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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 15, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CALICO COMMERCE, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0373344
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
RIVERPARK TOWERS
333 WEST SAN CARLOS STREET, SUITE 300
SAN JOSE, CALIFORNIA 95110
(408) 975-7400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
MR. ALAN P. NAUMANN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CALICO COMMERCE, INC.
333 WEST SAN CARLOS STREET, SUITE 300
SAN JOSE, CALIFORNIA 95110
(408) 975-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
GREGORY M. GALLO, ESQ. LARRY W. SONSINI, ESQ.
PETER M. ASTIZ, ESQ. JOHN T. SHERIDAN, ESQ.
SALLY J. RAU, ESQ. CHRISTOPHER OZBURN, ESQ.
GRAY CARY WARE & FREIDENRICH LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
400 HAMILTON AVENUE 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CALIFORNIA 94304-1050
(650) 328-6561 (650) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") 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 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 number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PER SHARE(1)(2) OFFERING PRICE(1)(2) FEE
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Common Stock ($0.001 par value).......................... $ $57,500,000 $15,985
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</TABLE>
(1) Includes shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) The number of shares being registered hereby is omitted pursuant to Rule
457(o) promulgated under the Securities Act. Estimated solely for the
purposes of determining the registration fee pursuant to Rule 457(o)
promulgated under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated July , 1999.
Shares
CALICO COMMERCE, INC.
Common Stock
[CALICO LOGO]
----------------------
This is an initial public offering of shares of common stock of Calico
Commerce, Inc. All of the shares of common stock are being
sold by Calico.
Prior to this offering, there has been no public market for our common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Application has been made for
quotation of the common stock on the Nasdaq National Market under the symbol
"CLIC".
See "Risk Factors" beginning on page 5 to read about certain factors you
should consider before buying shares of the Common Stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Calico........................ $ $
</TABLE>
To the extent that the underwriters sell more than shares of
common stock, the underwriters have the option to purchase up to an additional
shares from Calico at the initial public offering price less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
HAMBRECHT & QUIST
----------------------
Prospectus dated , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Calico and the consolidated financial statements and notes
appearing elsewhere in this prospectus. Except as set forth in the consolidated
financial statements or as otherwise specified in this prospectus, all
information in this prospectus:
- - assumes no exercise of the underwriters' over-allotment option;
- - gives effect to the conversion of each outstanding share of preferred stock
into one share of common stock upon the completion of this offering; and
- - reflects our reincorporation into Delaware prior to the consummation of this
offering.
CALICO COMMERCE, INC.
We are a leading provider of advanced eCommerce software and services. Our
products are designed to allow companies to create long-term strategic
differentiation by redefining how they interact with their customers. Our
advanced eCommerce solution, the Calico eSales Suite, enables the interactive
buying and selling of complex products and services over the Internet and other
platforms. Our products enable companies to create a guided selling experience
that allows their customers to interactively affect the on-line purchasing
process. This enables companies to build strong customer relationships that can
result in increased revenue and reduced sales costs.
The Internet has created a new means for businesses to reach and interact
directly with new and existing customers worldwide, thereby transforming the
traditional ways companies market, sell and support their product and service
offerings. The Internet allows for enhanced interactivity, greater
personalization and the ability to offer a broad array of complex, configurable
goods and services, all at the time of purchase. Forrester Research, Inc.
estimates that the total value of U.S. business trade on the Internet will grow
to approximately $1.3 trillion in 2003. In order to capitalize on this
opportunity, companies are adopting more sophisticated approaches to eCommerce
and are increasing their investment in eCommerce infrastructure. Forrester
Research estimates that the U.S. market for eCommerce-enabling software
solutions is expected to grow from $235 million in 1998 to $3.8 billion in 2002.
The Calico eSales Suite can be deployed at the point of sale over the
Internet and other platforms to improve selling effectiveness and customer
satisfaction. Our software is designed to facilitate the selling process by
dynamically assessing customer requirements, providing tailored information,
identifying constraints, proposing alternatives and delivering quotes. Our
solutions enable companies to provide highly tailored products and services, to
cross sell and upsell additional products and services and to reduce the time to
market of new products and services. In addition, our solutions are designed to
improve sales effectiveness and order accuracy, thereby enhancing operating
efficiency and reducing costs.
Our objective is to be the leading provider of advanced eCommerce
solutions to customers worldwide. The key elements of our strategy are to:
- - increase the breadth and depth of our eCommerce solutions;
- - align with eCommerce leaders and expand into additional vertical markets;
- - leverage partnerships;
- - extend our technology leadership; and
- - identify and capitalize on new eCommerce-based opportunities.
Our advanced eCommerce solutions are broadly applicable to a wide range of
industries and markets. Our current customers include a number of companies that
have adopted aggressive eCommerce business strategies, such as Best Buy, Cisco
Systems, Dell Computer, Gateway, Merrill Lynch, Nortel Networks, Qwest
Communications International, Siemens Business Communication Systems, Telia, and
US West Business Resources.
We were incorporated in California in 1994 and will reincorporate in
Delaware prior to the consummation of this offering. Our principal executive
offices are located at 333 West San Carlos Street, Suite 300, San Jose,
California 95110 and our telephone number is (408) 975-7400. Our worldwide
website is at www.calico.com. The information contained on our website does not
constitute a part of this prospectus.
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THE OFFERING
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<S> <C>
Common Stock offered by Calico.............. shares
Common Stock to be outstanding after this shares
offering....................................
Proposed Nasdaq National Market symbol...... "CLIC"
Use of proceeds............................. General corporate purposes, including
working capital, sales and marketing
activities, product development and support
and capital expenditures. See "Use of
Proceeds".
</TABLE>
The above information is based on 18,080,115 shares outstanding as of June 30,
1999. Of this number, 1,535,044 shares are subject to a repurchase option held
by Calico. This information does not include 3,528,823 shares of common stock
issuable upon the exercise of options outstanding under our 1997 and 1995 Stock
Option Plans, 20,979 shares of common stock issuable upon exercise and
conversion of preferred stock options, and 88,833 shares of common stock
issuable upon exercise and conversion of preferred stock warrants. See
"Capitalization", "Management -- Executive Compensation", and "-- Benefit
Plans".
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
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1996 1997 1998 1999
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<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenue........................................... $ 2,270 $ 5,903 $11,859 $ 21,413
Gross profit................................................ 1,830 3,603 8,479 12,962
Loss from operations........................................ (2,070) (6,921) (5,458) (15,238)
Net loss.................................................... (1,970) (6,900) (5,499) (15,261)
Net loss per share:
Basic and diluted......................................... $ (1.03) $ (3.19) $ (1.62) $ (3.41)
Weighted average shares................................... 1,904 2,165 3,386 4,473
Pro forma net loss per share:
Basic and diluted......................................... $ (1.11)
Weighted average shares................................... 13,793
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 15,441 $15,441
Working capital............................................. 10,187 10,187
Total assets................................................ 31,368 31,368
Debt and capital leases, long-term portion.................. 877 877 877
Total Mandatorily Redeemable Convertible Preferred Stock.... 32,535 -- --
Total stockholders' equity (deficit)........................ (16,780) 15,755
</TABLE>
Consolidated statement of operations data for the year ended March 31, 1999
includes the results of operations of FirstFloor Software subsequent to our
acquisition of FirstFloor in August 1998. Shares used in computing unaudited pro
forma basic and diluted net loss per share include the shares used in computing
basic and diluted net loss per share adjusted for the conversion of preferred
stock to common stock, as if the conversion occurred on April 1, 1998 or the
date of original issuance, if later. The pro forma as adjusted information above
reflects the application of the estimated net proceeds from the sale of the
shares of common stock that we are offering at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and our estimated offering expenses. See
"Capitalization".
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RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before deciding whether to
invest in our common stock.
If any of the following risks actually occurs, our business could be
harmed. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
IT IS DIFFICULT TO EVALUATE OUR BUSINESS BECAUSE WE HAVE A LIMITED OPERATING
HISTORY
We were incorporated in 1994 and, accordingly, we have a limited operating
history. The revenue and income potential of our market are unproven. You should
consider the risks and uncertainties frequently encountered by early stage
companies like ours in new and rapidly evolving markets. These risks and
uncertainties include the following:
- - we depend on a limited number of products and have sold our products and
services to a small number of customers;
- - we must continue to develop new products and product enhancements;
- - we must continue to expand our direct sales force and enter into new
strategic partnerships to expand our sales efforts and deployment capacity;
- - we have limited experience deploying large-scale projects; and
- - we must continue to develop our direct and indirect distribution channels,
both in the United States and abroad.
As a result of our limited operating history, we have limited insight into
trends that may emerge and affect our business and we cannot forecast operating
expenses based on our historical results. If we are not able to successfully
address these risks, our business could be harmed.
WE EXPECT TO CONTINUE TO INCUR LOSSES
We have incurred quarterly and annual losses since we were formed, and we
expect to continue to incur losses on both a quarterly and annual basis for the
foreseeable future. We incurred net losses of $6.9 million for fiscal 1997, $5.5
million for fiscal 1998, and $15.3 million for fiscal 1999. As of March 31,
1999, we had an accumulated deficit of $29.7 million. Moreover, we expect to
continue to incur significant sales and marketing and research and development
expenses, and, as a result, we will need to generate significant revenue to
achieve and maintain profitability. Although our revenue has grown in recent
quarters, we cannot be certain that we can sustain this growth or that we will
generate sufficient revenue for profitability. If we do achieve profitability,
we cannot be certain that we can sustain or increase profitability on a
quarterly or annual basis in the future. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY AND MAY FALL SHORT OF ANTICIPATED
LEVELS
Our quarterly operating results have varied significantly in the past and
we expect that they will vary significantly from quarter to quarter in the
future. These quarterly variations are caused by a number of factors, including:
- - variations in demand for our products;
- - delays in customer orders;
- - timing of product deployments and achievement of milestones, particularly
for large orders;
- - delays in recognition of revenue in accordance with applicable accounting
principles;
- - the timing and mix of our license and services orders;
- - our ability to attract and train qualified sales personnel;
- - changes in the development of the eCommerce market;
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- - our ability to develop, introduce, ship and support new and enhanced
products that respond to changing technology trends in a timely manner and
our ability to manage product transitions;
- - the amount and timing of increases in expenses including significant
unexpected expenses for product development;
- - costs and complications relating to acquisitions and integration of new
technologies or businesses;
- - our ability to expand our international operations;
- - the utilization rate of our services personnel; and
- - possible purchasing delays by customers as they divert resources to address
year 2000 issues.
License revenue in any quarter can be difficult to forecast because we
have a long sales cycle that makes it difficult to predict the quarter in which
sales will occur. License revenue can also be strongly impacted by revenue
recognition policies which may require deferral of recognition of revenue from
large orders due to delivery milestones or other factors. We receive a major
portion of our orders near the end of each quarter. Therefore, we have
difficulty predicting the volume and timing of orders, and short delays in
closing orders or implementation of products can cause our operating results to
fall substantially short of anticipated levels for that quarter.
A high percentage of our operating expenses are essentially fixed in the
short term. In addition, we expect our operating expenses to increase as we
expand our sales and marketing activities, broaden our customer support
capabilities, develop new distribution channels and strategic partnerships, and
fund increased levels of research and development. If our revenue does not
increase along with these expenses, we could experience significant variations
in our operating results from quarter to quarter and could incur substantial
quarterly operating losses.
Although we have limited historical financial data, we believe that we may
experience seasonal fluctuations in our quarterly operating results. For
example, our quarterly results may fluctuate based upon our customers' calendar
year budgeting cycles.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not necessarily
meaningful and are not a good predictor of our future performance. In some
future quarter our operating results may be below the expectations of public
market analysts and investors, which could cause volatility or decline in the
price of our common stock.
OUR PRODUCTS HAVE A LONG SALES AND IMPLEMENTATION CYCLE WHICH MAKES IT DIFFICULT
TO PREDICT OUR QUARTERLY RESULTS
The sales cycle for our products has typically ranged from three months to
a year. Our products have a relatively high sales price per unit, and often are
part of a significant strategic decision by our customers regarding their
information systems infrastructure. Accordingly, the decision to purchase our
products typically requires significant pre-purchase evaluation. We spend
significant time educating and providing information to prospective customers
regarding the use and benefits of our products. During this evaluation period,
we may expend substantial funds in sales, marketing and management efforts.
Consequently, the lengthy sales cycle for our products makes it difficult
to predict the quarter in which revenue recognition may occur and may cause
license revenue and operating results to vary significantly from period to
period. If anticipated sales from a specific customer for a particular quarter
are not realized in that quarter, we may miss our revenue forecast and our
business may be harmed.
Even after purchase, it often takes substantial time and resources to
implement our software and to integrate it with our customers' existing systems.
We may not be able to recognize all or a portion of the
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revenue until the deployment of the software is completed or implementation
milestones are achieved. Because of revenue recognition accounting requirements,
we have in the past and may in the future be required to defer recognition of
license revenue for software products from the period in which the agreement for
the license of software is signed to subsequent periods. If we are unable to
complete one or more substantial anticipated license sales or experience delays
in the progress on a project or product or in the satisfaction of contract terms
required for revenue recognition in a particular quarter, our business could be
harmed.
LOSS OR DELAYS OF CUSTOMER ORDERS MAY ADVERSELY AFFECT OUR OPERATING RESULTS
We derive a significant portion of our software license revenue in each
quarter from a limited number of customers. For example, for the fiscal year
ended March 31, 1999, four customers accounted for 52% of our revenue and ten
customers accounted for 81% of our revenue. Many of our contracts are in excess
of $1.0 million. We expect that a limited number of customers will continue to
account for a substantial portion of our revenue for the foreseeable future. As
a result, if we lose a major customer, if a contract is delayed, cancelled or
deferred or if an anticipated sale is not made, our revenue would be adversely
affected. In addition, we cannot be certain that customers that have accounted
for significant revenue in the past will continue to generate revenue in any
future period.
OUR BUSINESS DEPENDS ON A NEW VERSION OF THE CALICO ESALES SUITE AND THE
SUCCESSFUL DEVELOPMENT OF NEW PRODUCTS
We currently derive substantially all of our revenue from licenses,
professional services and support related to sales of the Calico eSales
Configurator and, to a lesser extent, sales of the Calico eSales InfoGuide
(previously called Calico eSales Catalog) and the Calico eSales Workbench.
The latest version of the Calico eSales Suite was introduced in June 1999.
Our business depends on the success of this introduction and customer acceptance
of this new version. The latest version of our suite of products includes
substantial additional functions and features. Although our products have been
subject to our internal testing procedures, the new version of the Calico eSales
Suite has only recently been introduced, and customers may discover errors or
other problems with the product, which may adversely affect its acceptance.
We expect that we will continue to depend on revenue from new and enhanced
versions of the Calico eSales Configurator for the foreseeable future, and our
business could be harmed if our target customers do not continue to adopt and
expand their use of the Calico eSales Configurator as well as other products in
the Calico eSales Suite.
Our future financial performance also depends on the successful and timely
development, introduction and market acceptance of additional new and enhanced
products that address customer requirements. The introduction and market
acceptance of enhancements to the Calico eSales Suite and new products may cause
certain customers to defer orders for our existing products. If we fail to
achieve and maintain meaningful levels of market acceptance of our existing and
new products, our business could be harmed.
WE MAY EXPERIENCE DIFFICULTIES IN INTRODUCING NEW PRODUCTS AND UPGRADES
We expect to add new products by acquisition or internal development and
by developing enhancements to our existing products. We have in the past
experienced delays in the planned release dates of our software products and
upgrades. New products may not be released on schedule or may contain defects
when released. The introduction of enhancements to our suite of products may
cause customers to defer orders for our existing products. New and enhanced
products may not meet the requirements of the marketplace and achieve market
acceptance. Our business could be harmed if we are unable to ship or implement
new or enhanced products when planned, or fail to achieve timely market
acceptance of our new or enhanced products.
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OUR FUTURE SUCCESS DEPENDS ON THE ABILITY OF OUR PRODUCTS TO SCALE TO OPERATE IN
AN ENTERPRISE-WIDE ENVIRONMENT
Our strategy requires that our software be highly scalable, or able to
accommodate substantial increases in the number of users concurrently using the
product. However, we are just beginning to deploy large-scale Internet-based
solutions and no large-scale deployment has been operating at any customer site
for an extended period of time. In addition, the interface component of the
Calico eSales Configurator is powered by Microsoft Active Server Pages and
therefore operates only on Windows NT. We intend to develop user interface
components to allow our customers to use either a Unix-based or Windows NT-based
Web server. If we are unable to promptly or successfully develop the Unix
version, the scalability of our Calico eSales Configurator may be adversely
impacted for certain customer applications due to the scalability limitations of
Windows NT. If our solutions do not perform adequately in large-scale
implementations, our business would be harmed.
WE SELL OUR PRODUCTS AND SERVICES IN A LIMITED NUMBER OF MARKETS AND MAY NOT
SUCCESSFULLY PENETRATE NEW MARKETS
Sales of our products and services in two markets -- computer hardware and
network and telecommunications equipment -- accounted for over 80% of our total
net revenue in the fiscal year ended March 31, 1999. We expect that revenue from
these two markets will continue to account for a substantial portion of our
total net revenue in fiscal 2000. We are targeting expansion in additional
vertical markets where advanced eCommerce solutions are highly strategic and
promote competitive advantage, including manufacturing, retail,
telecommunications services and financial services. If we are unable to
successfully increase penetration of our existing markets or expand in these
additional markets, or if the overall economic climate of our target markets
deteriorates, our business could be harmed.
WE RELY SIGNIFICANTLY ON AND NEED TO EXPAND OUR DIRECT SALES ORGANIZATION
Our future growth depends on the ability of our direct sales force to
develop customer relationships and increase sales to a level that will allow us
to reach and maintain profitability. Our ability to increase our sales will
depend on our ability to recruit, train and retain top quality sales people who
are able to target prospective customers' senior management, and who can
productively generate and service large accounts.
There is a shortage of the sales personnel we need, and competition for
qualified personnel is intense. In addition, it will take time for new sales
personnel to achieve full productivity. If we are unable to hire or retain
qualified sales personnel, or if newly hired personnel fail to develop the
necessary skills or to reach productivity when anticipated, our business could
be harmed.
WE NEED TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION AND ESTABLISH AND
MAINTAIN RELATIONSHIPS WITH THIRD PARTY CONSULTANTS TO PROVIDE PROFESSIONAL
SERVICES TO OUR CUSTOMERS
Growth in the license of our products depends on our ability to provide
our customers with professional services to assist with design, implementation
and maintenance of our advanced eCommerce solutions. We plan to increase the
number of our services personnel. We also plan to increasingly rely on
third-party consultants to provide professional services. If we are unable to
get the support of third-party consultants to provide these services or if third
parties do not provide these services effectively or in a cost-efficient manner,
our business could be harmed. Likewise, if these third-party consultants decide
to develop their own products or support the products of our competitors rather
than our products, our business could be harmed. In addition, if we have to
retain third party consultants to provide services for our customers for which
we have previously committed, the resulting increased costs could have an
adverse impact on the gross margins for our professional services.
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As third parties are increasingly used for providing professional
services, our services revenue will likely not grow at the same rate as the
growth of our license revenue. Services revenue tends to be somewhat more
predictable than license revenue. As services revenue declines as a percentage
of total net revenue, our total net revenue could become less predictable.
YEAR 2000 CONSIDERATIONS AMONG OUR CUSTOMERS AND POTENTIAL CUSTOMERS MAY REDUCE
OUR SALES
We may experience reduced license of products as customers and potential
customers put a priority on correcting year 2000 problems and therefore defer
purchase decisions for software products until later in 2000. Accordingly,
demand for our products may be particularly volatile and unpredictable for the
remainder of calendar 1999 and 2000.
WE DEPEND ON SERVICES REVENUE
Services revenue represented 33% of total net revenue for fiscal 1997, 41%
of total net revenue for fiscal 1998 and 51% of total net revenue for fiscal
1999. We anticipate that services revenue will continue to represent a
significant percentage of total net revenue. To increase services revenue, we
must expand our services organization, successfully recruit and train a
sufficient number of qualified services personnel, and obtain renewals of
current maintenance contracts by our customers.
We expect our services revenue to increase in absolute dollars as we
continue to provide consulting and training services that complement our
products and as our installed base of customers grows. However, services revenue
could decline as a percentage of total revenue as we expect that customers will
increasingly utilize third-party service providers to install and service our
products.
Although services revenue is important to our business, services revenue
has lower gross margins than license revenue. As a result, a continued increase
in the percentage of total net revenue represented by services revenue or an
unexpected decrease in license revenue could have a detrimental impact on our
overall gross margins and our operating results.
WE NEED TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH KEY PARTNERS AND SYSTEMS
INTEGRATORS
Our strategy is to increase geographic sales coverage worldwide, address
new vertical markets and customer segments and provide our customers with
additional implementation alternatives. To do this, we must complement our
direct sales force and professional services organization with strategic
partnerships and alliances. Until recently, few potential partner organizations
have focused on the emerging class of packaged eCommerce applications and we
have only established a limited number of such key partnerships and alliances.
If we fail to maintain our existing relationships and to establish new
relationships with key partners, or if our partners do not perform to our or our
customers' expectations, our business could be harmed.
COMPETITION IN THE MARKET FOR ADVANCED ECOMMERCE PRODUCTS AND SERVICES COULD
REDUCE OUR SALES AND PREVENT US FROM ACHIEVING PROFITABILITY
The market for software and services that enable advanced eCommerce is
new, intensely competitive, highly fragmented, and rapidly changing. We expect
competition to persist and intensify, which could result in price reductions,
reduced gross margins and loss of market share, any of which could seriously
harm our business. Our primary competition currently comes from companies
developing solutions in-house and from a large number of emerging companies
focused on eCommerce. We also compete with vendors of enterprise class
application software, including BroadVision, Siebel Systems, Oracle, SAP, Baan
and Microsoft. Within our Calico eSales Configurator product line our
competitors include Trilogy, pcOrder.com, Selectica and FirePond.
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Many of our competitors and potential competitors have a number of
significant advantages over us, including:
- - a longer operating history;
- - preferred vendor status with our customers;
- - more extensive name recognition and marketing power; and
- - significantly greater financial, technical, marketing and other resources,
giving them the ability to respond more quickly to new or changing
opportunities, technologies and customer requirements.
We also expect that competition will increase as a result of software
industry consolidation. For example, a number of enterprise software companies
have announced acquisitions of point solution providers to expand their product
lines. Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. In addition, new
competitors could emerge and rapidly capture market share.
Competitive pressures may make it difficult for us to acquire and retain
customers and may require us to reduce the prices of our products and services.
We may not be able to compete successfully against current or future
competitors. If we fail to compete successfully, our business could be harmed.
CONTINUED RAPID GROWTH MAY STRAIN OUR OPERATIONS
We have recently experienced a period of rapid growth and expansion. All
members of our management team, other than our Vice President, Research and
Development have joined Calico since June 1997. Our Vice President, Engineering
joined Calico in January 1999, and our Vice President and Chief Financial
Officer joined Calico in June 1999. From September 30, 1997 to June 30, 1999, we
expanded from 85 to 210 employees. Our new employees include a number of key
managerial, marketing, planning, technical and operations personnel who have not
yet been fully integrated into our organization.
We intend to continue to expand our operations internationally and
domestically, grow our customer base and pursue market opportunities through
multiple growth strategies. Our rapid growth and expansion places significant
demands on our managerial, administrative, operational, financial and other
resources. To accommodate continued anticipated growth and expansion, we will be
required to:
- - improve existing and implement new operational and financial systems,
procedures and controls;
- - hire, train, manage, retain and motivate qualified personnel;
- - enter into relationships with strategic partners; and
- - integrate our new management team.
These measures may place a significant burden on our management and our
internal resources. If we are not able to install adequate control systems in an
efficient and timely manner, if our current or planned personnel systems,
procedures and controls are not adequate to support our future operations, or if
we are unable to otherwise manage growth effectively, our business could be
harmed.
In addition, we are searching for new office space because the current
lease on our principal facility expires on August 31, 1999. Although we believe
that suitable office space will be available, if we are unable to identify
suitable space or if a change in location of our principal offices is
unexpectedly disruptive, time-consuming or costly, our business could be harmed.
THE MARKET FOR OUR ADVANCED ECOMMERCE
PRODUCTS AND SERVICES IS NEW AND EVOLVING AND CUSTOMERS MAY NOT ACCEPT OUR
PRODUCTS
The market for our products and services is at an early stage of
development and is rapidly evolving. We cannot be certain that this market will
continue to develop and
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grow, or that companies will elect to utilize our products and services rather
than attempt to develop applications internally or through other sources.
Enterprises that have already invested substantial resources in other methods of
conducting commerce may be reluctant to adopt a new approach that may replace,
limit or compete with their existing systems. We expect that we will continue to
need intensive marketing and sales efforts to educate prospective customers
about the uses and benefits of our products and services. Therefore, demand for
and market acceptance of our products and services will be subject to a high
level of uncertainty.
TO COMPETE, WE MUST INTRODUCE PRODUCTS THAT RESPOND EFFECTIVELY TO CHANGING
TECHNOLOGY
The market for software and services that enable advanced eCommerce is
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and emerging
industry standards. Advances in Internet technology or in applications software
directed at eCommerce, or the development of entirely new technologies to
replace existing software, could lead to new competitive products that have
better performance or lower prices than our products and could render our
products obsolete and unmarketable. In addition, if a new software language or
operating system becomes standard or is widely adopted in our industry, we may
need to rewrite portions of our products in another computer language or for
another operating system to remain competitive. If we are unable to develop
products that respond to changing technology, our business could be harmed.
It is common for software companies to acquire other companies as a means
of introducing new products or emerging technologies. If a new technology or
product emerges that may displace our product lines, competitors with large
market capitalizations or cash reserves would be better positioned than we are
to acquire such new technology or product.
WE DEPEND ON KEY PERSONNEL AND MUST ATTRACT AND RETAIN ADDITIONAL QUALIFIED
PERSONNEL
Our success depends largely on the continued contributions of our key
management, engineering, sales and marketing and professional services
personnel, many of whom would be difficult to replace. Our success also depends
on our ability to attract and retain additional qualified engineering, sales and
marketing and professional services personnel. Competition for these types of
personnel is intense, especially in Silicon Valley. If we are unable to retain
our existing key personnel, or attract and train additional qualified personnel,
our business could be harmed.
In addition, companies in the software industry whose employees accept
positions with competitors frequently claim that such competitors have breached
noncompetition agreements. Although no claims have been made against us to date,
we may receive claims in the future as we hire qualified personnel, and if a
claim were to be made against us, it could result in material litigation. We
could incur substantial costs in defending ourselves against any of these
claims, regardless of the merits of these claims.
ACQUISITIONS AND NEW VENTURES MAY PRESENT RISKS TO OUR BUSINESS
As part of our business strategy, we have in the past and may in the
future make acquisitions of, or investments in companies, products or
technologies that complement our current products, augment our market coverage,
enhance our technical capabilities or that may otherwise offer growth
opportunities. For example, in 1998 we acquired one of our OEM partners,
FirstFloor Software. Acquisitions create risks for us, including:
- - difficulties in the assimilation of acquired personnel, operations,
technologies or products;
- - unanticipated costs associated with the acquisition;
- - diversion of management's attention from other business concerns;
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<PAGE> 12
- - adverse effects on existing business relationships with suppliers and
customers;
- - risks of entering markets where we have no or limited prior experience; and
- - use of substantial portions of our available cash to consummate the
acquisition.
These risks and difficulties could disrupt our ongoing business, distract
our management and employees and increase our expenses. We may not be able to
successfully integrate any businesses, products, technologies or personnel that
we might acquire in the future, and our failure to do so could harm our
business.
In addition, in connection with any future acquisitions, we could:
- - issue equity securities which would dilute current stockholders' percentage
ownership;
- - incur substantial debt; or
- - assume significant liabilities.
These actions by us could materially adversely affect our operating
results and/or the price of our common stock.
We also intend to pursue relationships with and foster development of
emerging eCommerce-based businesses at an early stage of their development. We
may pursue these new ventures by acquisition, joint venture, or other
alternative investment. We cannot be certain that these new ventures will be
successful, or that we will generate any revenue from these new ventures. In
addition to the risks posed by traditional acquisitions, these new ventures may
have no proven record of success, and may fail, causing us to lose our
investment, and may divert management time and resources.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES
We license technology from several software providers for use with our
products. We anticipate that we will continue to license technology from third
parties in the future. This software may not continue to be available on
commercially reasonable terms, if at all. Some of the software we license from
third parties would be difficult to replace. The loss of any of these technology
licenses could result in delays in the license of our products until equivalent
technology, if available, is identified, licensed and integrated. In addition,
the effective implementation of our products depends upon the successful
operation of third-party licensed products in conjunction with our products, and
therefore any undetected errors in these licensed products could prevent the
implementation or impair the functionality of our products, delay new product
introductions and/or injure our reputation. The use of third-party software
would require us to enter into license agreements with third parties, which
could result in higher royalty payments and a loss of product differentiation.
SOFTWARE DEFECTS COULD DIMINISH DEMAND FOR OUR PRODUCTS AND COULD RESULT IN
PRODUCT LIABILITY CLAIMS AGAINST US
Complex software products like ours may contain undetected errors or
defects, including year 2000 related errors, that may be detected at any point
in the life of the product. We have in the past discovered software errors in
our products and as a result have experienced delays in shipment of products
during the period required to correct these errors. We have only recently
introduced the latest version of the Calico eSales Suite. Errors may be found
from time to time in our new or enhanced products after commencement of
commercial shipments, such as this latest version of our suite, resulting in
loss of revenue, delay in market acceptance and sales, diversion of development
resources, injury to our reputation or increased warranty and repair costs.
Our products are generally used in systems with other vendors' products,
and as a result our products must integrate successfully with these existing
systems. System errors, whether caused by our products or those of another
vendor, could adversely affect the market acceptance of our products, and any
necessary revisions could cause us to incur significant expenses.
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PRODUCT LIABILITY LITIGATION COULD HARM OUR BUSINESS
Since our products are used for mission critical applications such as
eCommerce, errors, defects or other performance problems could result in
financial or other damages to our customers. Although our license agreements
generally contain provisions designed to limit our exposure to product liability
claims, existing or future laws or unfavorable judicial decisions could negate
such limitation of liability provisions. Product liability litigation, even if
it were unsuccessful, would be time consuming and costly to defend and could
harm our business.
OUR FAILURE AND THE FAILURE OF OUR KEY SUPPLIERS AND CUSTOMERS TO BE YEAR 2000
COMPLIANT COULD NEGATIVELY IMPACT OUR BUSINESS
The year 2000 issue creates risks for us in four principal areas:
- - potential warranty or other claims from our customers;
- - systems we use to run our business;
- - systems used by our suppliers; and
- - the possibility that our potential customers will reduce spending on
advanced eCommerce products such as ours as a result of significant spending
on year 2000 remediation.
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year 2000
compliant. The failure of our customers' systems to be year 2000 compliant could
impede the success of applications that we or our partners have developed for
them. Accordingly, known or unknown defects that affect the operation of our
software, including any defects or errors in applications that include our
products, could result in delay or loss of revenue, diversion of development
resources, damage to our reputation, or increased service or warranty costs and
litigation costs, any of which could harm our business.
We need to ensure year 2000 compliance of our own internal computer and
other systems, to continue testing our software products and to audit the year
2000 compliance status of our suppliers and business partners. We have not
completed our year 2000 investigation and overall compliance initiative, and the
total cost of our year 2000 compliance may be substantial and may harm our
business. We may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
WE HAVE LIMITED PROTECTION OF OUR INTELLECTUAL PROPERTY
Our success and ability to compete depend upon our proprietary technology.
Despite our efforts to protect our intellectual property, a third party could
copy or otherwise obtain our software or other proprietary information without
authorization, or could develop software competitive to ours. Our means of
protecting our proprietary rights may not be adequate and our competitors may
independently develop similar technology, duplicate our products or design
around our patents or other intellectual property. In addition, the laws of some
foreign countries do not protect our proprietary rights to as great an extent as
do the laws of the United States, and we expect that it will become more
difficult to monitor the use of our products if we increase our international
presence.
We may have to litigate to enforce our intellectual property rights, to
protect our trade secrets or know-how or to determine their scope, validity or
enforceability. Enforcing or defending our proprietary technology is expensive,
could cause the diversion of our resources and may not prove successful. Our
protective measures may prove inadequate to protect our proprietary rights. Any
failure to enforce or protect our rights could cause us to lose a valuable asset
and could harm our business.
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WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS
There has been substantial litigation in the software and Internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of eCommerce solutions will increasingly be subject to
infringement claims as the number of products and competitors in our industry
grows and the functionality of products overlaps. Any claims, with or without
merit, could be costly and time-consuming to defend, divert our management's
attention, cause product delays, and otherwise harm our business. If our
products were found to infringe a third party's proprietary rights, we could be
required to enter into royalty or licensing agreements in order to be able to
sell our products. Royalty and licensing agreements, if required, may not be
available on terms acceptable to us or at all.
IF USE OF THE INTERNET DOES NOT GROW, OUR BUSINESS WOULD BE HARMED
Growth in sales of our products and services depends upon the continued
and increased use of the Internet as a medium for commerce and communication.
Although the Internet is experiencing growth in the number of users and traffic,
such rapid growth is a recent phenomenon and may not continue. In addition, the
Internet infrastructure may not be able to support the demands placed on it by
increased usage and bandwidth requirements. Other risks associated with
commercial use of the Internet could slow its growth, including:
- - inadequate security of information distributed over the Internet, resulting
in privacy concerns;
- - inadequate reliability of the network infrastructure;
- - slow development of enabling technologies and complementary products; and
- - limited accessibility and ability to deliver quality service.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the development or adoption of
new equipment and standards or protocols required to handle increased levels of
Internet activity, or increased government regulation, could cause the Internet
to lose its viability as a commercial medium. If the Internet infrastructure
does not develop sufficiently to address these concerns, our business could be
harmed.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD HARM OUR BUSINESS
As eCommerce and the Internet continue to evolve, we expect that federal,
state and foreign governments will adopt laws and regulations covering issues
such as user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for eCommerce, and therefore the market
for our products and services. Although many of these regulations may not apply
directly to our business, we expect that laws regulating the solicitation,
collection or processing of personal or consumer information could indirectly
affect our business.
The Telecommunications Act of 1996 prohibits certain types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. The imposition upon us and other software and service
providers of potential liability for information carried on or disseminated
through our applications could require us to implement measures to reduce our
exposure to this liability. These measures could require us to expend
substantial resources or discontinue certain services. In addition, although
substantial portions of the Communications Decency Act (the Act through which
the Telecommunications Act of 1996 imposes criminal penalties) were held to be
unconstitutional, similar legislation may be enacted and upheld in the future.
It is possible that this legislation could expose
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<PAGE> 15
companies involved in eCommerce to liability, which could limit the growth of
eCommerce generally. Legislation like the Telecommunications Act and the
Communications Decency Act could dampen the growth of Internet usage and
decrease its acceptance as a communications and commercial medium.
Our software utilizes encryption technology, the export of which is
regulated by the United States government. If our export authority is revoked or
modified, if our software is unlawfully exported or if the United States adopts
new legislation restricting export of software and encryption technology, our
business could be harmed. Current or future export regulations could limit our
ability to distribute our products outside of the United States. While we take
precautions against unlawful exportation of our software, we cannot effectively
control the unauthorized distribution of software across the Internet.
CHANGES IN ACCOUNTING STANDARDS COULD AFFECT OUR FUTURE OPERATING RESULTS
Statement of Position 97-2, "Software Revenue Recognition", was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective April 1998 and we believe our current revenue recognition policies and
practices are consistent with Statement of Position 97-2 and Statement of
Position 98-4. The American Institute of Certified Public Accountants has also
issued Statement of Position 98-9 which is effective for us for transactions
entered into after March 31, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Additionally, agencies responsible for interpreting and setting accounting
standards, including the SEC and the Financial Accounting Standards Board, are
reviewing the accounting standards related to business combinations and
stock-based compensation. Any changes to either of these standards or any other
accounting standards could adversely affect our results of operations.
WE FACE RISKS FROM EXPANSION OF OUR INTERNATIONAL OPERATIONS
In order to increase our international sales opportunities, we will need
to develop further our international sales, professional services and support
organizations, and we will need to form additional relationships with partners
worldwide. If we are unable to expand our international operations and
international sales on a timely basis, our business could be harmed. This
expansion may be more difficult or take longer than we anticipate, and we may
not be able to successfully market, sell, deliver and support our products
internationally.
If successful in our international expansion, we will be subject to a
number of risks associated with international operations, including:
- - longer accounts receivable collection cycles;
- - expenses associated with localizing products for foreign markets;
- - difficulties in managing operations across disparate geographic areas;
- - difficulties in hiring qualified personnel;
- - difficulties associated with enforcing agreements and collecting receivables
through foreign legal systems;
- - changes in a specific country's or region's political or economic
conditions;
- - trade protection measures that favor local competition;
- - import or export licensing requirements;
- - potential adverse tax consequences;
- - unexpected changes in regulatory requirements; and
- - reduced or limited protection of intellectual property rights.
Our international sales are currently U.S. dollar-denominated. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets. In
the future, we may elect to invoice some of our international customers in local
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<PAGE> 16
currencies. Doing so will subject us to fluctuations in exchange rates between
the U.S. dollar and the particular local currency. Our operating results could
also be adversely affected by the seasonality of international sales and the
economic conditions of our overseas markets.
REMEDIATION OF PROBLEMS RELATED TO THE EURO MAY INVOLVE SIGNIFICANT TIME AND
EXPENSE
On January 1, 1999, the Euro became a functional legal currency of certain
European countries that have agreed to fix their respective currencies to one
currency as part of a planned European economic and monetary union. During the
next three years, business in member countries will be conducted in both the
existing national currency and the Euro. As a result, companies operating in or
conducting business in member countries will need to ensure that their financial
and other software systems are capable of processing transactions and properly
handling these currencies, including the Euro.
We are still assessing the impact that conversion to the Euro will have on
the products that we sell. We plan to take appropriate corrective actions based
upon the results of such assessment. We have not yet determined the cost related
to addressing this issue. This issue and its related costs could harm our
business.
WE HAVE DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING
Our management has complete discretion as to how to spend the proceeds
from this offering and may spend these proceeds in ways with which our
stockholders may not agree. We cannot predict that investment of the proceeds
will yield a favorable return. See "Use of Proceeds".
OUR DIRECTORS AND EXECUTIVE OFFICERS WILL RETAIN SIGNIFICANT CONTROL OVER CALICO
Following the completion of this offering, our directors, executive
officers, and holders of 5% or more of our outstanding common stock will
beneficially own approximately % of our outstanding common stock. These
stockholders, acting together, would be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and significant corporate transactions, such as mergers or other
business combination transactions. This control may have the effect of delaying
or preventing a third party from acquiring or merging with us. See "Principal
Stockholders".
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER OR CHANGE IN
CONTROL
Provisions in our Certificate of Incorporation and Bylaws may have the
effect of delaying or preventing a merger or acquisition of us or a change in
our control or changes in our management. These provisions include, among
others:
- - the division of the board of directors into three separate classes with
staggered three-year terms;
- - the right of the board of directors to elect a new director to fill a
vacancy created by the expansion of the board of directors;
- - the ability of the board of directors to alter our Bylaws;
- - the authorization of the issuance of "blank check" preferred stock;
- - the prohibition of cumulative voting in the election of directors;
- - the prohibition of stockholder action by written consent; and
- - the establishment of advance notice requirements for nominations for
election to the board of directors or for proposing matters that can be
acted upon by stockholders at stockholder meetings.
Furthermore, because we are incorporated in Delaware, we are subject to
the provisions of Section 203 of the Delaware General Corporation Law. These
provisions would prohibit certain large stockholders, in particular those owning
15% or more of our outstanding voting stock, from consummating a merger or
combination with us, unless either two-thirds of the shares of voting stock
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<PAGE> 17
not owned by this large stockholder approve the merger or combination, or the
board of directors approves the merger or combination, or the transaction which
resulted in the large stockholder owning 15% or more of our outstanding voting
stock. These requirements could have the effect of delaying or preventing a
third party from acquiring us. See "Description of Capital Stock".
OUR STOCK PRICE MAY BE VOLATILE WHICH MAY LEAD TO LOSSES BY INVESTORS AND RESULT
IN SECURITIES LITIGATION
There has been no public market for our shares prior to this offering, and
after the offering, an active public market for the shares may not develop. We
will negotiate and determine the initial public offering price with the
representatives of the underwriters based on several factors. This price will
likely vary from the market price of the common stock after the offering. You
may not be able to resell your shares at or above the initial public offering
price due to a number of factors, including:
- - actual or anticipated fluctuations in our operating results;
- - changes in expectations as to our future financial performance, changes in
financial estimates of securities analysts, or our failure to meet
expectations or financial estimates;
- - announcements of technological innovations; and
- - the operating and stock price performance of other comparable companies.
In addition, the stock market in general, and the securities of Internet
and software companies in particular, have experienced volatility that often has
been unrelated to the operating performance of particular companies. These broad
market and industry fluctuations may adversely affect the trading price of our
common stock, regardless of our actual operating performance.
In the past, securities class action litigation has often been instigated
against a company following periods of volatility in the company's stock price.
If this were to happen to Calico, litigation would be expensive and would divert
management's attention. See "Underwriting".
FUTURE SALES OF OUR STOCK COULD CAUSE OUR STOCK PRICE TO FALL
Sales of a substantial number of shares of our common stock in the public
market after this offering could cause the market price of our common stock to
decline. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional equity securities. Upon completion of
this offering, we will have approximately shares of common stock
outstanding, approximately if the underwriters' over-allotment option is
exercised in full, based on shares outstanding as of March 31, 1999.
Our officers and directors and substantially all of our existing
stockholders have agreed with Goldman, Sachs & Co. not to sell or otherwise
dispose of any of their shares for a period of 180 days after the date of this
offering. When these lock-up agreements expire, these shares and the shares
underlying any options held by these individuals will become eligible for sale,
in some cases subject only to the volume, manner of sale and notice requirements
of Rule 144 of the Securities Act of 1933. See "Shares Eligible for Future
Sale".
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THE PURCHASERS OF SHARES IN THE OFFERING WILL EXPERIENCE IMMEDIATE DILUTION
We expect that the initial public offering price will be substantially
higher than the pro forma net tangible book value per share of our outstanding
common stock. Accordingly, if you purchase shares in this offering, you will
experience immediate and substantial dilution of approximately $ in net
tangible book value per share, or approximately % of the assumed offering
price of $ per share. In contrast, our existing stockholders paid an average
price of $ per share. If other stockholders exercise options or warrants to
purchase our common stock, you will experience further dilution. See "Dilution".
WE DO NOT INTEND TO PAY DIVIDENDS
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and therefore
do not anticipate paying any dividends in the foreseeable future. See "Dividend
Policy".
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates" and similar expressions. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus.
You should read statements that contain those words carefully because they
discuss our expectations about our future performance, contain projections of
our future operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in these risk
factors and elsewhere in this prospectus could substantially harm our business,
results of operations and financial condition and that upon the occurrence of
any of these events, the trading price of our common stock could decline and you
could lose all or part of your investment.
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USE OF PROCEEDS
We estimate that we will receive net proceeds of $ million from the
sale of the shares of common stock in this offering, assuming an
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses of $
million. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be $ million.
We intend to use the net proceeds of the offering primarily for general
corporate purposes, including working capital, sales and marketing activities,
product development and support and capital expenditures. In connection with our
proposed move or expansion of our headquarters facility, we expect that we may
expend up to $3.0 million or more of the offering proceeds. We may, if
appropriate opportunities arise, use an undetermined portion of the net proceeds
to acquire or invest in complementary companies, product lines, products or
technologies. We do not have any agreements or commitments with respect to any
acquisition or investment and we are not involved in any negotiations with
respect to any transaction. Pending such uses, we will invest the net proceeds
in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends. We do not anticipate paying cash
dividends in the forseeable future. Under the terms of our line of credit
facilities, we may not declare or pay any dividends without the prior consent of
the lenders under each of the credit facilities.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- - on an actual basis;
- - on a pro forma basis to reflect the conversion of all outstanding shares of
preferred stock into 10,416,715 shares of common stock; and
- - on a pro forma as adjusted basis to reflect this conversion and the
application of the estimated net proceeds from the sale of shares of
common stock in this offering, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.
The outstanding share information excludes 2,331,240 shares of common
stock issuable upon the exercise of options outstanding under our option plans
with a weighted average exercise price of $6.71 per share, 22,240 shares of
common stock issuable upon exercise and conversion of preferred stock options at
a weighted average exercise price of $4.06 per share, and 88,833 shares of
common stock issuable upon exercise and conversion of outstanding preferred
stock warrants at a weighted average exercise price of $1.96 per share. The
outstanding share information also excludes 3,134,607 shares of common stock
available for issuance under our 1997 Stock Option Plan and 500,000 shares of
common stock reserved for issuance under our 1999 Employee Stock Purchase Plan.
Of the total shares outstanding, 1,782,987 shares are subject to our right of
repurchase.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes to the consolidated financial statements.
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------
PRO
FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- --------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Notes payable, current portion.............................. $ 628 $ 628 $ 628
======== ======== ========
Capital lease obligations, current portion.................. 256 256 256
======== ======== ========
Notes payable, non-current.................................. $ 700 $ 700 $ 700
-------- -------- --------
Capital lease obligations, non-current...................... 177 177 177
-------- -------- --------
Mandatorily Redeemable Convertible Preferred Stock.......... 32,535 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock; $0.001 par value; 10,000,000 shares
authorized; no shares issued and outstanding actual,
pro forma and pro forma as adjusted.................... -- -- --
Common Stock; $0.001 par value; 100,000,000 shares
authorized; 7,623,849 shares issued and outstanding,
actual; 18,040,564 shares issued and outstanding, pro
forma; shares issued and outstanding, pro forma as
adjusted............................................... 8 18
Additional paid-in capital................................ 17,880 50,405
Notes receivable from stockholders........................ (2,211) (2,211) (2,211)
Unearned compensation..................................... (2,779) (2,779) (2,779)
Accumulated deficit....................................... (29,678) (29,678) (29,678)
-------- -------- --------
Total stockholders' equity (deficit)................... (16,780) 15,755
-------- -------- --------
Total capitalization.............................. $ 16,632 $ 16,632 $
======== ======== ========
</TABLE>
20
<PAGE> 21
DILUTION
Our pro forma net tangible book value at March 31, 1999 was $11.2 million
or $0.62 per share based upon 18,040,564 shares outstanding. Pro forma net
tangible book value per share represents total tangible assets less total
liabilities, divided by the number of shares outstanding as of March 31, 1999,
after giving effect to the conversion into common stock of all of our
outstanding shares of preferred stock. After giving effect to the sale in this
offering of shares of common stock at an assumed initial public
offering price of $ per share, and after deducting the estimated
underwriters' discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of March 31, 1999 would have
been approximately $ million or $ per share. This represents an
immediate increase in net tangible book value of $
per share to existing stockholders and an immediate dilution in net tangible
book value of $ per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 1999............................................... $ 0.62
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 summarizes, as of March 31, 1999, assuming conversion
into common stock of all of our outstanding shares of preferred stock, the total
cash consideration paid to us and the average price per share paid by existing
stockholders and by new investors at the assumed initial public offering price
of $ per share, before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
-------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- -------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 18,040,564 % $ 34,594 % $1.92
New investors....................
---------- ------- -------- ----
Total.................. 100% $ 100%
========== ======= ======== ====
</TABLE>
As of March 31, 1999, there were outstanding options to purchase an
aggregate of 2,331,240 shares of common stock at a weighted average exercise
price of $6.71 per share, options to purchase 22,240 shares of preferred stock
at a weighted average exercise price of $4.06 per share and warrants to purchase
88,833 shares of preferred stock at a weighted average exercise price of $1.96
per share. To the extent that any of these options or warrants is exercised,
there will be further dilution to new investors.
21
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes and
other financial information included elsewhere in this prospectus. The selected
consolidated statement of operations data for Calico for each of the years ended
March 31, 1997, 1998 and 1999, and the consolidated balance sheet data as of
March 31, 1998 and 1999, are derived from our consolidated financial statements
included elsewhere in this prospectus. The selected consolidated statement of
operations data for Calico for the period from inception on April 14, 1994 to
March 31, 1995, the year ended March 31, 1996, and the consolidated balance
sheet data as of March 31, 1995, 1996 and 1997, are derived from our
consolidated financial statements that are not included in this prospectus. The
consolidated statement of operations data for the fiscal year ended March 31,
1999 include the results of operations of FirstFloor subsequent to our
acquisition of FirstFloor in August 1998. Historical results are not necessarily
indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED MARCH 31,
APRIL 14, 1994 ------------------------------------------
(INCEPTION) TO
MARCH 31, 1995 1996 1997 1998 1999
-------------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue:
License.......................................... $ 93 $ 1,521 $ 3,940 $ 6,965 $ 10,482
Services......................................... 227 749 1,963 4,894 10,931
------- ------- ------- -------- --------
Total net revenue.............................. 320 2,270 5,903 11,859 21,413
------- ------- ------- -------- --------
Cost of net revenue:
License.......................................... 2 7 178 265 1,179
Services......................................... 66 433 2,122 3,115 7,272
------- ------- ------- -------- --------
Total cost of net revenue...................... 68 440 2,300 3,380 8,451
------- ------- ------- -------- --------
Gross profit....................................... 252 1,830 3,603 8,479 12,962
------- ------- ------- -------- --------
Operating expenses:
Sales and marketing.............................. 98 1,972 5,950 7,593 14,138
Research and development......................... 132 458 2,224 3,342 5,677
General and administrative....................... 25 480 1,486 2,222 3,988
Stock compensation............................... -- 990 864 780 2,007
Acquired in-process research and development..... -- -- -- -- 1,840
Amortization of goodwill......................... -- -- -- -- 550
------- ------- ------- -------- --------
Total operating expenses....................... 255 3,900 10,524 13,937 28,200
------- ------- ------- -------- --------
Loss from operations............................... (3) (2,070) (6,921) (5,458) (15,238)
Interest and other income, net..................... 31 100 21 (41) (23)
------- ------- ------- -------- --------
Net income (loss).................................. $ 28 $(1,970) $(6,900) $ (5,499) $(15,261)
======= ======= ======= ======== ========
Net income (loss) per share:
Basic and diluted................................ $ 0.01 $ (1.03) $ (3.19) $ (1.62) $ (3.41)
======= ======= ======= ======== ========
Weighted average shares.......................... 4,000 1,904 2,165 3,386 4,473
======= ======= ======= ======== ========
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.......................... $ 83 $ 1,780 $ 1,921 $ 2,514 $ 15,441
Working capital (deficit).......................... (42) 1,683 353 44 10,187
Total assets....................................... 252 2,800 4,356 7,692 31,368
Debt and capital leases, long-term portion......... -- 90 815 814 877
Total Mandatorily Redeemable Convertible Preferred
Stock............................................ -- 3,842 9,500 14,505 32,535
Total stockholders' deficit........................ (21) (2,012) (8,854) (13,428) (16,780)
</TABLE>
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the notes to those statements included elsewhere in this prospectus. This
discussion contains forward looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward looking statements involve risks and uncertainties. Our actual
results could differ materially from those indicated in these forward looking
statements as a result of certain factors, as more fully described in the "Risk
Factors" section and elsewhere in this prospectus. We undertake no obligation to
update publicly any forward looking statements for any reason, even if new
information becomes available or other events occur in the future.
OVERVIEW
We are a leading provider of advanced eCommerce software and services. Our
products are designed to allow companies to create long term strategic
differentiation by redefining how they interact with their customers. Our
advanced eCommerce solution, the Calico eSales Suite, enables the interactive
buying and selling of complex products and services over the Internet and other
platforms. We believe that our products and services are broadly applicable to a
wide range of industries and markets.
We were incorporated in April 1994. From May 1994 through March 1997, we
generated revenue primarily from the license of products based upon our first
generation configuration technology. In March 1997, we released our first
product designed for use over the Internet and corporate networks. In December
1998, we released Calico eSales 2.0, an integrated suite of products that
extended the Internet-based architecture and included Calico eSales Catalog
(since re-named Calico eSales InfoGuide), a product that allows targeted
delivery of information without the need to modify existing applications or
information sources. Calico eSales InfoGuide was the first product release based
upon technology obtained from our August 1998 acquisition of FirstFloor. In May
1999, we released Calico eSales Loyalty Builder, which incorporates technology
also obtained from our acquisition of FirstFloor. In June 1999, we released
Calico eSales 2.5, an integrated suite that incorporates eSales Loyalty Builder,
eSales Quote and improved versions of our other products.
We derive revenue principally from the license of our Calico eSales Suite
of products and the delivery of associated implementation and support services.
To date, our sales have been primarily within the computer hardware and network
and telecommunications equipment industries. Revenues from international sales
have not been material to date.
We recognize revenue under Statement of Position No. 97-2, "Software
Revenue Recognition," which requires revenue earned on software arrangements
involving multiple contract elements to be allocated to each element based upon
vendor-specific objective evidence of fair value for each element. Revenue from
license fees is recognized when persuasive evidence of an agreement exists,
delivery of the product has occurred, no significant obligations of Calico with
regard to implementation exist, the fee is fixed or determinable, and collection
is probable. Provisions for sales returns are made at the time of revenue
recognition based upon estimated returns. License revenue from contracts
involving customization or services which are essential to the functionality of
the software is recognized under contract accounting using the completed
contract or percentage-of-completion methods as appropriate.
Services revenue primarily comprises revenue from consulting services,
maintenance contracts and training. Services revenue from consulting and
training is generally recognized as the service is performed. Maintenance
contracts include the right to unspecified upgrades and ongoing support.
Maintenance revenue is deferred and
23
<PAGE> 24
recognized on a straight-line basis as services revenue over the life of the
related contract, which is typically one year.
Revenue from contracts involving significant implementation, customization
or services essential to the functionality of the software is recognized over
the period of each engagement, primarily using the percentage-of-completion
method of contract accounting. Labor hours completed is generally used as the
measure of progress towards completion. A provision for estimated losses on
engagements is made in the period in which the loss becomes probable and can be
reasonably estimated.
We bill customers in accordance with contract terms. Customer advances and
amounts billed to customers in excess of revenue recognized are recorded as
deferred revenue. Amounts recognized as revenue in advance of billing are
recorded as unbilled receivables.
Our percentage of total net revenue derived from services was 33% in
fiscal 1997, 41% in fiscal 1998 and 51% in fiscal 1999. As we develop additional
relationships with service partners, we anticipate that an increasing share of
professional services will be provided by third parties. As a result, we expect
that a higher percentage of total net revenue may be attributable to license
revenue in the future.
Our cost of license revenue consists primarily of amortization of
purchased technology, sub-licensing fees paid for embedded technology, and to a
lesser extent other product-related costs. Our cost of services revenue consists
primarily of salary expense and other related costs for our consulting and
support organizations, as well as third-party contractor expenses.
Our operating expenses are classified as sales and marketing, research and
development, and general and administrative. We classify all charges to these
operating expense categories based on the nature of the function benefiting from
the expenses incurred. All operating expense categories contain common recurring
expenditures, including salaries, employee benefits, incentive pay, travel and
entertainment, costs for contract staff and professional advisory services and
allocated facilities. The sales and marketing category contains additional
expenditures specific to the sales and marketing group, such as public
relations, trade show participation, advertising, sales lead generation, and
commissions. To date, all software development costs in research and development
have been expensed as incurred. General and administrative expenses include our
executive, financial, human resources and information technology departments,
and include additional expenditures related to legal and financial advisors, as
well as bad debt reserves.
In connection with the granting of stock options to our employees, we have
recorded unearned stock compensation totaling $5.6 million through March 31,
1999, of which $2.8 million remains to be amortized. This amount represents the
difference between the exercise price and the estimated fair value of our common
stock on the date these stock options were granted. This amount is included as a
component of stockholders' equity and is being amortized by charges to
operations over the vesting period of the options, consistent with the method
described in Financial Accounting Standards Board, or FASB, Interpretation No.
28. We recorded amortization of unearned stock compensation of $780,000 for
fiscal 1998 and $2.0 million for fiscal 1999. The amortization of the remaining
unearned stock compensation at March 31, 1999 will result in additional charges
to operations through fiscal 2003. The amortization of stock compensation is
classified as a separate component of operating expenses in our consolidated
statement of operations.
Effective August 21, 1998, we acquired all of the outstanding shares of
FirstFloor in exchange for shares of our preferred stock. We accounted for the
acquisition using the purchase method of accounting. Of the total purchase
price, approximately $1.8 million was allocated to in-process research and
development and immediately charged to operations, $360,000 to tangible assets,
$1.5 million to existing products and core technology, $2.0 million to
liabilities assumed,
24
<PAGE> 25
and $4.3 million to goodwill. The intangible assets will be amortized over their
estimated useful lives which range from seven to 48 months.
Since our inception, we have incurred quarterly and annual losses, and we
expect to continue to incur losses on both a quarterly and annual basis for the
foreseeable future. We incurred net losses of $6.9 million for fiscal 1997, $5.5
million for fiscal 1998 and $15.3 million for fiscal 1999. As of March 31, 1999,
we had an accumulated deficit of $29.7 million. We expect that our operating
expenses will continue to increase substantially in future quarters as we
increase sales and marketing operations, develop new distribution channels,
expand our professional services organization, and continue to fund research and
development.
We have recently experienced a period of rapid growth and expansion, and
expect to continue to expand through multiple growth strategies. To manage this
growth effectively, we will have to improve our existing operational and
financial systems and hire additional qualified personnel. In addition, we
expect to expand our current headquarters or move to new facilities during the
first half of fiscal 2000. The expenses related to this expansion or move may be
greater than our obligations for our current facility.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, selected
consolidated financial data as a percentage of total net revenue.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net revenue:
License................................................... 67% 59% 49%
Services.................................................. 33 41 51
---- --- ---
Total net revenue...................................... 100 100 100
---- --- ---
Cost of net revenue:
License................................................... 3 2 6
Services.................................................. 36 26 33
---- --- ---
Total cost of net revenue.............................. 39 28 39
---- --- ---
Gross profit................................................ 61 72 61
---- --- ---
Operating expenses:
Sales and marketing....................................... 101 64 65
Research and development.................................. 38 28 27
General and administrative................................ 25 19 19
Stock compensation........................................ 14 7 9
Acquired in-process research and development.............. -- -- 9
Amortization of goodwill.................................. -- -- 3
---- --- ---
Total operating expenses............................... 178 118 132
---- --- ---
Loss from operations........................................ (117) (46) (71)
Interest and other income, net.............................. -- -- --
---- --- ---
Net loss.................................................... (117)% (46)% (71)%
==== === ===
</TABLE>
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1997, 1998 AND 1999
REVENUE
Total net revenue increased 101% from $5.9 million in fiscal 1997 to $11.9
million in fiscal 1998 and 80% to $21.4 million in fiscal 1999.
LICENSE. License revenue increased 77% from $3.9 million in fiscal 1997 to
$7.0 million in fiscal 1998, and 50% to $10.5 million in fiscal 1999. License
revenue
25
<PAGE> 26
as a percentage of total net revenue was 67% in fiscal 1997, 59% in fiscal 1998
and 49% in fiscal 1999. The increases in absolute dollars were primarily due to
increased market acceptance of our products, increases in the average size of
transactions, as well as the introduction of versions of our product that
included functionality for Internet and corporate network use.
SERVICES. Services revenue increased 149% from $2.0 million in fiscal 1997
to $4.9 million in fiscal 1998 and 123% to $10.9 million in fiscal 1999.
Services revenue at a percentage of total net revenue was 33% in fiscal 1997,
41% in fiscal 1998 and 51% in fiscal 1999. The increases in absolute dollars and
as a percentage of total net revenue were primarily due to an increase in the
number and size of customer deployments, additional follow-on consulting
services for existing customers, an increase in the installed base of customers
on maintenance contracts and renewals of prior period maintenance contracts.
COST OF REVENUE
LICENSE. Cost of license revenue increased 49% from $178,000 in fiscal
1997 to $265,000 in fiscal 1998, and 345% to $1.2 million in fiscal 1999. Cost
of license revenue as a percentage of license revenue was 5% in fiscal 1997, 4%
in fiscal 1998 and 11% in fiscal 1999. The increase in absolute dollars in
fiscal 1998 was primarily due to costs associated with sub-licensing of third-
party software used in our products. The increase in absolute dollars and as a
percentage of license revenue in fiscal 1999 was primarily due to the
amortization of existing products and core technology acquired in the
acquisition of FirstFloor in the quarter ended September 30, 1998 and, to a
lesser extent, increased software sub-licensing fees.
We may from time to time in the future enter into various technology
sub-licensing arrangements with third parties which may require payments that do
not coincide with the timing and magnitude of license revenue. In addition, the
cost of amortization of our existing products and core technology does not vary
with recognized license revenue. As a result, our cost of license revenue may
vary significantly from quarter to quarter in both absolute dollars and as a
percentage of license revenue.
SERVICES. Cost of services revenue increased 47% from $2.1 million in
fiscal 1997 to $3.1 million in fiscal 1998 and 133% to $7.3 million in fiscal
1999. Cost of services revenue as a percentage of services revenue was 108% in
fiscal 1997, 64% in fiscal 1998 and 67% in fiscal 1999. The increase in absolute
dollars was primarily due to increased professional services personnel engaged
in deployment, training and technical support. In certain periods in the past,
our cost of services revenue exceeded our services revenue. This is generally
because the actual cost of providing consulting services, whether provided
internally or through third parties, exceeded the fixed price payment received
from some of our customers. We generally do not enter into and do not intend to
enter into fixed price payment arrangements for our consulting services. Cost of
services revenue declined as a percentage of services revenue in fiscal 1998
primarily due to improved billing rate realization as well as an increase in
revenue from maintenance contracts during fiscal 1998. Cost of services revenue
increased in fiscal 1999 due to increased use of contract personnel. We expect
cost of services revenue to increase in the future in absolute dollars as we
expand our service capacity to meet anticipated demand. Cost of services revenue
as a percentage of services revenue may vary significantly from quarter to
quarter depending upon the mix of services that we provide and the utilization
rate of our services personnel. Additionally, we may seek to gain more
flexibility by staffing engagements with increasing use of third-party
contractors, whose expenses may exceed those of employees.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 28% from $6.0
million in fiscal 1997 to $7.6 million in fiscal 1998 and 86% to $14.1 million
in fiscal 1999. Sales and marketing expenses as a
26
<PAGE> 27
percentage of total net revenue were 101% in fiscal 1997, 64% in fiscal 1998 and
65% in fiscal 1999. The increases in absolute dollars were primarily due to an
increase in sales and marketing personnel and our increased marketing program
expenditures, particularly sales lead generation, advertising and public
relations, together with an increase in commissions payable. Sales and marketing
expenses decreased as a percentage of total net revenue in fiscal 1998 primarily
due to revenue growth and increased in fiscal 1999 due to the investments in
sales and marketing described above. We believe sales and marketing expenses
will continue to increase in absolute dollars as we expand our sales and
marketing organization, initiate additional marketing programs, expand our
distribution channels and expand geographically. Sales and marketing expenses
may increase or fluctuate as a percentage of total net revenue from period to
period.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 50%
from $2.2 million in fiscal 1997 to $3.3 million in fiscal 1998 and 70% to $5.7
million in fiscal 1999. Research and development expenses as a percentage of
total net revenue were 38% in fiscal 1997, 28% in fiscal 1998 and 27% in fiscal
1999. The increase in fiscal 1998 in absolute dollars was primarily due to
increases in engineering and development personnel and the cost of contracted
services. The increase in fiscal 1999 was due to our addition of engineering and
development personnel, both through new hiring and as a result of our FirstFloor
acquisition. Research and development expenses as a percentage of total net
revenue declined in fiscal 1998 and fiscal 1999 due to the higher rate of
revenue growth during the periods.
We believe that continued investment in research and development is
critical to attaining our strategic objectives, and as a result we expect that
research and development expenses will increase in absolute dollars in future
periods, and may increase or fluctuate significantly as a percentage of total
net revenue from period to period.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
50% from $1.5 million in fiscal 1997 to $2.2 million in fiscal 1998, and 79% to
$4.0 million in fiscal 1999. General and administrative expenses as a percentage
of total net revenue were 25% in fiscal 1997, 19% in fiscal 1998 and 19% in
fiscal 1999. The increase in general and administrative expenses in absolute
dollars was primarily due to increased personnel and systems to support our
expanding operations. General and administrative expenses also increased in
absolute dollars in fiscal 1999 due to a charge of $660,000 for excess lease
payments and losses on disposal of certain fixed assets, both associated with
our FirstFloor acquisition.
We believe that general and administrative expenses will continue to
increase in absolute dollars as we expand our operations and assume the
responsibilities of a public company, and may fluctuate as a percentage of total
net revenue from period to period.
STOCK COMPENSATION. In fiscal 1998 and 1999 we recorded aggregate unearned
compensation totalling $5.6 million. The unearned compensation represents the
difference between the exercise price of stock option grants and the deemed fair
value of our common stock at the time of the grants. We recorded expenses
related to stock compensation of $864,000 during fiscal 1997, $780,000 during
fiscal 1998 and $2.0 million during fiscal 1999.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In conjunction with our
acquisition of FirstFloor, we ascribed $1.8 million to certain in-process
research and development projects, which was charged to operations in the
quarter ended September 30, 1998. The amount of purchase price allocated to
in-process research and development was determined using appropriate valuation
techniques, including percentage-of-completion, which utilizes key milestones to
estimate the stage of development of each in-process research and development
project at the date of acquisition, estimating cash flows resulting from the
revenue expected to be generated
27
<PAGE> 28
from these projects, and discounting the net cash flows back to their present
value. The discount rate includes a factor that takes into account the
uncertainty surrounding the successful development of the purchased in-process
technology. The remaining identified intangibles, including the value of
acquired existing products and core technology, is amortized over the periods of
benefit ranging from seven to 36 months.
The value assigned to acquired in-process research and development was
determined by identifying two specific research and development projects -- a
marketing information delivery system and a personalization solution -- for
which technological feasibility had not been established. The first project
reached technological feasibility and was commercially released in December
1998. The second project reached technological feasibility and was commercially
released in May 1999. The value of the in-process projects was adjusted to
reflect the relative value and contribution of the acquired research and
development. In doing so, consideration was given, as appropriate, to the stage
of completion, the complexity of the work completed to date, the difficulty of
completing the remaining development, costs already incurred and the projected
cost to complete the projects. The value assigned to acquired in-process
research and development was based on the assumptions set forth in the following
paragraph.
Net cash flows from these projects were determined based on our estimates
of revenue, cost of sales, research and development costs, selling, general and
administrative costs, and income taxes associated with the projects. Revenue
growth rates for each technology was developed considering, among other things,
the then-current and expected industry trends, acceptance of the technologies
and historical growth rates for similar industry products. Estimated total
revenue from the acquired in-process research and development projects generally
peak in fiscal 2000 and decline through fiscal 2001 as other new products are
expected to be introduced. These revenue projections were based on our
management's estimate of market size and growth, expected trends in technology
and the expected timing of new product introductions. We applied a royalty
charge as a percentage of operating income for each in-process project to
attribute value for dependency on predecessor core technology. Royalty rates
were developed based on published documentation of royalty rates and the
specific facts and circumstances, and in our view, are considered reasonable
approximations of fair value rates for the respective types of technology under
exclusive, perpetual, worldwide licenses. The estimated net cash flows of each
project were discounted back to their present value using discount rates of 30%
for the marketing information delivery system and 40% for the personalization
solution, which represents a premium over our cost of capital of 20% to reflect
the risk associated with the stage of completion of the in-process technologies.
The estimated percentage-of-completion of the in-process research and
development projects were 82% for the marketing information delivery system and
47% for the personalization solution.
AMORTIZATION OF GOODWILL. During fiscal 1999, we recognized $550,000 in
amortization, reflecting the amortization of goodwill acquired as part of the
FirstFloor acquisition.
INTEREST AND OTHER INCOME, NET
Interest and other income, net declined from $21,000 of net interest
income in fiscal 1997 to $41,000 of net interest expense in fiscal 1998, and
improved to $23,000 of net interest expense in fiscal 1999, representing less
than one percent of total net revenue in each period.
INCOME TAXES
No provision for federal and state income taxes was recorded for fiscal
1997, 1998 or 1999 because we incurred net operating losses in each of those
periods.
As of March 31, 1999, we had net operating loss carryforwards for federal
income tax reporting purposes of $12.1 million that expire in various amounts
28
<PAGE> 29
beginning in fiscal 2011. We also had net operating loss carryforwards for state
income tax reporting purposes of $9.7 million that expire in various amounts
beginning in fiscal 2003. We had net deferred tax assets, including our net
operating loss carryforwards and tax credits of $8.8 million as of March 31,
1999. A valuation allowance has been recorded for the net deferred tax asset
balance as a result of uncertainties regarding the realization of the asset
balance. See note 5 of the notes to the consolidated financial statements.
29
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited consolidated statement of
operations data for each of the eight quarters in the period ended March 31,
1999, as well as that data expressed as a percentage of our total net revenue
for the quarters presented. We have prepared this unaudited consolidated
information on a basis consistent with our audited consolidated financial
statements, and in the opinion of our management, this information reflects all
normal recurring adjustments necessary for a fair presentation of our operating
results for the quarters presented. You should read this information in
conjunction with our consolidated financial statements and related notes
included elsewhere in this prospectus. You should not draw any conclusions about
our future results from the operating results for any quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenue:
License............................ $ 1,285 $ 1,162 $ 2,305 $ 2,213 $ 2,932 $ 2,657 $ 2,560 $ 2,333
Services........................... 780 1,371 1,150 1,593 1,721 2,628 3,155 3,427
------- ------- ------- ------- ------- ------- ------- -------
Total net revenue................ 2,065 2,533 3,455 3,806 4,653 5,285 5,715 5,760
Cost of net revenue:
License............................ 20 53 97 95 101 265 350 463
Services........................... 815 597 828 875 1,367 1,742 2,036 2,127
------- ------- ------- ------- ------- ------- ------- -------
Total cost of net revenue........ 835 650 925 970 1,468 2,007 2,386 2,590
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......................... 1,230 1,883 2,530 2,836 3,185 3,278 3,329 3,170
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................ 1,768 1,962 1,824 2,039 2,758 3,066 3,699 4,615
Research and development........... 670 776 934 962 972 1,232 1,684 1,789
General and administrative......... 542 610 573 497 641 1,459 934 954
Stock compensation................. 11 160 252 357 424 469 582 532
Acquired in-process research and
development...................... -- -- -- -- -- 1,840 -- --
Amortization of goodwill........... -- -- -- -- -- 78 234 238
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 2,991 3,508 3,583 3,855 4,795 8,144 7,133 8,128
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................. (1,761) (1,625) (1,053) (1,019) (1,610) (4,866) (3,804) (4,958)
Interest and other income, net....... (36) (6) 7 (6) (35) (46) 54 4
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................. $(1,797) $(1,631) $(1,046) $(1,025) $(1,645) $(4,912) $(3,750) $(4,954)
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL NET REVENUE:
Net revenue:
License............................ 62% 46% 67% 58% 63% 50% 45% 41%
Services........................... 38 54 33 42 37 50 55 59
------- ------- ------- ------- ------- ------- ------- -------
Total net revenue................ 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- -------
Cost of net revenue:
License............................ 1 2 3 2 2 5 6 8
Services........................... 39 24 24 23 30 33 36 37
------- ------- ------- ------- ------- ------- ------- -------
Total cost of net revenue........ 40 26 27 25 32 38 42 45
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......................... 60 74 73 75 68 62 58 55
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................ 86 77 53 55 59 58 65 80
Research and development........... 32 31 27 25 21 23 29 31
General and administrative......... 26 24 16 13 14 28 17 17
Stock compensation................. 1 6 7 9 9 9 10 9
Acquired in-process research and
development...................... -- -- -- -- -- 35 -- --
Amortization of goodwill........... -- -- -- -- -- 1 4 4
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 145 138 103 102 103 154 125 141
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................. (85) (64) (30) (27) (35) (92) (67) (86)
Interest and other income, net....... (2) -- -- -- -- (1) 1 --
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................. (87)% (64)% (30)% (27)% (35)% (93)% (66)% (86)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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FACTORS AFFECTING QUARTERLY RESULTS
Total net revenue has increased during each of the eight quarters ended
March 31, 1999 due to an increase in the number of our customers, an increase in
the average transaction size and an increase in follow-on orders from existing
customers. We experience significant variability in license revenue from quarter
to quarter due to the timing and size of transactions. License revenue has
declined sequentially in each of the three quarters ended March 31, 1999,
primarily due to delays in recognition of revenue under a few large contracts
entered into during those quarters.
Services revenue has increased significantly during the comparison
periods, but is also subject to significant variability driven by transaction
timing, contract terms and billing rate realization. Services revenue declined
in the quarter ended December 31, 1997 due to the recognition of services
revenue in the previous quarter upon completion of one large project. Services
revenue increased significantly as a percentage of total net revenue in the four
quarters ended March 31, 1999 primarily as a result of several large
implementation projects during those periods.
Cost of license revenue increased in the three quarters ended March 31,
1999 as a result of the amortization of existing products and acquired core
technology subsequent to our acquisition of FirstFloor. Cost of services revenue
increased significantly in the quarter ended June 30, 1998 primarily due to
costs associated with the hiring and training of new professional services
personnel who were not yet fully utilized.
Sales and marketing expenses increased significantly in the quarter ended
June 30, 1998 primarily due to the expansion of our domestic sales force, as
well as the establishment of our international sales office, and increased in
the quarter ended March 31, 1999 due to commissions related to the signing of a
few large orders and further expansion of our sales force. Research and
development expenses increased significantly in the three quarters ended March
31, 1999 due to an increase in product development personnel acquired in
conjunction with our acquisition of FirstFloor. General and administrative
expenses increased significantly in the quarter ended September 30, 1998 as a
result of a $660,000 charge for excess lease payments and losses on disposal of
certain fixed assets associated with our FirstFloor acquisition.
Our quarterly operating results have varied significantly in the past and
we expect that they will vary significantly from quarter to quarter in the
future. These variations are caused by a number of factors, including the length
of our sales cycle, demand for and market acceptance of our products and
services, the timing of orders and deployment of our products and services, the
impact of our revenue recognition policies, changes in technology and changes
caused by the rapidly evolving eCommerce market and the impact of year 2000
investments by us and our customers.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not necessarily
meaningful and are not a good predictor of our future performance. Our operating
results may be below the expectations of public market analysts and investors in
future quarters, which could cause volatility in the price of our stock.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the sale of private equity
securities, and to a lesser extent, notes payable and capital equipment leases.
As of March 31, 1999, we had $15.4 million of cash and cash equivalents. Cash
used in operating activities was $4.3 million for fiscal 1997, $3.3 million for
fiscal 1998 and $7.4 million for fiscal 1999. Cash used in operations resulted
primarily from net losses and increases in our accounts receivable, offset in
part by the growth in accrued liabilities, deferred revenue, and non-cash
expenses including depreciation and stock compensation.
Net cash used in investing activities of $930,000 for fiscal 1997, $1.4
million for fiscal
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1998 and $1.8 million for fiscal 1999, related to purchases of computer
equipment and to a lesser extent software and office furniture to support our
expanding operations.
Net cash provided by financing activities was $5.4 million for fiscal
1997, $5.3 million for fiscal 1998 and $22.1 million for fiscal 1999, resulting
primarily from proceeds that we received from the sale of our common and
preferred stock. We have also used debt and leases to partially finance our
operations and capital purchases. At March 31, 1999 we also had $1.3 million in
current and noncurrent debt as well as $433,000 in current and noncurrent lease
obligations.
Our borrowings under our debt and lease agreements require us to comply
with quarterly financial tests, including minimum operating results, and
liquidity, leverage and debt service ratios. As of March 31, 1999 and subsequent
to year-end, we were not in compliance with the minimum operating results
covenant. We obtained a waiver from the lender for the periods in which we were
not in compliance.
We also have noncancelable operating leases for office space and equipment
of approximately $1.6 million which are payable through fiscal 2004.
Although we have no material long-term commitments for capital
expenditures, we anticipate a substantial increase in our capital expenditures
and lease commitments consistent with anticipated growth in operations,
infrastructure and personnel. We believe that existing cash and cash
equivalents, together with the net proceeds of this offering, will be sufficient
to meet our working capital needs for at least the next 12 months. However, we
may need to raise additional funds in order to support more rapid expansion of
our sales force, develop new or enhanced products or services, respond to
competitive pressures, acquire complementary businesses or technologies or
respond to unanticipated requirements. If we seek to raise additional funds, we
may not be able to obtain funds on terms which are favorable or otherwise
acceptable to us. If we raise additional funds through the issuance of equity
securities, the percentage ownership of our stockholders would be reduced.
Furthermore, these securities may have rights, preferences or privileges senior
to our common stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for Internal
Use". SOP No. 98-1 will become effective during the year ending March 31, 2000.
SOP No. 98-1 provides guidance over accounting for computer software developed
or obtained for internal use including the requirement to capitalize specified
costs and amortization of these costs. We do not expect the adoption of SOP No.
98-1 to have a material effect on our results of operations, financial position
or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivatives and Hedging Activities". This statement
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 will become effective during the year ending
March 31, 2001. The adoption of SFAS No. 133 is not expected to have a material
effect on our results of operations, financial position or cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent in Europe and Asia. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Because nearly
all of our revenue is currently denominated in U.S. dollars, a strengthening of
the dollar could make our products less competitive in foreign markets. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the short-term
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nature of our investments, we do not believe that we have a material risk
exposure. Because some of our debt arrangements are based on variable rates of
interest, our interest expense is sensitive to changes in the general level of
U.S. interest rates. Since these obligations represent a small percentage of our
total capitalization, we believe that there is not a material risk exposure.
YEAR 2000 COMPLIANCE
The "year 2000" issue refers generally to the problems that some software
may have in determining the correct century for the year. Software with date
sensitive information that is not year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in system failures
or the creation of erroneous results. We are subject to potential year 2000
problems affecting our products, our internal systems and the systems of our
suppliers and customers, any of which could harm our business.
We believe that all current versions of our products are year 2000
compliant, so long as they are configured and used in accordance with our
specifications, and provided that the underlying operating systems and any other
software used with our products are also year 2000 compliant. However, since our
products are integrated with our customers' systems, the failure of our
customers' systems to be year 2000 compliant could impede the success of our
applications in their systems. Accordingly, known or unknown defects or errors
that affect the operation of our software, including any defects or errors in
systems that include our products, could result in delay or loss of revenue,
diversion of development resources, damage to our reputation, or increased
service or warranty costs, any of which could harm our business.
We have initiated an assessment of our internal systems and are not
currently aware of any material operational issues or costs associated with
preparing our internal systems for the year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal systems.
In conjunction with our year 2000 assessment, we have begun to contact our
major suppliers to determine whether their operations and the products and
services they provide are year 2000 compliant. Where practicable, we will
attempt to mitigate our risks with respect to the failure of suppliers to be
year 2000 compliant. However, these failures remain a possibility and could harm
our business.
We are in the process of developing a contingency plan to address
situations that may result if our products, our internal systems, or the systems
of our suppliers or customers are not year 2000 compliant.
We have funded our year 2000 plan from available cash and have not
separately accounted for these costs. To date, these costs have not been
material and are not expected to be material. However, we may experience
unanticipated problems and costs with year 2000 compliance that could harm our
business.
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BUSINESS
We are a leading provider of advanced eCommerce software and services. Our
products are designed to allow companies to create long term strategic
differentiation by redefining how they interact with their customers. Our
advanced eCommerce solution, the Calico eSales Suite, enables the interactive
buying and selling of complex products and services over the Internet and other
platforms. Our products enable companies to create a guided selling experience
that allows their customers to interactively affect the on-line purchasing
process. This enables companies to build strong customer relationships that can
result in increased revenue and reduced sales costs.
The Calico eSales Suite can be deployed at the point of sale over the
Internet and other platforms to improve selling effectiveness and customer
satisfaction. Our software is designed to facilitate the selling process by
dynamically assessing customer requirements, providing tailored information,
identifying constraints, proposing alternatives, and delivering quotes. Our
solutions enable companies to provide highly tailored products and services, to
cross sell and up sell additional products and services and to reduce the time
to market of new products and services. In addition, our solutions are designed
to improve sales effectiveness and order accuracy, thereby enhancing operating
efficiency and reducing costs.
Our advanced eCommerce solutions are broadly applicable to a wide range of
industries and markets. Our current customers include a number of companies that
have adopted aggressive eCommerce business strategies, such as Best Buy, Cisco,
Dell, Gateway, Merrill Lynch, Nortel Networks, Qwest, Siemens, Telia and US
West.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ECOMMERCE
The rapid growth of the Internet is revolutionizing the way in which
businesses and consumers communicate, share information and conduct business.
The Internet has created a new means for businesses to reach and interact
directly with new and existing customers worldwide, thereby transforming the
traditional ways companies market, sell and support their product and services
offerings. For some organizations, the Internet acts as a means to improve the
effectiveness of existing distribution channels. For others, it is replacing
those channels or enabling entirely new business models in a world where
traditional barriers to entry are rapidly dissolving. Forrester Research
estimates that the total value of U.S. business trade on the Internet will grow
to approximately $1.3 trillion by 2003.
Driven by rapidly accelerating global competition, companies are seeking
to improve their operations by re-engineering their supply chains, increasing
their responsiveness to customers, and offering a wider range of products and
services which can be dynamically matched with customers' specific needs. In
order to capitalize on this opportunity, companies are adopting more
sophisticated approaches to eCommerce and are increasing their investment in
eCommerce infrastructure. These approaches are characterized by enhanced
interactivity, greater personalization and the ability to offer a broad array of
complex configurable products and services, all at the time of purchase.
Forrester Research estimates that the U.S. market for eCommerce-enabling
software solutions is expected to grow from $235 million in 1998 to $3.8 billion
in 2002.
ADVANCED ECOMMERCE REQUIRES A NEW CLASS OF SOFTWARE SOLUTIONS
Over the past two decades, many major corporations have invested large
amounts of time and money automating their internal business processes through
the deployment of enterprise resource planning and sales force automation
software. These systems have enabled companies to centralize and better manage
important enterprise data, re-engineer business processes and provide sales
representatives with updated product information, contact management and lead
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tracking. While these systems have become an important element of enterprise
information technology and have brought many operational benefits, they were
developed prior to the commercial use of the Internet, and were not designed for
large scale, Internet-based, customer-driven interactions and commerce. Because
these process automation systems were designed for a limited universe of
internal users, they have not generally scaled to accommodate the significant
number of users or transactions made possible by the Internet and have not
provided the level of intuitive graphical user interface that is necessary for
engaging customer interactions.
As commercial use of the Internet began to develop, early eCommerce
vendors developed custom websites and transactions systems using general purpose
Internet publishing tools, such as HTML editors and specialized database tools.
These tools enabled companies to post static product catalogs and brochure
content on the Internet, but generally allowed only limited real-time
interactivity and did not provide mission critical reliability and scalability.
Recently, packaged eCommerce applications have emerged, focusing primarily on
enabling transactions by providing security, credit card validation and the
management of "shopping baskets". In addition, a variety of point solution
software applications have been developed to provide functionality in discrete
aspects of the selling process, such as personalization and content delivery.
While these early packaged applications and point solutions have helped to
automate online transactions, they generally have not provided well-integrated
functionality or capabilities for the online purchasing of complex and
configurable products and services, such as computers, network equipment or
financial services.
We believe that the rapid growth and evolution of eCommerce requires a new
class of software solutions designed specifically for advanced eCommerce
interactions with customers, resellers and partners. This new class of software
must leverage companies' large investments in enterprise applications, and
combine the mission-critical reliability of traditional enterprise systems with
the scalability and flexibility of Internet software. In addition, this software
must be customer-driven, integrate a broad range of sophisticated functionality
and enable the sale of complex products and services.
THE CALICO SOLUTION
We have pioneered a new class of advanced eCommerce software solutions
that are designed to enable companies to create long term strategic
differentiation by redefining how they interact with their customers. The Calico
eSales Suite can be deployed at the point of sale over the Internet and other
platforms to improve selling effectiveness and customer satisfaction. Our
software is designed to facilitate the selling process by dynamically assessing
customer requirements, providing tailored information, identifying constraints,
proposing alternatives and delivering quotes.
Buyers can use our software to research, evaluate, weigh trade-offs on
price, performance and other attributes, configure in real-time and buy complex
goods and services.
Our solutions provide the following advantages:
HIGHLY STRATEGIC. Our software solutions are designed to help suppliers
increase their revenue by capitalizing on new eCommerce opportunities and reduce
their costs by enhancing operating efficiency and order accuracy. For example,
our tailored solutions enable suppliers to provide personalized products and
services, to cross sell and upsell additional products and services and to
reduce the time to market of new products and services. As a result, we believe
our solutions can provide a significant return on investment and generally are
viewed by our customers as a means of achieving strategic and competitive
advantage.
CUSTOMER-DRIVEN. Unlike traditional enterprise applications, our solutions
are designed specifically for interacting directly with customers, resellers and
other partners. Our "user-guided behavior" technology enables users to define
the purchasing
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process according to their own needs and to flexibly configure complex goods and
services at the point of sale in real time. In addition, our agent technology
delivers personalized information during the purchase process enabling companies
to proactively engage the customer, anticipate customer needs, provide real-time
information and speed delivery. By keeping the customer at the center of the
buying experience, focus can be shifted from the transaction to the customer
relationship, creating a key source of competitive differentiation.
INTEGRATED. By combining advanced configuration, information delivery,
content management and personalization functionality, we offer a broad,
integrated suite of advanced eCommerce applications, providing significant
benefits to customers who wish to launch or improve comprehensive eCommerce
functionality quickly. In addition, our software enables customers to develop
highly intuitive, interactive, graphical and content-rich eCommerce sites. We
also provide professional consulting and implementation services, complemented
by our relationships with third-party implementation partners, to provide a
tailored solution for each customer's needs.
SCALABLE AND FLEXIBLE. Our product architecture is designed to be highly
scalable, enabling enterprises to interact directly with large numbers of
customers via the Internet and other platforms. The Calico eSales Suite employs
highly flexible modeling and application integration tools which are designed to
enable it to be rapidly integrated with existing enterprise applications. These
applications include enterprise resource planning, sales force automation and
supply chain management, and their underlying databases.
DEPLOYABLE ACROSS MULTIPLE CHANNELS. The Calico eSales Suite is designed
to connect buyers and sellers, including distributors, resellers, telemarketers
and direct sales forces, to end users. To reach these audiences, the Calico
eSales Suite can be deployed across the Internet, intranets, extranets and
corporate networks and can be accessed through desktop and mobile computers and
retail kiosks. The Calico eSales Suite uses a single set of business rules,
enhancing consistency of user experience and reducing maintenance.
STRATEGY
Our objective is to be the leading provider of advanced eCommerce
applications to customers worldwide. The key elements of our strategy include:
INCREASE THE BREADTH AND DEPTH OF OUR ECOMMERCE SOLUTIONS. Our strategy is
to provide solutions that enhance customer interaction by adding new features to
our Calico eSales Suite and by adding new products that provide marketing and
post-sales service functionality. We plan to accomplish this through internal
product development, licensing and acquisitions of third-party technology and
partnering. Our acquisition of FirstFloor provided agent technology which
enables targeted, personalized information delivery, a key element in our Calico
eSales solution. The introduction of personalized products which provide
marketing functionality will enable our customers to tailor Internet sites to
help build relationships with their most important customers. In addition, we
intend to facilitate integration of our products with a broad range of
enterprise and Internet software applications through the development of
integration toolsets and additional application programming interfaces.
ALIGN WITH ECOMMERCE LEADERS AND EXPAND IN OTHER TARGETED VERTICAL
MARKETS. Our advanced eCommerce solutions are broadly applicable to a range of
industries and markets. To date, our customers have been concentrated in two
major industry groups -- computer hardware and network and telecommunications
equipment. Our strategy has been to pursue relationships with leading
participants in key industries who have adopted aggressive eCommerce business
strategies, such as Best Buy, Cisco, Dell, Gateway, Merrill Lynch, Nortel
Networks, Qwest, Siemens, Telia and US West. In addition, we plan to continue to
expand in additional industries where advanced eCommerce solutions are highly
strategic and
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promote significant competitive advantage, including manufacturing, retail,
telecommunications services, and financial services.
LEVERAGE PARTNERSHIPS. Our strategy is to increase our revenue base by
complementing our direct sales force and professional services organization with
strategic partnerships and alliances. These partnerships are intended to
increase geographic sales coverage worldwide, address new vertical markets and
market segments, and provide our customers with access to additional design,
modeling and implementation resources. In addition, our goal is to form
additional marketing and distribution alliances with enterprise and eCommerce
software vendors and resellers to broaden distribution or provide complementary
functionality to our applications. We also intend to provide enterprise
integration to our customers through alliances with systems integrators and
middleware vendors.
EXTEND TECHNOLOGY LEADERSHIP. Our Calico eSales Suite is based on advanced
expert systems technology which allows matching of user requirements with
suppliers' product and service offerings. For example, the bill of materials
created by our Calico eSales Quote product is described in extensible markup
language, or XML, enabling dynamic and intelligent exchange among eCommerce
applications. Our strategy is to continue to develop leading technologies in
order to deliver more advanced functionality to our customers.
IDENTIFY AND CAPITALIZE ON NEW ECOMMERCE-BASED BUSINESSES. Our strategy is
to pursue relationships with and foster the development of emerging
eCommerce-based businesses at an early stage of their development. By entering
into a variety of arrangements with these emerging leaders, we believe we can
further capitalize on the growth of eCommerce and remain at the forefront of
eCommerce trends and technology.
PRODUCTS AND SERVICES
We have developed a suite of applications, integration tools and services
for building advanced eCommerce solutions.
THE CALICO ESALES SUITE
The Calico eSales Suite is an integrated family of interactive user-guided
software products that provide our customers with the ability to create aspects
of person-to-person selling in an on-line environment. Companies can use our
suite of products to support multiple sales channels, including direct sales,
in-store, resellers, value added resellers, telesales and sales over the
Internet. Our products can be deployed individually or as part of the entire
suite, depending on customer preference.
The Calico eSales Suite includes the following software modules:
CALICO ESALES CONFIGURATOR. At the heart of the Calico eSales Suite is the
Calico eSales Configurator, an expert system that matches customer requirements
with product attributes, guiding customers to products and services that meet
their needs. The Calico eSales Configurator employs our "user-guided behavior"
technology to explore different combinations of solution elements. This
technology enables users to evaluate trade-offs on price, performance or other
attributes, while at the same time determining that the configured product or
service meets business or legal constraints set by the vendor. The Calico eSales
Configurator uses dynamic models of customer requirements and product attributes
developed using the Calico eSales Workbench. Once the models have been created,
they can be loaded into an application running standalone or in a multi-user
setting. A single model can be deployed across multiple sales channels,
including direct sales, in-store, resellers, value added resellers, telesales,
and sales over the Internet, streamlining maintenance and permitting significant
flexibility.
In this way, customers can select and purchase complex products and
services without the individual attention of a sales person and speed the
process of creating
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complete and correct complex product configurations.
CALICO ESALES LOYALTY BUILDER. The Calico eSales Loyalty Builder is
designed to address the challenge of building and maintaining customer loyalty
on-line. Calico eSales Loyalty Builder personalizes the Internet-based guided
selling experience from the customer's initial expression of interest through
configuring and ordering products. This personalized guided selling experience
enables companies to proactively engage customers to build stronger customer
relationships with the objective of increasing revenue and reducing sales costs.
The Calico eSales Loyalty Builder is an integral part of the Calico eSales
Suite, and provides organizations with a customer-driven, enterprise-ready
eCommerce solution for personalized buying over the Internet. The Calico eSales
Loyalty Builder's Java and XML-based architecture is designed to enable
customers to adopt the technology within their existing Web infrastructure.
CALICO ESALES QUOTE. The Calico eSales Quote provides customized sales
quotations to customers for selected products and stores quotes for later
retrieval or immediate entry into an order management system. The Calico eSales
Quote is designed to enable unification of product requirements, complex
configurations and pricing and acts as the intermediary to automating order
entry. The Calico eSales Quote is built using the Java programming language and
XML-based architecture. This enables companies to integrate the quoting and
pricing functions of the Calico eSales Suite with existing order entry,
enterprise resource planning and external pricing tools. In addition, the core
functionality of the Calico eSales Quote can be extended via the Java-based
application programming interfaces provided with the Calico eSales Quote.
CALICO ESALES INFOGUIDE. The Calico eSales InfoGuide, previously called
Calico eSales Catalog, delivers targeted marketing information, such as
brochures, product datasheets, product reviews and competitive comparisons,
directly to customers during the on-line buying process. The Calico eSales
InfoGuide is a Java-based tool that pairs content-sensitive selections and
browser clicks with content from any source, even pre-existing content stored in
multiple file formats. The Calico eSales Configurator, Calico eSales Quote and
Calico eSales InfoGuide are integrated so that at any point within the buying
process the customer can request additional information and have targeted
information delivered.
CALICO ESALES WORKBENCH. The Calico eSales Workbench is a flexible toolset
for creating product, pricing and content models for use by the Calico eSales
Configurator. This toolset is used to develop models that describe how each
product can be configured and priced and establishes the relationship between
the requirements and the products to be configured. The Calico eSales Workbench
does not require significant computer programming or advanced technical
expertise to develop or maintain models.
CALICO ESALES ENGINE. The Calico eSales Engine runs the models created
with the Calico eSales Workbench. The Calico eSales Engine is a constraint-based
sales engine, deployable on platforms ranging from laptops to high-end servers.
Because the engine allows users to access the same model, regardless of whether
they are using ActiveX-, Java- or HTML-based user interfaces, each modification
and update of a model only needs to be made once. Calico eSales Engines are
included with each Calico eSales Configurator. Additional Calico eSales Engines
can be added to run the same model, thereby accommodating increased traffic
while continuing to provide rapid response time.
PROFESSIONAL SERVICES
We offer a range of professional and support services including
requirements analysis and definition, iterative prototyping, design, data
analysis, process modification advice, implementation consultation, education,
and post-deployment maintenance. Our staff of deployment architects and
consultants work with customers to capture and model the business logic and
policies that reflect marketing and selling practices. Our professional services
consultants also help
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with the integration of our applications into other enterprise systems. Our
professional services team and our consulting partners use the Calico eSales
Workbench to design, iterate and finalize graphical user interfaces which meet
specific customer requirements, delivering a personalized buying experience.
These professionals have backgrounds in user interface design, systems
integration, technology strategy, and project management.
We use our Opportunity Assessment Methodology in working with customers to
define the opportunity set, priorities, business justification, project costs
and roadmap to implementation relating to each project. This methodology
includes a series of cross-functional interviews at many levels of our
customer's project team. This series of interviews results in an analytical
comparison, known as the Calico eSales Proficiency Matrix, which is used to
determine how our customer's sales practices compare to other sales practices in
their industry. This analysis enables the customer to build cross-functional
action plans, including economic justification and a cohesive and knowledgeable
project team. The methodology may recommend that a prototype be created to
demonstrate the concept and set expectations for our engagement.
MAINTENANCE AND CUSTOMER SERVICE
We offer a broad range of maintenance and customer service options to meet
the varying needs of each customer. Customers covered by maintenance agreements
can report application problems, make enhancement requests and obtain update
releases. Our help desk is staffed with technical support engineers experienced
in a variety of programming languages. For deployed customers or those using
in-house modeling resources, our remote consulting staff provides ongoing
consulting, limited continuing education and customer-specific model support.
Our implementation support is targeted at customers who have completed their
modeling and require assistance in implementing a client/server or Internet
server deployment. We also help troubleshoot problems with network bandwidth,
network access and configurations as they pertain to our products.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force
located at our headquarters in San Jose, and our regional sales and service
offices in Atlanta, Boston, Chicago, England, and Sweden. As of June 30, 1999,
our total sales and marketing organization consisted of 67 employees. We intend
to increase our domestic and international direct sales organizations, in part
by increasing our direct sales force in Australia, the Benelux, Germany,
Singapore and Japan during fiscal 2000. We are also complementing our direct
sales force through additional distribution channels, including systems
integrators and value added resellers, both domestically and internationally.
For example, we have entered into an agreement with an entity to provide sales
distribution and services in Japan.
We have multi-disciplined sales teams that consist of sales, technical and
support professionals. Our senior management also takes an active role in our
sales efforts. We often develop a pilot or custom demonstration which we or our
partners can then use to design a model for a full scale implementation. Our
sales efforts are typically directed to senior executives at our customers'
organizations, including the chief executive officer, the chief information
officer and the vice presidents of sales and marketing.
To support our direct sales efforts and to actively promote our Calico
eSales brand, we conduct comprehensive marketing programs and market research,
including public relations, print advertisements, online advertisements, trade
shows, speaking engagements and ongoing customer communications.
STRATEGIC PARTNERSHIPS
We are pursuing marketing, implementation and resale partnerships and
cooperative alliances with advanced eCommerce software vendors, systems
integrators, professional services
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organizations and application services providers. These partnerships and
alliances are intended to increase geographic sales coverage worldwide and
address new vertical markets and market segments. In addition, these
partnerships and alliances allow us to provide our customers with access to
additional resources to design, install and customize our solutions.
We have formed marketing and distribution alliances with enterprise and
eCommerce software vendors to broaden distribution and provide complementary
functionality to our applications. For example, we have entered into a joint
marketing relationship with Silknet Software, a leading provider of
Internet-based customer support solutions, and a cooperative marketing agreement
with IBM. We also intend to expand the professional services offered to our
customers by enhancing existing relationships with leading systems integrators
and professional services organizations, such as Cap Gemini and DRT Systems, and
by developing additional relationships with other professional services
organizations.
SIGNIFICANT CUSTOMERS
We have provided advanced eCommerce solutions primarily to customers
concentrated in two major industry groups -- computer hardware and network and
telecommunications equipment. We are continuing to expand in other markets, such
as manufacturing, retail, telecommunication services and financial services. In
fiscal 1999, Gateway and Dell each represented more than 10% of our total net
revenue. In fiscal 1998, Micron Electronics accounted for more than 10% of our
total net revenue. In fiscal 1997, Amdahl, Lanier and US Robotics each accounted
for more than 10% of our total net revenue. A substantial portion of our revenue
in any given quarter has been, and is expected to continue to be, generated from
a limited number of customers with large financial commitment contracts.
The following is a partial list of customers who have purchased our
products and services and that we believe are representative of our overall
customer base:
<TABLE>
<S> <C>
Best Buy Qwest
Cabletron Siemens
Cisco Starhub
Dell Sunrise Medical
Gateway Telia
Merrill Lynch Telxon
Motorola US West
MTD Products Zurn Industries
Nortel Networks
</TABLE>
TECHNOLOGY
Our software architecture provides the platform for our advanced eCommerce
solutions. Our technology is designed to provide interactive, scalable, and
easily maintained advanced eCommerce applications. The user interface component
of the Calico eSales Configurator is powered by Microsoft Active Server Pages
and therefore operates only on Windows NT. The Calico eSales Loyalty Builder,
Calico eSales Quote, Calico eSales InfoGuide and Calico eSales Engine each
operate on Unix and Windows NT. We intend to develop user interface components
to allow our customers to use either a Unix-based or Windows NT-based Web
server. If we are unable to promptly or successfully develop the Unix version,
the scalability of our Calico eSales Configurator may be adversely impacted for
certain customer applications due to the scalability limitations of Windows NT.
The elements of our technology consist of the following:
USER-GUIDED BEHAVIOR TECHNOLOGY
We have developed proprietary "user-guided behavior" technology that is
based upon expert systems that provide the ability to match user requirements
with specific product and service offerings from companies, subject to a number
of
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<PAGE> 41
constraints. The user-guided behavior technology offers the following benefits:
- - Our data maintenance system allows data to be entered in tabular form for
concise expression of relationships between data, thereby reducing the
system's maintenance requirements.
- - Applications that are constructed from the models created with the Calico
eSales Workbench require only constraints, product content information and
user interface information. Since models can be loaded into an application
running standalone or in a multi-user setting, the same application can be
targeted to run on laptops, desktops and the Internet.
- - Constraints, together with our user-guided behavior technology, provide
options to the end user and explain why particular configurations are not
valid.
The Calico eSales Engine is designed to handle complex configurations. Our
technology allows for composite modeling, which permits the configuration to
expand to accommodate numerous sites at the user's request. The Calico eSales
Configurator supports multiprocessor servers as well as server clusters. This
enables enterprises to scale their deployments readily to accommodate traffic.
Because session state information is stored in multiple locations, a user's
configuration session can proceed uninterrupted even in the event of a server
failure.
ACCESS TO ENTERPRISE DATA
Our proprietary agent technology allows customers to quickly and easily
access their enterprise data and content, as well as external content from their
intranet and the Internet as part of an advanced eCommerce system, without
re-authoring or re-publishing. Automatic notification and delivery of documents
and other mission critical information is possible without needing to modify
existing applications or information sources.
ADHERENCE TO INDUSTRY STANDARDS
The Calico eSales Loyalty Builder, Calico eSales Quote and Calico eSales
InfoGuide have been designed based on XML, an emerging standard for data
representation and computer-to-computer exchange of information supporting
eCommerce. Software systems that support XML provide customers with the ability
to reduce application development time, easily integrate with legacy enterprise
systems and build applications that span the business processes of a company,
its suppliers, distributors and customers.
In addition, Calico eSales Loyalty Builder, Calico eSales Quote and Calico
eSales InfoGuide have all been designed using Java, a programming language that
enables compatibility across multiple platforms and facilitates Internet-based
performance. Java is emerging as a development language for electronic business
and other Internet applications.
Our architecture is designed to comply with widely accepted commercial
software industry standards for building large-scale Internet applications. In
addition to XML, we use other widely accepted standards in developing our
products, including structured query language, Java database connectivity and
open database connectivity for accessing relational database management systems,
HTTP for Internet access and HTML for Web information presentation. The Calico
eSales Configurator can be operated in conjunction with enterprise applications
provided by Oracle, Baan, SAP and JD Edwards. Integration with these and other
applications is facilitated by our support of open standards.
RESEARCH AND DEVELOPMENT
Our future success will depend in part upon our ability to enhance the
Calico eSales Suite of products, develop new products and capitalize on our
technological leadership to provide advanced eCommerce solutions to a global
customer base. Our immediate focus is to extend the existing enterprise
application integration capabilities of our product suite to Oracle Order Entry
and SAP Order Entry. In addition, we are seeking to broaden our
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<PAGE> 42
current product line by improving performance, platform independence, adaptation
to standards, integration with enterprise applications, ease of modeling and
applicability to commercial products and services.
To foster development, definition, adoption and implementation of open
standards that can be leveraged by the Calico eSales Suite, we work with several
industry standards organizations such as the World Wide Web Consortium,
RosettaNet, Commercenet, the American Association of Artificial Intelligence,
the Institute for Electrical and Electronic Engineering and the Association for
Computing Machinery. For example, through these organizations we are actively
promoting the use of XML technology for data representation and computer-to-
computer exchange of information.
Our research and development expenses were $2.2 million for fiscal 1997,
$3.3 million for fiscal 1998 and $5.7 million for fiscal 1999. We expect to
continue to invest significantly in research and development in the future. We
have experienced technical personnel in the areas of agent-based technology,
artificial intelligence, expert systems, user interface design, enterprise and
middleware software development.
PROPRIETARY RIGHTS
Our success and ability to compete are substantially dependent on our
internally developed technology and software applications. We have two U.S.
patents. While we rely on patent, trademark, service mark, copyright and trade
secret laws and restrictions in the United States and other jurisdictions,
together with contractual restrictions, to protect our proprietary rights,
patent, trademark, copyright and trade secret protection may not be available in
every country in which we distribute our products.
We also typically enter into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements with
our customers, suppliers and strategic partners in order to limit access to and
distribution and disclosure of our proprietary information. However, despite our
efforts to protect our proprietary rights, unauthorized parties could copy or
otherwise obtain and use our products or technology or develop products with the
same functionality as our products. Policing unauthorized use is difficult, and
the steps we have taken may not prevent misappropriation of our technology. In
addition, the laws of some foreign countries provide less protection of
proprietary rights than do the laws of the United States, and we expect that it
will become more difficult to monitor the use of our products if we increase our
international presence.
Substantial litigation regarding intellectual property rights exists in
the software industry. We expect that software products may increasingly be
subject to third-party infringement claims as the number of competitors
supplying advanced eCommerce applications and solutions grows, and the
functionality in other industry segments overlaps. Some of our competitors may
have filed or intend to file patent applications covering aspects of their
technology that they claim our technology infringes. Our competitors may make a
claim of infringement against us with respect to our products and technology.
These claims could result in litigation subjecting us to significant liability
for damages, or in invalidation of our proprietary rights. Any claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources or require us to enter into royalty
or licensing agreements in order to be able to sell our products. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, or at all.
COMPETITION
The market for software and services that enable advanced eCommerce is
new, intensely competitive, highly fragmented and rapidly changing.
We believe that our ability to compete depends on many factors, both
within and beyond our control, including:
- - the performance, functionality, scalability and flexibility of our software
solutions;
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<PAGE> 43
- - the timing and market acceptance of new products and product enhancements to
the Calico eSales Suite of products;
- - the effectiveness of our sales and marketing efforts; and
- - the quality and performance of our professional services.
We expect competition to persist and intensify. Our primary competition
currently comes from companies developing solutions in-house and from a large
number of emerging companies focused on eCommerce. We also compete with vendors
of enterprise class application software, including BroadVision, Siebel Systems,
Oracle, SAP, Baan and Microsoft. Within our Calico eSales Configurator product
line, our competitors include Trilogy, pcOrder.com, Selectica and FirePond.
Many of our competitors and potential competitors have a number of
significant advantages over us, including:
- - a longer operating history;
- - preferred vendor status with our customers;
- - more extensive name recognition and marketing power; and
- - significantly greater financial, technical, marketing and other resources,
giving them the ability to respond more quickly to new or changing
opportunities, technologies and customer requirements.
We also expect that competition will increase as a result of software
industry consolidation. For example, a number of enterprise software companies
have announced acquisitions of point solution providers to expand their product
lines. Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships among themselves or with third parties
or adopt aggressive pricing policies to gain market share. In addition, new
competitors could emerge and rapidly capture market share.
LEGAL PROCEEDINGS
We are currently involved in litigation with a former employee arising out
of the alleged sexual harassment and wrongful termination of the employee. We
have responded to the lawsuit by filing an answer that denies all of the
material allegations. The lawsuit was filed on June 11, 1997 in the Santa Clara
County Superior Court for the State of California, and the case is currently in
the early stages of pre-trial discovery. The lawsuit seeks unspecified monetary
amounts for lost wages and benefits, emotional and physical distress and
punitive damages.
We believe that we have meritorious defenses against the alleged claims,
and intend to defend ourselves vigorously. However, due to the nature of
litigation and the fact that discovery is still in its early stages, we cannot
determine the possible loss, if any, that may ultimately be incurred either in
the context of a trial or as a result of a negotiated settlement. We may also
incur substantial legal fees in this matter. After consideration of the nature
of the claims and facts relating to the litigation, we believe that the
resolution of this matter will not harm our business. However, the results of
these proceedings, including any potential settlement, are uncertain and there
can be no assurance that they will not harm our business.
EMPLOYEES
As of June 30, 1999, we had 210 employees. Of that total, 65 were
primarily engaged in product development, engineering or systems engineering, 67
were engaged in sales and marketing, 54 were engaged in professional services
and 24 in operational, financial and administrative functions.
None of our employees is represented by a labor union, and we have never
experienced a work stoppage. Our relations with our employees are good.
FACILITIES
Our headquarters are located in approximately 38,600 square feet in San
Jose, California, occupied under a sublease
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expiring on August 31, 1999. We also lease office space in Pleasanton,
California; Boston, Massachusetts; Atlanta, Georgia; Chicago, Illinois; Reading,
England; and Stockholm, Sweden, under leases for terms expiring from August 1999
to January 2002. We have additional leased space in San Jose and Mountain View,
California, some of which we have sublet to unrelated third parties.
We are currently searching for new space to occupy upon expiration of our
principal office lease. We believe that suitable additional space will be
available and that this additional space, together with our other current
facilities, will be adequate to meet our needs for the foreseeable future.
However, if we are unable to identify suitable space or if the change in
location of our principal offices is unexpectedly disruptive, time-consuming or
costly, our business would be harmed.
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MANAGEMENT
OFFICERS AND DIRECTORS
Our executive officers, other officers and directors as of June 30, 1999
are:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Alan P. Naumann(1)................... 39 President, Chief Executive Officer and
Director
Dave Barrett(1)...................... 43 Executive Vice President and Chief Operating
Officer
Matthew DiMaria(1)................... 38 Vice President, Marketing
Arthur F. Knapp, Jr.(1).............. 50 Vice President and Chief Financial Officer
H. Tayloe Stansbury(1)............... 38 Vice President, Engineering
David Cardinal....................... 39 Vice President and Chief Technical Officer
Lynn Butler Corsiglia................ 40 Vice President, Human Resources
Paul Greenfield...................... 47 Vice President and Managing Director, Eurasia
Steve Leahy.......................... 40 Vice President, Americas
Alan MacMurray....................... 42 Vice President, Professional Services
Joseph Moran......................... 42 Vice President, Finance
Amanda North......................... 42 Vice President, New Ventures
Barton O'Brien....................... 43 Vice President, Strategic Sales
Michael Ouye......................... 45 Vice President, Advanced Development
William Paseman...................... 44 Vice President, Research and Development and
Chairman of the Board
Beverly Powell-Goldman............... 45 Vice President, Business Development
Bernard J. Lacroute(2)............... 55 Director
William D. Unger(2).................. 49 Director
</TABLE>
- -------------------------
(1) Executive Officer
(2) Member of Audit and Compensation Committees
ALAN P. NAUMANN has served as President, Chief Executive Officer and a
director of Calico since September 1997. From November 1995 to September 1997,
Mr. Naumann served as Vice President and General Manager at Cadence Design
Systems, a software company. From 1988 to November 1995, Mr. Naumann held
director and vice president positions in sales and field operations at Cadence.
From 1982 to 1987, Mr. Naumann served in various sales and business development
positions at Hewlett Packard. Mr. Naumann holds a B.S. degree in Computer
Engineering from Iowa State University.
DAVE BARRETT has served as our Executive Vice President and Chief
Operating Officer since May 1999, and from February 1998 to May 1999, Mr.
Barrett served as our Executive Vice President, Business Operations. From
December 1996 until he joined Calico, Mr. Barrett served as Senior Vice
President, Worldwide Sales and Customer Services at Pure Atria/Rational Software
Corporation, an enterprise software development automation company. From March
1996 to December 1996, Mr. Barrett served as Vice President, Sales, Marketing
and Services at Nets, Inc., an eCommerce company. Mr. Barrett served as Vice
President, Field Sales & Services for Lotus Development Corporation, which was
subsequently acquired by IBM, from July 1994 to March 1996. From March 1992 to
July 1994, Mr. Barrett served concurrently as General Manager, Government Sales
and Marketing and Senior Director Strategic Sales and Operations at Lotus, and
from June 1984 to March 1992, Mr. Barrett held various senior management
positions in sales, marketing and services at Lotus. Mr. Barrett holds a B.S.
degree in Marketing Management from the University of Rhode Island.
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<PAGE> 46
MATTHEW DIMARIA has served as our Vice President, Marketing since
September 1998. Mr. DiMaria joined Calico as Vice President of Product Marketing
in March 1998. From March 1995 to February 1998, Mr. DiMaria served as Vice
President of Americas, Marketing for Symantec Corporation, a software company.
From July 1994 to February 1995, Mr. DiMaria served as a partner of Presence
Corporation, a high technology consulting company which he co-founded. From June
1986 to June 1994, Mr. DiMaria held various sales and marketing positions at
Ingres Corporation, a software provider. Mr. DiMaria holds a B.S. degree in
Information Systems Management from the University of Maryland.
ARTHUR F. KNAPP, JR. has served as our Vice President and Chief Financial
Officer since June 1999. From 1991 to March 1999 Mr. Knapp served as Senior Vice
President and Chief Financial Officer at Boole & Babbage, a systems management
software company. From 1984 to 1991, Mr. Knapp served as Chief Financial Officer
at Legent Corporation, a systems management software company. Mr. Knapp holds a
B.S. degree in Finance from the Pennsylvania State University and is a Certified
Public Accountant and a Certified Management Accountant.
H. TAYLOE STANSBURY has served as our Vice President, Engineering since
January 1999. From July 1996 to January 1999, Mr. Stansbury served as Vice
President, Document Management Systems for Xerox Corporation. From December 1994
to June 1996, Mr. Stansbury served as Director, then Vice President, of Software
Engineering for Xerox's XSoft division. Mr. Stansbury holds a B.S. degree in
Applied Mathematics and Computer Science from Harvard University.
DAVID CARDINAL has served as our Vice President and Chief Technical
Officer since August 1998 when we acquired FirstFloor, which Mr. Cardinal
co-founded in October 1992. From October 1992 to April 1996, Mr. Cardinal was
Chairman, Chief Executive Officer and President of FirstFloor, and from April
1996 to August 1998, Mr. Cardinal was Chairman and Chief Technical Officer of
FirstFloor. Prior to that time, Mr. Cardinal served as General Manager of
Desktop Software at Sun Microsystems and held various positions at Amdahl
Corporation and MICA, Inc., a supplier of training and consulting solutions. Mr.
Cardinal holds a B.S. degree in Electrical Engineering from Princeton
University.
LYNN BUTLER CORSIGLIA has served as our Vice President, Human Resources
since March 1998. From November 1995 until she joined Calico, Ms. Butler
Corsiglia served as Director of Human Resources at Netscape Communications
Corporation. Ms. Butler Corsiglia held human resource management positions at
Sybase Incorporated from October 1992 to October 1995 and served in various
human resource management positions at Ungermann-Bass from July 1986 to October
1992.
PAUL GREENFIELD has served as our Vice President and Managing Director,
Eurasia since June 1998. From May 1994 to June 1998, Mr. Greenfield was Vice
President, European Operations at Avant! Corporation, a leading provider of
software used to implement integrated circuits on silicon chips. From June 1993
to May 1994, Mr. Greenfield served as Vice President, Northern European
Operations at Redwood Design Automation. Mr. Greenfield holds an H.N.C. degree
from Hammersmith College of Commerce in London.
STEVE LEAHY has served as our Vice President, Americas since August 1998.
From August 1997 until he joined Calico, Mr. Leahy served as Vice President,
Northeast at Informix Software, an enterprise database and data management
company. From August 1994 to August 1997, Mr. Leahy was Director of Sales for
Pure Software, which later merged to become Pure Atria/Rational Software
Corporation, where he continued as Director of Sales for the Eastern US and
Canada. During the five year period prior to that date, Mr. Leahy held various
positions at Sun Microsystems in various sales capacities. Mr. Leahy holds a
B.A. degree in History from Bowdoin College.
ALAN MACMURRAY has served as our Vice President, Professional Services
since April
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1997. From January 1995 until he joined Calico, Mr. MacMurray served as Vice
President, Professional Services at TravelNet, Inc., an eCommerce software
company. From March 1988 to December 1994, Mr. MacMurray held four services and
support positions at Aspect Telecommunications, a supplier of automated call
distributors. From December 1984 to March 1988, he was employed by the Rolm
Division of IBM where he held various sales and services roles including Branch
Manager. He has a B.S. degree in Economics from Harvard College and an M.B.A.
degree in Marketing and Finance from the University of Chicago.
JOSEPH MORAN has served as our Vice President, Finance since June 1997,
and as Chief Financial Officer from June 1997 to June 1999. From 1991 to 1997,
Mr. Moran held various positions at Sybase, including Vice President, Finance,
Enterprise Business Group from June 1996 to June 1997, and Director of Finance
from January 1993 to June 1996. Mr. Moran holds a B.S. degree in Economics from
the University of California at Berkeley and an M.B.A. degree in Finance and
International Business from the University of Chicago.
AMANDA NORTH has served as our Vice President, New Ventures since
September 1998. From November 1997 to September 1998, Ms. North served as
Calico's Vice President, Corporate Marketing. From October 1993 to November
1997, Ms. North held various positions at Studio Archetype, a leading developer
of complex and high visibility web sites. Ms. North was President of Studio
Archetype from October 1996 to October 1997. Ms. North holds B.A. degrees in
Economics and Politics from Princeton University and an M.B.A. degree from
Stanford University.
BARTON O'BRIEN has served as our Vice President, Strategic Sales, since he
co-founded Calico in January 1994. Prior to joining Calico, Mr. O'Brien held
sales positions at RSA Data Security, a leading developer of encryption and
authentication technology. Mr. O'Brien holds a B.S. degree in Business
Administration from the University of Florida and an M.S. degree in Industrial
Administration from Carnegie-Mellon Graduate School of Industrial
Administration.
MICHAEL OUYE has served as our Vice President, Advanced Development, since
August 1996 when Calico acquired FirstFloor, where he had been Vice President,
Engineering since April 1994. From February 1987 to April 1994, Mr. Ouye was
involved in the formation of GO Corporation and EO, Inc., developing the
concepts and software around pen-based computing as Director of Engineering and
Vice President, Engineering, respectively. Mr. Ouye has a B.S. degree in
Computer Science from California State University in Sacramento and an M.S.
degree in Computer Science from the University of Santa Clara.
WILLIAM PASEMAN, the Chairman of the board of directors of Calico and a
director since he founded Calico, served as Calico's President until January
1996, and has since served as Calico's Vice President, Research and Development.
From 1990 to 1994, Mr. Paseman was a consultant at Paseman & Associates, a
consulting firm that he co-founded. From 1986 to 1990, Mr. Paseman co-founded
Atherton Technology, Inc., a software company, where he served as Vice President
of Technology. Mr. Paseman holds a B.S. degree in Chemical Engineering, a B.S.
degree in Electrical Engineering, and an M.S. degree in Chemical Engineering
from Rice University. He also holds an M.S. degree in Computer Science from
Massachusetts Institute of Technology.
BEVERLY POWELL-GOLDMAN has served as our Vice President, Business
Development since December 1998. From October 1997 to December 1998, Ms.
Powell-Goldman served as Executive Vice President, Worldwide Sales and Business
Development at Extricity Software, a provider of business-to-business
integration software. From June 1996 to October 1997, Ms. Powell-Goldman served
as Vice President, Strategic Alliances at Siebel Systems, a supplier of
enterprise relationship management software. From September 1991 to October
1995, Ms. Powell-Goldman served as General Manager and Senior Vice President at
Hyperion Software/Pillar Corp.
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Ms. Powell-Goldman holds a B.S. degree in Business Administration and Economics
from San Jose State University.
BERNARD J. LACROUTE has been a director of Calico since June 1995. Mr.
Lacroute has been a partner with Kleiner Perkins Caufield & Byers since 1989.
Prior to joining Kleiner Perkins Caufield & Byers, Mr. Lacroute held a number of
senior executive positions in leading high technology firms including Digital
Equipment Corporation and Sun Microsystems. Mr. Lacroute is a director of Brio
Technology, Inc., a software provider, and a director of several privately held
companies. Mr. Lacroute holds graduate degrees in Physics from the University of
Grenoble and in Engineering from the Ecole Nationale Superiere d'Ingenieurs, as
well as an M.S. degree in Electrical Engineering from the University of
Michigan.
WILLIAM D. UNGER has been a director of Calico since June 1995. Mr. Unger
joined Mayfield Fund, a venture capital firm, in 1983, and has been a general
partner of several venture capital firms affiliated with Mayfield Fund since
1987. Before joining Mayfield, Mr. Unger founded the executive recruitment firm
Positek. Mr. Unger is a director of several privately held companies. Mr. Unger
holds a B.A. Degree in Elementary Education from the University of Illinois.
BOARD OF DIRECTORS
Upon completion of the offering, the terms of the board of directors will
be divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 1999; Class II, whose term will expire at
the annual meeting of stockholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2001. The Class
I directors are , the Class II directors are , and
the Class III directors are . At each annual meeting of
stockholders after the initial classification, the successors to directors whose
term expires will be elected to serve a term of three years. This classification
of directors may have the effect of delaying or preventing changes in our
control. Our board of directors consists of four members. Our bylaws provide
that the authorized number of directors may be changed by resolution of the
board of directors.
Executive officers are elected by the board of directors annually. There
are no family relationships among any of our directors, officers or key
executives.
BOARD COMMITTEES
The board of directors has established an audit committee and a
compensation committee.
The audit committee reviews and monitors our corporate financial reporting
and our external audits, including, among other things, our control functions,
the results and scope of the annual audit and other services provided by our
independent accountants and our compliance with legal matters that have a
significant impact on our financial reports. The audit committee also consults
with management and our independent accountants prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the audit committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with our independent accountants. The current members of the audit
committee are Messrs. Lacroute and Unger.
The compensation committee reviews and makes recommendations to the board
of directors regarding our compensation policies and all forms of compensation
to be provided to our executive officers and directors, including among other
things, annual salaries and bonuses and stock option and other incentive
compensation arrangements. The current members of the compensation committee are
Messrs. Lacroute and Unger.
DIRECTOR COMPENSATION
Our directors do not currently receive any compensation for their service
as directors, other than reimbursement of all reasonable out-of-pocket expenses
for
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attendance at meetings of the board of directors. Members of the board of
directors are eligible to receive discretionary option grants and stock
issuances under our 1997 Stock Option Plan and employee-directors will be able
to participate in our 1999 Employee Stock Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, and no such interlocking relationship existed in the past.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to our chief
executive officer and each of our other executive officers whose total salary
and bonus exceeded $100,000 for the fiscal year ended March 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OPTIONS
------------------------------ -------- -------- ------------
<S> <C> <C> <C>
Alan P. Naumann........................................... $175,000 $ 37,148 200,000
President and Chief Executive Officer
Dave Barrett.............................................. 175,000 179,018 --
Executive Vice President and Chief Operating Officer
Matthew DiMaria........................................... 155,000 19,380 --
Vice President, Marketing
</TABLE>
OPTION GRANTS IN FISCAL YEAR ENDED
MARCH 31, 1999
The following table sets forth information for stock options granted
during the fiscal year ended March 31, 1999 to our chief executive officer and
each of our other executive officers who earned in excess of $100,000.
All of these options were granted under our 1997 Stock Option Plan.
Options granted under the 1997 Option Plan generally vest over a four-year
period with 25% of the shares vesting at the first anniversary of the grant date
and the remaining shares vesting in equal monthly installments over the next 36
months.
The percentages in the column entitled "Percent of Total Options Granted
to Employees in Fiscal 1999" was based on an aggregate of 2,458,637 options
granted to our employees under our 1997 Stock Option Plan during fiscal 1999.
The exercise price of each option is equal to the fair market value of our
common stock as determined by the board of directors on the date of grant,
taking into account the purchase price paid by investors for shares of our
preferred stock, the liquidation preferences and other rights, privileges and
preferences associated with the preferred stock and an evaluation by the board
of directors of our revenues, operating history and prospects.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. For purposes of these columns, we assumed stock
appreciation of 5% and 10% as required by the Securities and Exchange
Commission. These rates of appreciation do not represent our prediction of our
stock price performance. The potential realizable values at 5% and 10%
appreciation are calculated by assuming that the estimated fair market value on
the date of grant appreciates at the indicated rate for the entire term of the
options and that the option is exercised at the exercise price and sold on the
last day of its term at the appreciated price.
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OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING TO EMPLOYEES FOR OPTION TERM
OPTIONS DURING EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL 1999 PER SHARE DATE 5% 10%
---- ---------- ---------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Naumann......... 200,000 8.1% $2.60 4/29/08 $327,025 $828,746
Dave Barrett............ -- -- -- -- -- --
Matthew DiMaria......... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES AND OPTION VALUES
The following table presents for our chief executive officer and each of
our other highest-paid executive officers the number of options exercised during
the fiscal year ended March 31, 1999 and the number and value of securities
underlying unexercised options that are held by our chief executive officer and
other highest-paid executive officers as of March 31, 1999. Each of the options
listed in the table is immediately exercisable in full at the date of grant, but
shares purchased on exercise of unvested options are subject to a repurchase
right in our favor that entitles us to repurchase unvested shares at their
original exercise price on termination of the employee's services with us. The
heading "Vested" refers to shares no longer subject to repurchase; the heading
"Unvested" refers to shares subject to repurchase as of March 31, 1999. The
numbers in the column "Value of Unexercised In-the-Money Options at March 31,
1999" are based on the fair market value of our common stock of $14.25 at March
31, 1999, as determined by our board of directors, less the exercise price
payable for the shares.
OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1999 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT MARCH 31, 1999 OPTIONS AT MARCH 31, 1999
ACQUIRED ON VALUE ------------------------- --------------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
---- ----------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Naumann....... 200,000 $180,000 -- -- $ -- $ --
Dave Barrett.......... 275,000 68,950 -- -- -- --
Matthew DiMaria....... -- -- -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
All options granted to Mr. Naumann will accelerate in full upon a change
in our control and either a successor or purchasing corporation fails to either
assume such options or replace them with substantially equivalent options or
within 36 months following a change in control Mr. Naumann either is terminated
without cause or resigns for good reason, as provided in the option agreement.
The options granted to Mr. Barrett will accelerate up to 70% or in full,
upon a change in our control, the amount depending upon the date of the event,
and either a successor or purchasing corporation fails to either assume such
options or replace them with substantially equivalent options or within 12
months following a change in control Mr. Barrett either is terminated without
cause or resigns for good reason as provided in the option agreement.
BENEFIT PLANS
1995 STOCK OPTION PLAN
Our 1995 Stock Option Plan provides for the grant of incentive stock
options to employees, within the meaning of Section 422 of the Internal Revenue
Code, and for the grant of nonstatutory stock options to employees, non-employee
directors and
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<PAGE> 51
consultants. The terms of the 1995 Stock Option Plan are substantially identical
to the terms of our 1997 Stock Option Plan. The board of directors has
determined that no further options will be granted under the 1995 Stock Option
Plan, although options granted under the 1995 Stock Option Plan will remain
outstanding in accordance with their terms.
1997 STOCK OPTION PLAN
Our 1997 Stock Option Plan was adopted by the board of directors in June
1997 and by the stockholders in July 1997. The 1997 Stock Option Plan provides
for the grant of incentive stock options to employees, within the meaning of
Section 422 of the Internal Revenue Code, and for the grant of nonstatutory
stock options to employees, non-employee directors and consultants. However, no
incentive stock options may be granted under the 1997 Stock Option Plan after
June 2007.
The maximum number of shares issuable under the plan is 9,810,000 shares.
The share reserve will automatically be increased on the first day of each
fiscal year beginning on or after April 1, 2001 by an amount equal to 5% of the
number of shares of our common stock which were issued and outstanding on the
last day of the preceding fiscal year. Notwithstanding the foregoing, the
maximum number of shares issuable at any time under the 1997 Stock Option Plan
will be reduced by the number of outstanding shares that were issued under the
1995 Stock Option Plan, plus the number of shares subject to outstanding options
which were granted under the 1995 Stock Option Plan, which together was
2,457,070 shares as of March 31, 1999. As of March 31, 1999, 4,856,510 shares
had been issued upon the exercise of options under our 1995 and 1997 Stock
Option Plans, options to purchase a total of 2,331,240 shares at a weighted
average exercise price of $6.71 per share were outstanding under these plans,
and 3,134,607 shares were available for future grants under the 1997 Stock
Option Plan.
The 1997 Stock Option Plan is administered by the board of directors, or a
committee of the board. Subject to the provisions of the plan, the board of
directors or its committee has the authority to select the persons to whom
options are granted and determine the terms of each option, including:
- - the number of shares of common stock covered by the option;
- - when the option becomes exercisable;
- - the per share option exercise price, which, in the case of incentive stock
options, must be at least 100% of the fair market value of a share of common
stock as of the date of grant or 110% of fair market value for incentive
stock options granted to 10% stockholders, and, in the case of nonstatutory
stock options, must be at least 85% of the fair market value of a share of
common stock as of the date of grant; and
- - the duration of the option, which may not exceed ten years, or five years
for incentive stock options granted to a 10% stockholder.
Generally, options granted under the 1997 Stock Option Plan vest over four
years, and are non-transferable other than by will or the laws of descent and
distribution. In the event of a change in our control, if the acquiring or
successor corporation does not assume or substitute for options outstanding
under the plan, the options shall terminate. Options granted to four of our
executive officers provide for acceleration upon a change in our control.
FIRSTFLOOR OPTIONS
In connection with the acquisition of FirstFloor, we assumed the options
granted under the FirstFloor 1993 Stock Option Plan and converted the options
into options to purchase 31,474 shares of our Series D Preferred Stock. At March
31, 1999, options to purchase 22,240 shares of Series D Preferred Stock were
outstanding at a weighted average exercise price of $4.06 per share. We do not
intend to grant further options to purchase our Series D Preferred Stock.
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<PAGE> 52
401(K) PLAN
In 1995, we adopted a tax-qualified employee savings and retirement plan
which covers our eligible full-time U.S. employees. Under the 401(k) Plan,
employees may elect to reduce their current annual compensation up to the lesser
of 15% or the statutorily prescribed limit, which is $10,000 in calendar year
1999, and have the amount of the reduction contributed to the 401(k) Plan. The
plan permits, but does not require us to make matching contributions to the
401(k) Plan. To date we have not made any matching contributions to the 401(k)
Plan. The 401(k) Plan is intended to qualify under Sections 401(a) and 401(k) of
the Internal Revenue Code, so that contributions by us or our employees to the
401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the 401(k) Plan. Salary deferred contributions
are held in trust. Each participant may direct the investment of his or her
account among the investment options offered by the 401(k) Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the board of directors adopted the 1999 Employee Stock
Purchase Plan, subject to stockholder approval. We have reserved a total of
500,000 shares of common stock for issuance under the employee stock purchase
plan, none of which has yet been issued. The employee stock purchase plan will
become effective as of the effective date of this offering and will be
administered by the board of directors or by a committee appointed by the board
of directors. Employees are eligible to participate if they are customarily
employed by us for at least 20 hours per week and more than five months in any
fiscal year.
The employee stock purchase plan permits an eligible employee to purchase
our common stock at a discount through accumulated payroll deductions of up to
15% of his or her compensation. Participants generally may not purchase more
than 500 shares on any purchase date or stock having a value measured at the
beginning of the offering period, greater than $25,000 in any calendar year. The
employee stock purchase plan also provides that all participants, in aggregate,
may not purchase more than 100,000 shares on any purchase date.
Unless the board of directors or a committee of the board of directors
determines otherwise, the first offering period starts on the effective date of
this offering and will run for approximately 24 months and will be divided into
four consecutive purchase periods of approximately six months. The first
offering period and the first purchase period commence on the date of this
prospectus. Subsequent offering periods will generally have a duration of 12
months and will be divided into two consecutive purchase periods of
approximately six months. Offering periods and purchase periods after the
initial offering will commence on May 1 and November 1 of each year. The board
of directors may change the dates or duration of one or more offerings, but no
offering period may exceed 27 months. Participants will purchase shares on the
last day of each purchase period.
The price at which shares are purchased under the employee stock purchase
plan is equal to 85% of the lower of the fair market value of a share of common
stock on the first day of the offering period, or the last day of the purchase
period. In the event of a change in our control, our board of directors may
accelerate the purchase date of the then current purchase period to a date prior
to the change in control, or the acquiring corporation may assume or replace the
outstanding purchase rights under the employee stock purchase plan. Participants
may end their participation in the employee stock purchase plan at any time, and
participation automatically ends on termination of employment. The board of
directors may amend or terminate the employee stock purchase plan at any time as
long as such amendment or termination does not impair outstanding purchase
rights.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION
As permitted by the Delaware General Corporation Law, we have adopted
provisions
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<PAGE> 53
in our certificate of incorporation and bylaws that limit or eliminate the
personal liability of our directors for a breach of their fiduciary duty of care
as a director. The duty of care generally requires that, when acting on behalf
of the corporation, directors exercise an informed business judgment based on
all material information reasonably available to them. Consequently, a director
will not be personally liable to us or our stockholders for monetary damages or
breach of fiduciary duty as a director, except liability for:
- - any breach of the director's duty of loyalty to us or our stockholders;
- - acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
- - unlawful stock repurchases, redemptions or other distributions or unlawful
payments of dividends; or
- - any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation and bylaws also allow us to indemnify our
officers, directors and other agents to the fullest extent permitted by Delaware
law. We intend to enter into separate indemnity agreements with each of our
officers and directors which gives these officers and directors additional
indemnification. The indemnity agreements may require us, among other things,
to:
- - indemnify our officers and directors against liabilities that may arise by
reason of their status or service as directors or officers;
- - advance expenses as incurred to our officers and directors in connection
with any legal proceeding as to which they could be indemnified, subject to
limited exceptions; or
- - obtain directors' and officers' liability insurance.
We also intend to purchase an insurance policy covering our directors and
officers for claims they may otherwise be required to pay or for which we may be
required to indemnify them.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification is sought. We
are not aware of any threatened litigation or proceeding which may result in a
claim for indemnification.
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<PAGE> 54
TRANSACTIONS WITH RELATED PARTIES AND INSIDERS
We have raised capital primarily through the sale of our stock. On May 26,
1995 and May 31, 1995, we sold 4,000,000 shares of Series A Preferred Stock at a
price of $1.00 per share. On June 7, 1996, we sold an aggregate of 2,400,000
shares of Series B Preferred Stock at a price of $2.40 per share. On July 23,
1997, we sold an aggregate of 1,388,889 shares of Series C Preferred Stock at a
price of $3.60 per share. On August 21, 1998 we exchanged 832,297 shares of
Series D Preferred Stock for all of the issued and outstanding shares of capital
stock of FirstFloor in connection with our acquisition of FirstFloor. From
September 4, 1998 through September 23, 1998, Calico sold an aggregate of
1,791,725 shares of Series E Preferred Stock at a price of $6.837 per share.
The following holders of more than 5% of our voting securities purchased
shares of Series A, Series B, Series C and Series E Preferred Stock or were
shareholders of FirstFloor and received shares of Series D Preferred Stock in
exchange for their shares of capital stock of FirstFloor:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
PURCHASER STOCK STOCK STOCK STOCK STOCK
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Entities Affiliated with Kleiner Perkins
Caufield & Byers........................ 2,000,000 1,000,000 347,222 -- 219,394
Entities Affiliated with Mayfield
Fund.................................... 2,000,000 1,000,000 347,222 132,502 365,659
Entities Affiliated with Integral Capital
Partners................................ -- 400,000 694,445 -- 117,010
</TABLE>
The preferred stock purchased by these affiliates was purchased on the
same terms and conditions as the preferred stock purchased by other investors.
Entities affiliated with Kleiner Perkins Caufield & Byers are together
considered a 5% stockholder of ours. Bernard J. Lacroute, a director of Calico,
is a general partner of Kleiner Perkins Caufield & Byers. Entities affiliated
with Mayfield Fund are together considered a 5% stockholder of ours. William
Unger, a director of Calico, is a general partner of Mayfield Fund. Entities
affiliated with Integral Capital Partners are together considered a 5%
stockholder of ours.
In connection with our offering of the Series A and Series B Preferred
Stock, 1,100,000 shares and 400,000 shares of common stock held by William
Paseman, one of our founders, were exchanged for 1,100,000 shares of Series A
and 400,000 shares of Series B Preferred Stock which were then sold by Mr.
Paseman independently of the shares sold by us.
In connection with our acquisition of FirstFloor, David Cardinal, our
Chief Technology Officer and a co-founder of FirstFloor, exchanged his existing
shares of FirstFloor capital stock for 61,103 shares of Calico Series D
Preferred Stock, of which 9,165 shares are held in escrow until August 21, 1999.
Certain of our stockholders, including all of our 5% stock holders and our
director William Paseman, are entitled to registration rights in respect of
their common stock issued or issuable upon conversion of preferred stock held by
them. See "Description of Capital Stock -- Registration Rights".
We have received promissory notes in amounts in excess of $60,000 from the
following executive officers as consideration for the exercise of these
individuals' employee stock options:
<TABLE>
<CAPTION>
NAME AMOUNT OF NOTE
---- --------------
<S> <C>
Alan P. Naumann............... $760,000
Dave Barrett.................. 343,750
Matthew DiMaria............... 141,750
</TABLE>
These notes bear simple interest at rates ranging from 5.59% to 6.65% per
annum, are
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<PAGE> 55
full recourse, and are secured by a pledge of the underlying shares of common
stock. The notes mature on various dates through fiscal 2002.
We intend to enter into indemnity agreements with each of our directors
and officers. These indemnity agreements will require us to indemnify these
officers and directors against liabilities that may arise by reason of their
status or service as officers or directors, and to advance expenses incurred as
a result of any proceedings against them as to which they could be indemnified.
We believe that all transactions with our officers, directors, principal
stockholders and other affiliates described above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
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<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of June 30, 1999, by:
- - each person who is known by us to beneficially own more than 5% of our
common stock;
- - our chief executive officer, each of the executive officers named in the
summary compensation table and each of our directors; and
- - all of our executive officers and directors as a group.
Unless otherwise indicated, the address of each of the named individuals
is c/o Calico Commerce, Inc., 333 West San Carlos Street, Suite 300, San Jose,
California 95110. Unless otherwise indicated below, and subject to applicable
community property laws, we believe that the persons named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them.
Percentage of ownership on the table is based on 18,080,115 shares
outstanding as of June 30, 1999 and shares outstanding immediately
following the completion of this offering, assuming the underwriters'
over-allotment option is not exercised and assuming the conversion of all shares
of preferred stock into common stock. Of the total shares outstanding, 1,535,044
shares are subject to our right of repurchase. Beneficial ownership is
determined under the rules and regulations of the Securities and Exchange
Commission. All shares of common stock subject to options currently exercisable
or exercisable within 60 days after June 30, 1999 are deemed to be outstanding
for the purpose of computing the percentage of ownership of the person holding
the options, but are not deemed to be outstanding for computing the percentage
of ownership of any other person. Entries denoted by an asterisk represent an
amount less than 1%.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF SHARES ---------------------------------
BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------ --------------- --------------
<S> <C> <C> <C>
Mayfield Fund(1)........................ 3,845,383 21%
2800 Sand Hill Road,
Menlo Park, California 94025
Kleiner Perkins Caufield & Byers(2)..... 3,566,616 20
2750 Sand Hill Road,
Menlo Park, California 94025
Integral Capital Partners(3)............ 1,211,455 7
2750 Sand Hill Road,
Menlo Park, California 94025
Alan P. Naumann(4)...................... 1,000,000 6
Dave Barrett(5)......................... 275,000 2
Matthew DiMaria(6)...................... 135,000 *
William Paseman......................... 2,500,000 14
Bernard Lacroute(2)..................... 3,566,616 20
2750 Sand Hill Road,
Menlo Park, California 94025
William Unger(1)........................ 3,845,383 21
2800 Sand Hill Road,
Menlo Park, California 94025
All executive officers and directors as
a group (8 persons)(7)................ 11,596,999 64
</TABLE>
- ---------------
(1) The shares listed represent 3,330,795 shares held by Mayfield VII; 175,217
shares held by Mayfield Associates Fund II; 193,112 shares held by Mayfield
Software Partners; 23,399 shares held by the Unger-Luchsinger Family
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<PAGE> 57
Trust U/D/T 12/1999, a revocable trust for the benefit of the
Unger-Luchsinger Family; and 122,860 shares held by e-trust, a revocable
trust over which Mr. Unger has no control or direct or indirect interest.
Mr. Unger is a general partner of Mayfield Associates Fund II and Mayfield
VII Management Partners, a California Limited Partnership, which is the
general partner of Mayfield VII. Mayfield VII is one of the general
partners of Mayfield Software Partners. Except for those shares held by the
Unger-Luchsinger Family Trust U/D/T 12/1999, Mr. Unger disclaims beneficial
ownership of all other shares except for his pecuniary interest.
(2) Bernard Lacroute is a partner of Kleiner Perkins Caufield & Byers. The
shares listed represent 2,698,483 shares held by Kleiner Perkins Caufield &
Byers VII, 783,308 shares held by KPCB Java Fund, and 84,825 shares held by
KPCB Information Sciences Zaibatsu Fund II. Mr. Lacroute disclaims
beneficial ownership of all shares except for his pecuniary interest.
(3) The shares listed represent 975,080 shares held by Integral Capital
Partners III, L.P., and 236,375 shares held by Integral Capital Partners
International III, L.P.
(4) Includes 558,334 shares subject to repurchase by Calico in the event Mr.
Naumann ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 20,834 shares per
month until July 18, 2001, after which date the right to repurchase lapses
at the rate of 4,166 shares per month.
(5) Includes 183,334 shares subject to repurchase by Calico in the event Mr.
Barrett ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 5,729 shares per
month.
(6) Includes 90,000 shares subject to repurchase by Calico in the event Mr.
DiMaria ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 2,813 shares per
month.
(7) Includes 831,668 shares subject to repurchase by Calico upon cessation of
employment prior to full vesting of the shares.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
As of June 30, 1999, there were 18,080,115 shares outstanding held by 239
shareholders of record. Upon completion of this offering, our authorized capital
stock will consist of 100,000,000 shares of common stock, $0.001 par value per
share, and 10,000,000 shares of preferred stock, $0.001 par value per share. The
following description of our capital stock gives effect to the amendments to the
certificate of incorporation to be filed upon completion of this offering. Our
certificate of incorporation and bylaws, to be effective after the closing of
this offering, provide further information about our capital stock.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of our common stock are entitled to the
following rights:
- to receive dividends at such times and in such amounts as the board of
directors may determine out of funds legally available for dividends;
- one vote for each share held on all matters submitted to a vote of
stockholders; and
- upon our liquidation, dissolution or winding up, share ratably in all
assets remaining after payment of liabilities and the liquidation
preference of any preferred stock.
Because our certificate of incorporation does not authorize cumulative
voting for the election of directors, 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. Each outstanding share of common stock is, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon completion of this offering, all outstanding shares of preferred
stock will be converted on a one-to-one basis into shares of common stock.
However, following this conversion, under our certificate of incorporation, the
board of directors will have the authority, without further action or
authorization by the stockholders, to designate and issue up to 10,000,000
shares of preferred stock in one or more series. The board of directors can fix
the rights, preferences and privileges of the shares of each series of preferred
stock and any qualifications, limitations or restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of entrenching our board of directors
and making it more difficult for a third party to acquire, or discourage a third
party from acquiring, a majority of our outstanding voting stock. Furthermore,
the preferred stock may have other rights, including economic rights, senior to
the common stock. We have no current plans to issue any shares of preferred
stock.
WARRANTS
At June 30, 1999, we had issued warrants to purchase a total of 88,833
shares of common stock on an as-converted basis. Warrants to purchase 28,000
shares of common stock at $1.00 per share will expire in November 2002. Warrants
to purchase 23,333 shares of common stock at $2.40 per share will expire in
November 2004 and warrants to purchase 37,500 shares of common stock at $2.40
per share will expire in June 2007.
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<PAGE> 59
REGISTRATION RIGHTS
Following this offering, under the terms of an amended investor rights
agreement, the holders of approximately 13,729,543 shares of our common stock,
including shares issuable upon conversion of preferred stock and warrants and
options to purchase preferred stock, will have rights to require us to register
those registration shares under the Securities Act. Subject to limitations in
this investor rights agreement, the holders of at least 30% of these shares may
require, on two occasions, that we use our best efforts to register these shares
for public resale. If we register any common stock for our own account, other
than a registration relating solely to employee benefit plans, a registration
relating solely to transactions under Rule 145 of the Securities Act, or a
registration on any registration form which does not permit secondary sales, or
for the account of other security holders, the holders of these shares are
entitled to include their shares of common stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. The holders of these shares may also require us to register all or a
portion of their registrable securities on Form S-3 when we are eligible to use
this form, provided, among other limitations, that the proposed aggregate price
of the offering to the public is at least $500,000. We will pay all fees, costs
and expenses of these registrations, other than underwriting discounts and
commissions.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult for a third party to acquire us by means of a
tender offer, proxy contest, or otherwise, and could make the removal of
incumbent officers and directors more difficult. These provisions could
discourage coercive takeover practices and takeover bids and encourage persons
seeking to acquire control of us to negotiate first with us.
We will be subject to Section 203 of the Delaware General Corporation Law,
which generally prohibits a publicly held Delaware corporation from engaging in
any business combination with an interested stockholder for three years
following the date the stockholder became an interested stockholder, unless:
- - prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder;
- - upon completion 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
began; or
- - on or following 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 two-thirds
of the outstanding voting stock not owned by the interested stockholder.
Section 203 defines a business combination to include:
- - any merger or consolidation involving the corporation and the interested
stockholders;
- - any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholders;
- - subject to limited exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholders;
- - 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 stockholders; or
- - the receipt by the interested stockholders of the benefit of any loans,
advances,
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<PAGE> 60
guarantees, pledges or other financial benefits provided by or through the
corporation.
In general, Section 203 defines an interested stockholder as an entity or
person who, together with affiliates and associates, owns 15% or more of the
corporation's outstanding voting stock.
Upon filing after the closing of this offering, our certificate of
incorporation will provide that our board of directors will be divided into
three classes of directors serving staggered three-year terms. As a result, only
one of the three classes of our board of directors will be elected each year.
The classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
and may maintain the incumbency of our board of directors, as the classification
of the board generally increases the difficulty of replacing a majority of the
directors. Our directors will be removable only for cause upon the affirmative
vote of the holders of at least a majority of the voting power of all
outstanding shares of voting stock, voting as a single class. Our board of
directors has the exclusive right to set the authorized number of directors and
to fill vacancies on our board of directors. Our certificate of incorporation
requires that any action required or permitted to be taken by stockholders must
be effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. In addition, special meetings of
the stockholders may be called only by our board of directors, the Chairman of
our board of directors, or our chief executive officer or by the holders of not
less than ten percent of all of the shares entitled to vote at the meeting.
Advance notice must be given by stockholders of any stockholder proposals or
director nominations or other business to be brought by stockholders at
stockholders' meetings. Our certificate of incorporation authorizes undesignated
preferred stock, which makes it possible for the board of directors to issue
preferred stock with voting or other rights or preferences that could discourage
potential acquisition proposals and could delay or prevent a change in our
control or management. These provisions may be amended only by the affirmative
vote of at least two-thirds of all the outstanding voting stock. These
provisions may have the effect of deferring hostile takeovers or delaying
changes in our control or management.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is BankBoston, N.A.,
whose address is 150 Royall Street, Canton, Massachusetts 02021 and whose
telephone number is (781) 434-2200.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no public market for our common stock.
Future sales of substantial amounts of common stock in the public market,
including shares issued upon exercise of outstanding options or warrants, could
adversely affect the market price of our common stock.
Upon completion of this offering, we will have shares of common stock
outstanding, assuming no exercise of options after June 30, 1999. Of these
shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
any shares purchased by affiliates of Calico as that term is defined in Rule 144
under the Securities Act. Shares purchased by affiliates may generally only be
sold pursuant to an effective registration statement under the Securities Act or
in compliance with the limitations of Rule 144 as described below.
We issued and sold the remaining 18,080,115 shares of common stock held by
existing stockholders in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" as that term
is defined in Rule 144 under the Securities Act. All of these restricted
securities will be subject to lock-up agreements generally 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, without the prior written consent of Goldman, Sachs & Co. Following
the expiration of the lock-up period, 15,634,818 restricted shares will be
available for sale in the public market, all of which are subject to limitations
under Rule 144, except for 724,985 shares eligible for sale under Rule 144(k)
and 3,549,802 shares eligible for sale under Rule 701, subject in some cases to
repurchase rights in favor of Calico.
Immediately 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 1997
Stock Option Plan and our 1999 employee stock purchase plan. Based upon the
number of shares subject to outstanding options as of June 30, 1999 and
currently reserved for issuance under both of these plans, this registration
statement would cover approximately 5,927,537 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.
Also beginning six months after the date of this offering, holders of
13,729,543 shares of our common stock, including shares issuable upon conversion
of preferred stock and warrants and of options to purchase preferred stock will
be entitled to certain rights with respect to registration of these shares for
sale in the public market. See "Description of Capital Stock -- Registration
Rights". Registration of these shares under the Securities Act would result in
these shares becoming freely tradable without restriction under the Securities
Act immediately upon effectiveness of the registration.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including a person who may be deemed an
affiliate, is entitled to sell in "brokers' 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 of our common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
Sales under Rule 144 are also subject to restrictions relating to the
manner of sale, notice and the availability of current public information about
us.
61
<PAGE> 62
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Calico at any time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
the shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of this
offering.
RULE 701
In general, under Rule 701 as currently in effect, any of our employees,
directors, officers, consultants or advisors 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 the 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 requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of the options, including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its one year minimum holding period requirements.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Calico by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. As of June
30, 1999, an investment partnership of Gray Cary Ware & Freidenrich owned an
aggregate of 3,657 shares of our Series E Preferred Stock, which was purchased
on September 4, 1998 for $6.837 per share. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of Calico Commerce, Inc. as of
March 31, 1998 and 1999 and for each of the three years in the period ended
March 31, 1999 included in this Prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of FirstFloor Software, Inc. at December 31, 1996
and 1997, and for each of the two years in the period ended December 31, 1997,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon,
appearing elsewhere in this prospectus, which contains an explanatory paragraph
describing conditions that raise substantial doubt about FirstFloor's ability to
continue as a going concern as described in note 1 to the financial statements,
and are included in reliance upon such report, given upon the authority of such
firm as experts in accounting and auditing.
62
<PAGE> 63
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedule filed with it. For
further information with respect to Calico and the common stock offered in this
offering, please read the registration statement and the exhibits and schedules
that we have filed. A copy of the registration statement and the exhibits and
schedules filed with it may be inspected without charge at the public reference
facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from these offices upon the payment of the fees prescribed by the SEC.
The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of the site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and will file periodic reports, proxy statements and other information
with the SEC. These periodic reports, proxy statements and other information
will be available for inspection and copying at the regional offices, public
reference facilities and Web site of the SEC referred to above.
63
<PAGE> 64
CALICO COMMERCE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CALICO COMMERCE, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Operations........................ F-4
Consolidated Statement of Stockholders' Deficit............. F-5
Consolidated Statement of Cash Flows........................ F-6
Notes to Consolidated Financial Statements.................. F-7
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Overview.................................................... F-27
Pro Forma Combined Consolidated Statement of Operations..... F-28
Notes to Pro Forma Combined Consolidated Financial
Information............................................... F-29
FIRSTFLOOR SOFTWARE, INC.
Report of Independent Auditors.............................. F-30
Balance Sheets.............................................. F-31
Statements of Operations.................................... F-32
Statements of Shareholders' Equity (Net Capital
Deficiency)............................................... F-33
Statements of Cash Flows.................................... F-34
Notes to Financial Statements............................... F-36
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
The recapitalization and reincorporation described in Note 1 to the consolidated
financial statements has not been consummated at July 13, 1999. When it has been
consummated, we will be in a position to furnish the following report:
"To the Board of Directors and Stockholders of
Calico Commerce, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Calico Commerce, Inc. and its subsidiaries at March 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
July 13, 1999
F-2
<PAGE> 66
CALICO COMMERCE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY AT
-------------------- MARCH 31,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,514 $ 15,441
Accounts receivable, net........................... 2,952 7,443
Other current assets............................... 379 1,417
-------- --------
Total current assets............................ 5,845 24,301
Property and equipment, net.......................... 1,847 2,532
Intangible and other assets, net..................... -- 4,535
-------- --------
$ 7,692 $ 31,368
======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 1,197 $ 1,728
Accrued liabilities................................ 1,813 5,448
Deferred revenue................................... 2,361 6,054
Current portion of notes payable................... 330 628
Current portion of capital lease obligations....... 100 256
-------- --------
Total current liabilities....................... 5,801 14,114
Notes payable, non-current........................... 644 700
Capital lease obligations, non-current............... 170 177
Other liabilities.................................... -- 622
-------- --------
6,615 15,613
-------- --------
Mandatorily Redeemable Convertible Preferred Stock
(Note 6)........................................... 14,505 32,535
-------- --------
Commitments and contingencies (Note 10)
Stockholders' equity (deficit):
Preferred Stock; $0.001 par value; 10,000 shares
authorized; no shares issued and outstanding
actual and pro forma (unaudited)................ -- -- $ --
Common Stock; $0.001 par value; 100,000 shares
authorized; 6,332 and 7,624 shares issued and
outstanding; 100,000 shares authorized; 18,041
shares issued and outstanding, pro forma
(unaudited)..................................... 6 8 18
Additional paid-in capital......................... 3,661 17,880 50,405
Notes receivable from stockholders................. (712) (2,211) (2,211)
Unearned compensation.............................. (1,966) (2,779) (2,779)
Accumulated deficit................................ (14,417) (29,678) (29,678)
-------- -------- --------
Total stockholders' equity (deficit)............ (13,428) (16,780) $ 15,755
-------- -------- ========
$ 7,692 $ 31,368
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 67
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net revenue:
License.................................................. $ 3,940 $ 6,965 $ 10,482
Services................................................. 1,963 4,894 10,931
------- ------- --------
Total net revenue..................................... 5,903 11,859 21,413
------- ------- --------
Cost of net revenue:
License.................................................. 178 265 1,179
Services................................................. 2,122 3,115 7,272
------- ------- --------
Total cost of net revenue............................. 2,300 3,380 8,451
------- ------- --------
Gross profit............................................... 3,603 8,479 12,962
------- ------- --------
Operating expenses:
Sales and marketing...................................... 5,950 7,593 14,138
Research and development................................. 2,224 3,342 5,677
General and administrative............................... 1,486 2,222 3,988
Stock compensation (Notes 8 and 9)....................... 864 780 2,007
Acquired in-process research and development (Note 2).... -- -- 1,840
Amortization of goodwill (Note 2)........................ -- -- 550
------- ------- --------
Total operating expenses.............................. 10,524 13,937 28,200
------- ------- --------
Loss from operations....................................... (6,921) (5,458) (15,238)
Interest expense........................................... (40) (154) (314)
Interest income and other.................................. 61 113 291
------- ------- --------
Net loss................................................... $(6,900) $(5,499) $(15,261)
======= ======= ========
Net loss per share:
Basic and diluted........................................ $ (3.19) $ (1.62) $ (3.41)
======= ======= ========
Weighted average shares.................................. 2,165 3,386 4,473
======= ======= ========
Pro forma net loss per share:
Basic and diluted........................................ $ (1.11)
========
Weighted average shares.................................. 13,793
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 68
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON NOTES
STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN FROM UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT DEFICIT
------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996.... 2,944 $ 3 $ 3 $ -- $ -- $ (2,018) $ (2,012)
Exercise of stock options.... 1,882 2 187 (166) -- -- 23
Exchange of founder's Common
Stock for Preferred Stock
(Note 9)................... (400) -- -- -- -- -- --
Issuance of Common Stock..... 145 -- 35 -- -- -- 35
Net loss..................... -- -- -- -- -- (6,900) (6,900)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1997.... 4,571 5 225 (166) -- (8,918) (8,854)
Exercise of stock options.... 1,957 1 709 (574) -- -- 136
Repayments of notes
receivable................. -- -- (16) 28 -- -- 12
Issuance of Common Stock..... 6 -- 2 -- -- -- 2
Repurchase of Common Stock... (202) -- (5) -- -- -- (5)
Unearned compensation (Note
8)......................... -- -- 2,746 -- (2,746) -- --
Amortization of unearned
compensation (Note 8)...... -- -- -- -- 780 -- 780
Net loss..................... -- -- -- -- -- (5,499) (5,499)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1998.... 6,332 6 3,661 (712) (1,966) (14,417) (13,428)
Exercise of stock options.... 1,017 1 1,812 (1,660) -- -- 153
Issuance of Common Stock..... 702 1 9,999 -- -- -- 10,000
Repayments of notes
receivable................. -- -- (92) 161 -- -- 69
Repurchase of Common Stock... (427) -- (502) -- -- -- (502)
Issuance of Common Stock
options to non-employees... -- -- 148 -- -- -- 148
Unearned compensation (Note
8)......................... -- -- 2,854 -- (2,854) -- --
Amortization of unearned
compensation (Note 8)...... -- -- -- -- 2,041 -- 2,041
Net loss..................... -- -- -- -- -- (15,261) (15,261)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1999.... 7,624 $ 8 $17,880 $(2,211) $(2,779) $(29,678) $(16,780)
====== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 69
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,900) $(5,499) $(15,261)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts......................... 200 200 200
Provision for sales returns............................. 500 200 330
Depreciation, amortization and other.................... 350 664 2,641
Stock compensation and other............................ 899 780 2,189
Loss on disposal of assets.............................. -- -- 260
Acquired in-process research and development............ -- -- 1,840
Changes in assets and liabilities, net of acquisition:
Accounts receivable................................... (1,214) (2,248) (4,904)
Other current assets.................................. (9) (103) (1,072)
Accounts payable...................................... 496 786 531
Accrued liabilities................................... 422 822 2,662
Deferred revenue...................................... 915 1,062 3,130
Other liabilities..................................... -- -- 91
------- ------- --------
Net cash used in operating activities............... (4,341) (3,336) (7,363)
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (930) (1,403) (1,829)
------- ------- --------
Net cash used in investing activities............... (930) (1,403) (1,829)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock.................... 23 133 10,153
Common stock repurchases.................................. -- -- (502)
Proceeds from repayments of stockholder loans............. -- 12 69
Net proceeds from issuance of preferred stock............. 4,769 4,952 12,217
Proceeds from issuance of notes payable................... 702 443 763
Repayments of notes payable............................... (27) (144) (409)
Principal payments under capital lease obligations........ (55) (64) (172)
------- ------- --------
Net cash provided by financing activities........... 5,412 5,332 22,119
------- ------- --------
Net increase in cash and cash equivalents................... 141 593 12,927
Cash and cash equivalents at beginning of period............ 1,780 1,921 2,514
------- ------- --------
Cash and cash equivalents at end of period.................. $ 1,921 $ 2,514 $ 15,441
======= ======= ========
Supplemental cash flow disclosures:
Cash paid for interest.................................... $ 40 $ 154 $ 192
======= ======= ========
Non cash transactions:
Issuance of Common Stock for notes receivable............. $ 166 $ 574 $ 1,660
======= ======= ========
Cancellation of notes receivable related to forfeited
unvested restricted Common Stock........................ $ -- $ 16 $ 92
======= ======= ========
Equipment acquired through capital lease obligations...... $ 287 $ -- $ 136
======= ======= ========
Issuance of Series B Mandatorily Redeemable Convertible
Preferred Stock warrants................................ $ 25 $ 53 $ --
======= ======= ========
</TABLE>
Acquired net assets associated with FirstFloor acquisition includes:
<TABLE>
<S> <C>
Fair value of tangible assets............................. $ 360
Fair value of existing products and core technology....... 1,547
Acquired in-process research and development.............. 1,840
Goodwill.................................................. 4,266
Fair value of liabilities assumed......................... (1,951)
-------
$ 6,062
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 70
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Calico Commerce, Inc. ("Calico" or the "Company") was incorporated on April 14,
1994 as an S-corporation. In May 1995, the Company was reorganized as a
C-corporation under California law.
Calico Commerce, Inc., headquartered in San Jose, California, is a leading
provider of advanced eCommerce software and services that enable the interactive
buying and selling of complex products and services over the Internet and other
platforms. Calico's products enable companies to create a guided selling
experience that allows their customers to interactively affect the on-line
purchasing process.
REINCORPORATION
In March 1999, the Company's Board of Directors authorized the reincorporation
of the Company in the State of Delaware. The reincorporation will occur
immediately prior to the consummation of the Company's initial public offering
(see Note 12). As a result of the reincorporation, the Company is authorized to
issue 100,000,000 shares of $0.001 par value Common Stock and 10,000,000 shares
of $0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof. Shares and per share
information for each of the three years in the period ended March 31, 1999 has
been retroactively adjusted to reflect the reincorporation.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Calico Technology UK Limited, which commenced
operations in April 1998, and FirstFloor Software, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's 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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents consist
of cash on deposit with banks and money market funds that are stated at cost.
F-7
<PAGE> 71
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable.
The Company by policy and practice maintains its cash and cash equivalents with
financial institutions the Company believes are of high credit quality. The
Company generally requires no collateral from its customers. To reduce its risk,
the Company periodically reviews the credit worthiness of its customers. The
Company establishes reserves for potential credit losses, when deemed necessary,
and such losses have been within management's estimations.
The following table sets forth customers comprising 10% or more of the Company's
net revenue for each of the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
CUSTOMER 1997 1998 1999
-------- ---- ---- ----
<S> <C> <C> <C>
A...................................................... 22% --% --%
B...................................................... 19 -- --
C...................................................... 12 -- --
D...................................................... -- 11 --
E...................................................... -- -- 22
F...................................................... -- -- 13
</TABLE>
At March 31, 1998, three customers represented 27%, 14% and 12%, respectively,
of gross accounts receivable. At March 31, 1999, three customers represented
32%, 12% and 11%, respectively, of gross accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease obligations are carried
at cost, which approximates their fair value because of the short-term maturity
of these instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
two to five years. The cost of equipment acquired under a capital lease is
amortized over the life of the lease, or the estimated useful life of the
assets. Maintenance and repairs are charged to operations as incurred and major
improvements are capitalized. The cost of assets retired or otherwise disposed
of and the accumulated depreciation thereon are removed from the accounts with
any gain or loss realized upon sale or disposal credited or charged to
operations, respectively.
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of the acquired business
over the fair value of the identifiable net costs acquired and is amortized
using the straight-line method over an estimated useful life of four years.
Acquired existing products and core technology are being amortized over the
period of benefit ranging from seven to 36 months.
F-8
<PAGE> 72
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company evaluates the recoverability of its intangible assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
FOREIGN CURRENCY
The functional currency of the Company's subsidiaries is the local currency. The
balance sheet accounts are translated into United States dollars at the exchange
rates prevailing at the balance sheet dates. Revenues, costs and expenses are
translated into United States dollars at average rates for the periods. Gains
and losses resulting from translation are accumulated as a component of
stockholder's deficit. Net gains and losses resulting from foreign exchange
transactions are included in the consolidated statements of operations and were
not significant during any of the periods presented.
REVENUE RECOGNITION
During 1999, the Company recognized revenues in accordance with Statement of
Position No. 97-2, "Software Revenue Recognition" ("SOP No. 97-2") and Statement
of Position No. 98-4, "Deferral of the Effective Date of a Provision of SOP No.
97-2" ("SOP No. 98-4"). Prior to 1999, the Company recognized revenues in
accordance with Statement of Position No. 91-1, "Software Revenue Recognition."
In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 98-9, "Modification of SOP No. 97-2
with Respect to Certain Transactions" ("SOP No. 98-9"), which is effective for
transactions entered into after March 31, 1999. The adoption of SOP No. 98-9 is
not expected to have a material impact on the Company's results of operations,
financial position or cash flows.
The Company's revenues are derived from licenses for its software and related
services, which include implementation and integration, technical support,
training and consulting. Revenue is recognized for the various contract elements
based upon vendor-specific objective evidence of fair value for each element.
Revenue from license fees is recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, no significant Company obligations
with regard to implementation or integration exist, the fee is fixed or
determinable and collectibility is probable. Provisions for sales returns are
provided at the time of revenue recognition based upon estimated returns.
Services revenue primarily comprises revenue from consulting fees, maintenance
contracts and training. Services revenue from consulting and training is
recognized as the service is performed. Maintenance contracts include the right
to unspecified upgrades and ongoing support. Maintenance revenue is deferred and
recognized on a straight-line basis as services revenue over the life of the
related contract, which is typically one year.
License and services revenue on contracts involving significant implementation,
customization or services which are essential to the functionality of the
software is recognized over the period of each engagement, primarily using the
percentage-of-completion method. Labor hours incurred is generally used as the
measure of progress towards completion. A provision for estimated losses
F-9
<PAGE> 73
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
on engagements is made in the period in which the loss becomes probable and can
be reasonably estimated.
Customer billing occurs in accordance with contract terms. Customer advances and
amounts billed to customers in excess of revenue recognized are recorded as
deferred revenue. Amounts recognized as revenue in advance of billing (typically
under percentage-of-completion accounting) are recorded as unbilled receivables.
RESEARCH AND DEVELOPMENT COSTS
Expenditures for research and development are charged to expense as incurred.
Under Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" certain
software development costs are capitalized after technological feasibility has
been established. Development costs incurred in the period between achievement
of technological feasibility, which the Company defines as the establishment of
a working model, until the general availability of such software to customers,
has been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any software
development costs as of March 31, 1999.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
Unearned compensation is amortized and expensed in accordance with Financial
Accounting Standards Board ("FASB") Interpretation No. 28. The Company accounts
for stock issued to non-employees in accordance with the provisions of SFAS No.
123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
The Company uses the Black-Scholes option pricing model to value options granted
to consultants. The related expense is recorded on the option grant date as the
options are fully vested at such time.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred and totaled $238,000, $92,000, and
$339,000 during the years ended March 31, 1997, 1998 and 1999, respectively.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law; the effects of future changes in tax laws
F-10
<PAGE> 74
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
or rates are not anticipated. The measurement of deferred tax assets is reduced,
if necessary, by the amount of any tax benefits that, based on available
evidence, are not expected to be realized.
COMPREHENSIVE INCOME
Effective April 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. To date, the Company has not had any significant transactions that are
required to be reported in comprehensive income.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128")
and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the provisions of
SFAS No. 128 and SAB No. 98, basic and diluted net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the period.
The calculation of diluted net loss per share excludes potential shares of
Common Stock if the effect is antidilutive. Potential shares of Common Stock
consist of unvested restricted Common Stock, incremental shares of Common Stock
issuable upon the exercise of stock options and warrants and shares issuable
upon conversion of the Series A, Series B, Series C, Series D and Series E
Mandatorily Redeemable Convertible Preferred Stock.
The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Numerator:
Net loss................................................. $(6,900) $(5,499) $(15,261)
======= ======= ========
Denominator:
Weighted average shares.................................. 3,836 5,424 6,884
Weighted average unvested shares of Common Stock subject
to repurchase......................................... (1,671) (2,038) (2,411)
------- ------- --------
Denominator for basic and diluted calculation............ 2,165 3,386 4,473
======= ======= ========
Net loss per share:
Basic and diluted........................................ $ (3.19) $ (1.62) $ (3.41)
======= ======= ========
</TABLE>
F-11
<PAGE> 75
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth potential shares of Common Stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Weighted average effect of Common Stock equivalents:
Series A Preferred Stock.................................. 4,000 4,000 4,000
Series B Preferred Stock.................................. 1,960 2,400 2,400
Series C Preferred Stock.................................. -- 961 1,390
Series D Preferred Stock.................................. -- -- 511
Series E Preferred Stock.................................. -- -- 1,020
Preferred Stock warrants.................................. 32 82 89
Preferred Stock options................................... -- -- 16
Unvested shares of Common Stock subject to repurchase..... 1,671 2,038 2,411
Common Stock options...................................... 1,358 1,097 1,497
----- ------ ------
9,021 10,578 13,334
===== ====== ======
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended March 31, 1999 is computed using
the weighted average number of shares of Common Stock outstanding, including the
pro forma effects of the automatic conversion of the Company's Series A, Series
B, Series C, Series D (excluding approximately 2,948 weighted average
repurchasable shares) and Series E Mandatorily Redeemable Convertible Preferred
Stock into shares of the Company's Common Stock effective upon the closing of
the Company's initial public offering as if such conversion occurred on April 1,
1998, or at the date of original issuance, if later. The resulting pro forma
adjustment includes an increase of 9,321,000 in the weighted average shares used
to compute basic net loss per share for the year ended March 31, 1999. The
calculation of diluted net loss per share excludes potential shares of Common
Stock as their effect would be antidilutive. Pro forma potential shares of
Common Stock consist of unvested Common Stock subject to repurchase rights and
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the initial public offering of the Company's
Common Stock, the outstanding shares of Series A, Series B, Series C, Series D
and Series E Mandatorily Redeemable Convertible Preferred Stock will
automatically convert into 4,000,000, 2,400,000, 1,388,889, 836,101 and
1,791,725 shares, respectively, of Common Stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro forma
consolidated balance sheet at March 31, 1999.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to current period presentation.
F-12
<PAGE> 76
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1"). SOP No. 98-1 will become effective during the year ending March 31,
2000. SOP No. 98-1 provides guidance on accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company does not expect the
adoption of SOP No. 98-1 to have a material effect on the Company's results of
operations, financial position or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"). This
statement establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 will become effective during
the year ending March 31, 2001. The adoption of SFAS No. 133 is not expected to
have a material effect on the Company's results of operations, financial
position or cash flows.
NOTE 2 -- ACQUISITION OF FIRSTFLOOR SOFTWARE, INC.:
As discussed in Note 1, the Company completed the acquisition of all outstanding
capital stock of FirstFloor on August 21, 1998. The transaction was completed
pursuant to the Agreement and Plan of Reorganization, dated as of June 23, 1998
among the Company, Calico Acquisition Corporation, FirstFloor and certain
stockholders of Calico and certain shareholders of FirstFloor. The acquisition
was accounted for using the purchase method of accounting and, accordingly, the
net assets and results of operations of FirstFloor have been included in the
Company's consolidated financial statements since the acquisition date.
The purchase consideration included 832,297 shares of Series D Mandatorily
Redeemable Convertible Preferred Stock valued at approximately $5,695,000. In
addition, all of the outstanding stock options granted under the FirstFloor 1993
Stock Option Plan were converted into stock options to purchase 31,474 shares of
the Company's Series D Mandatorily Redeemable Convertible Preferred Stock at
$6.837 per share. The Black-Scholes option pricing model was used to determine
the fair value of the converted options. The fair value of the stock options, of
approximately $122,000, was included as a component of the purchase price. The
Company also incurred approximately $250,000 in acquisition expenses.
The total purchase price of $6.1 million was allocated to assets acquired,
including tangible and intangible assets, and liabilities assumed, based on
their respective estimated fair values at the acquisition date. The estimate of
fair value of the net assets acquired is based on an independent appraisal and
management estimates.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets............................... $ 360
Fair value of existing products and core technology......... 1,547
Acquired in-process research and development................ 1,840
Goodwill.................................................... 4,266
Fair value of liabilities assumed........................... (1,951)
-------
$ 6,062
=======
</TABLE>
F-13
<PAGE> 77
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The acquisition was structured as a tax free exchange of stock, therefore, the
differences between the recognized fair values of acquired net assets, and their
historical tax bases are not deductible for tax purposes. Accordingly, a
deferred tax liability has been recognized for the differences between the
assigned value of intangible assets (excluding goodwill) for book purposes and
the tax basis of such assets in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition, the Company recorded a $1.8 million charge
in the year ended March 31, 1999 for acquired in-process research and
development. This represents the value of purchased in-process research and
development on projects that have not yet reached technological feasibility and
have no alternative future use.
The amount of purchase price allocated to in-process research and development
was determined using appropriate valuation techniques, including
percentage-of-completion which utilizes the key milestones to estimate the stage
of development of each in-process research and development project at the date
of acquisition, estimating cash flows resulting from the expected revenues
generated from such projects, and discounting the net cash flows back to their
present value. The discount rate includes a factor that takes into account the
uncertainty surrounding the successful development of the purchased in-process
technology. The remaining identified intangibles, including the value of
acquired existing products and core technology, will be amortized over the
periods of benefit ranging from seven to 36 months.
The value assigned to acquired in-process research and development was
determined by identifying two specific research and development projects in
areas including (1) a marketing information delivery system and (2) a
personalization solution, for which technological feasibility had not been
established. The first project reached technological feasibility and was
commercially released in December 1998. The second project reached technological
feasibility and was commercially released in May 1999. The value of the
in-process projects was adjusted to reflect the relative value and contribution
of the acquired research and development. In doing so, consideration was given,
as appropriate, to the stage of completion, the complexity of the work completed
to date, the difficulty of completing the remaining development, costs already
incurred and the projected cost to complete the projects. The value assigned to
acquired in-process research and development was based on the assumptions set
forth in the following paragraph.
Net cash flows from such projects were determined based on the Company's
estimates of revenues, cost of sales, research and development costs, selling,
general and administrative costs, and income taxes associated with such
projects. Revenue growth rates for each technology was developed considering,
among other things, the current and expected industry trends, acceptance of the
technologies and historical growth rates for similar industry products.
Estimated total revenue from the acquired in-process research and development
projects generally peak in fiscal year 2000 and decline through fiscal year 2001
as other new products are expected to be introduced. These revenue projections
were based on management's estimates of market size and growth, expected trends
in technology and the expected timing of new product introductions. The
estimated net cash flows of each project were discounted back to their present
value using discount rates of 30% and 40%, respectively, which represent
premiums over the Company's cost of capital of 20% to reflect the risk
associated with the stage of completion of the in-process technologies. The
estimated percentage-of-completion of the in-process research and development
projects were 82% and 47%, respectively.
F-14
<PAGE> 78
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CORE TECHNOLOGY
The amount of purchase price allocated to acquired core technology was
determined based upon royalty streams that were assigned as revenue to such
technology, recognizing the value of that core technology to the expected
product resulting from the in-process research and development. Royalty rates
were developed based on published documentation of royalty rates and the
specific facts and circumstances, and in Calico's view, are considered
reasonable approximations of fair value rates for the respective types of
technology under exclusive, perpetual, worldwide licenses.
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
The following table presents the unaudited pro forma consolidated results of
operations of the Company for the years ended March 31, 1998 and 1999 as if the
acquisition had been consummated at the beginning of each fiscal year. The pro
forma consolidated results of operations include certain pro forma adjustments,
including the amortization of intangible assets and the elimination of the
charge related to in-process research and development.
Pro forma basic net loss per share for each year presented is computed using the
weighted average number of common shares outstanding, including the pro forma
effects of the automatic conversion of the Company's Series A, Series B, Series
C and Series E Mandatorily Redeemable Convertible Preferred Stock into shares of
the Company's Common Stock effective upon the closing of the Company's initial
public offering as if such conversion occurred at the beginning of each fiscal
year, or at date of original issuance, if later. The shares of Series D
Mandatorily Redeemable Convertible Preferred Stock, issued as consideration for
the acquisition, are assumed to be converted into the Company's Common Stock
under the automatic conversion feature and outstanding at the beginning of each
fiscal year. Pro forma diluted net loss per share excludes potential shares of
Common Stock, consisting of options and warrants, as their effect would be
antidilutive.
The unaudited pro forma consolidated results of operations are prepared for
comparative purposes only and do not necessarily reflect the results that would
have occurred had the acquisition occurred at the beginning of the periods
presented or the results which may occur in the future (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Net revenues......................................... $ 13,577 $ 21,737
Net loss............................................. (12,221) (16,305)
Net loss per share:
Basic and diluted.................................. (1.08) (1.18)
</TABLE>
F-15
<PAGE> 79
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable................................... $2,518 $ 8,561
Unbilled receivables.................................. 1,714 571
Allowance for doubtful accounts....................... (580) (659)
Allowance for sales returns........................... (700) (1,030)
------ -------
$2,952 $ 7,443
====== =======
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software....................... $2,534 $ 3,878
Furniture, fixtures and leasehold improvements........ 291 1,223
------ -------
2,825 5,101
Less: Accumulated depreciation and amortization....... (978) (2,569)
------ -------
$1,847 $ 2,532
====== =======
</TABLE>
Property and equipment includes $395,000 and $700,000 of computer and office
equipment under capital leases at March 31, 1998 and 1999, respectively.
Accumulated depreciation of assets under capital leases totaled $209,000 and
$564,000 at March 31, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1999
------ ---------
<S> <C> <C>
INTANGIBLE AND OTHER ASSETS, NET:
Existing and core technology........................ $ -- $ 1,547
Goodwill............................................ -- 4,329
------ -------
-- 5,876
Less: Accumulated amortization...................... -- (1,341)
------ -------
$ -- $ 4,535
====== =======
ACCRUED LIABILITIES:
Accrued compensation and benefits................... $ 379 $ 1,149
Accrued commissions................................. 540 1,573
Other............................................... 894 2,726
------ -------
$1,813 $ 5,448
====== =======
</TABLE>
F-16
<PAGE> 80
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- BORROWINGS:
NOTES PAYABLE
Notes payable consist of amounts payable to an equipment financing company and
bank and are collateralized by the underlying assets as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1999
----- ------
<S> <C> <C>
7% note; principal and interest payable monthly; matures
June 2000................................................. $ 368 $ 236
7% note; principal and interest payable monthly; matures
August 2000............................................... 179 120
7% note; principal and interest payable monthly; matures
October 2000.............................................. 90 63
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures March
2001...................................................... 337 230
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures May
2001...................................................... -- 121
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures September
2001...................................................... -- 218
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures February
2002...................................................... -- 340
----- ------
974 1,328
Less: current portion of notes payable...................... (330) (628)
----- ------
Notes payable, non-current.................................. $ 644 $ 700
===== ======
</TABLE>
Under the bank prime plus 0.5% notes above, the Company is required to meet
certain quarterly financial tests, including minimum operating results and
certain liquidity, leverage and debt service ratios. At March 31, 1999 and June
30, 1999, the Company was not in compliance with the minimum operating results
covenant. The Company obtained a waiver for the periods in which it was in
default.
Future minimum principal payments under the notes at March 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
2000...................................................... $ 628
2001...................................................... 538
2002...................................................... 162
2003...................................................... --
------
Total payments.................................... $1,328
======
</TABLE>
NOTE 5 -- INCOME TAXES:
At March 31, 1999, the Company had approximately $12,093,000 of federal and
$9,731,000 of state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2011 and 2003,
respectively. At March 31, 1999, the Company had approximately $389,000 of
federal and $301,000 of state research and development credit carryforwards
available to offset future taxable income which expire in varying amounts
beginning in
F-17
<PAGE> 81
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2011 and indefinitely, respectively. Under the Tax Reform Act of 1986, the
amounts of and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period. Due to cumulative ownership changes, at March
31, 1999, the net operating loss carryforwards will be limited to approximately
$6,000,000 annually to offset future taxable income.
Deferred taxes are composed of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1999
------- ---------
<S> <C> <C>
Deferred tax assets:
Depreciation.............................................. $ -- $ 250
Other accruals and liabilities............................ 725 3,146
Net operating loss and credit carryforwards............... 4,460 5,399
------- -------
5,185 8,795
Less: Valuation allowance................................. (5,134) (8,795)
------- -------
$ 51 $ --
======= =======
Deferred tax liabilities:
Non-deductible intangible assets.......................... $ -- $ 531
Depreciation.............................................. 51 --
------- -------
$ 51 $ 531
======= =======
</TABLE>
The acquisition of FirstFloor was structured as a tax-free exchange of stock,
therefore, the differences between the recognized fair values of acquired net
assets and their historical tax bases are not deductible for tax purposes. A
deferred tax liability has been recognized for the differences between the
assigned fair values of intangible assets (excluding goodwill) for book purposes
and the tax bases of such assets.
For financial reporting purposes the Company has incurred a loss in each period
since its inception. Based on the available objective evidence, including the
Company's history of losses, management believes it is more likely than not that
the net deferred tax assets will not be fully realizable. Accordingly, the
Company has provided a full valuation allowance against its net deferred tax
assets at March 31, 1998 and 1999.
F-18
<PAGE> 82
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Mandatorily Redeemable Convertible Preferred Stock ($0.001 par value) at March
31, 1999 was comprised of the following (in thousands):
<TABLE>
<CAPTION>
SHARES
------------------------ LIQUIDATION REDEMPTION
AUTHORIZED OUTSTANDING AMOUNT AMOUNT
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Series A........................ 4,030 4,000 $16,000 $ 3,942
Series B........................ 2,461 2,400 23,040 5,729
Series C........................ 1,389 1,389 13,334 4,952
Series D........................ 865 836 8,035 5,695
Series E........................ 1,796 1,792 17,203 12,217
Undesignated.................... 25 -- -- --
------ ------ ------- -------
10,566 10,417 $77,612 $32,535
====== ====== ======= =======
</TABLE>
Of the 836,101 shares of Series D Mandatorily Redeemable Convertible Preferred
Stock outstanding at March 31, 1999, 2,510 were subject to repurchase.
The holders of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock, have certain rights as follows:
VOTING
Each share of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes together
as one class with the Common Stock.
DIVIDENDS
Holders of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock are entitled to receive noncumulative
annual dividends of $0.05, $0.12, $0.18 , $0.30 and $0.34 per share,
respectively, when and if declared by the Board of Directors. The holders of
Series A, Series B, Series C, Series D and Series E Mandatorily Redeemable
Convertible Preferred Stock will also be entitled to participate in dividends on
Common Stock, when and if declared by the Board of Directors, based on the
number of shares of Common Stock into which the Mandatorily Redeemable
Convertible Preferred Stock is convertible. As of March 31, 1999, no dividends
on Mandatorily Redeemable Convertible Preferred Stock or Common Stock have been
declared or paid.
LIQUIDATION
In the event of any liquidation, dissolution, winding up of affairs, merger or
other business combination where the stockholders of the Company retain less
than a majority of the voting power in the surviving entity, the holders of
Series A, Series B, Series C, Series D and Series E Mandatorily Redeemable
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Company to the holders of the Common Stock, the amounts of $1.00, $2.40, $3.60,
$6.837 and $6.837 per share, respectively, adjusted for any stock split, stock
dividends, or the like, plus all declared but unpaid dividends. Thereafter, the
holders of Mandatorily Redeemable Convertible Preferred Stock and Common Stock
share proceeds pro rata, on an as-converted basis, until holders of Series A
F-19
<PAGE> 83
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mandatorily Redeemable Convertible Preferred Stock have recovered an amount of
$4.00 per share and holders of Series B, Series C, Series D and Series E
Mandatorily Redeemable Convertible Preferred Stock have recovered an amount of
$9.60 per share. All further proceeds shall be distributed to the holders of
Common Stock.
REDEMPTION
Holders of two-thirds of the Series A, Series B, Series C and Series E
Mandatorily Redeemable Convertible Preferred Stock may require the Company to
redeem the respective series of Mandatorily Redeemable Convertible Preferred
Stock at any time. The redemption price for the Series A, Series B, Series C and
Series E Mandatorily Redeemable Convertible Preferred Stock shall be $1.00,
$2.40, $3.60 and $6.837 per share, respectively, adjusted for any stock split,
stock dividends, or the like, plus all declared but unpaid dividends.
Holders of two-thirds of the Series D Mandatorily Redeemable Convertible
Preferred Stock may require the Company to redeem the respective series of
Mandatorily Redeemable Convertible Preferred Stock if the requisite percentage
of Series A, Series B, Series C, and Series E Mandatorily Redeemable Convertible
Preferred Stock have previously requested redemption. The redemption price for
the Series D Mandatorily Redeemable Convertible Preferred Stock shall be $6.837
per share adjusted for any stock split, stock dividends, or the like, plus all
declared but unpaid dividends.
CONVERSION
Each share of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock is convertible, at the option of the
stockholder, into the number of shares of Common Stock according to a conversion
ratio, subject to antidilution. The initial share price of the Mandatorily
Redeemable Convertible Preferred Stock used in the conversion ratio shall be
$1.00, $2.40, $3.60, $6.837 and $6.837 per share for Series A, Series B, Series
C, Series D and Series E Mandatorily Redeemable Convertible Preferred Stock,
respectively.
Automatic conversion will occur upon the consummation of an underwritten public
offering priced in excess of $7.20 per share and with total proceeds in excess
of $15,000,000. The Series A, Series B, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock shall automatically convert upon written
consent of a majority of the holders of Series A, Series B, Series D and Series
E Mandatorily Redeemable Convertible Preferred Stock, together. The Series C
Mandatorily Redeemable Convertible Preferred Stock shall automatically convert
upon written consent of a majority of the Series C stockholders.
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK OPTIONS AND WARRANTS
In connection with certain financing arrangements, the Company issued warrants
to purchase shares of the Company's Mandatorily Redeemable Convertible Preferred
Stock to a capital lessor and lender. These warrants were immediately
exercisable after issuance. The Company estimated the fair value of the warrants
using the Black-Scholes option pricing model. The Company records the expense
related to the warrants over the life of the associated financing
F-20
<PAGE> 84
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
instrument as additional interest expense. The following table summarizes the
outstanding warrants:
<TABLE>
<CAPTION>
DATE OF EXERCISE ESTIMATED FISCAL YEAR
GRANT SHARES PRICE FAIR VALUE OF EXPIRATION
------------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Series A Preferred Stock
warrants.................... December 1995 28,000 $1.00 $10,000 2003
Series B Preferred Stock
warrants.................... January 1997 23,333 2.40 25,000 2005
Series B Preferred Stock
warrants.................... June 1997 37,500 2.40 53,000 2008
</TABLE>
In connection with the acquisition of FirstFloor in August 1998, the Company
exchanged the options granted under the FirstFloor 1993 Stock Option Plan into
options to purchase 31,474 shares of Company's Series D Mandatorily Redeemable
Convertible Preferred Stock. These options had a weighted average exercise price
of $3.94 per share. At March 31, 1999, 22,240 of such options were outstanding
with a weighted average exercise price of $4.06 per share. The options expire
upon the earlier of the respective employee termination or 10 years from grant
date. See Note 2.
NOTE 7 -- COMMON STOCK:
The Company's Certificate of Incorporation, as amended, authorizes the Company
to issue 100,000,000 shares of $0.001 par value Common Stock.
On March 5, 1999, the Company sold 701,755 shares of Common Stock to a third
party for $14.25 per share.
Certain Common Stock option holders have the right to exercise unvested options,
subject to a repurchase right held by the Company, in the event of voluntary or
involuntary termination of employment of the stockholder. As of March 31, 1999,
approximately 1,780,477 shares of outstanding Common Stock were subject to
repurchase by the Company at the original exercise price. Of the 1,780,477
shares of unvested restricted Common Stock repurchaseable, 1,722,144 are
available for reissuance under the 1997 Stock Option Plan.
At March 31, 1999, the Company had reserved shares of Common Stock for future
issuance as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Conversion of Series A Preferred Stock and warrants......... 4,030
Conversion of Series B Preferred Stock and warrants......... 2,461
Conversion of Series C Preferred Stock...................... 1,389
Conversion of Series D Preferred Stock and options.......... 865
Conversion of Series E Preferred Stock...................... 1,796
Exercise of options under stock option plans................ 5,466
Undesignated................................................ 83,993
</TABLE>
F-21
<PAGE> 85
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- EMPLOYEE BENEFIT PLANS:
401(K) SAVINGS PLAN
The Company sponsors a 401(k) defined contribution plan covering eligible
employees who elect to participate. The Company may elect to contribute matching
and discretionary contributions to the plan; however, no contributions were made
by the Company since the inception of the plan.
STOCK OPTION PLANS
In July 1995 and April 1997, the Board of Directors adopted the 1995 Stock
Option Plan and 1997 Stock Option Plan, respectively, (collectively, the
"Plans") which provide for the issuance of incentive and nonstatutory stock
options to employees, officers, directors, and consultants of the Company. The
Company has reserved 9,810,000 shares of Common Stock for issuance under the
Plans. The share reserve will automatically be increased on the first day of
each fiscal year beginning on or after April 1, 2001 by an amount equal to 5% of
the number of shares of the Company's Common Stock which were issued and
outstanding on the last day of the preceding fiscal year.
Options under the Plans are generally for periods not to exceed ten years, and
must be issued at prices not less than 100% and 85%, for incentive and
nonstatutory stock options, respectively, of the estimated fair value of the
underlying shares of Common Stock on the date of grant as determined by the
Board of Directors. Options granted to stockholders who own greater than 10% of
the outstanding stock are for periods not to exceed five years, and must be
issued at prices not less than 110% of the estimated fair value of the
underlying shares of Common Stock on the date of grant. The plan provides for
grants of immediately exercisable options, however, the Company has the right to
repurchase any unvested Common Stock upon termination of employment at the
original exercise price. Options become exercisable at such times and under such
conditions as determined by the Board of Directors. Options generally vest over
four years. The Board of Directors has determined that no further options will
be granted under the 1995 Option Plan.
EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the Board of Directors adopted the 1999 Employee Stock Purchase
Plan (the "Purchase Plan"), subject to stockholder approval. There are 500,000
shares of Common Stock reserved for issuance under the Purchase Plan, none of
which has yet been issued. Employees generally will be eligible to participate
in the Purchase Plan if they are customarily employed by the Company for more
than 20 hours per week and more than five months in a fiscal year. Under the
Purchase Plan, eligible employees may select a rate of payroll deduction up to
15% of their compensation, but may not purchase more than 500 shares on any
purchase date or stock having a value measured at the beginning of the offering
period greater than $25,000 in any calendar year. The first Offering Period
commences on the date of the prospectus, will run for approximately 24 months
and will be divided into four consecutive purchase periods of approximately six
months. Offering Periods and Purchase Periods thereafter will begin on May 1 and
November 1 of each year. The price at which the Common Stock is purchased under
the Purchase Plan is 85% of the lower of the fair market value of the Company's
Common Stock on the first day of the applicable Offering Period or on the last
day of that Purchase Period.
F-22
<PAGE> 86
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes stock option activity under the Plans (shares in
thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE
FOR GRANT OPTIONS PRICE
--------- --------- --------
<S> <C> <C> <C>
Balance at March 31, 1996..................... 446 2,582 $0.10
Additional shares authorized.................. 210 -- --
Options granted............................... (536) 536 0.18
Options exercised............................. -- (1,882) 0.10
Options canceled.............................. 276 (276) 0.14
-------- --------
Balance at March 31, 1997..................... 396 960 0.14
Additional shares authorized.................. 2,262 -- --
Options granted............................... (2,564) 2,564 0.62
Repurchase of restricted Common Stock......... 202 -- 0.11
Options exercised............................. -- (1,957) 0.36
Options canceled.............................. 274 (274) 0.21
-------- --------
Balance at March 31, 1998..................... 570 1,293 0.74
Additional shares authorized.................. 4,310 -- --
Options granted............................... (2,458) 2,458 6.88
Repurchase of restricted Common Stock......... 310 -- 0.34
Options exercised............................. -- (1,017) 1.78
Options canceled.............................. 403 (403) 1.03
-------- --------
Balance at March 31, 1999..................... 3,135 2,331 6.71
======== ========
</TABLE>
The following table summarizes the information about stock options outstanding
and exercisable as of March 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND
------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10 - 1.25.................. 288 7.9 $0.50 143 $0.35
1.50 - 3.95.................. 536 8.9 3.46 9 1.79
4.00 - 4.75.................. 440 9.4 4.52 7 4.67
6.75 - 14.25.................. 1,067 9.8 10.92 41 7.84
----- ---
2,331 9.3 6.71 200 2.10
===== ===
</TABLE>
F-23
<PAGE> 87
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE DISCLOSURE
The Company calculated the minimum fair value of each option grant on the date
of grant using the Black-Scholes option pricing model as prescribed by SFAS No.
123 with the following underlying assumptions:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Stock option plans:
Dividend yield............................................ 0% 0% 0%
Expected volatility....................................... 0% 0% 0%
Average risk free interest rate........................... 5.87% 6.06% 4.57%
Expected life (in years).................................. 4 4 4
Weighted average fair value of options granted............ $0.05 $0.16 $1.66
</TABLE>
PRO FORMA NET LOSS
Had the Company recorded compensation based on the estimated grant date fair
value, as defined by SFAS No. 123, for awards granted under its Plans, the
Company's net loss would have been increased to the pro forma amounts below for
the fiscal years ended March 31, 1997, 1998 and 1999, respectively, (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss as reported................................. $(6,900) $(5,499) $(15,261)
Pro forma net loss................................... (6,914) (5,546) (16,207)
Net loss per share as reported....................... (3.19) (1.62) (3.41)
Pro forma net loss per share......................... (3.19) (1.64) (3.62)
</TABLE>
Because additional option grants are expected to be made each year, the above
pro forma disclosures are not representative of pro forma effects of option
grants on reported net income for future years.
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the year ended March 31,
1998, and 1999, the Company recorded unearned compensation cost totaling
$2,746,000 and $2,854,000, respectively, which is being recognized over the
vesting periods of the related options, usually four years.
During the period from April 1, 1999 through July 13, 1999, the Company granted
stock options to purchase an aggregate of 1,559,350 shares of Common Stock.
NOTE 9 -- RELATED PARTY TRANSACTIONS:
In exchange for the issuance of Common Stock upon the exercise of options in the
years ended March 31, 1998 and 1999, the Company received notes receivable from
certain employees of the Company which bear simple interest at various rates
ranging from 5.54% to 6.65% per annum. The notes, which are collateralized by
the underlying shares of Common Stock, are full recourse and mature on various
dates through fiscal 2002.
F-24
<PAGE> 88
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the offering of the Series B Mandatorily Redeemable
Convertible Preferred Stock, a founder exchanged 400,000 shares of Common Stock
for 400,000 shares of Series B Mandatorily Redeemable Convertible Preferred
Stock. The Company recognized the difference between the original issue price of
the Series B Mandatorily Redeemable Convertible Preferred Stock and the
estimated fair value of the shares of Common Stock on the date of exchange of
$864,000 as compensation expense for the year ended March 31, 1997.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
CAPITAL LEASES
In January 1996, the Company entered into a lease financing agreement that
provides for the lease of computers and office equipment up to $400,000,
collateralized by the underlying assets. Equipment financed under this agreement
is subject to repayment at various times through October 2000. At March 31,
1999, purchases of computers and office equipment under this agreement totaled
$395,000.
In September 1998, the Company entered into a lease financing agreement that
provides for the lease of office equipment of $136,000, collateralized by the
underlying assets. Equipment financed under this agreement is subject to
repayment through January 2003. At March 31, 1999, purchases of office equipment
under this agreement totaled $136,000.
In connection with the FirstFloor acquisition, the Company assumed an equipment
financing agreement entered into in March 1997 which provides for the lease of
office equipment of up to $360,000, in one or more leases. Each lease is
repayable over 36 months and is secured by a first priority security interest in
certain assets of the Company. At March 31, 1999, the fair value of office
equipment purchased under this agreement totaled $169,000.
OPERATING LEASES
The Company leases office space and equipment under certain noncancellable
operating leases expiring through the year 2004. Total rent expense was
$286,000, $580,000, and $1,141,000 for the years ended March 31, 1997, 1998 and
1999, respectively.
In August 1998, the Company relocated its corporate headquarters to a new leased
facility. As a result, the Company recorded a charge of approximately $660,000
for excess lease payments and losses on the disposal of certain fixed assets in
the quarter ended September 30, 1998.
LETTER OF CREDIT
At March 31, 1999, the Company maintained a $296,000 letter of credit to secure
the lease deposit on its corporate headquarters. The letter of credit expires on
October 31, 1999, and is included in other current assets.
F-25
<PAGE> 89
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum payments under noncancelable operating and capital leases at
March 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
MARCH 31, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000........................................................ $ 265 $1,129
2001........................................................ 122 374
2002........................................................ 34 52
2003........................................................ 31 7
2004........................................................ -- 5
----- ------
Total minimum lease obligations................... 452 $1,567
======
Less: Amount representing interest.......................... (19)
-----
Present value of minimum lease obligations.................. 433
Less: Current portion....................................... (256)
-----
Capital lease obligations, non-current...................... $ 177
=====
</TABLE>
CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the Company. In the opinion of management, based on consultation with
legal counsel, there are no pending claims for which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations of the Company.
NOTE 11 -- INFORMATION CONCERNING BUSINESS SEGMENTS:
The Company operates in one single industry segment. The Company does not have
separate operating segments for which discrete financial statements are
prepared. The Company's management makes operating decisions and assesses
performance primarily based upon product revenues and related gross margins.
The majority of the Company's sales to other foreign countries are originated in
the United States and therefore represent export sales. The following is a
breakdown of revenues by shipment destination for the years ended March 31,
1997, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
United States.......................................... $5,903 $11,827 $20,108
Other foreign countries................................ -- 32 1,305
------ ------- -------
$5,903 $11,859 $21,413
====== ======= =======
</TABLE>
NOTE 12 -- SUBSEQUENT EVENTS:
INITIAL PUBLIC OFFERING
In July 1999, the Company's Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit the
Company to sell shares of its Common Stock to the public.
F-26
<PAGE> 90
CALICO COMMERCE, INC.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
The Company completed the acquisition of all outstanding capital stock of
FirstFloor Software, Inc. ("FirstFloor") on August 21, 1998. The transaction was
completed pursuant to the Agreement and Plan of Reorganization, dated as of June
23, 1998 among the Company, Calico Acquisition Corporation, FirstFloor and
certain stockholders of the Company and certain shareholders of FirstFloor. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of FirstFloor have been
included in the Company's consolidated financial statements since the
acquisition date.
The purchase consideration included 832,297 shares of Series D Mandatorily
Redeemable Convertible Preferred Stock, valued at $6.837 per share based on the
value of the Series E Mandatorily Redeemable Convertible Preferred Stock which
were sold to third party investors shortly after the acquisition, at
approximately $5,690,000. In addition, all of the outstanding options granted
under the FirstFloor 1993 Stock Option Plan were converted into options to
purchase 31,474 shares of the Company's Series D Mandatorily Redeemable
Convertible Preferred Stock. The Black-Scholes option pricing model was used to
determine the fair value of the converted options. The fair value, of
approximately $122,000, was included as a component of the purchase price. The
Company also incurred approximately $250,000 in acquisition expenses.
The total purchase price of $6.1 million was allocated to assets acquired,
including tangible and intangible assets, and liabilities assumed, based on
their respective estimated fair values at the acquisition date. The estimate of
fair value of the net assets acquired is based on an independent appraisal and
management estimates.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets............................... $ 360
Fair value of existing products and core technology......... 1,547
Acquired in-process research and development................ 1,840
Goodwill.................................................... 4,266
Fair value of liabilities assumed........................... (1,951)
-------
$ 6,062
=======
</TABLE>
The acquisition has been structured as a tax-free exchange of stock, therefore,
the differences between the recognized fair values of required assets, including
tangible and intangible assets, and their historical tax bases are not
deductible for tax purposes.
The following unaudited pro forma consolidated statement of operations gives
effect to this acquisition as if it had occurred as of April 1, 1998, by
consolidating the results of operations of FirstFloor with the operations of
Calico.
The unaudited pro forma consolidated statement of operations is not necessarily
indicative of the operating results that would have been achieved had the
transaction been in effect as of the beginning of the period presented and
should not be construed as being a representation of future operating results.
The historical consolidated financial statements for the Company and FirstFloor
are included elsewhere in this prospectus and the unaudited pro forma
consolidated financial information presented herein should be read in
conjunction with those consolidated financial statements and related notes.
F-27
<PAGE> 91
CALICO COMMERCE, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
------------------------------------------------------
CALICO FIRSTFLOOR ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
License............................... $ 10,482 $ 283 $ (21)(A) $ 10,744
Services.............................. 10,931 150 (88)(A) 10,993
-------- ------- ------- --------
Net revenues.................. 21,413 433 (109) 21,737
Cost of net revenues
Licenses.............................. 1,179 3 196(A)(B) 1,378
Services.............................. 7,272 295 (88)(A) 7,479
-------- ------- ------- --------
Cost of net revenues.......... 8,451 298 108 8,857
-------- ------- ------- --------
Gross profit............................ 12,962 135 (217) 12,880
Operating expenses:
Sales and marketing................... 14,138 574 -- 14,712
Research and development.............. 5,677 774 -- 6,451
General and administrative............ 3,988 1,058 -- 5,046
Stock compensation.................... 2,007 -- -- 2,007
Acquired in-process research and
development........................ 1,840 -- (1,840)(C) --
Amortization of goodwill.............. 550 -- 401(B) 951
-------- ------- ------- --------
Total operating expenses...... 28,200 2,406 (1,439) 29,167
-------- ------- ------- --------
Loss from operations.................... (15,238) (2,271) 1,222 (16,287)
Interest and other income, net.......... (23) 5 -- (18)
-------- ------- ------- --------
Net loss................................ $(15,261) $(2,266) $ 1,222 $(16,305)
======== ======= ======= ========
Pro forma net loss per share(D):
Basic and diluted............................................................ $ (1.18)
========
Weighted average shares...................................................... 13,793
========
</TABLE>
See accompanying notes to Pro Forma Combined Consolidated Financial Information
F-28
<PAGE> 92
CALICO COMMERCE, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited pro forma combined consolidated statement of operations has been
prepared to reflect the acquisition of FirstFloor Software, Inc. by Calico as if
the acquisition had occurred as of April 1, 1998. The pro forma combined
consolidated statement of operations for the year ended March 31, 1999 reflects
the combination of the separate historical statement of operations of Calico for
the year ended March 31, 1999, which include the results of FirstFloor
subsequent to its acquisition, and of FirstFloor for the period from April 1,
1998 through the date of acquisition. Revenues of approximately $329,000 and net
loss of approximately $1.4 million of FirstFloor for the period of January 1,
1998 through March 31, 1998 are not included in the pro forma combined
consolidated statement of operations.
NOTE 2 -- PRO FORMA ADJUSTMENTS:
The following adjustments were applied to the historical statements of
operations to arrive at the pro forma combined consolidated statement of
operations:
(A) Reflects the elimination of license revenues recognized by
FirstFloor related to royalty payments paid by Calico to FirstFloor for
sub-licensing of FirstFloor's products, prior to the Company's acquisition
of FirstFloor. Additionally, the related cost of license revenues
recognized by Calico has been eliminated.
(B) Reflects the amortization expense related to existing products and
core technology and goodwill acquired in the acquisition for the period
April 1, 1998 through the date of acquisition.
(C) The in-process research and development charge related to the
acquisition has been reflected in the historical statements of operations
on the date upon which the acquisition was consummated. The pro forma
combined consolidated statement of operations excludes the nonrecurring
charge for acquired in-process research and development totaling $1.8
million.
(D) Pro forma basic net loss per share for the year ended March 31,
1999 is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of
the Company's Series A, Series B, Series C and Series E Mandatorily
Redeemable Convertible Preferred Stock into shares of the Company's Common
Stock effective upon the closing of the Company's initial public offering
as if such conversion occurred on April 1, 1998, or at date of original
issuance, if later. The shares of Series D Mandatorily Redeemable
Convertible Preferred Stock, issued as consideration for the acquisition,
are assumed to be converted into the Company's Common Stock under the
automatic conversion feature and outstanding as of April 1, 1998.
Pro forma diluted net loss per share excludes potential shares of
Common Stock, consisting of options and warrants, as their effect would be
antidilutive.
F-29
<PAGE> 93
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
FirstFloor Software, Inc.
We have audited the accompanying balance sheets of FirstFloor Software, Inc.
(the "Company") as of December 31, 1996 and 1997 and the related statements of
operations, shareholders' equity (net capital deficiency) and cash flows for 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 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 FirstFloor Software, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring losses from operations. This raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans as to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability or classification of assets or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Palo Alto, California
April 10, 1998
F-30
<PAGE> 94
FIRSTFLOOR SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 4,883,027 $ 2,119,784
Short-term investments.................................... 1,987,171 --
Accounts receivable....................................... 99,628 78,233
Prepaid expenses and other current assets................. 44,366 48,163
----------- ------------
Total current assets................................... 7,014,192 2,246,180
Property and equipment, net................................. 257,812 311,201
Other assets................................................ 15,956 18,554
----------- ------------
$ 7,287,960 $ 2,575,935
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.......................................... $ 87,357 $ 66,135
Accrued compensation and related liabilities.............. 108,012 110,588
Accrued royalties......................................... 55,470 --
Other accrued liabilities................................. 96,559 145,416
Current portion of deferred revenue....................... 320,699 219,901
Current portion of capital leases......................... -- 79,431
----------- ------------
Total current liabilities.............................. 668,097 621,471
Deferred revenue............................................ 229,163 --
Noncurrent portion of capital leases........................ -- 172,545
Commitments
SHAREHOLDERS' EQUITY:
Convertible preferred stock, no par value, 15,000,000 shares
authorized, issuable in series:
Series A, 750,000 shares designated, issued and
outstanding; aggregate liquidation preference of
$750,000............................................... 740,493 740,493
Series B, 1,794,117 shares designated, issued and
outstanding; aggregate liquidation preference of
$3,050,000............................................. 3,033,754 3,033,754
Series C, 3,000,000 shares designated, issued and
outstanding; aggregate liquidation preference of
$1,500,000............................................. 1,490,985 1,490,985
Series D, 4,000,000 shares designated, 3,588,898 and
3,567,143 shares issued and outstanding in 1997 and
1996, respectively; aggregate liquidation preference of
$10,228,359............................................ 9,647,105 9,709,107
Common stock, no par value, 30,000,000 shares authorized,
3,254,904 and 3,055,481 shares issued and outstanding
in 1997 and 1996, respectively......................... 196,080 256,909
Accumulated deficit....................................... (8,717,717) (13,449,329)
----------- ------------
Total shareholders' equity........................ 6,390,700 1,781,919
----------- ------------
$ 7,287,960 $ 2,575,935
=========== ============
</TABLE>
See accompanying notes.
F-31
<PAGE> 95
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
License and product............ $ 2,251,311 $ 1,581,577 $ 906,644 $ 517,791
Contract and service........... 205,000 158,655 79,790 184,139
----------- ----------- ----------- -----------
Total revenue............... 2,456,311 1,740,232 986,434 701,930
Costs and expenses:
Royalties...................... 257,764 -- -- --
Research and development....... 2,311,178 2,895,805 1,324,550 1,575,250
Marketing and sales............ 2,471,827 2,634,378 1,344,678 1,166,648
General and administrative..... 966,368 1,191,809 561,497 636,095
----------- ----------- ----------- -----------
Total costs and expenses.... 6,007,137 6,721,992 3,230,725 3,377,993
----------- ----------- ----------- -----------
Loss from operations............. (3,550,826) (4,981,760) (2,244,291) (2,676,063)
Interest income, net............. 114,929 250,148 158,948 17,777
----------- ----------- ----------- -----------
Net loss......................... $(3,435,897) $(4,731,612) $(2,085,343) $(2,658,286)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-32
<PAGE> 96
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------ ---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- -------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995...................... 750,000 $740,493 1,794,117 $3,033,754 3,000,000 $1,490,985 -- $ --
Issuance of Series D
convertible preferred
stock for cash and
conversion of notes
payable and accrued
interest, net of issuance
costs of $519,252......... -- -- -- -- -- -- 3,567,143 9,647,105
Issuance of common stock for
the exercise of stock
options................... -- -- -- -- -- -- -- --
Repurchase of unvested
shares.................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at December 31,
1996...................... 750,000 740,493 1,794,117 3,033,754 3,000,000 1,490,985 3,567,143 9,647,105
Issuance of Series D
convertible preferred
stock to consultants for
services rendered......... -- -- -- -- -- -- 21,755 62,002
Issuance of common stock for
the exercise of stock
options................... -- -- -- -- -- -- -- --
Repurchase of unvested
shares.................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at December 31,
1997...................... 750,000 $740,493 1,794,117 $3,033,754 3,000,000 $1,490,985 3,588,898 $9,709,107
======= ======== ========= ========== ========= ========== ========= ==========
<CAPTION>
TOTAL
SHAREHOLDERS'
COMMON STOCK EQUITY
-------------------- ACCUMULATED (NET CAPITAL
SHARES AMOUNT DEFICIT DEFICIENCY)
--------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1995...................... 1,298,642 $ 14,242 $ (5,281,820) $ (2,346)
Issuance of Series D
convertible preferred
stock for cash and
conversion of notes
payable and accrued
interest, net of issuance
costs of $519,252......... -- -- -- 9,647,105
Issuance of common stock for
the exercise of stock
options................... 1,926,503 206,930 -- 206,930
Repurchase of unvested
shares.................... (169,664) (25,092) -- (25,092)
Net loss.................... -- -- (3,435,897) (3,435,897)
--------- -------- ------------ -----------
Balance at December 31,
1996...................... 3,055,481 196,080 (8,717,717) 6,390,700
Issuance of Series D
convertible preferred
stock to consultants for
services rendered......... -- -- -- 62,002
Issuance of common stock for
the exercise of stock
options................... 216,561 63,203 -- 63,203
Repurchase of unvested
shares.................... (17,138) (2,374) (2,374)
Net loss.................... -- -- (4,731,612) (4,731,612)
--------- -------- ------------ -----------
Balance at December 31,
1997...................... 3,254,904 $256,909 $(13,449,329) $ 1,781,919
========= ======== ============ ===========
</TABLE>
See accompanying notes.
F-33
<PAGE> 97
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................. $(3,435,897) $(4,731,612) $(2,085,343) $(2,658,286)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 137,245 182,008 105,644 88,919
Issuance of Series D preferred
stock to consultants for
services rendered............... -- 62,002 -- --
(Gain) loss on disposal of capital
equipment....................... 21,214 (5,865) 8,205 --
Accrued interest on convertible
notes payable converted to
preferred stock................. 20,938 -- -- --
Changes in assets and liabilities:
Accounts receivable................ 285,926 21,395 94,628 (223,680)
Prepaid expenses and other current
assets.......................... (15,713) (3,797) (20,804) 24,318
Other assets....................... (6,081) (2,598) (59,857) (12,482)
Accounts payable................... 9,067 (21,222) (57,951) (4,067)
Accrued compensation and related
liabilities..................... 78,828 2,576 98,113 4,590
Accrued royalties.................. 5,470 (55,470) (55,470) --
Other accrued liabilities.......... 28,393 48,857 112,351 (62,490)
Deferred revenue................... (74,537) (329,961) 173,518 375,079
----------- ----------- ----------- -----------
Net cash used in operating
activities......................... (2,945,147) (4,833,687) (1,686,966) (2,468,099)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Sales (purchases) of short-term
investments........................ (1,987,171) 1,987,171 (19,716) --
Capital expenditures................. (239,616) (27,961) (165,523) (119,123)
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities............... (2,226,787) 1,959,210 (185,239) (119,123)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Payments under capital lease
obligations........................ -- (42,703) 183,167 (39,752)
Proceeds from issuance of convertible
notes payable...................... 2,000,000 -- -- 1,150,000
Net proceeds from issuance of
preferred stock.................... 7,626,167 -- -- --
Proceeds from issuance of common
stock, net of repurchases.......... 181,838 60,829 4,261 10,092
Proceeds from sale of capital
equipment.......................... -- 93,108 -- --
----------- ----------- ----------- -----------
</TABLE>
F-34
<PAGE> 98
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by financing
activities......................... 9,808,005 111,234 187,428 1,120,340
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... 4,636,071 (2,763,243) (1,684,777) (1,466,882)
Cash and cash equivalents at
beginning of period................ 246,956 4,883,027 4,883,027 2,119,783
----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period............................. $ 4,883,027 $ 2,119,784 $ 3,198,250 $ 652,901
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Equipment acquired under capital
leases............................. $ -- $ 201,571 $ 17,262 $ 93,107
=========== =========== =========== ===========
Conversion of notes payable to
preferred stock.................... $ 2,000,000 $ -- $ -- $ --
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest............... $ -- $ 18,236 $ 5,605 $ 15,079
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-35
<PAGE> 99
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
FirstFloor Software, Inc. (the "Company"), formerly FirstFloor, Inc., was
incorporated in the state of California on October 19, 1992. The Company
develops and markets interactive marketing systems for business-to-business
communications.
At December 31, 1997, the Company has recorded cumulative operating losses of
$13,449,329 including losses of $4,731,612 and $3,435,897 for the years ended
December 31, 1997 and 1996, respectively. The Company will need to obtain
additional funds from existing or new investors to continue building production,
sales and marketing capabilities, continue its research and development
activities and fund operating expenses, as necessary. Management believes that
it will be able to obtain additional funds through equity or debt financing. If
adequate funds are not available, the Company may be required to reduce its
level of spending, eliminate one of more of its research and development
programs or obtain funds through arrangements with corporate partners or others
which may require the Company to relinquish certain rights of its technologies
or product candidates.
INTERIM FINANCIAL DATA
The accompanying interim financial statements for the six months ended June 30,
1997 and 1998 are unaudited. In the opinion of management, the unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the results of the Company's
operations for the six months ended June 30, 1997 and 1998.
The results of operations for the six months ended June 30, 1997 and 1998 are
not necessarily indicative of results to be expected for the full fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts reported in the financial statements as of December 31, 1996
have been reclassified to conform with the presentation adopted by the Company
to report its 1997 financial results.
CUSTOMER CONCENTRATION
A limited number of customers historically have accounted for a substantial
portion of the Company's revenues. Sales of the Company's products and contracts
for its technology will vary as a result of fluctuations in market demand for
such products and technology. Further, the markets in which the Company competes
are characterized by rapid technological change and increased competition.
F-36
<PAGE> 100
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER CONCENTRATION (CONTINUED)
Revenues from customers representing 10% or more of total revenue during fiscal
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Customer:
A........................................................ 48% 46%
B........................................................ 24 17
C........................................................ 6 11
D........................................................ 0 11
E........................................................ 15 3
</TABLE>
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents and short-term
investments consist of money market funds, commercial paper, corporate notes,
and auction rate preferred stock. The fair market value, based on quoted market
prices of the cash equivalents and short-term investments, is substantially
equal to their carrying value at December 31, 1996 and 1997.
Under FAS 115, management classifies investments as available-for-sale at the
time of purchase and periodically reevaluates such designation. Debt securities
are classified as available-for-sale and are reported at fair value.
Unrecognized gains or losses on available-for-sale securities are included, net
of tax, in shareholders' equity until their disposition. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income. The cost of
securities sold is based on specific identification.
All cash equivalents and short-term investments are classified as
available-for-sale securities and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Cash and cash equivalents:
Bank and money market funds..................... $ 350,430 $2,119,784
Commercial paper................................ 2,494,447 --
Corporate notes/bonds........................... 2,038,150 --
---------- ----------
Total................................... $4,883,027 $2,119,784
========== ==========
Short-term investments:
Commercial paper................................ $ 987,004 $ --
Auction rate preferred stock.................... 1,000,167 --
---------- ----------
Total................................... $1,987,171 $ --
========== ==========
</TABLE>
Unrealized holding gains and losses on available-for-sale securities at December
31, 1996 and 1997 and gross realized gains and losses on sales of
available-for-sale securities during the year ended December 31, 1996 and 1997
were immaterial.
F-37
<PAGE> 101
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Computer equipment and software.................... $ 405,235 $ 627,380
Furniture and fixtures............................. 37,793 37,793
Leasehold improvements............................. 51,555 51,555
--------- ---------
494,583 716,728
Less accumulated depreciation and amortization..... (236,771) (405,527)
--------- ---------
$ 257,812 $ 311,201
========= =========
</TABLE>
Depreciation is provided using the straight line method over the shorter of the
estimated useful lives or lease term of the respective assets, generally three
years. Property and equipment financed under a capital lease were $294,679 at
December 31, 1997. There were no capital leases at December 31, 1996.
Accumulated amortization related to leased assets was $59,906 at December 31,
1997. Amortization related to capital leases is included in depreciation
expense.
CONCENTRATION OF CREDIT RISK
The Company's concentration of credit risk consists principally of cash, cash
equivalents, short-term investments, and receivables. The Company's investment
policy restricts investments to high-credit quality investments and limits the
amounts invested with any one issuer. The Company sells primarily to original
equipment manufacturers in the United States, performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company has elected to account for employee stock
options in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25) and to adopt the
"disclosure only" alternative described in FAS 123.
REVENUE RECOGNITION
License fees for the Company's products are generally recognized ratably over
the initial or subsequent renewal periods as unspecified future deliverables,
including product enhancements and new products, are included in such license
agreements. For transactions that do not involve such unspecified future
deliverables, product revenues are recognized at the time of shipment of the
products and fulfillment of acceptance terms, if any, and when no significant
contractual obligations remain outstanding and collection of the resulting
receivable is deemed probable.
Contracts involving custom software development are accounted for using the
percentage-of-completion method. Revenues from services are recognized when the
services are performed. Maintenance contract revenue is recognized ratably over
the term of the maintenance contract.
F-38
<PAGE> 102
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
Amounts received in advance of satisfying revenue recognition criteria are
classified as deferred revenue in the accompanying balance sheets.
RESEARCH AND DEVELOPMENT
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such cost to research and development expenses in the accompanying
statements of operations.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $155,000 and $195,000 in advertising costs during 1996 and 1997,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the American Institute of Certified Public Accountants issued Statement
of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by
Statement of Position 98-4 ("SOP 98-4," collectively the "SOPs"). The SOPs
supersede SOP 91-1 and are effective for transactions entered into for fiscal
years beginning after December 15, 1997. Based upon its reading and
interpretation of the SOPs, the Company believes its current revenue recognition
policies and practices are materially consistent with the SOPs. However,
implementation guidelines for this standard have not yet been issued. Once
available, such implementation guidance could lead to changes in the Company's
current revenue accounting practices.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes rules for
reporting and displaying comprehensive income and is effective for the Company
during 1998. The Company does not believe that the adoption of SFAS 130 will
have a material impact on the Company's results of operations, cash flows or
financial position.
2. COMMITMENTS
CAPITAL LEASE
In March 1997, the Company entered into an Equipment Financing Agreement which
allows the Company to lease up to $360,000 of equipment, in one or more leases.
Each lease is repayable over 36 months and is secured by a first priority
security interest in certain assets of the Company. At December 31, 1997, the
Company has borrowed $294,679 against this financing agreement. In connection
with the equipment financing agreement the Company issued a warrant to the
financing company (see Note 3).
F-39
<PAGE> 103
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COMMITMENTS (CONTINUED)
OPERATING LEASES
The Company leases its corporate offices under operating lease agreements that
expire in 2000. In February 1998, the Company renegotiated and amended certain
of these agreements. The result of these amended agreements is reflected in the
following table.
CAPITAL AND OPERATING LEASES
Future minimum lease payments under capital leases and operating leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
YEARS ENDING DECEMBER 31,
1998.................................................. $106,656 $253,840
1999.................................................. 106,656 365,327
2000.................................................. 85,281 278,816
2001.................................................. 833 --
-------- --------
Total minimum lease and principal payments,
respectively.............................. 299,426 $897,983
========
Amount representing interest.......................... 47,450
--------
Present value of future lease payments................ 251,976
Current portion of capital lease obligations.......... 79,431
--------
Noncurrent portion of capital lease obligations....... $172,545
========
</TABLE>
Rent expense was approximately $122,000 and $157,000 for 1996 and 1997,
respectively.
3. CONVERTIBLE PROMISSORY NOTES AND WARRANTS
During 1996, the Company issued $2,000,000 in convertible promissory notes. The
notes bore interest at a rate of 6% per annum, compounded annually, and all
principal and accrued interest were due and payable on September 30, 1996 unless
earlier converted. Upon closing of the Series D convertible preferred stock
offering in August 1996, $2,020,938 of principal and related accrued but unpaid
interest were converted into approximately 709,100 shares of Series D
convertible preferred stock. In connection with the issuance of these
convertible notes payable, the Company issued warrants to purchase 42,094 shares
of Series D convertible preferred stock at an exercise price of $2.85 per share.
The warrants are exercisable through April 30, 1999.
In connection with an equipment financing agreement, the Company issued a
warrant to a financing company which permits the purchase of up to 6,300 shares
of Series D preferred stock at a price per share of $2.85. The warrant was
issued in March 1997 and expires in March 2002.
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
CONVERTIBLE PREFERRED STOCK
Series A, B, C, and D preferred stock have a liquidation preference of $1.00,
$1.70, $0.50, and $2.85 per share, respectively, plus all declared but unpaid
dividends. Series A, B, C, and D preferred shareholders are entitled to
noncumulative dividends at the rate of $0.08, $0.14, $0.04, and $0.23 per share,
per annum, respectively, payable quarterly when and if declared by the board of
directors and in preference to common stock dividends. No dividends have been
declared or paid by the Company.
F-40
<PAGE> 104
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
CONVERTIBLE PREFERRED STOCK (CONTINUED)
The holders of each share of Series A, B, C, and D preferred stock are entitled
to one vote for each share of common stock into which such share may be
converted. The holders of Series A, B, C, and D preferred stock have the right,
at the option of the holder, at any time to convert their shares into common
stock at a price of approximately $0.793, $1.203, $0.50, and $2.85 per share,
subject to adjustments for future dilution. Series A, B, C, and D preferred
stock automatically convert into common stock, at the then applicable conversion
rate, upon a public offering of the Company's common stock at a per share price
of not less than $6.00, with aggregate proceeds in excess of $5,000,000 or upon
the consent of the holders of a majority of the then outstanding shares of
preferred stock. The conversion rate of the Series A, B, C, and D preferred
stock is subject to adjustment in the event of, among other things, certain
dilutive issuances of stock, business combinations, stock splits, and stock
dividends.
COMMON STOCK
In December 1992, 1,333,333 shares of common stock were issued to the Company's
founders at $0.0075 per share. Thereafter, 80,000 shares were returned to the
Company without consideration. The outstanding shares are subject to certain
transfer restrictions. Certain of these shares are subject to repurchase at the
issuance price upon the occurrence of certain events, including termination of
employment. The Company's right of repurchase expires ratably over five and
one-half years. At December 31, 1997, 94,949 shares remain subject to
repurchase.
SHARES RESERVED
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Stock option plan:
Outstanding................................................. 1,087,764
Available for grant......................................... 154,118
----------
1,241,882
Common stock warrants....................................... 48,394
Conversion of preferred stock............................... 10,068,774
Authorized but unissued preferred stock..................... 5,866,985
----------
Total common stock reserved for future issuances............ 17,226,035
==========
</TABLE>
1993 STOCK OPTION/STOCK ISSUANCE PLAN
The Company has elected to follow APB Opinion No. 25 and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
In July 1993, the board of directors adopted the 1993 Stock Option/Stock
Issuance Plan (the "Plan").
F-41
<PAGE> 105
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
1993 STOCK OPTION/STOCK ISSUANCE PLAN (CONTINUED)
The Plan provides for the direct issuance of common stock and grants of both
incentive and nonqualified stock options to eligible participants. The Plan
provides that direct issuances of stock and grants of incentive stock options
will be made at no less than the fair value of the Company's common stock (no
less than 85% of the fair value for nonqualified stock options), as determined
by the board of directors at the date of the issuance or grant. If, at the time
the Company issues stock or grants an option, the holder owns more than 10% of
the total combined voting power of all the classes of stock of the Company, the
stock or option price shall be at least 110% of the fair value. Options are
exercisable upon grant. No option shall have a term in excess of ten years from
the grant date (five years in the case of an option granted to a 10%
shareholder). Stock issued under the Plan may be, as determined by the board of
directors, subject to repurchase by the Company. This right to repurchase
generally lapses over four years from the original date of issuance or grant.
Activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
SHARES WEIGHTED
AVAILABLE FOR NUMBER OF AVERAGE
GRANT SHARES EXERCISE PRICE
------------- ---------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995.................. 101,480 1,376,968 $0.08
Additional shares authorized................ 1,906,498 -- --
Options granted............................. (1,675,684) 1,675,684 0.20
Options exercised........................... -- (1,926,503) 0.11
Options canceled............................ 276,366 (276,366) 0.12
---------- ----------
Balance at December 31, 1996.................. 608,660 849,783 0.24
Options granted............................. (631,409) 631,409 0.30
Options exercised........................... -- (216,561) 0.29
Options canceled............................ 176,867 (176,867) 0.24
---------- ----------
Balance at December 31, 1997.................. 154,118 1,087,764 0.27
========== ==========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
RANGE OF OF REMAINING AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE
--------------- --------- ---------------- ---------------
<S> <C> <C> <C>
$0.05 - $0.05.............................. 61,041 7.56 $0.05
$0.15 - $0.15.............................. 32,500 8.52 0.15
$0.17 - $0.17.............................. 114,375 6.58 0.19
$0.30 - $0.30.............................. 879,848 9.17 0.30
---------
Total................................. 1,087,764 8.79 0.27
=========
</TABLE>
F-42
<PAGE> 106
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
1993 STOCK OPTION/STOCK ISSUANCE PLAN (CONTINUED)
The weighted average fair value of options granted in 1996 and 1997 was $0.04
and $0.05, respectively.
During 1997, the Company repurchased 17,138 shares previously exercised under
the Plan. At December 31, 1997, 702,302 shares remain subject to repurchase.
Pro forma information regarding net loss is required by FAS 123 which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair value method. For all grants subsequent to December 31, 1994, the fair
value of these options was determined using the minimum value method with the
following weighted-average assumptions for 1995, 1996 and 1997, respectively:
risk-free interest rates of 6.04%, 6.29% and 6.17%, no dividend yield, no
volatility factors of the expected market price of the Company's common stock,
and expected life of the options of 4, 3.5 and 3.4 years for 1995, 1996 and
1997, respectively.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The effect of
determination of the compensation expense was immaterial to the Company's
statement of operations for the years ended December 31, 1997, 1996 and 1995.
Because FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until 1999.
5. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $13,100,000. The Company also had federal
research and development tax credit carryforwards of approximately $300,000. The
net operating loss and credit carryforwards will expire at various dates
beginning in 2008 through 2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986 and similar state provisions. The annual limitation may result in
the expiration of net operating losses and credits before utilization.
As of December 31, 1996 and 1997, the Company had deferred tax assets of
approximately $3,500,000 and $5,500,000, respectively. The net deferred tax
asset has been fully offset by a valuation allowance. The valuation allowance
increased by $1,449,000 during the year ended December 31, 1996. Deferred tax
assets relate primarily to net operating loss carryforwards, research credits,
and capitalized research and development costs.
6. YEAR 2000 ISSUE (UNAUDITED)
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to "00". The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. Management
does not
F-43
<PAGE> 107
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED)
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be Year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any Year 2000 compliance. Any Year 2000
compliance problems of either the Company or its vendors could adversely affect
the Company's business, results of operations, financial condition and
prospects.
7. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On August 21, 1998, the acquisition of the Company was completed pursuant to the
agreement and plan of reorganization with Calico Technology, Inc. ("Calico").
Under the terms of the agreement, shareholders of the Company exchanged all
outstanding common stock, preferred stock and common stock options for 832,297
shares of Calico Series D Mandatorily Redeemable Convertible Preferred Stock and
options to purchase 31,474 shares of Calico Series D Mandatorily Redeemable
Convertible Preferred Stock.
F-44
<PAGE> 108
UNDERWRITING
Calico and the Underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each Underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Hambrecht & Quist LLC are the
representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................................
Hambrecht & Quist LLC.......................................
--------
Total.............................................
========
</TABLE>
If the Underwriters sell more shares than the total number set forth in
the table above, the Underwriters have an option to purchase up to an additional
shares from Calico to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the Underwriters by Calico. Such amounts are shown
assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Calico
---------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............ $ -- $ --
Total................ $ -- $ --
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the Underwriters to
other brokers or dealers at a discount of up to $ per share from the initial
public offering price. If all the shares are not sold at the initial offering
price, the representatives may change the offering price and the other selling
terms.
Calico has agreed with the Underwriters not to dispose of or hedge any of
its common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
any existing employee benefit plans. See "Shares Eligible for Future Sale" for a
discussion of restrictions on transfer of Calico's shares.
Prior to this offering, there has been no public market for the shares.
The initial public offering price has been negotiated between Calico and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Calico's historical performance, estimates of Calico's
business potential and earnings prospects, an assessment of Calico's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The common stock is expected to be quoted on the Nasdaq National Market
under the symbol "CLIC".
U-1
<PAGE> 109
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At our request, the Underwriters have reserved up to shares
of common stock for sale, at the initial public offering price, to directors,
officers, employees and friends through a directed share program. The number of
shares of common stock available for sale to the general public in the public
offering will be reduced to the extent these persons purchase these reserved
shares.
Calico estimates that its share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Calico has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
In September 1998, an entity affiliated with Merrill Lynch, Pierce, Fenner
& Smith Incorporated purchased 146,263 shares of Calico's preferred stock at a
purchase price of $6.837 per share, for an aggregate amount of approximately
$1,000,000. These shares will convert into 146,263 shares of common stock upon
the completion of this offering.
In September 1998, certain entities and persons affiliated with Hambrecht
& Quist LLC purchased an aggregate of 92,219 shares of Calico's preferred stock
at a purchase price of $6.837 per share, for an aggregate amount of
approximately $630,000. These shares will convert into 92,219 shares of common
stock upon the completion of this offering.
U-2
<PAGE> 110
- ----------------------------------------------------------
- ----------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 5
Special Note Regarding Forward-Looking
Statements............................. 18
Use of Proceeds.......................... 19
Dividend Policy.......................... 19
Capitalization........................... 20
Dilution................................. 21
Selected Consolidated Financial Data..... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 23
Business................................. 34
Management............................... 45
Transactions with Related Parties and
Insiders............................... 54
Principal Stockholders................... 56
Description of Capital Stock............. 58
Shares Eligible for Future Sale.......... 61
Legal Matters............................ 62
Experts.................................. 62
Where You Can Find More Information...... 63
Index to Financial Statements............ F-1
Underwriting............................. U-1
</TABLE>
-------------------------
Through and including , 1999, (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
Shares
CALICO COMMERCE, INC.
Common Stock
-------------------------
[CALICO LOGO]
-------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
Representatives of the Underwriters
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by Calico, other than the
underwriting discounts and commissions payable by Calico in connection with the
sale of the common stock being registered. All amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee........................................ $15,985
NASD filing fee............................................. 5,500
Nasdaq National Market Listing Fee.......................... *
Blue sky qualification fees and expenses.................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Director and Officer liability insurance.................... *
Transfer agent and registrar fees........................... *
Miscellaneous expenses...................................... *
-------
Total.................................................. $ *
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification of
officers, directors and other corporate agents under certain circumstances and
subject to certain limitations. Our certificate of incorporation and bylaws
provide that we shall indemnify our officers, directors, employees and agents to
the full extent permitted by the Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. In addition, we intend to enter into separate indemnification agreements
with our officers, directors and certain employees which would require us, among
other things, to indemnify them against certain liabilities which may arise by
reason of their status or service as directors, officers or employees. We also
intend to maintain director and officer liability insurance, if available on
reasonable terms.
These indemnification provisions and the indemnification agreements that we
intend to enter into with our officers and directors may be sufficiently broad
to permit indemnification of our officers and directors for liabilities,
including reimbursement of expenses incurred, arising under the Securities Act.
We intend to obtain in conjunction with the effectiveness of the registration
statement a policy of directors' and officers' liability insurance that insures
our directors and officers against the cost of defense, settlement or payment of
a judgment under certain circumstances.
The form of underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of Calico and our
officers and directors for certain liabilities arising under the Securities Act,
or otherwise.
II-1
<PAGE> 112
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, we have sold and issued the following unregistered
securities:
(a) On July 1, 1996, we issued and sold an aggregate of 120,000 shares of common
stock to 10 individuals at a price of $0.24 per share for an total offering
price of $28,800.
(b) On July 3, 1997, we issued to one of the founders, 25,000 shares of common
stock, valued at $0.24 per share, in exchange for services rendered to us.
(c) From July 21, 1995 to March 31, 1999, we granted options to purchase
7,500,387 shares of common stock pursuant to our 1997 Stock Option Plan and our
1995 Stock Option Plan at exercise prices ranging from $0.10 per share to $6.75
per share.
(d) On January 29, 1997, in connection with a loan agreement, we issued a
warrant to an equipment lender to purchase 23,333 shares of Series B Preferred
Stock at an exercise price of $2.40 per share and on June 2, 1997, in connection
with a revolving credit agreement, we issued a warrant to a bank to purchase
37,500 shares of Series B Preferred Stock at an exercise price of $2.40 per
share.
(e) On June 7, 1996, William Paseman, one of our founders, exchanged 2,900,000
shares of Common Stock, par value $0.001 for 400,000 shares of Series B
Preferred Stock, and 2,500,000 shares of common stock, par value $0.0001 per
share, and sold the 400,000 shares of Series B Preferred Stock to 2 private
investors.
(f) On June 7, 1996, we sold an aggregate of 2,000,000 shares of Series B
Preferred Stock to 8 private investors at a price of $2.40 per share for a total
offering price of $5,760,000.
(g) On July 23, 1997, we sold an aggregate of 1,388,889 shares of Series C
Preferred Stock to 8 private investors at a price of $3.60 per share for a total
offering price of $5,000,000.
(h) On August 21, 1998, in connection with an Agreement and Plan of
Reorganization dated as of June 23, 1998 between Calico and FirstFloor, certain
shareholders of Calico and certain shareholders of FirstFloor, we issued 832,297
shares of Series D Preferred Stock and options to acquire 31,494 shares of
Series D Preferred Stock, in exchange for all of the issued and outstanding
capital stock and options to purchase common stock of FirstFloor.
(i) From September 4, 1998 through September 23, 1998, we sold an aggregate of
1,791,725 shares of Series E Preferred Stock to 25 private investors at a price
of $6.837 per share for a total offering price of $12,250,023.
(j) On March 5, 1999, we sold an aggregate of 701,755 shares of common stock to
one investor at a price of $14.25 per share for a total purchase price of
$10,000,008.75.
There were no underwriters employed in connection with any of the transactions
set forth in Item 15.
The issuances of securities described in Items 15(a) and 15(d) through 15(g) and
15(i) through 15(j) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as transactions
by an issuer not involving a public offering. The issuance of securities
described in Item 15(h) was deemed to be exempt from registration under the
Securities Act in reliance on Section 3(a)(10) as a transaction involving a
security which is issued in exchange for a security where the terms and
conditions of such securities are approved after a hearing on the fairness of
such terms and conditions. The issuances of securities described in Items 15(b)
and 15(c) were deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) or Rule 701 promulgated thereunder as transactions
pursuant to compensatory benefit plans and contracts relating to compensation.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any
II-2
<PAGE> 113
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about us or had access, through employment
or other relationships, to this information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Agreement and Plan of Reorganization dated as of June 23,
1998 by and among Calico Technology, Inc., Calico
Acquisition Corporation, FirstFloor Software, Inc.,
Certain Shareholders of FirstFloor Software, Inc., and
Certain Shareholders of Calico Technology, Inc.
2.2* Form of Agreement and Plan of Merger between Calico
Technology, Inc., a California corporation, and Calico
Commerce, Inc., a Delaware corporation
3.1* Certificate of Incorporation
3.2* Bylaws
4.1* Form of Registrant's Specimen Common Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich
10.1 Sublease Agreement dated July 31, 1998 by and between Adobe
Systems Inc. and Calico Technology, Inc.
10.2* 1997 Stock Option Plan and forms of agreements thereunder
10.3 1995 Stock Option Plan and forms of agreements thereunder
10.4* 1999 Employee Stock Purchase Plan
10.5* Form of Indemnity Agreement for directors and officers
10.6 Investors' Rights Agreement, dated as of May 26, 1995, as
amended, among Calico Technology, Inc. William G. Paseman,
and the persons identified on the schedules attached
thereto
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5 of the Registration
Statement)
27.1 Financial Data Schedule (in EDGAR format only)
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the Underwriters at the closing specified
in the Underwriting Agreement certificates in the denominations and registered
in the names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions referenced in Item 14 of this registration statement or
otherwise, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the
II-3
<PAGE> 114
payment by us of expenses incurred or paid by our directors, officers or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by the director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our 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.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, County of Santa
Clara, State of California, on the 15th day of July 1999.
CALICO COMMERCE, INC.
By: /s/ ALAN P. NAUMANN
------------------------------
Alan P. Naumann
President and Chief Executive
Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Alan P. Naumann and Arthur F. Knapp, Jr.,
and each of them acting individually, as his true and lawful attorneys-in-fact
and agents, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments or any abbreviated registration statement
and any amendments thereto filed pursuant to Rule 462(b) increasing the number
of securities for which registration is sought), 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, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ALAN P. NAUMANN President, Chief Executive July 15, 1999
------------------------------------------------- Officer and Director
Alan P. Naumann (Principal Executive
Officer)
/s/ ARTHUR F. KNAPP, JR. Vice President and Chief July 15, 1999
------------------------------------------------- Financial Officer (Principal
Arthur F. Knapp, Jr. Financial and Accounting
Officer)
/s/ WILLIAM PASEMAN Chairman of the Board July 15, 1999
-------------------------------------------------
William Paseman
/s/ BERNARD J. LACROUTE Director July 15, 1999
-------------------------------------------------
Bernard J. Lacroute
/s/ WILLIAM D. UNGER Director July 15, 1999
-------------------------------------------------
William D. Unger
</TABLE>
II-5
<PAGE> 116
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Agreement and Plan of Reorganization dated as of June 23,
1998 by and among Calico Technology, Inc., Calico
Acquisition Corporation, FirstFloor Software, Inc.,
Certain Shareholders of FirstFloor Software, Inc., and
Certain Shareholders of Calico Technology, Inc.
2.2* Form of Agreement and Plan of Merger between Calico
Technology, Inc., a California corporation, and Calico
Commerce, Inc., a Delaware corporation
3.1* Certificate of Incorporation
3.2* Bylaws
4.1* Form of Registrant's Specimen Common Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich
10.1 Sublease Agreement dated July 31, 1998 by and between Adobe
Systems Inc. and Calico Technology, Inc.
10.2* 1997 Stock Option Plan and forms of agreements thereunder
10.3 1995 Stock Option Plan and forms of agreements thereunder
10.4* 1999 Employee Stock Purchase Plan
10.5* Form of Indemnity Agreement for directors and officers
10.6 Investors' Rights Agreement, dated as of May 26, 1995, as
amended, among Calico Technology, Inc. William G. Paseman,
and the persons identified on the schedules attached
thereto
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3* Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5 of the Registration
Statement)
27.1 Financial Data Schedule (in EDGAR format only)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 1.1
CALICO COMMERCE, INC.
COMMON STOCK, PAR VALUE $___ PER SHARE
--------------------------------------
UNDERWRITING AGREEMENT
______ __, 1999
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Hambrecht & Quist LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
2725 Sand Hill Road, Building D
Menlo Park, California 94025
Ladies and Gentlemen:
Calico Commerce, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
__________ shares (the "Firm Shares") and, at the election of the Underwriters,
up to __________ additional shares (the "Optional Shares") of Common Stock, par
value $____ per share ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-___) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the
<PAGE> 2
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as amended at
the time such part of the Initial Registration Statement became effective or
such part of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "Registration
Statement"; such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or long-term debt
of the Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid,
-2-
<PAGE> 3
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(f) The Company and each of its subsidiaries own or possess adequate
licenses or other rights to use all patents, patent rights, inventions, trade
secrets, copyright, trademarks, service marks, trade names, technology and
know-how currently employed or proposed to be employed by them in connection
with their business as described in the Prospectus; the Company is not obligated
to pay a royalty, grant a license, or provide other consideration to any third
party in connection with its patents, copyrights, trademarks, service marks,
trade names, technology or know-how other than as disclosed in the Prospectus,
and, except as disclosed in the Prospectus, neither the Company nor any of its
subsidiaries has received any notice of infringement or conflict with (and
neither the Company nor any of its subsidiaries knows of any infringement or
conflict with) rights of others with respect to any patents, patent rights,
inventions, trade secrets, copyrights, trademarks, service marks, tradenames,
technology or know-how which could result in any material adverse effect upon
the Company and its subsidiaries, taken as a whole; and, except as disclosed in
the Prospectus, the discoveries, inventions, products or processes of the
Company and its subsidiaries referred to in the Prospectus do not, to the best
knowledge of the Company or any of its subsidiaries, infringe or conflict with
any right or patent of any third party, or any discovery, invention, product or
process which is the subject of a patent application filed by any third party,
known to the Company or any of its subsidiaries which could have a material
adverse effect on the Company and its subsidiaries, taken as a whole; and no
third party, including any academic or governmental organization, possesses
rights to the Company's patents, copyrights, trademarks, service marks, trade
names, technology or know-how which, if exercised, could enable such third party
to develop products competitive to those of the Company or could have a material
adverse effect on the ability of the Company to conduct its business in the
manner described in the Prospectus;
(g) The Company and its subsidiaries possess all consents, licenses,
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a materially
adverse effect on or constitute a material adverse change, or constitute a
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(h) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(i) The execution and delivery of the Agreement and Plan of Merger
effective as of __________, 1999 (the "Merger Agreement") between Calico
Technology, Inc., a California
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<PAGE> 4
corporation (the "California Corporation"), and the Company, effecting the
reincorporation of the California Corporation under the laws of the State of
Delaware, was duly authorized by all necessary corporate action on the part of
each of the California Corporation and the Company; and each of the California
Corporation and the Company had all corporate power and authority to execute and
deliver the Merger Agreement, to file the Merger Agreement with the Secretary of
State of the State of California and the Secretary of State of the State of
Delaware and to consummate the reincorporation contemplated by the Merger
Agreement, and the Merger Agreement at the time of execution and filing
constituted a valid and binding obligation of each of the California Corporation
and the Company;
(j) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and (except for directors' qualifying shares) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or claims;
(k) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(l) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any of
their properties; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(m) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the performance
or observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(n) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
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<PAGE> 5
(o) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(p) Except for the Shares, all outstanding shares of Stock, and all
securities convertible into or exercisable or exchangeable for Stock, are
subject to valid and binding agreements (collectively, the "Lock-up Agreements")
that restrict the holders thereof from selling, making any short sale of,
granting any option for the purchase of, pledging, or otherwise transferring or
disposing of, any of such shares of Stock, or any such securities convertible
into or exercisable or exchangeable for Stock, for a period of 180 days after
the date of the Prospectus without the prior written consent of Goldman, Sachs &
Co.;
(q) The Company (i) to the extent the Company is required under any
of its equity incentive plans or any agreement affecting its capital stock
(collectively, the "Plans"), has notified each holder of any outstanding shares
of Stock and each holder of any securities convertible into or exercisable or
exchangeable for Sock issued under the Plans that pursuant to the terms of the
Plans, none of such options or shares may be sold or otherwise transferred or
disposed of for a period of 180 days after the date of the Prospectus and (ii)
has imposed a stop-transfer instruction with the Company's transfer agent in
order to enforce the foregoing lock-up provision imposed pursuant to the Plans;
(r) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(s) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
(t) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(u) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review, the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will have
a material adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries or result in any
material loss or interference with the Company's business or operations. The
"Year 2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data or
in the operation of mechanical or electrical systems of any kind will not, in
the case of dates or time
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<PAGE> 6
periods occurring after December 31, 1999, function at least as effectively as
in the case of dates or time periods occurring prior to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $__________, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to __________ Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ___ ___, 1999 or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York City
time, on the date specified by Goldman, Sachs & Co. in the written notice given
by Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the
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<PAGE> 7
Firm Shares is herein called the "First Time of Delivery", such time and date
for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
94304 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at the
Closing Location at 6:00 p.m., New York City time, on the New York Business Day
next preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to
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<PAGE> 8
make the statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for any
other reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your request
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the Shares
at any time nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare and deliver to
such Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its stockholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without
your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
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<PAGE> 9
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act;
(l) The Company will (i) enforce the terms of each Lock-up Agreement
(as defined in Section 1), (ii) issue stop-transfer instructions to the transfer
agent for the Stock with respect to any transaction or contemplated transaction
that would constitute a breach of or default under the applicable Lock-up
Agreement and (iii) upon written request of Goldman, Sachs & Co., release from
the Lock-up Agreements those shares of Stock held by those holders set forth in
such request. In addition, except with the prior written consent of Goldman,
Sachs & Co., the Company agrees (i) not to amend or terminate, or waive any
right under, any Lock-up Agreement, or take any other action that would directly
or indirectly have the same effect as an amendment or termination, or waiver of
any right under, any Lock-up Agreement, that would permit any holder of shares
of Stock, or any securities convertible into, or exercisable or exchangeable
for, Stock, to (x) offer, pledge, sell, offer to sell, contract to sell, sell
any option or contract to purchase, purchase any option to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, such shares of Stock or other securities, or (y) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of such shares of Stock or other securities,
and (ii) not to consent to any sale, short sale, grant of an option for the
purchase of, or other disposition or transfer of shares of Stock, or securities
convertible into or exercisable or exchangeable for Stock, subject to a Lock-up
Agreement; and
(m) The Company will place a restrictive legend on any shares of
Stock acquired pursuant to the exercise, after the date hereof and prior to the
expiration of the 180-day period after the date of the Prospectus, of any option
granted under the Plans, which legend shall restrict the transfer of such shares
prior to the expiration of such 180-day period. In addition, the Company agrees
that, without the prior written consent of Goldman, Sachs & Co., it will not
release any stockholder or option holder from the market standoff provision
agreed to between such stockholder or option holder and the Company (or, if
allowed, imposed by the Company) pursuant to the terms of the Plans earlier than
180 days after the date of the Prospectus.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
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<PAGE> 10
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
and (v) the filing fees incident to, and the fees and disbursements of counsel
for the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; and the Company will pay or will cause to be paid the following: (i) the
cost of preparing stock certificates; (ii) the cost and charges of any transfer
agent or registrar; and (iii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in this Section, and Sections 8 and 11 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters,
shall have furnished to you such written opinion or opinions (a draft of each
such opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii), (x), (xiv) and
(xvi) of subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Gray Cary Ware & Friedenrich LLP, counsel for the Company, shall
have furnished to you their written opinion (a draft of such opinion is attached
as Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery) have
been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock contained
in the Prospectus;
(iii) Except as set forth in the Prospectus, the Company does
not have outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any
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<PAGE> 11
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations;
(iv) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under the
laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification or is subject to no
material liability or disability by reason of failure to be so qualified in any
such jurisdiction;
(v) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued shares of
capital stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(vi) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held b them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries;
(vii) The execution and delivery of the Merger Agreement,
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action on
the part of each of the California Corporation and the Company;
(viii) Each of the California Corporation and the Company had
all power and authority (corporate and other) necessary to execute and deliver
the Merger Agreement, to file the Merger Agreement with the Secretary of State
of the State of California and the Secretary of State of the State of Delaware
and to consummate the reincorporation contemplated by the Merger Agreement, and
the Merger Agreement at the time of execution and filing constituted a valid and
binding obligation of each of the California Corporation and the Company;
(ix) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the current
or future consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of such
counsel's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(x) This Agreement has been duly authorized, executed and
delivered by the Company;
(xi) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the Company with all
of the provisions of this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach
-11-
<PAGE> 12
or violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(xii) No consent, approval, authorization, order,
registration or qualification of or with any such court or governmental agency
or body is required for the issue and sale of the Shares or the consummation by
the Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters;
(xiii) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound;
(xiv) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting", insofar
as they purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(xv) The Company is not an "investment company", as such
term is defined in the Investment Company Act; and
(xvi) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Act and the rules and
regulations thereunder; although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to in the
opinion in subsection (xiv) of this section 7(c), they have no reason to believe
that, as of its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such Time of Delivery,
either the Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery (other
than the financial statements and related schedules therein, as
-12-
<PAGE> 13
to which such counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are not filed
or described as required;
(d) ,
shall have furnished to you its written opinion, dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) [scope to be determined upon completion of due diligence]
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Pricewaterhouse
Coopers LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex I hereto (the executed copy of the letter
delivered prior to the execution of this Agreement is attached as Annex I(a)
hereto and a draft of the form of letter to be delivered on the effective date
of any post-effective amendment to the Registration Statement and as of each
Time of Delivery is attached as Annex I(b) hereto);
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any "nationally
recognized statistical rating organization", as that term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York or California State authorities; or (iv) the outbreak or escalation
of hostilities involving the
-13-
<PAGE> 14
United States or the declaration by the United States of a national emergency or
war, if the effect of any such event specified in this Clause (iv) in the
judgment of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ; and
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each stockholder and optionholder of the
Company, substantially to the effect set forth in Subsection 5(e) hereof in form
and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon
-14-
<PAGE> 15
and in conformity with written information furnished to the Company by such
Underwriter through Goldman, Sachs & Co. expressly for use therein; and will
reimburse the Company for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such action or claim
as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
-15-
<PAGE> 16
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the
-16-
<PAGE> 17
aggregate number of such Shares which remains unpurchased does not exceed
one-eleventh of the aggregate number of all the Shares to be purchased at such
Time of Delivery, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent
-17-
<PAGE> 18
by mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
CALICO COMMERCE, INC.
By:
--------------------------------------
Name:
Title:
Accepted as of the date hereof:
GOLDMAN, SACHS & CO.
MERRILL, LYNCH, PIERCE, FENNER & SMITH INCORPORATED
HAMBRECHT & QUIST LLC
BY:
----------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-18-
<PAGE> 19
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co....................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated.....
Hambrecht & Quist LLC..................................
--------------- ------------------
Total...................................
=============== ==================
</TABLE>
-19-
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
AMONG CALICO TECHNOLOGY, INC.,
CALICO ACQUISITION CORPORATION,
FIRSTFLOOR SOFTWARE, INC.,
CERTAIN SHAREHOLDERS OF FIRSTFLOOR SOFTWARE, INC.,
AND CERTAIN SHAREHOLDERS OF CALICO TECHNOLOGY, INC.
June 23, 1998
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into
this 23rd day of June, 1998, by and among Calico Technology, Inc., a California
corporation ("Calico"), Calico Acquisition Corporation, a California corporation
and wholly-owned subsidiary of Calico ("Sub"), FirstFloor Software, Inc., a
California corporation ("FirstFloor"), the shareholders of FirstFloor listed on
Schedule 1 attached hereto ("Principal Shareholders") (the "Principal
Shareholders") and, as to Section 7.7 hereof, certain shareholders of Calico.
RECITALS
A. The Board of Directors of Calico, Sub and FirstFloor have each
determined that it is advisable and in the best interests of their respective
shareholders for Calico to enter into a business combination with FirstFloor
upon the terms and subject to the conditions set forth in this Agreement.
B. The parties intend that, subject to the terms and conditions
hereinafter set forth, Sub shall be merged with and into FirstFloor, with
FirstFloor continuing as the surviving corporation, pursuant to an Agreement of
Merger substantially in the form attached hereto as Exhibit A (the "Agreement of
Merger") and the applicable provisions of the California General Corporation Law
(the "CGCL").
C. Upon the effectiveness of the Agreement of Merger pursuant to the
CGCL, the holders of capital stock of FirstFloor shall receive capital stock of
Calico and the holders of options to purchase FirstFloor Common Stock shall
receive options to purchase Calico capital stock, in the manner and on the basis
determined herein, all as provided in the Agreement of Merger.
D. Calico, Sub and FirstFloor intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. DEFINITIONS.
1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
<PAGE> 3
1.2 "Calico Series D Preferred" shall mean the Calico Series D
Preferred Stock with the rights, preferences and privileges set forth in the
Restated Articles attached hereto as Exhibit F ("Calico Restated Articles").
1.3 "Closing" and "Closing Date" shall have the meanings set forth in
Section 2.7 ("The Closing; Effective Time").
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "Common Stock Exchange Ratio" shall mean the number of shares of
Calico Series D Preferred issued for each FirstFloor Common Share to be
determined as set forth in Exhibit B ("Merger Consideration Schedule").
1.7 "Confidential Information" shall mean that information of a party
("Disclosing Party") which is disclosed to another party ("Receiving Party")
pursuant to this Agreement, in written form and marked "Confidential" or
similarly identified. If Confidential Information is initially disclosed orally,
the Disclosing Party shall send a written summary of such information to the
Receiving Party within thirty (30) days of disclosure and mark such summary
"Confidential" or with similar identification. Confidential Information shall
include, but not be limited to, trade secrets, know-how, inventions, techniques,
processes, algorithms, software programs, schematics, designs, contracts,
customer lists, financial information, sales and marketing plans and business
information.
1.8 "Continuing Employees" shall mean the individuals currently
employed by FirstFloor and identified under Part 1.8 of the FirstFloor
Disclosure Schedule ("Continuing Employees").
1.9 "Damages" shall include any loss, damage, injury, decline in
value, liability, claim, demand, settlement, judgment, award, fine, penalty,
tax, fee (including reasonable attorneys' fees), charge, costs (including costs
of investigation) or expense of any nature, net of insurance recovery or
reimbursement or tax benefits realized.
1.10 "Departing Employees" shall mean the individuals currently
employed by FirstFloor other than the Continuing Employees.
1.11 "Disclosing Party" shall have the meaning set forth in
Section 1.7 ("Confidential Information").
1.12 "Effective Time" shall mean the time the Merger becomes effective
as defined in Section 2.7 ("Effective Time").
2
<PAGE> 4
1.13 "Employment Agreement" shall mean the form of employment
agreement to be signed by David J. Cardinal pursuant to the terms of this
Agreement, which agreement will be in substantially the form attached hereto as
Exhibit C ("Employment Agreement").
1.14 Intentionally Omitted.
1.15 "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
1.16 "Escrow Agreement" shall mean the form of escrow agreement to be
entered into by Calico, the Escrow Agent (as defined in Section 2.8 ("Escrow
Fund")) and the Shareholder Representative (as defined in Section 2.8 ("Escrow
Fund")), which agreement will be in substantially the form attached hereto as
Exhibit G ("Escrow Agreement").
1.17 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.18 "Exchange Ratio" shall refer to the Common Stock Exchange Ratio
and the Preferred Stock Exchange Ratios.
1.19 "FirstFloor Common Shares" shall mean the outstanding shares of
FirstFloor Common Stock and shares of FirstFloor Common Stock issuable upon
conversion or exercise of any outstanding convertible securities (other than
FirstFloor Preferred Shares), options, warrants or other rights to acquire
shares of FirstFloor Common Stock.
1.20 "FirstFloor Options" shall mean the outstanding options to
acquire FirstFloor Common Shares.
1.21 "FirstFloor Preferred Shares" shall mean the outstanding shares
of FirstFloor Preferred Stock, regardless and inclusive of all series, and
shares of FirstFloor Preferred Stock issuable upon conversion or exercise of any
outstanding convertible securities, warrants or options or other rights to
acquire FirstFloor Preferred Stock.
1.22 "FirstFloor Products" shall mean all versions and implementations
of any product which has been or is being marketed by FirstFloor or currently is
under development.
1.23 "FirstFloor Shares" shall mean the FirstFloor Common Shares and
FirstFloor Preferred Shares.
1.24 "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal,
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state, local, municipal, foreign or other government; or (c) governmental or
quasi-governmental authority of any nature (including any governmental division,
department, agency, commission, instrumentality, official, organization, unit,
body, or Entity and any court or other tribunal).
1.25 "Indemnification Period" shall mean the period commencing on the
Closing Date and ending at the close of business on the first anniversary of the
Closing Date.
1.26 "Indemnitees" shall mean the following Persons: (a) Calico and
Surviving Corporation; (b) Surviving Corporation and Calico's current and future
affiliates; (c) the respective representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)" and "(b)" and "(c)" above; provided,
however, that any Person receiving Calico Series D Preferred pursuant to this
Agreement shall not be deemed to be an "Indemnitee."
1.27 "Legal Proceeding" shall mean any action, suit, arbitration
proceeding, litigation (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or before, or otherwise
involving any court or other Governmental Body or any arbitrator or arbitration
panel.
1.28 "Material" when capitalized and used in reference to the
business, products or financial situation of FirstFloor shall be construed,
except as specifically provided, to qualify the matter referred to herein to
matters with a value in excess of $50,000. For example, a "Material Adverse
Effect" would be an adverse effect resulting in costs or expenses in excess of
$50,000. When the word "material" is not capitalized it shall mean material with
respect to the matter referenced. For example, a reference to a material breach
of a particular agreement would mean a breach that is material with respect to
the particular contract (and not necessarily with respect to the overall
business of FirstFloor or Calico).
1.29 "Merger" shall mean the merger of Sub with and into FirstFloor,
on the terms and conditions described herein.
1.30 "Non-Competition Agreement" shall mean the non-competition
agreement to be signed by Jeff Tedesco, Judy Hamilton and Mike Ouye pursuant to
the terms of this Agreement, which agreement shall be in substantially the form
attached hereto as Exhibit D ("Non-Competition Agreement").
1.31 "Person" shall mean any individual, Entity or Governmental Body.
1.32 "Preferred Stock Exchange Ratio" shall mean the number of shares
of Calico Series D Preferred to be issued for each share of the various series
of FirstFloor Preferred Share to be determined as set forth in Exhibit B
("Merger Consideration Schedule").
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1.33 "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset related to intellectual property, and (b) any
right to use or exploit any of the foregoing including rights granted by third
parties under license agreements.
1.34 "Proxy" shall refer to the irrevocable proxy to be delivered by
each Principal Shareholder hereunder pursuant to Section 6.8 ("Irrevocable
Proxy"), which proxy shall be in substantially the form attached hereto as
Exhibit H ("Proxy").
1.35 "Receiving Party" shall have the meaning set forth in Section 1.7
("Confidential Information").
1.36 "Securities" shall mean the FirstFloor Shares and the FirstFloor
Options.
1.37 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time of determination.
1.38 "Transaction Documents" shall mean the following documents or
agreements required to be delivered by any party hereunder: (i) the Agreement of
Merger in substantially the form attached hereto as Exhibit A ("Agreement of
Merger"); (ii) the Employment Agreement; (iii) the Non-Competition Agreements;
(iv) the Escrow Agreement; (v) the Investor Rights Agreement and (vi) the
Proxies.
2. PLAN OF REORGANIZATION.
2.1 THE MERGER.
Subject to the terms and conditions of this Agreement, Sub shall
be merged with and into FirstFloor in accordance with the applicable provisions
of the CGCL and with the terms and conditions of this Agreement so that:
(a) At the Effective Time, Sub shall be merged with and into
FirstFloor. As a result of the Merger, the separate corporate existence of Sub
shall cease and FirstFloor shall continue as the surviving corporation
(sometimes referred to herein as the "Surviving Corporation") and shall succeed
to and assume all of the rights and obligations of Sub in accordance with the
laws of California.
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(b) The Articles of Incorporation and Bylaws of Sub in effect
immediately prior to the Effective Time shall be the articles of incorporation
and bylaws, respectively, of Surviving Corporation after the Effective Time
unless and until further amended as provided by law or by such Articles or
Bylaws.
(c) The directors and officers of Sub immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
after the Effective Time. Such directors and officers shall hold their positions
until the election and qualification of their respective successors or until
their tenure is otherwise terminated in accordance with the Bylaws of Surviving
Corporation.
2.2 EFFECT ON CAPITAL STOCK.
(a) At the Effective Time, each FirstFloor Common Share and
FirstFloor Preferred Share shall, by virtue of the Merger and at the Effective
Time, automatically and without further action on the part of any holder
thereof, be converted into the right to receive shares of Calico Series D
Preferred as set forth on Exhibit B ("Merger Consideration Schedule") (the
"Merger Consideration").
(b) At the Effective Time, the FirstFloor 1993 Stock
Option/Stock Issuance Plan (the "FirstFloor Stock Option Plan") and each
outstanding FirstFloor Option under the FirstFloor Stock Option Plan
("FirstFloor Options") , whether vested or unvested, shall be assumed by Calico.
Attached hereto as Exhibit E is the schedule delivered by FirstFloor to Calico
(the "Option Schedule") which sets forth a true and complete list as of the date
hereof of all holders of outstanding FirstFloor Options under the FirstFloor
Stock Option Plan including the number of shares of FirstFloor Common Stock
subject to each such option, the vesting schedule, the exercise price per share
and the term of each such option. On the Closing Date, FirstFloor shall deliver
to Calico an updated Option Schedule current as of such date. Each such
FirstFloor Option so assumed by Calico under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the
FirstFloor Stock Option Plan and the applicable option agreement immediately
prior to the Effective Time, except that (i) such option shall be exercisable
for that number of whole shares of Calico Series D Preferred equal to the
product of the number of shares of FirstFloor Common Stock that were issuable
upon exercise of such option immediately prior to the Effective Time multiplied
by the Common Stock Exchange Ratio and rounded down to the nearest whole number
of shares of Calico Series D Preferred, and (ii) the per share exercise price
for the shares of Calico Series D Preferred issuable upon exercise of such
assumed option shall be equal to the quotient determined by dividing the
exercise price per share of FirstFloor Common Stock at which such option was
exercisable immediately prior to the Effective Time by the Common Stock Exchange
Ratio, rounded up to the nearest whole cent. It is the intention of the parties
that the options so assumed by Calico qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent such
options qualified as incentive stock options prior to the Effective Time and
such assumption satisfies the conditions of Section 424(a) of the Code. Within
twenty (20) business days after the Effective Time, Calico will issue to each
person who, immediately prior to the Effective Time
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was a holder of an outstanding FirstFloor Option under the FirstFloor Stock
Option Plan a document in form and substance reasonably satisfactory to
FirstFloor evidencing the foregoing assumption of such option by Calico.
Calico shall comply with the terms of the FirstFloor Stock Option
Plan and ensure, to the extent required by, and subject to the provisions of,
such FirstFloor Stock Option Plan, and to the extent that the assumption of the
FirstFloor Options pursuant to this Section 2.2 satisfies the conditions of
Section 424(a) of the Code, that FirstFloor Stock Options which qualified as
incentive stock options prior the Effective Time continue to quality as
incentive stock options after the Effective Time.
Calico shall take all corporate action necessary to reserve and
make available for issuance a sufficient number of shares of Calico Series D
Preferred for delivery under FirstFloor Stock Options assumed in accordance with
this Section 2.2.
(c) Each share held in the treasury of FirstFloor and each share
owned by Calico, Sub or any direct or indirect wholly owned subsidiary of
FirstFloor or Calico immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, cease to be
outstanding, be canceled and retired without payment of any consideration
therefor and cease to exist.
(d) Each share of common stock of Sub issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding and shall represent all of the outstanding capital stock of the
Surviving Corporation.
(e) The Exchange Ratios shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into Calico Common Stock, Calico
Series D Preferred, FirstFloor Common Shares or FirstFloor Preferred Shares),
reorganization, recapitalization or other like change with respect to Calico
Common Stock, Calico Series D Preferred, FirstFloor Common Shares or FirstFloor
Preferred Shares occurring after the date hereof and prior to the Effective
Time.
2.3 EXCHANGE PROCEDURES.
(a) As soon as practicable after the Effective Time, each holder
of a certificate or certificates (each a "Certificate" and collectively, the
"Certificates") representing FirstFloor Shares issued and outstanding
immediately prior to the Effective Time shall surrender such Certificate(s) to
an officer of Calico designated for such purpose. Each Certificate which
immediately before the Effective Time evidenced FirstFloor Shares shall, from
and after the Effective Time until such Certificate is surrendered to Calico or
its transfer agent, be deemed, for all corporate purposes, to evidence the right
to receive the consideration described in Section 2.2(a) above; provided,
however, that no dividend or other distribution payable to the holder of a
Withheld Certificate after the Effective Time shall be paid in respect of any
share of Calico Series D Preferred Stock obtainable pursuant to Section 2.2(a)
until and unless such Withheld
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Certificate has been surrendered to Calico or its transfer agent. For purposes
of this Section, "Withheld Certificate" shall mean a Certificate which has not
been surrendered as described above before the applicable distribution or
dividend becomes payable.
(b) Upon the receipt of Certificates representing FirstFloor
Shares issued and outstanding immediately prior to the Effective Time, such
Certificates shall be forthwith canceled. Thereafter, Calico shall make
available to each holder of such Certificate a certificate evidencing the number
of shares of Calico Series D Preferred Stock and payment in lieu of fractional
shares which such holder has a right to receive under Section 2.4 ("Fractional
Shares"). The Merger Consideration delivered upon the surrender for exchange of
Calico Series D Preferred in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of FirstFloor Shares which were outstanding immediately
prior to the Effective Time.
(c) In the event any Certificates evidencing FirstFloor Shares
shall have been lost, stolen or destroyed, Calico shall issue in exchange for
such lost, stolen or destroyed certificates, a new certificate representing the
corresponding amount of Merger Consideration (and cash in lieu of fractional
shares if necessary) upon the making of an affidavit of that fact by the holder
thereof; provided, however, Calico may, in its discretion and as a condition
precedent to the issue thereof, require the owner of such lost, stolen or
destroyed Certificates to indemnify Calico against any claim that may be made
against Calico with respect to the Certificate alleged to have been lost, stolen
or destroyed.
2.4 FRACTIONAL SHARES.
No fractional shares of Calico Series D Preferred will be issued
in connection with the Merger, but in lieu thereof, each holder of FirstFloor
Shares who would otherwise be entitled to receive a fraction of a share of
Calico Series D Preferred will receive from Calico, promptly after the Effective
Time, an amount of cash equal to the fair market value of a share of Calico
Series D Preferred as determined in good faith by the Board of Directors of
Calico multiplied by the fraction of a share of Calico Series D Preferred to
which such holder would otherwise be entitled.
2.5 TAX AND ACCOUNTING CONSEQUENCES.
It is intended by the parties hereto that the Merger shall (i)
constitute a reorganization within the meaning of Section 368(a) of the Code and
(ii) be accounted for under the rules for purchase accounting. The parties
hereto adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. No
party shall take any action which would, to such party's knowledge, cause the
Merger to fail to constitute a "reorganization" within the meaning of Section
368 of the Code.
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2.6 EXEMPTION FROM FEDERAL REGISTRATION; STATE BLUE SKY.
The parties expect that the Calico Series D Preferred to be
issued in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended, by reason of Section
3(a)(10) thereof, and that the Calico Series D Preferred and the assumption of
the FirstFloor Options hereunder will be qualified under the CGCL, pursuant to
Section 25121 thereof, after a fairness hearing has been held pursuant to the
authority granted by Section 25142 of the CGCL.
2.7 THE CLOSING; EFFECTIVE TIME.
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 conditions set forth in Sections 9 ("Conditions to
FirstFloor's Obligations") and 10 ("Conditions to Calico's and Sub's
Obligations") hereof or at such other time as the parties hereto agree (the date
on which the Closing shall occur, the "Closing Date"). The Closing shall take
place at the offices of Gray Cary Ware & Freidenrich, LLP, 400 Hamilton Avenue,
Palo Alto, California, or at such other location as the parties hereto agree. On
the Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the Agreement of Merger, together with the required officers'
certificates, with the Secretary of State of the State of California, in
accordance with the relevant provisions of the CGCL (the time of such filing
being the "Effective Time").
2.8 ESCROW FUND.
(a) As soon as practicable after the Effective Time, and subject
to and in accordance with the provisions of Section 12 ("Indemnification")
hereof, Calico shall cause to be distributed to an escrow agent designated by
Calico and reasonably acceptable to FirstFloor (the "Escrow Agent") a
certificate or certificates representing fifteen percent (15%) of the shares of
Calico Series D Preferred to be issued in connection with the Merger (the
"Escrow Shares") which shall be registered in the name of the Escrow Agent as
nominee for each holder of FirstFloor Shares (each a "Shareholder" and
collectively, the "Shareholders") (the "Escrow Fund") and held pursuant to the
Escrow Agreement. Such shares shall be beneficially owned by each such
Shareholder and shall be held in escrow and shall be available to compensate
Calico for certain damages as provided in Section 12 ("Indemnification"). To the
extent not used for such purposes, such shares shall be released pursuant to the
terms of the Escrow Agreement.
(b) In the event Calico shall pay tax-free dividends in stock
declared with respect to the Escrow Shares pursuant to Section 305(a) of the
Code (the "Additional Escrow Shares"), such Additional Escrow Shares will be
issued in the name of the Escrow Agent in the same manner as the Escrow Shares
delivered at Closing. Any and all other cash dividends, dividends payable in
securities or other distributions of any kind made in respect of the Escrow
Shares will be delivered to the Shareholders.
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(c) The Shareholders will have voting rights with respect to the
Escrow Shares and Additional Escrow Shares deposited in the Escrow Fund so long
as such Escrow Shares and Additional Escrow Shares are held in escrow, and
Calico will take all reasonable steps necessary to allow the exercise of such
rights. While the Escrow Shares and Additional Escrow Shares remain in the
Escrow Agent's possession pursuant to this Agreement, the Shareholders will
retain and will be able to exercise all other incidents of ownership of said
Escrow Shares and Additional Escrow Shares which are not inconsistent with the
terms and conditions of this Agreement.
(d) The Shareholders, by virtue of their approval of this
Agreement, will be deemed to have irrevocably constituted and appointed,
effective as of the Effective Time, David J. Cardinal (together with his or its
permitted successors, the "Shareholder Representative"), as their true and
lawful agent and attorney-in-fact to enter into any agreement in connection with
the transactions contemplated by this Agreement and any transactions
contemplated by the Escrow Agreement, to exercise all or any of the powers,
authority and discretion conferred upon him or it under any such agreement, to
waive any terms and conditions of any such agreement (other than the Merger
Consideration), to give and receive notices on their behalf and to be their
exclusive representative with respect to any matter, suit, claim, action or
proceeding for which Calico, Sub or the Surviving Corporation may be entitled to
indemnification and the Shareholder Representative agrees to act as, and to
undertake the duties and responsibilities of, such agent and attorney-in-fact.
This power of attorney is coupled with an interest and is irrevocable. The
Shareholder Representative shall not be liable for any action taken or not taken
by him or it in connection with his or its obligations under this Agreement (i)
with the consent of the Shareholders who, as of the date of this Agreement,
owned a majority of the FirstFloor Shares (determined on an as converted to
Common Stock basis and voting as one class), in the aggregate, or (ii) in the
absence of his or its own gross negligence or willful misconduct. If the
Shareholder Representative shall be unable or unwilling to serve in such
capacity, his or its successor shall be named by those persons who, as of the
date of this Agreement, owned a majority of the FirstFloor Shares (determined on
an as converted to Common Stock basis and voting as one class), in the aggregate
at the Effective Time who shall serve and exercise the powers of the Shareholder
Representative hereunder.
2.9 DISSENTING SHARES.
Notwithstanding anything to the contrary herein, any holder of
FirstFloor Shares with respect to which dissenters' rights, if any, are granted
by reason of the Merger under the CGCL and who does not vote in favor of the
Merger and who otherwise complies with Chapter 13 of the CGCL (the "Dissenting
Shares") shall not be entitled to receive shares of Calico Series D Preferred
pursuant to Section 2.2(a), unless such holder fails to perfect, effectively
withdraws or loses his right to dissent from the Merger under the CGCL. Such
holder shall be entitled to receive only the payment provided for by Chapter 13
of the CGCL. If any such holder so fails to perfect, effectively withdraws or
loses his or her dissenters' rights under the CGCL, his or her Dissenting Shares
shall thereupon be deemed to have been converted as of the Effective Time, into
the right to receive shares of Calico Series D Preferred pursuant to
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Section 2.2(a). Any payments relating to the Dissenting shares shall be made
solely by the Surviving Corporation and no funds or other property have been or
will be provided by Sub or Calico for such payment.
2.10 SUBSEQUENT EQUITY FINANCING
If Calico closes a preferred stock equity financing of $3,000,000
or more subsequent to the date of this Agreement ("Subsequent Equity Financing")
and prior to the Effective Time, the rights, preferences and privileges of the
Calico Series D Preferred Shares as set forth in the Calico Restated Articles
shall be subject to adjustment as provided in this Section. In such event, the
rights, preferences and privileges of the Calico Series D Preferred Shares as
set forth in the Calico Restated Articles shall be revised to the extent that
such terms would have been adjusted if the Subsequent Equity Financing had
occurred after the Effective Time in accordance with the form of the Calico
Restated Articles attached hereto. In addition, the Calico Series D Preferred
Stock shall be denominated as Series E Preferred Stock (if the Subsequent Equity
Financing involves a sale of Series D Preferred Stock) and all references in the
Calico Restated Articles to the Subsequent Equity Financing and all provisions
relating thereto shall be deleted.
3. REPRESENTATIONS AND WARRANTIES OF FIRSTFLOOR.
Except as otherwise set forth in the "FirstFloor Disclosure
Schedule" delivered as of the date hereof ("FirstFloor Disclosure Schedule"),
FirstFloor represents and warrants to Calico as set forth below. No fact or
circumstance disclosed to Calico shall constitute an exception to these
representations and warranties unless such fact or circumstance is set forth in
the FirstFloor Disclosure Schedule. For purposes of this Section 3 and Section 4
("Representations and Warranties of Calico and Sub"), whenever the term
"enforceable in accordance with its terms" or like expression is used, it is
understood that excepted therefrom are any limitations on enforceability (i)
under applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting the enforcement of creditor's rights and
(ii) of specific performance, injunctive relief and other equitable remedies.
3.1 ORGANIZATION.
FirstFloor is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has full
corporate power and authority to carry on its business as it is now being
conducted. FirstFloor is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the nature of its business or properties
makes such qualification or licensing necessary, except to the extent that any
failure to qualify or obtain licenses would not in the aggregate have a Material
Adverse Effect on the operations, assets, financial condition or prospects of
FirstFloor. The FirstFloor Disclosure Schedule contains a true and complete
listing of the locations of all sales offices, manufacturing facilities, and any
other offices or facilities of FirstFloor and a true and complete list of all
states in which FirstFloor maintains any employees. The FirstFloor Disclosure
Schedule contains a
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true and complete list of all states in which FirstFloor is duly qualified to
transact business as a foreign corporation.
3.2 POWER, AUTHORIZATION AND VALIDITY.
FirstFloor has the corporate power to enter into this Agreement
and the other Transaction Documents to which it is a party (collectively, the
"FirstFloor Transaction Documents") and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the FirstFloor
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby have been, or will have been prior to the Closing, duly and
validly approved and authorized by its Board of Directors. No authorization or
approval, governmental or otherwise, is necessary to enable FirstFloor to enter
into and to perform the obligations of this Agreement and the FirstFloor
Transaction Documents, other than (i) the filing of the Agreement of Merger and
related documents; (ii) consents or approvals, which if not obtained or made,
would not have a Material Adverse Effect on FirstFloor, Calico or Sub; and (iii)
the consent of the holders of outstanding shares of FirstFloor. This Agreement
and the other FirstFloor Transaction Documents when executed by FirstFloor shall
be the valid and binding obligations of FirstFloor enforceable in accordance
with their terms.
3.3 SUBSIDIARIES.
FirstFloor has no subsidiaries. FirstFloor does not own, have any
investment in or control (directly or indirectly) any capital stock, bonds or
other securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association, business
organization, entity or enterprise, and FirstFloor does not control (directly or
indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
3.4 CAPITALIZATION.
(a) The authorized capital stock of FirstFloor as of the date of
this Agreement consists of: 30,000,000 shares of Common Stock, of which
3,262,770 shares are outstanding as of the date of this Agreement and held of
record by the shareholders set forth and identified on Part 3.4 of the
FirstFloor Disclosure Schedule.
(b) 15,000,000 shares of Preferred Stock (the "FirstFloor
Preferred Stock"), of which 750,000 shares are designated Series A Preferred
Stock, 1,794,117 shares are designated Series B Preferred Stock, 3,000,000
shares are designated Series C Preferred Stock and 4,000,000 shares are
designated Series D Preferred Stock. As of the date of this Agreement and
immediately prior to the Closing, 750,000 shares of Series A Preferred Stock,
1,794,117 shares of Series B Preferred Stock, 3,000,000 shares of Series C
Preferred Stock and 3,588,898 shares of Series D Preferred Stock are and will be
issued and outstanding, convertible into 1.260829011, 1.412535591, 1.0 and 1.0
shares of FirstFloor Common Stock per share of FirstFloor Preferred Stock,
respectively. The rights, privileges and preferences of the FirstFloor
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Preferred Stock are as stated in the Amended and Restated Articles of
Incorporation of FirstFloor as currently in effect (the "FirstFloor Articles").
(c) On the date of this Agreement, 1,225,266 shares of
FirstFloor common stock are available or reserved for issuance under the
FirstFloor Stock Option Plan (the "FirstFloor Plan"), and, as of the date of
this Agreement, 923,426 shares are subject to outstanding options and held of
record by FirstFloor's option holders as set forth in the Option Schedule. None
of the FirstFloor Options permit accelerated vesting of the options by reason of
the Merger or any other transactions contemplated by the Agreement. On the date
of this Agreement, the only warrants for the purchase of FirstFloor Shares are
as set forth in the FirstFloor Disclosure Schedule (the "FirstFloor Warrants"),
each of which Warrants expire if not exercised prior to the Effective Date.
(d) All of the outstanding FirstFloor Shares have been duly
authorized and are validly issued, fully paid and nonassessable. All of the
outstanding FirstFloor Shares and all other outstanding securities were issued
in compliance with applicable state and federal laws concerning the issuance of
securities. Except as otherwise set forth in the FirstFloor Disclosure Schedule,
FirstFloor does not have any other shares of its capital stock issued or
outstanding and does not have any other outstanding subscriptions, options,
warrants, rights or other agreements or commitments obligating FirstFloor to
issue shares of its capital stock or other securities. There are no voting
trusts or agreements, shareholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal or proxies relating to any securities of
FirstFloor to which FirstFloor is subject or a party or to which any
shareholder, officer, director or Affiliate of FirstFloor is a party or is
subject.
3.5 NO VIOLATION OF EXISTING AGREEMENTS.
Neither the execution and delivery of this Agreement or the
FirstFloor Transaction Documents nor the consummation of the transactions
contemplated hereby or thereby will conflict with, or result in a breach or
violation of, any provision of FirstFloor's Articles of Incorporation, or its
Bylaws, as currently in effect, any instrument or contract to which FirstFloor
is a party or by which it is bound, or any federal, state or local judgment,
writ, decree, order, statute, rule or regulation applicable to FirstFloor.
Except for the effect of the changes to be made in the FirstFloor operations as
contemplated herein, neither the execution and delivery of this Agreement, nor
any FirstFloor Transaction Document, nor to FirstFloor's knowledge, the
consummation of the transactions contemplated hereby or thereby, will directly
have a Material Adverse Effect on the operations, assets or financial condition
of FirstFloor.
3.6 COMPLIANCE WITH OTHER INSTRUMENTS AND LAWS.
FirstFloor is not in violation of any provisions of its Articles
of Incorporation or Bylaws as currently in effect or in effect at the Closing.
FirstFloor is in compliance in all material respects with all applicable laws
and regulations. Neither FirstFloor nor, to FirstFloor's knowledge, any of its
employees has directly or indirectly paid or delivered
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any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent, government official or other party in the
United States or any other country in connection with the business of
FirstFloor, that was or is in violation of any federal, state, or local statute
or law or of any statute or law of any other country having jurisdiction.
FirstFloor has not participated directly or indirectly in any boycotts or other
similar practices affecting any of its customers. FirstFloor has complied at all
times with any and all applicable federal, state and foreign laws, rules,
regulations, proclamations and orders relating to the importation or exportation
of its products.
3.7 FINANCIAL STATEMENTS.
(a) FirstFloor has delivered to Calico copies of FirstFloor's
audited balance sheet and statements of operations at and for the year ended
December 31, 1997 and balance sheet and statements of operations at and for the
five month period ended May 31, 1998 (the "Balance Sheet Date").
(b) All financial statements delivered pursuant to this
Agreement (collectively, the "FirstFloor Financial Statements") are in
accordance with the books and records of FirstFloor and present fairly the
financial position of FirstFloor as of the dates indicated in accordance with
generally accepted accounting principles consistently applied ("GAAP").
FirstFloor has made available all books and records related to the financial
condition of FirstFloor.
(c) FirstFloor has no debt, financial liability, or financial
obligation of any nature, whether accrued, absolute, contingent, or otherwise,
and whether due or to become due, that is not reflected or reserved against in
the FirstFloor Financial Statements, except for those (i) that may have been
incurred after the date of the FirstFloor Financial Statements; (ii) expenses
related to the Merger; or (iii) that are not required by generally accepted
accounting principles to be included in a balance sheet or the notes thereto as
of the date of such balance sheet. All debts, liabilities, and obligations
incurred after the date of the FirstFloor Financial Statements were incurred in
the ordinary course of business, and are usual and normal in amount both
individually and in the aggregate.
(d) As of the date of this Agreement, FirstFloor has working
capital and cash on-hand of at least $576,686 and $941,912, respectively.
3.8 TAX MATTERS.
(a) FirstFloor has timely filed all tax returns and reports
required to be filed by it, including all federal, foreign, state and local tax
returns and estimates for all years and periods (and portions thereof) for which
any such returns, reports or estimates were due. Except to the extent that a
reserve for taxes has been established on the May 31, 1998 balance sheet, all
such returns, reports and estimates were prepared in all material respects in
the manner required by applicable law. All income, sales, use, occupation,
property or other taxes or assessments due
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from FirstFloor on or before the Balance Sheet Date have been paid or have been
properly reserved in accordance with GAAP on the May 31, 1998 balance sheet. To
the knowledge of FirstFloor, there are no pending assessments, asserted
deficiencies or claims for additional taxes against FirstFloor. The reserves for
taxes, if any, reflected on the FirstFloor Financial Statements are adequate as
of the Closing, in accordance with generally accepted accounting principles, and
there are no tax liens on any property or assets of FirstFloor (other than for
current taxes not yet due and payable). To FirstFloor's knowledge, (i) there
have been no examinations of any tax returns or reports of FirstFloor by any
applicable Governmental Body; (ii) no state of facts exists or has existed which
would constitute grounds for the assessment of any penalty or of any further tax
liabilities on FirstFloor beyond those shown on the respective tax reports,
returns or estimates or reserved on the FirstFloor Financial Statements, except
as would not result in a Material Adverse Effect on the financial condition of
FirstFloor; and (iii) there are no outstanding agreements or waivers that are
still in effect that extend the statutory period of limitation applicable to any
income tax return or report of FirstFloor for any period.
(b) All taxes which FirstFloor has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(c) FirstFloor does not have a permanent establishment in any
foreign country, as defined in the relevant tax treaty between the United States
of America and such foreign country or under foreign law, and does not otherwise
operate or conduct business through any branch office in any foreign country.
(d) FirstFloor is not a party to any tax-sharing agreement or
similar arrangement with any other party.
(e) At no time has FirstFloor been included in the federal
consolidated income tax return of any affiliated group of corporations.
(f) FirstFloor will not be required to include any material
adjustment in taxable income for any tax period (or portion thereof) ending
after the Closing Date pursuant to Section 481(c) of the Code or any provision
of the tax laws of any jurisdiction requiring tax adjustments as a result of a
change in method of accounting implemented by FirstFloor prior to the Closing
Date (other than as a result of this Agreement) for any tax period (or portion
thereof) ending on or before the Closing Date or, except as otherwise disclosed,
pursuant to the provisions of any agreement entered into by FirstFloor prior to
the Closing Date with any taxing authority with regard to the tax liability of
FirstFloor for any tax period (or portion thereof) ending on or before the
Closing Date.
(g) No payment to be made pursuant to any contract, agreement,
plan or arrangement, including, but not limited to, the provisions of this
Agreement, covering any employee or independent contractor or former employee or
former independent contractor of
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FirstFloor that would not be deductible pursuant to Section 280G, Section 162(a)
by reason of being unreasonable in amount, Section 162(b), (c), (d), (e) or (f)
or Section 404 of the Code.
(h) FirstFloor has provided or made available to Calico true and
correct copies of all tax returns filed by FirstFloor, and, as requested by
Calico prior to the date hereof, information statements, reports, work papers,
records, tax opinions, examination reports, statutory or preliminary notices of
deficiency, and tax memorandum.
(i) FirstFloor has not, with regard to any property or assets
held, acquired or to be acquired by it, at any time, filed a consent to the
application of Section 341(f)(2) of the Code nor will any such consent be filed
before the Closing.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since May 31, 1998, FirstFloor has not (a) suffered any adverse
change in its financial condition or in the operations of its business; (b)
suffered any damage, destruction or loss, whether covered by insurance or not;
(c) granted any increase in the compensation payable or to become payable by
FirstFloor to its officers or employees; (d) declared, set aside or paid any
dividend or made any other distribution on or in respect of the shares of the
capital stock of FirstFloor or declared any direct or indirect redemption,
retirement, purchase or other acquisition by FirstFloor of such shares; (e)
issued any shares of capital stock of FirstFloor or any warrants, rights,
options or entered into any commitment relating to the shares of FirstFloor
except as contemplated hereby and except for the issuance of FirstFloor Common
Stock pursuant to the exercise of outstanding options; (f) made any change in
the accounting methods or practices it follows, whether for general financial or
tax purposes, or any change in depreciation or amortization policies or rates
adopted therein; (g) sold, leased, abandoned or otherwise disposed of any real
property or any machinery, equipment or other operating property other than in
the ordinary course of business; (h) sold, assigned, transferred, licensed or
otherwise disposed of any FirstFloor Proprietary Asset except for licenses
granted on standard terms in the ordinary course of its business; (i) suffered
any labor dispute; (j) engaged in any activity or entered into any commitment or
transaction (including without limitation any borrowing or capital expenditure)
other than in the ordinary course of business; (k) incurred any liabilities
except in the ordinary course of business and consistent with past practice; (l)
permitted or allowed any of its property or assets to be subjected to any
mortgage, deed of trust, pledge, lien, security interest or other encumbrance of
any kind, except those permitted under Section 3.10 ("Title and Related
Matters") hereof, other than any purchase money security interests incurred in
the ordinary course of business; (m) made any capital expenditure or commitment
for additions to property, plant or equipment except in the ordinary course of
business; (n) paid, loaned or advanced any material amount to, or sold,
transferred or leased any properties or assets to, or entered into any material
agreement or arrangement with any of its Affiliates, officers, directors or
stockholders or any Affiliate or associate of any of the foregoing; (o) made any
amendment to or terminated any agreement which, if not so amended or terminated,
would be required to be disclosed on the FirstFloor Disclosure Schedule; or (p)
agreed to take any action described in this Section 3.9
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("Absence of Certain Changes or Events") or outside of its ordinary course of
business or which would constitute a breach of any of the representations
contained in this Agreement.
3.10 TITLE AND RELATED MATTERS.
FirstFloor has good title to all the properties, interests in
properties and assets, real and personal, reflected in the FirstFloor Financial
Statements or acquired after the Balance Sheet Date that would be reflected on a
balance sheet dated as of the date of this Agreement (except properties,
interests in properties and assets sold or otherwise disposed of since the
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,
except (a) liens for current taxes and other governmental charges not yet due
and payable; (b) liens of carriers, warehousemen, mechanics and materialmen and
similar liens incurred in the ordinary course of business; and (c) liens which
in the aggregate do not secure more than Ten Thousand Dollars ($10,000) in
liabilities. The equipment of FirstFloor necessary to the operation of its
business is in good operating condition and repair. All real or personal
property leases to which FirstFloor is a party are valid, binding, enforceable
and effective in accordance with their respective terms. FirstFloor is not in
default under any of such leases and to FirstFloor's knowledge, no other party
is in default under such leases. There is not under any of such leases any event
which, with notice or lapse of time or both, would constitute a material default
by FirstFloor. The FirstFloor Disclosure Schedule contains a description of all
real and personal property leased or owned by FirstFloor the purchase price of
which exceeded $5,000. True and correct copies of FirstFloor's leases have been
provided to Calico or its representatives.
3.11 PROPRIETARY ASSETS.
(a) The FirstFloor Disclosure Schedule sets forth, with respect
to each FirstFloor Proprietary Asset registered with any Governmental Body or
for which an application has been filed with any Governmental Body, (1) a brief
description of such Proprietary Asset and (2) the names of the jurisdictions
covered by the applicable registration or application. The FirstFloor Disclosure
Schedule identifies and provides a brief description of all other FirstFloor
Proprietary Assets in which FirstFloor claims an ownership interest. The
FirstFloor Disclosure Schedule identifies and provides a brief description of
each Proprietary Asset licensed to FirstFloor by any Person (except for any
Proprietary Asset that is licensed to FirstFloor under any third party software
license generally available to the public at a cost of less than Ten Thousand
Dollars ($10,000)), and identifies the license agreement under which such
Proprietary Asset is being licensed to FirstFloor. Except as set forth in the
FirstFloor Disclosure Schedule, FirstFloor has good, valid and marketable title
to all of the FirstFloor Proprietary Assets identified in the FirstFloor
Disclosure Schedule, free and clear of all liens and other encumbrances, and has
a valid right to use all Proprietary Assets identified in Part 3.11(a)(iii) of
the FirstFloor Disclosure Schedule. Except as set forth in Part 3.11(a)(v) of
the FirstFloor Disclosure Schedule, FirstFloor is not obligated to make any
payment to any Person for the use of any FirstFloor Proprietary Asset. Except as
set forth in Part 3.11(a)(vi) of the FirstFloor
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Disclosure Schedule, FirstFloor has not developed jointly with any other Person
any FirstFloor Proprietary Asset with respect to which such other Person has any
rights.
(b) FirstFloor has taken all reasonable and customary measures
and precautions to protect and maintain the confidentiality and secrecy of all
FirstFloor Proprietary Assets (except FirstFloor Proprietary Assets whose value
would not be materially impaired by public disclosure) and otherwise to maintain
and protect the value of all FirstFloor Proprietary Assets. Except as set forth
in Part 3.11(b)(i) of the FirstFloor Disclosure Schedule, FirstFloor has not
disclosed or delivered to any Person, or permitted the disclosure or delivery to
any Person of the source code, or any portion or aspect of the source code, of
any FirstFloor Product.
(c) Except as set forth in Part 3.11(c) of the FirstFloor
Disclosure Schedule, (i) none of the FirstFloor Proprietary Assets infringes or
violates with any Proprietary Asset owned or used by any other Person and (ii)
FirstFloor is not infringing, misappropriating or making any unlawful use of,
and FirstFloor has not at any time infringed, misappropriated or made any
unlawful use of, or received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Proprietary Asset owned or used by any
other Person. To the knowledge of FirstFloor, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any FirstFloor
Proprietary Asset.
(d) There has not been any material claim by any customer or
other Person alleging that any FirstFloor Product (including each version
thereof that has ever been licensed or otherwise made available by FirstFloor to
any Person) does not conform in all material respects with any specification,
documentation, performance standard, representation or statement made or
provided by or on behalf of FirstFloor, and, to the knowledge of FirstFloor,
there is no basis for any such claim.
(e) The FirstFloor Proprietary Assets constitute all the
Proprietary Assets used by FirstFloor to conduct its business in the manner in
which such business has been and is being conducted. FirstFloor has not licensed
any of the FirstFloor Proprietary Assets to any Person on an exclusive basis.
FirstFloor has not entered into any covenant not to compete or contract limiting
its ability to exploit fully any of the FirstFloor Proprietary Assets or to
transact business in any market or geographical area or with any Person.
(f) All current and former employees and consultants of
FirstFloor have executed and delivered to FirstFloor an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of Proprietary Information and Inventions
Agreement previously delivered to Calico.
(g) No product liability or warranty claims which individually
or in the aggregate could exceed the reserves therefor on the FirstFloor
Financial Statements have been
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communicated in writing to or threatened against FirstFloor nor is FirstFloor
aware of any reasonable basis therefor.
3.12 EMPLOYEE BENEFIT PLANS.
Except as provided in the plans listed in Part 3.12 of the
FirstFloor Disclosure Schedule, there is no material unfunded prior service cost
with respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans or arrangements, whether formal or informal, maintained by
FirstFloor. Each bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, and other employee benefit or fringe
benefit plan or arrangements maintained by FirstFloor conforms to all applicable
requirements of the Employees Retirement Income Security Act of 1974, except for
any nonconformance which would not result in a Material Adverse Effect on the
business, operations or financial condition of FirstFloor and as otherwise
described in Part 3.12. Part 3.12 of the FirstFloor Disclosure Schedule lists
and describes all profit-sharing, bonus, incentive, deferred compensation,
vacation, severance pay, retirement, stock option, group insurance or other
plans (whether written or not) providing employee benefits. Except as provided
in the plans listed in Part 3.12 of the FirstFloor Disclosure Schedule and for
the compensation described in Part 3.19 of the FirstFloor Disclosure Schedule,
FirstFloor has no obligations to provide compensation or benefits to its
employees.
3.13 BANK ACCOUNTS.
Part 3.13 of the FirstFloor Disclosure Schedule sets forth the
names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which FirstFloor maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
3.14 CONTRACTS.
(a) Except as listed in the FirstFloor Disclosure Schedule,
FirstFloor has no agreements, contracts or commitments that provide for the
sale, licensing or distribution by FirstFloor of any of its Proprietary Assets.
(b) Except as listed in the FirstFloor Disclosure Schedule,
FirstFloor has no agreements, contracts or commitments that call for fixed
and/or contingent payments or expenditures by or to FirstFloor of more than Ten
Thousand Dollars ($10,000).
(c) FirstFloor has not granted to any third party any rights to
reproduce or manufacture (for FirstFloor or for others) any of the FirstFloor
Products, nor has FirstFloor granted to any third party any exclusive rights of
any kind with respect to any of the FirstFloor Products, including, without
limitation, territorial exclusivity or exclusivity with respect to particular
versions, implementations or translations of any of the FirstFloor Products, nor
has FirstFloor granted any third party any right to market any of the FirstFloor
Products under any
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"private label" arrangements pursuant to which FirstFloor is not identified as
the source of such goods.
(d) FirstFloor has no purchase agreement, contract or commitment
that calls for fixed and/or contingent payments by FirstFloor that are in excess
of the normal, ordinary and usual requirements of business or in excess of
$20,000 in aggregate.
(e) FirstFloor has no outstanding agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than thirty (30) days and without liability, penalty or
premium.
(f) Except as set forth in the FirstFloor Disclosure Schedule,
FirstFloor has no employment, independent contractor or similar agreement,
contract or commitment that is not terminable on no more than thirty (30) days'
notice without penalty or liability of any type, including without limitation
severance or termination pay.
(g) FirstFloor has no currently effective collective bargaining
or union agreements, contracts or commitments.
(h) FirstFloor is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return of inventory or
merchandise in the possession of wholesalers, distributors, retailers, or other
customers, except such liabilities, obligations and claims as, in the aggregate,
do not exceed the amount reserved therefor on the FirstFloor Financial
Statements.
(i) FirstFloor has not guaranteed any obligations of other
persons or made any agreements to acquire or guarantee any obligations of other
persons.
(j) FirstFloor has no outstanding loan or advance to any person;
nor is it party to any line of credit, standby financing, revolving credit or
other similar financing arrangement of any sort which would permit the borrowing
by FirstFloor of any sum not reflected in the FirstFloor Financial Statements.
(k) All material contracts, agreements and instruments to which
FirstFloor is a party are valid, binding, in full force and effect, and
enforceable by FirstFloor in accordance with their respective terms, and
FirstFloor is not in breach thereof. No such material contract, agreement or
instrument contains any liquidated-damages, penalty or similar provision which
if effective. To FirstFloor's knowledge, no party to any such contract,
agreement or instrument intends to cancel, withdraw, modify or amend such
contract, agreement or arrangement, which cancellation, withdrawal, modification
or amendment could have a Material Adverse Effect on FirstFloor.
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(l) The FirstFloor Disclosure Schedule also lists each vendor
who manufactures for or supplies to FirstFloor any material product or component
or is the sole source for any product or component.
3.15 ORDERS, COMMITMENTS AND RETURNS.
All material accepted and unfilled orders entered into by
FirstFloor for the sale, license, or lease or other disposition by FirstFloor of
its products, and all agreements, contracts, or commitments for the purchase of
supplies, were made in the ordinary course of business.
3.16 LABOR DIFFICULTIES.
(a) FirstFloor is not engaged in any unfair labor practice and
is not in material violation of any applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours.
(b) To FirstFloor's knowledge, there is no unfair labor practice
complaint against FirstFloor actually pending or threatened before the National
Labor Relations Board.
(c) There is no strike, labor dispute, slowdown, or stoppage
actually pending or threatened against FirstFloor.
(d) No grievance that might have a Material Adverse Effect on
FirstFloor or the conduct of its business, nor any arbitration proceeding
arising out of or under any collective bargaining agreement is pending and no
claims therefor exist.
(e) No collective bargaining agreement that is binding on
FirstFloor restricts it from relocating or closing any of its operations.
(f) FirstFloor has not experienced any material work stoppage or
other material labor difficulty.
3.17 TRADE REGULATION AND PRACTICES.
All of the prices charged by FirstFloor in connection with the
marketing or sale of any products or services have been in compliance with all
applicable laws and regulations. No claims have been communicated or threatened
against FirstFloor with respect to wrongful termination of any dealer,
distributor or any other marketing entity, discriminatory pricing, price fixing,
unfair competition, false advertising, or any other violation of any laws or
regulations relating to anti-competitive practices or unfair trade practices of
any kind, and no specific situation, set of facts, or occurrence provides any
basis for any such claim.
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3.18 INSIDER TRANSACTIONS.
No Affiliate of FirstFloor has any beneficial interest in (a) any
equipment, Proprietary Asset or other property used in connection with or
pertaining to the business of FirstFloor or (b) any creditor, supplier,
customer, manufacturer, agent, representative, or distributor of products of
FirstFloor; provided, however, that no such Affiliate or other person shall be
deemed to have such an interest solely by virtue of the ownership of less than
5% of the outstanding stock or debt securities of any publicly-held company, the
stock or debt securities of which are traded on a recognized stock exchange or
quoted on the National Association of Securities Dealers Automated Quotation
System or the New York Stock Exchange.
3.19 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS.
The FirstFloor Disclosure Schedule lists and describes all
currently effective consulting, independent contractor and/or employment
agreements and other agreements concluded with individual employees, independent
contractors or consultants to which FirstFloor is a party. All salaries and
wages paid by FirstFloor are in compliance with applicable federal, state and
local laws. FirstFloor has provided to Calico or its representatives the names
of all FirstFloor employees and their annual rate of compensation, including
bonuses and other cash payments of any kind. FirstFloor's aggregate accrued
vacation and severance pay as of May 31, 1998 is as set forth on the FirstFloor
Disclosure Schedule. Except as set forth in Part 3.19 of the FirstFloor
Disclosure Schedule, FirstFloor has no other obligations to pay salary, bonuses,
accrued vacation or other compensation to any employees, independent contractors
or consultants. FirstFloor is not aware of any Continuing Employees who intend
to terminate their employment with Calico after the Merger. FirstFloor, and to
the knowledge of FirstFloor, all of its employees have complied with all
procedures and requirements under the U.S. Immigration and Naturalization Act
for employment with and by FirstFloor.
3.20 INSURANCE.
The FirstFloor Disclosure Schedule contains a list of the
principal policies of fire, liability and other forms of insurance held by
FirstFloor. FirstFloor has not done anything, either by way of action or
inaction, that might invalidate such policies in whole or in part.
3.21 LITIGATION.
There are no suits, actions or proceedings pending or, to
FirstFloor's knowledge, threatened against FirstFloor or which question or
challenge the validity of the Agreement or the Transaction Documents or the
right of FirstFloor to enter into the Agreement or the Transaction Documents.
There is no judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against FirstFloor. FirstFloor is not, and has received no notice
that it is, in default under or in breach or violation of any contract,
commitment or restriction to which FirstFloor is a party or to
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which it or any of its properties is bound. To FirstFloor's knowledge, no other
party is in default under or in breach or violation of, nor is there any valid
basis for any claim of default by any other party under or any breach or
violation by any other party of, any contract, commitment, or restriction to
which FirstFloor is bound or by which any of its properties is bound which
breach or violation would have a Material Adverse Effect on FirstFloor.
3.22 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS.
All licenses, franchises, permits and other governmental
authorizations held by FirstFloor are valid and sufficient for the business
presently carried on by FirstFloor. The business of FirstFloor is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, the violation of which could have a Material Adverse Effect on
FirstFloor.
3.23 CORPORATE MINUTES, ETC.
The corporate minute books, stock certificate books, stock
registers and other corporate records of FirstFloor are complete and accurate in
all material respects, and the signatures appearing on all documents contained
therein are the true signatures of the persons purporting to have signed the
same. All actions reflected in such books and records were duly and validly
taken in compliance with the laws of the applicable jurisdiction. True and
correct copies of such records, together with copies of FirstFloor's Articles of
Incorporation, as amended, and Bylaws, as amended, the stock transfer books of
FirstFloor setting forth all transfers of any capital stock, and all permits,
orders, and consents issued by any regulatory agency with respect to FirstFloor,
or any securities of FirstFloor, and all applications for such permits, order,
and consents, have been provided to Calico or its representatives.
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3.24 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS.
To FirstFloor's knowledge:
(a) No underground storage tanks are present under any property
that FirstFloor or any of its subsidiaries has at any time owned, operated,
occupied or leased. As of the date hereof, except as set forth in the FirstFloor
Disclosure Schedule, no substance that has been designated by any Governmental
Body or by applicable federal, state or local law to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and Recovery
Act of 1976, as amended, and the regulations promulgated pursuant to said laws
(a "Hazardous Material"), are present as a result of the actions of FirstFloor,
or any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water, that
FirstFloor has at any time owned, operated, occupied or leased.
(b) At no time has FirstFloor transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the date of
this Agreement, nor has FirstFloor disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (collectively,
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Body to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) FirstFloor currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of its Hazardous Material Activities and other
businesses of FirstFloor as such activities and businesses are currently being
conducted, the absence of which would be reasonably likely to result in fines to
FirstFloor in excess of Fifty Thousand Dollars ($50,000).
(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending or, to the knowledge of
FirstFloor, threatened concerning any Environmental Permit or any Hazardous
Materials Activity of FirstFloor. FirstFloor is not aware of any fact or
circumstance which could involve FirstFloor in any environmental litigation or
impose upon FirstFloor any environmental liability which would be reasonably
likely to exceed Fifty Thousand Dollars ($50,000).
3.25 NO BROKERS.
Neither FirstFloor nor to FirstFloor's knowledge any holder of
FirstFloor Shares, is obligated for the payment of fees or expenses of any
broker or finder in connection
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with the origin, negotiation or execution of this Agreement or the Transaction
Documents in connection with any transaction contemplated hereby or thereby.
3.26 PERMIT APPLICATION; PROXY STATEMENT/INFORMATION STATEMENT.
The information supplied by FirstFloor for inclusion in the
application for issuance of a permit (the "Permit Application") pursuant to
Section 25121 of the California Securities Act of 1968, as amended (the
"California Law") and proxy statement/information statement to be sent to the
holders of FirstFloor Shares in connection with the meeting of the Shareholders
to consider the Merger (the "Shareholder Meeting") (such proxy
statement/information statement as amended or supplemented is referred to herein
as the "Proxy Statement/Information Statement"), will not, on the date the
fairness hearing is held pursuant to Section 25142 of the California Law (the
"Fairness Hearing"), on the date the Proxy Statement/Information Statement is
first mailed to the Shareholders, and at the time of the Shareholder Meeting,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or shall omit to state any material fact necessary in order to
make the statements made therein not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the Permit Application or the solicitation of proxies for the
Shareholder Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to FirstFloor or any of its respective
affiliates, officers or directors should be discovered by FirstFloor which
should be set forth in an amendment or a supplement to the Permit Application or
the Proxy Statement/Information Statement, FirstFloor shall promptly inform
Calico and Sub. Notwithstanding the foregoing, FirstFloor makes no
representation or warranty with respect to any information supplied by Calico or
Sub which is contained in any of the foregoing documents.
3.27 YEAR 2000 COMPLIANCE.
Each FirstFloor Product is, both individually and in conjunction
with all other systems or products with which it is required or designed to
interface, (i) able to receive, record, store, process, calculate, manipulate
and output dates from and after January 1, 2000, time periods that include
January 1, 2000 and information that is dependent on or relates to such dates or
time periods, in the same manner and with the same accuracy, functionality, data
integrity and performance as when dates or time periods prior to January 1, 2000
are involved, (ii) able to store and output date information in a manner that is
unambiguous as to century and (iii) able to respond to two-digit year input so
as to accurately resolve any ambiguity as to century in a disclosed, defined,
pre-determined manner that is practicable and efficient ("Year 2000 Compliant").
To FirstFloor's knowledge, all internal computer systems that are material to
the business, finances or operations of FirstFloor are, both individually and in
conjunction with all other systems or products with which they are required or
designed to interface, Year 2000 Compliant. To its knowledge, FirstFloor is not
using the services of any third party whose systems are not Year 2000 Compliant
where such circumstance might have a material adverse effect on FirstFloor's
business, financial condition or results of operation.
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3.28 DISCLOSURE.
No statements by FirstFloor contained in this Agreement and any
other Transaction Document in response to inquiries by Calico or Surviving
Corporation contains any untrue statement of a material fact or intentionally
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
4. REPRESENTATIONS AND WARRANTIES OF CALICO AND SUB.
Except as otherwise set forth in the "Calico Disclosure Schedule"
delivered as of the date hereof (the "Calico Disclosure Schedule"), Calico and
Sub jointly and severally represent and warrant to FirstFloor as set forth
below. No fact or circumstance disclosed to FirstFloor shall constitute an
exception to these representations and warranties unless such fact or
circumstance is set forth in the Calico Disclosure Schedule.
4.1 ORGANIZATION AND GOOD STANDING.
Calico and Sub are each a corporation duly organized, validly
existing, and in good standing under the laws of the State of California, have
all requisite corporate power and authority to carry on their business as now
conducted and as proposed to be conducted. Calico and Sub are qualified or
licensed to do business and are in good standing in each jurisdiction in which
the nature of its business or properties makes such qualification or licensing
necessary, except to the extent that any failure to qualify or obtain licenses
would not in the aggregate have a material adverse effect on the operations,
assets, financial condition or prospects of Calico and/or Sub. Sub was formed
solely for the purpose of the Merger, and has not conducted any business other
than related to such purpose.
4.2 POWER, AUTHORIZATION AND VALIDITY.
Calico and Sub have the corporate power to enter into this
Agreement and the other Transaction Documents to which they are parties
(collectively, the "Calico Transaction Documents") and to perform their
respective obligations hereunder and thereunder. The execution and delivery of
this Agreement and the Calico Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been, or will have been prior
to the Closing, duly and validly approved and authorized by the Boards of
Directors of Calico and Sub and the shareholder of Sub. No authorization or
approval, governmental or otherwise, is necessary in order and enable Calico and
Sub to enter into and to perform the obligations of this Agreement and the
Calico Transaction Documents, other than the filing of the Agreement of Merger
and related documents. This Agreement and the Calico Transaction Documents when
executed by Calico and/or Sub shall be valid and binding obligations of Calico
and Sub enforceable in accordance with their terms.
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4.3 VALID ISSUANCE OF PREFERRED AND COMMON STOCK.
Subject to Section 8.5 ("Securities Exemption; Shareholder
Meeting"), the Calico Series D Preferred (and the Calico Common Stock issuable
upon conversion thereof), when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable, will have been
issued in compliance with all applicable federal and state securities laws and
will be free of any liens or encumbrances; provided, however, that the Calico
Series D Preferred (and the Calico Common Stock issuable upon conversion
thereof) may be subject to restrictions on transfer under state and/or federal
securities laws or otherwise required by such laws at the time a transfer is
proposed.
4.4 CAPITALIZATION AND VOTING RIGHTS.
The authorized capital of Calico consists, or will consist prior
to the Closing, of:
(a) 20,000,000 shares of Common Stock, par value $.0001 per
share ("Common Stock"), of which 6,044,756 shares are issued and outstanding.
(b) 10,000,000 shares of Preferred Stock, par value $.0001 per
share (the "Preferred Stock"), (a) 4,030,000 of which have been designated
Series A Preferred Stock, of which 4,000,000 shares are issued and outstanding
and 28,000 shares are subject to an outstanding warrant, (b) 2,460,833 of which
have been designated Series B Preferred Stock, of which 2,400,000 shares are
issued and outstanding and 60,833 shares are subject to an outstanding warrant,
(c) 1,388,890 of which have been designated Series C Preferred Stock, of which
1,388,889 shares are issued and outstanding and (d) 890,000 of which will be
designated Series D Preferred Stock, none of which are issued and outstanding as
of the date of this Agreement.
(c) The outstanding shares of Common Stock, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock of Calico have been
duly and validly authorized and issued, fully paid and non assessable, and were
issued in accordance with the registration or qualification provisions of the
Securities Act and any relevant state securities laws or pursuant to valid
exemptions therefrom.
(d) Except for (A) the conversion privileges of the Series A
Preferred Stock, (B) the conversion privileges of the Series B Preferred Stock,
(C) the conversion privileges of the Series C Preferred Stock, (D) outstanding
options to purchase not more than 1,500,000 shares of Common Stock granted to
employees, (E) outstanding warrants to purchase 28,000 shares of Series A
Preferred Stock and 60,833 shares of Series B Preferred Stock or (F) the rights
provided in Section 2.3 of the Investors' Rights Agreement dated as of May 26,
1995, as amended (the "Amended Investor Rights Agreement"), there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from Calico of any shares
of its capital stock. Calico is not a party or
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subject to any agreement or understanding, and, to the Calico's knowledge, there
is no agreement or understanding between any persons that affects or relates to
the voting or giving of written consents with respect to any security or the
voting by a director of Calico.
4.5 SUBSIDIARIES.
With the exception of Sub, Calico does not own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity, and Sub does not have any such similar interest or
control. Calico is not a participant in any joint venture, partnership, or
similar arrangement.
4.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by this
Agreement and the Transaction Documents, there are no agreements, understandings
or proposed transactions between Calico and any of its officers, directors,
Affiliates, or any Affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
Calico is a party or by which it is bound (other than those in the ordinary
course of business) that may involve (i) obligations (whether accrued, absolute,
contingent, liquidated, unliquidated or otherwise due or to become due) of, or
payments to, Calico in excess of $50,000, or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from Calico, or (iii)
provisions restricting or affecting the development, manufacture or distribution
of Calico's products or services, or (iv) indemnification by Calico with respect
to infringements of proprietary rights, or (v) any written or oral employment
bonus or consulting arrangement between Calico and any person, or (vi) limiting
the freedom of Calico to compete in any line of business or in any geographic
area or with any person.
(c) Calico has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities Calico has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
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(e) Calico is not a party to and is not bound by any contract,
agreement or instrument, or subject to any restriction under its Restated
Articles of Incorporation (the "Calico Restated Articles") or Bylaws, that
materially and adversely affects its business as now conducted or as proposed to
be conducted, its properties or its financial condition.
(f) Calico has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of Calico with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of Calico or a transaction
or series of related transactions in which more than fifty percent (50%) of the
voting power of Calico is disposed of, or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of Calico.
4.7 RELATED-PARTY TRANSACTIONS.
No employee, officer, or director of Calico or member of his or
her immediate family thereof is indebted to Calico, nor is Calico indebted (or
committed to make loans or extend or guarantee credit) to any of them. To
Calico's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which Calico is affiliated or with
which Calico has a business relationship, or any firm or corporation that
competes with Calico, except that employees, officers or directors of Calico and
members of their immediate families may own stock in publicly traded companies
that may compete with Calico. To Calico's knowledge, no officer or director or
any member of their immediate families is, directly or indirectly, interested in
any material contract with Calico.
4.8 REGISTRATION RIGHTS.
Except as provided in the Amended Investors' Rights Agreement,
Calico has not granted or agreed to grant any registration rights to any person
or entity.
4.9 PERMITS.
Calico has all franchises, permits, licenses, and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of Calico and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted. Calico is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
4.10 COMPLIANCE WITH OTHER INSTRUMENTS.
Neither Calico nor Sub is not in violation or default in any
material respect of any provision of their respective Articles of Incorporation
or Bylaws or in any material respect
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of any provision of any mortgage, indenture, agreement, instrument or contract
to which it is a party or by which it is bound or, to its knowledge, of any
federal or state judgment, order, writ, decree, statute, rule or regulation
applicable to it. Neither the execution and delivery of this Agreement or the
Transaction Documents nor the consummation of the transactions contemplated
hereby or thereby will conflict with, or result in a material breach or
violation of, any provision of the Calico Restated Articles or Sub's Articles of
Incorporation, or each of their respective Bylaws, as currently in effect, any
instrument or contract to which Calico or Sub is a party or by which either such
party is bound, or any federal, state or local judgment, writ, decree, order,
statute, rule or regulation applicable to either such party. Neither the
execution and delivery of this Agreement, nor any Calico Transaction Document,
nor the consummation of the transactions contemplated hereby or thereby will
directly have a material adverse effect on the operations, assets or financial
condition of Calico.
4.11 LITIGATION.
There is no action, suit, proceeding or investigation pending or,
to Calico's knowledge, currently threatened against Calico or Sub that questions
the validity of this Agreement or the Calico Transaction Documents or the right
of Calico or Sub to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of Calico, financially or otherwise, or in any
material change in the current equity ownership of Calico. Neither Calico nor
Sub is a party to, or to its knowledge, named in any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened involving the prior employment of any of
Calico's employees, their use in connection with Calico's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreement with prior employers. There
is no action, suit, proceeding or investigation by Calico currently pending or
that Calico intends to initiate.
4.12 TITLE TO PROPERTY AND ASSETS.
Calico owns its property and assets free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
that arise in the ordinary course of business and do not materially impair
Calico's ownership or use of such property assets. With respect to the property
and assets it leases, Calico is in compliance with such leases and, to its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
4.13 PATENTS AND TRADEMARKS.
To its knowledge (but without having conducted any special
investigation or patent search), Calico has sufficient title and ownership of
all patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes necessary for its
business as now conducted and as currently proposed to be conducted,
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without any conflict with or infringement of the rights of others. Except for
agreements with its own employees or consultants, there are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
Calico bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. Calico has not received any communications alleging that
Calico has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights, trade
secrets or other proprietary rights of any other person or entity. To Calico's
knowledge, no employee of Calico is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts to promote the
interests of Calico or that would conflict with Calico's business. Calico does
not believe it is or will be necessary to use any inventions of any of its
employees (or persons it currently intends to hire) made prior to their
employment by Calico.
4.14 EMPLOYEES; EMPLOYEE COMPENSATION.
To Calico's knowledge, there is no strike, or labor dispute or
union organization activities pending or threatened between it and its
employees. None of Calico's employees belongs to any union or collective
bargaining unit. To its knowledge, Calico has complied in all material respects
with all applicable state and federal equal employment opportunity and other
laws related to employment. To Calico's knowledge, no employee of Calico is or
will be in violation of any judgment, decree or order, or any term of any
employment contract, patent disclosure agreement or other contract or agreement
relating to the relationship of any such employee with Calico or any other party
because of the nature of the business conducted or to the utilization by the
employee of his best efforts with respect to such business. Calico is not party
to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement. Calico is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with Calico, nor does Calico have a
present intention to terminate the employment of any of the foregoing. Subject
to general principles related to wrongful termination of employees, the
employment of each officer and employee of Calico is terminable at the will of
Calico.
4.15 TAX RETURNS. PAYMENTS AND ELECTIONS.
Calico has filed all tax returns and reports as required by law.
These returns and reports are true and correct in all material respects. Calico
has paid all taxes and other assessments due, except those contested by it in
good faith that are listed in the Schedule of Exceptions. The provision for
taxes of Calico as shown in its financial statements is adequate for taxes due
or accrued as of the date thereof. Calico has not elected to be treated as a
Subchapter S corporation pursuant to Section 1362(a) of the Code. Calico has not
elected to be treated as a collapsible corporation pursuant to Section 341(f) of
the Code or made any other elections
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pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material effect on
Calico, its financial condition, its business as presently conducted or
currently proposed to be conducted or any of its properties or material assets.
Calico has withheld or collected from each payment made to each of its employees
the amount of all taxes (including, but not limited to, federal income taxes and
Federal Insurance Contribution Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositories. Calico has never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of Calico's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns has ever been audited by governmental
authorities.
4.16 MINUTE BOOKS.
The copy of the minute books of Calico provided to FirstFloor's
legal counsel contain minutes of all meetings of directors and shareholders and
all actions by written consent without a meeting by the directors and
shareholders since the time of incorporation and reflect all actions by the
directors (and any committee of directors) and stockholders with respect to all
transactions referred to in such minutes accurately in all material respects.
4.17 FINANCIAL STATEMENTS.
Calico has delivered to FirstFloor its unaudited financial
statements at and for the year ended March 31, 1998 and at and for the one month
period ended April 30, 1998 (the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated and
with each other (except that the unaudited Financial Statements are subject to
inter period adjustments (which are not expected to be material) and do not
contain all footnotes required by generally accepted accounting principles). The
Financial Statements fairly present the financial condition and operating
results of Calico as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Except as set forth in the
Financial Statements, Calico has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to April 30, 1998 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate are not
material to the financial condition or operating results of Calico or are set
forth in contracts disclosed herein and furnished to FirstFloor or its legal
counsel. Except as disclosed in the Financial Statements, Calico is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. Calico maintains and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
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4.18 CHANGES. Since April 30, 1998, there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of Calico from that reflected in the Financial Statements,
except changes in the ordinary course of business that have not been, in the
aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of Calico (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by Calico of a valuable right or of
a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by Calico, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of Calico (as such business is presently
conducted and as it is proposed to be conducted);
(e) any material change to a material contract or agreement by
which Calico or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of Calico; and Calico, to its knowledge, does not know of any impending
resignation or termination of employment of any such officers;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of Calico;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by Calico, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by Calico to or for the benefit
of its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of its business;
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(l) any declaration, setting aside or payment or other
distribution in respect to any of Calico's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by
Calico;
(m) to Calico's knowledge, any other event or condition of any
character that might materially and adversely affect the business, properties,
prospects or financial condition of Calico (as such business is presently
conducted and as it is proposed to be conducted); or
(n) any arrangement or commitment by Calico to do any of the
above items described in this Section.
4.19 INSURANCE.
Calico has fire, casualty and liability insurance policies, in
such amounts and with such coverage as are adequate to protect Calico and its
financial condition against the risks involved in the business conducted by
Calico.
4.20 REAL PROPERTY HOLDING COMPANY.
Calico is not a real property holding company within the meaning
of Section 897 of the Code.
4.21 NO BROKERS.
Neither Calico nor Sub is obligated for the payment of fees or
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Transaction Documents in connection with any
transaction contemplated hereby or thereby.
4.22 PERMIT APPLICATION; PROXY STATEMENT/INFORMATION STATEMENT.
The information supplied by Calico for inclusion in the Permit
Application and the Proxy Statement/Information Statement, will not, on the date
of the Fairness Hearing, on the date the Proxy Statement/Information Statement
is first mailed to the Shareholders, and at the time of the Shareholder Meeting,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or shall omit to state any material fact necessary in order to
make the statements made therein not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the Permit Application or the solicitation of proxies for the
Shareholder Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Calico or any of its respective
affiliates, officers or directors should be discovered by Calico which should be
set forth in an amendment or a supplement to the Permit Application or the Proxy
Statement/Information Statement, Calico shall promptly inform FirstFloor.
Notwithstanding the foregoing, Calico makes no representation or
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warranty with respect to any information supplied by FirstFloor which is
contained in any of the foregoing documents.
4.23 ENVIRONMENTAL AND SAFETY LAWS.
To its knowledge, Calico is not in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
4.24 DISCLOSURE.
Calico has fully provided FirstFloor and the Principal
Shareholders with all the information that FirstFloor and the Principal
Shareholders have required for deciding whether to consummate the Merger and to
acquire the Series D Preferred Stock. Neither this Agreement, nor any other
statements or certificates made or delivered in connection herewith, taken as a
whole, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading.
4.25 CORPORATE DOCUMENTS.
Except for the changes to be effected by the Calico Restated
Articles, the Restated Articles and Bylaws of Calico are in the form previously
provided to counsel for FirstFloor.
4.26 EMPLOYEE BENEFIT PLANS.
Calico does not have any Employee Benefit Plan as defined in the
Employee Retirement Income Security Act of 1974.
4.27 PROPRIETARY INFORMATION AGREEMENTS.
Each employee, officer and consultant of Calico has executed a
Proprietary Information and Inventions Agreement substantially in the form
provided to counsel to FirstFloor. Calico is not aware that any of its
employees, officers or consultants are in violation thereof, and Calico will use
its best efforts to prevent any such violation.
5. REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS.
Each Principal Shareholder as to itself, himself or herself represents
and warrants to Calico as follows:
(a) No person or entity not a signatory of this Agreement has a
beneficial interest in or a right to acquire or vote the FirstFloor Shares held
of record by such
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Principal Shareholder or any portion thereof (except, with respect to
shareholders which are partnerships, partners of such shareholders). The
FirstFloor Shares are and will be, at all times until the Closing, free and
clear of any liens, claims, options, charges or other encumbrances. Principal
Shareholder's principal place of residence or place of business is set forth on
the signature page hereto.
(b) Principal Shareholder will not transfer (except as may be
specifically required by court order or by operation of law), sell, exchange,
pledge or otherwise dispose of or encumber the FirstFloor Shares or any New
Securities (as defined below), or make any offer or agreement relating thereto,
at any time prior to the Closing.
(c) Principal Shareholder agrees that any shares in the capital
stock of FirstFloor that Principal Shareholder purchases or with respect to
which Principal Shareholder otherwise acquired beneficial ownership after the
date of this Agreement and prior to the Closing (the "New Securities") shall be
subject to the terms and conditions of this Agreement to the same extent as if
they constituted FirstFloor Shares.
6. PRECLOSING COVENANTS OF FIRSTFLOOR AND PRINCIPAL SHAREHOLDERS.
6.1 ADVICE OF CHANGES.
Except as to matters approved by Calico in accordance with
Section 6.2 hereof, FirstFloor will promptly advise Calico in writing of any
event occurring subsequent to the date of this Agreement which would render any
representation or warranty of FirstFloor contained in this Agreement, if made on
or as of the date of such event or the Closing Date, untrue or inaccurate in any
material respect.
6.2 CONDUCT OF BUSINESS.
The parties acknowledge that following the execution of this
Agreement, FirstFloor intends to restructure its operations, including a
significant reduction in its employee headcount. FirstFloor's continuing
operations and business will be substantially changed as of the signing of this
Agreement. This includes the effects of the reduction of workforce and
re-deployment of FirstFloor employees to bring FirstFloor in line with Calico's
overall business plan, and the effects of the announcement on FirstFloor's
business partners, some of whom are in competitive businesses with Calico. The
two companies may also, from time to time during the period between signing and
closing, make other mutually agreed to changes to the operation of FirstFloor's
business and to FirstFloor's marketing and selling strategies, which may
substantially affect bookings, revenue, and expenses. Subject to the foregoing,
until the Closing, FirstFloor will continue to conduct its business and maintain
its business relationships in the ordinary and usual course. FirstFloor will
coordinate closely with representatives of Calico with respect to day to day
operating decisions and with respect to any decisions regarding matters out of
the ordinary course of business. Without limiting the generality of the
foregoing, FirstFloor
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will not, without the prior written consent of Calico, which consent may be by
electronic mail and shall not be unreasonably withheld or delayed:
(a) borrow any money which borrowings exceed in the aggregate
$10,000;
(b) incur any liability other than in the ordinary and usual
course of business or in connection with the performance or consummation of this
Agreement;
(c) encumber or permit to be encumbered any of its assets;
(d) dispose of any of its assets other than transactions in the
ordinary course of business with a value of less than $5,000;
(e) make any payment in excess of $10,000;
(f) enter into any lease or contract for the purchase or sale of
any property, real or personal with contractual obligations except in the
ordinary course of business with a value less than $5,000;
(g) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has maintained up to
the date of this Agreement, subject only to ordinary wear and tear;
(h) pay or approve any bonus, increased salary, or special
remuneration to any officer or employee, including any amounts for accrued but
unpaid salary (other than accrued salary payable in connection with regular
payroll periods) or bonuses;
(i) adopt or change any accounting methods;
(j) declare, set aside or pay any cash or stock dividend or
other distribution in respect of capital, or redeem or otherwise acquire any of
its capital stock;
(k) amend or terminate any material contract, agreement or
license to which it is a party;
(l) enter into any material contract;
(m) loan any amount to any person or entity, or guaranty or act
as a surety for any obligation;
(n) waive or release any material right or claim;
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(o) issue or sell any shares of its capital stock of any class
or any other of its securities (other than the issuance of common stock upon the
exercise of options outstanding as of the date of this Agreement), or issue or
create any warrants, obligations, subscriptions, options, convertible
securities, or other commitments to issue shares of capital stock or amend the
terms of any agreement regarding the foregoing;
(p) split or combine the outstanding shares of its capital stock
of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(q) merge, consolidate or reorganize with any entity;
(r) amend its Articles of Incorporation or Bylaws other than as
contemplated by this Agreement;
(s) make or change any election, change any annual accounting
period, file any tax return or amended tax return, enter into any closing
agreement, settle any tax claim or assessment relating to FirstFloor, surrender
any right to claim refund of taxes, consent to any extension or waiver of the
limitation period applicable to any tax claim or assessment relating to
FirstFloor, or take any other action or omit to take any action (other than in
the ordinary course of business), if any such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other action or omission
would have the effect of increasing the tax liability of FirstFloor or Calico;
or
(t) agree to do any of the things described in the preceding
clauses of this Section.
6.3 ACCESS TO INFORMATION.
Until the Closing and subject to the confidentiality and nonuse
provisions hereof, FirstFloor shall allow Calico and its agents access upon
reasonable notice and during normal working hours to its files, books, records,
and offices, including, without limitation, any and all information relating to
taxes, commitments, contracts, leases, licenses, and personal property and
financial condition. Until the Closing, FirstFloor shall cause its accountants
to cooperate with Calico and its agents in making available all financial
information requested, including without limitation the right to examine working
papers pertaining to all financial statements audited by such accountants which
are customarily provided under the circumstances, subject to the delivery of
appropriate indemnification.
6.4 REGULATORY APPROVALS.
Prior to the Closing, FirstFloor shall execute and file, or join
in the execution and filing, of any application or other document which may be
necessary in order to obtain the authorization, approval or consent of any
Governmental Body, federal, state or local,
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which may be reasonably required, or which Calico may reasonably request, in
connection with the consummation of the transactions contemplated by this
Agreement and the Transaction Documents. Such persons and entities shall use
their best efforts to obtain all such authorizations, approvals and consents.
6.5 SATISFACTION OF CONDITIONS PRECEDENT.
FirstFloor will use its best efforts to satisfy or cause to be
satisfied all the conditions precedent which are set forth in Section 10
("Conditions to Calico's and Sub's Obligations"), and FirstFloor will use its
best efforts to cause the transactions contemplated by this Agreement to be
consummated.
6.6 SHAREHOLDER VOTE.
Prior to the Closing, whether by special meeting or written
consent of its shareholders, FirstFloor will submit this Agreement and related
matters to its shareholders for consideration and approval, and the Board of
Directors of FirstFloor will recommend such approval to the holders of
FirstFloor Shares.
6.7 EMPLOYMENT ARRANGEMENTS.
Except as set forth in Section 6.7 of the FirstFloor Disclosure
Schedule, prior to the Closing, all existing FirstFloor employment contracts
shall be terminated and obligations of FirstFloor to issue stock, warrants or
options to any FirstFloor employee or consultant to whom such stock, warrants or
options have been offered or promised shall have been fulfilled to the mutual
satisfaction of Calico and FirstFloor, except that FirstFloor's right to
repurchase any unvested shares of FirstFloor common stock issued upon exercise
of options granted under the FirstFloor Stock Option Plan shall continue in
effect and be assigned to Calico.
6.8 IRREVOCABLE PROXY.
Each Principal Shareholder hereby agrees to deliver to Calico
concurrent with the execution of this Agreement a duly executed Proxy covering
the transactions contemplated by this Agreement with respect to each meeting of
shareholders of FirstFloor, such Proxy to cover the total number of FirstFloor
Shares and New Securities in respect of which Principal Shareholder is entitled
to vote at any such meeting. In the event that Principal Shareholder is unable
to provide any such Proxy in a timely manner, Principal Shareholder hereby
grants Calico a power of attorney to execute and deliver such Proxy for and on
behalf of Principal Shareholder, such power of attorney, which being coupled
with an interest, shall survive any death, disability, bankruptcy or any other
such impediment. Upon the execution of this Agreement by the Principal
Shareholder, the Principal Shareholder hereby revokes any and all prior proxies
given by the Principal Shareholder with respect to the FirstFloor Shares and
agrees not to grant any subsequent proxies with respect to the FirstFloor Shares
or any New Securities.
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6.9 NO CONVERSION OF FIRSTFLOOR PREFERRED SHARES.
Each Principal Shareholder hereby agrees that it has not and will
not voluntarily convert any of the FirstFloor Preferred Shares held or
controlled by it into FirstFloor Common Shares.
7. PRECLOSING AND POSTCLOSING COVENANTS OF CALICO, SUB AND CERTAIN
SHAREHOLDERS OF CALICO.
7.1 ADVICE OF CHANGES.
Calico and Sub will promptly advise FirstFloor in writing of any
event occurring subsequent to the date of this Agreement which would render any
representation or warranty of Calico or Sub contained in this Agreement, if made
on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect.
7.2 REGULATORY APPROVALS.
Prior to the Closing, Calico and Sub shall execute and file, or
join in the execution and filing, of any application or other document which may
be necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state or local, which may be reasonably required, or
which FirstFloor may reasonably request, in connection with the consummation of
the transactions contemplated by this Agreement and the Transaction Documents.
Calico and Sub shall use their best efforts to obtain all such authorizations,
approvals and consents.
7.3 SATISFACTION OF CONDITIONS PRECEDENT.
Calico and Sub will use their best efforts to satisfy or cause to
be satisfied all the conditions precedent which are set forth in Section 9
("Conditions to FirstFloor's Obligations"), and Calico and Sub will use their
best efforts to cause the transactions contemplated by this Agreement to be
consummated and, without limiting the generality of the foregoing, to obtain all
consents and authorizations of third parties and to make all filings with, and
give all notices to, third parties which may be necessary or reasonably required
on its part in order to effect the transactions contemplated under this
Agreement and the Transaction Documents.
7.4 EMPLOYEE BENEFITS.
Calico and FirstFloor agree that Calico will provide benefits to
FirstFloor employees following the Effective Time that are substantially
identical to the benefits currently provided to similarly situated employees of
Calico. From and after the Effective Time, Calico shall grant all employees
credit for all service (to the same extent as service with Calico is taken
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into account with respect to similarly situated employees of Calico) with
FirstFloor prior to the Effective Time for (i) vesting purposes and (ii) for
purposes of vacation accrual after the Effective Time as if such service with
FirstFloor was service with Calico. Calico and FirstFloor agree that where
applicable with respect to any medical or dental benefit plan of Calico, to the
extent that such action does not result in any additional cost to Calico, Calico
shall waive, or shall request its insurance carrier to waive, any pre-existing
condition exclusion and actively-at-work requirements (provided, however, that
no such waiver shall apply to a pre-existing condition of any employee of
FirstFloor who was, as of the Effective Time, excluded from participation in a
plan by virtue of such pre-existing condition).
7.5 INDEMNIFICATION.
From and after the Effective Time, Calico and the Surviving
Corporation jointly and severally shall indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date of this Agreement
or who becomes prior to the Effective Time, an officer, director or employee of
FirstFloor (the "Indemnified Parties") in respect of acts or omissions occurring
on or prior to the Effective Time to the extent required under FirstFloor's
Articles of Incorporation and Bylaws in effect on the date hereof; provided that
such indemnification shall be subject to any limitation imposed from time to
time under applicable law.
7.6 TAX-FREE REORGANIZATION.
Neither FirstFloor, Calico nor Sub will, either before or after
consummation of the Merger, take any action which, to the knowledge of such
party, would cause the Merger to fail to constitute a "reorganization" within
the meaning of Code Section 368.
7.7 SHAREHOLDER APPROVAL.
By executing a copy of this Agreement, shareholders holding a
majority of the outstanding Calico Common Stock and Series A, Series B and
Series C Preferred Stock are confirming their agreement to vote all shares of
Calico capital stock in respect of which each such shareholder is entitled to
vote at any meeting, in favor of the Merger, the approval of the Calico Restated
Articles and the transactions contemplated by this Agreement. Such shareholders
are parties to this Agreement solely with respect to this Section 7.7.
8. MUTUAL COVENANTS.
8.1 CONFIDENTIALITY.
Each party acknowledges that in the course of the negotiation and
performance of this Agreement and a letter of intent preceding this Agreement,
it may obtain the Confidential Information of the other party. The Receiving
Party shall, at all times, both during the term of this Agreement and
thereafter, keep in confidence and trust all of the Disclosing
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Party's Confidential Information received by it. The Receiving Party shall not
use the Confidential Information of the Disclosing Party other than as expressly
permitted under the terms of this Agreement or by a separate written agreement.
The Receiving Party shall take all reasonable steps to prevent unauthorized
disclosure or use of the Disclosing Party's Confidential Information and to
prevent it from falling into the public domain or into the possession of
unauthorized persons. The Receiving Party shall not disclose Confidential
Information of the Disclosing Party to any person or entity other than its
officers, employees, consultants, agents and permitted sublicensees who need
access to such Confidential Information in order to effect the intent of this
Agreement and who have entered into confidentiality agreements with such
person's employer which protects the Confidential Information of the Disclosing
Party. The Receiving Party shall promptly give notice to the Disclosing Party of
any unauthorized use or disclosure of Disclosing Party's Confidential
Information. The Receiving Party agrees to assist the Disclosing Party to remedy
such unauthorized use or disclosure of its Confidential Information, which
remedies shall include injunctive relief without the necessity of posting a bond
or proving damages. These obligations shall not apply to the extent that
Confidential Information includes information which:
(a) is already known to the Receiving Party at the time of
disclosure, which knowledge the Receiving Party shall have the burden of
proving;
(b) is, or, through no act or failure to act of the Receiving
Party, becomes publicly known;
(c) is received by the Receiving Party from a third party
without restriction on disclosure;
(d) is independently developed by the Receiving Party without
reference to the Confidential Information of the Disclosing Party, which
independent development the Receiving Party will have the burden of proving;
(e) is approved for release by written authorization of the
Disclosing Party; or
(f) is required to be disclosed by a government agency to
further the objectives of this Agreement or by a proper order of a court of
competent jurisdiction; provided, however that the Receiving Party will use its
best efforts to minimize such disclosure and will consult with and assist the
Disclosing Party in obtaining a protective order prior to such disclosure.
8.2 EXCLUSIVITY.
Until the Closing Date or the earlier termination of this
Agreement in accordance with Section 11 ("Termination of Agreement"), FirstFloor
agrees that it will not (and that it will use best efforts to assure that its
employees, agents and affiliates do not on its behalf)
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discuss or enter any agreement concerning the sale or acquisition of FirstFloor,
its stock (including by means of any public offering thereof, but excluding
issuance of stock and options to employees in the ordinary course of business
consistent with past practices) or a substantial part of its assets with any
party other than Calico, and that any such discussions presently in progress
will be terminated or suspended during that period. FirstFloor represents and
warrants that it has the legal right to terminate or suspend any such pending
negotiations and agrees to indemnify Calico, its representatives and agents from
and against any claims by any party to such negotiations based upon or arising
out of the discussion or any consummation of the Merger.
8.3 FURTHER ASSURANCES.
Each party agrees to cooperate fully with the other parties and
to execute such further instruments, documents and agreements and to give such
further written assurances, as may be reasonably requested by any other party to
better evidence and reflect the transactions described herein and contemplated
hereby and to carry into effect the intents and purposes of this Agreement and
the Transaction Documents.
8.4 PUBLICITY.
Within such time following the execution of this Agreement as may
be agreed by Calico and FirstFloor, Calico and FirstFloor shall issue a press
release in a mutually agreed form and content announcing the Merger. At no time
prior to such announcement may FirstFloor or Calico publicly disclose the terms
or existence of this Agreement without the prior written consent of the other.
8.5 SECURITIES EXEMPTION; SHAREHOLDER MEETING.
(a) Each of Calico and FirstFloor shall use its best efforts to
(i) file a Permit Application within fifteen (15) days from the date of this
Agreement and (ii) obtain such qualification promptly thereafter. FirstFloor
shall furnish Calico with all information concerning FirstFloor and the holders
of the Securities and shall take such further action as Calico may reasonably
request in connection with the Proxy Statement/Information Statement and the
issuance of the Calico Series D Preferred. The Proxy Statement/Information
Statement shall include the recommendation of the Board of Directors of
FirstFloor and Calico in favor of the Merger.
(b) As soon as possible following qualification under the CGCL
is obtained, FirstFloor shall call and hold the Shareholder Meeting in
accordance with applicable laws for the purpose of obtaining the approval of the
Merger, this Agreement and the transactions contemplated hereby. FirstFloor
shall use its best efforts to solicit from all of the holders of FirstFloor
Shares a vote in favor of the adoption of the Merger, this Agreement and the
transactions contemplated hereby and shall take all other action necessary or
advisable to secure the vote or consent of the Shareholders to obtain such
approvals and waivers.
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9. CONDITIONS TO FIRSTFLOOR'S OBLIGATIONS.
FirstFloor's obligations hereunder are subject to the fulfillment or
satisfaction on, and as of the Closing, of each of the following conditions (any
one or more of which may be waived by FirstFloor, but only in a writing signed
by FirstFloor). At the Closing, FirstFloor shall have received a certificate
executed by the President and Chief Financial Officer of Calico and Sub stating
that the conditions in Section 9.1 ("Accuracy of Representations and
Warranties"), 9.2 ("Covenants"), 9.3 ("No Litigation") and 9.4
("Authorizations") have been satisfied.
9.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Calico and Sub set forth in
Section 4 ("Representations and Warranties of Calico and Sub") shall be true on
and as of the Closing in all material respects with the same force and effect as
if they had been made at the Closing.
9.2 COVENANTS.
Calico and Sub shall have performed and complied in all material
respects with all of their covenants contained in Sections 7 ("Preclosing and
Postclosing Covenants of Calico and Sub") and 8 ("Mutual Covenants") on or
before the Closing.
9.3 NO LITIGATION.
No litigation or proceeding shall be threatened or pending
against Calico and Sub with the purpose or with the probable effect of enjoining
or preventing the consummation of any of the transactions contemplated by this
Agreement or the Transaction Documents, or which would have a material adverse
effect on the business, liabilities, income, property or operations of Calico or
Sub, taken as a whole, subsequent to the Closing.
9.4 AUTHORIZATIONS.
FirstFloor shall have received from Calico and Sub written
evidence that the execution, delivery and performance of Calico and Sub's
obligations under this Agreement and the Calico Transaction Documents have been
duly and validly approved and authorized by the Board of Directors of Calico and
Sub, respectively, and the shareholder of Sub.
9.5 NO ADVERSE DEVELOPMENT.
There shall be no order, decree, or ruling by any court or
Governmental Body or threat thereof or any other fact or circumstance, which
might prohibit or render illegal the transactions contemplated by this
Agreement.
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9.6 OPINION OF CALICO'S COUNSEL.
FirstFloor shall have received from Gray Cary Ware & Freidenrich,
counsel to Calico, an opinion in form and substance reasonably acceptable to
FirstFloor.
9.7 GOVERNMENT CONSENTS.
There shall have been obtained at or prior to the date of Closing
such permits or authorizations, and there shall have been taken such other
action, as may be required by any regulatory authority having jurisdiction over
the parties and the subject matter and the actions herein proposed to be taken,
including, but not limited to, compliance with applicable state and federal
securities laws.
9.8 SECURITIES EXEMPTION.
A Fairness Hearing shall have been held and a permit for the
issuance of the Calico Series D Preferred shall have been issued.
9.9 TAX OPINION.
FirstFloor shall have received a written opinion from its counsel
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code.
9.10 INVESTOR RIGHTS AGREEMENT
Calico, the Shareholders Representative and the requisite number
of other holders of Calico capital stock shall have entered into an amendment to
Calico's Investor Rights Agreement in the form attached as Exhibit F hereto.
10. CONDITIONS TO CALICO'S AND SUB'S OBLIGATIONS.
The obligations of Calico and Sub hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Calico, but only in a
writing signed by Calico). At the Closing Calico shall have received a
certificate executed by the President and Chief Financial Officer of FirstFloor
stating that the conditions in Sections 10.1 ("Accuracy of Representations and
Warranties"), 10.2 ("Covenants"), 10.3 ("No Litigation") and 10.4
("Authorizations") have been satisfied.
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of FirstFloor and the
Principal Shareholders set forth in Sections 3 ("Representations and Warranties
of FirstFloor") and 5
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("Representations and Warranties of the Principal Shareholders") shall be true
on and as of the Closing with the same force and effect as if they had been made
at the Closing except (i) for changes contemplated by this Agreement (including,
but not limited to those set forth in Section 6.2 hereof), and (ii) where the
failure to be true would not be reasonably likely to have a material adverse
effect on FirstFloor, taken as a whole (it being understood that, for purposes
of determining whether such representations and warranties are true as of the
Closing Date, (A) any inaccuracy that primarily results from or relates to
general business, economic or industry conditions shall be disregarded, (B) any
inaccuracy that directly or indirectly results from or relates to the
announcement or pendency of the Merger or any of the other transactions
contemplated by this Agreement shall be disregarded, and (C) any inaccuracy that
directly or indirectly results from or relates to the taking of any action
contemplated or permitted by this Agreement shall be disregarded.
10.2 COVENANTS.
FirstFloor shall have performed and complied in all material
respects with all of its covenants contained in Sections 6 ("Preclosing
Covenants of FirstFloor and Principal Shareholders") and 8 (Mutual Covenants) on
or before the Closing.
10.3 NO LITIGATION.
No litigation or proceeding shall be threatened or pending
against FirstFloor (i) for the purpose or with the probable effect of enjoining
or preventing the consummation of any of the transactions contemplated by this
Agreement or the Transaction Documents, or (ii) which would have a material
adverse effect on the business, liabilities, income, property or operations of
FirstFloor, taken as a whole, subsequent to the Closing (except any litigation
or proceeding which directly or indirectly results from or relates to the
announcement or pendency of the Merger or any of the other transactions
contemplated by this Agreement, or directly or indirectly results from or
relates to the taking of any action contemplated or permitted by this
Agreement).
10.4 AUTHORIZATIONS.
Calico shall have received from FirstFloor written evidence that
the execution, delivery and performance of (i) this Agreement and the FirstFloor
Transaction Documents and (ii) an amendment to the FirstFloor Restated Articles
of Incorporation to the effect that the upon the Effective Time the Merger
Consideration shall be allocated to the holders of the FirstFloor Shares in
accordance with the terms of this Agreement, have been duly and validly approved
and authorized by its Board of Directors and by the holders of FirstFloor Shares
and holders of not more than seven and one-half percent (7 1/2%) of the First
Floor Shares have, or might be able to perfect, dissenters' rights in connection
with the Merger.
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10.5 NO ADVERSE DEVELOPMENT.
There shall be no order, decree, or ruling by any court or
Governmental Body or threat thereof or any other fact or circumstance, which
might prohibit or render illegal the transactions contemplated by this
Agreement.
10.6 INTENTIONALLY OMITTED.
10.7 OPINION OF FIRSTFLOOR'S COUNSEL.
Calico shall have received from FirstFloor's legal counsel an
opinion in form and substance reasonably acceptable to Calico.
10.8 GOVERNMENT CONSENTS.
There shall have been obtained at or prior to the date of Closing
such permits or authorizations and there shall have been taken such other
action, as may be required by any regulatory authority having jurisdiction over
the parties and the subject matter and the actions herein proposed to be taken,
including, but not limited to, compliance with applicable state and federal
securities laws.
10.9 SECURITIES EXEMPTION.
A Fairness Hearing shall have been held and a permit for the
issuance of the Calico Series D Preferred shall have been issued.
10.10 EMPLOYMENT MATTERS.
David J. Cardinal shall have accepted employment with the
Surviving Corporation and shall have entered into the Employment Agreements with
the Surviving Corporation, such agreement to be in full force and effect as of
the Effective Time and such person shall be in the employ of the Surviving
Corporation immediately prior to the Effective Time. Each of the parties
specified in Section 1.30 shall have entered into Noncompetition Agreements with
Calico, such agreements to be in full force and effect as of the Effective Time.
10.11 ESCROW AGREEMENT.
Each of the Escrow Agent, Calico and the Shareholder
Representative shall have executed and delivered to Calico the Escrow Agreement.
10.12 TAX OPINION.
Calico shall have received a written opinion from its counsel to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Code.
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10.13 CONVERSION OF LOANS.
Calico and certain shareholders of FirstFloor shall have entered
into an agreement with respect to the conversion of loans to FirstFloor in the
aggregate principal amount of $1,150,000 into 191,667 shares of Calico Series D
Preferred effective as of the Closing.
11. TERMINATION OF AGREEMENT.
11.1 MUTUAL AGREEMENT.
This Agreement may be terminated at any time prior to the Closing
by the mutual written consent of each of the parties hereto.
11.2 FAILURE TO FULFILL CONDITIONS.
Either Calico or FirstFloor may terminate this Agreement if the
Merger has not been consummated by September 30, 1998 (provided that the right
to terminate this Agreement under this Section 11.2 shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the primary and direct cause of the failure of the Merger to occur on or before
such date). Any termination of this Agreement under this Section 11.2 shall be
effective by the delivery of notice of the terminating party to the other
parties hereto.
11.3 NO LIABILITY.
Any termination of this Agreement pursuant to Section 11.1 or
11.2 ("Termination of Agreement") shall be without further obligation or
liability upon any party in favor of any other party hereto.
11.4 EFFECT OF TERMINATION.
The termination of the Agreement pursuant to this Section 11
("Termination of Agreement") shall terminate all Sections hereof other than
Section 8.1 ("Confidentiality") and the last sentence of Section 8.2
("Exclusivity").
12. INDEMNIFICATION.
12.1 SURVIVAL OF REPRESENTATIONS.
(a) The representations and warranties made by FirstFloor under
Section 3 hereof and the representations and warranties set forth in any
certificate delivered by FirstFloor in connection with this Agreement shall
survive the Closing and shall remain in full
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force and effect and shall survive until the end of the Indemnification Period
and shall survive thereafter only with respect to any claims made prior to the
end of the Indemnification Period.
(b) The representations, warranties, covenants and obligations
of FirstFloor, and the rights and remedies that may be exercised by the
Indemnitees (as defined herein), shall not be limited or otherwise affected by
or as a result of any information furnished to, or any investigation made by or
knowledge of, any of the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item
of information set forth in the FirstFloor Disclosure Schedule shall be deemed
to be a representation and warranty made by FirstFloor in this Agreement.
12.2 INDEMNIFICATION BY FIRSTFLOOR SHAREHOLDERS.
(a) From and after the Closing Date, the FirstFloor Shareholders
shall be liable for and shall hold harmless and indemnify Calico and the
Surviving Corporation (each an "Indemnitee") from and against, and shall
compensate and reimburse each of the Indemnitees for, any Damages which are
directly or indirectly suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which arise from or as
a result of, or are directly or indirectly connected with: (i) any inaccuracy in
or breach of any representation or warranty set forth in Section 3 hereunder or
in any certificate delivered by FirstFloor in connection with this Agreement;
(ii) any breach of any covenant or obligation of FirstFloor hereunder; or (iii)
any Legal Proceeding relating to any inaccuracy, breach or expense of the type
referred to in clause "(i)" or "(ii)" above (including any Legal Proceeding
commenced by any Indemnitee for the purpose of enforcing any of its rights under
this Section 12 if such Indemnitee is the prevailing party in any such Legal
Proceeding).
(b) If the Surviving Corporation suffers, incurs or otherwise
becomes subject to any Damages as a result of or in connection with any
inaccuracy in or breach of any representation, warranty, covenant or obligation,
then (without limiting any of the rights of the Surviving Corporation as an
Indemnitee) Calico shall also be deemed, by virtue of its ownership of the stock
of the Surviving Corporation, to have incurred Damages as a result of and in
connection with such inaccuracy or breach.
(c) No Indemnitee shall have the right to be indemnified
pursuant to this Section unless and until the Indemnitees together shall have
incurred on a cumulative basis from and after the Closing Date aggregate Damages
in an amount not less than $100,000 whereupon the FirstFloor Shareholders shall
be obligated to indemnify against $50,000 of the first $100,000 and all
additional Damages (subject to the limitation set forth in paragraph (d) of this
Section).
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(d) Except with respect to claims based upon fraud, Calico
agrees that, after the Closing Date, the sole recourse of the Indemnitees with
respect to Damages shall be against the Escrow Fund.
12.3 NO CONTRIBUTION. The FirstFloor Shareholders acknowledge and
agree that they shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation which they have in their
capacity as shareholders in connection with any indemnification obligation or
any other liability to which it may become subject under or in connection with
this Agreement or any certificate delivered by FirstFloor in connection with
this Agreement.
12.4 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Calico or against any other Person) with respect
to which the FirstFloor Shareholders may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 12,
the procedure set forth below shall be followed.
(a) NOTICE. Calico shall give prompt written notice of the
commencement of any such Legal Proceeding against Calico or the Surviving
Corporation for which indemnity may be sought under Section 12; provided,
however, that any failure on the part of Calico to so notify FirstFloor shall
not limit any of the obligations of FirstFloor under this Section 12 unless the
ability to defend such claim is materially prejudiced by such failure or delay.
The Indemnification Period shall be tolled solely with respect to a particular
claim for the period beginning on the date the FirstFloor Shareholders receive
written notice of that claim until the final resolution of such claim so long as
such claim is made within the Indemnification Period.
(b) DEFENSE OF CLAIM. The Indemnitee shall have the right to be
represented by counsel of its choice and to defend or otherwise control the
handling of any claim, or Legal Proceeding for which indemnity is sought. If the
Indemnitee so proceeds with the defense of any such claim or Legal Proceeding:
1. all expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively by the FirstFloor
Shareholders (provided that nothing set forth herein shall increase the exposure
of the FirstFloor Shareholders as set forth in Section 12.2(d) hereof);
2. the FirstFloor Shareholders shall make available to the
Indemnitee any non-privileged documents and materials in the possession or
control of the FirstFloor Shareholders that may be necessary to the defense of
such claim or Legal Proceeding except for documents or materials which are
sealed by a court order or are subject to a nondisclosure agreement prohibiting
disclosure by the FirstFloor Shareholders;
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3. the Indemnitee shall keep the Shareholders
Representative informed of all material developments and events relating to such
claim or Legal Proceeding; and
4. the FirstFloor Shareholders shall have the right to
participate in the defense of such claim or legal proceeding at their sole cost
and expense; and
5. the Indemnitee shall have the right to settle, adjust
or compromise such claim or Legal Proceeding.
12.5 CONTINUING EMPLOYEES. If as of the date of mailing of the Proxy
Statement/Information Statement more than three (3) of the Continuing Employees
shall have terminated their employment with FirstFloor, not executed an offer
letter to continue with work with the Surviving Corporation following the
Effective Time or otherwise confirmed that they will not remain in the employ of
the surviving corporation following the Effective Time ("Terminating Continuing
Employees"), then for each Terminating Continuing Employee in excess of three
(3), Calico shall have the right to reduce by 10,000 shares the number of Calico
Series D Preferred Shares to be deposited into the Escrow Fund. Notwithstanding
the foregoing, if Calico makes an offer which is accepted by one of the
Departing Employees to replace a Terminating Continuing Employee which Departing
Employee has substantially comparable skills and experience as the Terminating
Continuing Employee in question, then such Departing Employee shall be deemed to
be a Continuing Employee in replacement of the Terminating Continuing Employee
for the purposes of this Agreement.
13. MISCELLANEOUS.
13.1 GOVERNING LAW.
It is the intention of the parties hereto that the internal laws
of the State of California (without regard to of its choice of law principles)
shall govern the validity of this Agreement, the construction of its terms, and
the interpretation and enforcement of the rights and duties of the parties
hereto.
13.2 BINDING UPON SUCCESSORS AND ASSIGNS.
Subject to, and unless otherwise provided in, this Agreement,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of, the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto; provided, however, that any such assignment shall require the
written consent of the parties hereto.
13.3 SEVERABILITY.
If any provision of this Agreement, or the application thereof,
shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and
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<PAGE> 53
application of such provision to other persons or circumstances shall be
interpreted so as best to reasonably effect the intent of the parties hereto.
The parties further agree to replace such void or unenforceable provision of
this Agreement with a valid and enforceable provision which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision.
13.4 ENTIRE AGREEMENT.
This Agreement, the exhibits hereto, the documents referenced
herein, and the exhibits thereto, constitute the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto and thereto. The express terms hereof
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
13.5 COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original as against any party whose signature appears
thereon and all of which together shall constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as signatories.
13.6 EXPENSES.
Except as provided to the contrary herein, each party shall pay
all of its own costs and expenses incurred with respect to the negotiation,
execution and delivery of this Agreement and the exhibits hereto and the
Transaction Documents. Any and all such expenses of FirstFloor shall be deemed
to be expenses of the Shareholders, shall be borne by the Shareholders and shall
not become obligations of FirstFloor, the Surviving Corporation or Calico.
Notwithstanding the foregoing, up to $150,000 may be paid to Updata Capital for
investment banking services in connection with the Merger and legal and other
expenses related to this transaction up to a maximum of $150,000 may be paid by
FirstFloor; provided however, that no legal expenses payable by FirstFloor shall
be incurred without the prior approval of the Shareholder Representative or
Joseph Moran.
13.7 OTHER REMEDIES.
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party shall be deemed cumulative with and not
exclusive of any other remedy conferred hereby or by law on such party, and the
exercise of any one remedy shall not preclude the exercise of any other.
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<PAGE> 54
13.8 AMENDMENT AND WAIVERS.
Any term or provision of this Agreement may be amended, and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound thereby. The waiver by a party of any breach
hereof for default in payment of any amount due hereunder or default in the
performance hereof shall not be deemed to constitute a waiver of any other
default or any succeeding breach or default.
13.9 SURVIVAL OF AGREEMENTS.
Subject to Section 12.1(a), all covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby notwithstanding any investigation of the parties hereto.
13.10 NO WAIVER.
The failure of any party to enforce any of the provisions hereof
shall not be construed to be a waiver of the right of such party thereafter to
enforce such provisions.
13.11 ATTORNEYS' FEES.
Should suit be brought to enforce or interpret any part of this
Agreement, the prevailing party shall be entitled to recover, as an element of
the costs of suit and not as damages, reasonable attorneys' fees to be fixed by
the court (including without limitation, costs, expenses and fees on any
appeal). The prevailing party shall be the party entitled to recover its costs
of suit, regardless of whether such suit proceeds to final judgment. A party not
entitled to recover its costs shall not be entitled to recover attorneys' fees.
No sum for attorneys' fees shall be counted in calculating the amount of a
judgment for purposes of determining if a party is entitled to recover costs or
attorneys' fees.
13.12 NOTICES.
Any notice provided for or permitted under this Agreement will be
treated as having been received (a) when delivered personally, (b) when sent by
confirmed telex or telecopy, (c) one (1) day following when sent by commercial
overnight courier with written verification of receipt, or (d) three (3) days
following when mailed postage prepaid by certified or registered mail, return
receipt requested, to the party to be notified, at the address set forth below,
or at such other place of which the other party has been notified in accordance
with the provisions of this Section 13.12 ("Notices").
FirstFloor: FirstFloor Software, Inc.
444 Castro Street, Suite 200
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<PAGE> 55
Mountain View, CA 94041
Attn: David J. Cardinal
With copy to: Gunderson, Detmer
155 Constitution Drive
Menlo Park, CA 94025
Facsimile: 650-321-2800
Attn: Dan O'Connor
Calico: Calico Technology, Inc.
4 North Second Street, Suite 1350
San Jose, CA 95113
Facsimile: 408-975-7430
Attention: Joe Moran
With copy to: Gray Cary Ware & Freidenrich, LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Facsimile: (650) 327-3699
Attention: Gregory M. Gallo
13.13 TIME.
Time is of the essence of this Agreement.
13.14 CONSTRUCTION OF AGREEMENT.
This Agreement has been negotiated by the respective parties
hereto and their attorneys and the language hereof shall not be construed for or
against any party. The titles and headings herein are for reference purposes
only and shall not in any manner limit the construction of this Agreement which
shall be considered as a whole.
13.15 NO JOINT VENTURE.
Nothing contained in this Agreement shall be deemed or construed as
creating a joint venture or partnership between any of the parties hereto. No
party is by virtue of this Agreement authorized as an agent, employee or legal
representative of any other party. No party shall have the power to control the
activities and operations of any other and their status is, and at all times,
will continue to be, that of independent contractors with respect to each other.
No party shall have any power or authority to bind or commit any other. No party
shall hold itself out as having any authority or relationship in contravention
of this Section 13.15 ("No Joint Venture").
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<PAGE> 56
13.16 PRONOUNS.
All pronouns and any variations thereof shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person, persons, entity or entities may require.
13.17 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS.
No provisions of this Agreement are intended, nor shall be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, stockholder,
partner of any party hereto or any other person or entity unless specifically
provided otherwise herein, and, except as so provided, all provisions hereof
shall be personal solely between the parties to this Agreement.
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<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
<TABLE>
<S> <C>
CALICO TECHNOLOGY, INC. FIRST FLOOR SOFTWARE, INC.
By: /s/ Alan Paul Naumann By: /s/ Judith H. Hamilton
--------------------------------- ---------------------------------
Title: President & CEO Title: President & CEO
------------------------------ ------------------------------
CALICO TECHNOLOGY ACQUISITION
CORPORATION PRINCIPAL SHAREHOLDERS
(see attached)
By: /s/ Joseph A. Moran CALICO SHAREHOLDERS
--------------------------------- (see attached)
Title: VP & CEO
------------------------------
</TABLE>
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 1
EXHIBIT 10.1
SUBLEASE AGREEMENT
BETWEEN
ADOBE SYSTEMS INC.
AND
CALICO TECHNOLOGY, INC.
JULY 31, 1998
<PAGE> 2
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (hereinafter referred to as "Sublease"),
entered into as of July 31, 1998, is made by and between Adobe Systems Inc.
(herein called "Sublandlord") and Calico Technology Inc. (herein called
"Subtenant"), with reference to the following facts:
A. Pursuant to that certain River Park Office Towers General Lease dated
June 22, 1994, as amended by that certain First Amendment to Office Lease dated
February 14, 1995, and that certain Second Amendment to Office Lease dated
January 22, 1996 (collectively, the "Master Lease"), Metropolitan Life
Insurance Company ("Landlord"), as Landlord, leased to Frame Technology
Corporation, as tenant, certain space (the "Master Lease Premises") consisting
of the third, fourth, fifth, sixth, seventh and eighth floors of the Building
located at 333 West San Carlos, San Jose, California (the "Building").
B. Frame Technology Corporation has assigned the Master Lease to
Sublandlord.
C. Subtenant wishes to sublease from Sublandlord, and Sublandlord wishes
to sublease to Subtenant, approximately 38,584 rentable square feet of space on
the third and fourth floors of the Building (hereinafter called "Subleased
Premises").
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged by the parties, Sublandlord and Subtenant hereby agree as follows:
1. Sublease. Sublandlord hereby subleases to Subtenant and
Subtenant hereby subleases from Sublandlord for the term, at the rental, and
upon all of the conditions set forth herein, the Subleased Premises.
2. Term.
2.1 Term. The term of this Sublease ("Term") shall commence on
September 15, 1998 (the "Commencement Date") and end on August 31, 1999 (the
"Expiration Date"), unless sooner terminated pursuant to any provision hereof.
3. Rent.
3.1 Rent Payments. From and after the Commencement Date
Subtenant shall pay to Sublandlord as Base Rent for the Subleased Premises
during the Term the sum of $1.92 per rentable square foot per month (i.e.,
$74,081.28 per month). If the Term does not end on the last day of a month, the
Base Rent and Additional Rent (hereinafter defined) for that partial month
shall be prorated by multiplying the monthly Base Rent and Additional Rent by
<PAGE> 3
a fraction, the numerator of which is the number of days of the partial month
included in the Term and the denominator of which is the total number of days
in the full calendar month. All Rent (hereinafter defined) shall be payable in
lawful money of the United States, by regular bank check of Subtenant, to
Sublandlord at the address stated herein or to such other persons or at such
other places as Sublandlord may designate in writing.
3.2 Operating Costs.
(a) Definitions. For purposes of this Sublease and in addition
to the terms defined elsewhere in this Sublease, the following terms shall have
the meanings set forth below:
(1) "Additional Rent" shall mean the sums payable pursuant
to subparagraph 3.2(b) of this Sublease.
(2) "Base Year" shall mean the calendar year 1998.
(3) "Operating Costs" shall mean Operating Costs (as
defined in the Master Lease) charged by Landlord to Sublandlord pursuant to
Section 28 of the Master Lease.
(4) "Rent" shall mean, collectively, Base Rent, Additional
Rent, and all other sums payable by Subtenant to Sublandlord under this
Sublease, whether or not expressly designated as "rent", all of which are
deemed and designated as rent pursuant to the terms of this Sublease.
(5) "Subtenant's Percentage Share" shall mean 9%.
(b) In addition to the Base Rent payable pursuant to Section
3.1 above, from and after the expiration of the Base Year, for each calendar
year of the Term, Subtenant, as Additional Rent, shall pay (i) Subtenant's
Percentage Share of the amount by which Operating Costs payable by Sublandlord
for the then current calendar year exceeds Operating Costs payable by
Sublandlord for the Base Year. Sublandlord shall give Subtenant written notice
of Sublandlord's estimate of the amount of Additional Rent per month payable
pursuant to this Subsection (b) for each calendar year after the Base Year
promptly following the Sublandlord's receipt of Landlord's estimate of the
Operating Costs payable under the Master Lease. Thereafter, the Additional Rent
payable pursuant to this Subsection (b) shall be determined and adjusted in
accordance with the provisions of Subsection 3.2(c) below.
(c) The determination and adjustment of Additional Rent
contemplated under Subseciton 3.2(b) above shall be made in accordance with the
following procedures:
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<PAGE> 4
(1) Upon receipt of a statement from Landlord specifying the estimated
Operating Costs to be charged to Sublandlord under the Master Lease with respect
to each calendar year, or as soon after receipt of such statement as
practicable, Sublandlord shall give Subtenant written notice of its estimate of
Additional Rent payable under Subsection 3.2(b) for the ensuing calendar year,
which estimate shall be prepared based on the estimate received from Landlord
(as Landlord's estimate may change from time to time), together with a copy of
the statement received from Landlord. On or before the first day of each month
during each calendar year, Subtenant shall pay to Sublandlord as Additional Rent
one-twelfth (1/12th) of such estimated amount together with the Base Rent.
(2) In the event Sublandlord's notice set forth in Subsection
3.2(c)(1) is not given in December of the calendar year preceding the calendar
year for which Sublandlord's notice is applicable, as the case may be, then
until the calendar month after such notice is delivered by Sublandlord,
Subtenant shall continue to pay to Sublandlord monthly, during the ensuing
calendar year, estimated payments equal to the amounts payable hereunder during
the calendar year just ended. Upon receipt of any such post-December notice
Subtenant shall (i) commence as of the immediately following calendar month, and
continue for the remainder of the calendar year, to pay to Sublandlord monthly
such new estimated payments and (ii) if the monthly installment of the new
estimate of such Additional Rent is greater than the monthly installment of the
estimate for the previous calendar year, pay to Sublandlord within thirty (30)
days of the receipt of such notice an amount equal to the difference of such
monthly installment multiplied by the number of full and partial calendar months
of such year preceding the delivery of such notice.
(d) Within thirty (30) days after the receipt by Sublandlord of a final
statement of Operating Expense adjustment (as described in the Master Lease)
from Landlord with respect to each calendar year, Sublandlord shall deliver to
Subtenant a statement of the adjustment to be made pursuant to Section 3.2
hereof for the calendar year just ended, together with a copy of the Statement
received by Sublandlord from Landlord. If on the basis of such statement
Subtenant owes an amount that is less than the estimated payments for the
calendar year just ended, previously paid by Subtenant, Sublandlord shall credit
such excess to the next payments of Rent coming due or, if the term of this
Sublease is about to expire, promptly refund such excess to Subtenant. If on the
basis of such statement Subtenant owes an amount that is more than the estimated
payments for the calendar year just ended previously made by Subtenant,
Subtenant shall pay the deficiency to Sublandlord within thirty (30) days after
delivery of the statement from Sublandlord to Subtenant.
(e) Sublandlord shall refund to Subtenant Subtenant's Percentage Share of
any sums actually refunded or reimbursed to Sublandlord pursuant to the terms of
the Master Lease, reduced by Subtenant's Percentage Share of any amounts,
including attorney's fees, expended by Sublandlord to obtain such refund,
reimbursement or payment.
(f) For partial calendar years during the term of this Sublease, the
amount of Additional Rent payable pursuant to Subsection 3.2(d) that is
applicable to that
3
<PAGE> 5
partial calendar year shall be prorated based on the ratio of the number of
days of such partial calendar year falling during the term of this Sublease to
365. The expiration or earlier termination of this Sublease shall not affect
the obligations of Sublandlord and Subtenant pursuant to Subsection 3.2(d), and
such obligations shall survive, remain to be performed after, any expiration or
earlier termination of this Sublease.
4. Use and Occupancy.
4.1 Use. The Subleased Premises shall be used and occupied only
for general office use and training by Subtenant, Subtenant's employees and
visitors and for no other use or purpose. [Initials] [Initials]
4.2 Compliance with Master Lease.
(a) Subtenant agrees that it will occupy the Subleased
Premises in accordance with the terms of the Master Lease and will not suffer
to be done or omit to do any act which may result in a violation of or a
default under any of the terms and conditions of the Master Lease, including,
without limitation, surrendering possession of the Subleased Premises to
Sublandlord no later than the expiration or termination date of the Master
Lease, or render Sublandlord liable for any damage, charge or expense
thereunder. Subtenant further covenants and agrees to indemnify Sublandlord
against and hold Sublandlord harmless from any claim, demand, action,
proceeding, suit, liability, loss, judgment, expense (including attorneys fees)
and damages of any kind or nature whatsoever arising out of, by reason of, or
resulting from, Subtenant's failure to perform or observe any of the terms and
conditions of the Master Lease or this Sublease. Any other provision in this
Sublease to the contrary notwithstanding, Subtenant shall pay to Sublandlord as
Rent hereunder any and all sums which Sublandlord may be required to pay the
Landlord arising out of a request by Subtenant for additional Building services
from Landlord (e.g. charges associated with after-hour HVAC usage and
overstandard electrical charges).
(b) Subtenant agrees that Sublandlord shall not be
required to perform any of the covenants, agreements and/or obligations of
Landlord under the Master Lease and, insofar as any of the covenants,
agreements and obligations of Sublandlord hereunder are required to be
performed under the Master Lease by Landlord thereunder, Subtenant acknowledges
and agrees that Sublandlord shall be entitled to look to Landlord for such
performance. Sublandlord shall not be responsible for any failure or
interruption, for any reason whatsoever, of the services or facilities that may
be appurtenant to or supplied at the Building by Landlord or otherwise,
including, without limitation, heat, air conditioning, ventilation,
life-safety, water, electricity, elevator service and cleaning service, if any;
and no failure to furnish, or interruption of, any such services or facilities
shall give rise to any (i) abatement, diminution or reduction of Subtenant's
obligations under this Sublease, or (ii) liability on the part of Sublandlord.
Notwithstanding the foregoing, Sublandlord shall promptly take such action as
may reasonably be indicated, under the circumstances, to secure such
performance upon
4
<PAGE> 6
Subtenant's request to Sublandlord to do so and shall thereafter diligently
prosecute such performance on the part of Landlord.
5. Master Lease and Sublease Terms.
5.1 Subtenant acknowledges that Subtenant has reviewed and is
familiar with all of the terms, agreements, covenants and conditions of the
Master Lease.
5.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease.
5.3 The terms, conditions and respective obligations of
Sublandlord and Subtenant to each other under this Sublease shall be the terms
and conditions of the Master Lease except for those provisions of the Master
Lease which are directly contradicted by this Sublease in which event the terms
of the Sublease documents shall control over the Master Lease. Therefore, for
the purposes of this Sublease, wherever in the Master Lease the word "Landlord"
is used it shall be deemed to mean the Sublandlord herein and wherever in the
Master Lease the word "Tenant" is used it shall be deemed to mean the Subtenant
herein. The time limits contained in the Master Lease for the giving of notices,
making of demands or performing of any act, condition or covenant on the part of
the tenant thereunder, or for the exercise by the tenant thereunder of any
right, remedy or option, are changed for the purposes of incorporation herein by
reference by shortening the same in each instance by three days, so that in each
instance Subtenant shall have three days less time to observe or perform
hereunder than Sublandlord has as the tenant under the Master Lease. The time
limits contained in the Master Lease for the giving of notices, making of
demands or performing of any act, condition or covenant on the part of Landlord,
or for the exercise by Landlord of any right, remedy or option, are changed for
the purposes of incorporation herein by reference by doubling the same in each
instance, so that in each instance Sublandlord shall have twice as much time to
observe or perform hereunder than Landlord has under the Master Lease. Any
non-liability, release, indemnity or hold harmless provision in the Master Lease
for the benefit of Landlord that is incorporated herein by reference, shall be
deemed to inure to the benefit of Sublandlord, Landlord, and any other person
intended to be benefited by said provision, for the purpose of incorporation by
reference to this Sublease. Any right of Landlord under the Master Lease of
access or inspection and any right of Landlord under the Master Lease to do work
in the Master Lease premises or in the Building and any right of Landlord under
the Master Lease in respect of rules and regulations, which is incorporated
herein by reference, shall be deemed to inure to the benefit of Sublandlord,
Landlord, and any other person intended to be benefited by said provision, for
the purpose of incorporation by reference in this Sublease.
5.4 For the purposes of incorporation herein, the terms of the
Master Lease are subject to the following additional modifications:
(a) In all provisions of the Master Lease (under the terms
thereof and without regard to modifications thereof for purposes of
incorporation into this
5
<PAGE> 7
Sublease) requiring the approval or consent of Landlord, Subtenant shall be
required to obtain the approval or consent of both Sublandlord and Landlord.
(b) In all provisions of the Master Lease requiring Tenant to
submit, exhibit to, supply or provide Landlord with evidence, certificates, or
any other matter or thing, Subtenant shall be required to submit, exhibit to,
supply or provide, as the case may be, the same to both Landlord and
Sublandlord. In any such instance, Sublandlord shall determine if such
evidence, certificate or other matter or thing shall be satisfactory.
(c) Sublandlord shall have no obligation to restore or rebuild
any portion of the Sublease Premises after any destruction or taking by eminent
domain.
(d) In all provisions of the Master Lease requiring Tenant to
designate Landlord as an additional or named insured on its insurance policy,
Subtenant shall be required to so designate Landlord and Sublandlord on its
insurance policy.
5.5 Notwithstanding the terms of Section 5.3 above, Subtenant shall
have no rights nor obligations under the following parts, Sections and Exhibits
of the Master Lease: 30, Exhibit C, Exhibit E, Sections 3, 4, 5, 6, and 7 of
the Addendum, Sections 2-8 of the First Amendment, and Sections 2-8 of the
Second Amendment.
5.6 During the Term and for all periods subsequent thereto with
respect to obligations which have arisen prior to the termination of this
Sublease, Subtenant agrees to perform and comply with, for the benefit of
Sublandlord and Landlord, the obligations of Sublandlord under the Master Lease
which pertains to the Subleased Premises and/or this Sublease, except for those
provisions of the Master Lease which are directly contradicted by this
Sublease, in which event the terms of this Sublease document shall control over
the Master Lease.
6. Termination of Master Lease.
If for any reason the term of the Master Lease shall terminate prior
to the scheduled Expiration Date, this Sublease shall thereupon be terminated
and Sublandlord shall not be liable to Subtenant by reason thereof unless (i)
Subtenant shall not then be in default hereunder beyond any applicable notice
and cure period and (ii) such termination shall have been effected because of
the breach or default of Sublandlord under the Master Lease or by reason of the
voluntary termination or surrender of the Master Lease by Sublandlord.
7. Indemnity.
7.1 Subtenant shall indemnify, defend and hold harmless Sublandlord
from and against all losses, costs, damages, expenses and liabilities,
including, without limitation, reasonable attorneys' fees and disbursements,
which Sublandlord may incur or pay out (including, without limitation, to the
landlord under the Master Lease) by reason of (i) any
6
<PAGE> 8
accidents, damages or injuries to persons or property occurring in, on or about
the Subleased Premises (unless the same shall have been caused by Sublandlord's
negligence or wrongful act or the negligence or wrongful act of the landlord
under the Master Lease), (ii) any breach or default hereunder on Subtenant's
part, (iii) the successful enforcement of Sublandlord's rights under this
Section or any other Section of this Sublease, (iv) any work done after the
date hereof in or to the Subleased Premises except if done by Sublandlord or
the landlord under the Master Lease, or (v) any act, omission or negligence on
the part of Subtenant and/or its officers, partners, employees, agents,
customers and/or invitees, or any person claiming through or under Subtenant.
7.2 Sublandlord shall not be liable for personal injury or
property damage to Subtenant, its officers, agents, employees, invitees, guests,
licensees or any other person in the Sublease Premises, regardless of how such
injury or damage may be caused. Any property of Subtenant kept or stored in the
Sublease Premises shall be kept or stored at the sole risk of Subtenant.
Subtenant shall hold Sublandlord harmless from any claims arising out of any
personal injury or property damage occurring in the Sublease Premises, including
subrogation claims by Subtenant's insurance carrier(s).
8. Consents.
8.1 Under the Master Lease, Sublandlord must obtain the consent
of Landlord to any subletting. This Sublease shall not be effective unless, on
or before August 7, 1998, Landlord signs and delivers to Sublandlord and
Subtenant a consent to this Sublease thereby giving Landlord's consent to this
subletting.
8.2 In the event that Sublandlord defaults under its obligations
to be performed under the Master Lease, Sublandlord agrees to deliver to
Subtenant a copy of any such notice of default. Subtenant shall have the right
to cure any monetary default of Sublandlord described in any notice of default
within ten (10) days after service of such notice of default on Subtenant. If
such default is cured by Subtenant then Sublandlord shall reimburse Subtenant
for such amounts, within ten (10) days after notice and demand therefor from
Subtenant to Sublandlord, together with interest and a late fee at the interest
rate and late fee percentage specified in the Master Lease.
8.3 In any instance when Sublandlord's consent or approval is
required under this Sublease, Sublandlord's refusal to consent to or approve any
matter or thing shall be deemed reasonable if, among other matters, such consent
or approval is required under the provisions of the Master Lease incorporated
herein by reference but has not been obtained from Landlord. Except as otherwise
provided herein, Sublandlord shall not unreasonably withhold, or delay its
consent to or approval of a matter if such consent or approval is required under
the provisions of the Master Lease and Landlord has consented to or approved of
such matter. If Subtenant shall seek the approval by or consent of Sublandlord
and Sublandlord shall fail or refuse to give such consent or approval, Subtenant
shall not be entitled to any damages for any withholding or delay of such
approval or consent by Sublandlord, it being agreed that
7
<PAGE> 9
Subtenant's sole remedy in connection with an alleged wrongful refusal or
failure to approve or consent shall be an action for injunction or specific
performance and that said remedy of an action for injunction or specific
performance shall be available only in those cases where Sublandlord shall have
expressly agreed in this Sublease not to unreasonably withhold or delay its
consent.
9. Attorney's Fees. If Sublandlord, Subtenant or Landlord brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party who recovers substantially all of the damages, equitable
relief or other remedy sought in any such action on trial and appeal shall be
entitled to his reasonable attorney's fees to be paid by the losing party as
fixed by the Court.
10. Subtenant's Work.
10.1 Generally. Sublandlord shall deliver, and Subtenant shall
accept, possession of the Subleased Premises in their "AS IS" condition broom
clean and free of debris, as the Subleased Premises exists on the date hereof,
for purposes of Subtenant's general contractor constructing Subtenant's
improvements. Sublandlord shall have no obligation to furnish, render or supply
any work, labor, services, materials, furniture, fixtures, equipment,
decorations or other items to make the Subleased Premises ready or suitable for
Subtenant's occupancy. In making and executing this Sublease, Subtenant has
relied solely on such investigations, examinations and inspections as Subtenant
has chosen to make or has made and has not relied on any representation or
warranty concerning the Subleased Premises or the Building, except as expressly
set forth in this Sublease. Subtenant acknowledges that Sublandlord has
afforded Subtenant the opportunity for full and complete investigations,
examinations and inspections of the Subleased Premises and the common areas of
the Building. Subtenant acknowledges that it is not authorized to make or do
any alterations or improvements in or to the Subleased Premises except as
permitted by the provisions of this Sublease and the Master Lease and that upon
termination of this Sublease, Subtenant shall deliver the Subleased Premises to
Sublandlord in the same condition as the Subleased Premises were at the
commencement of the Term hereof, reasonable wear and tear excepted.
10.2 Code-Required Work. If the performance of the Subtenant
Improvements within the Subleased Premises "triggers" a requirement for
code-related upgrades to or improvements of the Master Leased Premises or any
common areas, Sublandlord and Subtenant agree that Subtenant shall be
responsible for the additional cost of such code-required upgrade or
improvements.
11. Parking. During the Term hereof Subtenant and its employees shall be
permitted to rent 122 parking spaces; provided however that the number of such
parking spaces will reduce to 88 upon the earlier of (a) sale by the Master
Landlord of any part of the Building Center, or (b) construction of a second
office tower at the Business Center.
12. Security Deposit. Concurrently with execution of this Sublease by
Subtenant, Subtenant shall deliver to Sublandlord as security for the faithful
performance of all
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of its obligations under this Sublease an unconditional and irrevocable letter
of credit ("Letter of Credit") in the amount of $295,325 for the benefit of
Sublandlord and any successor in interest of Sublandlord, issued by a financial
institution acceptable to Sublandlord. All costs incurred in obtaining the
Letter of Credit shall be borne by Subtenant. Sublandlord shall be entitled to
draw upon the full amount of the Letter of Credit if an event of default shall
occur under the Sublease. If the full amount of the Letter of Credit is not
required for the payment of any sum to which Sublandlord may become obligated by
Subtenant's default, or to compensate Sublandlord for any loss or damage which
Sublandlord may suffer as a consequence of any default by Subtenant, the balance
of the proceeds drawn under the Letter of Credit shall be held by Sublandlord
(together with any sums required to restore the amount held by Sublandlord to
the amount of the Letter of Credit) and shall be treated in the manner described
below. Subtenant shall maintain the Letter of Credit in effect in accordance
with the terms of this paragraph until 60 days after the later of (i) the
expiration of the term of the Sublease, or (ii) vacation of the premises by
Subtenant. If the stated term of the Letter of Credit would expire prior to such
time as Subtenant is no longer required to maintain the Letter of Credit in
effect under the Sublease, prior to its stated expiration Subtenant shall renew
the Letter of Credit for a period of not less than one year or shall deliver to
Sublandlord a new Letter of Credit in accordance with the terms hereof. If
Subtenant fails either to give Sublandlord satisfactory evidence confirming such
renewal of the Letter of Credit or to deliver a new Letter of Credit to
Sublandlord at least 20 days prior to the stated expiration of the Letter of
Credit in effect, Sublandlord shall be entitled to draw down the full amount of
the Letter of Credit prior to the expiration thereof, and the amount so drawn
shall be treated in the manner described in below.
Any cash proceeds drawn under the Letter of Credit and not applied by
Sublandlord as provided in paragraph above plus such additional amount as shall
be necessary to restore the amount so held by Sublandlord to the amount of the
Letter of Credit shall be held by Sublandlord as security for the faithful
performance by Subtenant of all of the provisions of the Sublease to be
performed or observed by Subtenant (the "deposit"). If Subtenant fails to pay
rent or other charges due under the Sublease, or otherwise defaults with respect
to any provision of the Sublease, Sublandlord may at its sole option apply or
retain all or any portion of the Letter of Credit for the payment of any rent or
other charges in default or the payment of any other sum to which Sublandlord
may become entitled by Subtenant's default, or to compensate Sublandlord for any
loss or damage which Sublandlord may suffer thereby. If Sublandlord so uses or
applies all or any portion of the deposit (including draws under the Letter of
Credit), then within ten (10) days after demand therefor Subtenant shall deposit
cash with Sublandlord in an amount sufficient to restore the amount thereof, and
Subtenant's failure to do so shall be a material breach of the Sublease.
Sublandlord's application or retention of the deposit shall not constitute a
waiver of Subtenant's default to the extent that the deposit does not fully
compensate Sublandlord for all losses or damages incurred by Sublandlord in
connection with such default and shall not prejudice any other rights or
remedies available to Sublandlord under the Sublease or by law. Sublandlord
shall not be required to keep the deposit separate from its general accounts. If
Subtenant performs all of Subtenant's obligations under the Sublease, the
deposit, or so much thereof as has not theretofore been applied by Sublandlord,
shall be returned, without payment of interest or other increment for its use,
to Subtenant (or, at Sublandlord's
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option, to the last assignee, if any, of Subtenant's interest under the
Sublease) within sixty (60) days after the later of (i) expiration of the term
of the Sublease, or (ii) vacation of the premises by Subtenant. No trust
relationship is created herein between Sublandlord and Subtenant with respect to
the deposit.
13. Notices: Any notice by either party to the other required, permitted
or provided for herein shall be valid only if in writing and shall be deemed to
be duly given only if (a) delivered personally, or (b) sent by means of Federal
Express, UPS Next Day Air or another reputable express mail delivery service
guaranteeing next day delivery, or (c) sent by United States Certified or
registered mail, return receipt requested, addressed (i) if to Sublandlord, at
the following addresses:
Adobe Systems, Inc.
345 Park Avenue
San Jose, California 95113
Attn: Vice President of Real Estate
and (ii) if the Subtenant, at the following addresses:
Calico Technology, Inc.
333 West San Carlos
San Jose, California 95113
Attention: Theresa Malo
or at such other address for either party as that party may designate by notice
to the other. A notice shall be deemed given and effective, if delivered
personally, upon hand delivery thereof (unless such delivery takes place after
hours or on a holiday or weekend, in which event the notice shall be deemed
given on the next succeeding business day), if sent via overnight courier, on
the business day next succeeding delivery to the courier, and if mailed by
United States certified or registered mail, three (3) business days following
such mailing in accordance with this Section.
14. Complete Agreement. There are no representations, warranties,
agreements, arrangements or understandings, oral or written, between the
parties or their representatives relating to the subject matter of this
Sublease which are not fully expressed in this Sublease. This Sublease cannot
be changed or terminated nor may any of its provisions be waived orally or in
any manner other than by a written agreement executed by both parties.
15. Interpretation. Irrespective of the place of execution or
performance, this Sublease shall be governed by and construed in accordance
with the laws of the State of California. If any provision of this Sublease or
the application thereof to any person or circumstance shall, for any reason and
to any extent, be invalid or unenforceable, the remainder of this Sublease and
the application of that provision to other persons or circumstances shall not
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be affected but rather shall be enforced to the extent permitted by law. The
table of contents, captions, headings and titles, if any, in this Sublease are
solely for convenience of reference and shall not affect its interpretation.
This Sublease shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Sublease or any part
thereof to be drafted. If any words or phases in this Sublease shall have been
stricken out or otherwise eliminated, whether or not any other words or phrases
have been added, this Sublease shall be construed as if the words or phrases so
stricken out or otherwise eliminated were never included in this Sublease and no
implication or inference shall be drawn from the fact that said words or phrases
were so stricken out or otherwise eliminated. Each covenant, agreement,
obligation or other provision of this Sublease shall be deemed and construed as
a separate and independent covenant of the party bound by, undertaking or making
same, not dependent on any other provision of this Sublease unless otherwise
expressly provided. All terms and words used in this Sublease, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender as the context may require. The word "person" as
used in this Sublease shall mean a natural person or persons, a partnership, a
corporation or any other form of business or legal association or entity.
16. Counterparts. This Sublease may be executed in separate counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same instrument. This Sublease shall be fully executed
when each party whose signature is required has signed and delivered to each of
the parties at least one counterpart, even though no single counterpart contains
the signatures of all parties hereto.
IN WITNESS WHEREOF, the parties hereto hereby execute this Sublease as of
the day and year first above written.
SUBLANDLORD:
ADOBE SYSTEMS INC.
By: /s/ JOSEPH CHEN
-------------------------
Print Name: Joseph Chen
Title: Director of Facilities
SUBTENANT:
CALICO TECHNOLOGY, INC.
By: /s/ JOSEPH A. MORAN
-------------------------
Print Name: Joseph A. Moran
Title: VP & CFO
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EXHIBIT 10.3
CALICO TECHNOLOGY, INC.
1995 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
Calico Technology, Inc., a California corporation, by providing eligible persons
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 the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall 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 Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan are
as follows:
(i) Employees,
(ii) non-employee members of the Board or the non employee
members of the board of directors of any Parent or Subsidiary, and
(iii) consultants who provide services to the Corporation
(or any Parent or Subsidiary).
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B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option 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 at which 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.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 3,238,364
shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the 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
Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
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/or class of securities issuable
under the Plan and (ii) the number and/or class of securities and the exercise
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive. In no event shall
any such adjustments be made in connection with the conversion of one or more
outstanding shares of the Corporation's preferred stock into shares of Common
Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
I. 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.
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A. EXERCISE PRICE.
(1) The exercise price per share shall be fixed by the
Plan Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be
less than eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
(ii) If the person to whom the option is granted is
a 10% Shareholder, 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.
(2) The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) in 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
(ii) 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 written instructions (a) to
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) to 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 grant. However, no option shall have a term in excess of
ten (10) years measured from the option grant date.
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C. EFFECT OF TERMINATION OF SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time of cessation
of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than Disability or death, then the Optionee shall have a period of
three (3) months following the date of such cessation of Service during which to
exercise each outstanding option held by such Optionee.
(ii) Should such Service terminate by reason of Disability,
then the Optionee shall have a period of six (6) months following the date of
such cessation of Service during which to exercise each outstanding option held
by such Optionee. However, should such Disability be deemed to constitute
Permanent Disability, then the period during which each outstanding option held
by the Optionee is to remain exercisable shall be extended by an additional six
(6) months so that the exercise period shall be the twelve (12)-month period
following the date of the Optionee's cessation of Service by reason of such
Permanent Disability.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's estate
or the person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution shall
have a period of twelve (12) months following the date of the Optionee's death
during which to exercise each such option.
(iv) Under no circumstances, however, shall any such option
be exercisable after the specified expiration of the option term.
(v) 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 it is
not exercisable for vested shares on the date of such cessation of Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder 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. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock under the Plan. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise
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price paid per share, all or (at the discretion of the Corporation and with the
consent of the Optionee) any 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. The Plan Administrator may not impose a vesting schedule
upon any option grant or any shares of Common Stock subject to the option which
is more restrictive than twenty percent (20%) per year vesting, beginning one
(1) year after the option grant date. However, this minimum vesting requirement
shall not be applicable with respect to any option granted to a
Highly-Compensated Person.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned option (or portion
thereof) 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 deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
the Plan shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options shall not be subject to the
terms specified in this Section IL
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
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C. 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 (1) 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.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with such
Corporate Transaction.
B. 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 the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
C. The grant of options under the Plan 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.
IV. 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 Plan and to grant in
substitution therefor 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 option grant date.
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ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a 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. Promissory notes may be authorized with or without security
or collateral. However, any promissory notes delivered by a consultant must be
secured by property other than the purchased shares of Common Stock. In all
events, the maximum credit available to each Optionee may not exceed the sum of
(i) the aggregate option exercise price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee in connection with the option exercise.
II. ADDITIONAL AUTHORITY
The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service or death from the
limited period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate; provided, that in no
event shall such option be exercisable after the specified expiration of the
option term.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective when adopted by the Board, but
no option granted under the Plan may be exercised until the Plan is approved by
the Corporation's shareholders. If such shareholder approval is not obtained
within twelve (12) months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall terminate and cease to
be outstanding, and no further options shall be granted. Subject to such
limitation, the Plan Administrator may grant options under the Plan at any time
after the effective date of the Plan and before the date fixed herein for
termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration
of the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such Plan termination, all options
and unvested stock issuances outstanding under the Plan shall continue to have
full force and effect in accordance with the provisions of the documents
evidencing such options or issuances.
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IV. 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, without the consent of the Optionees, adversely affect
their rights and obligations under their outstanding options. In addition, the
Board shall not, without the approval of the Corporation's shareholders, (i)
increase the maximum number of shares issuable under the Plan, except for
permissible adjustments in the event of certain changes in the Corporation's
capitalization, (ii) materially modify the eligibility requirements for Plan
participation or (iii) materially increase the benefits accruing to Plan
participants.
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such shareholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
V. 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.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
hereunder and the issuance of any shares of Common Stock upon the exercise of
any option shall be subject to the Corporation's procurement of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it and the shares of Common Stock issued
pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan,
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unless such individual is a key Employee whose duties in connection with the
Corporation (or any Parent or Subsidiary) assure such individual access to
equivalent information.
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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. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(1) 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
(2) 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 Calico Technology, Inc., a California
corporation.
G. DISABILITY shall mean the inability of an individual to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. 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.
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J. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(1) 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 or
any successor system. 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.
(2) 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.
(3) If the Common Stock is at the time neither listed on any Stock
Exchange nor traded on the Nasdaq National Market, then the Fair Market Value
shall be determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
L. HIGHLY-COMPENSATED PERSON shall mean an Optionee (i) whose
compensation per calendar year from the Corporation (or any Parent or
Subsidiary) equals or exceeds Sixty Thousand Dollars ($60,000) in the aggregate
and (ii) who has previously received one or more option grants under the Plan.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
Q. 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
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<PAGE> 12
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.
R. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
S. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
the extent the Committee is at the time responsible for the administration of
the Plan.
T. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
U. SERVICE shall mean the provision of services to 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, except to the
extent otherwise specifically provided in the documents evidencing the option
grant.
V. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
W. 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.
X. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
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<PAGE> 13
CALICO TECHNOLOGY, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants who provide services to
the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to Optionee, as of the
Grant Date, an option to purchase up to the number of Option Shares specified in
the Grant Notice. The Option Shares shall be purchasable from time to time
during the option term specified in Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10) years measured
from the Grant Date and shall accordingly expire at the close of business on the
Expiration Date, unless sooner terminated in accordance with Paragraph 5, 6 or
17.
3. Limited Transferability. This option shall be neither transferable
nor assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee's death and may be exercised, during Optionee's
lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may also be assigned
in accordance with the terms of a Qualified Domestic Relations Order. If so
assigned, the assigned option shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such Qualified
Domestic Relations Order. The terms applicable to the assigned option (or
portion thereof) shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
4. Dates of Exercise. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate and the
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<PAGE> 14
option shall remain exercisable for the accumulated installments until the
Expiration Date or sooner termination of the option term under Paragraph 5, 6 or
17.
5. Cessation of Service. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason
(other than death or Disability) while this option is outstanding, then Optionee
shall have a period of three (3) months (commencing with the date of such
cessation of Service) during which to exercise this option, but in no event
shall this option be exercisable at any time after the Expiration Date.
(b) Should Optionee die while this option is outstanding, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or in accordance with the
laws of descent and distribution shall have the right to exercise this option.
Such right shall lapse and this option shall cease to be outstanding upon the
earlier of (i) the expiration of the twelve (12)-month period measured from the
date of Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while
this option is outstanding, then Optionee shall have a period of six (6) months
(commencing with the date of such cessation of Service) during which to exercise
this option. However, should such Disability be deemed to constitute Permanent
Disability, then the period during which this option is to remain exercisable
shall be extended by an additional six (6) months so that the exercise period
shall be the twelve (12)-month period following the date of Optionee's cessation
of Service by reason of such Permanent Disability. In no event shall this option
be exercisable at any time after the Expiration Date.
Note: Exercise of this option on a date later than three (3) months
following cessation of Service due to Disability will result in loss of
favorable Incentive Option treatment, unless such Disability constitutes
Permanent Disability. In the event that Incentive Option treatment is
not available, this option will be taxed as a Non-Statutory Option upon
exercise.
(d) During the limited period of post-Service exercisability, this
option may not be exercised in the aggregate for more than the number of vested
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Service. Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not been
exercised. To the extent Optionee is not vested in the Option Shares at the time
of Optionee's cessation of Service, this option shall immediately terminate and
cease to be outstanding with respect to those shares.
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<PAGE> 15
6. Special Termination of Option.
(a) In the event of a Corporate Transaction, this option shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation or parent thereof in connection with such Corporate
Transaction.
(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(c) This Agreement shall not in any 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.
7. Adjustment in Option Shares. 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 total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. Shareholder Rights. The holder of this option shall not have any
shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. Manner of Exercising Option.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation; or
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<PAGE> 16
(B) a promissory note payable to the Corporation,
but only to the extent approved by the Plan Administrator in accordance with
Paragraph 14.
Should the Common Stock be registered under Section 12(g) of the 1934
Act at the time the option is exercised, then the Exercise Price may also be
paid as follows:
(C) in shares of Common Stock held by Optionee (or
any other person or persons exercising the option) 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
(D) to the extent the option is exercised for
vested Option Shares, through a special sale and remittance procedure pursuant
to which Optionee (or any other person or persons exercising the option) shall
concurrently provide irrevocable written instructions (a) to 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) to 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 the sale and remittance procedure is utilized in
connection with the option exercise, payment of the Exercise Price must
accompany the Purchase Agreement delivered to the Corporation in connection with
the option exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee) have
the right to exercise this option.
(iv) Execute and deliver to the Corporation such written
representations as may be requested by the Corporation in order for it to comply
with the applicable requirements of Federal and state securities laws.
(v) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction of
all Federal, state and local income and employment tax withholding requirements
applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
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<PAGE> 17
(c) In no event may this option be exercised for any fractional
shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF
THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE
PURCHASE AGREEMENT.
11. Compliance with Laws and Regulations.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. Successors and Assigns. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
13. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. Financing. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares by delivering a promissory note. The terms of
any such promissory note (including the interest rate, the requirements for
collateral and the
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<PAGE> 18
terms of repayment) shall be established by the Plan Administrator in its sole
discretion.(1)
15. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. Governing Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
17. Shareholder Approval.
(a) The grant of this option is subject to approval of the Plan by
the Corporation's shareholders within twelve (12) months after the adoption of
the Plan by the Board. Notwithstanding any provision of this Agreement to the
contrary, this option may not be exercised in whole or in part until such
shareholder approval is obtained. In the event that such shareholder approval is
not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.
(b) If the Option Shares covered by this Agreement exceed, as of
the Grant Date, the number of shares of Common Stock which may without
shareholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless shareholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
18. Additional Terms Applicable to an Incentive Option. In the event this
option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax treatment
as an Incentive Option if (and to the extent) this option is exercised for one
or more Option Shares: (i) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Permanent Disability
or (ii) more than twelve (12) months after the date Optionee ceases to be an
Employee by reason of Permanent Disability.
- -----------------
(1) Authorization of payment of the Exercise Price by a promissory note
under such provisions may under currently proposed Treasury Regulations,
result in the loss of incentive stock option treatment under the Federal
tax laws.
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<PAGE> 19
(b) This option shall not become exercisable in the calendar year
in which granted if (and to the extent) the aggregate Fair Market Value
(determined at the Grant Date) of the Common Stock for which this option would
otherwise first become exercisable in such calendar year would, when added to
the aggregate value (determined as of the respective date or dates of grant) of
the Common Stock and any other securities for which one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or
any other option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability of this
option is deferred by reason of the foregoing limitation, the deferred portion
shall become exercisable in the first calendar year or years thereafter in which
the One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(b)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the first
time in the same calendar year as this option, then the foregoing limitations on
the exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
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<PAGE> 20
APPENDIX
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
B. Board shall mean the Corporation's Board of Directors.
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
shareholder-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 Calico Technology, Inc., a California
corporation.
G. Disability shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. Domestic Relations Order shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. 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.
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<PAGE> 21
J. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
K. Exercise Price shall mean the exercise price per share as specified
in the Grant Notice.
L. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
M. 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 the price is reported by
the National Association of Securities Dealers on the Nasdaq National Market or
any successor system. 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) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market
Value shall be determined by the Plan Administrator after taking into account
such factors as the Plan Administrator shall deem appropriate.
N. Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.
O. Grant Notice shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
P. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
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<PAGE> 22
R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. Option Shares shall mean the number of shares of Common Stock subject
to the option.
T. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. 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.
V. Plan shall mean the Corporation's 1995 Stock Option Plan.
W. Plan Administrator shall mean either the Board or a committee of
Board members, to the extent the committee is at the time responsible for the
administration of the Plan.
X. Purchase Agreement shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. Qualified Domestic Relations Order shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
Z. Service shall mean the provision of services to 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.
AA. Stock Exchange shall mean the American Stock Exchange or the New
York Stock Exchange.
AB. 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.
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<PAGE> 23
CALICO TECHNOLOGY, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this ____ day of __________ 19__, by and among
Calico Technology, Inc., a California corporation, _________________ Optionee
under the Corporation's 1995 Stock Option Plan, and ______________, Optionee's
spouse.
All capitalized terms in this Agreement shall have the meaning assigned
to them in this Agreement or in the attached Appendix.
A. Exercise of Option
1. Exercise. Optionee hereby purchases __________ shares of
Common Stock (the "Purchased Shares") pursuant to that certain option (the
"Option") granted Optionee on ______________, 199_ (the "Grant Date") to
purchase up to __________ shares of Common Stock under the Plan at the exercise
price of $__________ per share (the "Exercise Price").
2. Payment. Concurrently with the delivery of this Agreement to
the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares
in accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. Delivery of Certificates. The certificates representing any
Purchased Shares which are subject to the Repurchase Right shall be held in
escrow in accordance with the provisions of this Agreement.
4. Shareholder Rights. Until such time as the Corporation
exercises the Repurchase Right, the First Refusal Right or the Special Purchase
Right, Optionee (or any successor in interest) shall have all the rights of a
shareholder (including voting, dividend and liquidation rights) with respect to
the Purchased Shares, including the Purchased Shares held in escrow hereunder,
subject, however, to the transfer restrictions of Articles B and C.
B. Securities Law Compliance
1. Restricted Securities. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such
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<PAGE> 24
registration is available. Accordingly, Optionee hereby acknowledges that
Optionee is prepared to hold the Purchased Shares for an indefinite period and
that Optionee is aware that SEC Rule 144 issued under the 1933 Act which exempts
certain resales of unrestricted securities is not presently available to exempt
the resale of the Purchased Shares from the registration requirements of the
1933 Act.
2. Restrictions on Disposition of Purchased Shares. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until there is compliance with all of the following
requirements:
a. Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
b. Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
c. Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation, that
(a) the proposed disposition does not require registration of the Purchased
Shares under the 1933 Act or (b) all appropriate action necessary for compliance
with the registration requirements of the 1933 Act or any exemption from
registration available under the 1933 Act (including Rule 144) has been taken.
d. Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the Corporation, that
the proposed disposition will not result in the contravention of any transfer
restrictions applicable to the Purchased Shares pursuant to the provisions of
the Rules of the California Corporations Commissioner identified in Paragraph
B.4.
The Corporation shall not be required (i) to transfer on its books any
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. Restrictive Legends. The stock certificates for the
Purchased Shares shall be endorsed with one or more of the following restrictive
legends:
a. "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (a) an effective registration statement for
the shares under such Act, (b) a no action' letter of the Securities and
Exchange Commission with respect to such sale or offer or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
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b. "It is unlawful to consummate a sale or transfer of
this security, or any interest therein, or to receive any consideration
therefor, without the prior written consent of the Commissioner of Corporations
of the State of California, except as permitted in the Commissioner's Rules."
c. "The shares represented by this certificate are subject
to certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred, encumbered,
or in any manner disposed of except in conformity with the terms of a written
agreement dated, __________, 199 _ between the Corporation and the registered
holder of the shares (or the predecessor in interest to the shares). A copy of
such agreement is maintained at the Corporation's principal corporate offices."
4. Receipt of Commissioner Rules, Optionee hereby
acknowledges receipt of a copy of Section 260.141.11 of the Rules of the
California Corporations Commissioner, a copy of which is attached as Exhibit II
to this Agreement.
C. Transfer Restrictions
1. Restriction on Transfer. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right, the Market Stand-Off or the Special Purchase Right.
2. Transferee Obligations. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. Market Stand-Off.
a. In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed
3
<PAGE> 26
one hundred eighty (180) days and the Market Stand-Off shall in all events
terminate two (2) years after the effective date of the Corporation's initial
public offering.
b. Owner shall be subject to the Market Stand-Off provided
and only if the officers and directors of the Corporation are also subject to
similar restrictions.
c. Any new, substituted or additional securities which are
by reason of any Recapitalization or Reorganization distributed with respect to
the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
d. In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
D. Repurchase Right
1. Grant. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price all or (at the discretion of the
Corporation and with the consent of Optionee) any portion of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule (such shares to be hereinafter
referred to as the "Unvested Shares").
2. Exercise of the Repurchase Right. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation prior to the close of
business on the date specified for the repurchase. Concurrently with the receipt
of such stock certificates, the Corporation shall pay to Owner, in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness), an
amount equal to the Exercise Price previously paid for the Unvested Shares which
are to be repurchased from Owner.
3. Termination of the Repurchase Right The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the
4
<PAGE> 27
Repurchase Right lapses shall, however, remain subject to (i) the First Refusal
Right, (ii) the Market Stand-Off and (iii) the Special Purchase Right.
4. Aggregate Vesting Limitation. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. Recapitalization. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right, but
only to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same.
E. Right of First Refusal
1. Grant. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the Vesting Schedule. For purposes of this Article E, the term "transfer" shall
include any sale, assignment, pledge, encumbrance or other disposition of the
Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. Exercise of the First Refusal Right. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice
5
<PAGE> 28
upon the same terms as those specified therein or upon such other terms (not
materially different from those specified in the Disposition Notice) to which
Owner consents. Such right shall be exercisable by delivery of written notice
(the "Exercise Notice") to Owner prior to the expiration of the twenty-five
(25)-day exercise period. If such right is exercised with respect to all the
Target Shares, then the Corporation shall effect the repurchase of such shares,
including payment of the purchase price, not more than five (5) business days
after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.
Should the purchase price specified in the Disposition Notice be payable in
property other than cash or evidences of indebtedness, the Corporation shall
have the right to pay the purchase price in the form of cash equal in amount to
the value of such property. If Owner and the Corporation cannot agree on such
cash value within ten (10) days after the Corporation's receipt of the
Disposition Notice, the valuation shall be made by an appraiser of recognized
standing selected by Owner and the Corporation or, if they cannot agree on an
appraiser within twenty (20) days after the Corporation's receipt of the
Disposition Notice, each shall select an appraiser of recognized standing and
the two (2) appraisers shall designate a third appraiser of recognized standing,
whose appraisal shall be determinative of such value. The cost of such appraisal
shall be shared equally by Owner and the Corporation. The closing shall then be
held on the later of (i) the fifth (5th) business day following delivery of the
Exercise Notice or (ii) the fifth (5th) business day after such valuation shall
have been made.
4. Non-Exercise of the First Refusal Right. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25) day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right and the First Refusal Right, but the acquired shares
shall remain subject to the provisions of Article B and Paragraph C.3. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30)-day period, the First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.
5. Partial Exercise of the First Refusal Right. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
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<PAGE> 29
a. sale or other disposition of all the Target Shares to
the third party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the Corporation did not
exercise the First Refusal Right; or
b. sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be effected
in substantial conformity with the provisions of Paragraph E.3. The First
Refusal Right shall continue to be applicable to any subsequent disposition of
the remaining Target Shares until such right lapses.
Failure of Owner to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. Recapitalization/Reorganization.
a. Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
b. In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. Lapse. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. Marital Dissolution or Legal Separation
1. Grant. In connection with the dissolution of Optionee's
marriage or the legal separation of Optionee and Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right") to purchase from
Optionee's spouse, in accordance with the provisions of Paragraph F.3, all, or
at the discretion of the Corporation and with the consent of Optionee's spouse
any portion, of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any
7
<PAGE> 30
community property or other marital property rights such spouse may have in such
shares.
2. Notice of Decree or Agreement. Optionee shall promptly provide the
Corporation with written notice (the "Dissolution Notice") of (i) the entry of
any judicial decree or order resolving the property rights of Optionee and
Optionee's spouse in connection with their marital dissolution or legal
separation or (ii) the execution of any contract or agreement relating to the
distribution or division of such property rights. The Dissolution Notice shall
be accompanied by a copy of the actual decree or order of dissolution or
contract or agreement between Optionee and Optionee's spouse which provides for
the award to the spouse of one or more Purchased Shares in settlement of any
community property or other marital property rights such spouse may have in such
shares.
3. Exercise of the Special Purchase Right. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
Optionee and Optionee's spouse within thirty (30) days after the Corporation's
receipt of the Dissolution Notice. The Purchase Notice shall indicate the number
of shares to be purchased by the Corporation, the date such purchase is to be
effected (such date to be not less than five (5) business days, nor more than
ten (10) business days, after the date of the Purchase Notice) and the Fair
Market Value to be paid for such Purchased Shares. Optionee (or Optionee's
spouse, to the extent such spouse has physical possession of the Purchased
Shares) shall, prior to the close of business on the date specified for the
purchase, deliver to the Corporation the certificates representing the shares to
be purchased. The Corporation shall, concurrently with the receipt of the stock
certificates, pay to Optionee's spouse (in cash or cash equivalents) an amount
equal to the Fair Market Value specified for such shares in the Purchase Notice.
If Optionee's spouse does not agree with the Fair Market Value specified
for the shares in the Purchase Notice, then the spouse shall promptly notify the
Corporation in writing of such disagreement and the fair market value of such
shares shall thereupon be determined by an appraiser of recognized standing
selected by the Corporation and the spouse. If they cannot agree on an appraiser
within twenty (20) days after the date of the Purchase Notice, each shall select
an appraiser of recognized standing, and the two (2) appraisers shall designate
a third appraiser of recognized standing whose appraisal shall be determinative
of such value. The cost of the appraisal shall be shared equally by the
Corporation and Optionee's spouse. The closing shall then be held on the fifth
(5th) business day following the completion of such appraisal; provided,
however, that if the appraised value is more than twenty-five percent (25%)
greater than the Fair Market Value specified for the shares in the Purchase
Notice, the Corporation shall have the right, exercisable prior to the
expiration of such five (5) business-day period, to rescind the exercise of the
Special Purchase Right and thereby revoke its election to purchase the shares
awarded to the spouse. In the event the Corporation so revokes its election, the
Corporation shall bear the entire cost of the appraisal.
8
<PAGE> 31
4. Lapse. The Special Purchase Right shall lapse upon the earlier to
occur of (i) the lapse of the First Refusal Right or (ii) the expiration of the
exercise period specified in Paragraph F.3, to the extent the Special Purchase
Right is not timely exercised in accordance with such paragraph.
G. Escrow
1. Deposit. Upon issuance, the certificates for the Purchased Shares
which are subject to the Repurchase Right shall be deposited in escrow with the
Corporation to be held in accordance with the provisions of this Article G. Each
deposited certificate shall be accompanied by a duly-executed Assignment
Separate from Certificate in the form of Exhibit 1. The deposited certificates,
together with any other assets or securities from time to time deposited with
the Corporation pursuant to the requirements of this Agreement, shall remain in
escrow until such time or times as the certificates (or other assets and
securities) are to be released or otherwise surrendered for cancellation in
accordance with Paragraph G.3. Upon delivery of the certificates (or other
assets and securities) to the Corporation, Owner shall be issued a receipt
acknowledging the number of Purchased Shares (or other assets and securities)
delivered in escrow.
2. Recapitalization/Reorganization. Any new, substituted or additional
securities or other property which is by reason of any Recapitalization or
Reorganization distributed with respect to the Purchased Shares shall be
immediately delivered to the Corporation to be held in escrow under this Article
G. but only to the extent the Purchased Shares are at the time subject to the
escrow requirements hereunder. However, all regular cash dividends on the
Purchased Shares (or other securities at the time held in escrow) shall be paid
directly to Owner and shall not be held in escrow.
3. Release/Surrender. The Purchased Shares, together with any other
assets or securities held in escrow hereunder, shall be subject to the following
terms relating to their release from escrow or their surrender to the
Corporation for repurchase and cancellation:
a. Should the Corporation elect to exercise the Repurchase Right
with respect to any Unvested Shares, then the escrowed certificates for those
Unvested Shares (together with any other assets or securities attributable
thereto) shall be surrendered to the Corporation concurrently with the payment
to Owner of an amount equal to the aggregate Exercise Price for such Unvested
Shares, and Owner shall cease to have any further rights or claims with respect
to such Unvested Shares (or other assets or securities attributable thereto).
b. Should the Corporation elect to exercise the First Refusal
Right with respect to any Target Shares held at the time in escrow hereunder,
then the escrowed certificates for those Target Shares (together with any other
assets or securities attributable thereto) shall be surrendered to the
Corporation concurrently
9
<PAGE> 32
with the payment of the Paragraph E.3 purchase price for such Target Shares to
Owner, and Owner shall cease to have any further rights or claims with respect
to such Target Shares (or other assets or securities attributable thereto).
c. Should the Corporation elect not to exercise the
Repurchase Right with respect to any Unvested Shares or the First Refusal Right
with respect to any Target Shares held at the time in escrow hereunder, then the
escrowed certificates for those shares (together with any other assets or
securities attributable thereto) shall be released to Owner.
d. As the Purchased Shares (or any other assets or
securities attributable thereto) vest in accordance with the Vesting Schedule,
the certificates for those vested shares (as well as all other vested assets and
securities) shall be released from escrow upon Owner's request, but not more
frequently than once every six (6) months.
e. All Purchased Shares which vest (and any other vested
assets and securities attributable thereto) shall be released within thirty (30)
days after the earlier to occur of (a) Optionee's cessation of Service or (b)
the lapse of the First Refusal Right.
f. All Purchased Shares (or other assets or securities)
released from escrow shall nevertheless remain subject to (a) the First Refusal
Right, to the extent such right has not otherwise lapsed, (b) the Market
Stand-Off, until such restriction terminates, and (c) the Special Purchase
Right, to the extent such right has not otherwise lapsed.
H. Special Tax Election. The acquisition of the Purchased Shares may
result in adverse tax consequences which may be avoided by filing an election
under Code Section 83(b). Such election must be filed within thirty (30) days
after the date of this Agreement. A description of the tax consequences
applicable to the acquisition of the Purchased Shares and the form for making
the Code Section 83(b) election are set forth in Exhibit III. OPTIONEE SHOULD
CONSULT WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF
ACQUIRING THE PURCHASED SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING
THE CODE SECTION 83(b) ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S
SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
CODE SECTION 83(B), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
I. General Provisions
1. Assignment. The Corporation may assign the Repurchase Right,
the First Refusal Right and/or the Special Purchase Right to any person or
entity
10
<PAGE> 33
selected by the Board, including (without limitation) one or more shareholders
of the Corporation.
If the assignee of the Repurchase Right is other than (i) a wholly owned
subsidiary of the Corporation or (ii) the parent corporation owning one hundred
percent (100%) of the Corporation's outstanding capital stock, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the Fair
Market Value of the Purchased Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Purchased Shares.
2. No Employment or Service Contract. Nothing in this Agreement
or in the Plan shall confer upon Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. Notices. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. No Waiver. The failure of the Corporation in any instance to
exercise the Repurchase Right, the First Refusal Right or the Special Purchase
Right shall not constitute a waiver of any other repurchase rights and/or rights
of first refusal that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Optionee or
Optionee's spouse. No waiver of any breach or condition of this Agreement shall
be deemed to be a waiver of any other or subsequent breach or condition, whether
of like or different nature.
5. Cancellation of Shares. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
J. Miscellaneous Provisions
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<PAGE> 34
1. Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. Agreement is Entire Contract. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict of--laws rules.
4. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
5. Successors and Assigns. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Optionee, Optionee's assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
6. Power of Attorney. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact, for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Optionee shall lawfully do and cause to be done by virtue of
this power of attorney.
12
<PAGE> 35
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.
CALICO TECHNOLOGY, INC.
By:
----------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
-------------------------------------------
OPTIONEE
Address:
-----------------------------------
-------------------------------------------
13
<PAGE> 1
Exhibit 10.6
CALICO TECHNOLOGY, INC.
INVESTORS' RIGHTS AGREEMENT
May 26, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 Restrictions on Transferability of Securities:
Registration Rights . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Requested Registration. . . . . . . . . . . . . . . . . . . . . 3
1.3 Company Registration . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Expenses of Registration. . . . . . . . . . . . . . . . . . . . 6
1.5 Registration on Form S-3. . . . . . . . . . . . . . . . . . . . 7
1.6 Registration Procedures . . . . . . . . . . . . . . . . . . . . 7
1.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 8
1.8 Information by Holder . . . . . . . . . . . . . . . . . . . . . 11
1.9 Limitations on Registration of Issues of Securities . . . . . . 11
1.10 Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . 11
1.11 Transfer or Assignment of Registration Rights . . . . . . . . . 12
1.12 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . 12
1.13 Allocation of Registration Opportunities. . . . . . . . . . . . 13
1.14 Delay of Registration . . . . . . . . . . . . . . . . . . . . . 13
1.15 Termination of Registration Rights. . . . . . . . . . . . . . . 13
SECTION 2 Covenants of the Company. . . . . . . . . . . . . . . . . . . . 14
2.1 Basic Financial Information . . . . . . . . . . . . . . . . . . 14
2.2 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Right of First Refusal. . . . . . . . . . . . . . . . . . . . . 15
2.4 Key Person Life Insurance . . . . . . . . . . . . . . . . . . . 16
2.5 Proprietary Information and Inventions Agreements . . . . . . . 17
2.6 Transactions with Affiliates. . . . . . . . . . . . . . . . . . 17
2.7 Common Stock Vesting. . . . . . . . . . . . . . . . . . . . . . 17
2.8 Small business Status . . . . . . . . . . . . . . . . . . . . . 17
2.9 Termination of Covenants. . . . . . . . . . . . . . . . . . . . 17
SECTION 3 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 18
3.3 Entire Agreement; Amendment; Waiver . . . . . . . . . . . . . . 18
3.4 Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.5 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . 18
3.6 Rights; Separability. . . . . . . . . . . . . . . . . . . . . . 19
3.7 Information Confidential. . . . . . . . . . . . . . . . . . . . 19
3.8 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . . 19
3.9 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 3
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and
entered into as of the 26th day of May, 1995 by and among Calico Technology,
Inc., a California corporation (the "Company"), William G. Paseman (the
"Founder"), and the persons identified on Schedule A attached hereto (the
"Investors").
RECITALS
WHEREAS, the Company, the Founder, and the Investors are parties to
the Series A preferred Stock Purchase Agreement dated as of May 26, 1995 (the
"Preferred Stock Purchase Agreement"); and
WHEREAS, in order to induce the Company and the Founder to enter into
the Preferred Stock Purchase Agreement and to induce the Investors to invest
funds in the Company pursuant to the Preferred Stock Purchase Agreement, the
Investors, the Founder and the Company hereby agree that this Agreement shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issuable to the Investors and certain other matters as set forth
herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
SECTION 1
Restrictions on Transferability of
Securities; Registration Rights
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "First Closing" shall mean the date of the Company's sale
of shares of the Company's Series A Preferred Stock.
(b) "Second Closing" shall mean the date of the Founder's sale
of shares of the Company's Series A Preferred Stock.
(c) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(d) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
1.
<PAGE> 4
(e) "Form S-3" shall mean such form under the Securities Act as
in effect on the date hereof or any registration form under the Securities Act
subsequently adopted by the Commission which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the Commission.
(f) "Holder" shall mean any Investor who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(g) "Initiating Holders" shall mean any Holder or Holders who in
the aggregate hold not less than thirty percent (30%) of the outstanding
Registrable Securities. For purposes of such calculation, holders of Shares
shall be considered to hold the shares of Common Stock then issuable upon
conversion of such Shares.
(h) "Investors" shall mean persons who purchased Shares pursuant
to the Preferred Stock Purchase Agreement.
(i) "Other Investors" shall mean persons other than Holders who,
by virtue of agreements with the Company, are entitled to include their
securities in certain registrations.
(j) "Registrable Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the Shares, (ii) except
for purposes of Sections 1.2, 1.4, 1.5 and 1.11, any shares of Common Stock of
the Company held by the Founder (the "Founder's Shares"), and (iii) any Common
Stock issued as (or issuable 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 the shares referenced in
(i) above; provided, however, that Registrable Securities shall not include any
shares of Common Stock that have previously been registered or that have
otherwise been sold to the public and excluding in all cases any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned.
(k) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
(l) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, the reasonable
fees and disbursements of one counsel for the selling Holders, blue sky fees and
expenses, expenses of any regular or special audits incident to or required by
any such registration, but shall not include Selling Expenses (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
2.
<PAGE> 5
(m) "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(n) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(o) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time, corresponding
to such Act.
(p) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for any Holder (other than the fees and
disbursements of counsel included in Registration Expenses).
(q) "Shares" shall mean the Company's Series B Preferred Stock
sold to the Investors in the First and Second Closings.
1.2 Requested Registration.
(a) Request for Registration. If the Company shall receive from
Initiating Holders at any time or times not earlier than the earlier of (i) five
years after the date of this Agreement or (ii) six months after the effective
date of the first registration statement filed by the Company covering an
underwritten offering of any of its securities to the general public, a written
request, specifying that it is made pursuant to this Section 1.2, that the
Company effect a registration with respect to all or a part of the Registrable
Securities having a reasonably anticipated aggregate offering price, net of
underwriting discounts and commissions, that exceeds $7,500,000, the Company
will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use best efforts to effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with the Securities Act) as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after such written notice from the Company is effective.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
3.
<PAGE> 6
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) After the Company has effected two such
registrations pursuant to this Section 1.2(a) and such registrations have been
declared or ordered effective;
(C) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration pursuant to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(D) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made under Section 1.5 hereof.
(b) Subject to the foregoing clauses (A) through (D), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders; provided, however, that if (i) in
good faith judgment of the Board of Directors of the Company, such registration
would be seriously detrimental to the Company and the Board of Directors of the
Company concludes, as a result, that it is essential to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to such
Holders a certificate signed by the president of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for such registration statement to be filed
in the near future and that it is, therefore, essential to defer the filing of
such registration statement, then the Company shall have the right to defer such
filing for the period during which such disclosure would be seriously
detrimental, provided, that the Company may not defer the filing for a period of
more than one hundred eighty (180) days after receipt of the request of the
Initiating Holders, and, provided further, that (except as provided in Section
1.2(a)(ii)(C) above) the Company shall not defer its obligation in this manner
more than once in any twelve (12) month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Section 1.2(b) hereof,
include other securities of the Company and may include securities of the
Company being sold for the account of the Company.
(c) Underwriting. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 1.2 and the
4.
<PAGE> 7
Company shall include such information in the written notice referred to in
Section 1.2(a)(i) above. The right of any Holder to registration pursuant to
Section 1.2 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 with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) Procedures. If the Company shall request inclusion in any
registration pursuant to Section 1.2 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to Section 1.2, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section
1. The Company shall (together with all Holders, and other persons proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriter(s) are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.2, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as possible) to the amount of
Registration Securities owned by each Holder; provided, however, that the number
of shares of Registrable Securities to be included in such underwriting shall
not be reduced unless all other securities proposed to be sold by persons other
than the Holders are first entirely excluded from the underwriting. If the
person who has requested inclusion in such registration as provided above does
not agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded shall also be withdrawn
from such registration. If Registrable Securities are so withdrawn from the
registration and if the number of Registrable Securities to be included in such
registration was previously reduced as a result of marketing factors pursuant to
this Section 1.2(d), then the Company shall offer to all Holders who have
retained rights to include Registrable Securities in the registration the right
to include additional Registrable Securities in the registration in an aggregate
amount equal to the number of shares withdrawn, with such shares to be allocated
among such Holders requesting additional inclusion in preparation (as nearly as
practicable) to the amount of Registrable Securities owned by such Holders.
1.3 Company Registration.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights (other than
pursuant to Section 1.2 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to
5.
<PAGE> 8
a Commission Rule 145 transaction, or a registration on any registration form
which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 1.3(b) below, and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
by any Holder within twenty (20) days after the written notice from the Company
described in clause (i) above is effective. Such written request may specify
all or a part of a Holder's Registrable Securities.
(b) Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under this Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be allocated among the selling shareholders according to the total
amount of securities entitled to be included therein owned by each selling
shareholder or in such other proportions as shall mutually be agreed to by such
selling shareholders), but in no event shall the amount of securities of the
selling Holders included in the offering be reduced (i) unless the securities of
all selling shareholders other than such selling Holders are excluded entirely
and (ii) in any event, 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 shareholders may
be excluded entirely if the underwriters make the determination described above.
For purposes of the above parenthetical concerning allocation, for any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder (and in the case of a partnership, any affiliated partnerships), 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 "selling shareholder," and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such" selling shareholder" as defined in this sentence.
14. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.2, 1.3,
6.
<PAGE> 9
or 1.5 shall be borne by the Company; provided, however, that if the Holders
bear the Registration Expenses for any registration proceeding begun pursuant to
Section 1.2 and subsequently withdrawn by the Holders registering shares
therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.2 hereof. Notwithstanding the foregoing, if
such withdrawal is based upon material adverse information relating to the
Company that is different from the information known or available (upon request
from the Company or otherwise) to the Holders requesting registration at the
time of their request for registration under Section 1.2, such registration
shall not be treated as a counted registration for purposes of Section 1.2
hereof, even though the Holders do not bear the Registration Expenses for such
registration. All Selling Expenses relating to securities so registered shall be
borne by the holders of such securities pro rata on the basis of the number of
shares of securities so registered on their behalf.
1.5 Registration on Form S-3.
(a) After its initial public offering, the Company shall use
its best efforts to qualify for registration on Form S-3 or any comparable or
successor form or forms. After the Company has qualified for the use of Form
S-3, in addition to the rights contained in the foregoing provisions of this
Section 1, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided, however, that the Company shall not be obligated to effect any such
registration if (i) the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) on Form S-3 at an
aggregate price to the public of less than $500,000, or (ii) in the event that
the Company shall furnish the certification described in paragraph 1.2(a)(ii)
(but subject to the limitations set forth therein) or (iii) in a given twelve
(12) month period, after the Company has effected two (2) such registrations
pursuant to this Section 1.5(a) and such registrations have been ordered or
declared effective.
(b) If a request complying with the requirements of Section
1.5(a) hereof is delivered to the Company, the provisions of Sections 1.2(a)(i)
and (ii) and Section 1.2(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the provisions of Sections 1.2(c)
and 1.2(d) hereof shall apply to such registration.
1.6 Registration Procedures. Whenever required under this Section
1 to effect the registration of any Registrable Securities, the Company will,
as expeditiously as possible,
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities, and use its best efforts
to cause such registration statement to become effective, and to keep such
registration effective for a period of one hundred twenty (120) days or until
the Holder or Holders have completed the distribution described therein, which
ever first occurs. The Company shall not be required to file, cause
7.
<PAGE> 10
to become effective or maintain the effectiveness of any registration statement
that contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Act;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus,
as a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing;
(e) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.2 hereof, the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions;
(f) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service process in any such states or jurisdictions.
1.7 Indemnification.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers, directors and partners, legal counsel and
accountants and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant
8.
<PAGE> 11
to this Section 1, and each underwriter, if any, and each person who controls
within the meaning of Section 15 of the Securities Act any underwriter, against
all expenses, claims, losses, damages and liabilities (or actions, proceedings
or settlements in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation (or
alleged violation) by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation under any of the foregoing
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will pay, as incurred, to each such Holder, each of its officers, directors,
partners, legal counsel and accountants and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action, provided, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such Holder or underwriter and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this Paragraph 1.7(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 has not been
unreasonably withheld).
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by him are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, partners, legal counsel and
accountants and each underwriter, if any, of the Company's securities covered
by such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
pay as incurred, to the Company and such Holders, directors, officers, partners,
legal counsel and accountants, persons, underwriters or control persons any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
in each case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document
in reliance upon and in conformity with written information furnished to the
Company by such Holder; provided, however, that the obligations of such Holder
hereunder shall not apply to amounts paid in settlement of any such claims,
losses, damages
9.
<PAGE> 12
or liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).
(c) Each party entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party (together with all other
indemnified parties which may be represented without conflict by one counsel)
may participate in such defense (and shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the Indemnifying Party), and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 1, to the extent such failure is not prejudicial. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
10.
<PAGE> 13
(f) The obligations of the Company and Holders under this
Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.8 Information by Holder. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.9 Limitations on Registration of Issues of Securities. From
and after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company giving such holder or prospective holder any registration rights
the terms of which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Sections 1.2 or 1.3 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.10 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may permit the
sale of the Restricted Securities to the public without registration, the
Company agrees to use its best efforts 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 from and after ninety (90) days following 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) Take such action, including the voluntary registration
of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements;
(d) So long as a Holder owns any Restricted Securities,
furnish to the Holder forthwith upon written request a written statement by the
Company as to its
11.
<PAGE> 14
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed 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.
1.11 Transfer or Assignment of Registration Rights. The rights to
cause the Company to register securities granted to a Holder by the Company
under Sections 1.2, 1.3 and 1.5 may be transferred or assigned by a Holder only
to a transferee or assignee of not less than 50,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits and the like), and only
provided that the Company is given written notice at the time of or within a
reasonable time after said transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights assumes the obligations
of such Holder under this Section 1. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregate together
with the partnership; provided that all assignees and transferees who would not
qualify individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 1.
1.12 "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, an Investor
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such an Investor (other than those included
in the registration) during the one hundred eighty (180) day period following
the effective date of a registration statement of the Company filed under the
Securities Act, provided that:
(a) such agreement only applies to the first two registration
statements of the Company, covering securities to be sold on its behalf to the
public in an underwritten offering; and
(b) all Holders and officers and directors of the Company enter
into similar agreements;
The obligations described in this Section 1.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a Commission Rule
12.
<PAGE> 15
145 transaction on Form S-14 or Form S-15 or similar forms which may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
1.13 Allocation of Registration Opportunities. In any circumstance
in which all of the Registrable Securities requested to be included in a
registration on behalf of the Holders or other selling shareholders cannot be
so included as a result of limitations of the aggregate number of shares of
Registrable Securities which may be so included, the number of shares of
Registrable Securities which may be so allocated among the Holders requesting
inclusion of shares pro rata on the basis of the number of shares of
Registrable Securities that would be held by such Holders, assuming conversion;
provided, however, that, so that such allocation shall not operate to reduce
the aggregate number of Registrable Securities to be included in such
registration, if any Holder does not request inclusion of the maximum number of
shares of Registrable Securities allocated to him pursuant to the
above-described procedure, the remaining portion of his allocation shall be
reallocated among those requesting Holders whose allocations did not satisfy
their requests pro rata on the basis of the number of shares of Registrable
Securities that would be held by such Holders, assuming conversion, and this
procedure shall be repeated until all of the shares of Registrable Securities
that may be included in the registration on behalf of the Holders have been so
allocated. The Company shall not limit the number of Registrable Securities to
be included in a registration pursuant to this Agreement in order to include
shares held by any other shareholder of the Company or with respect to
registrations under Sections 1.3 or 1.5 hereof, in order to include in such
registration securities registered for the Company's own account.
1.14 Delay of Registration. No Holder shall have any right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation
or implementation of this Section 1.
1.15 Termination of Registration Rights. The right of any Holder to
request inclusion in any registration pursuant to this Section 1.15 shall
terminate on the earlier of (i) the fifth anniversary of the effective date of
the registration statement relating to the Company's first firm commitment
underwritten public offering of Common Stock, or (ii) such date as all shares
of Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any ninety (90) day
period.
13.
<PAGE> 16
SECTION 2
Covenants of the Company
2.1 Basic Financial Information. The Company shall deliver to each
Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, a balance sheet as of the end
of such fiscal year, an income statement, and statements of shareholder's
equity and cash flows for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, a statement of cash flows
for such fiscal quarter and an unaudited balance sheet as of the end of such
fiscal quarter;
(c) so long as such Investor holds at least 500,000 shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations) within thirty (30)
days of the end of each month, an unaudited income statement and a statement of
cash flows and balance sheet for and as of the end of such month, in reasonable
detail;
(d) so long as such Investor holds at least 500,000 shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations), as soon as
practicable, but in any event 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 and a statement of cash flows for such months
and, as soon as prepared, any other budgets or revised budgets prepared by the
Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the
Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with
prior practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified subject to year-end audit
adjustment;
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (f) or any other
subsection of Section 2.1 to provide information which it deems in good faith
to be a trade secret or similar confidential information.
14.
<PAGE> 17
2.2 Inspection. The Company shall permit each Investor, at such
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; provided however that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information
unless the recipient is not a competitor of the Company and signs an appropriate
nondisclosure agreement.
2.3 Right of First Refusal. The Company hereby grants to each Holder
who owns any Shares or any shares of Common Stock issued upon conversion of the
Shares the right of first refusal to purchase a pro rata share of New
Securities (as defined in this Section 2.3) which the Company may, from time to
time, propose to sell and issue. A Holder's pro rata share, for purposes of this
right of first refusal, is the ratio of the number of shares of Common Stock
owned by such Holder immediately prior to the issuance of New Securities,
assuming full conversion of the Shares, to the total number of shares of Common
Stock outstanding immediately prior to the issuance of New Securities, assuming
full conversion of the Shares and exercise of all outstanding rights, options
and warrants to acquire Common Stock of the Company. Each Holder shall have a
right of over-allotment such that if any Holder fails to exercise its right
hereunder to purchase its pro rata share of New Securities, the other Holders
may purchase the non-purchasing Holder's portion on a pro rata basis within ten
(10) days from the date such non-purchasing Holder fails to exercise its right
hereunder to purchase its pro rata share of New Securities. This right of first
refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common
Stock and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) securities
purchased under the Preferred Stock Purchase Agreement; (ii) securities issued
upon conversion of the Shares; (iii) securities issued pursuant to the
acquisition of another business entity or business segment of any such entity by
the Company by merger, purchase of substantially all the assets or other
reorganization whereby the Company will own not less than fifty-one percent
(51%) of the voting power of such business entity or business segment of any
such entity; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features including
warrants, options or other rights to purchase capital stock and are not
convertible into capital stock of the Company; (v) securities issued to
employees, consultants, officers or directors of the Company pursuant to any
stock option, stock purchase or stock bonus plan, agreement or arrangement
approved by the Board of Directors; (vi) securities issued to vendors or
customers or to other persons in similar commercial situations with the Company
if such issuance is approved by the Board of Directors; (vii) securities issued
in connection with obtaining lease financing, whether issued to a lessor,
guarantor or other person; (viii)
15.
<PAGE> 18
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company; and (ix) any right, option or warrant to
acquire any security convertible into the securities excluded from the
definition of New Securities pursuant to subsections (i) through (x) above.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Holder shall have
twenty (20) days after any such notice is effective to agree to purchase such
Holder's pro rata share of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
(c) In the event the Holders fail to exercise fully the right of
first refusal within said twenty (20)-day period, and after the expiration of
the ten (10) day period for the exercise of the over-allotment provisions of
this Section 2.3, the Company shall have sixty (60) days thereafter to sell or
enter into an agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of
said agreement) to sell the New Securities respecting which the Holders' right
of first refusal option set forth in this Section 2.3 was not exercised, at a
price and upon terms no more favorable to the purchasers thereof than specified
in the Company's notice to Holders pursuant to Section 2.3(b). In the event the
Company has not sold within said 60-day period or entered into an agreement to
sell the New Securities within said 60-day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities, without first again offering such securities to the Holders in the
manner provided in Section 2.3(b) above.
(d) The right of first refusal granted under this Agreement shall
expire upon, and shall not be applicable to, the first sale of Common Stock of
the Company to the public effected pursuant to a registration statement filed
with, and declared effective by, the Commission under the Securities Act, with
a price per share in excess of $4.00 and aggregate proceeds in excess of
$7,500,000.
(e) The right of first refusal set forth in this Section 2.3 may
not be assigned or transferred, except that (i) such right is assignable by
each Holder to any wholly owned subsidiary or parent of, or to any corporation
or entity that is, within the meaning of the Securities Act, controlling,
controlled by or under common control with, any such Holder, and (ii) such
right is assignable between and among any of the Holders.
2.4 Key Person Life Insurance. The Company has as of the date hereof or
shall within ninety (90) days of the date hereof use its commercially
reasonable efforts to obtain from financially sound and reputable insurers term
life insurance on the life of William G. Paseman in the amount of $1,000,000,
except as otherwise decided in accordance with policies adopted by the
Company's Board of Directors. The Company will cause to be
16.
<PAGE> 19
maintained the term life insurance required by this Section 2.4 hereof, except
as otherwise decided in accordance with policies adopted by the Company's Board
of Directors. Such policies shall name the Company as loss payee and shall not
be cancelable by the Company without prior approval of the Board of Directors.
2.5 Proprietary Information and Inventions Agreements. The Company
will cause each employee and consultant now or hereafter employed by it or any
subsidiary with access to confidential information to enter into a proprietary
information and assignment of inventions agreement substantially in the form
approved by the Board of Directors.
2.6 Transactions with Affiliates. The Company shall not, without the
approval of the disinterested members of the Company's Board of Directors,
engage in any loans, leases, contracts or other transactions with any director,
officer or key employee of the Company, or any member of any such person's
immediate family, including the parents, spouse, children and other relatives
of any such person, on terms less favorable than the Company would obtain in a
transaction with an unrelated party, as determined in good faith by the Board
of Directors.
2.7 Common Stock Vesting. Any Common Stock or options to purchase
Common Stock of the Company issued as of the Closing and thereafter to
employees, including the Founder, shall (a) be approved by the Board of
Directors, (b) (or unless otherwise expressly approved by the Board of
Directors) vest as follows: after twelve (12) months of employment, 25% of such
shares or options shall vest, the remainder vesting linearly and monthly over
the subsequent thirty-six (36) months, for which vesting shall commence on the
commencement date of employment with the Company, (c) provide for the right of
the Company to repurchase any non-vested stock at the original purchase price
in the event of termination of employment, (d) provide for a right of first
refusal in favor of the Company and, subsequently, in favor of the Investors on
a pro rata basis with respect to the vested stock to purchase such stock at the
bona fide offered price therefor (which right shall terminate upon a registered
public offering of the Company), (e) provide for customary restrictions on
transfer and (f) require such employee to agree in connection with a public
offering by the Company to enter into a lock-up agreement with the underwriters
of such offering covering the one hundred eighty (180) day period following the
effective date of such offering. The Company's right under any such agreement
will be assignable.
2.8 Small Business Status. In the event that the Company proposes to
act or engage in a transaction that would be reasonably expected to result in
the termination or impairment of the Company's capital stock status as
"qualified small business stock" set forth in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company shall notify the
Investors and consult in good faith to devise a mutually agreeable and
reasonable alternative transaction structure that would preserve such status.
2.9 Termination of Covenants. The covenants set forth in this
Section 2 (other than Section 2.3, which covenant shall terminate as prescribed
in Section 2.3(d)) shall terminate and be of no further force and effect after
the time of effectiveness of the
17.
<PAGE> 20
registration statement relating to the Company's first firm commitment
underwritten public offering of common stock.
SECTION 3
Miscellaneous
3.1 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of California, as if entered into by and between
California residents exclusively for performance entirely within California.
3.2 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
3.3 Entire Agreement; Amendment; Waiver. This Agreement (including
the Exhibits hereto) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated, except by a written instrument signed by the Company and the
holders of at least fifty percent (50%) of the Registrable Shares and any such
amendment, waiver, discharge or termination shall be binding on all the
Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.
3.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been given
when mailed by United States first-class mail, postage prepaid, or delivered
personally addressed by hand or special courier to the party to be notified at
the address indicated for such person on Schedule A attached hereto, or at such
other address as such party or permitted assignee shall have furnished to the
Company in writing.
3.5 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default
be deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative
and not alternative.
18.
<PAGE> 21
3.6 Rights; Separability. Unless otherwise expressly provided
herein, a Holder's rights hereunder are several rights, not rights jointly held
with any of the other Holders. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
3.7 Information Confidential. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for its
use only, and it will not use such confidential information in violation of
the Exchange Act or reproduce, disclose or disseminate such information to any
other person (other than its employees or agents having a need to know the
contents of such information, and its attorneys), except in connection with the
exercise of rights under this Agreement, unless the Company has made such
information available to the public generally or such Holder is required to
disclose such information by a governmental body.
3.8 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
3.9 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
19.
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have executed this Investors'
Rights Agreement effective as of the day and year first above written.
COMPANY:
CALICO TECHNOLOGY, INC.
By: /s/ WILLIAM D. PASEMAN
------------------------------
Title:
------------------------------
FOUNDERS:
By: /s/ WILLIAM D. PASEMAN
------------------------------
William G. Paseman
SIGNATURE PAGE TO CALICO TECHNOLOGY, INC.
INVESTORS' RIGHTS AGREEMENT
INVESTORS:
20.
<PAGE> 23
CALICO TECHNOLOGY, INC.
AMENDMENT NO. 1 TO
INVESTORS' RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 is made as of December 11, 1995, between CALICO
TECHNOLOGY, INC., a California corporation (the "Company"), and the Investors
set forth on the signature pages hereto.
The Company and the Investors are parties to an Investors' Rights
Agreement, dated as of May 26, 1995 (the "Investors' Agreement"). In connection
with an equipment financing with Lighthouse Capital Partners, L.P.,
("Lighthouse"), the Company will issue a warrant to Lighthouse (the "Warrant")
to acquire shares of the Company's Series A Preferred Stock (the "Preferred
Stock").
As a condition to the financing, the Company has agreed to grant
Lighthouse registration rights with respect to the shares of the Company's
Common Stock issuable upon conversion of the Preferred Stock, and the
Investors desire to amend the Investors' Agreement to include Lighthouse
thereunder.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. The Company and the Investors hereby amend the Investors Agreement to
include Lighthouse as a "Holder" thereunder and to include the Common Stock
issuable upon conversion of the Preferred Stock issuable upon exercise of the
Warrant as "Registrable Securities" thereunder.
2. Section 1.1(j) of the Investors' Agreement shall be amended in their
entirety as set forth below:
"(j) "Registrable Securities" shall mean (i) shares of Common Stock
issued or issuable pursuant to the conversion of the Shares, (ii) except for
purposes of Sections 1.2, 1.4, 1.5 and 1.11, any shares of Common Stock of the
Company held by the Founder (the "Founder's Shares"), (iii) all the shares of
Common Stock of the Company issued or issuable upon conversion of the shares of
Series A Preferred Stock now or hereafter held by Lighthouse (including the
Series A Preferred Stock issuable upon exercise of the warrants to purchase
Series A Preferred Stock held by Lighthouse), and (iv) any Common Stock issued
as (or issuable 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 the shares referenced in (i) or (iii)
above; provided, however, that Registrable Securities shall not include any
shares of Common Stock that have previously been registered or that have
otherwise been sold to the public and excluding in all cases any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned."
3. Each Investor, by executing this Amendment No. 1, hereby agrees to
waive its right of first refusal and the twenty (20) day notice requirement
under Section 2.3 of the Investors' Agreement to purchase up to its pro rata
share of the Preferred Stock, or any warrants to purchase Preferred Stock,
issued or to be issued to Lighthouse pursuant to the Preferred Stock Purchase
Warrant between the Company and Lighthouse, dated on or about the 11th day of
December, 1995.
4. For purposes of the Investors' Agreement, Lighthouse and any other
holder of the Warrant and the Preferred Stock issuable upon exercise thereof
shall be deemed to be the record holder or holders of the Registrable
Securities issuable directly or indirectly upon exercise and conversion thereof.
5. All notices and other communications under the Investors' Agreement
shall be made to Lighthouse at the address specified below and thereafter at
such other address, notice of which is given in accordance with Section 3.4 of
the Investors' Agreement:
1.
<PAGE> 24
Lighthouse Capital Partners, L.P.
100 Drakes Landing Road, Suite 260
Greenbrae, California 94904
Attn.: Contract Administration
Phone: (415) 925-3370
Fax: (415) 925-3387
6. The Investors' Agreement as modified herein shall remain in full
force and effect as so modified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
CALICO TECHNOLOGY, INC.
By: /s/ WILLIAM G. PASEMAN
---------------------------------
Its: President
--------------------------------
FOUNDERS:
By: /s/ WILLIAM G. PASEMAN
---------------------------------
William G. Paseman
2.
<PAGE> 25
AMENDMENT NUMBER TWO TO
INVESTORS' RIGHTS AGREEMENT
This Amendment Number Two to Investors' Rights Agreement (this
"Amendment") is made as of June 7, 1996, by and among Calico Technology, Inc., a
California corporation (the "Company"), William G.Paseman (the "Founder"), and
the persons identified on Schedule A attached hereto ("Investors").
Recitals
A. Certain investors who purchased shares of Series A Preferred Stock
of the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreements dated as of May 26, 1995 (the "Series A Purchase Agreement") entered
into an Investor's Rights Agreement dated May 26, 1995 with Founder and the
Company ("Investors' Rights Agreement").
B. The Company, the Founder and certain investors are entering into a
Series B Preferred Stock Purchase Agreement dated as of the date of this
Amendment (the "Series B Purchase Agreement"), pursuant to which, subject to the
satisfaction of certain conditions, the investors are agreeing to purchase from
the Company a total of up to 2,000,000 and from the Founder a total of 400,000
shares of Series B Preferred Stock of the Company on the terms set forth in the
Series B Purchase Agreement.
C. The parties to the Investors' Rights Agreement desire that each
investor purchasing shares of Series B Preferred Stock pursuant to the Series B
Purchase Agreement have all rights of "Investors" under the Investors' Rights
Agreement, as amended hereby, on the terms set forth in this Amendment.
Agreement
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms herein will have the meanings set forth in the
Investors' Rights Agreement.
2. Investors' Rights Obligations.
(a) Effective upon: (i) the purchase by any Investor or shares of
the Company's Series B Preferred Stock at the closing of the sale and purchase
of shares under the Current Purchase Agreement; (ii) the execution and delivery
by such Investor of a signature page to this Amendment countersigned by the
Founder and the Company; and (iii) the satisfaction of the conditions set forth
in Section 3 of this Amendment, such investor will be an "Investor" for all
purposes of the Investors' Rights Agreement, as amended hereby, and the
following sections of the Investors'
1
<PAGE> 26
Rights Agreement will be amended as follows:
Section 1.1(q) will be amended by deleting such provision in its
entirety and replacing it with the following:
(q) "Shares" shall mean the Company's Series A Preferred
Stock and Series B Preferred Stock.
Section 1.12 will be amended by deleting the first paragraph in its
entirety and replacing it with the following:
"Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Registrable Securities of the Company, an Investor
shall not sell or otherwise transfer or dispose of any Registrable
Securities of the Company held by such an Investor (other than those
included in the registration) during the one hundred eighty (180) day
period following the effective date of a registration statement of
the Company filed under the Securities Act, provided that:
Section 2.1(c) will be amended by deleting such provision in its
entirety and replacing it with the following:
(c) so long as such Investor holds at least 400,000 shares of
Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations)
within thirty (30) days of the end of each month, an unaudited income
statement and a statement of cash flows and balance sheet for and as
of the end of such month, in reasonable detail;
Section 2.1(d) will be amended by deleting such provision in its
entirety and replacing it with the following:
(d) so long as such Investor holds at least 400,000 shares of
Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations),
as soon as practicable, but in any event 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 and
a statement of cash flows for such months and, as soon as prepared,
any other budgets or revised budgets prepared by the Company;
3. Waiver of Right of First Refusal. In executing this Amendment, the
undersigned Investors (as defined in the Investors' Rights Agreement) and
Founder waive compliance with the terms of the right of first refusal set forth
in Section 2.3 of the Investors' Rights Agreement with respect to the issuance
of the Series B Preferred Stock pursuant to the Series B Purchase Agreement.
2
<PAGE> 27
4. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Founder, the Company and Investors (as defined in
the Investors' Rights Agreement) under the Investors' Rights Agreement holding
of record at least 50% of the Registrable Securities (as defined in the
Investors' Rights Agreement).
5. Continued Effect. Except as otherwise expressly provided herein, the
Investors' Rights Agreement will continue in full force and effect, in
accordance with its terms.
6. Miscellaneous. This Amendment will be governed in all respects by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 3.3 of the Investors' Rights Agreement.
<PAGE> 28
The parties have executed this Amendment as of the date first above written.
FOUNDER:
/s/ WILLIAM D. PASEMAN
-----------------------------------------
William D. Paseman
INVESTOR:
Name:
------------------------------------
(Please print or type)
Signature:
-------------------------------
Address:
--------------------------------
(Please print or type)
COMPANY:
CALICO TECHNOLOGY, INC.
By: /s/ ROBERT PAYNE
--------------------------------------
Title: President
-------------------------------------
4
<PAGE> 29
AMENDMENT NUMBER THREE TO
INVESTORS' RIGHTS AGREEMENT
This Amendment Number Three to Investors' Rights Agreement (this
"Amendment") is made as of January 29, 1997, by and among Calico Technology,
Inc., a California corporation (the "Company"), William G. Paseman (the
"Founder"), and each person who has executed a signature page to this Amendment
(referred to collectively as the "Investors" and individually as an "Investor").
Recitals
A. Certain investors who purchased shares of Series A Preferred Stock
of the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreement dated as of May 26, 1995 (the "Series A Purchase Agreement") entered
into an Investors' Rights Agreement dated May 26, 1995 with Founder and the
Company ("Investors' Rights Agreement").
B. In connection with an equipment financing with Lighthouse Capital
Partners, L.P., the Company entered into Amendment Number One to the Investors'
Rights Agreement with Founder and the Company.
C. Certain investors who purchased shares of Series B Preferred Stock of
the Company pursuant to the Company's Series B Preferred Stock Purchase
Agreement dated as of June 7, 1996 (the "Series B Purchase Agreement") entered
into Amendment Number Two to the Investors' Rights Agreement with Founder and
the Company.
D. In connection with a loan (the "Loan") from Venture Lending &
Leasing, Inc. ("Venture Lending"), the Company will issue a warrant to Venture
Lending (the "Warrant") to acquire shares of the Company's Series B Preferred
Stock.
E. As a condition of the Loan, the Company has agreed to grant Venture
Lending registration rights with respect to shares of the Company's Common
Stock issuable upon conversion of the Series B Preferred Stock issuable upon
exercise of the Warrant, and the Investors desire to amend the Investors'
Rights Agreement to include Venture Lending thereunder such that Venture
Lending will have all rights of "Investors" under the Investors' Rights
Agreement, as amended hereby, on the terms set forth in this Amendment.
Agreement
The parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. Unless otherwise defined or specified in this Amendment,
all capitalized terms used herein will have the meanings set forth in the
Investors' Rights Agreement.
2. Investors' Rights and Obligations.
(a) Effective upon: (i) the issuance of the Warrant at the closing
of the Loan; (ii) the execution and delivery by Venture Lending of a signature
page to this Amendment; and (iii) the satisfaction of the conditions set forth
in Section 3 of this Amendment, such
1
<PAGE> 30
Investor will be an "Investor" for all purposes of the Investors' Rights
Agreement, as amended hereby, and the following sections of the Investors'
Rights Agreement will be amended as follows:
Section 1.1(j) will be amended by deleting such provision in its
entirety and replacing it with the following:
(j) "Registrable Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the
Shares, (ii) except for purposes of Sections 1.2, 1.4, 1.5 and
1.11, any shares of Common Stock of the Company held by the
Founder (the "Founder's Shares"), (iii) all shares of Common
Stock of the Company issued or issuable upon conversion of the
shares of Series A Preferred Stock now or hereafter held by
Lighthouse (including the Series A Preferred Stock issuable upon
exercise of the warrants to purchase Series A Preferred Stock
held by Lighthouse), (iv) all shares of Common Stock of the
Company issued or issuable upon conversion of the shares of
Series B Preferred Stock now or hereafter held by Venture
Lending (including the Series B Preferred Stock issuable upon
exercise of the warrants to purchase Series B Preferred Stock
held by Venture Lending), and (v) any Common Stock issued as (or
issuable 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 the shares referenced in (i), (iii) or (iv)
above; provided, however, that Registrable Securities shall not
include any shares of Common Stock that have previously been
registered or that have otherwise been sold to the public and
excluding in all cases any Registrable Securities sold by a
person in a transaction in which his rights under this Section 1
are not assigned."
3. Waiver of Right of First Refusal. In executing this Amendment, the
undersigned Investors (as defined in the Investors' Rights Agreement, as
amended) and Founder waive compliance with the terms of the right of first
refusal set forth in Section 2.3 of the Investors' Rights Agreement with
respect to the issuance of the Warrant or Series B Preferred Stock issuable
upon exercise of the Warrant.
4. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Founder, the Company and Investors (as defined
in the Investors' Rights Agreement, as amended) under the Investors' Rights
Agreement holding of record at least 50% of the Registrable Securities (as
defined in the Investors' Rights Agreement, as amended). For purposes of the
Investors' Rights Agreement, as amended hereby, Venture lending and any other
holder of the Warrant and the Series B Preferred Stock issuable upon exercise
thereof shall be deemed to be the record holder or holders of the Registrable
Securities issuable directly or indirectly upon exercise and conversion thereof.
5. Continued Effect. Except as otherwise expressly provided herein, the
Investors' Rights Agreement will continue in full force and effect, in
accordance with its terms.
2
<PAGE> 31
6. Miscellaneous. This Amendment will be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 3.3 of the Investors' Rights Agreement.
The parties have executed this Amendment as of the date first above
written.
FOUNDER:
/s/ WILLIAM G. PASEMAN
----------------------------------
William G. Paseman
INVESTOR:
Name:
----------------------------
(Please print or type)
Signature:
-----------------------
Address:
-------------------------
(Please print or type)
COMPANY:
CALICO TECHNOLOGY, INC.
By: /s/ ROBERT PAYNE
------------------------------
Title: CEO
---------------------------
3
<PAGE> 32
AMENDMENT NUMBER FOUR TO
INVESTORS' RIGHTS AGREEMENT
This Amendment Number Four to Investors' Rights Agreement (this
"Amendment") is made as of July 23, 1997, by and among Calico Technology, Inc.,
a California corporation (the "Company"), William G. Paseman (the "Founder"),
and the persons identified on Schedule A attached hereto ("Investors").
Recitals
A. Certain investors who purchased shares of Series A Preferred
Stock of the Company pursuant to the Company's Series A Preferred Stock
Purchase Agreements dated as of May 26, 1995 entered into an Investors' Rights
Agreement dated May 26, 1995 with Founder and the Company ("Investor's Rights
Agreement").
B. The Company entered into Amendment Number One of the Investors'
Rights Agreement to grant rights of "Investors" thereunder to an entity in
connection with receiving an equipment lease line.
C. Certain investors who purchased shares of Series B Preferred
Stock of the Company pursuant to the Company's Series B Preferred Stock
Purchase Agreement dated as of June 7, 1996 entered into Amendment Number Two
of the Investors' Rights Agreement to receive rights of "Investors" thereunder.
D. The Company entered into Amendment Number Three of the
Investors' Rights Agreement to grant rights of "Investors" thereunder to an
entity in connection with receiving a loan (the Investors' Rights Agreement, as
previously amended hereafter referred to as the "Amended Rights Agreement.")
E. The Company, and the Investors are entering into a Series C
Preferred Stock Purchase Agreement dated as of the date of this Amendment (the
"Series C Purchase Agreement"), pursuant to which, subject to the satisfaction
of certain conditions, the Investors are agreeing to purchase from the Company
a total of up to 1,388,890 shares of Series C Preferred Stock of the Company on
the terms set forth in the Series C Purchase Agreement.
F. In connection with a loan (the "Loan") from Comerica
Bank-California ("Comerica"), the Company will issue a warrant to Comerica (the
"Warrant") to acquire shares of the Company's Series B Preferred Stock.
G. As a condition of the Loan, the Company has agreed to grant
Comerica registration rights with respect to shares of the Company's Common
Stock issuable upon conversion of the Series B Preferred Stock issuable upon
exercise of the Warrant.
1
<PAGE> 33
H. The parties to the Amended Rights Agreements desire that
Comerica and each Investor purchasing shares of Series C Preferred Stock
pursuant to the Series C Purchase Agreement have all rights of "Investors"
under the Amended Rights Agreement, as amended hereby, on the terms set forth
in this Amendment.
Agreement
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth in
the Investors' Rights Agreement.
2. Investors' Rights and Obligations.
(a) Effective upon: (i) the purchase by any Investor of shares of the
Company's Series C Preferred Stock at the closing of the sale and purchase of
shares under the Series C Purchase Agreement (or the issuance of the Warrant to
Comerica, as the case may be; (ii) the execution and delivery by such Investor
(or by Comerica, as the case may be) of a signature page to this Amendment
countersigned by the Founder and the Company; and (iii) the satisfaction of the
conditions set forth in Section 3 of this Amendment, such Investor (and
Comerica, as the case may be) will be an "Investor" for all purposes of the
Amended Rights Agreement, as amended hereby, and the following sections of the
Amended Rights Agreement will be amended as follows:
Section 1.1(j) will be amended by deleting such provision in its
entirety and replacing it with the following:
(j) "Registrable Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the
Shares, (ii) except for purposes of Sections 1.2, 1.4, 1.5 and
1.11, any shares of Common Stock of the Company held by the
Founder (the "Founder's Shares"), (iii) all shares of Common
Stock of the Company issued or issuable upon conversion of the
shares of Series A Preferred Stock now or hereafter held by
Lighthouse (including the Series A Preferred Stock issuable upon
exercise of the warrants to purchase Series A Preferred Stock
held by Lighthouse), (iv) all shares of Common Stock of the
Company issued or issuable upon conversion of the shares of
Series B Preferred Stock now or hereafter held by Venture
Lending (including the Series B Preferred Stock issuable upon
exercise of the warrants to purchase Series B Preferred Stock
held by Venture Lending), (v) all shares of Common Stock of the
Company issued or issuable upon conversion of the shares of
Series B Preferred Stock now or hereafter held by Comerica
(including the Series B Preferred Stock issuable upon exercise of
the warrants to purchase Series B Preferred Stock held by
Comerica), and (vi) any Common Stock issued as (or issuable upon
the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution
with
2
<PAGE> 34
respect to or in exchange for or in replacement of the shares
referenced in (i), (iii), (iv) or (v) above; provided, however,
that Registrable Securities shall not include any shares of
Common Stock that have previously been registered or that have
otherwise been sold to the public and excluding in all cases any
Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned."
Section 1.1(q) will be amended by deleting such provision in its entirety
and replacing it with the following:
(q) "Shares" shall mean the Company's Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock.
Section 2.1(c) will be amended by deleting such provision in its entirety
and replacing it with the following:
(c) so long as such Investor holds at least 300,000 shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations) within thirty
(30) days of the end of each month, an unaudited income statement and a
statement of cash flows and balance sheet for and as of the end of such
month, in reasonable detail;
Section 2.1(d) will be amended by deleting such provision in its entirety
and replacing it with the following:
(d) so long as such Investor holds at least 300,000 shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations), as soon as
practicable, but in any event 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 and a statement of cash flows
for such months and, as soon as prepared, any other budgets or revised
budgets prepared by the Company;
Section 2.2 will be amended by deleting such provision in its entirety
and replacing it with the following:
For so long as an Investor holds at least 300,000 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations), the Company shall
permit such Investor, at such 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; provided,
however, that the Company shall not be obligated pursuant to this Section
2.2 to provide access to any information which it reasonably considers
3
<PAGE> 35
to be a trade secret or similar confidential information unless the
recipient is not a competitor of the Company and signs an appropriate
nondisclosure agreement.
Section 2.3 will be amended by deleting the first paragraph of such
section in its entirety and replacing it with the following:
The Company hereby grants to each Holder who owns a minimum aggregate
of 300,000 Shares or shares of Common Stock issued upon conversion of
the Shares (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations) (such Holder for
the purposes of this Section 2.3 hereafter referred to as a
"Qualifying Holder") the right of first refusal to purchase a pro rata
share of New Securities (as defined in this Section 2.3) which the
Company may, from time to time, propose to sell and issue. A
Qualifying Holder's pro rata share, for purposes of this right of
first refusal, is the ratio of the number of shares of Common Stock
owned by such Qualifying Holder immediately prior to the issuance of
New Securities, assuming full conversion of the Shares, to the total
number of shares of Common Stock outstanding immediately prior to the
issuance of New Securities, assuming full conversion of the Shares and
exercise of all outstanding rights, options and warrants to acquire
Common Stock of the Company. Each Qualifying Holder shall have a right
of over-allotment such that if any Qualifying Holder fails to exercise
its right hereunder to purchase its pro rata share of New Securities,
the other Qualifying Holders may purchase the non-purchasing
Qualifying Holder's portion on a pro rata basis within ten (10) days
from the date of such non-purchasing Qualifying Holder fails to
exercise its right hereunder to purchase its pro rata share of New
Securities. This right of first refusal shall be subject to the
following provisions:
Sections 2.3(b), (c), (d) and (e) will be amended by deleting such
provisions in their entirety and replacing them with the following:
(b) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Qualifying Holder written
notice of its intention, describing the type of New Securities, and
their price and the general terms upon which the Company proposes to
issue the same. Each Qualifying Holder shall have twenty (20) days
after any such notice is effective to agree to purchase such
Qualifying Holder's pro rata share of such New Securities for the
price and upon the terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) In the event the Qualifying Holders fail to exercise fully
the right of first refusal within said twenty (20) day period, and
after the expiration of the ten (10) day period for the exercise of
the over-allotment provisions of this Section 2.3, the Company shall
have sixty (60) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall
be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the
4
<PAGE> 36
New Securities respecting which the Qualifying Holders' right of
first refusal option set forth in this Section 2.3 was not exercised,
at a price and upon terms no more favorable to the purchasers thereof
than specified in the Company's notice to Qualifying Holders pursuant
to Section 2.3(b). In the event the Company has not sold within said
sixty (60) day period or entered into an agreement to sell the New
Securities within said sixty (60) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days
from the date of said agreement), the Company shall not thereafter
issue or sell any New Securities, without first again offering such
securities to the Qualifying Holders in the manner provided in
Section 2.3(b) above.
(d) The right of first refusal granted under this Agreement
shall expire upon, and shall not be applicable to, the first sale of
Common Stock of the Company to the public effected pursuant to a
registration statement filed with, and declared effective by, the
Commission under the Securities Act, with a price per share in at
least equal to $7.20 per share and aggregate proceeds in excess of
$15,000,000.
(e) The right of first refusal set forth in this Section 2.3
may not be assigned or transferred, except that such right is
assignable (i) to any wholly-owned subsidiary or parent of, or to any
corporation or entity that is, within the meaning of the Securities
Act, controlling, controlled by or under common control with, any
Holder and (ii) between and among any of the Holders.
The following provision shall be added as a new Section 2.10:
2.10 Board Meeting Observer. Integral Capital Partners
("Integral") shall be entitled to receive notice of all meetings of
the Board of Directors of the Company (the "Board") and an Integral's
option, upon prior notice to the Company, may designate an individual
(reasonably acceptable to the Company) to attend any and all such
meetings of the Board as an observer. Such designated individual shall
not be permitted to vote on any matters under consideration by the
Board and shall be bound by obligations of confidentiality pursuant to
a written nondisclosure agreement in a form acceptable to the Company.
The Company will provide such designated individual with copies of all
notices, minutes and other material that it provides to its directors
in connection with such meetings at the time such information is
provided to the directors. This Section 2.10 shall not be amended
without written consent of Integral Capital Partners.
3. Waiver of Right of First Refusal. In executing this Amendment, the
undersigned Investors (as defined in the Amended Rights Agreement) and Founder
waive compliance with the terms of the right of first refusal set forth in
Section 2.3 of the Amended Rights Agreement with respect to the issuance of
the Series C Preferred Stock pursuant to the Series C Purchase Agreement.
5
<PAGE> 37
4. Effectiveness of Amendment. This Amendment will not be
effective unless this Amendment (or a separate consent with the same purpose)
has been executed and delivered by the Founder, the Company and Investors (as
defined in the Amended Rights Agreement) under the Amended Rights Agreement
holding of record at least 50% of the Registrable Securities (as defined in the
Amended Rights Agreement). For purposes of the Amended Rights Agreement, as
amended hereby, Comerica and any other holder of the Warrant and the Series B
Preferred Stock issuable upon exercise thereof shall be deemed to be the record
holder or holders of the Registrable Securities issuable directly or indirectly
upon exercise and conversion thereof.
5. Continued Effect. Except as otherwise expressly provided
herein, the Amended Rights Agreement will continue in full force and effect, in
accordance with its terms.
6. Miscellaneous. This Amendment will be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 3.3 of the Amended Rights Agreement.
6
<PAGE> 38
The parties have executed this Amendment as of the date first above
written.
FOUNDER:
/s/ William G. Paseman
----------------------------------
William G. Paseman
INVESTOR:
Name:
----------------------------
(Please print or type)
Signature:
-----------------------
Address:
-------------------------
(Please print or type)
COMPANY:
CALICO TECHNOLOGY, INC.
By: /s/ Robert Payne
------------------------------
Title: President
---------------------------
7
<PAGE> 39
AMENDMENT NUMBER FIVE TO
INVESTORS' RIGHTS AGREEMENT
This Amendment Number Five to Investors' Rights Agreement (this
"Amendment") is made as of August 21, 1998 by and among Calico Technology,
Inc., a California corporation (the "Company"), William G. Paseman (the
"Founder"), David J. Cardinal, as representatives of the shareholders of
FirstFloor Software Inc. ("FirstFloor") and the persons identified on Schedule
A attached hereto ("Investors").
Recitals
A. Certain investors who purchased shares of Series A Preferred Stock of
the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreements dated as of May 26, 1995 entered into an Investors' Rights Agreement
dated May 26, 1995 with Founder and the Company (the "Investors' Rights
Agreement").
B. The Company entered into Amendment Number One of the Investors'
Rights Agreement to grant rights of "Investors" thereunder to an entity in
connection with receiving an equipment lease line.
C. Certain investors who purchased shares of Series B Preferred Stock of
the Company pursuant to the Company's Series B Preferred Stock Purchase
Agreement dated as of June 7, 1996 entered into Amendment Number Two of the
Investors' Rights Agreement to receive rights of "Investors" thereunder.
D. The Company entered into Amendment Number Three of the Investors'
Rights Agreement to grant rights of "Investors" thereunder to an entity in
connection with receiving a loan.
E. Certain investors who purchased shares of Series C Preferred Stock of
the Company pursuant to the Company's Series C Preferred Stock Purchase
Agreement dated as of July 23, 1997 entered into Amendment Number Three of the
Investors' Rights Agreement to receive rights of "Investors" thereunder.
F. In connection with a loan from Comerica Bank-California ("Comerica"),
the Company issued a warrant to Comerica (the "Warrant") to acquire shares of
the Company's Series B Preferred Stock and the Company Agreed to grant Comerica
registration rights with respect to shares of the Company's Common Stock
issuable upon conversion of the Series B Preferred Stock issuable upon exercise
of the Warrant by also entering into Amendment Number Three of the Investors'
Rights Agreement with Comerica (the Investors' Rights Agreement, as previously
amended hereafter referred to as the "Amended Rights Agreement.")
G. The Company, FirstFloor and certain shareholders of FirstFloor
entered into an Agreement and Plan of Reorganization dated as of June 23, 1998
(the "Merger Agreement") whereby a wholly-owned subsidiary of the Company
("Sub") will be merged with and into
<PAGE> 40
FirstFloor with FirstFloor continuing as the surviving corporation (the
"Merger"), and upon the effectiveness of the Merger, the holders of the capital
stock and options of FirstFloor shall be entitled to receive shares of the
Company's Series D Preferred Stock and options therefor, respectively.
H. The parties to the Amended Rights Agreements desire that each
FirstFloor shareholder and option holder receiving shares of the Company's
Series D Preferred Stock or options therefor ("FirstFloor Shareholder") have
all rights of "Investors" under the Amended Rights Agreement, as amended
hereby, on the terms set forth in this Amendment.
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth
in the Amended Rights Agreement.
2. Investors' Rights and Obligations.
(a) Effective upon: (i) the closing of the Merger under the Merger
Agreement; (ii) the execution and delivery by David J. Cardinal, as the
Shareholder Representative (as defined in the Merger Agreement) of a signature
page to this Amendment; and (iii) the satisfaction of the conditions set forth
in Section 4 of this Amendment, each FirstFloor Shareholder will be an
"Investor" for all purposes of the Amended Rights Agreement, as amended hereby,
and the following sections of the Amended Rights Agreement will be amended as
follows:
Section 1.1(j) will be amended by deleting such provision in its
entirety and replacing it with the following:
(j) "Registrable Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the
Shares, (ii) except for purposes of Sections 1.2, 1.4, 1.5 and
1.11, any shares of Common Stock of the Company held by the
Founder (the "Founder's Shares"), (iii) all shares of Common
Stock of the Company issued or issuable upon conversion of the
shares of Series A Preferred Stock now or hereafter held by
Lighthouse (including the Series A Preferred Stock issuable upon
exercise of the warrants to purchase Series A Preferred Stock
held by Lighthouse), (iv) all shares of Common Stock of the
Company issued or issuable upon conversion of the shares of
Series B Preferred Stock now or hereafter held by Venture Lending
(including the Series B Preferred Stock issuable upon exercise of
the warrants to purchase Series B Preferred Stock held by Venture
Lending), (v) all shares of Common Stock of the Company issued or
issuable upon conversion of the shares of Series B Preferred
Stock now or hereafter held by Comerica (including the Series B
<PAGE> 41
Preferred Stock issuable upon exercise of the warrants to purchase
Series B Preferred Stock held by Comerica), (vi) all shares of
Common Stock of the Company issued or issuable upon conversion of
the shares of Series D Preferred Stock issued pursuant to options
assumed pursuant to the Merger Agreement (including the Series D
Preferred Stock issuable upon exercise of such options), and (vii)
any Common Stock issued as (or issuable 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 the shares referenced in (i),
(iii), (iv), (v) or (vi) above; provided, however, that
Registrable Securities shall not include any shares of Common
Stock that have previously been registered or that have otherwise
been sold to the public and excluding in all cases any Registrable
Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
Section 1.1(q) will be amended by deleting such provision in its
entirety and replacing it with the following:
(q) "Shares" shall mean the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
The reference to "Section 1.2(b)" in the second paragraph of Section
1.2(b) is hereby deleted and replaced with "Section 1.2(d)."
Section 1.5(a) will be amended by deleting such provision in its
entirety and replacing it with the following:
(a) After its initial public offering, the Company shall use its
best efforts to qualify for registration on Form S-3 or any
comparable or successor form or forms. After the Company has
qualified for the use of Form S-3, in addition to the rights
contained in the foregoing provisions of this Section 1, the
Holders of Registrable Securities shall have the right to request
registrations on Form S-3 (such requests shall be in writing and
shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares
by such Holder or Holders), provided, however, that the Company
shall not be obligated to effect any registration if (i) the
Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) on
Form S-3 at any aggregate price to the public of less than
$500,000, or (ii) in the event that the Company shall furnish the
certification described in paragraph 1.2(b) (but subject to the
limitations set forth therein) or (iii) in a given twelve (12)
month period, after the Company has effected two (2) such
registrations pursuant to this Section 1.5(a) and such
registrations have been ordered or declared effective.
<PAGE> 42
Section 1.13 will be amended by deleting the first clause of the
first sentence and replacing it with the following:
In any circumstance in which all of the Registrable
Securities requested to be included in a registration on
behalf of the Holders or other selling shareholders cannot
be so included as a result of limitations of the aggregate
number of shares of Registrable Securities which may be so
included, the number of shares of Registrable Securities
which may be so allocated among the Holders requesting
inclusion of shares shall be allocated pro rata on the basis
of the number of shares of Registrable Securities that would
be held by such Holders, assuming conversion;
Section 3.3 will be amended by changing "Registrable Shares" to
"Registrable Securities."
3. Waiver of Right of First Refusal. In executing this Amendment, the
undersigned Investors (as defined in the Amended Rights Agreement) and Founder
waive compliance with the terms of the right of first refusal set forth in
Section 2.3 of the Amended Rights Agreement with respect to the issuance of the
Series D Preferred Stock and options to purchase Series D Preferred Stock
pursuant to the Merger Agreement, including shares issuable upon conversion of
the FirstFloor convertible notes as contemplated by Section 10.12 of the
Merger Agreement.
4. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Founder, the Company and Investors (as defined in
the Amended Rights Agreement) under the Amended Rights Agreement holding of
record at least 50% of the Registrable Securities (as defined in the Amended
Rights Agreement).
5. Continued Effect. Except as otherwise expressly provided herein, the
Amended Rights Agreement will continue in full force and effect, in accordance
with its terms.
6. Miscellaneous. This Amendment will be governed in all respects by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 3.3 of the Amended Rights Agreement.
<PAGE> 43
The parties have executed this Amendment as of the date first above
written.
FOUNDER: /s/ WILLIAM G. PASEMAN
-------------------------------
William G. Paseman
INVESTOR: Name:
--------------------------
(Please print or type)
Signature:
--------------------
Address:
----------------------
(Please print or type)
COMPANY: CALICO TECHNOLOGY, INC.
By: /s/ ALAN P. NAUMANN
---------------------------
Title: President & CEO
------------------------
FIRSTFLOOR SHAREHOLDER
REPRESENTATIVE: -------------------------------
David J. Cardinal
<PAGE> 44
AMENDMENT NUMBER SIX TO
INVESTORS' RIGHTS AGREEMENT
This Amendment Number Six to Investors' Rights Agreement (this
"Amendment") is made as of September 4, 1998 by and among Calico Technology,
Inc., a California corporation (the "Company"), William G. Paseman (the
"Founder"), David J. Cardinal, as representative of the former shareholders of
FirstFloor Software Inc. ("FirstFloor") and the persons identified on Schedule
A attached hereto ("Investors").
Recitals
A. Certain investors who purchased shares of Series A Preferred Stock of
the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreements dated as of May 26, 1995 entered into an Investors' Rights Agreement
dated May 26, 1995 with Founder and the Company (the "Investors' Rights
Agreement").
B. The Company entered into Amendment Number One of the Investors'
Rights Agreement to grant rights of "Investors" thereunder to an entity in
connection with receiving an equipment lease line.
C. Certain investors who purchased shares of Series B Preferred Stock of
the Company pursuant to the Company's Series B Preferred Stock Purchase
Agreement dated as of June 7, 1996 entered into Amendment Number Two of the
Investors' Rights Agreement to receive rights of "Investors" thereunder.
D. The Company entered into Amendment Number Three of the Investors'
Rights Agreement to grant rights of "Investors" thereunder to an entity in
connection with receiving a loan.
E. Certain investors who purchased shares of Series C Preferred Stock of
the Company pursuant to the Company's Series C Preferred Stock Purchase
Agreement dated as of July 23, 1997 entered into Amendment Number Four of the
Investors' Rights Agreement to receive rights of "Investors" thereunder.
F. In connection with a loan from Comerica Bank-California ("Comerica"),
the Company issued a warrant to Comerica (the "Warrant") to acquire shares of
the Company's Series B Preferred Stock and the Company agreed to grant Comerica
registration rights with respect to shares of the Company's Common Stock
issuable upon conversion of the Series B Preferred Stock issuable upon exercise
of the Warrant by also entering into Amendment Number Four of the Investors'
Rights Agreement with Comerica.
G. The Company, FirstFloor and certain shareholders of FirstFloor
entered into an Agreement and Plan of Reorganization dated as of June 23, 1998
(the "Merger Agreement") whereby a wholly-owned subsidiary of the Company
("Sub") was merged with and into FirstFloor with FirstFloor continuing as the
surviving corporation (the "Merger"), and upon the
<PAGE> 45
effectiveness of the Merger, the holders of the capital stock and options of
FirstFloor were entitled to receive shares of the Company's Series D Preferred
Stock and options therefor, respectively.
H. In connection with the Merger, the Company entered into Amendment
Number Five of the Investors' Rights Agreement to grant rights of "Investors"
thereunder to each FirstFloor shareholder and option holder receiving shares of
the Company's Series D Preferred Stock or options therefor ("FirstFloor
Shareholder")(the Investors' Rights Agreement, as previously amended hereafter
referred to as the "Amended Rights Agreement").
I. The Company and certain investors are entering into a Series E
Preferred Stock Purchase Agreement dated as of the date of this Amendment (the
"Series E Purchase Agreement"), pursuant to which, subject to the satisfaction
of certain conditions, the investors are agreeing to purchase from the Company
a total of up to 1,796,110 shares of Series E Preferred Stock of the Company
on the terms set forth in the Series E Purchase Agreement.
J. The parties to the Amended Rights Agreement desire that each investor
purchasing shares of Series E Preferred Stock pursuant to the Series E Purchase
Agreement have all rights of "Investors" under the Amended Rights Agreement, as
amended hereby, on the terms set forth in this Amendment.
Agreement
The parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth
in the Amended Rights Agreement.
2. Investor's Rights and Obligations.
(a) Effective upon: (i) the purchase by any Investor of shares of the
Company's Series E Preferred Stock at the closing of the sale and purchase of
shares under the Series E Purchase Agreement; (ii) the execution and delivery by
such Investor of a signature page to this Amendment; and (iii) the satisfaction
of the conditions set forth in Section 4 of this Amendment, such Investor will
be an "Investor" for all purposes of the Amended Rights Agreement, as amended
hereby, and the following sections of the Amended Rights Agreement will be
amended as follows:
Section 1.1(j) will be amended by deleting such provision in its
entirety and replacing it with the following:
(j) "Registrable Securities" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the
Shares, (ii) except for purposes of Sections 1.2, 1.4, 1.5 and
1.11, any shares of Common Stock
<PAGE> 46
of the Company held by the Founder (the "Founder's Shares"),
(iii) all shares of Common Stock of the Company issued or
issuable upon conversion of the shares of Series A Preferred
Stock now or hereafter held by Lighthouse (including the Series A
Preferred Stock issuable upon exercise of the warrants to
purchase Series A Preferred Stock held by Lighthouse), (iv) all
shares of Common Stock of the Company issued or issuable upon
conversion of the shares of Series B Preferred Stock now or
hereafter held by Venture Lending (including the Series B
Preferred Stock issuable upon exercise of the warrants to
purchase Series B Preferred Stock held by Venture Lending), (v)
all shares of Common Stock of the Company issued or issuable upon
conversion of the shares of Series B Preferred Stock now or
hereafter held by Comerica (including the Series B Preferred
Stock issuable upon exercise of the warrants to purchase Series B
Preferred Stock held by Comerica), (vi) all shares of Common
Stock of the Company issued or issuable upon conversion of the
shares of Series D Preferred Stock issued pursuant to options
assumed pursuant to the Merger Agreement (including the Series D
Preferred Stock issuable upon exercise of such options), and
(vii) any Common Stock issued as (or issuable 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 the shares referenced in (i),
(iii), (iv), (v) or (vi) above; provided, however, that
Registrable Securities shall not include any shares of Common
Stock that have previously been registered or that have otherwise
been sold to the public and excluding in all cases any
Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned.
Section 1.1(q) will be amended by deleting such provision in its
entirety and replacing it with the following:
(q) "Shares" shall mean the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock.
Section 2.1(c) will be amended by deleting such provision in its
entirety and replacing it with the following:
(c) So long as such Investor holds at least 100,000 shares of
Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), an
Investor may request that the Company deliver, as soon as practicable,
but in any event within thirty (30) days after the Company's receipt
of the request, an unaudited income statement and a statement of cash
flows and balance sheet for and as of the end of each month, in
reasonable detail (except that Investors holding at least 300,000
shares of Registrable Securities (subject to appropriate adjustment
for stock splits, stock
<PAGE> 47
dividends, combinations and other recapitalizations) shall receive the
foregoing financial statements from the Company without having to
request them);
Section 2.1(d) will be amended by deleting such provision in its
entirety and replacing it with the following:
(d) so long as such Investor holds at least 100,000 shares of
Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), an
Investor may request that the Company deliver, as soon as practicable,
but in any event within thirty (30) days after the Company's receipt
of the request, a budget and business plan for the next fiscal year
prepared on a monthly basis, including balance sheets and a statement
of cash flows for such months and, as soon as prepared, any other
budgets or revised budgets prepared by the Company (except that
Investors holding at least 300,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations) shall receive the foregoing
financial statements from the Company without having to request them);
Section 2.2 will be amended by deleting such provision in its
entirety and replacing it with the following:
For so long as an Investor holds at least 100,000 shares of
Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations),
the Company shall permit such Investor, at such 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; provided, however, that the Company shall
not be obligated pursuant to this Section 2.2 to provide access to any
information which it reasonably considers to be a trade secret or
similar confidential information unless the recipient is not a
competitor of the Company and signs an appropriate nondisclosure
agreement.
3. Waiver of Right of First Refusal. In executing this Amendment, the
undersigned Investors (as defined in the Amended Rights Agreement) and Founder
waive compliance with the terms of the right of first refusal set forth in
Section 2.3 of the Amended Rights Agreement with respect to the issuance of the
Series E Preferred Stock.
4. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Founder, the Company and Investors (as defined in
the Amended Rights Agreement) under the Amended Rights Agreement holding of
record at least 50% of the Registrable Securities (as defined in the Amended
Rights Agreement).
4
<PAGE> 48
5. Continued Effect. Except as otherwise expressly provided herein, the
Amended Rights Agreement will continue in full force and effect, in accordance
with its terms.
6. Miscellaneous. This Amendment will be governed in all respects by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 3.3 of the Amended Rights Agreement.
5
<PAGE> 49
AMENDMENT NUMBER SEVEN TO
INVESTORS' RIGHTS AGREEMENT
This Amendment Number Seven to Investors' Rights Agreement (the
"Amendment") is made as of March 5, 1999 by and among Calico Technology, Inc.,
a California corporation (the "Company"), William G. Paseman (the "Founder"),
David J. Cardinal, as representative of the former shareholders of FirstFloor
Software Inc. ("FirstFloor") and the persons identified on Schedule A attached
hereto ("Investors").
Recitals
A. Certain investors who purchased shares of Series A Preferred Stock of
the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreements dated as of May 26, 1995 entered into an Investors' Rights Agreement
dated May 26, 1995 with Founder and the Company (the "Investors' Rights
Agreement").
B. The Company entered into Amendment Number One of the Investors'
Rights Agreement to grant rights of "Investors" thereunder to an entity in
connection with receiving an equipment lease line.
C. Certain investors who purchased shares of Series B Preferred Stock of
the Company pursuant to the Company's Series B Preferred Stock Purchase
Agreement dated as of June 7, 1996 entered into Amendment Number Two of the
Investors' Rights Agreement to receive rights of "Investors" thereunder.
D. The Company entered into Amendment Number Three of the Investors'
Rights Agreement to grant rights of "Investors" thereunder to an entity
in connection with receiving a loan.
E. Certain investors who purchased shares of Series C Preferred Stock of
the Company pursuant to the Company's Series C Preferred Stock Purchase
Agreement dated as of July 23, 1997 entered into Amendment Number Four of the
Investors' Rights Agreement to receive rights of "Investors" thereunder.
F. In connection with a loan from Comerica Bank-California ("Comerica"),
the Company issued a warrant to Comerica (the "Warrant") to acquire shares of
the Company's Series B Preferred Stock and the Company agreed to grant Comerica
registration rights with respect to shares of the Company's Common Stock
issuable upon conversion of the Series B Preferred Stock issuable upon exercise
of the Warrant by also entering into Amendment Number Four of the Investors'
Rights Agreement with Comerica.
G. The Company, FirstFloor and certain shareholders of FirstFloor
entered into an Agreement and Plan of Reorganization dated as of June 23, 1998
(the "Merger Agreement") whereby a wholly-owned subsidiary of the Company
("Sub") was merged with and into
1
<PAGE> 50
FirstFloor with FirstFloor continuing as the surviving corporation (the
"Merger"), and upon the effectiveness of the Merger, the holders of the capital
stock and options of FirstFloor were entitled to receive shares of the
Company's Series D Preferred Stock and options therefor, respectively.
H. In connection with the Merger, the Company entered into Amendment
Number Five of the Investors' Rights Agreement to grant rights of "Investors"
thereunder to each FirstFloor shareholder and option holder receiving shares of
the Company's Series D Preferred Stock or options therefor ("FirstFloor
Shareholder") (the Investors' Rights Agreement, as previously amended hereafter
referred to as the "Amended Rights Agreement").
I. Certain investors who purchased shares of Series E Preferred Stock of
the Company pursuant to the Company's Series E Preferred Stock Purchase
Agreement dated as of September 4, 1998 entered into Amendment Number Six of the
Investors' Rights Agreement to receive rights of "Investors" thereunder (the
Investors' Rights Agreement, as previously amended hereafter referred to as the
"Amended Rights Agreement").
J. The Company and a certain investor are entering into a Stock Purchase
Agreement dated as of the date of this Amendment (the "Stock Purchase
Agreement"), pursuant to which, subject to the satisfaction of certain
conditions, the investor is agreeing to purchase from the Company a total of up
to 701,755 shares of common stock of the Company on the terms set forth in the
Stock Purchase Agreement.
K. The parties to the Amended Rights Agreement desire that the investor
purchasing shares of Common Stock pursuant to the Stock Purchase Agreement have
all rights of "Investors" under the Amended Rights Agreement, as amended
hereby, on the terms set forth in this Amendment.
Agreement
The parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. Unless otherwise defined or specified in this Amendment,
all capitalized terms used herein will have the meanings set forth in the
Amended Rights Agreement.
2. Investor's Rights and Obligations.
(a) Effective upon: (i) the purchase by any Investor of shares of
the Company's Common Stock at the closing of the sale and purchase of shares
under the Stock Purchase Agreement; (ii) the execution and delivery by such
Investor of a signature page to this Amendment; and (iii) the satisfaction of
the conditions set forth in Section 4 of this Amendment, such Investor will be
an "Investor" for all purposes of the Amended Rights Agreement, as
2
<PAGE> 51
amended hereby, and the following sections of the Amended Rights Agreement will
be amended as follows:
Section 1.1(j) will be amended by deleting such provision in its entirety
and replacing it with the following:
(j) "Registrable Securities" shall mean (i) shares of Common Stock
issued or issuable pursuant to the conversion of the Shares, (ii)
except for purposes of Sections 1.2, 1.4, 1.5 and 1.11, any shares of
Common Stock of the Company held by the Founder (the "Founder's
Shares"), (iii) all shares of Common Stock of the Company issued or
issuable upon conversion of the shares of Series A Preferred Stock now
or hereafter held by Lighthouse (including the Series A Preferred
Stock issuable upon exercise of the warrants to purchase Series A
Preferred Stock held by Lighthouse), (iv) all shares of Common Stock
of the Company issued or issuable upon conversion of the shares of
Series B Preferred Stock now or hereafter held by Venture Lending
(including the Series B Preferred Stock issuable upon exercise of the
warrants to purchase Series B Preferred Stock held by Venture
Lending), (v) all shares of Common Stock of the Company issued or
issuable upon conversion of the shares of Series B Preferred Stock now
or hereafter held by Comerica (including the Series B Preferred Stock
issuable upon exercise of the warrants to purchase Series B Preferred
Stock held by Comerica), (vi) all shares of Common Stock of the
Company issued or issuable upon conversion of the shares of Series D
Preferred Stock issued pursuant to options assumed pursuant to the
Merger Agreement (including the Series D Preferred Stock issuable upon
exercise of such options), (vii) any shares of Common Stock issued
pursuant to the Stock Purchase Agreement, and (viii) any shares of
Common Stock issued as (or issuable 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 the shares referenced in (i), (iii), (iv), (v), (vi) or
(vii) above; provided, however, that Registrable Securities shall not
include any shares of Common Stock that have previously been
registered or that have otherwise been sold to the public and
excluding in all cases any Registrable Securities sold by a person in
a transaction in which his rights under this Section 1 are not
assigned.
3. Waiver of Right of First Refusal. In executing this Amendment, the
undersigned Investors (as defined in the Amended Rights Agreement) and Founder
waive compliance with the terms of the right of first refusal set forth in
Section 2.3 of the Amended Rights Agreement with respect to the issuance of the
Common Stock pursuant to the Stock Purchase Agreement.
4. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Founder, the Company and Investors (as defined in
the Amended Rights Agreement) under
3
<PAGE> 52
the Amended Rights Agreement holding of record at least 50% of the Registrable
Securities (as defined in the Amended Rights Agreement).
5. Continued Effect. Except as otherwise expressly provided herein, the
Amended Rights Agreement will continue in full force and effect, in accordance
with its terms.
6. Miscellaneous. This Amendment will be governed in all respects by the
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 3.3 of the Amended Rights Agreement.
The parties have executed this Amendment as of the date first above
written.
4
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries
1. FirstFloor Software, Inc.
2. Calico Technology UK Ltd.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 13, 1999, relating to the consolidated financial statements of
Calico Commerce, Inc., which appears in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
July 13, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 10, 1998, with respect to the financial
statements of FirstFloor Software, Inc. included in the Registration Statement
(Form S-1) and related Prospectus of Calico Commerce, Inc. for the registration
of shares of its common stock.
/s/ ERNST & YOUNG LLP
San Jose, California
July 13, 1999
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1999
<PERIOD-START> APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 2,514 15,441
<SECURITIES> 0 0
<RECEIVABLES> 3,532 8,102
<ALLOWANCES> 580 659
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,845 24,301
<PP&E> 2,825 5,101
<DEPRECIATION> 978 2,569
<TOTAL-ASSETS> 7,692 31,368
<CURRENT-LIABILITIES> 5,801 14,114
<BONDS> 814 1,499
14,505 32,535
0 0
<COMMON> 6 8
<OTHER-SE> (13,434) (16,788)
<TOTAL-LIABILITY-AND-EQUITY> 7,692 31,368
<SALES> 6,965 10,482
<TOTAL-REVENUES> 11,859 21,413
<CGS> 265 1,179
<TOTAL-COSTS> 3,380 8,451
<OTHER-EXPENSES> 13,737 28,000
<LOSS-PROVISION> 200 200
<INTEREST-EXPENSE> 41 23
<INCOME-PRETAX> (5,499) (15,261)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,499) (15,261)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,499) (15,261)
<EPS-BASIC> ($1.62) ($3.41)
<EPS-DILUTED> ($1.62) ($3.41)
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