insurance. Section 3.25 of the Company Disclosure Schedule sets
---------
forth a true and complete list of all insurance policies providing insurance
coverage of any nature to the Company. Such policies are sufficient for
compliance by the Company with all requirements of law and all material
agreements to which the Company is a party or by which any of its assets are
bound. All of such policies are in full force and effect and are valid and
enforceable, and the Company has complied with all material terms and conditions
of such policies, including premium payments. None of the insurance carriers has
indicated to the Company an intention to cancel any such policy. Except as set
forth in Section 3.25 of the Company Disclosure, the Company has no claim
pending against any of the insurance carriers under any of such policies
24
<PAGE>
and neither the Company nor either Shareholder has knowledge of any actual or
alleged occurrence of any kind which may give rise to any such claim.
3.26 Brokers. Neither the Company nor any of its officers or
-------
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement.
3.27 Minute Books. The minute books of the Company have been made
------------
available to Parent and include the items set forth on Company Disclosure
Schedule Section 3.27.
3.28 Accounts and Notes Receivable. Subject to any reserves set forth
-----------------------------
on the Reference Balance Sheet, the accounts receivable and the notes receivable
shown on the Reference Balance Sheet represent and will represent bona fide
claims arising in the ordinary course of business against debtors for sales and
other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. To the knowledge of the Company or either of the
Shareholders, and subject to any reserves set forth on the Reference Balance
Sheet, such accounts receivable and notes receivable are collectible by the
Company in the ordinary course of business. The amount carried for doubtful
accounts and allowances disclosed in the Reference Balance Sheet is sufficient
to provide for any losses which may be sustained on realization of the accounts
receivable and notes receivable.
3.29 Board Approval. The Board of Directors of the Company has (i)
--------------
approved this Agreement and the Merger and all transactions contemplated hereby,
(ii) determined that the Merger is in the best interests of the shareholders of
the Company and is on terms that are fair to such shareholders and (iii)
recommended that the shareholders of the Company approve this Agreement and
consummation of the Merger.
3.30 Shareholder Approval. The Shareholders have unanimously approved
--------------------
this Agreement and the Merger and all transactions contemplated hereby.
3.31 Employee Nondisclosure and Assignment of Inventions Agreements.
--------------------------------------------------------------
Except as set forth in Section 3.31 of the Company Disclosure Schedule, each
employee of the Company who has access to confidential information has executed
and delivered to the Company the standard employee confidentiality and
assignment of inventions agreement in the form previously delivered to Parent.
3.32 Year 2000 Compliance. Except as set forth in Section 3.32 of the
--------------------
Company Disclosure Schedule, the Company has performed all acts necessary to
ensure it is Year 2000 Compliant. As used herein, "Year 2000 Compliant" shall
-------------------
mean, in regard to any entity, that all software (except for software licensed
from third parties), hardware, firmware equipment, goods or systems utilized by
or material to the business, operation or financial condition of such entity,
including, without limitation, all telephone or other communications systems and
all software licensed to clients, will properly perform date sensitive functions
during and after the year 2000; provided, however, that the term "Year 2000
-------- ------- ---------
Compliant" does not relate to the impact on the Company of the failure of any
- ---------
third party to be Year 2000 Compliant. The
25
<PAGE>
Company shall provide to Parent such certifications or other evidence of its
compliance with the terms hereof as Parent may from time to time require.
3.33 Certain Payments. Since January 1, 1995, to the knowledge of the
----------------
Company or either of the Shareholders, neither the Company nor any officer,
agent or employee of the Company or, to the knowledge of the Company or either
of the Shareholders, any other person affiliated with or acting on behalf of the
Company has directly or indirectly (a) made any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment in violation of
any applicable law, rule or regulation to any person, private or public,
regardless of form, whether in money, property, or services. or (b) established
or maintained any fund or material asset that has not been recorded in the books
and records of the Company.
3.34 Representations Complete. None of the representations or
------------------------
warranties made by the Company or Shareholders herein or in any Schedule hereto,
including the Company Disclosure Schedule, or certificate furnished by the
Company pursuant to this Agreement, contains any untrue statement of a material
fact, or omits to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company and the Shareholders that, except as set forth in the
disclosure schedule attached hereto (the "Parent Disclosure Schedule"):
--------------------------
4.1 Corporate Organization. Each of Parent and Merger Sub is a
----------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Parent and Merger Sub have the corporate power and
authority to own or lease their respective properties and assets and to carry on
their respective businesses as they are now being conducted, and are duly
qualified to do business in each jurisdiction in which the nature of the
business conducted by them or the character or location of the properties and
assets owned or leased by them makes such qualification necessary, except where
the failure to be so qualified (i) would not individually or in the aggregate
have a Material Adverse Effect or (ii) would not adversely affect the ability of
Parent or Merger Sub to consummate the transactions contemplated hereby. The
copies of the Certificate of Incorporation and Bylaws of Parent and Merger Sub
which have previously been delivered to the Company are true and correct copies
of such documents as in effect as of the date of this Agreement.
4.2 Authority; No Violation.
------------------------
(a) Each of Parent and Merger Sub has the requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The Board of Directors of Parent has (i) unanimously approved this Agreement and
the Merger and all transactions contemplated
26
<PAGE>
hereby and (ii) determined that the Merger is in the best interests of the
stockholders of Parent and is on terms that are fair to such stockholders. The
Board of Directors and the stockholder of Merger Sub have approved this
Agreement and the Merger and all transactions contemplated hereby. No other
corporate proceedings on the part of Parent or Merger Sub are necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and (assuming due authorization, execution and delivery by the
Company and Shareholders) constitutes the valid and binding obligation of Parent
and Merger Sub, enforceable against each of them, in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 4.2(b) of the Parent
Disclosure Schedule, neither the execution and delivery of this Agreement by
Parent and Merger Sub, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby, nor compliance by Parent and Merger Sub with
any of the terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Parent or Merger Sub, or (ii) assuming
that the consents and approvals referred to in Section 4.5 hereof are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Parent or Merger Sub or any of
their respective properties or assets, or (y) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of Parent or Merger Sub under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, sublicense, lease, agreement or other
instrument or obligation to which Parent or Merger Sub is a party, or by which
either of them or any of their respective properties or assets may be bound or
affected.
4.3 Capitalization of Parent and Merger Sub.
----------------------------------------
(a) Parent's authorized capital stock consists solely of (i)
85,000,000 shares of Parent Common Stock, of which (A) 4,889,840 shares are
issued and outstanding, (B) no shares were issued and held in treasury (which
does not include the shares reserved for issuance set forth in clause (C) and
(D) below), (C) as of March 31, 2000, 2,445,840 shares are reserved for issuance
upon the exercise of outstanding options, and (D) as of March 31, 2000,
1,346,386 shares (not counting shares referred to in the preceding clause (C))
are reserved for issuance upon exercise of options which have not been granted,
but have been reserved under Parent's stock option plan; and (ii) 44,640,000
shares of Parent Preferred Stock of which 2,140,000 shares are designated as
Series A Preferred of which 2,040,000 shares are issued and outstanding,
3,000,000 shares are designated as Series B Preferred, of which 2,200,000 shares
are issued and outstanding, 21,500,000 shares are designated as Series C
Preferred, of which 19,882,358 shares are issued and outstanding and 18,000,000
shares are designated as Series D Preferred, of which 15,407,936 are issued and
outstanding. Each outstanding share of Parent Common Stock is, and all shares of
Parent Common Stock to be issued in connection with the
27
<PAGE>
Merger will be, duly authorized and validly issued, fully paid and
nonassessable, and each outstanding share of Parent Common Stock has not been,
and all shares of Parent Common Stock to be issued in connection with the Merger
will not be, issued in violation of any preemptive or similar rights. All
outstanding shares of Parent capital stock were issued in compliance with
applicable federal and state securities laws. Except as set forth herein or in
Section 4.3 of the Parent Disclosure Schedule, and except for shares to be
issued in connection with the Merger, there are no outstanding subscriptions,
options, warrants, calls, commitments, agreements, or obligations of any
character calling for the purchase, redemption or issuance by Parent of any
equity securities of Parent, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of Parent Common Stock, and
Parent has no obligation of any kind to issue any additional securities or to
pay for or repurchase any securities of Parent. Except as provided in Section
4.3 of the Parent Disclosure Schedule, Parent has no intention of authorizing
additional shares of Parent Common Stock for employee stock option and stock
purchase plans prior to the earlier of Parent's initial public offering or
December 31, 2000.
(b) Merger Sub's authorized capital stock consists solely of
10,000 shares of Common Stock, par value $.001 per share ("Merger Sub Common
-----------------
Stock"), of which 1,000 shares are issued and outstanding and none are reserved
- -----
for issuance. All of the outstanding shares of Merger Sub Common Stock are owned
by Parent free and clear of any liens, claims or encumbrances. There are no
outstanding subscriptions, options, warrants, calls, commitments, agreements, or
obligations of any character calling for the purchase, redemption or issuance by
Merger Sub of any equity securities of Merger Sub, nor are there outstanding any
securities which are convertible into or exchangeable for any shares of Merger
Sub Common Stock and Merger Sub has no obligation of any kind to issue any
additional securities or to pay for or repurchase any securities of Merger Sub.
4.4 Subsidiaries. Except for Merger Sub, Parent does not have an
------------
equity interest in any corporation, partnership or other entity.
4.5 Consents and Approvals. Neither the execution and delivery of
----------------------
this Agreement by Parent or Merger Sub nor the consummation of the transactions
contemplated hereby will require any action or consent or approval of, or review
by, or registration or filing by Parent or any of its affiliates with, any third
party or any Governmental Entity, other than (i) filings or other actions
required under federal and state securities laws, (ii) consents or approvals of
any Governmental Entity set forth in Section 4.5 to the Parent Disclosure
Schedule, or (iii) the filing of a Certificate of Merger with the Secretary of
State of the States of Delaware and California, except for those which would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent or Merger Sub or a Material Adverse Effect on their
ability to consummate the transactions contemplated hereby.
4.6 Parent Financial Statements. Set forth in Section 4.6 of Parent
---------------------------
Disclosure Schedule are true and correct copies of (a) an audited balance sheet
of Parent at December 31, 1999, together with related audited statements of
operations, stockholders' equity and cash flows for the fiscal year then ended,
and (b) the Company's unaudited balance sheet as of February 29, 2000 (the
"Parent Balance Sheet") (collectively, the "Parent Financial Statements"). Such
-------------------- ---------------------------
Parent Financial Statements have been prepared in accordance with GAAP (except
that the unaudited
28
<PAGE>
Parent Financial Statements do not contain all footnotes required by GAAP and
are subject to normal year-end audit adjustments that in the aggregate will not
be material) applied on a consistent basis throughout the periods indicated and
with each other applied on a basis consistent throughout the periods indicated
and with each other. The Parent Financial Statements fairly present the
consolidated financial condition and operating results of Parent as of the
dates, and for the periods indicated therein, subject to normal year-end audit
adjustments. The books and records of Parent have been, and are being,
maintained in accordance with GAAP and any other applicable legal and accounting
requirements.
4.7 Absence of Undisclosed Liabilities. Except (i) as and to the
----------------------------------
extent disclosed or reserved against in the Parent Balance Sheet, (ii) as
incurred in the ordinary course of business and consistent with past practice
and not prohibited by this Agreement, (iii) as incurred in connection with the
execution of this Agreement and (iv) as disclosed in Section 4.7 of the Parent
Disclosure Schedule, Parent does not have any liabilities or obligations of any
nature, whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due, that, individually or in the aggregate, have or
would have a Material Adverse Effect on Parent.
4.8 Absence of Certain Changes. Since February 29, 2000, (a) except
--------------------------
as disclosed in Section 4.8 of Parent Disclosure Schedule, there has not been
any change that would have a Material Adverse Effect on the assets, business,
properties, operations or financial condition of Parent or any condition, event
or occurrence that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect on Parent, (b) Parent has not
participated in any transaction, or otherwise acted outside the ordinary course
of business, including, without limitation, declaring or paying any dividend or
declaring or making any distribution to its stockholders except out of the
earnings of Parent, issuing any capital stock of Parent or any securities
convertible into Parent capital stock, or acquiring any other business, whether
by merger, acquisition of stock or assets, or otherwise, and (c) Parent has not
increased the compensation of any of its officers or the rate of pay of any of
its employees, except as part of regular compensation or benefits increases in
the ordinary course of business.
4.9 Brokers. Except as set forth in Section 4.9 of the Parent
-------
Disclosure Schedule, neither Parent, Merger Sub, nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
any of the transactions contemplated by this Agreement.
4.10 Vote Required. No approval of the stockholders of Parent is
-------------
necessary to approve this Agreement and the transactions contemplated hereby.
4.11 Representations Complete. None of the representations or
------------------------
warranties made by Parent or Merger Sub herein or in any Schedule hereto,
including the Parent Disclosure Schedule, or certificate furnished by the Parent
pursuant to this Agreement, contains any untrue statement of a material fact, or
omits to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
29
<PAGE>
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
------------------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
Parent, the Company shall carry on its business in the ordinary course
consistent with past practice. Without limiting the generality of the foregoing,
and except as set forth in Section 5.1 of the Company Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by Parent,
the Company shall not:
(a) declare or pay any dividends on, or make other distributions
in respect of, any of the Company Common Stock;
(b) (i) repurchase, redeem or otherwise acquire any shares of
its capital stock, or any securities convertible into or exercisable for any
shares of such capital stock, (ii) split, combine or reclassify any shares of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;
(c) amend its Articles of Incorporation, Bylaws or other similar
governing documents;
(d) make any capital expenditures other than those which are
made in the ordinary course of business or are necessary to maintain existing
assets in good repair;
(e) enter into any new line of business;
(f) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company;
(g) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in this Agreement not being satisfied;
(h) change its methods of accounting in effect at December 31,
1999, except as required by changes in GAAP or as concurred with by the
Company's independent auditors;
(i) (i) except as required by applicable law or as required to
maintain qualification pursuant to the Code, adopt, amend, or terminate any
employee benefit plan
30
<PAGE>
(including, without limitation, any Company Employee Plan) or any agreement,
arrangement, plan or policy between the Company and one or more of its current
or former directors, officers or employees, (ii) except for normal increases in
the ordinary course of business consistent with past practice or except as
required by applicable law, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any Company Employee Plan or agreement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares);
(j) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements;
(k) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(l) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract, agreement
or lease for goods, services or office space to which the Company is a party or
by which the Company or any of its properties are bound, other than the renewal
in the ordinary course of business of any lease the term of which expires prior
to the Closing Date; or
(m) agree to do any of the foregoing.
5.2 Covenants of Parent. During the period from the date of this
-------------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Company, and except as set forth in Section 5.2 of the Parent Disclosure
Schedule, Parent shall carry on its business in the ordinary course consistent
with past practice. Without limiting the generality of the foregoing, and except
as set forth in Section 5.2 of the Parent Disclosure Schedule or as otherwise
contemplated by this Agreement or consented to in writing by the Company, Parent
shall not:
(a) declare or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, in respect of any of its capital stock;
(b) purchase or otherwise acquire, directly or indirectly, any
of its capital stock;
(c) split, combine or reclassify any shares of its capital
stock, unless appropriate adjustment to the Merger Consideration is made
pursuant to Section 1.8 hereof;
(d) sell, transfer or otherwise dispose of any material assets;
31
<PAGE>
(e) acquire any other business whether by merger, purchase of
stock or assets, or otherwise;
(f) except upon the exercise of outstanding options or warrants,
issue any shares of the capital stock of Parent or any security convertible into
the capital stock of Parent;
(g) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in this Agreement not being satisfied; or
(h) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information.
---------------------
(a) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, the Company shall afford to the
officers, employees, accountants, counsel and other representatives of Parent,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments, records, officers,
employees, accountants, counsel and other representatives and, during such
period, the Company shall make available to Parent all information concerning
its business, properties and personnel as Parent may reasonably request. The
Company shall not be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of its
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. All information furnished to
Parent pursuant to this Section 6.1(a) shall be subject to, and Parent shall
hold all such information in confidence in accordance with, the provisions of
the confidentiality agreement, dated December 29, 1999, (the "Confidentiality
---------------
Agreement"), between Parent and the Company.
- ---------
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, Parent shall afford to the officers,
employees, accountants, counsel and other representatives of the Company,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments, records, officers,
employees, accountants, counsel and other representatives and, during such
period, the Parent shall make available to the Company all information
concerning its business, properties and personnel as the Company may reasonably
request. Parent shall not be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of Parent's customers, jeopardize any attorney-client privilege or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior
32
<PAGE>
to the date of this Agreement. The parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply. All information furnished to the Company
pursuant to this Section 6.1(b) shall be subject to, and the Company shall hold
all such information in confidence in accordance with, the provisions of
the confidentiality agreement, dated December 29, 1999 (the "Confidentiality
---------------
Agreement"), between Parent and the Company.
- ---------
(c) No investigation by Parent or the Company or their
respective representatives shall affect the representations, warranties,
covenants or agreements of the other set forth herein; provided, however, that
-------- -------
neither Parent nor the Company is aware as of the date hereof of any breach of
representations or warranties of the other party with respect to which breach it
has failed to notify such other party.
6.2 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
(i) Parent and the Company shall consult with each other before issuing any
press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and (ii) neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law.
6.3 Consents; Cooperation. Each of Parent, Merger Sub and the Company
---------------------
shall promptly apply for or otherwise seek, and use its best efforts to obtain,
all consents and approvals required to be obtained by it for the consummation of
the Merger, and shall use commercially reasonable efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The failure
of the Company and the Shareholders to obtain consents or approvals to the
transactions contemplated hereby with respect to the agreements listed on
Section 6.3 of the Company Disclosure Schedule (the "Listed Agreements") shall
-----------------
not constitute a breach of any of the Company's or the Shareholders'
representations, warranties, covenants and agreements (including, but not
limited to, for purposes of the indemnification provisions of Article IX) set
forth in this Agreement, and such consents or approvals shall not be a condition
to the obligations of Parent and Merger Sub under Section 7.2(e). Each of the
Company and the Shareholders hereby represent and warrant to Parent and Merger
Sub that the failure of the Company to obtain any consents with respect to the
Listed Agreements, individually or taken as a whole, would not have a Material
Adverse Effect on the Company. The failure to obtain consents or approvals to
the transactions contemplated hereby with respect to the agreements set forth in
Section 3.3(b) of the Company Disclosure Statement, other than the Listed
Agreements, is only a closing condition, which will be satisfied or waived at
the closing; however, under no circumstances shall the failure to obtain such
consents with respect to such agreements, other than the Listed Agreements,
constitute a breach of any of the Company's representations, covenants and
agreements (including, but not limited to, for purposes of the indemnification
provisions of Article IX) set forth in this Agreement.
6.4 Legal Requirements. Each of Parent, Merger Sub and the Company
------------------
will take all reasonable actions necessary to comply promptly with all legal
requirements which have
33
<PAGE>
been or which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
6.5 Blue Sky Laws. Parent 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 Parent Common Stock in connection with the
Merger. The Company shall use its best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Parent Common Stock in
connection with the Merger.
6.6 Control of Operations. Nothing contained in this Agreement shall
---------------------
give Parent, directly or indirectly, the right to control or direct the
operations of the Company prior to the Effective Time. Prior to the Effective
Time, each of Parent and the Company shall exercise, consistent with the terms
and conditions of this Agreement, complete control and supervision over its
respective operations.
6.7 Best Efforts and Further Assurances. Each of the parties to this
-----------------------------------
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
6.8 Distribution of 1999 Profits. The parties agree that on March 28,
----------------------------
2000 the Company distributed to the Shareholders (prorata to their
shareholdings) cash of the Company in a total amount equal to $327,001,
representing the portion of the undistributed retained earnings of the Company
to which Shareholders were entitled for 1999. The parties agree that,
notwithstanding any other provision of this Agreement to the contrary, the
distribution provided for in this Section 6.8 (including any adjustment thereto
as provided in Section 6.8 of the Company Disclosure Schedule), the bonus paid
to Thierry Zamora on March 15, 2000 in the amount of $82,493.61, Christopher E.
Peterson's March 28, 2000 loan of $280,700 (or such lower amount as provided in
Section 6.8 of the Company Disclosure Schedule) to the Company, and the
Company's or FusionDM, Inc.'s future repayment of such loan in accordance with
its terms (i.e., before April 28, 2000) shall not give rise to any adjustment of
the Merger Consideration or constitute a breach of any of the Company's or
Shareholders' representations, warranties, covenants and agreements (including,
but not limited to, for purposes of the indemnification provisions of Article
IX) set forth in this Agreement.
34
<PAGE>
6.9 Other Agreements. The parties agree that immediately before the
----------------
Closing the Employment Agreements between Thierry Zamora and Christopher E.
Peterson and the Company, the Stock Issuance and Repurchase Agreement By and
Between Times Direct Marketing, Inc. and Thierry Zamora, and the Agreement By
and Between Christopher Peterson and Thierry Zamora (collectively, the
"Shareholder Agreements") shall all be terminated, such that at the time of the
Closing none of the provisions or restrictions of such Shareholder Agreements
shall be applicable, (e.g., Thierry Zamora's shares of capital stock in Times
Direct Marketing, Inc. will be fully vested). Notwithstanding anything to the
contrary in this Agreement, the existence of such Shareholder Agreements, as of
the time of execution of this Agreement or at any time before Closing shall not
constitute a breach of any of the Company's or the Shareholders'
representations, warranties, covenants and agreements (including, but not
limited to, for purposes of the indemnification provisions of Article IX) set
forth in this Agreement.
6.10 Release From Guarantees. Parent shall use its commercially
-----------------------
reasonable efforts to have Christopher E. Peterson ("Peterson") released from
the personal guarantees of the Company's obligations identified in Section 6.10
of the Company Disclosure Schedule on the Closing Date and will continue such
efforts after the Closing if not released prior thereto. Parent and Merger Sub
hereby, jointly and severally, agree to indemnify, defend and hold Peterson
harmless for any amounts that Peterson is required to pay in connection with the
enforcement of any obligations under such personal guarantees after the Closing,
including without limitation any reasonable attorneys' fees and expenses
incurred in connection therewith.
6.11 Pre-Effective Time Year 2000 Corporate-Level Taxes. The parties
--------------------------------------------------
expressly agree that the Surviving Corporation is assuming any corporate-level
taxes of the Company for the period from January 1, 2000 through and including
the Effective Time and that the existence and/or payment of such taxes by the
Surviving Corporation shall not give rise to any adjustment of the Merger
Consideration or constitute a breach of any of the Company's or Shareholders'
representations, warranties, covenants and agreements (including, but not
limited to, for purposes of the indemnification provisions of Article IX) set
forth in this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) 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 or regulatory 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. In the event an
injunction or other order shall have been
35
<PAGE>
issued, each party agrees to use its reasonable diligent efforts to have such
injunction or other order lifted.
(b) Governmental Approval. The Company, Parent and Merger Sub shall
---------------------
have timely obtained from each Governmental Entity all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the several transactions contemplated hereby (each a "Requisite Regulatory
--------------------
Approval"), including such approvals, waivers and consents as may be required
- --------
under the Securities Act and under state blue sky laws (other than those
filings, approvals, waivers and consents relating to the Merger or affecting
Parent's ownership of Company or any of its properties that, if not obtained,
would not have a Material Adverse Effect to either party).
(c) Employment Agreements. Parent shall have entered into employment
---------------------
agreements with Christopher E. Peterson and Thierry Zamora in substantially the
form of Exhibit B and Exhibit C, respectively, hereto.
--------- ---------
7.2 Conditions to Obligations of Parent and Merger Sub. The obligation of
--------------------------------------------------
Parent and Merger Sub to effect the Merger is also subject to the satisfaction
or waiver by Parent and Merger Sub at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date. Parent shall have received a certificate signed on behalf of
the Company by the Chief Executive Officer and the Chief Financial Officer of
the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The Company shall have
-----------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to such effect.
(c) Injunctions or Restraints on Conduct of Business. No temporary
------------------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Parent's conduct or operation of the business
of the Company following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental Entity,
domestic or foreign, seeking the foregoing be pending.
(d) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of the Company.
(e) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval
36
<PAGE>
shall be required in connection with the Merger under the contracts of the
Company set forth on Section 3.4 of the Company Disclosure Schedule.
(f) Legal Opinion. Parent shall have received a legal opinion from
-------------
Fotenos & Suttle, P.C. in substantially the form attached hereto as Exhibit D.
---------
(g) Shareholder Representation Agreements. Parent shall have received
-------------------------------------
from each of the Shareholders an executed Shareholder Representation Agreement
in substantially the form attached hereto as Exhibit E.
---------
(h) Approval of Shareholders. Each of the Shareholders shall have
------------------------
voted their shares of Company Common Stock in favor of, or executed a written
consent approving, the Merger and such approval shall remain in full force and
effect.
7.3 Conditions to the Obligations of Company and Shareholders. The
---------------------------------------------------------
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date. The Company shall have received a certificate
signed (i) on behalf of Parent by the Chief Executive Officer and the Vice
President of Finance of Parent and (ii) on behalf of Merger Sub by the President
of Merger Sub, in each case to the foregoing effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
---------------------------------------------------
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed (i) on behalf of
Parent by the Chief Executive Officer and the Vice President of Finance of
Parent and (ii) on behalf of Merger Sub by the President of Merger Sub, in each
case to such effect.
(c) Injunctions or Restraints on Conduct of Business. No temporary
------------------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Parent's business following the Merger shall
be in effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(d) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of Parent.
(e) Legal Opinion. Company shall have received a legal opinion from
-------------
Hewitt & McGuire, LLP in substantially the form attached hereto as Exhibit F.
---------
37
<PAGE>
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time:
(a) by mutual consent of the Company, Parent and Merger Sub in a
written instrument, if the Board of Directors of each so determines by a vote of
a majority of the members of its entire Board;
(b) by either Parent or the Company upon written notice to the
other party if any Governmental Entity of competent jurisdiction shall have
issued a final nonappealable order enjoining or otherwise prohibiting the
Merger;
(c) by either Parent or the Company if the Merger shall not have
been consummated on or before September 30, 2000 unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein;
(d) by either Parent or the Company if there shall have been a
material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
thirty (30) days following written notice to the party committing such breach,
or which breach, by its nature, cannot be cured prior to the Closing; or
(e) by either Parent or the Company if there shall have been a
material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within thirty (30) days following receipt by the breaching party of written
notice of such breach from the other party hereto, or which breach, by its
nature, cannot be cured prior to the Closing.
8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement by either Parent or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect except that (i) the
last sentence of Section 6.1(a), the last sentence of Section 6.1(b), and each
of Sections 6.2, 8.2, 10.1, 10.2, 10.3, 10.4 and 10.7 shall survive any
termination of this Agreement and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
8.3 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, each
-----------------
of the parties hereto may, to the extent legally allowed, (a) extend the time
for the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions of the other
38
<PAGE>
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 a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE IX
INDEMNITY
9.1 Survival of Representations. All representations and warranties
---------------------------
of the parties contained in this Agreement or expressly incorporated herein by
reference shall survive the Closing hereunder and any investigation made by or
on behalf of any party hereto until the fourth anniversary of the Closing Date,
except for (i) the representations and warranties set forth in Section 3.14
which shall survive until all tax liabilities of the Company are decided by
final determination of the Internal Revenue Service, judicial decision or upon
expiration of the statute of limitations, taking in account any waiver or
extension of such applicable statute of limitations, and (ii) the
representations and warranties set forth in Sections 3.1, 3.3, 3.4, 3.15, 3.19,
4.1, 4.2, 4.4 and 4.5, which shall survive indefinitely. A claim for
indemnification under this Article IX for breach of a representation or warranty
may be brought at any time provided that the representation or warranty on which
such claim is based continues to survive at the time a Certificate relating to
such claim has been delivered in accordance with Section 9.4 hereof and if such
Certificate is delivered within such period all rights to indemnification with
respect to such claim shall continue in force and effect.
9.2 Indemnification.
---------------
(a) By the Company and the Shareholders. Subject to Section 9.3
-----------------------------------
below, the Company and each of the Shareholders, jointly and severally, agree to
indemnify and hold Parent and Merger Sub, their affiliates, officers, directors
and employees harmless from and against any and all damages, costs, expenses,
liabilities, causes of action, or claims (including attorneys' fees and costs)
(collectively, "Losses") incurred by any of them as a result of (i) the failure
------
of any representation or warranty made by the Company or any of the Shareholders
in this Agreement to be true and correct as of the Closing Date or (ii) the
breach by the Company or any of the Shareholders of any of their respective
covenants or agreements set forth in this Agreement; provided, however, that
upon the Closing, the Company shall cease to have any indemnification
obligations pursuant to this Section 9.2(a) and the Shareholders shall have no
right of contribution from the Company with respect to their indemnification
obligations.
(b) By Parent and Merger Sub. Subject to Section 9.3 below,
------------------------
Parent and Merger Sub hereby, jointly and severally, agree to indemnify and hold
each of the Shareholders and the Affiliates and employees of each such
Shareholder harmless from and against any and all Losses incurred by any of them
as a result of (i) the failure of any representation or warranty made by Parent
and/or Merger Sub in this Agreement to be true and correct as of the Closing
Date or (ii) the breach by Parent and/or the Merger Sub of any of its covenants
or agreements set forth in this Agreement.
39
<PAGE>
(c) Limitations as to Amount - Shareholders. Shareholders shall
---------------------------------------
have no liability (for indemnification or otherwise) with respect to the matters
described in Section 9.2(a) until the total of all Losses with respect thereto
exceeds $200,000 but then for the entire amount of such Losses, including those
not in excess of $200,000. Shareholders shall have no liability (for
indemnification or otherwise) in an amount greater than $25,000,000 (the
"Maximum Amount"); provided, however, the Maximum Amount shall be reduced by the
--------------
amounts of cash and shares of Parent Common Stock (valued at the Parent Common
Stock Value) under Section 2.1 that the Shareholders do not receive (except to
the extent the Shareholders did not receive such amounts because of Parent's
offset under Section 2.5 or the Escrow Agreement). In determining the amount of
Losses indemnified by the Shareholders for purposes of this Section 9.2(c), all
amounts offset under Section 2.5 and the Escrow Agreement shall be included.
(d) Limitations as to Amount - Parent. Parent shall have no
---------------------------------
liability (for indemnification or otherwise) with respect to the matters
described in Section 9.2(b) until the total of all Losses with respect thereto
exceeds $200,000 but then for the entire amount of such Losses, including those
not in excess of $200,000. Parent shall have no liability (for indemnification
or otherwise) in an amount greater than the Maximum Amount.
9.3 Determination of Losses. All Losses hereunder shall be
-----------------------
determined net of any (i) Third Party Awards (as defined in this paragraph) and
(ii) Tax Benefits (as defined in this paragraph). As used herein, "Third Party
-----------
Awards" shall mean any actual recoveries from third parties by the party seeking
- ------
indemnification hereunder (the "Indemnified Party") (including, without
-----------------
limitation, from insurance and third party indemnifications) in connection with
the claim for which such party is also potentially liable. As used herein, "Tax
---
Benefits" shall mean the present value of any permanent tax related loss,
- --------
deduction or credits which Parent's regular auditors determine, in their sole
judgment, is proper or allowable under applicable law (computed after taking
into account any indemnification payment made, including taxes thereon) in
connection with a claim for which the Indemnified Party is potentially liable.
9.4 Indemnification Procedures.
---------------------------
(a) Certificate. As soon as practicable after the incurrence of
-----------
a Loss or Losses by an Indemnified Party, including, without limitation, any
claim by a third party described in Section 9.4(c) hereof, which might give rise
to indemnification hereunder, the Indemnified Party shall deliver to the
Indemnifying Party a certificate (the "Certificate"), which Certificate shall:
-----------
(i) state that the Indemnified Party has paid or properly
accrued Losses, or anticipates that it will incur liability for Losses; and
(ii) specify in reasonable detail each individual item of
Loss included in the amount so stated, the date such item was paid or properly
accrued, the basis for any anticipated liability and the nature of the
misrepresentation, breach of warranty or breach of covenant or claim to which
each such item is related and the computation of the amount to which such
Indemnified Party claims to be entitled hereunder.
40
<PAGE>
(b) Denial of Obligation to Indemnify. In case the Indemnifying
---------------------------------
Party shall object to the indemnification of an Indemnified Party in respect of
any claim or claims specified in any Certificate, the Indemnifying Party shall,
within 30 days after receipt by the Indemnifying Party of such Certificate,
deliver to the Indemnified Party a written notice to such effect. The
Indemnifying Party and the Indemnified Party shall, within the 30-day period
beginning on the date of receipt by the Indemnified Party of such written
objection, attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims to which the Indemnifying Party
shall have so objected. If the Indemnified Party and the Indemnifying Party
succeed in reaching agreement on their respective rights with respect to any
such claims, the Indemnified Party and the Indemnifying Party shall promptly
prepare and sign a memorandum setting forth such agreement. Should the
Indemnified Party and the Indemnifying Party be unable to agree as to any
particular item or items or amount or amounts, then the Indemnified Party and
the Indemnifying Party shall immediately submit such dispute to arbitration as
provided in Section 10.4.
(c) Third Party Claims. As soon as practicable after receipt by
------------------
an Indemnified Party of notice of any claim or the commencement of any action by
any third party, the Indemnified Party shall, if a claim in respect thereof is
to be made by it under this Article IX, notify the Indemnifying Party in writing
of the claim or the commencement of that action. If any such claim or action
shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, to assume the defense
thereof with counsel reasonably satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or action, the Indemnifying Party shall not be
liable to the Indemnified Party under this Article IX for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
-------- -------
any Indemnified Party shall have the right to employ separate counsel in any
such claim or action and to participate in the defense thereof but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the employment thereof has been specifically authorized by the
Indemnifying Party in writing, (ii) such Indemnified Party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party and in the reasonable judgment of such counsel it is
advisable for such Indemnified Party to employ separate counsel or (iii) the
Indemnifying Party has failed to assume the defense of such claim or action and
employ counsel reasonably satisfactory to the Indemnified Party, in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such claim
or action on behalf of such Indemnified Party, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such claim or
action or separate but substantially similar or related claims or actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all such Indemnified Parties, which firm shall be
designated in writing by such Indemnified Parties. Each Indemnified Party, as a
condition of the indemnity agreements contained herein, shall use its best
efforts to cooperate with the Indemnifying Party in the defense of any such
claim or action. The Indemnifying Party shall not be liable for any
41
<PAGE>
settlement of any such claim or action effected without its written consent
(which consent shall not be unreasonably withheld), but if settled with its
written consent or if there be a final judgment in favor of the plaintiff in any
such claim or action, the Indemnifying Party agrees to indemnify and hold
harmless any Indemnified Party from and against any loss or liability by reason
of such settlement or judgment.
(d) Agreed Claims. Claims for Losses specified in any
-------------
Certificate to which an Indemnifying Party shall not object in writing within
thirty (30) days of receipt of such Certificate, claims for Losses covered by a
memorandum of agreement of the nature described in Section 9.4(b) hereof, claims
for Losses the validity and amount of which have been the subject of arbitration
or settlement as contemplated by Section 9.4(b) hereof and claims for Losses the
validity and amount of which have been the subject of final judicial
determination or settlement as contemplated by Section 9.4(c) hereof are
hereinafter referred to, collectively as "Agreed Claims". Within ten (10) days
-------------
of the determination of the amount of any Agreed Claims for which Parent is
entitled to indemnification hereunder, the Shareholders shall pay Parent an
amount equal to the Agreed Claim by wire transfer in immediately available funds
to the bank account or accounts designated in writing by Parent not less than
two days prior to such payment, and within ten (10) days of the determination of
the amount of any Agreed Claims for which the Shareholders are entitled to
indemnification hereunder, Parent and Merger Sub shall pay each Shareholder such
Shareholder's pro rata share of an amount equal to the Agreed Claim by wire
transfer in immediately available funds to the bank account or accounts
designated in writing by such Shareholder not less than two days prior to such
payment.
(e) Subrogation of Indemnifying Party. If the Indemnified Party
---------------------------------
receives payment or other indemnification from an Indemnifying Party hereunder,
the Indemnifying Party shall be subrogated to the extent of such payment or
indemnification to all rights in respect of the subject matter of such claim to
which the Indemnified Party may be entitled, to institute appropriate action for
the recovery thereof, and the Indemnified Party agrees reasonably to assist and
cooperate with the Indemnifying Party at no expense to the Indemnified Party in
enforcing such rights.
9.5 Tax Treatment of Indemnity Payments. The parties agree to treat
-----------------------------------
any indemnity payment made pursuant to this Article IX as an adjustment to the
aggregate purchase price (including the Initial Merger Consideration and any
amounts paid to the Shareholders in respect of the First Earnout, the Second
Earnout and Third Earnout) for federal, state, local and foreign income tax
purposes.
ARTICLE X
GENERAL PROVISIONS
10.1 Expenses. Except as provided in Section 10.10, all costs and
--------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
42
<PAGE>
10.2 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Merger Sub, to:
MarketFirst Software, Inc.
485 Clyde Avenue
Mountain View, CA 94043
Fax: (650) 962-7891
Attention: Peter R. Tierney
with a copy to:
Hewitt & McGuire, LLP
19900 MacArthur Blvd., Suite 1050
Irvine, CA 92612
Fax: (949) 798-0511
Attention: John D. Hudson, Esq.
and
(b) if to the Company or the Shareholders, to:
Times Direct Marketing, Inc.
355 Fremont Street
San Francisco, CA 94105
Fax: (415) 229-2884
Attention: Christopher E. Peterson
with a copy to
Fotenos & Suttle, P.C.
50 California Street, Suite 700
San Francisco, CA 94111
Fax: (415) 398-1869
Attention: John C. Suttle, Esq.
10.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
(WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES OTHER THAN THOSE DIRECTING
CALIFORNIA LAW) EXCEPT TO THE EXTENT MANDATORILY GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE OR CALIFORNIA.
43
<PAGE>
10.4 Arbitration. Should any dispute or controversy arising from or
-----------
related to this Agreement arise between the parties that the parties are
incapable of resolving themselves through good faith negotiation, then such
dispute or controversy shall be submitted for binding arbitration by
J.A.M.S./ENDISPUTE ("JAMS") in San Francisco, California, or at such other
location as is agreed upon by the parties. Such arbitration shall be conducted
using the rules and practices of JAMS. Judgment upon any award by the
arbitrator(s) may be entered in any court having jurisdiction thereof. It is
agreed that the prevailing party in any such arbitration or other action arising
from or relating to this Agreement shall be entitled to reimbursement of its or
his reasonable costs and expenses, including attorneys' fees. Each party
consents to the exercise over it or him of personal jurisdiction by the
arbitrator(s) selected by JAMS to resolve any dispute hereunder.
10.5 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
10.6 Assignment; Binding Effect; Benefit. Except for assignments to
-----------------------------------
the estate of a Shareholder on his death, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties hereto; provided, however, that Parent may
assign its rights, interests and obligations hereunder to any successor or
parent entity of Parent whose shares are registered under Section 12 of the
Exchange Act (or will be so registered at the Effective Time). Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement.
10.7 Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
10.8 Entire Agreement. This Agreement (including the Exhibits,
----------------
Schedules, the Parent Disclosure Schedule and the Company Disclosure Schedule)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
44
<PAGE>
10.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
10.10 Legal Costs of Shareholders. The Shareholders agree that
---------------------------
they will be responsible for all legal costs and expenses incurred by each of
the Company and the Shareholders in connection with this Agreement, the
agreements related hereto and the transactions contemplated hereby and thereby.
[Remainder of this page intentionally left blank]
45
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
PARENT
MARKETFIRST SOFTWARE, INC., a
Delaware corporation
By:__________________________________
Name:
Title:
MERGER SUB
FUSIONDM, INC., a Delaware corporation
By:__________________________________
Name:
Title:
COMPANY
TIMES DIRECT MARKETING, INC., a
California corporation
By:__________________________________
Name:
Title:
[SIGNATURE PAGE TO MERGER AGREEMENT]
46
<PAGE>
SHAREHOLDERS
______________________________________
Christopher E. Peterson
______________________________________
Thierry Zamora
[SIGNATURE PAGE TO MERGER AGREEMENT]
47
<PAGE>
EXHIBITS AND SCHEDULES
- ----------------------
Exhibit A Escrow Agreement
Exhibit B Form of Employment Agreement with Christopher E. Peterson
Exhibit C Form of Employment Agreement with Thierry Zamora
Exhibit D Form of Opinion of Company's counsel
Exhibit E Form of Shareholder Representation Agreement
Exhibit F Form of Opinion of Hewitt & McGuire, LLP, counsel to Parent
48
<PAGE>
SCHEDULE 2.1
PROJECTED GROSS REVENUES
Fiscal Year Amount of Gross Revenues
- ----------- ------------------------
Fiscal Year ended December 31, 2000......... $ 8,885,000
Fiscal Year ended December 31, 2001......... $11,550,000
Fiscal Year ended December 31, 2002......... $15,000,000
49
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MARKETFIRST SOFTWARE, INC.
MarketFirst Software, Inc., a Delaware corporation, hereby certifies that
the Amended and Restated Certificate of Incorporation of the corporation
attached hereto as Exhibit "A", which is incorporated herein by this reference,
-----------
and which restates, integrates and further amends the provisions of the
Certificate of Incorporation of this corporation as heretofore amended or
supplemented, has been duly adopted by the corporation's Board of Directors and
has been adopted by a majority of the corporation's stockholders in accordance
with Sections 228, 242 and 245 of the Delaware General Corporation Law. The
corporation was previously incorporated under the name Cybernate Technology,
Inc. on August 8, 1996.
IN WITNESS WHEREOF, said corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its duly authorized officers this
3rd day of September, 1999.
MARKETFIRST SOFTWARE, INC.
By:_____________________________________
Peter Tierney, President and Chief
Executive Officer
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MARKETFIRST SOFTWARE, INC.
ARTICLE I
The name of the corporation is MarketFirst Software, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle 19805.
The name of its registered agent at that address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock, designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares that this corporation is authorized to issue is
89,640,000. The number of shares of Common Stock authorized to be issued is
45,000,000 shares, $0.001 par value. The number of shares of Preferred Stock
authorized to be issued is 44,640,000 shares, $0.001 par value, 2,140,000 of
which are designated as "Series A Preferred Stock", 3,000,000 of which are
designated as "Series B Preferred Stock", 21,500,000 of which are designated as
"Series C Preferred Stock" and 18,000,000 of which are designated as "Series D
Preferred Stock."
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
-------------------------------------------------------
preferences, privileges and restrictions granted to and imposed on the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and the Common Stock are as follows:
1. Definitions. For purposes of this Article IV, the following
-----------
definitions shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
-----
1.2 "Company" shall mean this corporation.
-------
<PAGE>
1.3 "Common Stock" shall mean the Common Stock, $0.001 par
------------
value, of the Company.
1.4 "Common Stock Dividend" shall mean a stock dividend
---------------------
declared and paid on the Common Stock that is payable in shares of Common Stock.
1.5 "Dividend Rate" shall mean $0.0125 per share per annum for
-------------
the Series A Preferred Stock (as adjusted for any stock dividends,
recapitalizations or the like), $0.025 per share per annum for the Series B
Preferred Stock (as adjusted for any stock dividends, recapitalizations or the
like), $0.034 per share per annum for the Series C Preferred Stock (as adjusted
for any stock splits, stock dividends, recapitalizations or the like), and
$0.053 per share per annum for the Series D Preferred Stock (as adjusted for any
stock splits, stock dividends, recapitalizations or the like).
1.6 "Original Issue Date" shall mean for the Series A Preferred
-------------------
Stock, Series B Preferred Stock, and Series C Preferred Stock, the date upon
which this Certificate is filed with the Delaware Secretary of State, and for
the Series D Preferred Stock, the date on which the first share of Series D
Preferred Stock is issued by the Company.
1.7 "Original Issue Price" shall mean $0.25 per share for the
--------------------
Series A Preferred Stock, $0.50 per share for the Series B Preferred Stock,
$0.68 per share for the Series C Preferred Stock, and $1.065 per share for the
Series D Preferred Stock.
1.8 "Permitted Repurchases" shall mean the repurchase by the
---------------------
Company of shares of Common Stock held by employees, officers, directors,
consultants, independent contractors, advisors, or other persons performing
services for the Company or a subsidiary that are subject to restricted stock
purchase agreements or stock option exercise agreements under which the Company
has the option but not the obligation to repurchase such shares: (i) at cost,
upon the occurrence of certain events, such as the termination of employment or
services; or (ii) at any price pursuant to the Company's exercise of a right of
first refusal to repurchase such shares.
1.9 "Preferred Stock" shall mean the Series A Preferred Stock,
---------------
the Series B Preferred Stock, the Series C Preferred Stock, and the Series D
Preferred Stock.
1.10 "Subsidiary" shall mean any corporation of which at least
----------
fifty percent (50%) of the outstanding voting stock is at the time owned
directly or indirectly by the Company or by one or more of such subsidiary
corporations.
2. Dividend Rights.
---------------
2.1 Dividend Preference. In each calendar year, the holders
-------------------
of the then outstanding Preferred Stock shall be entitled to receive, when, as
and if declared by the Board, out of any funds and assets of the Company legally
available therefor, non-cumulative dividends at the annual Dividend Rate for
each such series of Preferred Stock, prior and in preference to the payment of
any dividends on the Common Stock in such calendar year (other than a Common
2
<PAGE>
Stock Dividend). No dividends (other than a Common Stock Dividend) shall be paid
with respect to the Common Stock during any calendar year unless dividends in
the total amount of the annual Dividend Rate for the Preferred Stock shall have
first been paid to the holders of the Preferred Stock during that calendar year;
provided, however, that this restriction shall not apply to Permitted
- -------- -------
Repurchases. Payments of any dividends to the holders of Preferred Stock shall
be paid pro rata, on an equal priority, pari passu basis according to their
respective dividend preferences as set forth herein. Dividends on the Preferred
Stock shall not be mandatory or cumulative, and no rights or interest shall
accrue to the holders of the Preferred Stock by reason of the fact that the
Company shall fail to declare or pay dividends on the Preferred Stock in the
amount of the annual Dividend Rate for each such series or in any other amount
in any calendar year or any fiscal year of the Company, whether or not the
earnings of the Company in any calendar year or fiscal year were sufficient to
pay such dividends in whole or in part.
2.2 Participation Rights. Unless full dividends of the
--------------------
Preferred Stock for the current calendar year shall have been paid pursuant to
subsection 2.1 above, no dividend whatsoever (other than a Common Stock
Dividend) shall be paid or declared and no distribution shall be made, on the
Common Stock as set forth in the balance of this subsection 2.2. If, after
dividends in the full preferential amount specified in this Section 2 for the
Preferred Stock have been paid in any calendar year of the Company, the Board
shall declare additional dividends out of funds legally available therefor in
that calendar year, then such additional dividends shall be declared pro rata on
the Common Stock and Preferred Stock on a pari passu basis according to the
number of shares of Common Stock held by such holders, where each holder of
shares of Preferred Stock is to be treated for this purpose as holding the
greatest whole number of shares of Common Stock then issuable upon conversion of
all shares of Preferred Stock held by such holder pursuant to Section 5.
2.3 Non-Cash Dividends. Whenever a dividend provided for in
------------------
this Section 2 shall be payable in property other than cash, the value of such
dividend shall be deemed to be the fair market value of such property as
determined in good faith by the Board.
2.4 Payment on Conversion. If the Company shall have declared
---------------------
but not paid dividends with respect to any Preferred Stock, then immediately
prior to, and upon a conversion of any of the Preferred Stock as provided in
Section 5, the Company shall, subject to the legal availability of funds and
assets therefor, pay in cash to the holder of the shares of Preferred Stock
being converted the full amount of any dividends declared and unpaid on such
shares. If the Company shall not have legally available funds and assets to make
lawful payment of such declared and unpaid dividends, the Company shall, in lieu
of making a full cash payment of all such declared and unpaid dividends, make
payment thereof in cash to the extent the Company has legally available funds
and assets therefor, and shall pay the balance of the declared but unpaid
dividends in whole shares of Common Stock, valued at the Conversion Price (as
defined herein) then in effect, plus cash in lieu of any fractional share.
3. Liquidation Rights. In the event of any liquidation, dissolution
------------------
or winding up of the Company, whether voluntary or involuntary, the funds and
assets of the
3
<PAGE>
Company that may be legally distributed to the Company's stockholders (the
"Available Funds and Assets") shall be distributed to stockholders in the
--------------------------
following manner:
3.1 Liquidation Preference. The holder of each share of
----------------------
Preferred Stock then outstanding shall be entitled to be paid, out of the
Available Funds and Assets, and prior and in preference to any payment or
distribution (or any setting apart of any payment or distribution) of any
Available Funds and Assets on any shares of Common Stock, an amount per share
equal to the Original Issue Price for such respective series of Preferred Stock,
plus all declared but unpaid dividends thereon. If upon any liquidation,
dissolution or winding up of the Company, the Available Funds and Assets shall
be insufficient to permit the payment to holders of the Preferred Stock of their
full preferential amounts described in this subsection, then all of the
Available Funds and Assets shall be distributed among the holders of the then
outstanding shares of each series of Preferred Stock pro rata, on an equal
priority, pari passu basis, according to their respective liquidation
preferences as set forth herein.
3.2 Remaining Assets. If there are any Available Funds and
----------------
Assets remaining after the payment or distribution (or the setting aside for
payment or distribution) to the holders of the Preferred Stock of their full
preferential amounts described above in this Section 3, then all such remaining
Available Funds and Assets shall be distributed among the holders of the then
outstanding Common Stock and Preferred Stock pari passu according to the number
of shares of Common Stock held by each holder thereof on an as converted basis.
3.3 Merger or Sale of Assets. (i) the acquisition of the
------------------------
Company by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation) that results in the transfer of fifty percent (50%) or more of
the outstanding voting power of the Company; or (ii) a sale of all or
substantially all of the assets of the Company, shall each be deemed to be a
liquidation, dissolution or winding up of the Company as those terms are used in
this Section 3.
3.4 Non-Cash Consideration. If any assets of the Company
----------------------
distributed to stockholders in connection with any liquidation, dissolution, or
winding up of the Company are other than cash, then the value of such assets
shall be their fair market value as determined by the Board, except that any
------ ----
securities to be distributed to stockholders in a liquidation, dissolution, or
winding up of the Company shall be valued as follows:
(a) The method of valuation of securities not subject to
investment letter or other similar restrictions on free marketability shall be
as follows:
(i) if the securities are then traded on a national
securities exchange or the Nasdaq National Market (or a similar national
quotation system), then the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution;
(ii) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid on sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) days prior to
the closing; and
4
<PAGE>
(iii) if there is no active public market, then the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors of the Company.
(b) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in
subparagraphs (a)(i),(ii) or (iii) of this subsection to reflect the approximate
fair market value thereof, as determined in good faith by the Board.
4. Voting Rights.
-------------
4.1 Common Stock. Each holder of shares of Common Stock shall
------------
be entitled to one (1) vote for each share thereof held.
4.2 Preferred Stock. Each holder of shares of Preferred Stock
---------------
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which such shares of Preferred Stock could be converted
pursuant to the provisions of Section 5 below at the record date for the
determination of the stockholders entitled to vote on such matters or, if no
such record date is established, the date such vote is taken or any written
consent of stockholders is solicited.
4.3 General. Subject to the foregoing provisions of this
-------
Section 4, each holder of Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled to notice of any stockholders' meeting in accordance with the
bylaws of the Company (as in effect at the time in question) and applicable law,
and shall be entitled to vote, together with the holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote, except as may be otherwise provided by applicable law. Except as otherwise
expressly provided herein or as required by law, the holders of Preferred Stock
and the holders of Common Stock shall vote together and not as separate classes.
4.4 Voting for the Election of Directors. With respect to the
------------------------------------
election of the Board of Directors, at each annual election of directors: (i)
the holders of shares of the then outstanding Common Stock shall be entitled to
elect two (2) members of the Board of Directors of this corporation, (ii) the
holders of shares of the then outstanding Series A Preferred Stock and Series B
Preferred Stock, then outstanding, voting together as a single class and on an
as-converted basis, shall be entitled to elect two (2) members of the Board of
Directors of this corporation, (iii) the holder of at least a majority of the
outstanding shares of Series C Preferred Stock shall be entitled to elect one
(1) member of the Board of Directors of this corporation, notwithstanding the
right of Enterprise Partners, L.P. to exercise its right to a Board seat, and
(iv) as long as at least a majority of the shares of Series D Preferred Stock
originally issued remain outstanding (subject to appropriate adjustment for any
stock split, reverse stock split, stock dividend, recapitalization or similar
transaction), the holders of such shares of Series D Preferred Stock shall be
entitled to elect one (1) member of the Board of Directors of this corporation.
5
<PAGE>
In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director elected by the holders of a class or series
of stock pursuant to this Section 4.4, such stockholders entitled to elect such
member(s) of the Board of Directors may by affirmative vote of a majority
thereof, elect a successor or successors to hold office for the unexpired term
of the director whose place shall be vacant. Any director who shall have been
elected by the holders of a class or series of stock may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or series of stock
entitled to elect such director or directors, given either at a special meeting
of such stockholders duly called for that purpose or pursuant to a written
consent of stockholders, and any vacancy thereby created may be filled by the
holders of that class or series of stock represented at the meeting or pursuant
to unanimous written consent.
5. Conversion Rights. The outstanding shares of Preferred Stock
-----------------
shall be convertible into Common Stock as follows:
5.1 Optional Conversion.
-------------------
(a) At the option of the holder thereof, each share of
Preferred Stock shall be convertible into fully paid and nonassessable shares of
Common Stock as provided herein.
(b) Each holder of Preferred Stock who elects to convert
the same into shares of Common Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Preferred Stock or Common Stock, and shall give written
notice to the Company at such office that such holder elects to convert the same
and shall state therein the number of shares of Preferred Stock being converted.
Thereupon the Company shall promptly issue and deliver at such office to such
holder a certificate or certificates for the number of shares of Common Stock to
which such holder is entitled upon such conversion. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the certificate or certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
5.2 Automatic Conversion.
--------------------
(a) Each share of Preferred Stock shall automatically be
converted into fully paid and nonassessable shares of Common Stock, immediately
prior to (i) the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended, covering the offer and sale of Common Stock for the account
of the Company for not less than $20,000,000 in aggregate proceeds, in which the
public offering price is at least double the original issuance price of the
Series D Preferred Stock, or (ii) upon receipt by the Company of the written
consent of holders of more than fifty percent (50%) of the outstanding shares of
each series of Preferred Stock, each voting as a separate class.
6
<PAGE>
(b) Upon the occurrence of an event specified in
subparagraph 5.2(a) above, the outstanding shares of Preferred Stock shall be
converted into Common Stock automatically without the need for any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
- -------- -------
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Preferred Stock are either delivered to
the Company or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates. Upon
the occurrence of such automatic conversion of the Preferred Stock, the holders
of Preferred Stock shall surrender the certificates representing such shares at
the office of the Company or any transfer agent for the Preferred Stock or
Common Stock. Thereupon, there shall be issued and delivered to such holder
promptly at such office and in its name as shown on such surrendered certificate
or certificates, a certificate or certificates for the number of shares of
Common Stock into which the shares of Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
5.3 Conversion Price. Each share of outstanding Preferred Stock
----------------
shall be convertible in accordance with subsection 5.1 or subsection 5.2 above
into the number of shares of Common Stock which results from dividing the
Original Issue Price for such series of Preferred Stock by the conversion price
for such series of Preferred Stock that is in effect at the time of conversion
(the "Conversion Price"). The initial Conversion Price for each series of
----------------
Preferred Stock shall be the Original Issue Price for such series of Preferred
Stock. The Conversion Price of each series of Preferred Stock shall be subject
to adjustment from time to time as provided below. Following each adjustment of
the Conversion Price, such adjusted Conversion Price shall remain in effect
until a further adjustment of such Conversion Price hereunder.
5.4 Adjustment Upon Common Stock Event. Upon the happening of a
----------------------------------
Common Stock Event (as hereinafter defined), the Conversion Price of each series
of Preferred Stock shall, simultaneously with the happening of such Common Stock
Event, be adjusted by multiplying the Conversion Price of such series of
Preferred Stock in effect immediately prior to such Common Stock Event by a
fraction, (i) the numerator of which shall be the number of shares of Common
Stock issued and outstanding immediately prior to such Common Stock Event, and
(ii) the denominator of which shall be the number of shares of Common Stock
issued and outstanding immediately after such Common Stock Event, and the
product so obtained shall thereafter be the Conversion Price for such series of
Preferred Stock. The Conversion Price for a series of Preferred Stock shall be
readjusted in the same manner upon the happening of each subsequent Common Stock
Event. As used herein, the term "Common Stock Event" shall mean (i) the issue
------------------
by the Company of additional shares of Common Stock as a dividend on outstanding
Common Stock, (ii) a subdivision of the outstanding shares of Common Stock into
a greater number of shares of Common Stock, or (iii) a combination of the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock.
7
<PAGE>
5.5 Adjustments for Other Dividends and Distributions. If at
-------------------------------------------------
any time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Company, other than an event constituting a Common
Stock Event, then in each such event provision shall be made so that the holders
of the Preferred Stock shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable upon conversion thereof, the amount
of securities of the Company which they would have received had their Preferred
Stock been converted into Common Stock on the date of such event (or such record
date, as applicable) and had they thereafter, during the period from the date of
such event (or such record date, as applicable) to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 5 with respect to the rights of the holders of the Preferred Stock
or with respect to such other securities by their terms.
5.6 Adjustment for Reclassification, Exchange and Substitution.
----------------------------------------------------------
If at any time or from time to time after the Original Issue Date the Common
Stock issuable upon the conversion of the Preferred Stock is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than by a Common Stock
----- ----
Event or a stock dividend, reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5), then in any such event each
holder of Preferred Stock shall have the right thereafter to convert such stock
into the kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change by holders of the
number of shares of Common Stock into which such shares of Preferred Stock could
have been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with respect
to such other securities or property by the terms thereof.
5.7 Sale of Shares Below Conversion Price.
-------------------------------------
(a) Adjustment Formula. If at any time or from time to
------------------
time after the Original Issue Date the Company issues or sells, or is deemed by
the provisions of this subsection 5.7 to have issued or sold, Additional Shares
of Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in subsection 5.4, a dividend or distribution as
provided in subsection 5.5 or a recapitalization, reclassification or other
change as provided in subsection 5.6, for an Effective Price (as hereinafter
defined) that is less than the Conversion Price for a series of Preferred Stock
in effect immediately prior to such issue or sale, then, and in each such case,
the Conversion Price for such series of Preferred Stock shall be reduced, as of
the close of business on the earlier of the date of such issue or the date of
such sale, to the price obtained by multiplying such Conversion Price by a
fraction:
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Company for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and
8
<PAGE>
sold) by the Conversion Price for such series of Preferred Stock in effect
immediately prior to such issue or sale; and
(ii) The denominator of which shall be the sum of (A)
the number of Common Stock Equivalents Outstanding immediately prior to such
issue or sale plus (B) the number of Additional Shares of Common Stock so issued
or sold (or deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5.7:
(i) "Additional Shares of Common Stock" shall mean
---------------------------------
all shares of Common Stock issued by the Company, whether or not subsequently
reacquired or retired by the Company, other than: (A) shares of Common Stock
issued or issuable upon conversion of the Preferred Stock; (B) shares of Common
Stock issuable or issued to employees, officers, or directors of, or
contractors, consultants or advisers to, the Company or any Subsidiary pursuant
to the Company's 1996 Equity Incentive Plan; and (C) shares of the Company's
Common Stock (and/or options or warrants therefor) issued or issuable to parties
providing the Company with equipment leases, real property leases, loans, credit
lines, guaranties or indebtedness, cash price reductions or similar financing
(and in the aggregate not in excess of 10% of the Company's capitalization) (if
in transactions with primarily non-equity financing purposes) under arrangements
approved by the Board.
(ii) The "Aggregate Consideration Received" by the
--------------------------------
Company for any issue or sale (or deemed issue or sale) of securities shall (A)
to the extent it consists of cash, be computed at the gross amount of cash
received by the Company before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale and without deduction of any expenses payable
by the Company; (B) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by the
Board; and (C) if Additional Shares of Common Stock, Convertible Securities or
Rights or Options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or Rights or Options.
(iii) "Common Stock Equivalents Outstanding" shall
------------------------------------
mean the number of shares of Common Stock that is equal to the sum of all shares
of Common Stock of the Company issuable upon conversion of all shares of
Preferred Stock that are outstanding at the time in question.
(iv) "Convertible Securities" shall mean stock or
----------------------
other securities convertible into or exchangeable for shares of Common Stock.
9
<PAGE>
(v) The "Effective Price" of Additional Shares of
---------------
Common Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Company under this subsection 5.7, into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this subsection 5.7, for the issue of such Additional Shares of Common Stock;
and
(vi) "Rights or Options" shall mean warrants,
-----------------
options or other rights to purchase or acquire shares of Common Stock or
Convertible Securities.
(c) Deemed Issuances. For the purpose of making any
----------------
adjustment to the Conversion Price of the Preferred Stock required under this
subsection 5.7, if the Company issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in effect for a series of Preferred Stock, then the Company shall be deemed
to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the Company for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise in
full of such Rights or Options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
(i) if the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, then the Company shall be deemed to have received the minimum amounts
of consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable
to the Company upon the exercise of Rights or Options or the conversion or
exchange of Convertible Securities is reduced over time or upon the occurrence
or non-occurrence of specified events other than by reason of antidilution or
similar protective adjustments, then the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable
to the Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible
10
<PAGE>
Securities. No further adjustment of the Conversion Price, adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only shares of Common Stock so issued were the shares of
Common Stock, if any, that were actually issued or sold on the exercise of such
Rights or Options or rights of conversion or exchange of such Convertible
Securities, and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such Rights or Options, whether or not exercised, plus the consideration
received for issuing or selling all such Convertible Securities actually
converted or exchanged, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion or exchange of such Convertible
Securities, provided that such readjustment shall not apply to prior conversions
of Preferred Stock.
(d) If, after the adjustment of the Conversion Price
of a series of Preferred Stock pursuant to this subsection 5.7, it is determined
that an event which existed or occurred prior to the time such Conversion Price
was adjusted was not considered in the adjustment of such Conversion Price, then
such Conversion Price shall be retroactively adjusted to reflect such event and
additional shares of Common Stock shall be issued to any previous holder of
Preferred Stock, if such holder previously exercised all or any part of such
holder's conversion rights hereunder, to reflect the additional shares to which
such holder would have been entitled had the retroactively adjusted Conversion
Price been in effect on the date of exercise of such conversion rights.
(e) If the Company issues or sells, or is deemed by
the provisions of this subsection 5.7 to have issued or sold, Additional Shares
of Common Stock, otherwise than in connection with a Common Stock Event as
provided in subsection 5.4, a dividend or distribution as provided in subsection
5.5 or a recapitalization, reclassification or other change as provided in
subsection 5.6, and such Additional Shares of Common Stock have different
Effective Prices and such Additional Shares of Common Stock would require
adjustments to the Conversion Price of a series of Preferred Stock on the same
day, then such Conversion Price shall be adjusted seriatim for each type of
Additional Shares of Common Stock with a different Effective Price, adjusting
such Conversion Price first for the Additional Shares of Common Stock with the
highest Effective Price, followed by the adjustment for the Additional Shares of
Common Stock with the next highest Effective Price and so on until all
adjustments of such Conversion Price have been made.
5.8 Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for a series of Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in
11
<PAGE>
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of the Preferred Stock at the
holder's address as shown in the Company's stock record books.
5.9 Fractional Shares. No fractional shares of Common Stock
-----------------
shall be issued upon any conversion of Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the Company
shall pay the holder cash equal to the product of such fraction multiplied by
the Common Stock's fair market value as determined in good faith by the Board as
of the date of conversion.
5.10 Reservation of Stock Issuable Upon Conversion. The Company
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose. If any shares of
Common Stock reserved for the purpose of conversion of shares of Preferred Stock
require registration, qualification or listing with, or approval of, any
governmental authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise before such shares may be
validly issued or delivered upon conversion, the Company will, in good faith, at
its own expense and as expeditiously as possible, endeavor to secure such
registration, qualification, listing or approval, as the case may be.
5.11 Notices. Any notice required by the provisions of this
-------
Section 5 to be given to the holders of shares of the Preferred Stock shall be
deemed given upon the earlier of actual receipt or ten (10) days after deposit
in the United States mail, by certified or registered mail, return receipt
requested, postage prepaid, addressed to each holder of record at the address of
such holder appearing on the books of the Company.
5.12 No Impairment. The Company shall not avoid or seek to
-------------
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith assist
in carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against impairment.
5.13 Minimum Adjustment. No adjustment to the Conversion Price
------------------
of a series of Preferred Stock shall be made in an amount less than Three-Tenths
of One Cent ($0.003) per share (subject to appropriate adjustment for stock
splits and stock dividends) and provided that at such time as events causing
adjustments accumulating One Cent ($0.01) or more have occurred adjustment to
the Conversion Price of each series of Preferred Stock shall be made.
12
<PAGE>
6. Redemption.
----------
(a) At any time after December 31, 2002, the Company shall
redeem, at the option of any holder of at least 1,000,000 shares of Preferred
Stock (subject to appropriate adjustment for all stock splits, dividends,
combination and the like) (shares of Preferred Stock held by such a holder being
referred to as "Stockholder Redeemable Shares"), all or any portion of the
-----------------------------
Stockholder Redeemable Shares held by such holder, as the holder may request.
(b) Redemption Price. The redemption price shall be paid in
----------------
cash and shall be an amount per share equal to all declared and unpaid dividends
on the share of Preferred Stock being redeemed plus the Original Issue Price of
such share (as adjusted for stock splits, recapitalizations and the like)(such
aggregate amount per share is hereinafter referred to as the "Redemption Price"
----------------
of such share).
(c) Redemption by Stockholder.
-------------------------
(i) Notice of Redemption by Stockholder. Any holder of
-----------------------------------
record of at least One Million (1,000,000) shares of Stockholder Redeemable
Shares who wishes to redeem any Stockholder Redeemable Shares in accordance with
Section 6(a) hereof shall, at any time after December 1, 2002, mail written
notice (hereinafter referred to as the "Stockholder Redemption Request") thereof
------------------------------
to the Company, postage prepaid. The Stockholder Redemption Request shall
contain the following information: (i) the number of Stockholder Redeemable
Shares held by such holder which such holder requests to be redeemed by the
Company and (ii) the specific date (at least sixty (60) days after the date of
the Stockholder Redemption Request, but in any event not a date prior to
December 31, 2002) which the holder has specified for redemption (hereinafter
referred to as the "Stockholder Redemption Date").
(ii) Surrender of Certificates, etc. Each Stockholder
-------------------------------
Redemption Request shall bind the giver thereof to surrender for redemption, and
the Company to redeem, the number of Stockholder Redeemable Shares specified in
such notice on the Stockholder Redemption Date which such Stockholder Redemption
Request specifies. Each holder of shares of Preferred Stock to be redeemed shall
surrender the certificate or certificates representing such shares of Preferred
Stock to the Company (at the principal executive office of the Company), and
thereupon the applicable Redemption Price for such shares shall be paid in cash
or check to the order of the person whose name appears on such certificate or
certificates and each surrendered certificate shall be canceled and retired. In
the event that some but not all of the shares of Preferred Stock represented by
a certificate or certificates surrendered by a holder are being redeemed, the
Company shall execute and deliver to or on the order of the holder, at the
expense of the Company, a new certificate representing the number of shares of
Preferred Stock which were not redeemed. From and after the Stockholder
Redemption Date, and unless there shall have been a default in payment of the
Redemption Price, all rights to dividends on the Preferred Stock designated for
redemption in the Stockholder Redemption Request, in response thereto shall
cease to exist, all rights of the holders of such shares as holders of Preferred
Stock (except the right to receive the applicable Redemption Price, without
interest, upon surrender of their certificate or certificates) shall cease and
terminate with respect to such shares, and such
13
<PAGE>
shares shall not thereafter be transferred on the books of the Company or be
deemed to be outstanding for any purpose whatsoever.
(iii) Deposit of Redemption Price. On or prior to the
---------------------------
Stockholder Redemption Date, the Company shall deposit the Redemption Price of
all shares of Preferred Stock designated for redemption in the Stockholder
Redemption Request in response thereto not yet redeemed with a bank or trust
company as a trust fund for the benefit of the respective holders of the shares
designated for redemption and not yet redeemed. Any monies deposited by the
Company pursuant to this subsection for the redemption of shares thereafter
converted into shares of Common Stock pursuant to Section 4 no later than the
day preceding the Stockholder Redemption Date shall be returned to the Company
forthwith upon such conversion. The balance of any monies deposited by the
Company pursuant to this subsection remaining unclaimed at the expiration of one
year following the Stockholder Redemption Date shall thereafter be returned to
the Company upon its request expressed in a resolution of its Board of
Directors.
(iv) Available Funds. If the funds of the Company
---------------
legally available for redemption of the Preferred Stock on any Stockholder
Redemption Date are insufficient to redeem the total number of shares requested
to be redeemed pursuant to this Section 6 on such Stockholder Redemption Date,
those funds which are legally available for redemption will be used to redeem
the maximum number of shares of Preferred Stock specified for redemption ratably
among the holders of such Preferred Stock in the same proportion as the relative
aggregate amounts obtained by multiplying the number of shares of Preferred
Stock specified for redemption by each such holder by the Original Purchase
Price per share. The shares of Preferred Stock not redeemed pursuant to Section
6(a) above shall remain outstanding and shall be entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
Company are legally available for the redemption of the Preferred Stock
specified for redemption pursuant to this Section 6, such funds will immediately
be used to redeem the balance of such shares which the Company has become
obligated to redeem pursuant to this Section 6, on the same terms and conditions
as are set forth above.
7. Miscellaneous
-------------
7.1 No Reissuance of Preferred Stock. No share or shares of
--------------------------------
Preferred Stock acquired by the Company by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue.
7.2 Protective Provisions. As long as any shares of Series D
----------------------
Preferred Stock originally issued remain outstanding, this corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the originally issued shares of
Series D Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series D Preferred Stock;
14
<PAGE>
(ii) authorize or issue, or obligate itself to issue,
any other equity security, including any other security convertible into or
exercisable for any equity security having a preference over the Series D
Preferred Stock with respect to dividends, liquidation, redemption or voting; or
(iii) amend this corporation's Certificate of
Incorporation or bylaws so as to affect adversely the shares or alter or change
the rights, preferences or privileges of the shares of Series D Preferred Stock.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, the
Board of Directors of the corporation shall have the power to adopt, amend or
repeal Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
15
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MARKETFIRST SOFTWARE, INC.
MarketFirst Software, Inc., a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify that:
FIRST. The amendment to the Corporation's Amended and Restated
Certificate of Incorporation set forth below was duly adopted in accordance with
the provisions of Section 242 and has been consented to in writing by the
stockholders in accordance with Section 228 of the General Corporation Law of
the State of Delaware.
SECOND. Article IV, Section A, of the Corporation's Amended and
Restated Certificate of Incorporation is hereby revised as follows:
A. Classes of Stock. This corporation is authorized to issue two
----------------
classes of stock, designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized to issue
is 129,640,000. The number of shares of Common Stock authorized to be issued is
85,000,000 shares, $0.001 par value. The number of shares of Preferred Stock
authorized to be issued is 44,640,000 shares, $0.001 par value, 2,140,000 of
which are designated as "Series A Preferred Stock", 3,000,000 of which are
designated as "Series B Preferred Stock", 21,500,000 of which are designated as
"Series C Preferred Stock" and 18,000,000 of which are designated as "Series D
Preferred Stock."
Upon the effectiveness of this Certificate of Amendment of Amended and
Restated Certificate of Incorporation, each outstanding share of Common Stock of
the corporation will automatically be converted, without any further action on
the part of the holder thereof, into two-fifths (2/5) of a share of Common
Stock, provided that no fractional shares shall be issued pursuant to such
conversion. The Corporation shall pay to each stockholder who would otherwise
be entitled to a fractional share as a result of such conversion, in cash equal
to the fair value of such fractional share as determined by the Corporation's
Board of Directors.
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
of Amendment on this 13th day of April, 2000.
MARKETFIRST SOFTWARE, INC.
By: /s/ Robert W. Sator
------------------------------------------
Name: Robert W. Sator
----------------------------------------
Title: Vice President, Finance
---------------------------------------
Attest:
/s/ Anurag Khemka
- ------------------------------
Secretary
2
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MARKETFIRST SOFTWARE, INC.
The undersigned Peter R. Tierney and Anurag Khemka, hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
---
respectively, of said corporation.
TWO: The original Certificate of Incorporation of the Corporation was
---
filed with the Secretary of State of Delaware on August 8, 1996, under the name
"Cybernate Technology, Inc." On September 3, 1999, the Corporation filed an
Amended and Restated Certificate of Incorporation.
THREE: The Amended and Restated Certificate of Incorporation of said
-----
corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is MarketFirst Software, Inc. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
Delaware 19805. The name of the Corporation's registered agent at such address
is Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that the Corporation is authorized to issue is Seventy-Five
Million (75,000,000). Seventy Million (70,000,000) shares shall be Common Stock,
par value $0.001 per share, and Five Million (5,000,000) shares shall be
Preferred Stock, par value $0.001 per share.
<PAGE>
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors of the
Corporation is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon each series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. The rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
----------
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote), or senior to any of those of any present or future class or series of
Preferred Stock or Common Stock. The Board of Directors is also authorized to
increase or decrease the number of shares of any series prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation. In addition, the
Bylaws may be amended by the affirmative vote of holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of
the Corporation entitled to vote at an election of directors.
ARTICLE VI
The number of directors of the Corporation shall be determined by
resolution of the Board of Directors.
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. Advance notice of stockholder nominations
for the election of directors and of any other business to be brought before any
meeting of the stockholders shall be given in the manner provided in the Bylaws
of this Corporation.
At each annual meeting of stockholders, directors of the Corporation
shall be elected to hold office until the expiration of the term for which they
are elected, or until their successors have been duly elected and qualified;
except that if any such election shall not be so held, such election shall take
place at a stockholders' meeting called and held in accordance with the GCL.
The directors of the Corporation shall be divided into three (3)
classes as nearly equal in size as is practicable, hereby designated Class I,
Class II and Class III. For the purposes hereof, the initial Class I, Class II
and Class III directors shall be those directors so designated by a resolution
of the Board of Directors. At the first annual meeting of stockholders
following the closing of the initial public offering of the Corporation's Common
Stock, the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three (3) years. At the second
annual meeting of stockholders following the closing of the initial public
offering of the Corporation's Common Stock, the term of office of the Class II
directors shall
2
<PAGE>
expire and Class II directors shall be elected for a full term of three (3)
years. At the third annual meeting of stockholders following the initial public
offering of the Corporation's Common Stock, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three (3) years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three (3) years to succeed the directors of
the class whose terms expire at such annual meeting. If the number of directors
is hereafter changed, each director then serving as such shall nevertheless
continue as a director of the Class of which he is a member until the expiration
of his current term and any newly created directorships or decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of Directors,
even if less than a quorum, at any meeting of the Board of Directors. A person
so elected by the Board of Directors to fill a vacancy shall hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been duly elected and
qualified. A director may be removed from office by the affirmative vote of the
holders of 66 2/3% of the outstanding shares of voting stock of the Corporation
entitled to vote at an election of directors, provided that such removal is for
cause.
ARTICLE VII
Stockholders of the Corporation shall take action by meetings held
pursuant to this Amended and Restated Certificate of Incorporation and the
Bylaws and shall have no right to take any action by written consent without a
meeting. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Special meetings of the stockholders, for
any purpose or purposes, may only be called by the Chief Executive Officer,
President, Chairman of the Board or a majority of the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE VIII
To the fullest extent permitted by applicable law, this Corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and agents (and any other persons to which
Delaware law permits this Corporation to provide indemnification) through Bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the GCL, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to action for breach of duty to the Corporation, its stockholders, and
others.
No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the GCL or any amendment thereto or shall be liable
by reason that, in addition to any and all other requirements
3
<PAGE>
for such liability, such director (1) shall have breached the director's duty or
loyalty to the Corporation or its stockholders, (2) shall have acted in bad
faith or in a manner involving intentional misconduct or a knowing violation of
law or, in failing to act, shall have acted in bad faith or in a manner
involving intentional misconduct or a knowing violation of law, or (3) shall
have derived an improper personal benefit. If the GCL is hereafter amended to
authorize the further elimination or limitation of the liability of a director,
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the GCL, as so amended.
Each person who was or is made a party or is threatened to be made a
party to or is in any way involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another entity or enterprise, or
was a director or officer of a foreign or domestic corporation which was
predecessor corporation of the Corporation or of another entity or enterprise at
the request of such predecessor corporation, shall be indemnified and held
harmless by the Corporation, and the Corporation shall advance all expenses
incurred by any such person in defense of any such proceeding prior to its final
determination, to the fullest extent authorized by the GCL. In any proceeding
against the Corporation to enforce these rights, such person shall be presumed
to be entitled to indemnification and the Corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation ) that the claimant
has not met the standards of conduct which make it permissible under the GCL for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the Corporation
shall have the burden of proving that the claimant has not met the standards of
conduct for permissible indemnification set forth in the GCL.
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If the GCL is hereafter amended to permit the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment, the indemnification rights conferred by this
Article VIII shall be broadened to the fullest extent permitted by the GCL, as
so amended.
ARTICLE IX
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 statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in
Articles V, VI, VII, VIII and IX of this Amended and Restated Certificate of
Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least 66-2/3% of the outstanding voting stock of
the Corporation entitled to vote at election of directors.
FOUR: The foregoing amendment and restatement has been duly adopted
----
by the Corporation's Board of Directors in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
FIFTH: The foregoing amendment and restatement was approved by the
-----
holders of the requisite number of shares of the Corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
___________________, 2000.
________________________________________
Peter R. Tierney, President
________________________________________
Anurag Khemka, Secretary
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EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
MARKETFIRST SOFTWARE, INC.
ARTICLE I
OFFICES
Section 1. The address of the registered office shall be in the City
---------
of Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
---------
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
---------
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
---------
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. At each annual meeting, the stockholders
shall elect directors to succeed those directors whose terms expire in that year
and shall transact such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting stating the place,
---------
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
---------
corporation shall prepare and make available, at least ten 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
<PAGE>
germane to the meeting, during ordinary business hours, for a period of at least
ten 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.
Section 5. Special meetings of the stockholders, for any purpose or
---------
purposes, may only be called by the chief executive officer, president, Chairman
of the Board or a majority of the Board.
Section 6. Written notice of a special meeting stating the place,
---------
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
---------
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority 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 shall not be present or
represented at any meeting of the stockholders, either the Chairman of the
Board, or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted that might have been
transacted at the meeting as originally notified. 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.
Section 9. 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 applicable statute
or of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of
----------
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Nominations for election to the Board of Directors must
----------
be made by the Board of Directors or by a committee appointed by the Board of
Directors for such purpose or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote
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for the election of directors. Nominations by stockholders must be preceded by
notification in writing received by the secretary of the corporation not less
than one-hundred twenty (120) days prior to any meeting of stockholders called
for the election of directors. Such notification shall contain the written
consent of each proposed nominee to serve as a director if so elected and the
following information as to each proposed nominee and as to each person, acting
alone or in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business address of
each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business
-----------
shall be conducted as shall have been brought before the meeting (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 is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a
stockholder pursuant to clause (c) above of this Section 12, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than one hundred twenty (120) days prior to the date of the meeting. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any
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<PAGE>
material interest of such stockholder of record and the beneficial owner, if
any, on whose behalf the proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 12, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
Section 13. Effective upon the closing of the corporation's initial
----------
public offering of securities pursuant to a registration statement filed under
the Securities Act of 1933, as amended, the stockholders of the corporation may
not take any action by written consent without a meeting, but must take any such
actions at a duly called annual or special meeting in accordance with these
Bylaws and the Certificate of Incorporation.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
---------
constitute the whole board shall be determined by resolution of the Board of
Directors; provided, however, that no decrease in the number of directors shall
have the effect of shortening the term of an incumbent director. The Board of
Directors shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors, one class to hold office initially for a
term expiring at the annual meeting to be held in 2001, another class to hold
office initially for a term expiring at the annual meeting of stockholders held
in 2002 and another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2003, with the members of each
class to hold office until their successors are elected and qualified. At each
annual meeting of stockholders, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election.
Section 2. Vacancies and newly created directorships resulting from
---------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, even if less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
election of the class for which such directors were chosen and until their
successors are duly elected and qualified or until earlier resignation or
removal. If there are no directors in office, then an election of directors may
be held in the manner provided by statute.
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Section 3. The business of the corporation shall be managed by or
---------
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
---------
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. 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 and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. 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.
Section 6. Regular meetings of the Board of Directors may be held
---------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
---------
Chairman of the Board or the chief executive officer on twelve (12) hours'
notice to each director by phone, fax or electronic mail; special meetings shall
be called by the Chairman of the Board, the chief executive officer or secretary
in like manner and on like notice on the written request of a majority of the
Board unless the Board consists of only one director, in which case special
meetings shall be called by the Chairman of the Board, the chief executive
officer or secretary in like manner and on like notice on the written request of
the sole director.
Section 8. At all meetings of the board a majority of the directors
---------
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
---------
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of
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<PAGE>
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
----------
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
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.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
----------
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
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<PAGE>
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
---------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
---------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
---------
Board of Directors and shall be a chief executive officer, president, chief
financial officer and secretary. The Board of Directors may elect from among
its members a Chairman of the Board. The Board of Directors may also choose one
or more vice-presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
---------
annual meeting of stockholders shall choose a chief executive officer,
president, chief financial officer, and secretary and may choose vice
presidents.
Section 3. The Board of Directors may appoint such other officers and
---------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
---------
fixed by the Board of Directors or any committee established by the Board of
Directors for such purpose. The salaries of agents of the corporation shall,
unless fixed by the Board of Directors, be fixed by the chief executive officer,
president or any vice-president of the corporation.
Section 5. The officers of the corporation shall hold office until
---------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
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<PAGE>
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
---------
meetings of the Board of Directors and of the stockholders at which he/she shall
be present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him/her by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the chief
---------
executive officer shall preside at all meetings of the Board of Directors and of
the stockholders at which he shall be present. He shall have and may exercise
such powers as are, from time to time, assigned to him by the Board and as may
be provided by law.
THE CHIEF EXECUTIVE OFFICER,
PRESIDENT AND VICE-PRESIDENTS
Section 8. The chief executive officer and president shall have
---------
general and active management of the business of the corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect.
Section 9. The chief executive officer, president or any vice
---------
president shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
Section 10. In the absence of the chief executive officer or the
----------
president or in the event of their inability or refusal to act, the vice-
president, if any, (or in the event there be more than one vice-president, the
vice-presidents in the order designated by the directors, or in the absence of
any designation, then in the order of their election) shall perform the duties
of the chief executive officer or president, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the chief executive
officer and president. The vice-presidents shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
chief executive officer or president, under whose supervision he/she shall be.
He/she shall have custody of the corporate seal of the corporation and he/she,
or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such assistant secretary. The Board of Directors may
give general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
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Section 12. The assistant secretary, or if there be 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 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.
THE CHIEF FINANCIAL OFFICER
Section 13. The chief financial officer shall be the chief financial
----------
officer of the corporation, shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He/she shall disburse the funds of the corporation as may
----------
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the chief executive officer and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as chief financial officer and of the
financial condition of the corporation.
Section 15. If required by the Board of Directors, he/she shall give
----------
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his/her office and for the
restoration to the corporation, in case of his/her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his/her control
belonging to the corporation.
Section 16. The treasurer or an assistant treasurer, 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 chief financial
officer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the chief financial officer and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
---------
to have a certificate, signed by, or in the name of the corporation by, the
Chairman of the Board of Directors, the chief executive officer, the president
or a vice-president and the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by him/her in the corporation.
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Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, 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 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, designations, preferences and
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.
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have 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/she were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 2. The Board of Directors may direct a new certificate or
---------
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his/her
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 3. Upon surrender to the corporation or the transfer agent of
---------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 4. In order that the corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express
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consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 5. The corporation shall be entitled to recognize the
---------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
---------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
---------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
---------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
---------
resolution of the Board of Directors.
11
<PAGE>
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
---------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
---------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
12
<PAGE>
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
---------
bylaws may be adopted by the affirmative vote of holders of at least 66-2/3%
vote of the outstanding voting stock of the corporation. These bylaws may also
be altered, amended or repealed or new bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation. The foregoing may occur at any regular meeting of
the stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal bylaws is conferred
upon the Board of Directors by the certificate of incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal
bylaws.
13
<PAGE>
Exhibit 4.2
FIFTH RESTATED AND AMENDED
--------------------------
INVESTOR'S RIGHTS AGREEMENT
---------------------------
This Fifth Restated and Amended Investor's Rights Agreement (this
"Agreement") is made and entered into as of September 10, 1999 by and among
---------
MarketFirst Software, Inc., a Delaware corporation (the "Company"), and the
-------
persons and entities listed on Exhibit A hereto (the "Investors") and the
--------- ---------
persons listed on Exhibit B attached hereto (the "Founders").
--------- --------
R E C I T A L S
- - - - - - - -
A. Certain of the Investors (the "Prior Investors") are holders of
---------------
outstanding shares of the Company's Series A Preferred Stock ("Series A Stock"),
--------------
Series B Preferred Stock ("Series B Stock") and Series C Preferred Stock
--------------
("Series C Stock") issued by the Company to such Prior Investors pursuant to a
- ----------------
Series A Preferred Stock Purchase Agreement by and among the Company and the
Series A Stock Investors dated October 30, 1996 (the "Series A Agreement"),
------------------
pursuant to a Series B Preferred Stock Purchase Agreement by and between the
Company and the Series B Stock Investors dated October 20, 1997 (the "Series B
--------
Agreement") or pursuant to a Series C Preferred Stock Purchase Agreement by and
- ---------
among the Company and the Series C Stock Investors dated March 6, 1998, as
amended (the "Series C Agreement"). The Prior Investors have also been granted
------------------
certain information and registration rights, rights of first refusal and rights
of co-sale under a Fourth Restated and Amended Investor's Rights Agreement by
and among the Company and the Prior Investors dated January 11, 1999 (the "Prior
-----
Rights Agreement").
- ----------------
B. The Investors have agreed to purchase shares of the Series D Preferred
Stock ("Series D Stock"), and collectively with the Series A Stock, the Series B
--------------
Stock and the Series C Stock, the "Preferred Stock," pursuant to the Series D
----------------
Preferred Stock Purchase Agreement by and among the Company and such Investors
dated of even date herewith (the "Series D Agreement"). The Series D Agreement
------------------
provides that, as a condition to the Investors' purchase of shares of Series D
Stock thereunder, the Company will enter into this Agreement and the Investors
will be granted the rights set forth herein.
C. The Company and the undersigned parties hereto desire to enter into
this Agreement in order to amend, restate and replace their rights and
obligations under the Prior Rights Agreement with the rights and obligations set
forth in this Agreement. Section 6.2 of the Prior Rights Agreement provides
that the Prior Rights Agreement may be amended by the written consent of the
Company, the holders of a majority of the Founders' Shares and the holders of
two thirds of the Preferred Stock, voting together as a single class. The
undersigned parties to this Agreement constitute the parties necessary to amend
the Prior Rights Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. INFORMATION AND PARTICIPATION RIGHTS.
------------------------------------
1.1 Financial Information. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as any Investor holds at
least One Million (1,000,000) shares of Preferred Stock issued under the Series
A Agreement, the Series B Agreement, the Series C Agreement and/or the Series D
Agreement and/or the equivalent number (on an as-converted basis) of shares of
Common Stock of the Company (the "Common Stock") issued upon the conversion of
such shares of Preferred Stock ("Conversion Stock") the Company will:
----------------
(a) Annual Reports. Furnish to such Investor, as soon as
--------------
practicable and in any event within 120 days after the end of each fiscal year
of the Company, a consolidated Balance Sheet as of the end of such fiscal year,
a consolidated Statement of Income and a consolidated Statement of Cash Flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year (if any),
all prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants;
(b) Quarterly Reports. Furnish to such Investor as soon as
-----------------
practicable, and in any case within forty-five (45) days of the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited financial statements, including an unaudited Balance
Sheet, an unaudited Statement of Income and an unaudited Statement of Cash
Flows, all prepared substantially in accordance with generally accepted
accounting principles and practices.
(c) Monthly Reports. Furnish to such Investor within thirty (30)
---------------
days of the end of each month, an unaudited Statement of Income and Statement of
Cash Flows and Balance Sheet for and as of the end of such month, in reasonable
detail and substantially in the form provided to the Board of Directors.
(d) Annual Budget. Furnish to such Investor as soon as
-------------
practicable, but in any event at least thirty (30) days prior to the end of each
fiscal year, a budget and business plan for the next fiscal year, prepared on a
monthly basis, including balance sheets, income statements and statements of
cash flows for such months and, as soon as prepared, any other budgets or
revised budgets prepared by the Company.
(e) Inspection. The Company shall permit such Investor, at
----------
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor.
1.2 Attendance at Board Meetings. For so long as SAP America, Inc.
-----------------------------
("SAP") or entities affiliated with Enterprise Partners ("Enterprise") holds (of
--- ----------
record or beneficially) at least One Million (1,000,000) shares of Preferred
Stock and/or Conversion Stock (the "Minimum Amount"), SAP, if SAP holds the
--------------
Minimum Amount, or Enterprise, if Enterprise holds the Minimum Amount, or both
SAP and Enterprise, if both entities shall each hold the Minimum
2
<PAGE>
Amount shall, at the expense of such entity, be entitled to reasonable notice of
and to attend all meetings of the Board of Directors of the Company as an
observer; provided, however, that the Board of Directors may, without prior
-------- -------
notice, exclude SAP or Enterprise, as the case may be, from attending any part
of any meeting of the Board of Directors if the Board of Directors reasonably
determines that the matters being discussed or to be discussed during such part
of such meeting (i) are of such a competitively sensitive or confidential nature
that disclosure to SAP or Enterprise, as the case may be, could materially
affect the Company's business, plans, or relationships, or (ii) are subject to
the attorney-client privilege.
1.3 Board Participation. For so long as Enterprise holds (of record
-------------------
or beneficially) at least nine percent (9%) of the outstanding capital stock of
the Company, each Investor and Founder, upon the request of Enterprise, agrees
to vote such shares of capital stock of the Company owned by such Investor as
may be necessary to elect to the Board of Directors of the Company ( and
maintain in office for so long as Enterprise continues to own at least nine
percent (9%) of the outstanding capital stock of the Company) one (1) individual
designated in writing by Enterprise. For so long as at least a majority of the
shares of Series D Stock originally issued remain outstanding (subject to
appropriate adjustment for any stock splits, reverse stock split, stock
dividend, recapitalization or similar transaction), each Investor and Founder
agrees to vote such shares of capital stock of the Company owned by such
Investor as may be necessary to elect to the Board of Directors of the Company
one (1) individual designated in writing by Excelsior.
1.4 Confidentiality. Each Investor agrees to hold all information
---------------
received pursuant to this Section in confidence, and not to use or disclose any
of such information to any third party, except to the extent such information
may be made publicly available by the Company.
1.5 Termination of Certain Rights. The Company's obligations under
-----------------------------
this Section will terminate upon the closing of the Company's initial public
offering of Common Stock pursuant to an effective firmly underwritten
registration statement filed under the U.S. Securities Act of 1933, as amended
(the "Securities Act").
--------------
2. REGISTRATION RIGHTS.
-------------------
2.1 Definitions. For purposes of this Section 2:
-----------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Preferred Stock issued under the Series A
Agreement, the Series B Agreement, the Series C Agreement and/or the Series D
Agreement, that are now owned or may hereafter be acquired by any Investor or
any permitted successors and assigns of Investor; (2) for the purpose of this
Section 2, any shares of Common Stock now or hereafter held by the Founders (the
"Founders' Shares"); and (3) any shares of Common Stock of the Company issued as
----------------
(or issuable
3
<PAGE>
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (1) or
(2) of this subsection (b); excluding in all cases, however, any Registrable
---------
Securities sold by a person in a transaction in which rights under this Section
2 are not assigned in accordance with this Agreement or any Registrable
Securities sold to the public or sold pursuant to Rule 144 promulgated under the
Securities Act; provided, however, that notwithstanding anything herein to the
-------- -------
contrary, the Founder's Shares shall not be Registrable Securities for purposes
of Section 2.2 of this Agreement.
(c) Registrable Securities Then Outstanding. The number of shares of
---------------------------------------
"Registrable Securities Then Outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. The term "Holder" means any person owning of record
------ ------
Registrable Securities that have not been sold to the public or pursuant to Rule
144 promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
-------- -------
of this Agreement, a record holder of shares of Preferred Stock convertible into
such Registrable Securities shall be deemed to be the Holder of such Registrable
Securities; provided further, that Anurag Khemka shall be deemed a Holder only
-------- -------
for the purpose of this Section 2 and Ajay Jain shall be deemed a Holder only
for the purpose of Section 2 and 3; provided, further, that a holder of
-------- -------
Founders' Shares (as defined in Section 2.1(b)) shall not be a Holder with
respect to such Founders' Shares for purposes of Section 2.2 of this Agreement;
and provided, further, that the Company shall in no event be obligated to
-------- -------
register shares of Preferred Stock and that Holders of Registrable Securities
will not be required to convert their shares of Preferred Stock into Common
Stock in order to exercise the registration rights granted hereunder, until
immediately before the closing of the offering to which the registration
relates.
(e) SEC. The term "SEC" or "Commission" means the U.S. Securities and
--- --- ----------
Exchange Commission.
2.2 Demand Registration.
-------------------
(a) Request by Holders. If the Company shall receive at any time
------------------
after the earlier of (i) December 31, 2001, or (ii) six (6) months after the
effective date of the Company's initial public offering of its securities
pursuant to a registration filed under the Securities Act, a written request
from the Holders of a majority of the Registrable Securities (other than
Founders' Shares) then outstanding that the Company file a registration
statement under the Securities Act covering the registration of the Registrable
Securities pursuant to this Section 2.2, then the Company shall, within ten (10)
business days of the receipt of such request, give written notice of such
request ("Request Notice") to all Holders, and effect, as soon as practicable,
--------------
the registration under the Securities Act of all Registrable Securities (other
than Founders' Shares) which Holders request to be registered and included in
such registration by written notice given such Holders to the Company within
twenty (20) days after receipt of the
4
<PAGE>
Request Notice, subject only to the limitations of this Section 2.2; provided
--------
that the Registrable Securities (other than Founders' Shares) requested by all
Holders to be registered pursuant to such request must either (i) be at least
forty percent (40%) of all Registrable Securities (other than Founders' Shares)
then outstanding or (ii) have an anticipated aggregate public offering price
(before any underwriting discounts and commissions) of not less than $20,000,000
if such requested registration is the initial public offering of the Company's
stock registered under this Securities Act.
(b) Underwriting. If the Holders initiating the registration request
------------
under this Section 2.2 ("Initiating Holders") intend to distribute the
------------------
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of
any Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company and a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 2.2, if the underwriter(s) advise(s) the Company in writing that
marketing factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a pro rata basis according to the
number of Registrable Securities then outstanding held by each Holder requesting
registration (including the Initiating Holders); provided, however, that the
-------- -------
number of shares of Registrable Securities to be included in such underwriting
and registration shall not be reduced unless all other securities of the Company
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
--------------------------------------
to effect only two (2) such registrations pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
--------
furnish to Holders requesting the filing of a registration statement pursuant to
this Section 2.2, a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holders; provided, however, that
-------- -------
the Company may not utilize this right more than once in any twelve (12) month
period.
5
<PAGE>
(e) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities
(other than Founders' Shares) then outstanding agree to forfeit their right to
one (1) demand registration pursuant to this Section 2.2 (in which case such
right shall be forfeited by all Holders of Registrable Securities); provided,
--------
further, however, that if at the time of such withdrawal, the Holders have
- ------- -------
learned of a material adverse change in the condition, business, or prospects of
the Company not known to the Holders at the time of their request for such
registration and have withdrawn their request for registration with reasonable
promptness after learning of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding any registration statements relating to any employee
benefit plan or a corporate reorganization) and will afford each such Holder an
opportunity to include in such registration statement all or any part of the
Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If a registration statement under which the
------------
Company gives notice is for an underwritten offering, then the Company shall so
advise the Holders of Registrable Securities. In such event, the right of any
such Holder's Registrable Securities to be included in a registration pursuant
to this Section 2.3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the managing underwriter
or underwriter(s) selected for such underwriting.
6
<PAGE>
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
-----
Company, second, to each of the Investors requesting inclusion of their
------
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Investor,
and third, to each of the Founders requesting inclusion of their Registrable
-----
Securities in such registration statement on a pro rata basis based on the total
number of Registrable Securities then held by such Founder; provided, however,
that in each registration in which the Investors are permitted to include
Registrable Securities the Founders shall be permitted to sell no less than the
lesser of (i) that number of shares equal to the quotient obtained by dividing
$500,000 by the fair market value of a share included in such registration, such
shares to be allocated between Founders on a pro rata basis based on the total
number of Registrable Securities then held by each Founder, or (ii) the number
of shares of Registrable Securities that each Founder would be permitted to
include in such a registration if the Founders were eligible to participate in
the registration on a pro rata basis with the Investors. In no event shall the
amount of securities of the selling Holders included in the offering be reduced
below thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities, in which case the selling Holders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included in such offering. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter, delivered at least ten (10) business
days prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration. For any Holder which is a partnership or
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "Holder", and any pro rata reduction with respect to such "Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "Holder", as defined in this
sentence.
(b) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4 Obligations of the Company. Whenever required under this Section
--------------------------
2 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred
7
<PAGE>
twenty (120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdiction as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when prospectus relating thereto is required
to be delivered under the Securities Act or the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
2.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 2.2 or 2.3
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to timely effect the
registration of their Registrable Securities.
2.6 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
8
<PAGE>
2.7 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 2:
(a) By the Company. To the extent permitted by law, the Company
--------------
will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 Act"), against any losses, claims, damages, or
--------
liabilities (joint or several) to which they may become subject under the
Securities Act, the l934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue
statement of a material fact contained in such
registration statement, including any preliminary
prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein,
or necessary to make the statements therein not
misleading, or
(iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any
federal or state securities law or any rule or
regulation promulgated under the Securities Act, the
1934 Act or any federal or state securities law in
connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
-------- -------
indemnity agreement contained in this subsection 2.7(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
------------------
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act,
9
<PAGE>
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Holder, partner or director, officer or controlling person of such
other Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
-------- -------
in this subsection 2.7(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and provided further, that the total amounts payable in indemnity by a
-------- -------
Holder in respect of any Violation shall not exceed the net proceeds received by
such Holder in the registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party of notice
------
of the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
-------- -------
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 2.7, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Agreement.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
-------------------------------------
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the amended prospectus
filed with the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus"), such
-----------------
indemnity agreement shall not inure to the benefit of any person if a copy of
the Final Prospectus was furnished to the indemnified party and was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder
10
<PAGE>
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 2.7, but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Agreement provides for indemnification
in such case, or (ii) contribution under the Securities Act may be required on
the part of any such selling Holder or any such controlling person in
circumstances for which indemnification is provided under this Agreement; then,
and in each such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such Holder is
responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
-------- -------
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such registration statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under
--------
this Section 2.7 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
(g) Underwriting Agreement. Notwithstanding the foregoing, to
----------------------
the extent that provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering conflict with the foregoing provisions of this Section, the provisions
in the underwriting agreement shall control.
2.8 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell, lend, offer, pledge, contract to sell, sell any
option or contract to purchase, purchase any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that:
- -------- -------
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all officers and directors of the Company then holding
Common Stock of the Company and all greater than 10% stockholders of the Company
enter into similar agreements.
11
<PAGE>
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
and to impose stop transfer instructions with respect to the Registrable
Securities and such other shares of stock of each Holder (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
2.9 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the 1934 Act (at any time after it has become
subject to the reporting requirements of the 1934 Act), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the 1934 Act).
2.10 Termination of the Company's Obligations. The Company shall
----------------------------------------
have no obligations pursuant to Sections 2.2 or 2.3 with respect to any
Registrable Securities proposed to be sold by a Holder in a registration
pursuant to Sections 2.2 or 2.3 if, in the opinion of counsel to the Company,
all such Registrable Securities proposed to be sold by a Holder may be sold in a
three-month period without registration under the Securities Act pursuant to
Rule 144 under the Securities Act.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 General. Each Holder (as defined in Section 2.1(d)) and any
-------
party to whom such Holder's rights under this Section 3 have been duly assigned
in accordance with Section 4.1(b) (each such Holder or assignee being
----
hereinafter referred to as a "Rights Holder") has the right of first refusal to
-------------
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 3.2) that the Company may
from time to time issue after the date of this Agreement. A Rights Holder's
"Pro Rata Share" for
--------------
12
<PAGE>
purposes of this right of first refusal is the ratio of (a) the number of shares
of Registrable Securities as to which such Rights Holder is the Holder (and/or
is deemed to be the Holder under Section 2.1(d)), to (b) a number of shares of
Common Stock of the Company equal to the sum of (i) the total number of shares
of Common Stock of the Company then outstanding plus (ii) the total number of
shares of Common Stock of the Company into which all then outstanding shares of
Preferred Stock of the Company are then convertible.
3.2 New Securities. "New Securities" shall mean any Common Stock or
-------------- --------------
Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
-------- -------
the term "New Securities" does not include:
---- --- -------
(i) shares of the Company's Common Stock issuable to employees,
officers, directors, contractors, advisors or consultants of the Company
pursuant to incentive agreements or plans approved by the Board of Directors of
the Company;
(ii) any securities issuable upon conversion of or with respect
to any then outstanding shares of Preferred Stock of the Company or Common Stock
or other securities issuable upon conversion thereof;
(iii) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company (not described in
subsection 3.2(i)) outstanding on the date of this Agreement ("Warrant
-------
Securities") and any securities issuable upon the conversion of any Warrant
- ----------
Securities;
(iv) shares of the Company's Common Stock or preferred stock
issued in connection with any stock split or stock dividend;
(vi) shares of the Company's Common Stock (and/or options or
warrants therefor) issued or issuable to parties providing the Company with
equipment leases, real property leases, loans, credit lines, guaranties of
indebtedness, cash price reductions or similar financing, (if in transactions
with primarily non-equity financing purposes) under arrangements approved by the
Board; or
(vii) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
3.3 Procedures. In the event that the Company proposes to undertake
----------
an issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "Notice"), describing the
------
type of New Securities and the price and the general terms upon which the
Company proposes to issue such New Securities. Each Rights
13
<PAGE>
Holder shall have twenty (20) days from the date of receipt of any such Notice
to agree in writing to purchase such Rights Holder's Pro Rata Share of such New
Securities for the price and upon the general terms specified in the Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share).
If any Rights Holder fails to so agree in writing within such twenty (20) day
period to purchase such Rights Holder's full Pro Rata Share of an offering of
New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
--------------------
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his full Pro
Rata Share of such offering of New Securities (a "Purchasing Holder") written
-----------------
notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing
Rights Holder's full Pro Rata Share of such offering of New Securities (the
"Overallotment Notice"). Each Purchasing Holder shall have a right of
--------------------
overallotment such that such Purchasing Holder may agree to purchase a portion
of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within ten (10) days after receiving the
Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders fail
-------------------
to exercise in full the right of first refusal within such twenty (20) plus ten
(10) day period, then the Company shall have ninety (90) days thereafter to sell
the New Securities with respect to which the Rights Holders' rights of first
refusal hereunder were not exercised, at a price and upon general terms not
materially more favorable to the purchasers thereof than specified in the
Company's Notice to the Rights Holders. In the event that the Company has not
issued and sold the New Securities within such ninety (90) day period, then the
Company shall not thereafter issue or sell any New Securities without again
first offering such New Securities to the Rights Holders pursuant to this
Section 3.
3.5 Termination. This right of first refusal shall terminate (i)
-----------
immediately before the closing of the first firmly underwritten sale of Common
Stock of the Company to the public pursuant to a registration statement filed
with, and declared effective by, the SEC under the Securities Act at a public
offering price of not less than $20,000,000 in the aggregate; or (ii) upon (a)
the acquisition of all or substantially all the assets of the Company or (b) an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the parent corporation or other entity surviving such
transaction pursuant to this Section 3.
4. COMPANY RIGHT OF FIRST REFUSAL. Before any Preferred Stock held by
------------------------------
Investor or any transferee of such Preferred Stock (either being sometimes
referred to herein as the "Holder") may be sold or otherwise transferred, the
------
Company will have a right of first refusal to purchase the Preferred Stock to be
sold or transferred (the "Offered Stock") on the terms and conditions set forth
-------------
in this Section (the "Company Right of First Refusal").
------------------------------
14
<PAGE>
(a) Notice of Proposed Transfer. The Holder of the Preferred Stock
---------------------------
will deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide intention to sell or otherwise transfer the Offered Stock;
(ii) the name of each proposed Purchaser or other transferee ("Proposed
--------
Transferee"); (iii) the number of shares of Offered Stock to be transferred to
- ----------
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Stock (the "Offered
-------
Price"); and (v) that the Holder will offer to sell the Offered Stock to the
- -----
Company at the Offered Price as provided in this Section.
(b) Exercise of Company Right of First Refusal. At any time within
------------------------------------------
thirty (30) days after the date of the Notice, the Company may, by giving
written notice to the Holder (the "Exercise Notice"), elect to purchase all (but
---------------
not less than all) of the Offered Stock proposed to be transferred to any one or
more of the Proposed Transferees named in the Notice, at the purchase price
determined in accordance with subsection (c) below.
(c) Purchase Price. The purchase price for the Offered Stock
--------------
purchased under this Section will be the Offered Price. If the Offered Price
includes consideration other than cash, then the value of the non-cash
consideration as determined in good faith by the Company's Board of Directors
will conclusively be deemed to be the cash equivalent value of such non-cash
consideration.
(d) Payment. Payment of the purchase price for Offered Stock will be
-------
payable, at the option of the Company and/or its assignee(s) (as applicable), by
check or by cancellation of all or a portion of any outstanding indebtedness of
the Holder to the Company or by any combination thereof. The purchase price
will be paid without interest and the closing shall be held within ten (10)
business days following the delivery of the Exercise Notice.
(e) Holder's Right to Transfer. In the event the Exercise Notice is
--------------------------
not given to Investor prior to the expiration of the thirty (30) day exercise
period, then the Holder may sell or otherwise transfer such Offered Stock 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: (i) any such sale or other transfer
-------- -------
is effected in compliance with all applicable securities laws; and (ii) the
Proposed Transferee agrees in writing that the provisions of this Section will
continue to apply to the Offered Stock in the hands of such Proposed Transferee.
If the Offered Stock described in the Notice is not transferred to the Proposed
Transferee within such 120 day period, then a new Notice must be given to the
Company, and the Company will again be offered the Right of First Refusal before
any Preferred Stock held by the Holder may be sold or otherwise transferred.
(f) Exempt Transfers. Notwithstanding anything to the contrary in
----------------
this Section, the following transfers of Preferred Stock will be exempt from the
Company Right of First Refusal: (i) the transfer of any or all of the Preferred
Stock during Investor's lifetime by gift or on Investor's death by will or
intestacy to Investor's "immediate family" (as defined below) or to a trust for
the benefit of Investor or Investor's immediate family, provided that each
transferee or other recipient agrees in a writing satisfactory to the Company
that the provisions of this Section will continue to apply to the transferred
Preferred Stock in the hands of such transferee or
15
<PAGE>
other recipient; (ii) any transfer of Preferred Stock made pursuant to a
statutory merger or statutory consolidation of the Company with or into another
corporation or corporations (except that the Company Right of First Refusal will
continue to apply thereafter to such Preferred Stock, in which case the
surviving corporation of such merger or consolidation shall succeed to the
rights or the Company under this Section unless the agreement of merger or
consolidation expressly otherwise provides); (iii) any transfer of Preferred
Stock pursuant to the winding up and dissolution of the Company; or (iv) any
transfer to an entity affiliated with the Investors or distribution from such
funds to any general partners, limited partners shareholders or members. As used
herein, the term "immediate family" will mean Investor's spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister, adopted child or
grandchild, or the spouse of any child, adopted child, grandchild or adopted
grandchild of Investor.
(g) Termination of Company Right of First Refusal. The Company Right
---------------------------------------------
of First Refusal will terminate as to all Preferred Stock on the effective date
of 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 SEC under
the 1933 Act (other than a registration statement relating solely to the
issuance of common stock pursuant to a business combination or an employee
incentive or benefit plan).
(h) Encumbrances on Preferred Stock. Investor may grant a lien or
-------------------------------
security interest in, or pledge, hypothecate or encumber Preferred Stock only if
each party to whom such lien or security interest is granted, or to whom such
pledge, hypothecation or other encumbrance is made, agrees in a writing
satisfactory to the Company that: (i) such lien, security interest, pledge,
hypothecation or encumbrance will not apply to such Preferred Stock after they
are acquired by the Company and/or its assignees) under this Section; and (ii)
the provisions of this Section will continue to apply to such Preferred Stock in
the hands of such party and any transferee of such party. Investor may not
grant a lien or security interest in, or pledge, hypothecate or encumber, any
Preferred Stock.
5. RIGHT OF CO-SALE.
----------------
5.1 Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the following meanings:
(a) "Stock" for purposes of this section, means and includes all
-----
shares of Common Stock issued and outstanding at the relevant time plus (a) all
shares of Common Stock that may be issued upon exercise of any options, warrants
and other rights of any kind that are then exercisable, and (b) all shares of
Common Stock that may be issued upon conversion of (i) any convertible
securities, including, without limitation, Preferred Stock and debt securities
then outstanding, which are by their terms then convertible into or exchangeable
for Common Stock or (ii) any such convertible securities issuable upon exercise
of outstanding options, warrants or other rights that are then exercisable.
(b) "Offered Stock" for purposes of this section, means all Stock
-------------
proposed to be Transferred by a Founder.
16
<PAGE>
(c) "Transfer" and "Transferred" for purposes of this section, means
-------- -----------
and includes any sale, assignment, encumbrance, hypothecation, pledge,
conveyance in trust, gift, transfer by bequest, devise or descent, or other
transfer or disposition of any kind, including but not limited to transfers to
receivers, levying creditors, trustees or receivers in bankruptcy proceedings or
general assignees for the benefit of creditors, whether voluntary or by
operation of law, directly or indirectly, except for:.
------ ---
(i) any transfers of Stock by gift during a Founder's lifetime or
on a Founder's death by will or intestacy to such Founder's "immediate family"
(as defined below) or to a trust for the benefit of Founder or Founder's
immediate family, provided that each transferee or other recipient executes a
counterpart copy of this Agreement and becomes bound thereby as a Founder. For
purposes of this Agreement, the term "immediate family" means Founder's spouse,
----------------
lineal descendant (whether natural or adopted) or antecedent, brother or sister,
or the spouse of any of the foregoing; and
(ii) any transfer of Stock by a Founder made: (i) pursuant to a
statutory merger or statutory consolidation of the Corporation with or into
another corporation or corporations; (ii) pursuant to the winding up and
dissolution of the Corporation; or at, and pursuant to, an IPO.
(d) "IPO" for purposes of this section, means the first sale of the
---
Corporation's Common Stock for at least $2.13 per share to the general public
pursuant to a registration statement under the 1933 Act in which the gross
proceeds to the Corporation (without reduction for underwriter's discounts and
commissions or expenses of the sale), equals or exceeds $20,000,000.
5.2 Notice Of Proposed Transfer. Before any Founder may effect any
---------------------------
Transfer of any Stock, such Founder (the "Selling Founder") must give at the
---------------
same time to the Company and the Investors a written notice signed by the
Selling Founder (the "Selling Founder's Notice") stating (a) the Selling
------------------------
Founder's bona fide intention to transfer such Offered Stock; (b) the number of
shares of Offered Stock proposed to be transferred to each proposed purchaser or
other transferee ("Proposed Transferee"); (c) the name, address and
-------------------
relationship, if any, to the Selling Founder of each Proposed Transferee; and
(d) the bona fide cash price or, in reasonable detail, other consideration, per
share for which the Selling Founder proposes to transfer such Offered Stock to
each Proposed Transferee (the "Offered Price"). Upon the request of the
-------------
Corporation or any Investor, the Founder will promptly furnish to the
Corporation and to the Investors such other information as may be reasonably
requested to establish that the offer and Proposed Transferee(s) are bona fide.
5.3 Right of Co-Sale. To the extent the Company does not exercise
----------------
its right of first refusal in Section 2 of those certain Investment
Representation Agreements dated August 15, 1996 by and between the Company and
each of the Founders as to all of the Offered Stock, then each Investor will
have the right to participate in the sale of any Offered Stock not sold to the
Corporation or to the Investors (the "Remaining Offered Stock") in the manner
-----------------------
set forth herein (the "Right of Co-Sale"). Pursuant to this Section 5, each
----------------
Investor may transfer to the Proposed Transferee(s) identified in the Selling
Founder's Notice such Investor's Pro Rata Share of the
17
<PAGE>
Remaining Offered Stock by giving written notice to the Selling Founder within
fifteen (15) days after the date of the Selling Founder's Notice; specifying the
number of shares and type of Stock that such Investor desires to transfer to
each Proposed Transferee by exercising the Right of Co-Sale. For purposes of
this Section 5, an Investor's "Pro Rata Share" will be defined as a fraction,
--------------
the numerator of which is the number of shares of Stock then owned by such
Investor, and the denominator of which is the number of shares of Stock then
owned by all Investors having a Right of Co-Sale hereunder plus the number of
shares of Stock held by the Selling Founder who proposes the Transfer. The Right
of Co-Sale shall expire upon the IPO.
5.4 Consummation of Co-Sale. Each Investor, in exercising the Right
-----------------------
of Co-Sale, may effect such Investor's participation in such Transfer by
delivering to the Selling Founder at the closing of the transfer of Offered
Stock to such transferee (the "Closing") one or more certificates, properly
-------
endorsed for Transfer, representing such Stock to be Transferred by such
Investor. At the Closing, such certificates or other instruments will be
transferred and delivered to the Proposed Transferee(s) set forth in the Selling
Founder's Notice in consummation of the transfer of the Offered Stock pursuant
to the terms and conditions specified in the Selling Founder's Notice, and the
Founder will remit, or will cause to be remitted, to Investor within seven (7)
days after such Closing that portion of the proceeds of the Transfer to which
Investor is entitled by reason of such Investor's participation in such transfer
pursuant to the Right of Co-Sale.
5.5 Prohibited Transfers.
--------------------
(a) In the event a Founder should sell any Founders' Shares (the
"Selling Founder") in contravention of the Right of Co-Sale of the Investors
---------------
under this Agreement (a "Prohibited Transfer"), each Investor, in addition to
-------------------
such other remedies as may be available at law, in equity or hereunder, shall
have the put option provided below, and the Selling Founder shall be bound by
the applicable provisions of such option.
(b) In the event of a Prohibited Transfer, each Investor shall
have the right to sell to the Selling Founder the type and number of shares of
Common Stock (either directly or through delivery of Preferred Stock) equal to
the number of shares each Investor would have been entitled to transfer to the
purchaser had the Prohibited Transfer under Section 5.3 hereof been effected
pursuant to and in compliance with the terms hereof. Such sale shall be made on
the following terms and conditions:
(i) The price per share at which the shares are to be sold
to the Selling Founder shall be equal to the price per share paid
by the purchaser to the Selling Founder in the Prohibited
Transfer. The Selling Founder shall also reimburse each Investor
for any and all fees and expenses, including legal fees and
expenses, incurred pursuant to the exercise or the attempted
exercise of the Investor's rights under Section 5.3.
(ii) Within 90 days after the later of the dates on which
the Investor (a) received notice of the Prohibited Transfer or
(b) otherwise became aware of the Prohibited Transfer, each
Investor shall, if exercising
18
<PAGE>
the option created hereby, deliver to the Selling Founder the
certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(iii) The Selling Founder shall, upon receipt of the
certificate or certificates for the shares to the sold by an
Investor, pursuant to this subparagraph 5.5(b), pay the aggregate
purchase price therefor and the amount of reimbursable fees and
expenses, as specified in subparagraph 5.5(b)(i), in cash or by
other means acceptable to the Investor.
(iv) Notwithstanding the foregoing, any attempt by a Selling
Founder to transfer Founders' Shares in violation of section 5.3
hereof shall be void and the Company agrees it will not effect
such a transfer nor will it treat any alleged transferee as the
holder of such shares without the written consent of a majority
in interest of the Investors.
6. ASSIGNMENT AND AMENDMENT.
------------------------
6.1 Assignment. Notwithstanding anything herein to the contrary:
----------
(a) Information Rights. The rights of an Investor under Section
------------------
1 hereof may be assigned only to a party who acquires from an Investor (or an
Investor's permitted assigns) at least 1,000,000 shares of Preferred Stock
and/or an equivalent number (on an as-converted basis) of shares of Conversion
Stock.
(b) Registration Rights; Refusal Rights. The registration
-----------------------------------
rights of a Holder under Section 2 hereof and the rights of first refusal of a
Rights Holder under Section 3 hereof may be assigned only to a party who
acquires at least 250,000 shares of Preferred Stock and/or an equivalent number
(on an as-converted basis) of Registrable Securities issued upon conversion
thereof; provided, however that no such assignment shall be effective until the
-------- -------
Company receives written notice from the assigning party stating the name and
address of the assignee and identifying the securities of the Company as to
which the rights in question are being assigned; and provided further that any
-------- -------
such assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 4.
6.2 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors (and/or any of their permitted
successors or assigns) holding 662/3% of the shares of Preferred Stock and/or
Conversion Stock, provided, however, that the piggyback registration rights
granted to the Founders under Section 2 of this Agreement may not be eliminated
or materially and adversely changed without the written consent of persons
holding a majority of the Founders' Shares and, provided, further, that no
-------- -------
provision of this Agreement affecting the rights of the holders of Series D
Stock may be amended or waived without the written consent of the majority
19
<PAGE>
of the holders of shares of Series D Stock and/or shares of Common Stock of the
Company issued upon the conversion of shares of Series D Stock.
7. GENERAL PROVISIONS.
------------------
7.1 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, (a) if to an Investor
at such Investor's address set forth in Exhibit A, or at such other address as
---------
such Investor shall have furnished to the Company in writing, (b) if to the
Company at 160 Saratoga Avenue, Suite 38, Santa Clara, CA 95051 and addressed to
the Corporate Secretary or at such other address as the Company shall have
furnished to the Investors, (c) if to a Founder, as follows at such founder's
address set forth in Exhibit B, or at such other address as such Founder shall
---------
have furnished to the Company in writing. Any party hereto (and such party's
permitted assigns) may by notice so given change its address for future notices
hereunder. Notice shall conclusively be deemed to have been given when
personally delivered or when deposited in the mail in the manner set forth
above.
7.2 Entire Agreement. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes the Prior
Rights Agreement and any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties respecting the subject
matter hereof. This Agreement will amend and restate the Prior Rights Agreement
to read as set forth herein, when it has been duly executed by parties having
the right to so amend and restate the Prior Rights Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California, excluding that body of law relating to
conflict of laws and choice of law.
7.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
7.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
7.6 Successors And Assigns. Subject to the provisions of Section 4.1,
----------------------
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
20
<PAGE>
7.7 Captions. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
7.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.9 Costs And Attorneys' Fees. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
7.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement
----------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
7.11 Aggregation of Stock. All shares held or acquired by affiliated
--------------------
entities, partners (limited and unlimited), affiliates or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
7.12 Prior Rights Agreement Superseded. Pursuant to Section 6.2 of
---------------------------------
the Prior Rights Agreement, the undersigned parties who are parties to such
Prior Rights Agreement hereby amend and restate the Prior Rights Agreement to
read in its entirety as set forth in this Agreement, all with the intent and
effect that the Prior Rights Agreement shall be hereby terminated and entirely
replaced and superseded by this Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY:
MarketFirst Software, Inc.
By: ____________________________________
Peter Tierney , Chief Executive Officer
FOUNDERS:
________________________________ ________________________________
Anurag Khemka Ajay Jain
INVESTORS:
________________________________ ________________________________
Rajesh Popli Sudha Popli
________________________________ ________________________________
Leslie Murdock Kevin Calderwood
________________________________ ________________________________
Raghu Mendu N.C. Murthy
________________________________ ________________________________
Dave Simbari Nimish Mehta
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
<PAGE>
INVESTORS (cont'd):
Susan Jackson Trust
_________________________________
Chris Roon By:_________________________________
Name: ______________________________
Title:______________________________
Robert C. Fitzwilson Trust DLJ Capital Corporation
By:______________________________ By:_________________________________
Name:____________________________ Alex Rosen
Title:___________________________ Attorney-in-Fact
Terence J. Garnett and Katrina A. SPROUT CEO FUND, L.P.
Garnett Trustees of The Garnett
Family Trust U/D/T 4/2/97 By: DLJ Capital Corporation
Its: General Partner
By:______________________________
Terence Garnett
By:______________________________ By:_________________________________
Katrina Garnett Alex Rosen
Attorney-in-Fact
DLJ ESC II, L.P. SPROUT CAPITAL VIII, L.P.
By: DLJ LBO Plans Management Corporation By: DLJ Capital Corporation
Its: General Partner Its: General Partner
By:______________________________ By:_________________________________
Alex Rosen Alex Rosen
Attorney-in-Fact Attorney-in-Fact
SPROUT CAPITAL VII, L.P. SPROUT VENTURE CAPITAL, L.P.
By: DLJ Capital Corporation By: DLJ Capital Corporation
Its: Managing General Partner Its: General Partner
By:______________________________ By:_________________________________
Alex Rosen Alex Rosen
Attorney-in-Fact Attorney-in-Fact
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
<PAGE>
INVESTORS (cont'd):
ENTERPRISE PARTNERS IV, L.P. ENTERPRISE PARTNERS IV
ASSOCIATES, L.P.
By: William R. Stensrud By: William R. Stensrud
Its: General Partner Its: General Partner
By:_________________________________ By:_________________________________
William R. Stensrud William R. Stensrud
General Partner General Partner
____________________________________ ____________________________________
Madhavan Rangaswami Sunil Wadhwani
____________________________________ ____________________________________
Constantin Delivanis Ashok Trivedi
____________________________________ ____________________________________
Neil R. Hammer Marc Burch
SAP AMERICA, INC.
By:_________________________________ ____________________________________
Name:_______________________________ Charles Phillips
Title:
____________________________________ ____________________________________
Peter Tierney Ray Rike
SIPPL INVESTMENTS
By:_________________________________
Name:_______________________________
Title:______________________________
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
<PAGE>
INVESTORS (cont'd):
EXCELSIOR PRIVATE EQUITY FUND II, INC.
By:____________________________________
Name: Douglas A. Lindgren
Title: Chief Investment Officer
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
2
<PAGE>
Seligman New Technologies Fund, Inc.
By J. & W. Seligman & Co. Incorporated,
its investment adviser
By _________________________________
Name:
Title:
Seligman Investment Opportunities Master
Fund * NTV Portfolio
By J. & W. Seligman & Co. Incorporated,
its investment adviser
By _________________________________
Name:
Title:
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
3
<PAGE>
WINFIELD CAPITAL CORP.
By:____________________________
(Signature)
Print Name:____________________
Print Title:___________________
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
4
<PAGE>
WHEATLEY PARTNERS II, L.P.
By:_____________________________
(Signature)
Print Name:_____________________
Print Title:____________________
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
5
<PAGE>
__________________________________
Patrick McCloskey
__________________________________
Tom Sullivan
__________________________________
Robert Salvagno
__________________________________
Kevin Bauer
__________________________________
James Socas
__________________________________
Pat Fallon
__________________________________
Joe Farley
__________________________________
Janice Ingram
__________________________________
Louis Klevan
__________________________________
David Hurwitz
__________________________________
Duncan Poole
[Signature Page to Fifth Restated and Amended Investor's Rights Agreement]
6
<PAGE>
EXHIBIT A
List of Investors
-----------------
<TABLE>
<CAPTION>
Name and Address Series A Stock Series B Stock Series C Stock Series D Stock
- ---------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Rajesh Popli 2,000,000
Sudha Popli
c/o RP Accord Systems, Inc.
3845 Beacon Avenue, Suite B
Fremont, CA 94536
Leslie Murdock 40,000 11,000
4677 Old Ironside Drive
Suite 445
Santa Clara, CA 95054
Raghu Mendu 100,000
26710 Fon du Lac Road
Rancho Palos Verdes, CA 90275
Chris Roon 100,000
311 Concord
Menlo Park, CA 94025
Robert C. Fitzwilson Trust 250,000 61,100
c/o The Portola Group
3000 Sand Hill Road, #2-145
Menlo Park, CA 94025
Susan Jackson Trust 250,000 61,100
c/o The Portola Group
3000 Sand Hill Road, #2-145
Menlo Park, CA 94025
Kevin Calderwood 100,000
1256 Totenham Court
Reston, VA 20194
Nimish Mehta 100,000
c/o Oracle Corporation
500 Oracle Pkwy., M/S 3op7
Redwood Shores, CA 94065
Dave Simbari 200,000
50 Furnace Woods Road
Peekskill, NY 10566
</TABLE>
<PAGE>
List of Investors (cont'd)
<TABLE>
<CAPTION>
Name and Address Series A Stock Series B Stock Series C Stock Series D Stock
- ---------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Terry and Katrina Garnett 1,000,000 735,294
c/o CrossRoads Software
577 Airport Blvd., #800
Burlingame, CA 94010
N.C. Murthy 100,000 73,530
390 Vista Oak Drive
Longwood, FL 32779
DLJ Capital Corporation 116,029 41,259
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
DLJ First ESC L.L.C. 441,176
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
DLJ ESC II, L.P. 394,271 297,074
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Sprout Capital VII, L.P. 4,511,042 1,604,073
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Sprout CEO Fund, L.P. 85,480 30,396
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Sprout Capital VIII, L.P. 3,629,572 1,290,632
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Sprout Venture Capital, L.P. 217,775 77,438
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
</TABLE>
2
<PAGE>
List of Investors (cont'd)
<TABLE>
<CAPTION>
Name and Address Series A Stock Series B Stock Series C Stock Series D Stock
- ---------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Neil R. Hammer 73,528
432 Mariner Drive
Jupiter, Florida 34377
Sunil Wadhwani 183,824
c/o Mastech
1004 Mckee Rd.
Oakdale, PA 15071
Ashok Trivedi 183,824
c/o Mastech
1004 Mckee Rd.
Oakdale, PA 15071
Madhavan Rangaswami 140,932
c/o The Sand Hill Group
21099 Red Fir Court
Cupertino, CA 95014
Constantin Delivanis 140,932
c/o The Sand Hill Group
21099 Red Fir Court
Cupertino, CA 95014
SAP America, Inc. 3,676,472 938,967
701 Lee Street, Suite 200
Wayne, PA 19087
Marc Burch 183,823
P.O. Box IL
Los Gatos, CA 95031
Charles Phillips 36,764
c/o Morgan Stanley
1585 Broadway, 14th Fl.
New York, N.Y. 10036
Enterprise Partners IV, L.P. 4,397,060 1,563,540
5000 Birch Street, Ste 6200
Newport Beach, CA 92660
Enterprise Partners IV 382,353 135,960
Associates, L.P.
5000 Birch Street, Ste 6200
Newport Beach, CA 92660
</TABLE>
3
<PAGE>
List of Investors (cont'd)
<TABLE>
<CAPTION>
Name and Address Series A Stock Series B Stock Series C Stock Series D Stock
- ---------------- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Sippl Investments 147,059 36,500
4600 Bohannon Drive
Suite 110
Menlo Park, CA 94025
Peter Tierney 91,912 20,300
143 Gilmartin Drive
Tiburon, CA 94920
Ray Rike 39,706
275 San Benito Way
San Francisco, CA 94127
Excelsior Private Equity Fund II, Inc. 4,694,407
Attn: Douglas A. Lindgren
114 West 47th Street
New York, NY 10036
Winfield Capital Corporation 938,881
237 Mamoroneck Ave.
White Plains, NY 10605
Wheatley Partners II, L.P. 938,881
80 Cutter Mill Road, Suite 311
Great Neck, NY 11021
Seligman New Technologies Fund, Inc. 1,534,980
c/o J.W. Seligman & Co. Inc.
100 Park Avenue
New York, NY 10017
Seligman Investment Opportunities 1,000,000
Master Fund* NTV Portfolio
c/o J.W. Seligman & Co. Inc.
100 Park Avenue
New York, NY 10017
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Patrick McCloskey 4,694
DLJ
277 Park Avenue - 14th Floor
New York, NY 10172
Tom Sullivan 4,694
DLJ
3000 Sand Hill Road
Building 3, Suite 190
Menlo Park, CA 94025
Robert Salvagno 4,694
DLJ
3000 Sand Hill Road
Building 3, Suite 190
Menlo Park, CA 94025
Kevin Bauer 4,694
DLJ
600 California Street - 15th Floor
San Francisco, CA 94108
James Socas 18,779
DLJ
600 California Street - 15th Floor
San Francisco, CA 94108
Pat Fallon 4,694
DLJ
277 Park Avenue - 35th Floor
New York, NY 10172
Joe Farley 18,779
DLJ
277 Park Avenue - 12th Floor
New York, NY 10172
Janice Ingram 4,694
DLJ
277 Park Avenue - 14th Floor
New York, NY 10172
Louis Klevan 4,694
DLJ
277 Park Avenue - 14th Floor
New York, NY 10172
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
David Hurwitz 4,694
DLJ
277 Park Avenue - 14th Floor
New York, NY 10172
Duncan Poole 56,338
USWeb/CKS
10260 Bradley Drive
Cupertino, CA 95014
Totals 2,040,000 2,200,000 19,882,358 15,407,936
</TABLE>
7
<PAGE>
EXHIBIT B
List of Founders
----------------
<TABLE>
<CAPTION>
Name and Address Common Stock
- --------------------------------- ----------------------------
<S> <C>
Anurag Khemka 3,852,000
1993 Monroe Street
Santa Clara, CA 95050
Ajay Jain 2,000,000
1209 Clear Lake Court
Milpitas, CA 95035
Total 5,852,000
</TABLE>
<PAGE>
EXHIBIT 4.3
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE SERIES D PREFERRED STOCK
OF
MARKETFIRST SOFTWARE, INC.
No. D-1 Expiration Date: September 15, 2004
THIS WARRANT CERTIFIES THAT, in consideration of services provided and
pursuant to that certain Series D Stock Purchase Agreement dated as of September
15, 1999 (the "Purchase Agreement") between Donaldson Lufkin & Jenrette
------------------
Securities Corporation (the "Holder") and MarketFirst Software, Inc., a Delaware
------
corporation (the "Company" or "MarketFirst"), with principal offices at 485
------- -----------
Clyde Avenue, Mountain View, California 94043 and subject to all the terms and
conditions of this Warrant, Holder is entitled to purchase up to 301,719 fully
paid and nonassessable shares of the Series D Preferred Stock of the Company
(the "Shares") at the price of $1.065 per share (the "Purchase Price") upon
------ --------------
surrender of this Warrant at the principal office of the Company, together with
a duly executed notice of exercise in a form similar to Appendix 1 attached
----------
hereto. This Warrant will be exerciseable, in whole only, at any time, on any
business day following September 15, 1999, provided that this Warrant must be
exercised, if at all, before the earliest to occur of (a) the closing of an
Acquisition of the Company, (b) the closing of the Company's initial public
offering, or (c) 5:00 p.m. Pacific Time on September 15, 2004 (the "Expiration
----------
Date"). For the purpose of this Warrant, "Acquisition" means any sale, license,
- ---- -----------
or other disposition of all or substantially all of the assets of the Company,
or any reorganization, consolidation, or merger of the Company where the holders
of
<PAGE>
the Company's securities before the transaction beneficially own less than 50%
of the outstanding voting securities of the surviving entity after the
transaction. Unless the context otherwise requires, as used herein the term
"Warrant" as used herein, shall include this Warrant and any warrants that may
be delivered in substitution or exchange therefor as provided herein.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Holder shall also deliver
----------
to the Company a check for the aggregate Purchase Price for the Shares being
purchased.
1.2 Escrow. As security for Holder's faithful performance of this
------
Warrant, Holder agrees, immediately upon receipt of the Warrant, to deliver such
Warrant(s) to the Secretary of the Company or other designee of the Company (the
"Escrow Holder"), who is hereby appointed to hold Warrant(s) in escrow and to
take all such actions and to effectuate all releases of such Warrants as are in
accordance with the terms herein. Escrow Holder will act solely for the Company
as its agent and not as a fiduciary. Holder and the Company agree that Escrow
Holder will not be liable to any party to this Warrant (or to any other party)
for any actions or omissions unless Escrow Holder is grossly negligent or
intentionally fraudulent in carrying out the duties of Escrow Holder under the
terms of this Warrant. Escrow Holder may rely upon any letter, notice or other
document executed with any signature purported to be genuine and may rely on the
advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Warrant. The Shares will be released from
escrow upon exercise of the Warrant.
1.3 Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
----------------------------
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2
<PAGE>
2.2 Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Certificate of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the number of securities issuable upon exercise of
the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
---------------------------------
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Purchase Price shall be proportionately increased.
2.4 No Impairment. The Company shall not, by amendment of its
-------------
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment.
2.5 Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full Share.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder that all Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, by duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances created by the Company except for restrictions on transfer
provided for herein or under applicable federal and state securities laws.
3.2 Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all
3
<PAGE>
notices or other written communications to the shareholders of the Company, and
(b) within ninety (90) days after the end of each fiscal year of the Company,
the annual audited financial statements of the Company certified by independent
public accountants of recognized standing.
3.3 Notification of Holder. Company agrees that it will notify
----------------------
Holder at least thirty (30) days in advance of the proposed consummation of any
pending acquisition of the Company or public offering of its shares.
ARTICLE 4. MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable, in
--------------------------
whole at any time and from time to time on or before the Expiration Date set
forth above.
4.2 Legends. This Warrant and the Shares (and the securities
--- -------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
4.3 Compliance with Securities Laws on Transfer. This Warrant and
-------------------------------------------
the Shares issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
4
<PAGE>
4.4 Transfer Procedure. Subject to the provisions of Section 4.2 and
------------------
4.3, Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5 Notices. All notices and other communications from the Company
-------
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, without giving effect to
its principles regarding conflicts of law.
MARKETFIRST SOFTWARE, INC.
By____________________________
Name:_________________________
Title:________________________
AGREED AND ACKNOWLEDGED:
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
By____________________________
Name:_________________________
Title:________________________
5
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase 301,719 shares of the
Series D Preferred Stock of MarketFirst Software, Inc., pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
____________________________
(Name)
____________________________
____________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
____________________________
(Signature)
____________________________
(Date)
6
<PAGE>
EXHIBIT 10.1
FORM OF
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this _____
---------
day of ______, 2000 between MarketFirst Software, Inc., a Delaware corporation
(the "Company"), and ____________________, an individual ("Indemnitee").
------- ----------
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company have adopted a
Certificate of Incorporation (the "Certificate") permitting the Board of
-----------
Directors to indemnify the officers and directors of the Company; and
WHEREAS, the Certificate and Section 145 of the Delaware General
Corporation Law, as amended ("Law"), by their nonexclusive nature permit
---
contracts between the Company and the officers and directors of the Company with
respect to indemnification of such officers and directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
---------------
which may be incurred by its officers and directors in the performance of their
obligations as officers and directors of the Company; and
WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded the Company's officers and directors by such D & O
Insurance and said uncertainty also exists under statutory and bylaw
indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer and/or a director of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or a director after the date hereof, the parties hereto agree as
follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold
-----------------------
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and the
Certificate, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- -------
in this
<PAGE>
Section 1(a) if, by reason of his Corporate Status (as hereinafter defined), he
is, or is threatened to be made, a party to or participant in any Proceeding (as
hereinafter defined) other than a Proceeding by or in the right of the Company.
Pursuant to this Section 1(a), Indemnitee shall be indemnified against all
Expenses (as hereinafter defined), judgments, penalties, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such Proceeding or any claim, issue or matter therein, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
---------------------------------------------
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 1(b),
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
--------------------------------------------------------
Partly Successful. Notwithstanding any other provision of this Agreement, to
- -----------------
the extent that Indemnitee is, by reason of his Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity.
--------------------
(a) Subject only to the exclusions set forth in Section 2(b)
hereof, the Company hereby further agrees to hold harmless and indemnify
Indemnitee against any and all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with any
Proceeding (including an action by or on behalf of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of his Corporate Status; provided, however, that with respect
to actions
2
<PAGE>
by or on behalf of the Company, indemnification of Indemnitee against any
judgments shall be made by the Company only as authorized in the specific case
upon a determination that Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; and
(b) No indemnity pursuant to this Section 2 shall be paid by the
Company:
(i) In respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(ii) On account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(iii) On account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct; or
(iv) If a final decision by a court having jurisdiction in
the matter shall determine that such indemnification is not lawful.
3. Contribution. If the indemnification provided in Sections 1 and
------------
2 is unavailable and may not be paid to Indemnitee for any reason other than
those set forth in paragraphs (i), (ii) and (iii) of Section 2(b), then in
respect to any Proceeding in which the Company is jointly liable with Indemnitee
(or would be if joined in such Proceeding), the Company shall contribute to the
amount of Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and by the Indemnitee on the other hand from the transaction from which
such Proceeding arose, and (ii) the relative fault of the Company on the one
hand and of the Indemnitee on the other hand in connection with the events which
resulted in such Expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 3 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
3
<PAGE>
4. Indemnification for Expenses of a Witness. Notwithstanding any
-----------------------------------------
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of
-----------------------
this Agreement, the Company shall advance all reasonable Expenses incurred by or
on behalf of Indemnitee in connection with any Proceeding by reason of
Indemnitee's Corporate Status within ten days after the receipt by the Company
of a statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and undertakings to repay pursuant to this
Section 5 shall be unsecured and interest free. Notwithstanding the foregoing,
the obligation of the Company to advance Expenses pursuant to this Section 5
shall be subject to the condition that, if, when and to the extent that the
Company determines that Indemnitee would not be permitted to be indemnified
under applicable law, the Company shall be entitled to be reimbursed, within
thirty (30) days of such determination, 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 Company 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 advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. Procedure for Determination of Entitlement to Indemnification.
-------------------------------------------------------------
(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined) in
a written opinion to the Board of Directors, a copy of which shall be delivered
to
4
<PAGE>
Indemnitee (unless Indemnitee shall request that such determination be made by
the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided in Clause (ii) below), or (ii) if a Change
in Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
or (B) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, said Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee, or (C) if so
directed by said Disinterested Directors, by the stockholders of the Company;
and, if it is determined that Indemnitee is entitled to indemnification, payment
to Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any Independent Counsel, member of
the Board of Directors, or stockholder of the Company shall act reasonably and
in good faith in making a determination under the Agreement of the Indemnitee's
entitlement to indemnification. Any costs or expenses (including attorneys'
fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such determination shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
in Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within 10 days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
-------------------
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a
written objection is made and substantiated, the Independent Counsel selected
may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of
5
<PAGE>
Chancery of the State of Delaware or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the court or by such
other person as the court shall designate, and the person with respect to whom
all objections are so resolved or the person so appointed shall act as
Independent Counsel under Section 6(b) hereof. The Company shall pay any and all
reasonable fees and expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to Section 6(b) hereof, and the
Company shall pay all reasonable fees and expenses incident to the procedures of
this Section 6(c), regardless of the manner in which such Independent Counsel
was selected or appointed. Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 8(a)(iii) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such
capacity (subject to the applicable standards of professional conduct then
prevailing).
(d) The Company shall not be required to obtain the consent of
the Indemnitee to the settlement of any Proceeding which the Company has
undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability.
7. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30-day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 7(b) shall
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 6(b) of this Agreement and if (A)
within fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve
6
<PAGE>
to submit such determination to the stockholders for their consideration at an
annual meeting thereof to be held within seventy five (75) days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within fifteen (15) days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within sixty (60) days after having been so called and such determination is
made thereat, or (ii) if the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 6(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement (with or without court approval),
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Enterprise (as hereinafter defined),
including financial statements, or on information supplied to Indemnitee by the
officers and directors of the Enterprise in the course of their duties, or on
the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. The provisions of this Section 7(d) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
8. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 or 7 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification.
Alternatively, Indemnitee, at his option, may seek an award
7
<PAGE>
in arbitration to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall
commence such proceeding seeking an adjudication or an award in arbitration
within 180 days following the date on which Indemnitee first has the right to
commence such proceeding pursuant to this Section 8(a). The Company shall not
oppose Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 8, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 8,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated. The Company shall
indemnify Indemnitee against any and all expenses and, if requested by
Indemnitee, shall (within ten (10) days after receipt by the Company of a
written request therefor) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any action brought by Indemnitee to
recover under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advancement of expenses or
insurance recovery, as the case may be.
(e) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
8
<PAGE>
9. Nonexclusivity; Survival of Rights; Insurance; Subrogation.
----------------------------------------------------------
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the Law, whether
by statute or judicial decision, permits greater indemnification than would be
afforded currently under the Certificate and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right and
remedy shall be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any 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 papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
10. Exception to Right of Indemnification. Notwithstanding any other
-------------------------------------
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors or (b) such Proceeding
is being brought by the Indemnitee to assert his rights under this Agreement.
9
<PAGE>
11. Duration of Agreement. All agreements and obligations of the
---------------------
Company contained herein shall continue during the period Indemnitee is an
officer and/or a director of the Company (or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 8 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer and/or a director of the Company or
any other enterprise at the Company's request.
12. Security. To the extent requested by the Indemnitee and approved
--------
by the Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.
13. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer and/or a director of the
Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as an officer and/or a director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
14. Definitions. For purposes of this Agreement:
-----------
(a) "Change in Control" means a change in control of the Company
-----------------
occurring after the date of this Agreement of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the
---
Company is then subject to such reporting requirement; provided, however, that,
without limitation, such a Change in Control shall be deemed to have occurred if
after the date of this Agreement (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act, 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
10
<PAGE>
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities (other than any such person or any
affiliate thereof that is such a 15% beneficial owner as of the date hereof)
without the prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such person attaining such percentage
interest; (ii) there occurs a proxy contest, or the Company is a party to a
merger, consolidation, sale of assets, plan of liquidation or other
reorganization, as a consequence of which members of the Board of Directors in
office immediately prior to such transaction or event constitute less than a
majority of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, other than as a result of an event described in clause
(a)(ii) of this Section 14, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new director
whose election 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 were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board of Directors. A Change in Control
shall not be deemed to have occurred under item (i) above if the "person"
described under item (i) is entitled to report its ownership on Schedule 13G
promulgated under the Act and such person is able to represent that it acquired
such securities in the ordinary course of its business and not with the purpose
nor with the effect of changing or influencing the control of the Company, nor
in connection with or as a participant in any transaction having such purpose or
effect. If the "person" referred to in the previous sentence would at any time
not be entitled to continue to report such ownership on Schedule 13G pursuant to
Rule 13d-1(b)(3)(i)(B) of the Act, then a Change in Control shall be deemed to
have occurred at such time.
(b) "Corporate Status" describes the status of a person who is
----------------
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(c) "Disinterested Director" means a director of the Company
----------------------
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Enterprise" shall mean the Company and any other
----------
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(e) "Expenses" shall include all reasonable attorneys' fees,
--------
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting,
11
<PAGE>
defending, preparing to prosecute or defend, investigating, participating, or
being or preparing to be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a
-------------------
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Company or Indemnitee in any matter material to either such party (other
than with respect to matters concerning the Indemnitee under this Agreement, or
of other indemnitees under similar indemnification agreements), or (ii) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement. The Company agrees to pay the reasonable fees of the
Independent Counsel referred to above and to fully indemnify such counsel
against any and all Expenses, claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed
----------
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was an officer and/or a director of the Company, by
reason of any action taken by him or of any inaction on his part while acting as
an officer and/or a director of the Company, or by reason of the fact that he is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; in each case whether or not he is acting or serving in any such
capacity at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement; including one pending on
or before the date of this Agreement; and excluding one initiated by an
Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under
this Agreement.
15. Severability. If any provision or provisions of this Agreement
------------
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and shall remain enforceable to the fullest extent
permitted by law; and (b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
12
<PAGE>
16. Modification and Waiver. No supplement, modification,
-----------------------
termination or amendment of this Agreement shall be binding unless executed in
writing by both of 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.
17. Notice by Indemnitee. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The
failure to so notify the Company shall not relieve the Company of any obligation
which it may have to the Indemnitee under this Agreement or otherwise.
18. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
____________________
____________________
____________________
____________________
(b) If to the Company, to:
MarketFirst Software, Inc.
485 Clyde Avenue
Mountain View, CA 94043
Attention: President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. Identical Counterparts. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
20. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
13
<PAGE>
21. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
22. Gender. Use of the masculine pronoun shall be deemed to include
------
usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
"Company"
MARKETFIRST SOFTWARE, INC.,
a Delaware corporation
By:____________________________________,
President and Chief Executive Officer
"Indemnitee"
________________________________________
Indemnitee
14
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), is
entered into as of January 1, 2000 by MARKETFIRST SOFTWARE, INC. (the "Company")
and PETER R. TIERNEY (the "Executive").
WHEREAS, the Company desires to secure the services of Executive as
President and Chief Executive Officer, and Executive desires to perform such
services for the Company on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements set forth below, it is mutually agreed as follows:
ARTICLE I
EMPLOYMENT
1.1 Term of Employment. The term of employment of Executive by the
------------------
Company hereunder commenced on July 1, 1998 (the "Commencement Date") and shall
continue thereafter on the same terms and conditions for a period of four years
unless earlier terminated pursuant to Article IV (such term being hereinafter
referred to as the "Employment Period"). The Employment Period shall be
extended automatically without further action by either party as of the fourth
anniversary of the Commencement Date for a period of one year, unless prior to
such date the Company or the Executive shall notify the other in writing of its
or his intention not to renew the Agreement, in which case the Agreement shall
terminate at the end of the original term. If the Employment Period is
extended, it shall thereafter be referred to as the Employment Period.
1.2 Title, Duties. The Executive shall serve as President and Chief
-------------
Executive Officer of the Company reporting to the Board of Directors of the
Company (the "Board"). Executive shall perform those duties and
responsibilities inherent in such positions, including such duties and
responsibilities as the Board shall assign. The Executive agrees to devote his
full time and best efforts, attention and energies to the business and interests
of the Company; provided, however, the Company acknowledges that Executive may
serve on the board of directors of other companies with the prior approval of
the Board. Executive shall travel as reasonably required in connection with the
performance of his duties hereunder.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Compensation. The Company shall pay and Executive shall accept as
------------
full consideration for his services hereunder, compensation consisting of the
following:
(a) Base Salary. $218,000 per year base salary, payable in
installments in accordance with the Company's normal payroll
practices, less such deductions or withholdings required by law.
<PAGE>
(b) Bonus. A target bonus of $82,000 per year, payable quarterly upon
satisfaction of performance goals to be mutually agreed upon by
Executive and the Board within 90 days after the Commencement
Date and within 90 days after the beginning of each calendar year
thereafter. Such bonus was prorated for 1998.
(c) Stock Options. (a) Executive was granted a stock option for
2,263,549 shares of Common Stock of the Company (the "Option")
under the Company's 1996 Equity Incentive Plan which such Option
was awarded by the Compensation Committee on the Commencement
Date. The Option has an exercise price of not more than the fair
market value of the Company's Common Stock on the date of grant
and, subject to Article IV, shall become vested as to 25% of the
shares on the first anniversary of the Commencement Date and
2.08% of the shares monthly for thirty-six months thereafter on
the last day of each month during which Executive remains
employed with the Company. Executive shall be entitled to pay the
exercise price of the Option by tender of a secured full recourse
promissory note subject to the terms and conditions et forth in
the 1996 Equity Incentive Plan.
2.2 Benefits. Subject to all applicable eligibility requirements and
--------
legal limitations, Executive will be able to participate in any and all 401(k),
vacation, medical, dental, life and long-term disability insurance and/or other
benefit plans which from time to time may be established for other employees and
similarly situated executives of the Company.
2.3 Reimbursement of Expenses. The Company will reimburse Executive for
-------------------------
all reasonable travel, entertainment and other expenses incurred or paid by the
Executive in connection with, or related to, the performance of his duties,
responsibilities or services under this Agreement subject to review by the
Compensation Committee of the Board.
2.4 Automobile Allowance. The Company shall provide the Executive with an
--------------------
automobile allowance in the amount of $1,800.00 per month as reimbursement to
the Executive of costs and expenses incurred by the Executive for the purchase
or lease and maintenance and operation of an automobile for use by the Executive
in the performance of the Executive's duties hereunder. Such automobile
allowance shall be paid in substantially equal semi-monthly installments.
2.5 Life Insurance. The Company shall reimburse the Executive for the
--------------
premiums on a $1,000,000 life insurance policy; provided, however, that such
premiums shall not exceed $3,000.00 per year.
2.6 Annual Physical. The Company shall reimburse the Executive for all
---------------
costs and expenses incurred by the Executive in connection with a complete
annual physical; provided, however, that such reimbursement shall not exceed
$1,000.00 per year.
2
<PAGE>
ARTICLE III
CONFIDENTIALITY AND NONSOLICITATION
3.1 The Executive acknowledges that during the Employment Period he will
receive confidential information from the Company and subsidiaries of the
Company and the respective clients thereof (each a "Relevant Entity").
Accordingly, the Executive agrees that during the Employment Period (as it may
be extended from time to time) and thereafter for a period of two years, the
Executive and his affiliates shall not, except in the performance of his
obligations to the Company hereunder or as may otherwise be approved in advance
by the Company, directly or indirectly, disclose or use (except for the direct
benefit of the Company) any confidential information that he may learn or has
learned by reason of his association with any Relevant Entity. Upon termination
of this Agreement, the Executive shall promptly return to the Company any and
all properties, records or papers of any Relevant Entity, that may have been in
his possession at the time of termination, whether prepared by the Executive or
others, including, but not limited to, confidential information and keys. For
purposes of this Agreement, "confidential information" includes all data,
analyses, reports, interpretations, forecasts, documents and information
concerning a Relevant Entity and its affairs, including, without limitation with
respect to clients, products, policies, procedures, methodologies, trade secrets
and other intellectual property, systems, personnel, confidential reports,
technical information, financial information, business transactions, business
plans, prospects or opportunities, (i) that the Company reasonably believes are
confidential or (ii) the disclosure of which could be injurious to a Relevant
Entity or beneficial to competitors of a Relevant Entity, but shall exclude any
information that the Executive is required to disclose under any applicable
laws, regulations or directives of any government agency, tribunal or authority
having jurisdiction in the matter or under subpoena or other process of law.
For purposes of this Agreement, "affiliate" means any entity that, directly or
indirectly, is controlled by, or under common control with, the Executive. For
purposes of this definition, the terms "controlled" and "under common control
with" means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of such person, whether through the
ownership of voting stock, by contract or otherwise.
3.2 As a part of the consideration between the parties for this Agreement,
Executive hereby agrees to enter into the Company's Employee Invention
Assignment and Confidentiality Agreement, attached hereto as Exhibit A,
contemporaneously with the execution of this Agreement.
ARTICLE IV
TERMINATION
4.1 Disability. In the event of the permanent disability (as hereinafter
----------
defined) of Executive during the Employment Period, the Company shall have the
right, upon written notice to Executive, to terminate Executive's employment
hereunder, effective upon the 30/th/ calendar day following the giving of such
notice (or such later day as shall be specified in such notice). Upon the
effectiveness of such termination, (i) the Company shall have no further
obligations hereunder, except to pay and provide, subject to applicable
withholding, (A) all amounts of Base Salary and bonus accrued, but unpaid, at
the effective date of termination, and (B) all reasonable unreimbursed business-
related expenses, and (ii) Executive shall have no further obligations
3
<PAGE>
hereunder other than those provided for in Article III hereof. All amounts
payable to Executive pursuant to this Section 4.1 shall be payable within 30
days following the effectiveness of the termination of Executive's employment.
For purposes of this Agreement, "permanent disability" shall be defined as any
physical or mental disability or incapacity which renders Executive incapable in
any material respect of performing the services required of him in accordance
with his obligations under Article I for a period of 180 consecutive days, or
180 days in any 360 day period.
4.2 Death. In the event of the death of Executive during the Employment
-----
Period, this Agreement shall automatically terminate and the Company shall have
no further obligations hereunder, except to pay and provide to Executive's
beneficiary or other legal representative, subject to applicable withholding,
(i) all amounts of Base Salary and bonus accrued but unpaid, at the date of
death, and (ii) all reasonable unreimbursed business-related expenses. All
amounts payable to Executive pursuant to this Section 4.2 shall be payable
within 30 days following the date of death.
4.3 Termination Without Cause. In the event of the termination of
-------------------------
Executive's employment by the Company without Cause (as defined below) during
the Employment Period or upon the Executive's voluntary termination of his
employment for Good Reason (as defined below) during the Employment Period, all
amounts of Base Salary and bonus accrued but unpaid on the date of termination
shall be paid by the Company within 30 days following the date of termination.
In addition, if such termination occurs prior to the first anniversary of the
Commencement Date, an amount equal to Executive's Base Salary on the date of
termination for a period of three months (the "Severance Period") shall be paid
by the Company to Executive in one lump sum. If such termination occurs after
the first anniversary and prior to the third anniversary of the Commencement
Date, the Severance Period shall be 6 months. If such termination occurs after
the third anniversary of the Commencement Date, the Severance Period shall be 12
months and the payment shall be paid in four substantially equal payments over
the 12-month period following Executive's termination.
4.4 Termination for Cause; Voluntary Termination. The Company shall only
--------------------------------------------
be obligated to pay the Base Salary and bonus accrued but unpaid on the date of
termination, and shall not be obligated to pay Executive any termination
benefits if the Employment Period is terminated for Cause or if Executive
voluntarily terminates his employment other than for Good Reason (as defined
below). For purposes of this Agreement, "Cause" shall be limited to:
(a) Willful failure by Executive to substantially perform his duties
hereunder, other than a failure resulting from his complete or partial
incapacity due to physical or mental illness or impairment;
(b) A material and willful violation of a federal or state law or
regulation applicable to the business of the Company or that adversely affects
the image of the Company;
(c) Commission of a willful act by Executive which constitutes gross
misconduct and is injurious to the Company; or
(d) A willful breach of a material provision of this Agreement.
4
<PAGE>
4.5 Constructive Termination. Notwithstanding anything in this Agreement
------------------------
to the contrary, for purposes of this Agreement, the Employment Period will be
deemed to have been terminated and Executive will be deemed to have Good Reason
for voluntary termination of the Employment Period ("Good Reason"), if there
should occur:
(a) A material adverse change in Executive's position causing it to
be of materially less stature or responsibility without Executive's written
consent, and such a materially adverse change shall in all events be deemed to
occur if Executive no longer serves as President and Chief Executive Officer
reporting to the Board of Directors, unless Executive consents in writing to
such change;
(b) A material reduction, without Executive's written consent, in his
level of base compensation (including base salary and fringe benefits) by more
than ten percent (10%);
(c) A relocation of Executive's principal place of employment by more
than 50 miles without Executive's consent.
4.6 Change in Control Benefits. Should there occur a Change in Control
--------------------------
(as defined below), then the following provisions shall become applicable:
(a) Fifty percent (50%) of the portion of all of the Executive's
stock options which are unvested on the date of such Change in Control (the
"Unvested Options") shall immediately vest and become exercisable. The remaining
fifty percent (50%) of the Unvested Options shall continue to vest and become
exercisable in accordance with their terms, provided Executive continues to
provide services to the Company.
(b) During the period (if any) following a Change in Control that
Executive shall continue to remain employed, then the terms and provisions of
this Agreement shall continue in full force and effect.
For purposes of this Section 4.6, the term "Change of Control" shall
mean:
(y) The sale, lease, conveyance, liquidation or other
disposition of all or substantially all of the Company's
assets as an entirety or substantially as an entirety to any
person, entity or group of persons acting in concert other
than in the ordinary course of business; or
(y) Any transaction or series of related transactions (as a
result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in Section
13(h)(8)(E) under the Securities Exchange Act of 1934)
becoming the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or
indirectly, of more than 50% of the aggregate voting power
of all classes of common equity of the Company, except if
such Person is (A) a subsidiary of the Company, (B) an
employee stock ownership plan for employees of the Company
or (C) a company formed to hold the Company's common equity
securities and
5
<PAGE>
whose shareholders constituted, at the time such company
became such holding company, substantially all the
shareholders of the Company.
In the event that the benefits provided to Executive pursuant to
Section 4.6 of this Agreement (i) constitute "parachute payments"
within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 4.6, such
severance and benefits would be subject to the excise tax imposed by
Section 4999 of the Code, then Executive's severance benefits under
this Section 4.6 shall be payable either:
(A) in full,
(B) as to such lesser amount which would result in no
portion of such severance and other benefits being
subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account
the applicable federal, state and local income taxes
and the excise tax imposed by Section 4999, results in
the receipt by Executive on an after-tax basis, of the
greatest amount of severance benefits under this
Agreement.
Unless the Company and Executive otherwise agree in writing, any
determination required under this Section 4.6 shall be made in writing by
independent public accountants agreed to by the Company and the Executive
(the "Accountants"), whose determination shall be conclusive and binding
upon Executive and the Company for all purposes. For purposes of making
the calculations required by this Section 4.6, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and
may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and
Executive shall furnish to the Accountants such information and documents
as the Accountants may reasonably request in order to make a determination
under this Section 4.6. The Company shall bear all costs the Accountants
may reasonably incur in connection with any calculations contemplated by
this Section 4.6.
ARTICLE V
GENERAL PROVISIONS
5.1 Dispute Resolution. The Company and Executive agree that any dispute
------------------
regarding the interpretation or enforcement of this Agreement shall be decided
by confidential, final and binding arbitration conducted by Judicial Arbitration
and Mediation Services ("JAMS") under the then-existing JAMS rules, rather than
by litigation in court, trial by jury, administrative proceeding, or in any
other forum.
5.2 Cooperation with the Company After Termination of the Employment
----------------------------------------------------------------
Period. Following termination of the Employment Period by Executive, Executive
- ------
shall fully cooperate with the Company in all matters relating to the winding up
of his pending work on behalf of the
6
<PAGE>
Company and the orderly transfer of any such pending work to other employees of
the Company as may be designated by the Company.
5.3 Indemnification. In the event Executive is made, or threatened to be
---------------
made, a party to any legal action or proceeding, whether civil or criminal, by
reason of the fact that Executive is or was a director or officer of the Company
or serves or served any other corporation fifty percent (50%) or more owned or
controlled by the Company in any capacity at the Company's request, Executive
shall be indemnified by the Company, and the Company shall pay Executive's
related expenses when and as incurred, all to the fullest extent permitted by
law.
5.4 Waiver. Neither party shall, by mere lapse of time, without giving
------
notice or taking other action hereunder, be deemed to have waived any breach by
the other party of any of the provisions of this Agreement. Further, the waiver
by either party of a particular breach of this Agreement by the other shall
neither be construed as, nor constitute a, continuing waiver of such breach or
of other breaches by the same or any other provision of this Agreement.
5.5 Severability. If for any reason a court of competent jurisdiction or
------------
arbitrator finds any provision of this Agreement to be unenforceable, the
provision shall be deemed amended as necessary to conform to applicable laws of
regulations, or if it cannot be so amended without materially altering the
intention of the parties, the remainder of the Agreement shall continue in full
force and effect as if the offending provision were not contained herein.
5.6 Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be considered
effective upon personal service or upon transmission of a facsimile or the
deposit with Federal Express or in Express Mail and addressed to the Board at
its principal corporate records, or at any other address which he may specify in
any appropriate notice to the Company.
5.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which taken
together constitutes one and the same instrument and in making proof hereof it
shall not be necessary to produce or account for more than one such counterpart.
5.8 Entire Agreement. The parties hereto acknowledge that each has read
----------------
this Agreement, understands it, and agrees to be bound by its terms. The
parties further agree that this Agreement, the Employee Invention Assignment and
Confidentiality Agreement and the referenced stock option agreement shall
constitute the complete and exclusive statement of the agreement between the
parties and supersedes all proposals (oral or written), understandings,
representations, conditions, covenants, and all other communications between the
parties relating to the subject matter hereof.
5.9 Governing Law. This Agreement shall be governed by the law of the
-------------
State of California.
5.10 Assignment and Successors. The Company shall have the right to assign
-------------------------
its rights and obligations under this Agreement to an entity which acquires
substantially all of the assets of the Company. The rights and obligation of
the Company under this Agreement shall inure to the benefit and shall be binding
upon the successors and assigns of the Company.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
"Executive"
________________________________________
Peter R. Tierney
"Company"
MARKETFIRST SOFTWARE, INC.
By:_____________________________________
Robert W. Sator
8
<PAGE>
Exhibit 10.3
MARKETFIRST SOFTWARE, INC.
1996 EQUITY INCENTIVE PLAN
Amended and Restated March 17, 2000
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options and Restricted Stock. Capitalized
terms not defined in the text are defined in Section 22. This Plan is intended
to be a written compensatory benefit plan within the meaning of Rule 701
promulgated under the Securities Act.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 17,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be Fifteen Million Four Hundred Seventy-Five Thousand
Three Hundred and Seven (15,475,307) Shares or such lesser number of Shares as
permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations. Subject to Sections 2.2 and 17, Shares will again be available for
grant and issuance in connection with future Awards under this Plan that: (a)
are subject to issuance upon exercise of an Option but cease to be subject to
such Option for any reason other than exercise of such Option, (b) are subject
to an Award granted hereunder but are forfeited or repurchased by the Company as
set forth herein, or (c) are subject to an Award that otherwise terminates
without Shares being issued. At all times the Company will reserve and keep
available a sufficient number of Shares as will be required to satisfy the
requirements of all Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the Stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be paid in cash at Fair
Market Value of such fraction of a Share or will be rounded up to the nearest
whole Share, as determined by the Committee; and provided further, that the
----------------
Exercise Price of any Option may not be decreased below the par value of the
Shares.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors and consultants of the Company or
any Parent or Subsidiary of the Company; provided such consultants render bona
--------
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. A person may be granted more than one Award under
this Plan.
<PAGE>
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement
and any other agreement or document executed pursuant
to this Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of, or
as alternatives to, other Awards under this Plan or any
other incentive or compensation plan of the Company or
any Parent or Subsidiary of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply and omission, or reconcile
any inconsistency in this Plan, any Award, any Award
Agreement, any Exercise Agreement or any Restricted
Stock Purchase Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable
for the administration of this Plan.
4.2 Committee Discretion. Any determination made by the
--------------------
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not Insiders
of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code
2
<PAGE>
("ISOs") or Nonqualified Stock Options ("NSOs"), the number of Shares subject to
the Option, the Exercise Price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NSO ("Stock Option Agreement"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the
-------------
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable immediately
---------------
(subject to repurchase pursuant to Section 11 of this Plan) or may be
exercisable within the times or upon the events determined by the Committee as
set forth in the Stock Option Agreement governing such Option; provided,
--------
however, that no Option will be exercisable after the expiration of ten (10)
- -------
years from the date the Option is granted; and provided further that no ISO
----------------
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any Parent or Subsidiary of the Company ("Ten Percent Shareholder") will
be exercisable after the expiration of five (5) years from the date the ISO is
granted. The Committee also may provide for Options to become exercisable at one
time or from time to time, periodically or otherwise, in such number of Shares
or percentage of Shares as the Committee determines. Subject to earlier
termination of the Option as provided herein, each Participant shall have the
right to exercise an Option granted hereunder at the rate of at least twenty
percent (20%) per year over five (5) years from the date such Option is granted.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (ii) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 7 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
------------------
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or
3
<PAGE>
desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price, and any applicable taxes, for the
number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to
-----------
Subsection 17.1, and notwithstanding the exercise periods set forth in the Stock
Option Agreement, exercise of an Option will always be subject to the following:
(a) If the Participant is Terminated for any reason except
death or Disability, then the Participant may exercise
such Participant's Options, only to the extent that
such Options would have been exercisable upon the
Termination Date, no later than three (3) months after
the Termination Date (or such shorter time period, not
less than thirty (30) days, as may be specified in the
Stock Option Agreement) or such longer time period not
exceeding five (5) years after the Termination Date as
may be determined by the Committee, with any exercise
beyond three (3) months after the Termination Date
deemed to be an NSO, but in any event, no later than
the expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant
dies within three (3) months after a Termination other
than because of Participant's death or Disability) then
Participant's Options may be exercised, only to the
extent that such Options would have been exercisable by
Participant, on the Termination Date and must be
exercised by Participant (or Participant's legal
representative or authorized assignee), no later than
twelve (12) months after the Termination Date (or such
shorter time period, not less than six (6) months, as
may be specified in the Stock Option Agreement) or such
longer time period not exceeding five (5) years after
the Termination Date as may be determined by the
Committee, with any exercise beyond (a) three (3)
months after the Termination Date when the Termination
is for any reason other than the Participant's death or
disability, within the meaning of Section 22(e)(3) of
the Code, or (b) twelve (12) months after the
Termination Date when the Termination is for
Participant's death or disability, within the meaning
of Section 22(e)(3) of the Code, deemed to be an NSO,
but in any event no later than the expiration date of
the Options.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market Value
-------------------
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a
4
<PAGE>
Participant during any calendar year (under this Plan or under any other
incentive stock option plan of the Company or any Parent or Subsidiary of the
Company) will not exceed $100,000. If the Fair Market Value of Shares on the
date of grant with respect to which ISOs are exercisable for the first time by a
Participant during any calendar year exceeds $100,000, then the Options for the
first $100,000 worth of Shares to become exercisable in such calendar year will
be ISOs and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date (as
defined in Section 18 below) of this Plan to provide for a different limit on
the Fair Market Value of Shares permitted to be subject to ISOs, then such
different limit will be automatically incorporated herein and will apply to any
Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(b) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price; provided further, that the Exercise Price will not be reduced
----------------
below the par value of the Shares, if any.
5.10 No Disqualifications. Notwithstanding any other provisions
--------------------
in this Plan, no term of this Plan relating to ISOs will be interpreted, amended
or altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the Purchase Price, the restrictions to which the
Shares will be subject, and all other terms and conditions of the Restricted
Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the restricted Stock Purchase Agreement
along with full payment for the Shares to the Company
5
<PAGE>
within thirty (30) days, then the offer will terminate, unless otherwise
determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
--------------
to a Restricted Stock Award will be determined by the Committee and will be at
least eighty-five percent (85%) of the Fair Market Value of the Shares on the
date the Restricted Stock Award is granted or at the time the purchase is
consummated, except in the case of a sale to a Ten Percent Shareholder, in which
case the Purchase Price will be one hundred percent (100%) of the Fair Market
Value on the date the Restricted Stock Award is granted or at the time the
purchase is consummated. Payment of the Purchase Price may be made in accordance
with Section 7 of this Plan.
6.3 Restrictions. Restricted Stock Awards may be subject to the
------------
restrictions set forth in Section 11 of this Plan or such other restrictions not
inconsistent with Section 25102(o) of the California Corporations Code.
7. PAYMENT FOR SHARE PURCHASES.
---------------------------
7.1 Payment. Payment for Shares purchased pursuant to this Plan
-------
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned
by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and,
if such shares were purchased from the Company by use
of a promissory note, such note has been fully paid
with respect to such shares); or (2) were obtained by
Participant in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the
Code; provided, however, that Participants who are not
-------- -------
employees or directors of the Company will not be
entitled to purchase Shares with a promissory note
unless the note is adequately secured by collateral
other than the Shares; provided further, that the
----------------
portion of the Exercise Price or Purchase Price, as the
case may be, equal to the par value of the Shares must
be paid in cash or other legal consideration permitted
by Delaware General Corporation Law;
(d) by waiver of compensation due or accrued to the
Participant for services rendered;
6
<PAGE>
(e) with respect only to purchases upon exercise of an
Option, and provided that a public market for the
Company's stock exists;
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a
member of the National Association of
Securities Dealers (an "NASD Dealer") whereby
the Participant irrevocably elects to
exercise the Option and to sell a portion of
the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly
to the Company; or
(2) through a "margin" commitment from the
Participant and an NASD Dealer whereby the
Participant irrevocably elects to exercise
the Option and to pledge the Shares so
purchased to the NASD Dealer in a margin
account as security for a loan from the NASD
Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to
forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
8. WITHHOLDING TAXES.
-----------------
8.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
8.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined
7
<PAGE>
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose will be made in accordance with the requirements established by the
Committee for such elections and be in writing in a form acceptable to the
Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
9.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided further, that the Participant will have no right to
----------------
retain such stock dividends or stock distributions with respect to Unvested
Shares that are repurchased pursuant to Section 11.
9.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding, or as otherwise required or permitted under
Section 260.140.46 of Title 10 of the California Code of Regulations.
Notwithstanding the foregoing, the Company will not be required to provide such
financial statements to Participants whose services in connection with the
Company assure them access to equivalent information.
10. TRANSFERABILITY. Awards granted under this Plan, and any
---------------
interest therein, will not be transferable or assignable by Participant, and may
not be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution. During the lifetime of the
Participant an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant.
11. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement (a)
a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, unless
otherwise not permitted by Section 25102(o) of the California Corporations Code,
and/or (b) a right to repurchase Unvested Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after
Participant's Termination Date for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be, provided, that such right of repurchase lapses at the rate of at least
--------
twenty percent (20%) per year over five (5) years from: (A) the date of grant
of the Option or (B) in the case of Restricted Stock, the date the Participant
purchases the Shares. If such right of repurchase is assigned, the assignee
must pay the Company upon assignment of the right, cash equal to the difference
between the Exercise Price or Purchase Price, as the case may be, and the Fair
Market Value of the Shares, if the Exercise Price or Purchase Price, as the case
may be, is less than the Fair Market Value of the Shares;
8
<PAGE>
provided, however, that in the case of Options, the assignee need not pay the
- -------- -------
Company upon assignment of the right if the assignee is a one hundred percent
(100%) owned subsidiary of the Company or is the parent of the Company owning
one hundred percent (100%) of the Company.
12. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligations and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. This Plan is
----------------------------------------------
intended to comply with Section 25102(o) of the California Corporations Code.
Any provision of the Plan which is inconsistent with Section 25102(o) shall,
without further act or amendment by the Company or the Board, be reformed to
comply with the requirements of Section 25102(o). An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to
(a) obtaining any approvals from governmental agencies that the Company
determines are
9
<PAGE>
necessary or advisable, and/or (b) compliance with any exemption, completion of
any registration or other qualification of such Shares under any state or
federal law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the exemptions, registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.
16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
17. CORPORATE TRANSACTIONS
----------------------
17.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder which merges, or which owns or controls another
corporation which merges, with the Company in such merger) cease to own their
shares or other equity interests in the Company, or (d) the sale of
substantially all of the assets of the Company, any or all outstanding Awards
may be assumed, converted or replaced by the successor corporation (if any),
which assumption, conversion or replacement will be binding on all Participants.
In the alternative, the successor corporation may substitute equivalent Awards
or provide substantially similar consideration to Participants as was provided
to shareholders (after taking into account the existing provisions of the
Awards). The successor corporation may also issue, in place of outstanding
Shares of the Company held by the Participant, substantially similar shares or
other property subject to repurchase restrictions and other provisions no less
favorable to the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Subsection 17.1. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 17.1, then notwithstanding any other provision in this Plan to the
contrary, the vesting of such Awards will accelerate and the Options will become
exercisable in full prior to the consummation of such event at such times and on
such conditions as the Committee determines, and if such Options are not
exercised prior to the consummation of the corporate transaction, they shall
terminate in accordance with the provisions of this Plan.
10
<PAGE>
17.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation or sale of assets.
17.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under this Plan in substitution of
such other company's award or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of shares issuable
------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan became effective on
---------------------------------
August 15, 1996, the date that it was adopted by the Board (the "Effective
Date"). This Plan was approved by the shareholders of the Company (excluding
Shares issued pursuant to this Plan), consistent with applicable laws, within
twelve (12) months before or after the Effective Date.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
20. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the shareholders of the Company, amend this Plan in any manner that requires
such shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the shareholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
11
<PAGE>
22. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
"Award" means any award under this Plan, including any Option or
Restricted Stock.
"Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed by the Board to
administer this Plan, or if no committee is appointed, the Board.
"Company" means MarketFirst Software, Inc., or any successor
corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its closing price on the Nasdaq
National Market on the date of determination as
reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its closing
price on the date of determination on the principal
national securities exchange on which the Common Stock
is listed or admitted to trading as reported in The
---
Wall Street Journal;
-------------------
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market nor listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on the
date of determination as reported by The Wall Street
---------------
Journal (or, if not so reported, as otherwise reported
-------
by any newspaper or other source as the Board may
determine); or
12
<PAGE>
(d) if none of the foregoing is applicable, by the
Committee in good faith.
"Insider" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant
to Section 5.
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"Participant" means a person who receives an Award under this
Plan.
"Plan" means this MarketFirst Software, Inc. 1996 Equity
Incentive Plan, as amended from time to time.
"Purchase Price" means the price at which a Participant may
purchase Restricted Stock.
"Restricted Stock Award" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
13
<PAGE>
EXHIBIT 10.4
MARKETFIRST SOFTWARE, INC.
2000 STOCK INCENTIVE PLAN
-------------------------
ARTICLE I
INTRODUCTION
------------
1.1. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the interests of
MarketFirst Software, Inc., a Delaware corporation, by providing eligible
persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
1.2. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants, and
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary).
B. The provisions of Articles I and V shall apply to all equity programs
under the Plan and shall govern the interests of all persons under the Plan.
1.3. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However,
<PAGE>
any discretionary option grants or stock issuances for members of the Primary
Committee shall be made by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
1.4. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
2
<PAGE>
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
1.5. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 4,000,000
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under the Predecessor Plan, (ii) plus
an additional increase of approximately 2,800,000 shares to be approved by the
Corporation's stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to five percent (5%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
2,500,000 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
II. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for
3
<PAGE>
reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, should the exercise price of an option under
the Plan be paid with shares of Common Stock or should shares of Common Stock
otherwise issuable under the Plan be withheld by the Corporation in satisfaction
of the withholding taxes incurred in connection with the exercise of an option
or the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance. Shares of Common Stock underlying one
or more stock appreciation rights exercised under the Plan shall not be
available for subsequent issuance under the Plan.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities and the exercise price per
share in effect under each outstanding option under the Plan, (iv) the number
and/or class of securities and price per share in effect under each outstanding
option incorporated into this Plan from the Predecessor Plan and (v) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section 1.5.B of
this Article I. Such adjustments to the outstanding options are to be effected
in a manner which shall preclude the enlargement or dilution of rights and
benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
ARTICLE II
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
2.1. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
4
<PAGE>
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section 5.1 of
Article V and the documents evidencing the option, be payable in one or more of
the forms specified below:
(i) cash or check made payable to the Corporation;
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death
and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the Optionee's designated
beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
5
<PAGE>
(iv) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. However, a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
6
<PAGE>
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article II, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
2.2. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section 2.2, all the
provisions of Articles I, II and V shall be applicable to Incentive Options.
Options which are specifically designated as Non-Statutory Options when issued
under the Plan shall not be subject to the terms of this Section 2.2.
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Dollar Limitation. The aggregate Fair Market Value of the
-----------------
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% Stockholder. If any Employee to whom an Incentive
---------------
Option is granted is a 10% Stockholder, then the exercise price per share shall
not be less than one hundred ten percent (110%) of the Fair Market Value per
share of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
2.3. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall not
become exercisable on such an accelerated basis if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on any shares for which
the option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
7
<PAGE>
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year and (iv) the maximum number and/or class of
securities by which the share reserve is to increase automatically each calendar
year.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of
such Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be exercised
for any or all of those shares as fully vested shares of Common Stock, whether
or not those options are to be assumed in the Corporate Transaction. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held
8
<PAGE>
by the Optionee at the time of such Involuntary Termination, and the shares
subject to those terminated repurchase rights shall accordingly vest in full at
that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of a
Change in Control, become fully exercisable for the total number of shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options under
the Discretionary Option Grant Program and the termination of one or more of the
Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control. Each option so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
2.4. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
2.5. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
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(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual option
surrender or at any earlier time. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock at the time subject to such option (whether or not the
Optionee is otherwise vested in those shares) over (B) the aggregate
exercise price payable for those shares. Such cash distribution shall be
paid within five (5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent exercise
of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
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ARTICLE III
SALARY INVESTMENT OPTION GRANT PROGRAM
--------------------------------------
3.1. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
3.2. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. Exercise Price.
--------------
1. The exercise price per share shall be thirty-three and one-
third percent (33-1/3%) of the Fair Market Value per share of Common Stock on
the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock
-----------------------
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the
Optionee's base salary for the calendar year to be in
effect pursuant to this program, and B is the Fair
Market Value per share of Common Stock on the option grant date.
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C. Exercise and Term of Options. The option shall become exercisable
----------------------------
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease
--------------------------------
Service for any reason while holding one or more options under this Article III,
then each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Service. Should the Optionee die while holding one or more options under this
Article III, then each such option may be exercised, for any or all of the
shares for which the option is exercisable at the time of the Optionee's
cessation of Service (less any shares subsequently purchased by Optionee prior
to death), by the personal representative of the Optionee's estate or by the
person or persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or by the designated beneficiary or
beneficiaries of such option. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Service. However, the option shall, immediately upon the
Optionee's cessation of Service for any reason, terminate and cease to remain
outstanding with respect to any and all shares of Common Stock for which the
option is not otherwise at that time exercisable.
3.3. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten (10)-
year option term or (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earliest to occur of (i) the expiration of the
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv) the
surrender of the option in connection with a Hostile Take-Over.
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C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
3.4. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
ARTICLE IV
STOCK ISSUANCE PROGRAM
----------------------
4.1. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
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A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section 5.1 of Article V,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for
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<PAGE>
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
4.2. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
4.3. SHARE ESCROW/LEGENDS
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<PAGE>
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
ARTICLE V
MISCELLANEOUS
-------------
5.1. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
those shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
5.2. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Withholding Taxes to which such holders may become subject in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
Stock Delivery: The election to deliver to the Corporation, at
--------------
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the
16
<PAGE>
percentage of the Withholding Taxes (not to exceed one hundred percent (100%))
designated by the holder.
5.3. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program shall not be
implemented until such time as the Primary Committee may deem appropriate.
Options may be granted under the Discretionary Option Grant at any time on or
after the Plan Effective Date. However, no options granted under the Plan may be
exercised, and no shares shall be issued under the Plan, until the Plan is
approved by the Corporation's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article II relating to
Corporate Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) April
7, 2010, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Should the Plan
terminate on April 7, 2010, then all option grants and unvested stock issuances
outstanding at that time shall continue to have force and effect in accordance
with the provisions of the documents evidencing such grants or issuances.
5.4. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in
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<PAGE>
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under those programs shall be held in
escrow until there is obtained stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and cease
to be outstanding.
5.5. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
5.6. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
5.7. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
18
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APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
-----
B. Change in Control shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination.
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. Corporation shall mean MarketFirst Software, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of MarketFirst Software, Inc. which shall by appropriate
action adopt the Plan.
G. Discretionary Option Grant Program shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
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H. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. Exercise Date shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
J. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price per share
at which the Common Stock is to be sold in the initial public offering pursuant
to the Underwriting Agreement.
K. Hostile Take-Over shall mean the acquisition, directly or
-----------------
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
L. Incentive Option shall mean an option which satisfies the
----------------
requirements of Code Section 422.
M. Involuntary Termination shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
20
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(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her duties and responsibilities or the level of management to which
he or she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than eighty (80) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent.
N. Misconduct shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
O. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
P. Non-Statutory Option shall mean an option not intended to satisfy
--------------------
the requirements of Code Section 422.
Q. Optionee shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant or Salary Investment Option Grant Programs
R. Parent shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. Participant shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
T. Permanent Disability or Permanently Disabled shall mean the
--------------------------------------------
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.
21
<PAGE>
U. Plan shall mean the Corporation's 2000 Stock Incentive Plan, as
----
set forth in this document.
V. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
W. Plan Effective Date shall mean the date the Plan shall become
-------------------
effective and shall be coincident with the Underwriting Date.
X. Predecessor Plan shall mean the Corporation's 1996 Equity
----------------
Incentive Plan as that plan is in effect immediately prior to the Plan Effective
Date hereunder.
Y. Primary Committee initially shall mean the Board's Compensation
-----------------
Committee or such other committee of two (2) or more non-employee Board members
appointed by the Board, which shall administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders and administer
the Salary Investment Option Grant Program solely with respect to the selection
of the eligible individuals who may participate in such program.
Z. Salary Investment Option Grant Program shall mean the salary
--------------------------------------
investment option grant program in effect under Article III of the Plan.
AA. Secondary Committee shall mean a committee of one or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
BB. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
CC. Service shall mean the performance of services for the
-------
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
DD. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
EE. Stock Issuance Agreement shall mean the agreement entered into by
------------------------
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
FF. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under Article IV of the Plan.
22
<PAGE>
GG. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
HH. Take-Over Price shall mean the greater of (i) the Fair Market
--------------- -------
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
II. 10% Stockholder shall mean the owner of stock (as determined
---------------
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
JJ. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
KK. Underwriting Date shall mean the date on which the Underwriting
-----------------
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
LL. Withholding Taxes shall mean the Federal, state and local income
-----------------
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
23
<PAGE>
Exhibit 10.5
MARKETFIRST SOFTWARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of MarketFirst Software, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
2. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
3. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
Eight Hundred Thousand (800,000) shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2001, by
an amount equal to one and one-half percent (1 1/2%) of the total number of
shares of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed Eight Hundred Thousand (800,000) shares.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable by all Participants in the aggregate on any one Purchase
Date, (iv) the maximum number and/or class of securities by which the share
reserve is to increase automatically each calendar year pursuant to the
provisions of Section 3.B above and (v) the number and class of
<PAGE>
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
4. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in May
2002. The next offering period shall commence on the first business day in June
2002, and subsequent offering periods shall commence as designated by the Plan
Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in March to the last business day in May each year, from the first
business day in June each year to the last business day in August each year,
from the first business day in September each year to the last business day in
November each year, and from the first business day of December each year to the
last business day of February in the following year. However, the first
Purchase Interval in effect under the initial offering period shall commence at
the Effective Time and terminate on the last business day in August 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then the
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new
offering period shall have a duration of twenty (24) months, unless a shorter
duration is established by the Plan Administrator within five (5) business days
following the start date of that offering period.
5. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Quarterly Entry Date within that offering period,
provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Quarterly Entry Date within that offering period on which he or she
is an Eligible Employee.
2
<PAGE>
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
6. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Base Salary paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
B. The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Interval.
C. The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or her
payroll deduction by filing the appropriate form with the Plan Administrator.
The new rate (which may not exceed the fifteen percent (15%) maximum) shall
become effective on the start date of the first Purchase Interval following the
filing of such form.
D. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the
Participant's book account under the Plan, but no interest shall be paid on the
balance from time to time outstanding in such account. The amounts collected
from the Participant shall not be required to be held in any segregated account
or trust fund and may be commingled with the general assets of the Corporation
and used for general corporate purposes.
E. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
F. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
3
<PAGE>
7. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. Purchase Price. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
-----
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common
----------------------------
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed Five Thousand (5,000) shares, subject to periodic adjustments in the
event of certain changes in the Corporation's capitalization. In addition, the
maximum number of shares of Common Stock purchasable in the aggregate by all
Participants on any one Purchase Date shall not exceed Eight Hundred Thousand
(800,000) shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. However, the Plan Administrator
shall have the discretionary authority, exercisable prior to the start of any
offering period under the Plan, to increase or decrease the limitations to be in
effect for the number of shares purchasable per Participant and in the aggregate
by all Participants on each Purchase Date during that offering period.
4
<PAGE>
E. Excess Payroll Deductions. Any payroll deductions not applied to
-------------------------
the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its designate), and no further payroll deductions shall be collected
from the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in which such
termination occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase Date. If
no such election is made at the time such purchase right is terminated,
then the payroll deductions collected with respect to the terminated right
shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf for that Purchase Interval or (b) have such funds held
for the purchase of shares on his or her behalf on the next scheduled
Purchase Date. In no event, however, shall any further payroll deductions
be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service (x) within ninety (90) days
following the commencement of such leave or (y) prior to the expiration of
any longer period for which such Participant's right to reemployment with
the Corporation is guaranteed by statute or contract, his or her payroll
deductions under the Plan shall automatically resume at the rate in effect
at the time the leave began, unless the Participant withdraws from the Plan
prior to his or her return. An individual who returns to active employment
following a leave of absence which exceeds in duration the applicable (x)
or (y) time period will be treated as a new Employee for purposes of
5
<PAGE>
subsequent participation in the Plan and must accordingly re-enroll in the
Plan (by making a timely filing of the prescribed enrollment forms) on or
before his or her scheduled Entry Date into the offering period.
G. Change in Control. Each outstanding purchase right shall
-----------------
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
-----
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate by all participants.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of shares
----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. Assignability. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
8. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000.00) worth of stock of the Corporation or any Corporate
Affiliate (determined on the
6
<PAGE>
basis of the Fair Market Value per share on the date or dates such rights are
granted) for each calendar year such rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one or more other purchase rights at a rate equal to Twenty-Five Thousand
Dollars ($25,000.00) worth of Common Stock (determined on the basis of the
Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
(iii) If by reason of such accrual limitations, any purchase
right of a Participant does not accrue for a particular Purchase Interval,
then the payroll deductions which the Participant made during that Purchase
Interval with respect to such purchase right shall be promptly refunded.
(iv) In the event there is any conflict between the provisions
of this Article and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article shall be controlling.
9. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on April 13, 2000 and shall
become effective at the Effective Time, provided no purchase rights granted
--------
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) April 7, 2010, (ii) the date on which all shares
--------
available for issuance under the Plan shall have been sold pursuant to purchase
rights exercised under the Plan or (iii) the date on which all purchase rights
are exercised in connection with a Change in Control. No further
7
<PAGE>
purchase rights shall be granted or exercised, and no further payroll deductions
shall be collected, under the Plan following such termination.
10. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation's recognition of
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments
or revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
11. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation; however, each Plan Participant shall bear all
costs and expenses incurred by such individual in the sale or other disposition
of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8
<PAGE>
Schedule A
----------
Corporations Participating in
Employee Stock Purchase Plan
As of the Effective Time
------------------------
MarketFirst Software, Inc.
FusionDM, Inc.
9
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Base Salary shall mean the regular base salary paid to a
-----------
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan. Base
Salary shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. Base Salary shall not include (i) any overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments
received during the period of participation in the Plan and (ii) any
contributions made on the Participant's behalf by the Corporation or any
Corporate Affiliate to any employee benefit or welfare plan now or hereafter
established (other than Code Section 401(k) or Code Section 125 contributions
deducted from Base Salary).
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership of the
-----------------
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by or is under common control with the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
<PAGE>
G. Corporation shall mean MarketFirst Software, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of MarketFirst Software, Inc. which shall by appropriate
action adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement is executed and the Common Stock priced for the initial public
offering. Any Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. Eligible Employee shall mean any person who (i) is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a), and (ii) has provided at least ninety (90) days of service to a
Participating Corporation.
J. Entry Date shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public offering
pursuant to the Underwriting Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
<PAGE>
M. Participant shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
N. Participating Corporation shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. Plan shall mean the Corporation's 2000 Employee Stock Purchase
----
Plan, as set forth in this document.
P. Plan Administrator shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
Q. Purchase Date shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be August 31, 2000.
R. Purchase Interval shall mean each successive three (3)-month
-----------------
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. Quarterly Entry Date shall mean the first business day in March,
--------------------
June, September and December each year on which an Eligible Employee may first
enter an offering period.
T. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
U. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
<PAGE>
EXHIBIT 10.6
Amended and Restated
--------------------
Secured Full Recourse Promissory Note
-------------------------------------
Mountain View, California
$156,184.88 July 30, 1998
1. Obligation. In exchange for the issuance to the undersigned
----------
("Purchaser") of 2,263,549 shares (the "Shares") of the Common Stock of
MarketFirst Software, Inc., a Delaware corporation (the "Company"), receipt of
which is hereby acknowledged, Purchaser hereby promises to pay to the order of
the Company on or before July 30, 2002, at the Company's principal place of
business at 485 Clyde Avenue, Mountain View, California, or at such other place
as the Company may direct, the principal sum of ONE HUNDRED FIFTY-SIX THOUSAND
ONE HUNDRED EIGHTY-FOUR AND 88/100 DOLLARS ($156,184.88), representing
$158,448.43, the Exercise Price of the Shares pursuant to that certain Stock
Option Exercise Agreement between Purchaser and the Company dated of even date
with this Note (the "Purchase Agreement"), less $2,263.55, the par value of the
Shares, which has been paid in cash by Purchaser pursuant to Delaware General
Corporation Law) together with interest compounded in installments as
hereinafter set forth annually on the unpaid principal at the rate of 5.69%,
which rate is not less than the minimum rate established pursuant to Section
1274(d) of the Internal Revenue Code of 1986, as amended, on the earliest date
on which there was a binding contract in writing for the purchase of the Shares;
provided, however, that the rate at which interest will accrue on unpaid
- -------- -------
principal under this Note will not exceed the highest rate permitted by
applicable law. The principal sum will be due and payable on July 30, 2001 and
all payments of accrued interest will be payable on each of the first three
anniversaries of this Note.
2. Security. Payment of this Note is secured by a security interest
--------
in the Shares granted to the Company by Purchaser under a Stock Pledge Agreement
dated of even date herewith between the Company and Purchaser (the "Pledge
Agreement"). This Note is being tendered by Purchaser to the Company as part of
the Exercise Price of the Shares.
3. Default; Acceleration of Obligation. Purchaser will be deemed to
-----------------------------------
be in default under this Note and the principal sum of this Note, together with
all interest accrued thereon, will immediately become due and payable in full:
(a) upon Purchaser's failure to make any payment when due under this Note; (b)
in the event Purchaser is Terminated (as defined in the Company's 1996 Equity
Incentive Plan) for any reason (provided, however, that notwithstanding anything
-------- -------
to the contrary herein, Purchaser shall have thirty (30) calendar days from the
date of such Termination before such payment is due); (c) upon any transfer of
any of the Shares (except a transfer to the Company); (d) upon the filing by or
against Purchaser of any voluntary or involuntary petition in bankruptcy or any
petition for relief under the U.S. Federal bankruptcy code or any other state or
U.S. Federal law for the relief of debtors; or (e) upon the execution by
Purchaser of an assignment for the benefit of creditors or the appointment of a
receiver, custodian, trustee or similar party to take possession of Purchaser's
assets or property.
4. Remedies on Default. Upon any default of Purchaser under this
-------------------
Note, the Company will have, in addition to its rights and remedies under this
Note and the Pledge Agreement, full recourse against any real, personal,
tangible or intangible assets of Purchaser, and may pursue any legal or
equitable remedies that are available to it.
5. Prepayment. Prepayment of principal and/or interest due under
----------
this Note may be made at any time without penalty. Unless otherwise agreed in
writing by the Company, all payments will be made in lawful tender of the United
States and will be applied first to the payment of accrued
<PAGE>
interest, and the remaining balance of such payment, if any, will then be
applied to the payment of principal. If Purchaser prepays all or a portion of
the principal amount of this Note, the Shares paid for by the portion of
principal so paid will continue to be held in pledge under the Pledge Agreement
to serve as independent collateral for the outstanding portion of this Note for
the purpose of commencing the holding period under Rule 144(d) of the Securities
and Exchange Commission with respect to other Shares purchased with this Note
unless Purchaser notifies the Company in writing otherwise and the Company
consents to release of the Shares from the Pledge Agreement.
6. Governing Law; Waiver. The validity, construction and
---------------------
performance of this Note will be governed by the internal laws of the State of
California, excluding that body of law pertaining to conflicts of law.
Purchaser hereby waives presentment, notice of non-payment, notice of dishonor,
protest, demand and diligence.
7. Attorneys' Fees. If suit is brought for collection of this Note,
---------------
Purchaser agrees to pay all reasonable expenses, including attorneys' fees,
incurred by the holder in connection therewith whether or not such suit is
prosecuted to judgment.
8. Rule 144 Holding Period. PURCHASER UNDERSTANDS THAT THE HOLDING
-----------------------
PERIOD SPECIFIED UNDER RULE 144(d) OF THE SECURITIES AND EXCHANGE COMMISSION
WILL NOT BEGIN TO RUN WITH RESPECT TO SHARES PURCHASED WITH THIS NOTE UNTIL
EITHER (A) THE EXERCISE PRICE OF SUCH SHARES IS PAID IN FULL IN CASH OR BY OTHER
PROPERTY ACCEPTED BY THE COMPANY, OR (B) THIS NOTE IS SECURED BY COLLATERAL,
OTHER THAN THE SHARES THAT HAVE NOT BEEN FULLY PAID FOR, HAVING A FAIR MARKET
VALUE AT LEAST EQUAL TO THE AMOUNT OF PURCHASER'S THEN OUTSTANDING OBLIGATION
UNDER THIS NOTE (INCLUDING ACCRUED INTEREST).
IN WITNESS WHEREOF, Purchaser has executed this Note as of the date
and year first above written.
Peter R. Tierney
- ------------------------------------- -------------------------------------
Purchaser's Name (type or print) Peter R. Tierney
[Signature page to MarketFirst Software, Inc. Secured Full Recourse Promissory
Note]
2
<PAGE>
EXHIBIT 10.7
MARKETFIRST SOFTWARE, INC.
SOFTWARE LICENSE AGREEMENT
THIS SOFTWARE LICENSE AGREEMENT (the "Agreement") is made and entered as of
January 1, 2000, (the "Effective Date"), by and between MarketFirst Software,
Inc., a Delaware corporation having its principal place of business at: 485
Clyde Avenue, Mountain View, CA 94043 ("MarketFirst"), and SAP AG Inc., a German
corporation having its principal place of business at Neurottstr. 16, 69190
Walldorf, Germany ("Customer").
The Parties hereto agree as follows:
1. Definitions
1.1 "Commencement Date" shall mean the date on which the Programs are
delivered by MarketFirst to Customer, or if no delivery is necessary,
the effective date set forth on the Order Form.
1.2 "Designated System" or "Designated Systems" shall mean the computer
hardware and operating system(s) designated on the Order Form.
1.3 "Price List" shall mean MarketFirst's applicable standard commercial
fee schedule that is in effect when a Program License or any other
product or service is ordered by Customer.
1.4 "Program" or "Programs" shall mean the computer software in object
code form owned or distributed by MarketFirst for which Customer is
granted a Program License pursuant to this Agreement; the media upon
which such software is delivered to Customer; the guides and manuals
for use of such software ("Documentation"); and Updates.
1.5 "Program License" shall mean the license granted Customer under
Section 2.
1.6 "Server Programs" shall mean those portions of the Programs that
reside and operate on the Designated System.
1.7 "Services" shall mean Installation Services, Training Services, and
Support Services, as each of those terms are defined in Section 3.
1.8 "Supported Program License" shall mean a Program License for which
Customer has paid Support Services for the relevant time period in
accordance with Section 3 below.
1.9 "Update" shall mean a subsequent release of the Program which is
generally made available for Supported Program Licenses at no
additional charge other than media and handling charges, which consists
of minor technical or functional additions or modifications to the
Programs, and which are identified by new digits to the right of the
decimal point (e.g., version 1.1 as an Update to version 1.0). Updates
shall not include any release, option or future product which
MarketFirst licenses separately, or any upgrade in features,
functionality or performance of the Program which MarketFirst licenses
separately.
1.10 "Upgrade" shall mean a subsequent release of the Program which is made
generally available for certain Supported Program Licenses obtaining
Premium Maintenance from MarketFirst (as described in Exhibit A), at no
additional charge other than media and handling charges, which consists
of significant technical or functional additions or modifications to
the Programs, and which are identified by new digits to the left of the
decimal point (e.g., version 2.0 as an Upgrade
<PAGE>
to version 1.5). For any licensees not purchasing Premium Maintenance,
MarketFirst may license Upgrades separately. For purposes of this
Agreement, neither Updates nor Upgrades shall include software
templates created by MarketFirst known as "MarketFirst Blueprints".
1.11 "User" or "Users" shall mean an individual or individuals authorized by
Customer to use the Programs. The maximum number of Users that may use
the User Programs or access the Server Programs consistent with the
terms of licenses granted herein is specified on the Order Form.
1.12 "Simultaneous Programs" shall mean an encapsulation of an associated
set of documents and actions represented as a unique marketing program
within the MarketFirst Program Manager.
1.13 "User Programs" shall mean those portions of the Programs that reside
and operate on User Systems.
1.14 "User System" shall mean the computer hardware and operating systems
operated by Users in the course of their employment with Customer.
2. Program License
2.1 Order of Programs. The terms of this Agreement shall apply to each
Program License granted to Customer and to all services provided by
MarketFirst under this Agreement. When completed by the parties, the
Order Form(s) attached as Exhibit A to this Agreement shall evidence
---------
the Programs ordered by Customer, the Program Licenses granted and the
services to be provided to Customer hereunder. The terms and conditions
set forth in this Agreement shall control in the event that there are
different or additional terms or conditions set forth in an Order Form
or in any other purchase order form submitted by Customer or acceptance
or confirmation form issued by MarketFirst.
2.2 Rights Granted
2.2.1 Subject to the terms and conditions of this Agreement,
MarketFirst hereby grants to Customer a nontransferable,
nonexclusive license (the "Program License") to use the Programs
that Customer orders on a completed Order Form and Market First
provides to Customer under this Agreement, as follows:
2.2.1.1 To use the Server Programs solely for Customer's own
internal data processing operations, which use may be
in conjunction with other software programs, on the
Designated Systems or on a backup system if one or more
of the Designated Systems are inoperative, up to any
applicable maximum number of designated Users as set
forth in the Order Form; to use the User Programs
solely for Customer's own internal data processing
operations for and by up to the number of Users
indicated on the Order Form, provided, however, that
Customer may not relicense, sell, loan, rent, or
otherwise distribute the Programs or use the Programs
for third-party training, commercial time-sharing,
rental or service bureau use;
2.2.1.2 To use the copies of Documentation provided with the
Programs in support of Customer's authorized use of the
Programs; to reproduce Documentation, up to the number
of Users licensed, at no additional charge to Customer;
provided that all titles, trademarks, and copyright and
restricted rights notices shall be reproduced in all
such copies.
2.2.1.3 To copy the Programs for archival or backup purposes
only; provided that no other copies shall be made
without MarketFirst's prior written consent; all
2
<PAGE>
titles, trademarks, and copyright and restricted rights
notices shall be reproduced in all such copies; all
archival and backup copies of the Programs shall be
subject to the terms of this Agreement.
2.2.2 Customer shall not cause, permit, or attempt the reverse
engineering, disassembly or decompilation of the Programs.
2.2.3 MarketFirst shall retain all title, copyright and other
proprietary rights in and to the Programs. Customer does not
acquire any rights, express or implied, in the Programs, other
than those specified in this Agreement. In the event that
Customer makes suggestions to MarketFirst regarding new
features, functionality or performance that MarketFirst adopts
for the Programs, such new features, functionality or
performance shall become the sole and exclusive property of
MarketFirst, free from any restriction imposed upon MarketFirst
by the provisions of Section 7.1.
2.2.4 As an accommodation to Customer, MarketFirst may supply Customer
with pre-production releases of Programs (which may be labeled
"Alpha" or "Beta"). Customer acknowledges that these products
are not suitable for general use.
2.3 Transfer and Assignment
2.3.1 Customer may transfer a Program License within its organization
to another computer hardware and/or operating system (the
"Subsequent Designated System(s)") generally supported by
MarketFirst, upon notice to MarketFirst and so long as the total
number of Designated Systems does not exceed the maximum number
specified in the Order Form (Exhibit A); MarketFirst, in the
case of such a transfer, agrees to provide SAP, at no additional
cost, any conversion tools as may be available, and the same
support and maintenance services for the Subsequent Designated
Systems as was provided for the initial designated systems.
2.3.2 Neither this Agreement nor any rights granted hereunder, nor the
use of any of the Programs, may be sold, leased, assigned, or
otherwise transferred, in whole or in part, by Customer;
provided, however, that Customer may assign this Agreement in
connection with a merger, acquisition or sale of all or
substantially all of its assets unless the acquiring entity is a
direct competitor of MarketFirst. Any attempted assignment will
be void and of no effect unless permitted by the foregoing.
2.4 Verification. At MarketFirst's written request, not more frequently
than annually, Customer shall furnish MarketFirst with a certificate
executed by an officer of Customer (a) verifying that the Programs are
being used pursuant to the provisions of this Agreement, including any
User and other limitations; and (b) listing the locations, types and
serial numbers of the Designated Systems on which the Programs are run.
At its expense and upon reasonable prior notice to Customer and not
more frequently than annually, MarketFirst may audit Customer's use of
the Programs. Any such audit shall be conducted during regular business
hours at Customer's facilities and shall not unreasonably interfere
with Customer's business activities. If an audit reveals that Customer
has underpaid fees to MarketFirst as a result of unauthorized use or
copying of the Programs, Customer shall be invoiced for such underpaid
fees based on the Price List in effect at the time the audit is
completed plus interest thereon at the prevailing U.S. dollar prime
rate from the initial date of the unauthorized use. If the amount of
the underpayment exceeds 5% of the license fees paid, then Customer
shall also pay MarketFirst's reasonable costs of conducting the audit.
3
<PAGE>
3. Services
3.1 Installation /Risk of Loss. If ordered by Customer on the Order Form,
MarketFirst shall deliver the Programs and related Documentation to
Customer, and install the Programs on the Designated System(s) and
provide configuration assistance for the Programs as reasonably
requested by Customer for up to the number of person-days set forth in
Exhibit A ("Installation Services") at a time mutually agreed to by
the parties, subject to availability of the Designated System(s) and
fulfillment of Customer's obligations under this Section 3.1.
Customer will be solely responsible for completing all tasks that are
required to prepare Customer's site and equipment for the performance
of such services by MarketFirst, including without limitation all
items identified on MarketFirst's Site Preparation Checklist, the
terms of which are incorporated into this Agreement by reference.
Customer is responsible for any loss, damage or destruction to the
Programs upon successful implementation by MarketFirst; provided,
however, that MarketFirst shall bear the risk of loss, damage or
destruction to the Programs at the time that the Programs is in
MarketFirst's possession or as a result of MarketFirst's work with the
Programs. Replacement of lost or damaged Programs shall be at the cost
and expense of the party bearing the risk of loss at the time of the
loss or damage.
3.2 Training. If ordered by Customer on the Order Form, MarketFirst will
provide training in the functions and use of the Programs ("Training
Services"). Training Services will be conducted for up to the number
of days listed in Exhibit A and will be conducted at MarketFirst's
offices unless the parties otherwise agree. For training conducted at
Customer's facilities, Customer agrees to make available space and
facilities to accommodate up to ten (10) people. Additional training
may be provided by MarketFirst at MarketFirst's then-current rates.
3.3 Software Maintenance Support Services. If ordered by Customer on the
Order Form, MarketFirst will provide Support Services for the Programs
under the terms and conditions attached hereto as Exhibit B ("Support
---------
Services"), subject to the payment by Customer of the applicable fees.
MarketFirst reserves the right to modify its Support Services Policies
in its reasonable discretion upon notice to Customer.
3.4 Travel Expenses: SAP shall be obligated to make payments for travel
expenses arising out of any services performed by MarketFirst
personnel under this Agreement, only if such travel has been incurred
in accordance with SAP's travel policy (Incorporated into this
agreement as Exhibit C) as amended from time to time.
4. Term and Termination
4.1 Term. Each Program License granted under this Agreement shall remain
in effect perpetually unless the license or this Agreement is
terminated as provided in this Section 4.
4.2 Termination. Either party may terminate this Agreement or any license
upon written notice if one party materially breaches this Agreement
and (if capable of cure) fails to correct the breach within 30 days
following written notice from the other specifying the breach.
4.3 Effect of Termination. Termination of this Agreement or any license
shall not limit either party from pursuing other remedies available to
it, including injunctive relief, nor shall such termination relieve
Customer of its obligation to pay all fees that have accrued or are
otherwise owed by Customer under any Order Form, provided, however,
that Customer may terminate this Agreement in its sole discretion at
any time until March 30, 2000 without any License fees due to
MarketFirst. Customer agrees to pay for all Consulting Services
performed through the date of
4
<PAGE>
termination and any related expenses. The parties' rights and
obligations under Sections 2.2.3, 2.5, 3, 4, 5.1, 6 and 7 shall
survive termination of this Agreement.
4.4 Handling of Programs Upon Termination. If a license granted under
this Agreement expires or otherwise terminates, Customer shall (a)
cease using the Programs, and (b) certify to MarketFirst within one
month after expiration or termination that Customer has destroyed or
has returned to MarketFirst the Programs and all copies. This
requirement applies to copies in all forms, partial and complete, in
all types of media and computer memory, and whether or not modified or
merged into other materials. Before returning Programs to
MarketFirst, Customer shall acquire a Return Material Authorization
("RMA") number from Market First.
5. Replacement, Limited Warranties, Exclusive Remedies
5.1 Patent and Copyright Indemnity. MarketFirst shall indemnify, defend
and hold Customer harmless from and against any claims that the
Programs infringe any patent or copyright or misappropriate a trade
secret; provided that MarketFirst is given prompt notice of such claim
and is given information, reasonable assistance, and sole authority to
defend or settle the claim. In the defense or settlement of the
claim, MarketFirst may obtain for Customer the right to continue using
the Programs, replace or modify the Programs so that it becomes
noninfringing, provided that any such settlement shall not adversely
affect Customer's use of the Programs. MarketFirst shall have no
liability if the alleged infringement is based on (a) a modification
of the Programs by anyone other than MarketFirst; (b) the use of the
Programs on other than the Designated Systems or User Systems; (c) the
use of the Programs other than in accordance with the Documentation;
or (d) the use of the Programs after notice of the alleged or actual
infringement, from MarketFirst or any appropriate authority.
Customer agrees to defend, indemnify and hold MarketFirst harmless
from and against any and all claims, suits, proceedings, losses,
liabilities, damages, costs and expenses, including reasonable
attorney's fees ("Losses") made against MarketFirst by third parties
alleging personal or property damage as a result of Customer's use of
the Programs, as long as such proceedings are not based on third-party
claims of intellectual property infringement by the Programs.
5.2 Limited Warranties and Disclaimers
5.2.1 Limited Program Warranty. MarketFirst warrants that for a
period of one year from the Commencement Date, each unmodified
Program will perform in all material respects the functions
described in the Documentation. Further, MarketFirst warrants
that for a period of one year after the Commencement Date, each
unmodified Program will be Year 2000 Complaint, provided that
all third party products that exchange data with the Program do
so properly and accurately and in a form and format compatible
with the Program. For purposes of this Agreement, "Year 2000
Compliant" means that the Program, when used in accordance with
the Documentation and when processing data containing dates in
the year 2000 and in any preceding and following years,
including leap years, will (i) initiate and operate, (ii)
correctly store, represent and process dates, and (iii) not
cause or result in an abnormal termination or ending.
5.2.2 Limited Media Warranty. MarketFirst warrants that the tapes,
diskettes or other media upon which Programs are delivered to
Customer will be free of defects in materials and workmanship
under normal use for six months from the Commencement Date.
5.2.3 Limited Services Warranty. MarketFirst warrants that any
Services performed by MarketFirst under this Agreement will be
performed in a manner consistent with generally accepted
industry standards. This warranty shall be valid for six months
from performance of service.
5
<PAGE>
5.2.4 Disclaimers. MarketFirst does not warrant that the Programs
will meet Customer's requirements, that the Programs will
operate in the combinations which Customer may select for use,
that the operation of the Programs will be uninterrupted or
error-free, or that all Program errors will be corrected. PRE-
PRODUCTION RELEASES OF PROGRAMS AND COMPUTER BASED TRAINING
PRODUCTS ARE DISTRIBUTED "AS IS". THE WARRANTIES ABOVE ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS
OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 Exclusive Remedies. For any breach of the warranties contained in
this Section 5, Customer's exclusive remedy and MarketFirst's entire
liability shall be:
5.3.1 For Programs. The correction of Program errors that cause
breach of this warranty, or if MarketFirst is unable to make
the Program operate as warranted, Customer shall be entitled,
at its discretion, to either recover the license fees paid to
MarketFirst, in which case Customer shall immediately hand back
to MarketFirst all deliverables under this Agreement, or claim
a reduction of license fees for the pro-rata functionality of
the Program which has been lost, amortized over a two (2) year
period since the Commencement Date, in which case Customer
shall remain entitled to use the Programs.
5.3.2 For Media. The replacement of defective media returned within
ninety (90) days of the applicable Commencement Date. Before
returning defective media to MarketFirst, Customer shall
acquire an RMA number from MarketFirst.
5.3.3 For Services. If MarketFirst is unable to perform the Services
as warranted, MarketFirst shall re-perform the Services and, if
MarketFirst is unable to provide Services that comply with the
applicable warranty, Customer shall be entitled to recover the
fees paid to MarketFirst for the unsatisfactory Services.
6. Payment
6.1 Invoicing and Payment. License fees shall be invoiced on March 31,
2000 and payable 30 days from invoice date. Service Bundles are
billed and payable in advance. Support Services fees shall be payable
in accordance with the terms of Exhibit B hereto. All other
---------
applicable fees shall be payable thirty (30) days from the invoice
date, and shall be deemed overdue if they remain unpaid thereafter.
Any amounts payable by Customer hereunder which remain unpaid after
the due date shall be subject to a late charge equal to 2% above the
base interest rate as adjusted by the European Central Bank from time
to time from the due date until such amount is paid. Customer agrees
to pay applicable media and shipping charges.
6.2 Other Expenses. Customer agrees to pay all reasonable out-of-pocket
expenses incurred by MarketFirst in performing the Services, including
airfare, hotel, and meals, for MarketFirst personnel performing
Services at Customer's site.
6.3 Taxes. The fees listed in this Agreement do not include taxes; if
MarketFirst is required to pay sales, use, property, value-added or
other taxes based on the licenses or services granted in this
Agreement or on Customer's use of Programs or services, then such
taxes shall be billed to and paid by Customer. This Section shall not
apply to taxes based on MarketFirst's income.
7. General Terms
7.1 Nondisclosure. By virtue of this Agreement, the parties may have
access to information that is confidential to one another
("Confidential Information"). Confidential Information shall include
6
<PAGE>
but not be limited to the Programs, source code, algorithms, formulas,
methods, know-how, processes, designs, new products, developmental
work, marketing requirements, marketing plans, customer names,
prospective customer names, the terms and pricing under this
Agreement, and all information clearly identified in writing at the
time of disclosure as confidential.
A party's Confidential Information shall not include information that
(a) is or becomes a part of the public domain through no act or
omission of the other party; (b) was in the other party's lawful
possession prior to the disclosure and had not been obtained by the
other party either directly or indirectly from the disclosing party;
(c) is lawfully disclosed to the other party by a third party without
restriction on disclosure; or (d) is independently developed by the
other party. Customer shall not disclose the results of any
performance tests of the Programs to any third party without
MarketFirst's prior written approval.
The parties agree to hold each other's Confidential Information in
confidence during the term of this Agreement and for a period of five
years after termination of this Agreement. The parties agree, unless
required by law, not to make each other's Confidential Information
available in any form to any third party or to use each other's
Confidential Information for any purpose other than the implementation
of this Agreement. Each party agrees to take all reasonable steps to
ensure that Confidential Information is not disclosed or distributed
by its employees or agents in violation of the terms of this
Agreement. MarketFirst recognizes that Customer has the right to
independently develop or acquire software that would compete with the
Programs without use of the Confidential Information disclosed by
MarketFirst hereunder.
7.2 Limitation of Liability. EXCEPT FOR THE PARTIES`LIABILITY UNDER
SECTION 5.1 (INFRINGEMENT INDEMNITY) IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, REVENUE,
DATA OR USE, INCURRED BY EITHER PARTY OR ANY THIRD PARTY, WHETHER IN
AN ACTION IN CONTRACT OR TORT, EVEN IF THE OTHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. MarketFirst's liability
for damages hereunder shall, except in cases of willful misconduct or
in cases of infringement claims,, in no event exceed the amount of
fees paid by Customer under this Agreement, and if such damages result
from Customer's use of the Program or services, such liability shall
be limited to fees paid for the relevant Program or services giving
rise to the liability. The provisions of this Agreement allocate the
risks between MarketFirst and Customer. MarketFirst's pricing
reflects this allocation of risk and the limitation of liability
specified herein.
7.3 Governing Law. This Agreement and all matters arising out of or
relating to this Agreement, shall be governed by the laws of the State
of New York, excluding its conflict of law provisions.
7.4 Jurisdiction. Any legal action or proceeding relating to this
Agreement shall be instituted in a state court in New York, NY, or in
a federal court in the State of New York. MarketFirst and Customer
agree to submit to the jurisdiction of, and agree that venue is proper
in, these courts in any such legal action or proceeding. The
prevailing party shall be entitled to reasonable attorney fees and
expenses. - - Software will be physically installed in Germany - NY
is a fair compromise
7.5 Notices. All notices, including notices of address change, required
to be sent hereunder shall be in writing and shall be deemed to have
been given upon the date sent by confirmed facsimile or three (3) days
following the date such notice was mailed by first class mail, to the
addresses first set forth above. To expedite order processing,
Customer agrees that MarketFirst may treat documents faxed by Customer
to MarketFirst as original documents; nevertheless, either party may
require the other to exchange original signed documents.
7
<PAGE>
7.6 Severability. In the event any provision of this Agreement is held to
be invalid or unenforceable, the remaining provisions of this
Agreement will remain in full force.
7.7 Waiver. The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent
default or breach. Except for actions for nonpayment or breach of
MarketFirst's proprietary rights in the Programs, no action,
regardless of form, arising out of this Agreement may be brought by
either party more than one year after the cause of action has accrued.
7.8 Export Administration. Customer agrees to comply fully with all
relevant export laws and regulations of the United States ("Export
Laws") to ensure that neither the Programs nor any direct product
thereof are (i) exported, directly or indirectly, in violation of
Export Laws; or (ii) intended to be used for any purposes prohibited
by the Export Laws, including, without limitation, nuclear, chemical
or biological weapons proliferation.
7.9 Relationship Between the Parties. MarketFirst is an independent
contractor; nothing in this Agreement shall be construed to create a
partnership, joint venture or agency relationship between the parties.
7.10 Product Reference. Customer agrees, upon request and with reasonable
notice from MarketFirst subject to Customer's consent in each specific
case, which shall not be unreasonably withheld, to reasonably act in
the capacity of a reference, discussing MarketFirst products utilized
and services received by Customer, with potential MarketFirst
customers or business partners.
7.11 Press Release. Customer agrees, upon request and with reasonable
notice from MarketFirst, to allow the use of its name and Program(s)
it has implemented, to be used in a MarketFirst press release,
announcing Customers acquisition and use of the Program(s). Customer
will have the right to review and approve the release before
publication, and such approval will not be unreasonably withheld or
delayed. If desired and agreed by both parties, a joint press release
may be issued. Under the joint release, both parties will agree on the
final version of the release prior to publication.
7.12 Successors. This Agreement shall inure to the benefit of the
successors and assigns of MarketFirst and, subject to the restrictions
on transfer or assignment herein set forth, shall be binding upon
Customer and Customer's successors and assigns.
7.13 Entire Agreement. This Agreement together with the exhibits,
appendices and attachments hereto constitutes the complete agreement
between the parties and supersedes all prior or contemporaneous
agreements or representations, written or oral, concerning the subject
matter of this Agreement and such exhibits, appendices and
attachments. This Agreement may not be modified or amended except in
a writing signed by a duly authorized representative of each party, no
other act, document, usage or custom shall be deemed to amend or
modify this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
SAP AG MarketFirst Software Inc.
8
<PAGE>
Signature: __________________________ Signature: ___________________________
Name:________________________________ Name:_________________________________
Title:_______________________________ Title: _______________________________
Date:________________________________ Date: ________________________________
9
<PAGE>
EXHIBIT A TO SOFTWARE LICENSE AGREEMENT
MARKETFIRST SOFTWARE, INC.
ORDER FORM
PRODUCT ORDER FORM - LICENSING
--------------------------------
Client Name: SAP America, Inc.
- --------------------------------------------------------------------------------
Authorized Contact Name: Gottfried Sehringer
- --------------------------------------------------------------------------------
Client Ordering Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Client Phone Number:
- --------------------------------------------------------------------------------
MarketFirst Agreement #:
- --------------------------------------------------------------------------------
MarketFirst Agreement Type License
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Designated System (hardware & software environment) for the Products
described below:
- --------------------------------------------------------------------------------
Operating System: NT Database: SQL Server Client: Windows 95/NT
- --------------------------------------------------------------------------------
2. License Fees:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
List Discounted
A. MarketFirst Products: Qty. Unit Price Extended Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1) MarketFirst BASE License Fees includes: 1 $295,000 $295,000
- Includes Unlimited Simultaneous eMarketing Program
- Includes 1,000,000 Contact Database
- Includes one (1) instance of production software
- Includes one (1) development/test copy with usage consistent
with governing software license agreement
2) Additional 1,000,000 contact increments 0 $ 50,000 $ 0
3) SQR Report Writer Software 0 TBD $ 0
4) MarketFirst Annual Maintenance & Support 1 $124,950 $ 61,950
(21% of discounted license and contract
increment price)
- ----------------------------------------------------------------------------------------------------------------------
Total MarketFirst License Fee $295,000
First Year Maintenance and Support $ 61,950
Total SAP License and Maintenance Fees $356,950
---------------
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
3. Professional Services
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A. MarketFirst Consulting Qty. Unit Price Extended Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Package Includes: 1 $40,000 $40,000 (A)
- 30 Days of Professional Services
- Train 3 Users at MarketFirst Facility
. MarketFirst Consulting rates are billable on a
time and materials basis at:
- Functional Consultant $2,000/day
- Technical Consultant $1,750/day.
- Training $495 per student/day
</TABLE>
(A) Additional service bundles for packages of 30 days or more are available
----------------------------------------------------------------------------
for a period of one year from the effective rates of $1,333
- --------------------------------------------------------------------------------
4. Investment Summary
- --------------------------------------------------------------------------------
Total License $295,000
Annual Support and Maintenance Fees $ 61,950
Total Professional Service Fees $ 40,000
--------
Total Investment $396,950
--------
--------
- --------------------------------------------------------------------------------
5. Purchasing Information (please check one box and fill in the appropriate
information)
- --------------------------------------------------------------------------------
[_] A Client purchase order will be provided upon signing of this Order Form.
[_] This Order Form shall be deemed a Client purchase order and is sufficient
to ensure timely payment by Client.*
[_] Purchase orders are not issued by Client and are not required for the
timely payment by Client.*
[_] A purchase order is forthcoming; however, it is not a condition for
payment and will not supercede the payment terms of the Agreement or this
Order. The PO# will be_______________________* (Note, a PO# must be
provided to process this order.)
*The invoice should be sent to the attention of _______________________
Except as set forth below, all MarketFirst Product and services obtained herein
are fully subject to the terms and conditions of the MarketFirst Agreement
referred to above.
The consulting services and the Product and license fees contained on this Order
Form are proposed separately. Client may acquire the Product licenses without
acquiring MarketFirst consulting services, and may acquire the Product licenses
and consulting services separately at the fees stated in this Order Form.
All services are provided on a time and materials basis and are separate from
any license fees. MarketFirst will warrant services under a separate warranty
which is unrelated to a Product warranty.
Customer Support for subsequent periods is based upon the pricing policies in
effect on the date of renewal.
11
<PAGE>
V. Taxes
All fees are quoted exclusive of applicable taxes. Customer is responsible
for sales taxes and all other applicable taxes, to be billed separately.
AGREED TO:
SAP AG MarketFirst Software Inc.
Signature: __________________________ Signature: ___________________________
Name:________________________________ Name:_________________________________
Title:_______________________________ Title: _______________________________
Date:________________________________ Date: ________________________________
12
<PAGE>
EXHIBIT B TO SOFTWARE LICENSE AGREEMENT
MARKETFIRST SOFTWARE, INC.
SOFTWARE MAINTENANCE AGREEMENT
MarketFirst shall provide to Customer the following support and maintenance
services set forth in this Exhibit, upon payment of applicable Maintenance
Support fees described in Exhibit A.
1. Definitions.
Capitalized terms used in this Exhibit shall have the same meanings as in the
Agreement, unless otherwise defined herein. In addition, the following
definitions apply for this Exhibit:
1.1. "Error" means code which exists in a Program that causes the Program
to fail materially to execute correctly on the Designated System as
specified in the Documentation for such Program.
1.2. "Error Correction" means additional or replacement code of the
Program or other workaround provided by MarketFirst to remedy an
Error.
1.3. "Severity 1 Error" means an Error, which prevents Customer from using
the Program.
1.4. "Severity 2 Error" means an Error, which prevents Customer from using
a part of the Program or from completing a specific task within the
Program.
1.5. "Severity 3 Error" means an Error which does not prevent Customer
from using any part of the Program but may be a source of nuisance for
Customer's users due to perceived performance, usability or
presentation issues.
1.6. "Enhancement Request" means a request for Program functionality that
is in addition to or beyond the scope of the Program functions or
features as described in the Documentation.
2. Maintenance Services
2.1. Error Correction. During the term of this Exhibit, MarketFirst shall
use its best efforts to correct any Errors in the Programs within the
time frames described below, provided Customer gives MarketFirst
notice describing the Error. MarketFirst reserves the right to assign
a severity level to the reported Error. Customer shall be responsible
for installing Updates and Corrective Code Releases delivered to
Customer by MarketFirst in a timely manner. The time periods for
responding to reported Errors shall be as follows:
2.1.1. Severity 1 Errors. MarketFirst shall provide Customer with a
response within 24 hours of receiving the Error report. Within
three (3) working days of receiving the report, MarketFirst
will provide Customer with either a Corrective Code Release or
a solution suggestion for the Error.
2.1.2. Severity 2 Errors. MarketFirst shall provide Customer with a
response within three (2) working days of receiving the Error
report. Within ten (8) working days of receiving the report,
MarketFirst will provide Customer with either a Error
Correction or a solution suggestion for the Error.
13
<PAGE>
2.1.3. Severity 3 Errors. MarketFirst shall provide Customer with a
response within five (3) working days of receiving the Error
report. Within fifteen (10) working days of receiving the
report, MarketFirst will provide Customer with a statement as
to the disposition of the reported Error. This may include
correcting the Error in a Error Correction or in an Update or
in a future Program release.
2.1.4. Enhancement Requests. MarketFirst shall provide Customer with
a response within five (5) working days of receiving the
Enhancement Request. Within fifteen (15) working days of
receiving the request, MarketFirst will provide Customer with
a statement as to the disposition of the Enhancement Request,
which MarketFirst shall determine in its sole discretion. This
may include providing the requested or similar functionality
in an Update or in a future Program release.
2.2. Customer Assistance. Customer agrees to provide MarketFirst with
printouts, as requested, and with sufficient support and test time on
Customer's equipment to duplicate the Error (which time shall not
unreasonably interfere with Customers normal operations), determine
that the Error is with the Programs covered hereunder, correct the
Error and determine that the Error has been corrected.
2.3. Current Release. MarketFirst's obligations under this Exhibit shall
apply only to those releases of the applicable Programs that are then-
currently supported by MarketFirst. MarketFirst shall have the right,
at any time after a particular release has been superseded by another
release, to terminate support with respect to the superseded release
upon giving not less than ninety (90) days notice. Notwithstanding
the foregoing, MarketFirst shall not terminate support for any release
sooner than one (1) year after general commercial availability of such
release and shall at all times provide support for the two most recent
releases of the Programs.
2.4. Telephone Support. During the term of this Exhibit, MarketFirst will
provide telephone consultation and advice to Customer regarding the
technical support of the Programs. Such telephone assistance, and all
other assistance provided by MarketFirst hereunder, shall be to
respond to Errors reported to MarketFirst, and shall be through only
the Authorized Contacts. The Authorized Contacts shall be responsible
for supporting Customer's other users of the Programs. Authorized
Contacts may telephone for problem resolution during the hours of 6
a.m. and 6 p.m. Pacific Time, Monday through Friday, excluding
MarketFirst holidays.
2.5. Limitations. MarketFirst shall have no obligation under this Exhibit
for the correction of Errors which are due to a breach by Customer of
the terms of this Exhibit or the Agreement,or to any modifications to
the Programs made by Customer. If MarketFirst agrees to remedy any
errors or problems not covered by the terms of this Exhibit, Customer
shall pay MarketFirst for all such work performed at MarketFirst's
then current standard time and materials charges (what are they? -
current rates reflected on the order form). Such amount shall be due
and payable within thirty (30) days of invoicing by MarketFirst.
Customer acknowledges that MarketFirst is under no obligation to
perform services with respect to a) any hardware or b) any software
which is not the Program.
3. Corrective Code Releases
Provided this Exhibit is in effect, MarketFirst agrees to deliver to Customer
one (1) copy of any Error Corrections to the Programs and one set of the
Documentation relating thereto. Unless otherwise agreed, such materials will be
sent to the location for shipment set forth on Exhibit A hereto. MarketFirst
shall deliver Updates as provided in the Agreement. Upon delivery of any
Update, Error Correction, or Documentation, such Update, Error Correction or
Documentation shall be considered part of the Programs and shall be subject to
the terms and conditions of the
14
<PAGE>
Agreement.
4. Maintenance Fees; Updates and Upgrades
Customer shall pay to MarketFirst the annual maintenance fees designated in
Exhibit A of the Agreement upon the terms provided therein. Fees shall be
payable in advance and shall accrue commencing upon delivery of the Programs
under the Agreement, and upon each annual anniversary date thereafter. If
Customer orders Standard Maintenance on the Order Form, then MarketFirst shall
deliver Updates to Customer at no additional charge, as such Updates are created
by MarketFirst in its discretion. If Customer orders Premium Maintenance on the
Order Form, then MarketFirst shall deliver Updates and Upgrades to Customer at
no additional charge, as such Updates and Upgrades are created by MarketFirst in
its discretion.
5. Term and Termination
5.1. Term. Maintenance services under this Exhibit shall begin on date of
delivery of the Programs under the Agreement. Thereafter, and on each
on each annual anniversary date thereafter, subject to receipt of
payment in advance, the Agreement shall continue for a term of one
year.
5.2. Termination. This Exhibit will terminate upon termination of the
Agreement or on an annual anniversary date if payment has not been
received by MarketFirst in full prior to the commencement of the
corresponding term of one year. In addition, if Customer fails to
install Updates or take corrective actions as suggested by MarketFirst
and this results in recurring Error reports, MarketFirst reserves the
right to terminate this Exhibit.
5.3. Charges. In the event of termination, all fees or charges then due and
payable, or to become due and payable in the future based upon
services already rendered, shall be immediately due and payable and
Customer's obligations to pay such amounts shall survive the
termination of this Exhibit.
AGREED TO:
SAP AG MarketFirst Software Inc.
Signature: __________________________ Signature: ___________________________
Name:________________________________ Name:_________________________________
Title:_______________________________ Title: _______________________________
Date:________________________________ Date: ________________________________
15
<PAGE>
Exhibit C
SAP TRAVEL POLICY
SAP America's travel agency is American Express One (Formally Travel One). All
business travel reservations including hotel and car requests must be made
through American Express One at 1-888-727-5454.
Airline Agreements:
- -------------------
Our agency has been given specific instructions to book only on our contracted
preferred airline carriers where we have negotiated substantial discounts.
American Express will not offer and/or book off our contracted carriers UNLESS
our preferred carriers do not offer service into the requested destination
within a 90 minute window or nonstop service is unavailable on the preferred
carrier.
Our agency will offer economy class non-refundable tickets only. Economy class
non-refundable tickets can be hundreds of dollars less than a fully refundable
fare. If the individual booked a non-refundable class and their travel plans
changed, they must return the tickets immediately to American Express One and
the ticket value will be placed on account for the individual with that
particular airline for future travel.
Back to back tickets are considered illegal in the travel industry. SAP America
does not condone the usage of back to back tickets and American Express One will
not issue such tickets.
Hotel Agreements:
- -----------------
SAP America has signed agreements with specific hotel franchises throughout the
United States and our agency will offer you a preferred property reflecting the
SAP America negotiated rate.
Car Rental Agencies:
- --------------------
All car rentals must be arranged through American Express One. Our agency is
required to book the preferred car rental agencies, Hertz and Alamo. All
individuals are expected to pay the rental expense and then report the cost for
reimbursement purposes.
Midclass (Class C) automobiles will be used by all individuals. All rental cars
should be refueled prior to being returned to avoid a fuel surcharge. For
insurance purposes, please refer to your companies corporate policy. SAP
America is not responsible for any insurance liability.
16
<PAGE>
Personal Auto Reimbursement:
- ----------------------------
Use of an individuals personal automobile for company business will be
reimbursed at the current rate of $.315 per mile for actual miles driven. In
addition, tolls and parking fees will be reimbursed as long as the proper
receipt is included.
Meals:
- ------
Business Travel: The actual cost of meals incurred while traveling overnight on
business will be reimbursed not to exceed the following schedule:
A - Breakfast $10.00
B - Lunch $15.00
C - Dinner $35.00
Meals for individuals, including lunch, who are not staying overnight on
business are at the expense of the individual.
Expenses:
- ---------
Original receipts must be obtained for all expenses. Handwritten receipts or
stubs will not be accepted.
The use of taxi, subway and hotel shuttles are reimbursable expenses but a
receipt is necessary to obtain reimbursement.
Misrepresentation of expenses is considered a gross misconduct and grounds for
termination of the agreement between the individuals company and SAP
17
<PAGE>
Exhibit 10.8
SHORELINE TECHNOLOGY PARK
MOUNTAIN VIEW, CALIFORNIA
OFFICE LEASE AGREEMENT
BETWEEN
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware limited liability company
("LANDLORD")
AND
MARKETFIRST SOFTWARE, INC., a Delaware corporation
("TENANT")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. Basic Lease Information.......................................... 1
II. Lease Grant...................................................... 3
III. Possession....................................................... 3
IV. Rent............................................................. 4
V. Compliance with Laws; Use........................................ 8
VI. Security Deposit................................................. 8
VII. Services......................................................... 8
VIII. Leasehold Improvements........................................... 9
IX. Repairs, Maintenance and Alterations............................. 9
X. Use of Utility Services by Tenant................................ 11
XI. Entry by Landlord................................................ 11
XII. Assignment and Subletting........................................ 12
XIII. Liens............................................................ 13
XIV. Indemnity and Waiver of Claims................................... 13
XV. Insurance........................................................ 14
XVI. Subrogation...................................................... 14
XVII. Casualty Damage.................................................. 15
XVIII. Condemnation..................................................... 15
XIX. Events of Default................................................ 16
XX. Remedies......................................................... 16
XXI. Limitation of Liability.......................................... 18
XXII. No Waiver........................................................ 18
XXIII. Quiet Enjoyment.................................................. 18
XXIV. Relocation....................................................... 18
XXV. Holding Over..................................................... 18
XXVI. Subordination to Mortgages; Estoppel Certificate................. 18
XXVII. Attorneys' Fees.................................................. 19
XXVIII. Notice........................................................... 19
XXIX. Excepted Rights.................................................. 19
XXX. Surrender of Premises............................................ 20
XXXI. Miscellaneous.................................................... 20
XXXII. Entire Agreement................................................. 21
</TABLE>
i
<PAGE>
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT (the "Lease") is made and entered into as of
the 24th day of January, 2000, by and between EOP-SHORELINE TECHNOLOGY PARK,
L.L.C., a Delaware limited liability company ("Landlord") and MARKETFIRST
SOFTWARE, INC., a Delaware corporation ("Tenant").
I. Basic Lease Information.
A. "Building" shall mean the building located at 2061 Stierlin Court,
Mountain View, California.
B. "Premises" shall mean the area shown on Exhibit A-1 to this Lease.
The "Rentable Square Footage of the Premises" is deemed to be 66,096
square feet.
C. "Rentable Square Footage of the Building" is deemed to be 66,096
square feet. Landlord and Tenant stipulate that the Premises include
all of the floors in their entirety, all corridors and restroom
facilities located in the Building and accordingly, all such full
floors shall be considered part of the Premises. Landlord and Tenant
further stipulate and agree that the Rentable Square Footage of the
Building and the Rentable Square Footage of the Premises are correct
and shall not be remeasured.
D. "Base Rent":
---------------------------------------------------------------------
Annual Rate Annual Monthly
Period Per Square Foot Base Rent Base Rent
---------------------------------------------------------------------
4/1/00 - 3/31/01 $37.80 $2,498,428.80 $208,202.4
---------------------------------------------------------------------
4/1/01 - 3/31/02 $39.00 $2,577,744.00 $214,812.00
---------------------------------------------------------------------
4/1/02 - 3/31/03 $40.20 $2,657,059.20 $221,421.60
---------------------------------------------------------------------
4/1/03 - 3/31/04 $41.40 $2,736,374.40 $228,031.20
---------------------------------------------------------------------
4/1/04 - 3/31/05 $42.60 $2,815,689.60 $234,640.80
---------------------------------------------------------------------
4/1/05 - 3/31/06 $43.80 $2,895,004.80 $241,250.40
---------------------------------------------------------------------
4/1/06 - 4/30/07 $45.00 $2,974,320.00 $247,860.00
---------------------------------------------------------------------
Notwithstanding the above schedule of Base Rent to the contrary, as
long as Tenant is not in default, Tenant shall be entitled to (i) an
abatement of 1 full calendar month of Base Rent in the amount of
$208,202.40 (the "Abated Base Rent") for the 1st full calendar month
of the Term (the "Abatement Period") and (ii) an abatement of 1 full
calendar month of Expenses and Taxes (as hereinafter defined) (the
"Abated Expenses and Taxes") for the Abatement Period. In the event
Tenant defaults at any time during the Term, all Abated Base Rent and
1
<PAGE>
Abated Expenses and Taxes shall immediately become due and payable.
The payment by Tenant of the Abated Base Rent and Abated Expenses and
Taxes in the event of a default shall not limit or affect any of
Landlord's other rights, pursuant to this Lease or at law or in
equity. During the Abatement Period, only Base Rent and Expenses and
Taxes shall be abated, and all other Additional Rent and other costs
and charges specified in this Lease shall remain as due and payable
pursuant to the provisions of this Lease. In the event that Tenant
substantially completes the Initial Alterations (as defined in Exhibit
D of this Lease) prior to the last day of the Abatement Period, Tenant
shall commence paying Base Rent in accordance with the above Base Rent
schedule and Expenses and Taxes in accordance with Article IV of this
Lease commencing with the first day after the expiration of the
Abatement Period.
E. "Tenant's Pro Rata Share": 100%.
F. "Term": A period of 85 months. The Term shall commence on April 1,
2000 (the "Commencement Date") and, unless terminated early in
accordance with this Lease, end on April 30, 2007 (the "Termination
Date"). Landlord and Tenant acknowledge that as of the date of this
Lease, it is currently anticipated that the Commencement Date shall be
April 1, 2000, and Landlord shall use its reasonable efforts to tender
possession of the Premises to Tenant by April 1, 2000. In the event
the Commencement Date is not April 1, 2000, Landlord and Tenant shall
enter into a commencement letter agreement in the form attached as
Exhibit C setting forth the actual Commencement Date.
G. Tenant allowance(s): $5.00 per rentable square foot of the Premises
as more fully described on Exhibit D of this Lease.
H. "Security Deposit": $1,249,214.42. The Security Deposit shall be in
the form of an irrevocable letter of credit (the "Letter of Credit"),
as more fully described in Article VI of this Lease.
I. "Guarantor(s)": As of the date of this Lease, there are no
Guarantors.
J. "Broker(s)": Cornish & Carey Commercial representing Landlord and CPS
representing Tenant.
K. "Permitted Use": Office, research and development, manufacturing,
storage and other legal uses as permitted by local zoning laws
applicable to the Premises and otherwise permitted by the Governing
Documents (as that term is defined in Article XXXI.M. below).
L. "Notice Addresses":
Tenant:
2
<PAGE>
On and after the Commencement Date, notices shall be sent to Tenant at
the Premises. Prior to the Commencement Date, notices shall be sent
to Tenant at the following address:
485 Clyde Avenue
Mountain View, California 94043
Attn: Bob Sator - Vice President Finance
Landlord: With a copy to:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C. Equity Office Properties
c/o Equity Office Properties Trust Two North Riverside Plaza
4 Palo Alto Square Suite 2200
3000 El Camino Real, Suite 130 Chicago, Illinois 60606
Palo Alto, California 94306-2122 Attention: Regional Counsel -
Attention: Building Manager Pacific Region
Rent (defined in Section IV.A) is payable to the order of Equity
Office Properties at the following address: EOP Operating Limited
Partnership, as agent for EOP-Shoreline Technology Park, Dept. #8824,
Los Angeles, California 90084-8824.
M. "Business Day(s)" are Monday through Friday of each week, exclusive of
New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day ("Holidays"). Landlord may
designate additional Holidays, provided that the additional Holidays
are commonly recognized by other office buildings in the area where
the Building is located.
N. "Landlord Work" means the work, if any, that Landlord is obligated to
perform in the Premises pursuant to a separate work letter agreement
(the "Work Letter"), if any, attached as Exhibit D. If a Work Letter
is not attached to this Lease or if an attached Work Letter does not
require Landlord to perform any work, the occurrence of the
Commencement Date shall not be conditioned upon the performance of
work by Landlord and, accordingly, Section III.A. shall not be
applicable to the determination of the Commencement Date.
O. "Law(s)" means all applicable statutes, codes, ordinances, orders,
rules and regulations of any municipal or governmental entity.
P. "Normal Business Hours" for the Building are 8:00 a.m. to 5:30 p.m. on
Business Days.
Q. "Property" means the Building and the parcel(s) of land on which it is
located and the Building's parking area and other improvements serving
the Building, if any, and the parcel(s) of land on which they are
located.
3
<PAGE>
R. "Project" shall mean the development located on approximately 51.83
acres commonly described as Shoreline Technology Park, which includes
the Building, the Property, as well as other buildings and property as
outlined on Exhibit A-2 attached hereto and incorporated herein.
S. "Rentable Square Footage of the Project" is deemed to be 726,508
square feet.
T. Building allocable share is deemed to be 9.0978%.
II. Lease Grant.
Landlord leases the Premises to Tenant and Tenant leases the Premises from
Landlord, together with the right in common with others to use any other
portions of the Project that are designated by Landlord for the common use of
tenants and others, such as sidewalks, unreserved parking areas, common
corridors, elevator foyers, restrooms, vending areas, lobby areas, artificial
lakes, walkways, water amenities, landscaping, plaza, roads, driveways, and
recreation areas (collectively, the "Common Areas"), including but not limited
to that certain recreation area (the "Recreational Area") which is maintained by
Landlord in the location and configuration shown on Exhibit A-3 attached hereto.
Notwithstanding the foregoing to the contrary, Tenant's right to use the
Recreational Area shall be subject to the right of the City of Mountain View
("City") to require that a portion of the Recreational Area be paved and used
for parking purposes at a time to be determined at the discretion of the City.
The area to be used for parking purposes is indicated as "Potential Parking
Area" on Exhibit A-3. If the City requires the parking, Tenant shall have the
non-exclusive right to use the parking spaces created thereby.
III. Possession.
A. INTENTIONALLY OMITTED.
B. Subject to Landlord's obligations under Section IX.B., the Premises
are accepted by Tenant in "as is" condition and configuration. By
taking possession of the Premises, Tenant agrees that the Premises are
in good order and satisfactory condition, and that there are no
representations or warranties by Landlord regarding the condition of
the Premises or the Building. Notwithstanding anything to the
contrary contained in this Lease, Landlord shall not be obligated to
tender possession of the Premises or other space leased by Tenant from
time to time hereunder that, on the date possession is delivered, is
occupied by a tenant or other occupant or that is subject to the
rights of any other tenant or occupant, nor shall Landlord have any
other obligations to Tenant under this Lease with respect to such
space until the date Landlord: (i) recaptures such space from such
existing tenant or occupant; and (ii) regains the legal right to
possession thereof. This Lease shall not be affected by any such
failure to deliver possession and Tenant shall have no claim for
damages against Landlord as a result thereof, all of which are hereby
waived and released by Tenant. If Landlord is delayed delivering
possession of the Premises or any other space due to the holdover or
unlawful possession of such space by any party, Landlord shall use
reasonable efforts to obtain possession of the space. In such event,
the Commencement Date shall be postponed until the date Landlord
delivers possession of the
4
<PAGE>
Premises to Tenant free from occupancy by any party, and the
Termination Date, at the option of Landlord, may be postponed by an
equal number of days. Notwithstanding the foregoing, if there have
been no delays caused by Tenant and the Commencement Date does not
occur by July 31, 2000 (the "Outside Completion Date"), Tenant, as its
sole remedy, may terminate this Lease by giving Landlord written
notice of termination on or before the earlier to occur of: (i) 5
Business Days after the Outside Completion Date; and (ii) the
Commencement Date. In such event, this Lease shall be deemed null and
void and of no further force and effect and Landlord shall promptly
refund any Prepaid Rental and Security Deposit previously advanced by
Tenant under this Lease and, so long as Tenant has not previously
defaulted under any of its obligations under the Work Letter, the
parties hereto shall have no further responsibilities or obligations
to each other with respect to this Lease. Notwithstanding the
foregoing to the contrary, in the event Tenant terminates this Lease
as provided above, then effective as of the termination of this Lease,
Landlord shall also promptly reimburse Tenant for Tenant's actual,
out-of-pocket cost of initially procuring the Letter of Credit (as
hereinafter defined) in the amount of $__________. Landlord and Tenant
acknowledge and agree that: (i) the determination of the Commencement
Date shall take into consideration the effect of any delays by Tenant;
and (ii) the Outside Completion Date shall be postponed by the number
of days the Commencement Date is delayed due to events of Force
Majeure. Notwithstanding anything herein to the contrary, if Landlord
determines that it will be unable to cause the Commencement Date to
occur by the Outside Completion Date, Landlord shall have the right to
provide Tenant with written notice (the "Outside Extension Notice") of
such inability, which Outside Extension Notice shall set forth the
date on which Landlord reasonably believes that the Commencement Date
will occur. Upon receipt of the Outside Extension Notice, Tenant shall
have the right to terminate this Lease by providing written notice of
termination to Landlord within 5 Business Days after the date of the
Outside Extension Notice. In the event that Tenant does not terminate
this Lease within such 5 Business Day period, the Outside Completion
Date shall automatically be amended to be the date set forth in
Landlord's Outside Extension Notice.
C. If Tenant takes possession of the Premises before the Commencement
Date, such possession shall be subject to the terms and conditions of
this Lease and Tenant shall pay Rent (defined in Section IV.A.) to
Landlord for each day of possession before the Commencement Date.
However, except for the cost of services requested by Tenant (e.g.
electricity), Tenant shall not be required to pay Rent for any days of
possession before the Commencement Date during which Tenant, with the
approval of Landlord, is in possession of the Premises for the sole
purpose of performing improvements or installing furniture, equipment
or other personal property.
IV. Rent.
A. Payments. As consideration for this Lease, Tenant shall pay Landlord,
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without any setoff or deduction, the total amount of Base Rent and
Additional Rent due for the Term. "Additional Rent" means all sums
(exclusive of Base Rent) that
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Tenant is required to pay Landlord. Additional Rent and Base Rent are
sometimes collectively referred to as "Rent". Tenant shall pay and be
liable for all rental, sales and use taxes (but excluding income
taxes), if any, imposed upon or measured by Rent under applicable Law.
Base Rent and recurring monthly charges of Additional Rent shall be
due and payable in advance on the first day of each calendar month
without notice or demand, provided that the installment of Base Rent
for the second full calendar month of the Term shall be payable upon
the execution of this Lease by Tenant. All other items of Rent shall
be due and payable by Tenant on or before 30 days after billing by
Landlord. All payments of Rent shall be by good and sufficient check
or by other means (such as automatic debit or electronic transfer)
acceptable to Landlord. If Tenant fails to pay any item or installment
of Rent when due, Tenant shall pay Landlord an administration fee
equal to 5% of the past due Rent, provided that Tenant shall be
entitled to a grace period of 5 Business Days following notice of
overdue payment for the first 3 late payments of Rent in a given
calendar year. If the Term commences on a day other than the first day
of a calendar month or terminates on a day other than the last day of
a calendar month, the monthly Base Rent and Tenant's Pro Rata Share of
Expenses (defined in Section IV.C.) and Taxes (defined in Section
IV.D.) for the month shall be prorated based on the number of days in
such calendar month. Landlord's acceptance of less than the correct
amount of Rent shall be considered a payment on account of the
earliest Rent due. No endorsement or statement on a check or letter
accompanying a check or payment shall be considered an accord and
satisfaction, and either party may accept the check or payment without
prejudice to that party's right to recover the balance or pursue other
available remedies. Tenant's covenant to pay Rent is independent of
every other covenant in this Lease.
B. Payment of Tenant's Pro Rata Share of Expenses and Taxes. Tenant shall
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pay Tenant's Pro Rata Share of the total amount of Expenses (defined
in Section IV.C.) and Taxes (defined in Section IV.D) for each
calendar year during the Term. Landlord shall provide Tenant with a
good faith estimate of the total amount of Expenses and Taxes for
each calendar year during the Term. On or before the first day of
each month, Tenant shall pay to Landlord a monthly installment equal
to one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of
the total amount of Expenses and Taxes. If Landlord determines that
its good faith estimate was incorrect by a material amount, Landlord
may, not more than one time during any calendar year, provide Tenant
with a revised estimate. After its receipt of the revised estimate,
Tenant's monthly payments shall be based upon the revised estimate.
If Landlord does not provide Tenant with an estimate of the total
amount of Expenses and Taxes by January 1 of a calendar year, Tenant
shall continue to pay monthly installments based on the previous
year's estimate until Landlord provides Tenant with the new estimate.
Upon delivery of the new estimate, an adjustment shall be made for any
month for which Tenant paid monthly installments based on the previous
year's estimate. Tenant shall pay Landlord the amount of any
underpayment within 30 days after receipt of the new estimate. Any
overpayment shall be refunded to Tenant within 30 days or credited
against the next due future installment(s) of Additional Rent.
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As soon as is practical following the end of each calendar year,
Landlord shall furnish Tenant with a statement of the actual amount of
Expenses and Taxes for the prior calendar year and Tenant's Pro Rata
Share of the actual amount of Expenses and Taxes for the prior
calendar year. If the estimated amount of Expenses and Taxes for the
prior calendar year is more than the actual amount of Expenses and
Taxes for the prior calendar year, Landlord shall apply any
overpayment by Tenant against Additional Rent due or next becoming
due, provided if the Term expires before the determination of the
overpayment, Landlord shall refund any overpayment to Tenant after
first deducting the amount of Rent due. If the estimated amount of
Expenses and Taxes for the prior calendar year is less than the actual
amount of Expenses and Taxes for such prior year, Tenant shall pay
Landlord, within 30 days after its receipt of the statement of
Expenses and Taxes, any underpayment for the prior calendar year.
C. Expenses Defined. "Expenses" means the sum of (y) 100% of all direct
----------------
and indirect costs and expenses incurred in each calendar year in
connection with operating, maintaining, repairing, managing and owning
the Premises, the Building, the Property, and the parking structure(s)
(if any) and parking lot(s) predominantly serving the Building (but
only to the extent the costs and expenses incurred in connection with
such parking structure(s) and parking lot(s) are not included as part
of the costs and expenses identified in subclause (z) immediately
below), and (z) the Building's allocable share of the direct and
indirect costs of operating and maintaining the Common Areas of the
Project, the Building's allocable share of all costs, fees, expenses
or other amounts payable by Landlord to the Association, if any, and
the Building's allocable share of all fees payable to the company or
the Association, if applicable, managing the parking areas within the
Project, including, without limitation, the following:
1. Labor costs, including, wages, salaries, social security and
employment taxes, medical and other types of insurance, uniforms,
training, and retirement and pension plans.
2. Management fees, the cost of equipping and maintaining a
management office, accounting and bookkeeping services, legal
fees not attributable to leasing or collection activity, and
other administrative costs. Landlord, by itself or through an
affiliate, shall have the right to directly perform or provide
any services under this Lease (including management services),
provided that the cost of any such services shall not exceed the
cost that would have been incurred had Landlord entered into an
arms-length contract for such services with an unaffiliated
entity of comparable skill and experience.
3. The cost of services, including amounts paid to service providers
and the rental and purchase cost of parts, supplies, tools and
equipment.
4. Commercially available premiums, and deductibles paid by Landlord
for insurance, including workers compensation, fire and extended
coverage, earthquake, general liability, rental loss, elevator,
boiler and other
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insurance customarily carried from time to time by owners of
comparable office buildings.
5. Electrical Costs (defined below) and charges for water, gas,
steam and sewer, but excluding those charges applicable to any
non-Common Area building in the Project other than the Building
or any building into which Tenant may subsequently expand.
"Electrical Costs" means: (a) charges paid by Landlord for
electricity; (b) costs incurred in connection with an energy
management program for the Property and/or Project; and (c) if
and to the extent permitted by Law, a fee for the services
provided by Landlord in connection with the selection of utility
companies and the negotiation and administration of contracts for
electricity, provided that such fee shall not exceed 50% of any
savings obtained by Landlord.
6. The amortized cost of capital improvements (as distinguished from
replacement parts or components installed in the ordinary course
of business) made to the Building and/or the Common Areas which
are: (a) performed primarily to reduce operating expense costs
or otherwise improve the operating efficiency of the Building
and/or the Common Areas; or (b) required to comply with any Laws
that are enacted, or first interpreted to apply to the Building
and/or the Common Areas, after the date of this Lease. The cost
of capital improvements shall be amortized by Landlord over the
lesser of the Payback Period (defined below) or 5 years. The
amortized cost of capital improvements may, at Landlord's option,
include actual or imputed interest at the rate that Landlord
would reasonably be required to pay to finance the cost of the
capital improvement. "Payback Period" means the reasonably
estimated period of time that it takes for the cost savings
resulting from a capital improvement to equal the total cost of
the capital improvement.
If Landlord incurs Expenses for the Project together with one or more
other buildings or properties, whether pursuant to a reciprocal
easement agreement, common area agreement or otherwise, the shared
costs and expenses shall be equitably prorated and apportioned between
the Project and the other buildings or properties. Expenses shall not
include: the cost of capital improvements (except as set forth above);
depreciation; interest (except as provided above for the amortization
of capital improvements); principal payments of mortgage and other
non-operating debts of Landlord; the cost of repairs or other work to
the extent Landlord is reimbursed by insurance or condemnation
proceeds; costs in connection with leasing space in the Building,
including brokerage commissions; lease concessions, including rental
abatements and construction allowances, granted to specific tenants;
costs incurred in connection with the sale, financing or refinancing
of the Building; fines, interest and penalties incurred due to the
late payment of Taxes (defined in Section IV.D) or Expenses;
organizational expenses associated with the creation and operation of
the entity which constitutes Landlord; or any penalties or damages
that Landlord pays to Tenant under this Lease or to other tenants in
the Project under their respective leases.
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D. Taxes Defined. "Taxes" shall mean: (1) all real estate taxes and
-------------
other assessments on the Building, Property and/or Project, including,
but not limited to, assessments for special improvement districts and
building improvement districts, taxes and assessments levied in
substitution or supplementation in whole or in part of any such taxes
and assessments and the Project's share of any real estate taxes and
assessments under any reciprocal easement agreement, common area
agreement or similar agreement as to the Project; (2) all personal
property taxes for property that is owned by Landlord and used in
connection with the operation, maintenance and repair of the Project;
and (3) all costs and fees incurred in connection with seeking
reductions in any tax liabilities described in (1) and (2), including,
without limitation, any costs incurred by Landlord for compliance,
review and appeal of tax liabilities. Without limitation, Taxes shall
not include any income, capital levy, franchise, capital stock, gift,
estate or inheritance tax. If an assessment is payable in
installments, Taxes for the year shall include the amount of the
installment and any interest due and payable during that year. For
all other real estate taxes, Taxes for that year shall, at Landlord's
election, include either the amount accrued, assessed or otherwise
imposed for the year or the amount due and payable for that year,
provided that Landlord's election shall be applied consistently
throughout the Term. If a change in Taxes is obtained for any year of
the Term, then Taxes for that year will be retroactively adjusted and
Landlord shall provide Tenant with a credit, if any, based on the
adjustment.
Tenant shall be responsible for, and shall pay prior to delinquency,
taxes or governmental service fees, possessory interest taxes, fees or
charges in lieu of any such taxes, capital levies, or other charges
imposed upon, levied with respect to, or assessed against, its
personal property, and its interest pursuant to this Lease. To the
extent that any such taxes are not separately assessed or billed to
Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by
Landlord prior to the delinquency of such taxes. In the event that
the tenant improvements in the Building which correspond to the
Initial Alterations, as defined in this Lease, are assessed and taxed
separately by the applicable taxing authority, then Tenant shall be
liable and shall pay that portion of the Taxes applicable to the value
of the Initial Alterations in the Premises based on the value
attributed thereto by the applicable taxing authority to either (a)
the applicable taxing authority prior to the delinquency of such taxes
in the event Tenant is billed directly by such taxing authority, or
(b) the Landlord within 30 days after written demand, in the event
Landlord is billed directly by the applicable taxing authority.
E. Audit Rights. Tenant may, within 90 days after receiving Landlord's
------------
statement of Expenses, give Landlord written notice ("Review Notice")
that Tenant intends to review Landlord's records of the Expenses for
that calendar year. Within a reasonable time after receipt of the
Review Notice, Landlord shall make all pertinent records available for
inspection that are reasonably necessary for Tenant to conduct its
review. If any records are maintained at a location other than the
office of the Project, Tenant may either inspect the records at such
other location or pay for the reasonable cost of copying (not to
exceed $0.15 per copy) and the actual cost of shipping the records.
If Tenant retains an agent to review
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Landlord's records, the agent must be with a licensed CPA firm. Tenant
shall be solely responsible for all costs, expenses and fees incurred
for the audit. Within 60 days after the records are made available to
Tenant, Tenant shall have the right to give Landlord written notice
(an "Objection Notice") stating in reasonable detail any objection to
Landlord's statement of Expenses for that year. If Tenant fails to
give Landlord an Objection Notice within the 60 day period or fails to
provide Landlord with a Review Notice within the 90 day period
described above, Tenant shall be deemed to have approved Landlord's
statement of Expenses and shall be barred from raising any claims
regarding the Expenses for that year. If Tenant provides Landlord with
a timely Objection Notice, Landlord and Tenant shall work together in
good faith to resolve any issues raised in Tenant's Objection Notice.
If Landlord and Tenant determine that Expenses for the calendar year
are less than reported, Landlord shall provide Tenant with a credit
against the next installment of Rent in the amount of the overpayment
by Tenant. Likewise, if Landlord and Tenant determine that Expenses
for the calendar year are greater than reported, Tenant shall pay
Landlord the amount of any underpayment within 30 days. In addition,
if Landlord and Tenant determine that Expenses for the Project for the
year in question were less than stated by more than 5%, Landlord,
within 30 days after its receipt of paid invoices therefor from
Tenant, shall reimburse Tenant for any reasonable amounts paid by
Tenant to third parties in connection with such review by Tenant. The
records obtained by Tenant shall be treated as confidential. In no
event shall Tenant be permitted to examine Landlord's records or to
dispute any statement of Expenses unless Tenant has paid and continues
to pay all Rent when due.
V. Compliance with Laws; Use.
The Premises shall be used only for the Permitted Use and for no other use
whatsoever. Tenant shall not use or permit the use of the Premises for any
purpose which is illegal, dangerous to persons or property or which, in
Landlord's reasonable opinion, unreasonably disturbs any other tenants of the
Building or the Project or interferes with the operation of the Building or the
Project. Tenant shall comply with all Laws, including the Americans with
Disabilities Act, regarding the operation of Tenant's business and the use,
condition, configuration and occupancy of the Premises. Tenant, within 10 days
after receipt, shall provide Landlord with copies of any notices it receives
regarding a violation or alleged violation of any Laws. Tenant shall comply
with the rules and regulations of the Project attached as Exhibit B and such
other reasonable rules and regulations adopted by Landlord from time to time.
Tenant shall also cause its agents, contractors, subcontractors, employees,
customers, and subtenants to comply with all rules and regulations. Landlord
shall not knowingly discriminate against Tenant in Landlord's enforcement of the
rules and regulations.
VI. Security Deposit.
The Security Deposit shall be in the form of an irrevocable letter of
credit (the "Letter of Credit") which shall: (a) be in the initial amount of
$1,249,214.42; (b) be issued on the form attached hereto as Exhibit G; (c) name
Landlord as its beneficiary; (d) be drawn on an FDIC insured financial
institution satisfactory to Landlord; and (e) expire no earlier than 90 days
after the Termination Date of this Lease. The Security Deposit shall be
delivered to Landlord upon the execution of this Lease by Tenant and shall be
held by Landlord without liability for interest
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(unless required by Law) as security for the performance of Tenant's
obligations. The Security Deposit is not an advance payment of Rent or a measure
of Tenant's liability for damages. Landlord may, from time to time, without
prejudice to any other remedy, use all or a portion of the Security Deposit to
satisfy past due Rent or to cure any uncured default by Tenant. If Landlord uses
the Security Deposit, Tenant shall on demand restore the Security Deposit to its
original amount. Landlord shall return any unapplied portion of the Security
Deposit to Tenant within 45 days after the later to occur of: (1) the
determination of Tenant's Pro Rata Share of Expenses and Taxes for the final
year of the Term; (2) the date Tenant surrenders possession of the Premises to
Landlord in accordance with this Lease; or (3) the Termination Date. If Landlord
transfers its interest in the Premises, Landlord may assign the Security Deposit
to the transferee and, following the assignment, Landlord shall have no further
liability for the return of the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from its other accounts. Notwithstanding
anything herein to the contrary, provided Tenant is not in default under this
Lease as of the effective date of any reduction of the Security Deposit, Tenant
shall have the right to reduce the amount of the Security Deposit (i.e., the
Letter of Credit) to be as follows: (i) $832,809.61 effective as of the 4th
anniversary of the Commencement Date; and (ii) $416,404.80 effective as of the
6th anniversary of the Commencement Date. Such reduction shall be accomplished
by having Tenant provide Landlord with a substitute letter of credit in the
reduced amount.
VII. Services.
A. Tenant will be responsible, at its sole cost and expense, for the
furnishing of all services and utilities to the Premises, including,
but not limited to, heating, ventilation and air-conditioning,
electricity, water, light, power, trash pick-up, sewer charges,
telephone, janitorial and interior Building security services and
all other utility services supplied to the Premises, and all taxes
and surcharges thereon. Landlord agrees to maintain and repair the
Property as described in Article IX.B.
B. Any interruption or termination of, services due to the application
of Laws, the failure of any equipment, the performance of repairs,
improvements or alterations, or the occurrence of any other event (a
"Service Failure") shall not render Landlord liable to Tenant,
constitute a constructive eviction of Tenant, give rise to an
abatement of Rent, nor relieve Tenant from the obligation to fulfill
any covenant or agreement. Furthermore, in no event shall Landlord
be liable to Tenant for any loss or damage, including the theft of
Tenant's Property (defined in Article XV), arising out of or in
connection with the failure of any security services, personnel or
equipment.
VIII. Leasehold Improvements.
All improvements to the Premises (collectively, "Leasehold Improvements")
shall be owned by Landlord and shall remain upon the Premises without
compensation to Tenant. However, Landlord, by written notice to Tenant within 30
days prior to the Termination Date, may require Tenant to remove, at Tenant's
expense certain improvements made by or for the benefit of Tenant such as: (1)
Cable (defined in Section IX.A) installed by or for the exclusive benefit of
Tenant and located in the Premises or other portions of the Project; and (2) any
Leasehold Improvements that are performed by or for the benefit of Tenant and,
in Landlord's
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reasonable judgment, are of a nature that would require removal and repair costs
that are materially in excess of the removal and repair costs associated with
standard office improvements (collectively referred to as "Required
Removables"). Without limitation, it is agreed that Required Removables include
internal stairways, raised floors, personal baths and showers, vaults, rolling
file systems and structural alterations and modifications of any type. The
Required Removables designated by Landlord shall be removed by Tenant before the
Termination Date, provided that upon prior written notice to Landlord, Tenant
may remain in the Premises for up to 5 days after the Termination Date for the
sole purpose of removing the Required Removables. Notwithstanding the foregoing
to the contrary, under no circumstances shall Tenant be responsible for removing
previous improvements made to the Building and in place when Tenant took
possession of the Premises. Tenant's possession of the Premises shall be subject
to all of the terms and conditions of this Lease, including the obligation to
pay Rent on a per diem basis at the rate in effect for the last month of the
Term. Tenant shall repair damage caused by the installation or removal of
Required Removables. If Tenant fails to remove any Required Removables or
perform related repairs in a timely manner, Landlord, at Tenant's expense, may
remove and dispose of the Required Removables and perform the required repairs.
Tenant, within 30 days after receipt of an invoice, shall reimburse Landlord for
the reasonable costs incurred by Landlord. Notwithstanding the foregoing,
Tenant, at the time it requests approval for a proposed Alteration (defined in
Section IX.C), may request in writing that Landlord advise Tenant whether the
Alteration or any portion of the Alteration will be designated as a Required
Removable. Within 10 days after receipt of Tenant's request, Landlord shall
advise Tenant in writing as to which portions of the Alteration, if any, will be
considered to be Required Removables.
IX. Repairs, Maintenance and Alterations.
A. Tenant's Repair and Maintenance Obligations. Subject to the
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provisions of Articles XVI and XVII below, Tenant shall, at its sole
cost and expense, promptly perform all maintenance and repairs to the
Premises that are not Landlord's express responsibility under this
Lease, and shall keep the Premises (interior and exterior) in good
condition and repair (including the replacement of any applicable
improvements and appurtenances when necessary), reasonable wear and
tear excepted. Tenant's repair and replacement obligations include,
without limitation, repairs to and replacements of: (1) floor
covering; (2) interior partitions; (3) doors; (4) walls and wall
coverings; (5) electronic, phone and data cabling and related
equipment (collectively, "Cable") that is installed by or for the
exclusive benefit of Tenant and located in the Premises or other
portions of the Project; (6) private showers and kitchens, including
hot water heaters, and similar facilities; (7) mechanical (including
HVAC), plumbing fixtures, sewer connections (within the Building),
wiring, electrical, lighting, and fire, life safety equipment and
systems serving the Building and the Premises; (8) windows, glass and
plate glass; (9) ceilings; (10) roof membrane(s); (11) skylights; (12)
fixtures and equipment; and (13) Alterations performed by contractors
retained by Tenant, including related HVAC balancing. All work shall
be performed in accordance with the rules and procedures described in
Section IX.C. below. In addition, Tenant shall, at its sole cost and
expense, provide janitorial service to the Premises in a manner
consistent with other similar office projects in the Mountain View,
California area. The janitorial service to be provided by Tenant
shall include, but not be limited to, the obligation to clean the
exterior windows and to keep the
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interior of the Premises such as the windows, floors, walls, doors,
showcases and fixtures clean and neat in appearance and to remove all
trash and debris which may be found in or around the Premises. Tenant
shall also enter into and keep and maintain in effect, service
contracts reasonably acceptable to Landlord with contractors
reasonably acceptable to Landlord for the maintenance of those systems
servicing the Building as Landlord may reasonably designate,
including, without limitation, the HVAC, electrical and life safety
systems of the Building. Without limiting the foregoing, Tenant shall,
at Tenant's sole cost and expense, (a) immediately replace all broken
glass in the Premises with glass equal to or in excess of the
specification and quality of the original glass; and (b) repair any
damage caused by Tenant, Tenant's agents, employees, invitees,
visitors, subtenants or contractors. If Tenant fails to make any
repairs or replacements to the Premises or fails to perform the
required janitorial work in the Premises at the level required for
more than 15 days after written notice from Landlord (although notice
shall not be required if there is an emergency), Landlord may make the
repairs or replacements or perform the janitorial work, as the case
may be, and Tenant shall pay the reasonable cost of the repairs,
replacements or janitorial work, as the case may be, to Landlord
within 30 days after receipt of an invoice, together with an
administrative charge in an amount equal to 10% of the cost of the
work performed. Tenant shall maintain written records of maintenance
and repairs and shall use certified technicians to perform any such
maintenance and repairs.
B. Landlord's Repair Obligations. Landlord shall keep and maintain in
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good repair and working order and make repairs to and perform
maintenance upon: (1) the structural elements of the Building,
including, without limitation, the columns, footings, structural
floor, interior load bearing and exterior walls; (2) Common Areas,
except that Tenant shall pay for its share of the maintenance and
repairs to such Common Areas to the extent such costs are properly
included in Expenses; (3) the roof of the Building, including roof
screens and roof screen penetrators, but excluding the roof membrane;
and (4) elevators (if any) serving the Building. Landlord shall
promptly make repairs (considering the nature and urgency of the
repair) for which Landlord is responsible.
C. Alterations. Tenant shall not install any Cable (i) in the Common
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Areas of the Building or the Project, or (ii) within the Premises (if
the installation of such Cable will affect the systems or structure of
the Premises or Building or will require work to be performed inside
the walls or above the ceilings of the Premises), nor shall Tenant
make any other alterations, additions or improvements to the Premises
(collectively referred to as "Alterations") without first obtaining
the written consent of Landlord in each instance, which consent shall
not be unreasonably withheld or delayed. However, Landlord's consent
shall not be required for any Alteration that satisfies all of the
following criteria (a "Cosmetic Alteration"): (1) is of a cosmetic
nature such as painting, wallpapering, hanging pictures and installing
carpeting; (2) is not visible from the exterior of the Premises or
Building; (3) will not affect the systems or structure of the
Building; and (4) does not require work to be performed inside the
walls or above the ceiling of the Premises. However, even though
consent is not required, the performance of Cosmetic Alterations shall
be subject to all the other provisions of this Section IX.C. Prior to
starting
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work, Tenant shall furnish Landlord with plans and specifications
reasonably acceptable to Landlord; names of contractors reasonably
acceptable to Landlord (provided that Landlord may designate specific
contractors with respect to Building systems); copies of contracts;
necessary permits and approvals; evidence of contractor's and
subcontractor's insurance in amounts reasonably required by Landlord;
and any security for performance that is reasonably required by
Landlord. Changes to the plans and specifications must also be
submitted to Landlord for its approval. Alterations shall be
constructed in a good and workmanlike manner using materials of a
quality that is at least equal to the quality designated by Landlord
as the minimum standard for the Building and the Project. Landlord may
designate reasonable rules, regulations and procedures for the
performance of work in the Building and the Project and, to the extent
reasonably necessary to avoid disruption to the occupants of the
Building and the Project, shall have the right to designate the time
when Alterations may be performed. Tenant shall reimburse Landlord
within 30 days after receipt of an invoice for sums paid by Landlord
for third party examination of Tenant's plans for non-Cosmetic
Alterations. In addition, within 30 days after receipt of an invoice
from Landlord, Tenant shall pay Landlord a fee for Landlord's
oversight and coordination of any non-Cosmetic Alterations equal to 5%
of the cost of the non-Cosmetic Alterations. Upon completion, Tenant
shall furnish "as-built" plans (except for Cosmetic Alterations),
completion affidavits, full and final waivers of lien in recordable
form, and receipted bills covering all labor and materials. Tenant
shall assure that the Alterations comply with all insurance
requirements and Laws. Landlord's approval of an Alteration shall not
be a representation by Landlord that the Alteration complies with
applicable Laws or will be adequate for Tenant's use.
X. Use of Utility Services by Tenant.
A. Electricity, gas, water and other utility services used by Tenant in
the Premises shall, at Landlord's option, be paid for by Tenant
either: (1) through inclusion in Expenses (except as provided in
Section X.B. for excess usage); (2) by a separate charge payable by
Tenant to Landlord within 30 days after billing by Landlord; or (3) by
separate charge billed by the applicable utility company and payable
directly by Tenant. Electrical service to the Premises may be
furnished by one or more companies providing electrical generation,
transmission and distribution services, and the cost of electricity
may consist of several different components or separate charges for
such services, such as generation, distribution and stranded cost
charges. Landlord shall have the exclusive right to select any
company providing electrical service to the Premises, to aggregate the
electrical service for the Property and Premises with other buildings,
to purchase electricity through a broker and/or buyers group and to
change the providers and manner of purchasing electricity. Landlord
shall be entitled to receive a fee (if permitted by Law) for the
selection of utility companies and the negotiation and administration
of contracts for electricity, provided that the amount of such fee
shall not exceed 50% of any savings obtained by Landlord.
B. Tenant's use of electrical service shall not exceed, either in
voltage, rated capacity, or overall load, that which Landlord deems to
be standard for the
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Building. If Tenant requests permission to consume excess electrical
service, Landlord may refuse to consent or may condition consent upon
conditions that Landlord reasonably elects (including, without
limitation, the installation of utility service upgrades, meters,
submeters, air handlers or cooling units), and the additional usage
(to the extent permitted by Law), installation and maintenance costs
shall be paid by Tenant. Landlord shall have the right to separately
meter electrical usage for the Premises and to measure electrical
usage by survey or other commonly accepted methods.
XI. Entry by Landlord.
Landlord, its agents, contractors and representatives may enter the
Premises to inspect or show the Premises, to clean and make repairs, alterations
or additions to the Premises, and to conduct or facilitate repairs, alterations
or additions to any portion of the Building or the Project, including other
tenants' premises. Except in emergencies or to provide janitorial service (if
Landlord so elects in accordance with Article IX.A. above) and other regularly
scheduled services after Normal Business Hours, Landlord shall provide Tenant
with reasonable prior notice of entry into the Premises, which may be given
orally. In addition, except in the event of an emergency, any such entry by
Landlord or its agents, contractors and representatives shall comply with
Tenant's reasonable security requirements such as being escorted by a Tenant
representative, signing in and obtaining security badges. If reasonably
necessary for the protection and safety of Tenant and its employees, Landlord
shall have the right to temporarily close all or a portion of the Premises to
perform repairs, alterations and additions. However, except in emergencies,
Landlord will not close the Premises if the work can reasonably be completed on
weekends and after Normal Business Hours. Entry by Landlord shall not
constitute constructive eviction or entitle Tenant to an abatement or reduction
of Rent. Notwithstanding the foregoing, except in emergency situations as
determined by Landlord, Landlord shall exercise reasonable efforts to perform
any entry into the Premises in a manner that is reasonably designed to minimize
interference with the operation of Tenant's business in the Premises.
Notwithstanding the foregoing, if Landlord temporarily closes the Premises as
provided above for a period in excess of 3 consecutive Business Days, Tenant, as
its sole remedy, shall be entitled to receive a per diem abatement of Base Rent
during the period beginning on the 4th consecutive Business Days of closure and
ending on the date on which the Premises are returned to Tenant in a tenantable
condition. Tenant, however, shall not be entitled to an abatement if the
repairs, alterations and/or additions to be performed are required as a result
of the acts or omissions of Tenant, its agents, employees or contractors,
including, without limitation, a default by Tenant in its maintenance and repair
obligations under the Lease.
XII. Assignment and Subletting.
A. Except in connection with a Permitted Transfer (defined in Section
XII.E. below), Tenant shall not assign, sublease, transfer or encumber
any interest in this Lease or allow any third party to use any portion
of the Premises (collectively or individually, a "Transfer") without
the prior written consent of Landlord, which consent shall not be
unreasonably withheld if Landlord does not elect to exercise its
termination rights under Section XII.B below. Without limitation, it
is agreed that Landlord's consent shall not be considered unreasonably
withheld if: (1) the proposed transferee's financial condition does
not meet the criteria Landlord uses to select Project tenants having
similar leasehold obligations; (2) the proposed
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transferee's business is not suitable for the Building or the Project
considering the business of the other tenants and the Project's
prestige, or would result in a violation of another tenant's rights;
(3) the proposed transferee is a governmental agency or occupant of
the Project; (4) Tenant is in default after the expiration of the
notice and cure periods in this Lease; or (5) any portion of the
Building, Project or Premises would likely become subject to
additional or different Laws as a consequence of the proposed
Transfer. Tenant shall not be entitled to receive monetary damages
based upon a claim that Landlord unreasonably withheld its consent to
a proposed Transfer and Tenant's sole remedy shall be an action to
enforce any such provision through specific performance or declaratory
judgment. Any attempted Transfer in violation of this Article shall,
at Landlord's option, be void. Consent by Landlord to one or more
Transfer(s) shall not operate as a waiver of Landlord's rights to
approve any subsequent Transfers. In no event shall any Transfer or
Permitted Transfer release or relieve Tenant from any obligation under
this Lease.
B. As part of its request for Landlord's consent to a Transfer, Tenant
shall provide Landlord with financial statements for the proposed
transferee, a complete copy of the proposed assignment, sublease and
other contractual documents and such other information as Landlord may
reasonably request. Landlord shall, by written notice to Tenant
within 30 days of its receipt of the required information and
documentation, either: (1) consent to the Transfer by the execution of
a consent agreement in a form reasonably designated by Landlord or
reasonably refuse to consent to the Transfer in writing; or (2)
exercise its right to terminate this Lease with respect to the portion
of the Premises that Tenant is proposing to assign or sublet.
Notwithstanding the foregoing, Tenant, within 5 days after receipt of
Landlord's notice of intent to terminate, may withdraw its request for
consent to the Transfer. In such event, Landlord's election to
terminate the Lease shall be null and void and of no force and effect.
Any such termination shall be effective on the proposed effective date
of the Transfer for which Tenant requested consent. Tenant shall pay
Landlord a review fee of $750.00 for Landlord's review of any
Permitted Transfer or requested Transfer, provided if Landlord's
actual reasonable costs and expenses (including reasonable attorney's
fees) exceed $750.00, Tenant shall reimburse Landlord for its actual
reasonable costs and expenses in lieu of a fixed review fee.
C. Tenant shall pay Landlord 50% of all rent and other monetary
consideration which Tenant receives as a result of a Transfer that is
in excess of the Rent payable to Landlord for the portion of the
Premises and Term covered by the Transfer. Tenant shall pay Landlord
for Landlord's share of any excess within 30 days after Tenant's
receipt of such excess consideration. Tenant may deduct from the
excess all reasonable and customary expenses directly incurred by
Tenant attributable to the Transfer (other than Landlord's review
fee), including brokerage fees, legal fees and construction costs. If
Tenant is in Monetary Default (defined in Section XIX.A. below),
Landlord may require that all sublease payments be made directly to
Landlord, in which case Tenant shall receive a credit against Rent in
the amount of any payments received (less Landlord's share of any
excess).
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D. Except as provided below with respect to a Permitted Transfer, if
Tenant is a corporation, limited liability company, partnership, or
similar entity, and if the entity which owns or controls a majority of
the voting shares/rights at any time changes for any reason (including
but not limited to a merger, consolidation or reorganization but
specifically excluding an initial or subsequent public offering of
Tenant's stock on a recognized security exchange or subsequent trading
of such stock after a public offering has occurred), such change of
ownership or control shall constitute a Transfer. The foregoing shall
not apply so long as Tenant is an entity whose outstanding stock is
listed on a recognized security exchange, or if at least 80% of its
voting stock is owned by another entity, the voting stock of which is
so listed.
E. Tenant may assign its entire interest under this Lease to a successor
to Tenant by purchase, merger, consolidation or reorganization without
the consent of Landlord, provided that all of the following conditions
are satisfied (a "Permitted Transfer"): (1) Tenant is not in default
under this Lease; (2) Tenant's successor shall own all or
substantially all of the assets of Tenant; (3) Tenant's successor
shall have a net worth which is at least equal to the greater of
Tenant's net worth at the date of this Lease or Tenant's net worth as
of the day prior to the proposed purchase, merger, consolidation or
reorganization; (4) the Permitted Use does not allow the Premises to
be used for retail purposes; and (5) Tenant shall give Landlord
written notice at least 30 days prior to the effective date of the
proposed purchase, merger, consolidation or reorganization. Tenant's
notice to Landlord shall include information and documentation showing
that each of the above conditions has been satisfied. If requested by
Landlord, Tenant's successor shall sign a commercially reasonable form
of assumption agreement.
XIII. Liens.
Tenant shall not permit mechanic's or other liens to be placed upon the
Project, Property, Premises or Tenant's leasehold interest in connection with
any work or service done or purportedly done by or for benefit of Tenant. If a
lien is so placed, Tenant shall, within 10 days of notice from Landlord of the
filing of the lien, fully discharge the lien by settling the claim which
resulted in the lien or by bonding or insuring over the lien in the manner
prescribed by the applicable lien Law. If Tenant fails to discharge the lien,
then, in addition to any other right or remedy of Landlord, Landlord may bond or
insure over the lien or otherwise discharge the lien. Tenant shall reimburse
Landlord for any amount paid by Landlord to bond or insure over the lien or
discharge the lien, including, without limitation, reasonable attorneys' fees
(if and to the extent permitted by Law) within 30 days after receipt of an
invoice from Landlord.
XIV. Indemnity and Waiver of Claims.
A. Except to the extent caused by the negligence or willful misconduct of
Landlord or any Landlord Related Parties (defined below), Tenant shall
indemnify, defend and hold Landlord, its trustees, members,
principals, beneficiaries, partners, officers, directors, employees,
Mortgagee(s) (defined in Article XXVI) and agents ("Landlord Related
Parties") harmless against and from all liabilities, obligations,
damages, penalties, claims, actions, costs, charges and expenses,
including, without limitation, reasonable attorneys' fees and other
professional fees (if and
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to the extent permitted by Law), which may be imposed upon, incurred
by or asserted against Landlord or any of the Landlord Related Parties
and arising out of or in connection with any damage or injury
occurring in the Premises or any acts or omissions (including
violations of Law) of Tenant, the Tenant Related Parties (defined
below) or any of Tenant's transferees, contractors or licensees.
B. Except to the extent caused by the negligence or willful misconduct of
Tenant or any Tenant Related Parties (defined below), Landlord shall
indemnify, defend and hold Tenant, its trustees, members, principals,
beneficiaries, partners, officers, directors, employees and agents
("Tenant Related Parties") harmless against and from all liabilities,
obligations, damages, penalties, claims, actions, costs, charges and
expenses, including, without limitation, reasonable attorneys' fees
and other professional fees (if and to the extent permitted by Law),
which may be imposed upon, incurred by or asserted against Tenant or
any of the Tenant Related Parties and arising out of or in connection
with the acts or omissions (including violations of Law) of Landlord,
the Landlord Related Parties or any of Landlord's contractors.
C. Landlord and the Landlord Related Parties shall not be liable for, and
Tenant waives, all claims for loss or damage to Tenant's business or
loss, theft or damage to Tenant's Property or the property of any
person claiming by, through or under Tenant resulting from: (1) wind
or weather; (2) the failure of any sprinkler, heating or air-
conditioning equipment, any electric wiring or any gas, water or steam
pipes; (3) the backing up of any sewer pipe or downspout; (4) the
bursting, leaking or running of any tank, water closet, drain or other
pipe; (5) water, snow or ice upon or coming through the roof,
skylight, stairs, doorways, windows, walks or any other place upon or
near the Building or the Project; (6) any act or omission of any party
other than Landlord or Landlord Related Parties; and (7) any causes
not reasonably within the control of Landlord. Tenant shall insure
itself against such losses under Article XV below. Notwithstanding
the foregoing, except as provided in Article XVI to the contrary,
Tenant shall not be required to waive any claims against Landlord
(other than for loss or damage to Tenant's business) where such loss
or damage is due to Landlord's negligence. Nothing herein shall be
construed as to diminish the repair and maintenance obligations of
Landlord contained elsewhere in this Lease.
XV. Insurance.
Tenant shall carry and maintain the following insurance ("Tenant's
Insurance"), at its sole cost and expense: (1) Commercial General Liability
Insurance applicable to the Premises and its appurtenances providing, on an
occurrence basis, a minimum combined single limit of $3,000,000.00; (2) All Risk
Property/Business Interruption Insurance, including flood, written at
replacement cost value and with a replacement cost endorsement covering all of
Tenant's trade fixtures, equipment, furniture and other personal property within
the Premises ("Tenant's Property"); (3) Workers' Compensation Insurance as
required by the state in which the Premises is located and in amounts as may be
required by applicable statute; and (4) Employers Liability Coverage of at least
$1,000,000.00 per occurrence. Any company writing any of Tenant's Insurance
shall have an A.M. Best rating of not less than A-VIII. All Commercial General
Liability Insurance policies shall name Tenant as a named insured and Landlord
(or any
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successor), Equity Office Properties Trust, a Maryland real estate investment
trust, EOP Operating Limited Partnership, a Delaware limited partnership, and
their respective members, principals, beneficiaries, partners, officers,
directors, employees, and agents, and other designees of Landlord as the
interest of such designees shall appear, as additional insureds. All policies of
Tenant's Insurance shall contain endorsements that the insurer(s) shall give
Landlord and its designees at least 30 days' advance written notice of any
change, cancellation, termination or lapse of insurance. Tenant shall provide
Landlord with a certificate of insurance evidencing Tenant's Insurance prior to
the earlier to occur of the Commencement Date or the date Tenant is provided
with possession of the Premises for any reason, and upon renewals at least 15
days prior to the expiration of the insurance coverage. So long as the same is
available at commercially reasonable rates, Landlord shall maintain so called
All Risk property insurance on the Building at replacement cost value, as
reasonably estimated by Landlord. Except as specifically provided to the
contrary, the limits of either party's' insurance shall not limit such party's
liability under this Lease.
XVI. Subrogation.
Notwithstanding anything in this Lease to the contrary, Landlord and
Tenant hereby waive and shall cause their respective insurance carriers to waive
any and all rights of recovery, claim, action or causes of action against the
other and their respective trustees, principals, beneficiaries, partners,
officers, directors, agents, and employees, for any loss or damage that may
occur to Landlord or Tenant or any party claiming by, through or under Landlord
or Tenant, as the case may be, with respect to Tenant's Property, the Project,
the Building, the Premises, any additions or improvements to the Project,
Building or Premises, or any contents thereof, including all rights of recovery,
claims, actions or causes of action arising out of the negligence of Landlord or
any Landlord Related Parties or the negligence of Tenant or any Tenant Related
Parties, which loss or damage is (or would have been, had the insurance required
by this Lease been carried) covered by insurance.
XVII. Casualty Damage.
A. If all or any part of the Premises is damaged by fire or other
casualty, Tenant shall immediately notify Landlord in writing. During
any period of time that all or a material portion of the Premises is
rendered untenantable as a result of a fire or other casualty, the
Rent shall abate for the portion of the Premises that is untenantable
and not used by Tenant. Landlord shall have the right to terminate
this Lease if: (1) the Building or the Project shall be damaged so
that, in Landlord's reasonable judgment, substantial alteration or
reconstruction of the Building or the Project, as the case may be,
shall be required (whether or not the Premises has been damaged); (2)
Landlord is not permitted by Law to rebuild the Building or the
Project in substantially the same form as existed before the fire or
casualty; (3) the Premises have been materially damaged and there is
less than 2 years of the Term remaining on the date of the casualty;
(4) any Mortgagee requires that the insurance proceeds be applied to
the payment of the mortgage debt; or (5) a material uninsured loss to
the Building or the Project occurs. Landlord may exercise its right
to terminate this Lease by notifying Tenant in writing within 90 days
after the date of the casualty. If Landlord does not terminate this
Lease, Landlord shall commence and proceed with reasonable diligence
to repair and restore the Building and the Leasehold Improvements
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(excluding any Alterations that were performed by Tenant in violation
of this Lease). However, in no event shall Landlord be required to
spend more than the insurance proceeds received by Landlord. Landlord
shall not be liable for any loss or damage to Tenant's Property or to
the business of Tenant resulting in any way from the fire or other
casualty or from the repair and restoration of the damage. Landlord
and Tenant hereby waive the provisions of any Law relating to the
matters addressed in this Article, and agree that their respective
rights for damage to or destruction of the Premises shall be those
specifically provided in this Lease.
B. If all or any portion of the Premises shall be made untenantable by
fire or other casualty, Landlord shall, with reasonable promptness,
cause an architect or general contractor selected by Landlord to
provide Landlord and Tenant with a written estimate of the amount of
time required to substantially complete the repair and restoration of
the Premises and make the Premises tenantable again, using standard
working methods ("Completion Estimate"). If the Completion Estimate
indicates that the Premises cannot be made tenantable within 270 days
from the date the repair and restoration is started, then regardless
of anything in Section XVII.A above to the contrary, either party
shall have the right to terminate this Lease by giving written notice
to the other of such election within 10 days after receipt of the
Completion Estimate. Tenant, however, shall not have the right to
terminate this Lease if the fire or casualty was caused by the gross
negligence or intentional misconduct of Tenant, Tenant Related Parties
or any of Tenant's transferees, contractors or licensees.
XVIII. Condemnation.
Either party may terminate this Lease if the whole or any material part
of the Premises shall be taken or condemned for any public or quasi-public use
under Law, by eminent domain or private purchase in lieu thereof (a "Taking").
Landlord shall also have the right to terminate this Lease if there is a Taking
of any portion of the Building, Property, or Project which would leave the
remainder of the Building or the Project unsuitable for use as an office
building or an office park, as the case may be, in a manner comparable to the
use of the Building and/or Project prior to the Taking. In order to exercise its
right to terminate the Lease, Landlord or Tenant, as the case may be, must
provide written notice of termination to the other within 45 days after the
terminating party first receives notice of the Taking. Any such termination
shall be effective as of the date the physical taking of the Premises or the
portion of the Project, Building or Property occurs. If this Lease is not
terminated, the Rentable Square Footage of the Building, the Rentable Square
Footage of the Premises, the Rentable Square Footage of the Project and Tenant's
Pro Rata Share shall, if applicable, be appropriately adjusted. In addition,
Rent for any portion of the Premises taken or condemned shall be abated during
the unexpired Term of this Lease effective when the physical taking of the
portion of the Premises occurs. All compensation awarded for a Taking, or sale
proceeds, shall be the property of Landlord, any right to receive compensation
or proceeds being expressly waived by Tenant. However, Tenant may file a
separate claim at its sole cost and expense for Tenant's Property and Tenant's
reasonable relocation expenses, provided the filing of the claim does not
diminish the award which would otherwise be receivable by Landlord.
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XIX. Events of Default.
Tenant shall be considered to be in default of this Lease upon the
occurrence of any of the following events of default:
A. Tenant's failure to pay when due all or any portion of the Rent, if
the failure continues for 5 days after written notice to Tenant
("Monetary Default").
B. Tenant's failure (other than a Monetary Default) to comply with any
term, provision or covenant of this Lease, if the failure is not cured
within 10 days after written notice to Tenant. However, if Tenant's
failure to comply cannot reasonably be cured within 10 days, Tenant
shall be allowed additional time (not to exceed 60 days) as is
reasonably necessary to cure the failure so long as: (1) Tenant
commences to cure the failure within 10 days, and (2) Tenant
diligently pursues a course of action that will cure the failure and
bring Tenant back into compliance with the Lease. However, if
Tenant's failure to comply creates a hazardous condition, the failure
must be cured immediately upon notice to Tenant. In addition, if
Landlord provides Tenant with notice of Tenant's failure to comply
with any term, provision or covenant of the Lease on 3 occasions
during any 12 month period, Tenant's subsequent violation of such
term, provision or covenant shall, at Landlord's option, be an
incurable event of default by Tenant.
C. Tenant or any Guarantor becomes insolvent, makes a transfer in fraud
of creditors or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts when due.
D. The leasehold estate is taken by process or operation of Law.
E Tenant is in default beyond any notice and cure period under any other
lease or agreement with Landlord at the Project, including, without
limitation, any lease or agreement for parking.
XX. Remedies.
A. Upon the occurrence of any event or events of default under this
Lease, whether enumerated in Article XIX or not, Landlord shall have
the option to pursue any one or more of the following remedies without
any notice (except as expressly prescribed herein) or demand
whatsoever (and without limiting the generality of the foregoing,
Tenant hereby specifically waives notice and demand for payment of
Rent or other obligations and waives any and all other notices or
demand requirements imposed by applicable law):
1. Terminate this Lease and Tenant's right to possession of the
Premises and recover from Tenant an award of damages equal to the
sum of the following:
(a) The Worth at the Time of Award of the unpaid Rent which had
been earned at the time of termination;
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(b) The Worth at the Time of Award of the amount by which the
unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such Rent loss
that Tenant affirmatively proves could have been reasonably
avoided;
(c) The Worth at the Time of Award of the amount by which the
unpaid Rent for the balance of the Term after the time of
award exceeds the amount of such Rent loss that Tenant
affirmatively proves could be reasonably avoided;
(d) Any other amount necessary to compensate Landlord for all
the detriment either proximately caused by Tenant's failure
to perform Tenant's obligations under this Lease or which in
the ordinary course of things would be likely to result
therefrom; and
(e) All such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time under
applicable law.
The "Worth at the Time of Award" of the amounts referred to in
parts (a) and (b) above, shall be computed by allowing interest
at the lesser of a per annum rate equal to: (i) the greatest per
annum rate of interest permitted from time to time under
applicable law, or (ii) the Prime Rate plus five percent (5%).
For purposes hereof, the "Prime Rate" shall be the per annum
interest rate publicly announced as its prime or base rate by a
federally insured bank selected by Landlord in the State of
California. The "Worth at the Time of Award" of the amount
referred to in part (c), above, shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%);
2. Employ the remedy described in California Civil Code (S) 1951.4
(Landlord may continue this Lease in effect after Tenant's breach
and abandonment and recover Rent as it becomes due, if Tenant has
the right to sublet or assign, subject only to reasonable
limitations); or
3. Notwithstanding Landlord's exercise of the remedy described in
California Civil Code (S) 1951.4 in respect of an event or events
of default, at such time thereafter as Landlord may elect in
writing, to terminate this Lease and Tenant's right to possession
of the Premises and recover an award of damages as provided above
in Paragraph XX.A.1.
B. The subsequent acceptance of Rent hereunder by Landlord shall not be
deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of Tenant
to pay the particular Rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance of such
Rent. No waiver by Landlord of any breach hereof shall be effective
unless such waiver is in writing and signed by Landlord.
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C. TENANT HEREBY WAIVES ANY AND ALL RIGHTS CONFERRED BY SECTION 3275 OF
THE CIVIL CODE OF CALIFORNIA AND BY SECTIONS 1174(c) AND 1179 OF THE
CODE OF CIVIL PROCEDURE OF CALIFORNIA AND ANY AND ALL OTHER LAWS AND
RULES OF LAW FROM TIME TO TIME IN EFFECT DURING THE LEASE TERM
PROVIDING THAT TENANT SHALL HAVE ANY RIGHT TO REDEEM, REINSTATE OR
RESTORE THIS LEASE FOLLOWING ITS TERMINATION BY REASON OF TENANT'S
BREACH. TENANT ALSO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION ARISING OUT OF OR
RELATING TO THIS LEASE.
D. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and
every right and remedy shall be cumulative and in addition to any
other right or remedy given hereunder or now or hereafter existing by
agreement, applicable law or in equity. In addition to other remedies
provided in this Lease, Landlord shall be entitled, to the extent
permitted by applicable Law, to injunctive relief, or to a decree
compelling performance of any of the covenants, agreements, conditions
or provisions of this Lease, or to any other remedy allowed to
Landlord at law or in equity. Forbearance by Landlord to enforce one
or more of the remedies herein provided upon an event of default shall
not be deemed or construed to constitute a waiver of such default.
E. This Article XX shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable Law, and the
unenforceability of any portion thereof shall not thereby render
unenforceable any other portion.
XXI. Limitation of Liability.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO TENANT SHALL BE LIMITED
TO THE INTEREST OF LANDLORD IN THE PROJECT. TENANT SHALL LOOK SOLELY TO
LANDLORD'S INTEREST IN THE PROJECT FOR THE RECOVERY OF ANY JUDGMENT OR AWARD
AGAINST LANDLORD. NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE
PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. BEFORE FILING SUIT FOR AN
ALLEGED DEFAULT BY LANDLORD, TENANT SHALL GIVE LANDLORD AND THE MORTGAGEE(S)
(DEFINED IN ARTICLE XXVI BELOW) WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES
(DEFINED IN ARTICLE XXVI BELOW) ON THE PROPERTY, BUILDING OR PREMISES, NOTICE
AND REASONABLE TIME TO CURE THE ALLEGED DEFAULT.
XXII. No Waiver.
Either party's failure to declare a default immediately upon its
occurrence, or delay in taking action for a default shall not constitute a
waiver of the default, nor shall it constitute an estoppel. Either party's
failure to enforce its rights for a default shall not constitute a waiver of its
rights regarding any subsequent default. Receipt by Landlord of Tenant's keys to
the Premises shall not constitute an acceptance or surrender of the Premises.
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XXIII. Quiet Enjoyment.
Tenant shall, and may peacefully have, hold and enjoy the Premises,
subject to the terms of this Lease, provided Tenant pays the Rent and fully
performs all of its covenants and agreements. This covenant and all other
covenants of Landlord shall be binding upon Landlord and its successors only
during its or their respective periods of ownership of the Building, and shall
not be a personal covenant of Landlord or the Landlord Related Parties.
XXIV. Relocation.
INTENTIONALLY OMITTED.
XXV. Holding Over.
Except for any permitted occupancy by Tenant under Article VIII, if
Tenant fails to surrender the Premises at the expiration or earlier termination
of this Lease, occupancy of the Premises after the termination or expiration
shall be that of a tenancy at sufferance. Tenant's occupancy of the Premises
during the holdover shall be subject to all the terms and provisions of this
Lease and Tenant shall pay an amount (on a per month basis without reduction for
partial months during the holdover) equal to 150% of the greater of: (1) the sum
of the Base Rent and Additional Rent due for the period immediately preceding
the holdover; or (2) the fair market gross rental for the Premises as reasonably
determined by Landlord. No holdover by Tenant or payment by Tenant after the
expiration or early termination of this Lease shall be construed to extend the
Term or prevent Landlord from immediate recovery of possession of the Premises
by summary proceedings or otherwise. In addition to the payment of the amounts
provided above, if Landlord is unable to deliver possession of the Premises to a
new tenant, or to perform improvements for a new tenant, as a result of Tenant's
holdover and Tenant fails to vacate the Premises within 30 days after Landlord
notifies Tenant of Landlord's inability to deliver possession, or perform
improvements, Tenant shall be liable to Landlord for all damages, including,
without limitation, consequential damages, that Landlord suffers from the
holdover.
XXVI. Subordination to Mortgages; Estoppel Certificate.
Tenant accepts this Lease subject and subordinate to any mortgage(s),
deed(s) of trust, ground lease(s) or other lien(s) now or subsequently arising
upon the Premises, the Building, the Property or the Project, and to renewals,
modifications, refinancings and extensions thereof (collectively referred to as
a "Mortgage"). The party having the benefit of a Mortgage shall be referred to
as a "Mortgagee". This clause shall be self-operative, but upon request from a
Mortgagee, Tenant shall execute a commercially reasonable subordination
agreement in favor of the Mortgagee. In lieu of having the Mortgage be superior
to this Lease, a Mortgagee shall have the right at any time to subordinate its
Mortgage to this Lease. If requested by a successor-in-interest to all or a part
of Landlord's interest in the Lease, Tenant shall, without charge, attorn to the
successor-in-interest. Landlord and Tenant shall each, within 10 days after
receipt of a written request from the other, execute and deliver an estoppel
certificate to those parties as are reasonably requested by the other (including
a Mortgagee or prospective purchaser). The estoppel certificate shall include a
statement certifying that this Lease is unmodified (except as identified in the
estoppel certificate) and in full force and effect, describing the dates to
which Rent and other charges have been paid, representing that, to such party's
actual knowledge, there is no default (or stating the nature of the alleged
default) and indicating
24
<PAGE>
other matters with respect to the Lease that may reasonably be requested.
Notwithstanding the foregoing, upon written request by Tenant, Landlord will use
reasonable efforts to obtain a non-disturbance, subordination and attornment
agreement from Landlord's then current Mortgagee on such Mortgagee's then
current standard form of agreement. "Reasonable efforts" of Landlord shall not
require Landlord to incur any cost, expense or liability to obtain such
agreement, it being agreed that Tenant shall be responsible for any fee or
review costs charged by the Mortgagee. Upon request of Landlord, Tenant will
execute the Mortgagee's form of non-disturbance, subordination and attornment
agreement and return the same to Landlord for execution by the Mortgagee.
Landlord's failure to obtain a non-disturbance, subordination and attornment
agreement for Tenant shall have no effect on the rights, obligations and
liabilities of Landlord and Tenant or be considered to be a default by Landlord
hereunder.
XXVII. Attorneys' Fees.
If either party institutes a suit against the other for violation of or
to enforce any covenant or condition of this Lease, or if either party
intervenes in any suit in which the other is a party to enforce or protect its
interest or rights, the prevailing party shall be entitled to all of its costs
and expenses, including, without limitation, reasonable attorneys' fees.
XXVIII. Notice.
If a demand, request, approval, consent or notice (collectively referred
to as a "notice") shall or may be given to either party by the other, the notice
shall be in writing and delivered by hand or sent by registered or certified
mail with return receipt requested, or sent by overnight or same day courier
service at the party's respective Notice Address(es) set forth in Article I,
except that if Tenant has vacated the Premises (or if the Notice Address for
Tenant is other than the Premises, and Tenant has vacated such address) without
providing Landlord a new Notice Address, Landlord may serve notice in any manner
described in this Article or in any other manner permitted by Law. Each notice
shall be deemed to have been received or given on the earlier to occur of actual
delivery or the date on which delivery is refused, or, if Tenant has vacated the
Premises or the other Notice Address of Tenant without providing a new Notice
Address, three (3) days after notice is deposited in the U.S. mail or with a
courier service in the manner described above. Either party may, at any time,
change its Notice Address by giving the other party written notice of the new
address in the manner described in this Article.
XXIX. Excepted Rights.
This Lease does not grant any rights to light or air over or about the
Building or the Project. Landlord excepts and reserves exclusively to itself
the use of: (1) roofs, (2) telephone, electrical and janitorial closets, (3)
equipment rooms, Building risers or similar areas that are used by Landlord for
the provision of building services, (4) rights to the land and improvements
below the floor of the Premises and the Project, (5) the improvements and air
rights above the Premises, (6) the improvements and air rights outside the
demising walls of the Premises, and (7) the areas within the Premises used for
the installation of utility lines and other installations serving occupants of
the Building and/or the Project. Notwithstanding the foregoing to the contrary,
subject to the terms of Article IX above and the other provisions of this Lease,
Tenant shall have the right to access the areas specified in subclauses (1),
(2), (3) and (7) above. Landlord has the right to change the name or address of
the Building and/or the Project. Landlord also has the right to make such other
changes to the Project, Property and Building as
25
<PAGE>
Landlord deems appropriate, provided the changes do not materially affect
Tenant's ability to use the Premises for the Permitted Use. Landlord shall also
have the right (but not the obligation) to temporarily close the Building and/or
the Project if Landlord reasonably determines that there is an imminent danger
of significant damage to the Building or the Project or of personal injury to
Landlord's employees or the occupants of the Building and/or the Project. The
circumstances under which Landlord may temporarily close the Building and/or the
Project shall include, without limitation, electrical interruptions, hurricanes
and civil disturbances. A closure of the Building and/or the Project under such
circumstances shall not constitute a constructive eviction nor entitle Tenant to
an abatement or reduction of Rent. Notwithstanding the foregoing, if Landlord
temporarily closes the Premises as provided above for a period in excess of 3
consecutive Business Days, Tenant, as its sole remedy, shall be entitled to
receive a per diem abatement of Base Rent during the period beginning on the
4/th/ consecutive Business Day of closure and ending on the date on which the
Premises are returned to Tenant in a tenantable condition. Tenant, however,
shall not be entitled to an abatement if the closure is as a result of the acts
or omissions of Tenant, its agents, employees or contractors.
XXX. Surrender of Premises.
At the expiration or earlier termination of this Lease or Tenant's right
of possession, Tenant shall remove Tenant's Property (defined in Article XV)
from the Premises, and quit and surrender the Premises to Landlord, broom clean,
and in good order, condition and repair, ordinary wear and tear excepted. Tenant
shall also be required to remove the Required Removables in accordance with
Article VIII. If Tenant fails to remove any of Tenant's Property within 2 days
after the termination of this Lease or of Tenant's right to possession,
Landlord, at Tenant's sole cost and expense, shall be entitled (but not
obligated) to remove and store Tenant's Property. Landlord shall not be
responsible for the value, preservation or safekeeping of Tenant's Property.
Tenant shall pay Landlord, upon demand, the expenses and storage charges
incurred for Tenant's Property. In addition, if Tenant fails to remove Tenant's
Property from the Premises or storage, as the case may be, within 30 days after
written notice, Landlord may deem all or any part of Tenant's Property to be
abandoned, and title to Tenant's Property shall be deemed to be immediately
vested in Landlord.
XXXI. Miscellaneous.
A. This Lease and the rights and obligations of the parties shall be
interpreted, construed and enforced in accordance with the Laws of the
State of California and Landlord and Tenant hereby irrevocably consent
to the jurisdiction and proper venue of such state. If any term or
provision of this Lease shall to any extent be invalid or
unenforceable, the remainder of this Lease shall not be affected, and
each provision of this Lease shall be valid and enforced to the
fullest extent permitted by Law. The headings and titles to the
Articles and Sections of this Lease are for convenience only and shall
have no effect on the interpretation of any part of the Lease.
B. Tenant shall not record this Lease or any memorandum without
Landlord's prior written consent.
C. Landlord and Tenant hereby waive any right to trial by jury in any
proceeding based upon a breach of this Lease.
26
<PAGE>
D. Whenever a period of time is prescribed for the taking of an action by
Landlord or Tenant, the period of time for the performance of such
action shall be extended by the number of days that the performance is
actually delayed due to strikes, acts of God, shortages of labor or
materials, war, civil disturbances and other causes beyond the
reasonable control of the performing party ("Force Majeure").
However, events of Force Majeure shall not extend any period of time
for the payment of Rent or other sums payable by either party or any
period of time for the written exercise of an option or right by
either party.
E. Landlord shall have the right to transfer and assign, in whole or in
part, all of its rights and obligations under this Lease and in the
Project, Building and/or Property referred to herein, and upon such
transfer Landlord shall be released from any further obligations
hereunder, and Tenant agrees to look solely to the successor in
interest of Landlord for the performance of such obligations.
F. Tenant represents that it has dealt directly with and only with the
Broker as a broker in connection with this Lease. Tenant shall
indemnify and hold Landlord and the Landlord Related Parties harmless
from all claims of any other brokers claiming to have represented
Tenant in connection with this Lease. Landlord agrees to indemnify
and hold Tenant and the Tenant Related Parties harmless from all
claims of any brokers claiming to have represented Landlord in
connection with this Lease.
G. Tenant covenants, warrants and represents that: (1) each individual
executing, attesting and/or delivering this Lease on behalf of Tenant
is authorized to do so on behalf of Tenant; (2) this Lease is binding
upon Tenant; and (3) Tenant is duly organized and legally existing in
the state of its organization and is qualified to do business in the
State of California. If there is more than one Tenant, or if Tenant
is comprised of more than one party or entity, the obligations imposed
upon Tenant shall be joint and several obligations of all the parties
and entities. Notices, payments and agreements given or made by, with
or to any one person or entity shall be deemed to have been given or
made by, with and to all of them.
H. Time is of the essence with respect to Tenant's exercise of any
expansion, renewal or extension rights granted to Tenant. This Lease
shall create only the relationship of landlord and tenant between the
parties, and not a partnership, joint venture or any other
relationship. This Lease and the covenants and conditions in this
Lease shall inure only to the benefit of and be binding only upon
Landlord and Tenant and their permitted successors and assigns.
I. The expiration of the Term, whether by lapse of time or otherwise,
shall not relieve either party of any obligations which accrued prior
to or which may continue to accrue after the expiration or early
termination of this Lease. Without limiting the scope of the prior
sentence, it is agreed that Tenant's obligations under Articles IV,
VIII, XIV, XX, XXV and XXX shall survive the expiration or early
termination of this Lease.
27
<PAGE>
J. Landlord has delivered a copy of this Lease to Tenant for Tenant's
review only, and the delivery of it does not constitute an offer to
Tenant or an option. This Lease shall not be effective against any
party hereto until an original copy of this Lease has been signed by
such party.
K. All understandings and agreements previously made between the parties
are superseded by this Lease, and neither party is relying upon any
warranty, statement or representation not contained in this Lease.
This Lease may be modified only by a written agreement signed by
Landlord and Tenant.
L. This Lease shall be subject to the terms and conditions of (a)
Declaration Of Covenants, Conditions And Restrictions Of Shoreline
Technology Park ("Declaration") imposing certain covenants,
conditions and restrictions on the use and management of Shoreline
Technology Park, (b) the Bylaws ("Bylaws") of Shoreline Park
Association ("Association"), a California nonprofit mutual benefit
corporation charged with the responsibility of managing Shoreline
Technology Park in accordance with the Declaration, Articles Of
Incorporation of the Association ("Articles") and the Bylaws, and (c)
the rules ("Rules") adopted from time to time by the Association in
accordance with the Declaration providing for restrictions on the use
of Shoreline Technology Park. The Declaration, Bylaws, Articles and
Rules are collectively referred to herein as the "Governing
Documents". Any failure to comply with the Governing Documents (after
the expiration of the applicable notice and cure period hereunder)
shall be a default under the terms of this Lease.
XXXII. Entire Agreement.
This Lease and the following exhibits and attachments constitute the
entire agreement between the parties and supersede all prior agreements and
understandings related to the Premises, including all lease proposals, letters
of intent and other documents: Exhibit A-1 (Outline and Location of Premises),
Exhibit A-2 (Outline and Location of Project), Exhibit A-3 (Outline and Location
of Recreational Area), Exhibit B (Rules and Regulations), Exhibit C
(Commencement Letter), Exhibit D (Work Letter Agreement), Exhibit E (Additional
Provisions), Exhibit F (Parking Agreement) and Exhibit G (Form of Letter of
Credit).
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<PAGE>
Landlord and Tenant have executed this Lease as of the day and year first
above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company
By: EOP Operating Limited Partnership, a
Delaware limited partnership, its sole
member
By: Equity Office Properties Trust, a
Maryland real estate investment
trust, its managing general partner
By: _____________________________
Name: ___________________________
Title: __________________________
TENANT:
MARKETFIRST SOFTWARE, INC., a Delaware
corporation
By: _____________________________
Name: _____________________________
Title: _____________________________
By: _____________________________
Name: _____________________________
Title: _____________________________
29
<PAGE>
EXHIBIT A-1
OUTLINE AND LOCATION OF PREMISES
--------------------------------
This Exhibit is attached to and made a part of the Lease dated as of
_____________, 1999, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company ("Landlord") and MARKETFIRST SOFTWARE, INC.,
a Delaware corporation ("Tenant") for space in the Building located at 2061
Stierlin Court, Mountain View, California.
<PAGE>
EXHIBIT A-2
OUTLINE AND LOCATION OF PROJECT
-------------------------------
This Exhibit is attached to and made a part of the Lease dated as of
_____________, 1999, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company ("Landlord") and MARKETFIRST SOFTWARE, INC.,
a Delaware corporation ("Tenant") for space in the Building located at 2061
Stierlin Court, Mountain View, California.
<PAGE>
EXHIBIT A-3
OUTLINE AND LOCATION OF RECREATIONAL AREA
-----------------------------------------
This Exhibit is attached to and made a part of the Lease dated as of
_____________, 1999, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company ("Landlord") and MARKETFIRST SOFTWARE, INC.,
a Delaware corporation ("Tenant") for space in the Building located at 2061
Stierlin Court, Mountain View, California.
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
------------------------------
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the parking garage (if any), the Property, the Project
and the appurtenances. Capitalized terms have the same meaning as defined in
the Lease.
1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be obstructed by Tenant or used by Tenant for any purpose other
than ingress and egress to and from the Premises. No rubbish, litter,
trash, or material shall be placed, emptied, or thrown in those areas. At
no time shall Tenant permit Tenant's employees to loiter in Common Areas or
elsewhere about the Property or Project.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed in the fixtures or appliances. Damage
resulting to fixtures or appliances by Tenant, its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not be
responsible for the damage.
3. No signs, advertisements or notices shall be painted or affixed to windows,
doors or other parts of the Building or Project, except those of such
color, size, style and in such places as are first approved in writing by
Landlord. All tenant identification and suite numbers at the entrance to
the Premises shall be installed by Landlord, at Tenant's cost and expense,
using the standard graphics for the Building. Except in connection with the
hanging of lightweight pictures and wall decorations, no nails, hooks or
screws shall be inserted into any part of the Premises, Building or Project
except by Landlord's maintenance personnel.
4. No directory listing tenants or employees shall be permitted unless
previously consented to by Landlord in writing.
5. Tenant shall not place any lock(s) on any door in the Premises, Building or
Project without Landlord's prior written consent and Landlord shall have
the right to retain at all times and to use keys to all locks within and
into the Premises. A reasonable number of keys to the locks on the entry
doors in the Premises shall be furnished by Landlord to Tenant at Tenant's
cost, and Tenant shall not make any duplicate keys. All keys shall be
returned to Landlord at the expiration or early termination of this Lease.
6. All contractors, contractor's representatives and installation technicians
performing work in the Building and/or the Project shall be subject to
Landlord's prior approval, which approval shall not be unreasonably
withheld, and shall be required to comply with Landlord's standard rules,
regulations, policies and procedures, which may be revised from time to
time.
7. Movement in or out of the Building or the Project of furniture or office
equipment, or dispatch or receipt by Tenant of merchandise or materials
shall be restricted to hours reasonably designated by Landlord. Tenant
shall obtain Landlord's prior approval by providing a detailed listing of
the activity. If approved by Landlord, the activity shall be
<PAGE>
under the supervision of Landlord and performed in the manner required by
Landlord. Tenant shall assume all risk for damage to articles moved and
injury to any persons resulting from the activity. If equipment, property,
or personnel of Landlord or of any other party is damaged or injured as a
result of or in connection with the activity, Tenant shall be solely liable
for any resulting damage or loss.
8. Landlord shall have the right to approve the weight, size, or location of
heavy equipment or articles in and about the Premises. Damage to the
Building and/or Project by the installation, maintenance, operation,
existence or removal of Tenant's Property shall be repaired at Tenant's
sole expense.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Project, or otherwise interfere in any
way with other tenants or persons having business with them; (2) solicit
business or distribute, or cause to be distributed, in any portion of the
Project, handbills, promotional materials or other advertising; or (3)
conduct or permit other activities in the Building or Project that might,
in Landlord's sole opinion, constitute a nuisance.
11. No animals, except those assisting handicapped persons, and no aquariums
shall be brought into the Building or the Project or kept in or about the
Premises.
12. No inflammable, explosive or dangerous fluids or substances shall be used
or kept by Tenant in the Premises, Building, Project or about the Property.
Tenant shall not, without Landlord's prior written consent, use, store,
install, spill, remove, release or dispose of, within or about the Premises
or any other portion of the Property or Project, any asbestos-containing
materials or any solid, liquid or gaseous material now or subsequently
considered toxic or hazardous under the provisions of 42 U.S.C. Section
9601 et seq. or any other applicable environmental Law which may now or
later be in effect. Tenant shall comply with all Laws pertaining to and
governing the use of these materials by Tenant, and shall remain solely
liable for the costs of abatement and removal.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which might injure the reputation or impair the present or future
value of the Premises or the Building or the Project. Tenant shall not
use, or permit any part of the Premises to be used, for lodging, sleeping
or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's labor
contracts or which would cause a work stoppage, picketing, labor disruption
or dispute, or interfere with Landlord's or any other tenant's or
occupant's business or with the rights and privileges of any person
lawfully in the Building and/or the Project ("Labor Disruption"). Tenant
shall take the actions necessary to resolve the Labor Disruption, and shall
have pickets removed and, at the request of Landlord, immediately terminate
any work in the Premises that gave rise to the Labor Disruption, until
Landlord gives its written consent for the work to resume. Tenant shall
have no claim for damages against Landlord or any of the Landlord Related
Parties, nor shall the Commencement Date of the Term be extended as a
result of the above actions.
<PAGE>
15. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building or the Project, electrical equipment that would
overload the electrical system beyond its capacity for proper, efficient
and safe operation as determined solely by Landlord. Tenant shall not
furnish cooling or heating to the Premises, including, without limitation,
the use of electronic or gas heating devices, without Landlord's prior
written consent. Tenant shall not use more than its proportionate share of
telephone lines and other telecommunication facilities available to service
the Project.
16. Tenant shall not operate or permit to be operated a coin or token operated
vending machine or similar device (including, without limitation,
telephones, lockers, toilets, scales, amusement devices and machines for
sale of beverages, foods, candy, cigarettes and other goods), except for
machines for the exclusive use of Tenant's employees.
17. Bicycles and other vehicles are not permitted on the walkways outside the
Building, except in areas designated by Landlord.
18. Landlord may from time to time adopt systems and procedures for the
security and safety of the Building, the Project and their occupants,
entry, use and contents. Tenant, its agents, employees, contractors,
guests and invitees shall comply with Landlord's systems and procedures.
19. Landlord shall have the right to prohibit the use of the name of the
Building and/or the Project or any other publicity by Tenant that in
Landlord's sole opinion may impair the reputation of the Building and/or
the Project or their desirability. Upon written notice from Landlord,
Tenant shall refrain from and discontinue such publicity immediately.
20. Tenant shall not canvass, solicit or peddle in or about the Building, the
Property or the Project.
21. Neither Tenant nor its agents, employees, contractors, guests or invitees
shall smoke or permit smoking in the Common Areas, unless the Common Areas
have been declared a designated smoking area by Landlord, nor shall the
above parties allow smoke from the Premises to emanate into the Common
Areas or any other part of the Building or Project. Landlord shall have
the right to designate the Building (including the Premises) and/or the
Project as a non-smoking building or area.
22. Landlord shall have the right to designate and approve standard window
coverings for the Premises and to establish rules to assure that the
Building and Project present a uniform exterior appearance.
23. Deliveries to and from the Premises shall be made only at the times, in the
areas and through the entrances and exits designated by Landlord. Tenant
shall not make deliveries to or from the Premises in a manner that might
interfere with the use by any other tenant of its premises or of the Common
Areas, any pedestrian use, or any use which is inconsistent with good
business practice.
<PAGE>
24. The work of cleaning personnel shall not be hindered by Tenant after 5:30
p.m., and cleaning work may be done at any time when the offices are
vacant. Windows, doors and fixtures may be cleaned at any time. Tenant
shall provide adequate waste and rubbish receptacles to prevent
unreasonable hardship to the cleaning service.
<PAGE>
EXHIBIT C
COMMENCEMENT LETTER
-------------------
(EXAMPLE)
Date ______________________
Tenant ______________________
Address ______________________
______________________
______________________
Re: Commencement Letter with respect to that certain Lease dated as of
___________, 1999, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company, as Landlord, and MARKETFIRST SOFTWARE,
INC., a Delaware corporation, as Tenant, for 66,096 rentable square feet in
the Building located at 2061 Stierlin Court, Mountain View, California.
Dear __________________:
In accordance with the terms and conditions of the above referenced Lease,
Tenant accepts possession of the Premises and agrees:
1. The Commencement Date of the Lease is ________________________;
2. The Termination Date of the Lease is ____________________________.
Please acknowledge your acceptance of possession and agreement to the terms
set forth above by signing all 3 counterparts of this Commencement Letter in the
space provided and returning 2 fully executed counterparts to my attention.
Sincerely,
___________________________________
Property Manager
Agreed and Accepted:
Tenant: ______________________
By: ______________________
Name: ______________________
Title: ______________________
Date: ______________________
<PAGE>
EXHIBIT D
WORK LETTER
-----------
This Exhibit is attached to and made a part of the Lease dated as of
_____________, 1999, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company ("Landlord") and MARKETFIRST SOFTWARE, INC.,
a Delaware corporation ("Tenant") for space in the Building located at 2061
Stierlin Court, Mountain View, California.
I. Alterations and Allowance.
-------------------------
A. Tenant, following the delivery of the Premises by Landlord and the
full and final execution and delivery of this Lease and all prepaid
rental and security deposits required hereunder, shall have the right
to perform alterations and improvements in the Premises (the "Initial
Alterations"). Notwithstanding the foregoing, Tenant and its
contractors shall not have the right to perform Initial Alterations in
the Premises unless and until Tenant has complied with all of the
terms and conditions of Article IX.C. of this Lease, including,
without limitation, approval by Landlord of the final plans for the
Initial Alterations and the contractors to be retained by Tenant to
perform such Initial Alterations. Tenant shall be responsible for all
elements of the design of Tenant's plans (including, without
limitation, compliance with law, functionality of design, the
structural integrity of the design, the configuration of the premises
and the placement of Tenant's furniture, appliances and equipment),
and Landlord's approval of Tenant's plans shall in no event relieve
Tenant of the responsibility for such design. Landlord shall review
Tenant's plans within 10 Business Days of receipt from Tenant. If
Landlord does not respond to Tenant with such 10 Business Day period,
then Landlord shall be deemed to have approved the plans. Tenant may
choose the general contractor that shall perform the Initial
Alterations in the Premises, subject to Landlord's approval.
Landlord's approval of the contractors to perform the Initial
Alterations shall not be unreasonably withheld. The parties agree
that Landlord's approval of the general contractor to perform the
Initial Alterations shall not be considered to be unreasonably
withheld if any such general contractor (i) does not have trade
references reasonably acceptable to Landlord, (ii) does not maintain
insurance as required pursuant to the terms of this Lease, (iii) does
not have the ability to be bonded for the work in an amount of no less
than $1,000,000.00, or (iv) is not licensed as a contractor in the
state/municipality in which the Premises is located. Tenant
acknowledges the foregoing is not intended to be an exclusive list of
the reasons why Landlord may reasonably withhold its consent to a
general contractor.
B. Provided Tenant is not in default, Landlord agrees to contribute the
sum of $330,480.00 (i.e., $5.00 per rentable square foot of the
Premises) (the "Allowance") toward the cost of performing the Initial
Alterations in preparation of Tenant's occupancy of the Premises.
Landlord shall be entitled to deduct from the Allowance a construction
management fee for Landlord's oversight of the Initial Alterations in
an amount equal to $33,048.00. The Allowance may only be used
<PAGE>
for the cost of preparing design and construction documents and
mechanical and electrical plans for the Initial Alterations and for
hard costs in connection with the Initial Alterations. The Allowance
shall be paid to Tenant or, at Landlord's option, to the order of the
general contractor that performed the Initial Alterations, within 30
days following receipt by Landlord of (1) receipted bills covering all
labor and materials expended and used in the Initial Alterations; (2)
a sworn contractor's affidavit from the general contractor and a
request to disburse from Tenant containing an approval by Tenant of
the work done; (3) full and final waivers of lien; (4) as-built plans
of the Initial Alterations; and (5) the certification of Tenant and
its architect that the Initial Alterations have been installed in a
good and workmanlike manner in accordance with the approved plans, and
in accordance with applicable laws, codes and ordinances. The
Allowance shall be disbursed in the amount reflected on the receipted
bills meeting the requirements above. Notwithstanding anything herein
to the contrary, Landlord shall not be obligated to disburse any
portion of the Allowance during the continuance of an uncured default
under the Lease, and Landlord's obligation to disburse shall only
resume when and if such default is cured.
C. In no event shall the Allowance be used for the purchase of equipment,
furniture or other items of personal property of Tenant. In the event
Tenant does not use the entire Allowance by December 31, 2000, any
unused amount shall accrue to the sole benefit of Landlord, it being
understood that Tenant shall not be entitled to any credit, abatement
or other concession in connection therewith. Tenant shall be
responsible for all applicable state sales or use taxes, if any,
payable in connection with the Initial Alterations and/or Allowance.
D. Tenant agrees to accept the Premises in its "as-is" condition and
configuration, it being agreed that Landlord shall not be required to
perform any work or, except as provided above with respect to the
Allowance, incur any costs in connection with the construction or
demolition of any improvements in the Premises.
E. This Exhibit D shall not be deemed applicable to any additional space
added to the original Premises at any time or from time to time,
whether by any options under the Lease or otherwise, or to any portion
of the original Premises or any additions to the Premises in the event
of a renewal or extension of the original Term of this Lease, whether
by any options under the Lease or otherwise, unless expressly so
provided in the Lease or any amendment or supplement to the Lease.
<PAGE>
Landlord and Tenant have executed this Exhibit as of the day and year first
above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware
limited liability company
By: EOP Operating Limited Partnership, a Delaware
limited partnership, its sole member
By: Equity Office Properties Trust, a
Maryland real estate investment trust,
its managing general partner
By: __________________________
Name: __________________________
Title: __________________________
TENANT:
MARKETFIRST SOFTWARE, INC., a Delaware corporation
By: _____________________________
Name: _____________________________
Title: _____________________________
By: _____________________________
Name: _____________________________
Title: _____________________________
<PAGE>
EXHIBIT E
ADDITIONAL PROVISIONS
---------------------
This Exhibit is attached to and made a part of the Lease dated as of
_____________, 1999, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company ("Landlord") and MARKETFIRST SOFTWARE, INC.,
a Delaware corporation ("Tenant") for space in the Building located at 2061
Stierlin Court, Mountain View, California.
I. CONTINGENCY. This Lease specifically is contingent upon the modification
of that certain lease, as amended, dated January 28, 1988 (the "Prior
Tenant Lease"), by and between Landlord (as successor in interest to WRC
Properties, Inc.), and Silicon Graphics, Inc., a California corporation
("Prior Tenant") relating to the Premises. Landlord currently is
negotiating the terms of an agreement with Prior Tenant to terminate or
modify the Prior Tenant Lease (the "Prior Tenant Modification Agreement")
with respect to the Premises. If Landlord fails to enter into the Prior
Tenant Modification Agreement with Prior Tenant in form and substance
satisfactory to Landlord on or before the later of (i) __________, 1999, or
(ii) 5 days following the date this Lease, executed by Tenant, together
with all prepaid rental and security deposits required hereunder, is
delivered to Landlord, then Landlord may terminate this Lease by providing
written notice thereof to Tenant.
II. GENERATOR.
A. During the Term, Tenant shall have the right to install a supplemental
generator (the "Generator") to provide emergency additional electrical
capacity to the Premises and an above ground fuel tank (the "Tank") to
provide fuel to such Generator. The Generator and Tank shall be
placed at a location at the Project reasonably designated by Landlord
(the "Generator Location"), provided that Landlord shall use its good
faith efforts to designate a location as close to the Tenant's
Premises as reasonably possible. In the event the Generator and/or
Tank are located such that parking spaces are lost to accommodate the
installation of the Generator and/or the Tank, then the number of
parking spaces allocated to Tenant pursuant to Exhibit F of the Lease
shall be reduced on a one for one basis for each space which is lost
to accommodate the installation of the Generator and/or the Tank.
Tenant's right to install the Generator and the Tank shall be subject
to Landlord's reasonable approval of the manner in which the Generator
and Tank are installed, the manner in which any cables are run to and
from the Generator to the Premises and the measures that will be taken
to eliminate any vibrations or sound disturbances from the operation
of the Generator. Landlord shall have the right to require an
enclosure acceptable to Landlord (e.g. wood fencing, concrete
structure and/or landscaping) to hide or disguise the existence of the
Generator and the Tank and to minimize any adverse effect that the
installation of the Generator and the Tank may have on the appearance
or operation of the Building, Property and Project. Tenant shall be
solely responsible for obtaining all necessary governmental and
regulatory approvals and for the cost of installing, operating,
maintaining and removing the Generator and the Tank. Tenant shall
also be responsible for the cost of all
<PAGE>
utilities consumed in the operation of the Generator. Notwithstanding
anything herein to the contrary, if Tenant, after installation,
removes the Generator and/or the Tank from the Generator Location for
reasons other than the repair and replacement of the Generator or the
Tank, Tenant's right to install the Generator and the Tank and to use
the Generator Location shall be null and void.
B. Tenant shall be responsible for assuring that the installation,
maintenance, operation and removal of the Generator and the Tank will
in no way damage the Building, Project or Property. Tenant agrees to
be responsible for any damage caused to the Building, Project or
Property in connection with the installation, maintenance, operation
or removal of the Generator and the Tank and, in accordance with the
terms of Article XIV of the Lease, to indemnify, defend and hold
Landlord, its trustees, members, principals, beneficiaries, partners,
officers, directors, employees, agents and mortgagees (collectively,
the "Landlord Related Parties") harmless from all liabilities,
obligations, damages, penalties, claims, costs, charges and expenses,
including, without limitation, reasonable architects' and attorneys'
fees (if and to the extent permitted by law), which may be imposed
upon, incurred by, or asserted against Landlord or any of the Landlord
Related Parties in connection with the installation, maintenance,
operation or removal of the Generator and the Tank, including, without
limitation, any environmental and hazardous materials claims.
C. Tenant shall be responsible for the installation, operation,
cleanliness, maintenance and removal of the Generator, Tank and
appurtenances, all of which shall remain the personal property of
Tenant, and shall be removed by Tenant at its own expense at the
termination of the Lease. Tenant shall repair any damage caused by
such removal, including the patching of any holes to match, as closely
as possible, the color surrounding the area where the Generator, Tank
and appurtenance were attached. Such maintenance and operation shall
be performed in a manner to avoid any unreasonable interference with
any other tenants or Landlord. Tenant agrees to maintain the
Generator and the Tank, including without limitation, any enclosure
installed around the Generator and Tank, in good condition and repair.
Tenant shall enter into and keep and maintain in effect, service
contracts reasonably acceptable to Landlord with contractors
reasonably acceptable to Landlord for the maintenance of the Generator
and the Tank, and Tenant shall submit to Landlord copies of all
service records obtained, kept and/or maintained by Tenant in
connection with the Generator and the Tank. Tenant shall be
responsible for performing any maintenance and improvements to any
enclosure surrounding the Generator and/or the Tank so as to keep such
enclosure in good condition.
D. Tenant, upon prior notice to Landlord and subject to the reasonable
rules and regulations enacted by Landlord, shall have unlimited access
to the Generator and the Tank and its surrounding area for the purpose
of installing, operating, repairing, maintaining and removing the
Generator and the Tank.
E. Tenant shall only test the Generator before or after Normal Business
Hours and upon prior notice to Landlord.
<PAGE>
III. HAZARDOUS MATERIALS. Landlord shall indemnify, defend, protect, save, hold
harmless, and reimburse Tenant, its partners, officers, directors and
employees for, from and against any and all costs, losses, liabilities,
damages, assessments, lawsuits, deficiencies, demands, claims and expenses
incurred in connection with, arising out of, resulting from or incident to,
the production, use, generation, storage, treatment, disposal, discharge,
release or other handling or disposition of any Hazardous Materials
(defined below) on or about the Project by Landlord, its officers,
employees, agents (in their capacity as agents) and/or independent
contractors (in their capacity and independent contractors), including,
without limitation, the effects of handling of any Hazardous Materials on
any person or property within or outside the boundaries of the Project; but
excluding from the foregoing indemnity, Tenant's negligence or the handling
by Tenant during Tenant's occupancy of the Premises of any Permitted
Materials (as hereinafter defined) and/or Hazardous Materials on or about
the Project at levels which pose a risk to persons located on or about the
Project, and which prompt the initiation of a removal, response, remedial
or other action by a governmental agency or authority possessing and
exercising jurisdiction over the Project. Tenant shall not use, generate,
manufacture, store or dispose of, on or about the Premises, or transport to
or from the Premises, any flammable explosives, radioactive materials,
hazardous wastes, toxic substances, or any related materials or substances,
including, without limitation, any substance defined as or included in the
definition of "hazardous substances" under any applicable federal, state or
local law, regulation or ordinance (collectively, "Hazardous Materials").
Tenant shall indemnify, defend, protect, save, hold harmless, and reimburse
Landlord, its partners, officers, directors and employees for, from and
against any and all costs, losses, liabilities, damages, assessments,
lawsuits, deficiencies, demands, claims and expenses incurred in connection
with, arising out of, resulting from or incident to, the production, use,
generation, storage, treatment, disposal, discharge, release or other
handling or disposition of any Hazardous Materials on or about the Project
by Tenant, its officers, employees, agents and/or independent contractors,
including, without limitation, the effects of such handling of any
Hazardous Materials on any person or property within or outside the
boundaries of the Project; but excluding from the foregoing indemnity,
Landlord's negligence or the handling by Landlord of any Permitted
Materials and/or Hazardous Materials on or about the Project at levels
which pose a risk to persons located on or about the Project, and which
prompt the initiation of a removal, response, remedial or other action by a
governmental agency or authority possessing and exercising jurisdiction
over the Project. In addition, in the event an action, lawsuit or
proceeding is brought against Tenant as a result of the improper use,
generation, manufacturing, storage or disposal of Hazardous Materials
affecting only the Premises (as opposed to the Project as a whole) as a
result of the acts or omissions of a prior Tenant in the Premises (a
"Premises Hazardous Materials Event"), and further provided that Tenant has
in no way caused or contributed to the Premises Hazardous Materials Event,
then Landlord shall, at Landlord's sole cost and expense, retain counsel
chosen by Landlord and defend Tenant in any such lawsuit, action or
proceeding. In such event, Landlord's responsibility to Tenant shall be
limited to the costs of defending Tenant in any such lawsuit, action or
proceeding, and Landlord shall not be responsible for any other costs,
losses, liabilities, damages, assessments, deficiencies, demands, claims
and expenses incurred by or against Tenant or resulting from any such
Premises Hazardous Materials Event (including, but not limited to, any
fines or penalties assessed against Tenant in connection with such Premises
Hazardous Materials Event).
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit as of
the day and year first above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware
limited liability company
By: EOP Operating Limited Partnership, a Delaware
limited partnership, its sole member
By: Equity Office Properties Trust, a
Maryland real estate investment trust,
its managing general partner
By: __________________________
Name: __________________________
Title: __________________________
TENANT:
MARKETFIRST SOFTWARE, INC., a Delaware corporation
By: _____________________________
Name: _____________________________
Title: _____________________________
By: _____________________________
Name: _____________________________
Title: _____________________________
<PAGE>
EXHIBIT F
PARKING AGREEMENT
-----------------
This Exhibit is attached to and made a part of the Lease dated as of
_____________, 1999, by and between EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a
Delaware limited liability company ("Landlord") and MARKETFIRST SOFTWARE, INC.,
a Delaware corporation ("Tenant") for space in the Building located at 2061
Stierlin Court, Mountain View, California.
1. Landlord hereby grants to Tenant and persons designated by Tenant a license
to use 245 non-priority parking spaces and 5 priority parking spaces in the
parking areas ("Parking Facility") servicing the Building. The term of
such license shall commence on the Commencement Date under the Lease and
shall continue until the earlier to occur of the Termination Date under the
Lease, the sooner termination of the Lease, or Tenant's abandonment of the
Premises thereunder. During the term of this license, Tenant shall pay
$0.00 per parking space, per month. Tenant may, from time to time request
additional parking spaces, and if Landlord shall provide the same, such
parking spaces shall be provided and used on a month-to-month basis, and
otherwise on the foregoing terms and provisions, and at such prevailing
monthly parking charges as shall be established from time to time.
2. Tenant shall at all times comply with all applicable ordinances, rules,
regulations, codes, laws, statutes and requirements of all federal, state,
county and municipal governmental bodies or their subdivisions respecting
the use of the Parking Facility. Landlord reserves the right to adopt,
modify and enforce reasonable rules ("Rules") governing the use of the
Parking Facility from time to time including any key-card, sticker or other
identification or entrance system and hours of operation. The rules set
forth herein are currently in effect. Landlord may refuse to permit any
person who violates such rules to park in the Parking Facility, and any
violation of the rules shall subject the car to removal from the Parking
Facility.
3. Unless specified to the contrary above, the parking spaces hereunder shall
be provided on a non-designated "first-come, first-served" basis except for
the 5 priority parking spaces referred to above. Notwithstanding anything
in this Parking Agreement to the contrary, Landlord and Operator (as
hereinafter defined) shall have no obligation to monitor or ensure that the
5 priority parking spaces provided herein shall be exclusively used by
Tenant, and Landlord and Operator shall not be liable for any loss, damage,
claim, liability or expense incurred by Tenant in the event such 5 priority
parking spaces (or any portion thereof) are utilized by other parties.
Tenant acknowledges that Landlord has no liability for claims arising
through acts or omissions of any Operator (as hereinafter defined) of the
Parking Facility, if any. Landlord shall have no liability whatsoever for
any damage to items located in the Parking Facility, nor for any personal
injuries or death arising out of any matter relating to the Parking
Facility, and in all events, Tenant agrees to look first to its insurance
carrier and to require that Tenant's employees look first to their
respective insurance carriers for payment of any losses sustained in
connection with any use of the Parking Facility. Tenant hereby waives on
behalf of its insurance carriers all rights of subrogation against Landlord
or Landlord's agents. Landlord reserves the right to assign specific
parking spaces, and to reserve parking spaces for visitors, small cars,
<PAGE>
handicapped persons and for other tenants, guests of tenants or other
parties, which assignment and reservation or spaces may be relocated as
determined by Landlord from time to time, and Tenant and persons designated
by Tenant hereunder shall not park in any location designated for such
assigned or reserved parking spaces. Tenant acknowledges that the Parking
Facility may be closed entirely or in part in order to make repairs or
perform maintenance services, or to alter, modify, re-stripe or renovate
the Parking Facility, or if required by casualty, strike, condemnation, act
of God, governmental law or requirement or other reason beyond the
operator's reasonable control.
4. If Tenant shall default under this Parking Agreement, the Landlord or the
Operator, as the case may be, shall have the right to remove from the
Parking Facility any vehicles hereunder which shall have been involved or
shall have been owned or driven by parties involved in causing such
default, without liability therefor whatsoever. In addition, if Tenant
shall default under this Parking Agreement, Landlord shall have the right
to cancel this Parking Agreement on 10 days' written notice, unless within
such 10 day period, Tenant cures such default. If Tenant defaults with
respect to the same term or condition under this Parking Agreement more
than 3 times during any 12 month period, and Landlord notifies Tenant
thereof promptly after each such default, the next default of such term or
condition during the succeeding 12 month period, shall, at Landlord's
election, constitute an incurable default. Such cancellation right shall
be cumulative and in addition to any other rights or remedies available to
Landlord at law or equity, or provided under the Lease (all of which rights
and remedies under the Lease are hereby incorporated herein, as though
fully set forth). Any default by Tenant under the Lease shall be a default
under this Parking Agreement, and any default under this Parking Agreement
shall be a default under the Lease.
RULES
(i) Tenant shall have access to the Parking Facility on a 24 hour basis,
7 days a week. Tenant shall not store or permit its employees to
store any automobiles in the Parking Facility without the prior
written consent of the Landlord. Except for emergency repairs, Tenant
and its employees shall not perform any work on any automobiles while
located in the Parking Facility, or on the Property. If it is
necessary for Tenant or its employees to leave an automobile in the
Parking Facility overnight, Tenant shall provide the Landlord with
prior notice thereof designating the license plate number and model
of such automobile.
(ii) Cars must be parked entirely within the stall lines painted on the
floor, and only small cars may be parked in areas reserved for small
cars.
(iii) All directional signs and arrows must be observed.
(iv) The speed limit shall be 5 miles per hour.
(v) Parking spaces reserved for handicapped persons must be used only by
vehicles properly designated.
(vi) Parking is prohibited in all areas not expressly designated for
parking, including without limitation:
<PAGE>
(a) Areas not striped for parking
(b) aisles
(c) where "no parking" signs are posted
(d) ramps
(e) loading zones
(vii) Parking stickers, key cards or any other devices or forms of
identification or entry supplied by the Landlord or the Operator, as
the case may be, shall remain the property of the Landlord or the
Operator. Such device must be displayed as requested and may not be
mutilated in any manner. The serial number of the parking
identification device may not be obliterated. Parking passes and
devices are not transferable and any pass or device in the
possession of an unauthorized holder will be void.
(viii) Parking Facility managers or attendants are not authorized to make
or allow any exceptions to these Rules.
(ix) Every parker is required to park and lock his/her own car.
(x) Loss or theft of parking pass, identification, key cards or other
such devices must be reported to Landlord and to the Parking
Facility manager immediately. Any parking devices reported lost or
stolen found on any authorized car will be confiscated and the
illegal holder will be subject to prosecution. Lost or stolen passes
and devices found by Tenant or its employees must be reported to the
office of the garage immediately.
(xi) Washing, waxing, cleaning or servicing of any vehicle by the
customer and/or his agents is prohibited. Parking spaces may be used
only for parking automobiles.
(xii) By signing this Parking Agreement, Tenant agrees to acquaint all
persons to whom Tenant assigns a parking pass with these Rules.
5. Landlord may elect to provide parking cards or keys to control access to
the Parking Facility or surface parking areas, if any. In such event,
Landlord shall provide Tenant with one card or key for each parking space
that Tenant is entitled to hereunder, provided that Landlord shall have the
right to require Tenant or its employees to place a deposit on such access
cards or keys and to pay a fee for any lost or damaged cards or keys.
6. Landlord hereby reserves the right to enter into a management agreement or
lease with an entity for the Parking Facility ("Operator"). In such event,
Tenant upon request of Landlord, shall enter into a parking agreement with
the Operator and pay the Operator the monthly charge established hereunder,
and Landlord shall have no liability for claims arising through acts or
omissions of the Operator unless caused by Landlord's negligence or willful
misconduct. It is understood and agreed that the identity of the Operator
may change from time to time during the Term. In connection therewith, any
parking lease or agreement entered into between Tenant and an Operator
shall be freely assignable by such Operator or any successors thereto.
<PAGE>
7. NO LIABILITY. TENANT ACKNOWLEDGES AND AGREES THAT, TO THE FULLEST EXTENT
PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE
TO TENANT OR TENANT'S PROPERTY (INCLUDING, WITHOUT LIMITATIONS, ANY LOSS OR
DAMAGE TO TENANT'S AUTOMOBILE OR THE CONTENTS THEREOF DUE TO THEFT,
VANDALISM OR ACCIDENT) ARISING FROM OR RELATED TO TENANT'S USE OF THE
PARKING FACILITY OR EXERCISE OF ANY RIGHTS UNDER THIS PARKING AGREEMENT,
WHETHER OR NOT SUCH LOSS OR DAMAGE RESULTS FROM LANDLORD'S ACTIVE
NEGLIGENCE OR NEGLIGENT OMISSION. THE LIMITATION ON LANDLORD'S LIABILITY
UNDER THE PRECEDING SENTENCE SHALL NOT APPLY HOWEVER TO LOSS OR DAMAGE
ARISING DIRECTLY FROM LANDLORD'S WILLFUL MISCONDUCT.
8. Release of Liability. Without limiting the provisions of Paragraph 7
above, Tenant hereby voluntarily releases, discharges, waives and
relinquishes any and all actions or causes of action for personal injury or
property damage occurring to Tenant arising as a result of parking in the
Parking Facility, or any activities incidental thereto, wherever or however
the same may occur, and further agrees that Tenant will not prosecute any
claim for personal injury or property damage against Landlord or any of its
officers, agents, servants or employees for any said causes of action. It
is the intention of Tenant by this instrument, to exempt and relieve
Landlord from liability for personal injury or property damage caused by
negligence.
9. The provisions of Article XXI of the Lease are hereby incorporated by
reference as if fully recited.
Tenant acknowledges that Tenant has read the provisions of this Parking
Agreement, has been fully and completely advised of the potential dangers
incidental to parking in the Parking Facility and is fully aware of the legal
consequences of signing this instrument.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit as of
the day and year first above written.
LANDLORD:
EOP-SHORELINE TECHNOLOGY PARK, L.L.C., a Delaware
limited liability company
By: EOP Operating Limited Partnership, a Delaware
limited partnership, its sole member
By: Equity Office Properties Trust, a
Maryland real estate investment trust,
its managing general partner
By: __________________________
Name: __________________________
Title: __________________________
TENANT:
MARKETFIRST SOFTWARE, INC., a Delaware corporation
By: ______________________________
Name: ______________________________
Title: ______________________________
By: ______________________________
Name: ______________________________
Title: ______________________________
<PAGE>
EXHIBIT G
FORM OF LETTER OF CREDIT
------------------------
_______________________________
[Name of Financial Institution]
Irrevocable Standby
Letter of Credit
No. ________________________
Issuance Date:______________
Expiration Date:____________
Applicant:__________________
Beneficiary
- -----------
EOP-SHORELINE TECHNOLOGY PARK, L.L.C.
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Ladies/Gentlemen:
We hereby establish our Irrevocable Standby Letter of Credit in your favor
for the account of the above referenced Applicant in the amount of One Million
Two Hundred Forty Nine Thousand Two Hundred Fourteen and 42/100 U.S. Dollars
($1,249,214.42) available for payment at sight by your draft drawn on us when
accompanied by the following documents:
1. An original copy of this Irrevocable Standby Letter of Credit.
2. Beneficiary's dated statement purportedly signed by one of its officers
reading: "This draw in the amount of ______________________ U.S. Dollars
($____________) under your Irrevocable Standby Letter of Credit No.
____________________ represents funds due and owing to us as a result of
the Applicant's failure to comply with one or more of the terms of that
certain lease by and between ______________________, as landlord, and
_____________, as tenant."
It is a condition of this Irrevocable Standby Letter of Credit that it will
be considered automatically renewed for a one year period upon the expiration
date set forth above and upon each anniversary of such date, unless at least
sixty (60) days prior to such expiration date or applicable anniversary thereof,
we notify you in writing by certified mail, return receipt requested, that we
elect not to so renew this Irrevocable Standby Letter of Credit. A copy of any
such notice shall also be sent to: Equity Office Properties Trust, 2 North
Riverside Plaza, Suite 2200, Chicago, IL 60606, Attention: Senior Vice
President-Treasurer. In addition, provided that you have not provided us with
written notice of Applicant's default under the above referenced lease prior to
the effective date of any reduction, the amount of this Irrevocable Standby
Letter of Credit shall automatically reduce in accordance with the following
schedule:
<PAGE>
Effective Date of Reduction New Reduced Amount of Letter of
Credit
4/th/ Anniversary of the Commencement Date $832,809.61
6/th/ Anniversary of the Commencement Date $416,404.80
In addition to the foregoing, we understand and agree that you shall be entitled
to draw upon this Irrevocable Standby Letter of Credit in accordance with 1. and
2. above in the event that we elect not to renew this Irrevocable Standby Letter
of Credit and, in addition, you provide us with a dated statement proportedly
signed by one of Beneficiary's officers stating that the Applicant has failed to
provide you with an acceptable substitute irrevocable standby letter of credit
in accordance with the terms of the above referenced lease. We further
acknowledge and agree that: (a) upon receipt of the documentation required
herein, we will honor your draws against this Irrevocable Standby Letter of
Credit without inquiry into the accuracy of Beneficiary's signed statement and
regardless of whether Applicant disputes the content of such statement; and (b)
this Irrevocable Standby Letter of Credit shall permit partial draws and, in the
event you elect to draw upon less than the full stated amount hereof, the stated
amount of this Irrevocable Standby Letter of Credit shall be automatically
reduced by the amount of such partial draw.
This Irrevocable Standby Letter of Credit may only be transferred in its
entirety by the issuing bank upon our receipt of the attached "Exhibit A" duly
completed and executed by the beneficiary and accompanied by the original letter
of credit and all amendment(s), if any. Transfer of this Irrevocable Standby
Letter of Credit is in no way contingent upon payment of the transfer fee
detailed herein. The transfer fee payable is 1/4% of 1% of the transfer amount
(minimum USD250.00) which is payable by the applicant.
This Irrevocable Standby Letter of Credit is subject to the Uniform Customs
and Practice for Documentary Credits (1993 revision) ICC Publication No. 500.
We hereby engage with you to honor drafts and documents drawn under and in
compliance with the terms of this Irrevocable Standby Letter of Credit.
All communications to us with respect to this Irrevocable Standby Letter of
Credit must be addressed to our office located at _________________________ to
the attention of __________________________________.
Very truly yours,
______________________
[name]
______________________
[title]
______________________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
MarketFirst Software, Inc.
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
Mountain View, California
April 18, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Times Direct Marketing, Inc. d.b.a. FusionDM:
We consent to the inclusion of our report dated April 7, 2000, with respect to
the balance sheets of Times Direct Marketing, Inc. d.b.a. FusionDM as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years then ended.
We also consent to the reference of our firm under the heading "Experts" in the
Registration Statement.
/s/ KPMG LLP
San Francisco, California
April 18, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 7,427,000 261,000
<SECURITIES> 5,889,000 0
<RECEIVABLES> 704,000 12,000
<ALLOWANCES> 10,000 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,251,000 401,000
<PP&E> 1,334,000 677,000
<DEPRECIATION> 553,000 177,000
<TOTAL-ASSETS> 15,033,000 961,000
<CURRENT-LIABILITIES> 1,032,000 1,041,000
<BONDS> 0 0
30,879,000 7,634,000
0 0
<COMMON> 5,000 5,000
<OTHER-SE> (16,883,000) (7,961,000)
<TOTAL-LIABILITY-AND-EQUITY> 15,033,000 961,000
<SALES> 369,000 20,000
<TOTAL-REVENUES> 1,264,000 37,000
<CGS> 465,000 4,000
<TOTAL-COSTS> 11,100,000 6,694,000
<OTHER-EXPENSES> 5,000 1,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (308,000) (93,000)
<INCOME-PRETAX> (10,022,000) (6,569,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,022,000) (6,569,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,022,000) (6,569,000)
<EPS-BASIC> (2.96) (2.37)
<EPS-DILUTED> (2.96) (2.37)
</TABLE>
