<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1999
REGISTRATION NO. 333-10358
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BACKWEB TECHNOLOGIES LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NOT APPLICABLE
(EXACT NAME OF REGISTRANT'S NAME INTO ENGLISH)
<TABLE>
<S> <C> <C>
ISRAEL 7372 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3 ABBA HILLEL STREET
RAMAT GAN, ISRAEL
(972-3) 751-8464
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ELI BARKAT
CHIEF EXECUTIVE OFFICER
BACKWEB TECHNOLOGIES, INC.
2077 GATEWAY PLACE, SUITE 500
SAN JOSE, CALIFORNIA 95110
(408) 933-1700
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C> <C>
JEFFREY D. SAPER, ESQ. AARON M. LAMPERT, ESQ. DAN GEVA, ESQ. KEVIN P. KENNEDY, ESQ.
SELIM DAY, ESQ. GIL BRANDES, ESQ. EZRA KATZEN, ESQ. SHEARMAN & STERLING
WILSON SONSINI NASCHITZ, BRANDES & CO. MEITAR, LIQUORNIK, 1550 EL CAMINO REAL
GOODRICH & ROSATI 5 TUVAL STREET GEVA & CO. MENLO PARK, CALIFORNIA
PROFESSIONAL CORPORATION 67897 TEL-AVIV 16 ABBA HILLEL SILVER ROAD 94025-4100
650 PAGE MILL ROAD ISRAEL RAMAT GAN 52506 (650) 330-2200
PALO ALTO, CALIFORNIA 94304-1050 (972-3) 623-5000 ISRAEL
(650) 493-9300 (972-3) 610-3100
<CAPTION>
<S> <C>
JEFFREY D. SAPER, ESQ.
SELIM DAY, ESQ.
WILSON SONSINI
GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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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 June 4, 1999.
[BACKWEB LOGO] 5,500,000 Shares
BACKWEB TECHNOLOGIES LTD.
Ordinary Shares
-------------------------
This is an initial public offering of ordinary shares of BackWeb
Technologies Ltd. All of the 5,500,000 ordinary shares are being sold by
BackWeb.
Prior to this offering, there has been no public market for the ordinary
shares. It is currently estimated that the initial public offering price per
share will be between $8.00 and $10.00. BackWeb intends to list the ordinary
shares for quotation on the Nasdaq National Market under the symbol "BWEB."
Please see "Risk Factors" beginning on page 4 to read about factors you
should consider before buying the ordinary shares.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have received from the Securities Authority of the State of Israel an
exemption from Israel's prospectus publication requirements. Nothing in such
exemption should be construed as authenticating the matters contained in this
prospectus or as an approval of their reliability or adequacy or as an
expression of opinion as to the quality of the securities offered in this
prospectus.
-------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to BackWeb....................... $ $
</TABLE>
The underwriters may, subject to the terms of the underwriting agreement,
purchase up to an additional 825,000 shares from BackWeb at the initial public
offering price less the underwriting discount.
-------------------------
The underwriters expect to deliver the shares on , 1999.
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
WIT CAPITAL CORPORATION
-------------------------
Prospectus dated , 1999.
<PAGE> 3
DESCRIPTION OF GRAPHICS FOR INSIDE
FRONT COVER PAGES OF PROSPECTUS
[BackWeb Logo]
Providing Internet Communication Infrastructure Software and
Application-Specific Software that Enables Companies to Communicate
Business-Critical, Time Sensitive Information throughout the Extended Enterprise
of Customers, Partners and Employees
Below the caption are two concentric circles with the words "BackWeb
Communications Infrastructure" and "Business-Critical Information" in the center
of the inner circle layered on top of representations of different types of
digital data that can be transmitted by our products. Clockwise around the
outside circle are the words "Priority Communications Applications,"
"e-Supplier," "e-Sales," "e-Commerce," "e-Service" and "e-Reseller." Outside the
circles are human shapes representing constituencies within a company's extended
enterprise.
- Priority Communications for e-Business Efficiently gather, target and
deliver business-critical information and applications to PC desktops
throughout the extended enterprise without interfering with normal
network traffic by using idle network connections.
- Improve Customer Satisfaction and Retention Improve the quality of
customer services by proactively providing information and services on an
as-needed basis in a timely manner.
- Strengthen Relationships Increase revenue and improve operational
efficiencies through proactive communications and exchange of data and
information with partners and resellers.
- Gain a Competitive Advantage Accelerate the response time of employees to
changing market conditions for a competitive advantage.
NARRATIVE DESCRIPTION OF INSIDE
COVER GATE FOLD
BackWeb Priority Internet Communications Platform
- Provides an Automated and Reliable Solution to Communicate Large Amounts
of Data Across a Network of Any Speed
- Capture the Immediate Attention of Targeted Recipients
- Monitor the Recipients' Level of Interaction with the Information
Delivered
[GRAPHIC DEPICTING CONNECTIONS BETWEEN BACKWEB SERVER,
BACKWEB POLITE PROXY AND POLITE NEIGHBORCAST]
[BACKWEB LOGO]
<TABLE>
<CAPTION>
CAPACITY URGENCY RELIABILITY
<S> <C> <C>
Polite Communications Attention Management Closed Loop Delivery
Enables the transmission of Capture immediate attention Allows companies to track
significant volumes of to priority information usage, manage effectiveness
digital data through existing utilizing advanced alert and perform surveys
networks without interfering notification displays. throughout the extended
with normal network traffic enterprise.
by using idle network
connections.
</TABLE>
<PAGE> 4
DESCRIPTION OF GRAPHICS FOR INSIDE BACK COVER
<TABLE>
<S> <C>
[Graphics of three computer screens depicting Carlson Wagonlit Travel increased income by
examples of our attention management alerting its agents to distressed inventory
functionality] using BackWeb to send a Flash highlighting
specials on rooms for Radisson Hotels
worldwide.
Compaq cut costs by creating Compaq Service
Connection using BackWeb to enable direct
communication with their customers. This
application proactively sends software
patches and updates to Compaq Presario users.
Schlumberger Dowell uses resources more
effectively by taking advantage of BackWeb to
deliver critical information such as failure
updates and operational alerts to its
employees worldwide.
</TABLE>
BackWeb(R), Polite Agent, Polite Neighborcast,
Polite Proxy and Polite Upstream
are our trademarks.
All other trademarks or trade names used in this prospectus
are the property of their respective owners.
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and BackWeb's consolidated financial statements and the notes to
those statements appearing elsewhere in this prospectus.
BACKWEB TECHNOLOGIES LTD.
We are a leading provider of Internet communication infrastructure software
and application-specific software that enable companies to communicate
business-critical, time-sensitive information throughout their extended
enterprise of customers, partners and employees. Our products provide a reliable
solution for communicating large amounts of data in any digital format by
enabling our customers to automatically gather and disseminate information. Our
products efficiently disseminate this information across a network of any speed
by automatically adapting the rate of transmission to match the available
network capacity, commonly referred to as bandwidth. Our software enables
companies to adapt quickly to changing market conditions through direct
interaction with their customers, partners and employees, thereby accelerating
the execution of their business processes.
Although we have a limited operating history, industry leaders such as
AT&T, Cisco Systems, Goldman Sachs, Pacific Bell, Rite Aid and Schlumberger have
chosen our products to address a variety of their critical business
communication needs. We intend to pursue additional customers in each of these
industries to expand our customer base.
Our infrastructure software, BackWeb Foundation, is a platform that allows
organizations to efficiently gather, target and deliver sizeable digital data of
any format to users' desktops across their extended enterprise. Our software
enables management to capture the immediate attention of targeted recipients and
monitor the recipients' level of interaction with the information delivered. We
work with our customers, partners and third-party software vendors to develop
applications built on top of BackWeb Foundation.
Our infrastructure software platform is powered by three core technologies
that we have developed:
- Polite Communications, a unique technology that enables the transmission
of significant volumes of digital data through existing networks without
interfering with normal network applications and traffic.
- Attention Management, a technology that uses a variety of display
techniques to alert desktop users to the delivery of business-critical
information.
- Closed Loop Delivery, a technology that allows companies to track, manage
and survey the effectiveness of communications throughout their extended
enterprise.
We have also developed our first packaged application, BackWeb Sales
Accelerator. This application enables organizations to strengthen their customer
relationships by accelerating the response times of the organizations' sales
forces and partners to critical market changes. BackWeb Sales Accelerator
provides a geographically dispersed sales organization with up-to-date
information, such as competitive and customer information from external sources,
internal sales and marketing materials, product pricing information and critical
management announcements.
1
<PAGE> 6
OUR STRATEGY
Our objective is to establish ourselves as the leading provider of Internet
communication infrastructure and applications software. The key elements of our
strategy include:
- becoming the de facto standard for Internet communication infrastructure
software;
- leveraging our infrastructure software platform to introduce multiple
communication applications;
- focusing on selected vertical markets;
- extending our technological leadership position; and
- expanding our direct and indirect distribution channels.
OUR OFFICES
Our principal executive offices are located at 3 Abba Hillel Street, Ramat
Gan, Israel and our telephone number is 011-972-3-751-8464.
Our U.S. subsidiary, BackWeb Technologies, Inc. is located at 2077 Gateway
Place, Suite 500, San Jose, California 95110 and its telephone number is (408)
933-1700.
THE OFFERING
<TABLE>
<S> <C>
Ordinary shares offered by BackWeb......... 5,500,000 shares
Ordinary shares to be outstanding after
this offering(1)(2)...................... 35,041,640 shares
Proposed Nasdaq National Market symbol..... BWEB
Use of proceeds............................ - repay indebtedness; and
- general corporate purposes.
</TABLE>
- ---------------
(1) Based on the number of shares actually outstanding on March 31, 1999.
Includes 2,595,501 ordinary shares issuable upon the exchange of BackWeb
Canada, Inc. exchangeable shares issued to the former shareholders of
Lanacom, Inc. in connection with our acquisition of Lanacom in August 1997.
(2) Excludes:
- 4,946,980 ordinary shares issuable upon exercise of stock options
outstanding as of March 31, 1999 at a weighted average exercise price of
$1.51 per share.
- 145,726 ordinary shares issuable upon exercise of warrants outstanding as
of March 31, 1999 at a weighted average exercise price of $3.45 per
share.
- 3,646,344 ordinary shares available for future grant or issuance under
BackWeb's various benefit plans as of March 31, 1999.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth our consolidated statement of operations
data for the periods presented. The pro forma information in the following table
gives effect to the conversion of all outstanding shares of our preferred stock
into 23,090,238 ordinary shares automatically upon the closing of the offering,
other than the one share of Series E Preferred Stock, which will not be
converted automatically.
<TABLE>
<CAPTION>
TWO MONTHS YEAR ENDED THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ----------------------------- ------------------
1995 1996 1997 1998 1998 1999
------------ ------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ -- $ 71 $ 5,601 $ 9,537 $ 1,579 $ 4,097
Gross profit......................................... -- 71 4,623 7,918 1,227 3,432
Loss from operations................................. (236) (7,641) (15,094) (14,825) (4,583) (3,529)
Net loss............................................. (238) (7,684) (14,962) (14,607) (4,601) (3,686)
Basic and diluted net loss per share................. (6.95) (6.96) (6.07) (2.02) (1.40)
Shares used in computing basic and diluted net loss
per share.......................................... 1,106 2,151 2,408 2,283 2,627
Pro forma basic and diluted net loss per share
(unaudited)........................................ $ (0.69) $ (0.16)
Shares used in computing pro forma basic and diluted
net loss per share (unaudited)..................... 21,208 23,058
</TABLE>
The following table indicates a summary of our balance sheet at March 31,
1999:
- on an actual basis;
- on a pro forma basis giving effect to the conversion of all outstanding
shares of our preferred stock as of March 31, 1999, into 23,090,238
ordinary shares automatically upon the closing of the offering other than
the Series E Preferred Stock, which will not be converted automatically;
and
- on a pro forma as adjusted basis to reflect conversion of the preferred
stock and the sale of 5,500,000 ordinary shares by us at an assumed
public offering price of $9.00 per share and our anticipated application
of the net proceeds of the offering.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 11,137 $11,137 $52,545
Working capital............................................. 9,018 9,018 53,353
Total assets................................................ 20,449 20,449 61,859
Redeemable convertible preferred stock...................... 47,275 -- --
Total shareholders' equity (net capital deficiency)......... (35,891) 11,384 55,719
</TABLE>
- ---------------
Unless otherwise specifically stated, information throughout this
prospectus assumes:
- the effectiveness of a three-for-one reverse share split of ordinary
shares immediately prior to the effective date of this prospectus;
- the underwriters' over-allotment option is not exercised; and
- the conversion of all outstanding shares of preferred stock into
23,090,238 ordinary shares automatically upon the closing of this
offering other than the Series E Preferred Stock, which will not be
converted automatically.
3
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in the ordinary shares.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED
AND WE RECENTLY CHANGED OUR STRATEGIC FOCUS
We have a limited operating history and an even more limited history
operating the business as currently conducted. We cannot be certain that our
business strategy will be successful. We were incorporated on August 31, 1995
and did not begin generating revenues until December 1996. In early 1998, we
changed our strategic focus from a consumer-oriented to an enterprise-oriented
Internet communication company. This change required us to adjust our business
processes and make a number of significant personnel changes.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES
We have not achieved profitability and expect to continue to incur net
losses for at least the foreseeable future. We incurred net losses of
approximately $7.7 million for the year ended December 31, 1996, $15.0 million
for the year ended December 31, 1997, and $14.6 million for the year ended
December 31, 1998 and $3.7 million for the three months ended March 31, 1999. As
of March 31, 1999, we had an accumulated deficit of approximately $41.2 million.
We expect to continue to incur significant sales and marketing, product
development and administrative expenses and expect such expenses to increase in
1999. As a result, we will need to generate significant revenues to achieve and
maintain profitability.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY AND
IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR
SHARE PRICE MAY DECREASE SIGNIFICANTLY
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate significantly and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our ordinary
shares would likely decline. The factors that may cause fluctuations of our
operating results include the following:
- the size, timing and contractual terms of sales of our products and
services due to the long and unpredictable sales cycle of our products;
- delays we may encounter in introducing new versions of BackWeb Foundation
and BackWeb Sales Accelerator and new products and services;
- changes in information systems resource allocation by our customers;
- the mix of products and services sold because our profit margins differ
among products and services; and
- the fixed nature of expenses such as base compensation and rent.
Quarterly revenues and operating results generated by our business
generally depend on license fees from our customers within the quarter. Revenues
from license fees depend upon the volume of end-users. A decrease in end-users
or the cancellation or deferral of any customer contract would reduce our
expected revenues, which could negatively affect our quarterly financial
performance.
Moreover, our sales may be subject to seasonality or cyclicality. We expect
that revenues in the first quarter of each year may be lower than revenues in
the fourth quarter of the preceding year. We believe this trend may occur as a
result of our customers annual budgetary, purchasing and sales cycles. For
example, the growth rate of our license revenues decreased in the quarter ending
March 31, 1999 compared to the growth rate of our license revenues for the
quarter ended December 31, 1998. For a more detailed description of our
quarterly results, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
4
<PAGE> 9
WE ANTICIPATE INCREASED OPERATING EXPENSES WHICH COULD CAUSE OUR BUSINESS TO
SUFFER IF WE DO NOT CORRESPONDINGLY INCREASE REVENUES
We plan to significantly increase our operating expenses to expand our
sales and marketing operations, broaden our customer support capabilities,
improve operational and financial systems, develop new distribution channels and
fund greater levels of research and development. If we do not significantly
increase our revenues to meet these increased expenses, our business will
suffer.
OUR BACKWEB FOUNDATION PLATFORM AND APPLICATIONS ARE NEW AND IT IS UNCLEAR IF
THEY WILL ACHIEVE MARKET ACCEPTANCE
We do not know if our products will be successful. The market for Internet
communications solutions is in its infancy, and we are not certain that our
target customers will widely adopt and deploy our technology throughout their
networks. Even if our products are effective, our target customers may not
choose them for technical, cost, support or other reasons.
Our future growth depends on the commercial success of BackWeb Foundation
and applications developed upon BackWeb Foundation, such as BackWeb Sales
Accelerator, introduced in December 1998.
OUR SOFTWARE PLATFORM ENABLES THIRD PARTIES TO DEVELOP APPLICATIONS WHICH MAY
COMPETE WITH APPLICATIONS DEVELOPED BY US
Because of BackWeb Foundation's open architecture, third parties have the
ability to develop their own applications on top of our platform. Such third
parties could compete with applications developed by BackWeb. If our target
customers do not widely adopt and purchase our products, or if third parties
were to compete with applications developed by us, our business would suffer.
OUR GROWTH MAY SUFFER BECAUSE OF
THE DIFFICULTIES IN IMPLEMENTING
OUR PRODUCTS
The use of our products by our customers requires implementation services.
Although we currently provide implementation services sufficient to meet our
current business level, our growth will be limited in the event we are unable to
expand our implementation services personnel or subcontract these services to
qualified third parties.
IF WE LOSE A MAJOR CUSTOMER, OUR REVENUES COULD SUFFER BECAUSE OF OUR CUSTOMER
CONCENTRATION
We have generated a substantial portion of our annual and quarterly
historical revenues from a limited number of customers. As a result, if we lose
a major customer, or if there is a decline in end-users in any of our customers'
licenses, our revenues would be adversely affected. In 1997, revenues from
Computer Associates and CompuServe represented 19% and 11%, respectively, of our
revenues. In 1998, no customer accounted for more than 10% of our revenues. We
expect that a small number of customers will continue to account for a
substantial portion of revenues for the foreseeable future and revenues from one
or more of these customers may represent more than 10% of our revenues in future
years.
OUR LONG AND UNPREDICTABLE SALES CYCLE DEPENDS ON FACTORS OUTSIDE OUR CONTROL
AND MAY CAUSE LICENSE REVENUES TO VARY SIGNIFICANTLY
To date, our customers have taken a long time to evaluate our products
before making their purchase decisions. The long, and often unpredictable, sales
and implementation cycles for our products may cause license revenues and
operating results to vary significantly from period to period. Along with our
distribution partners, we spend a lot of time educating and providing
information to our prospective customers regarding the use and benefits of our
products. In addition, our customers often begin by purchasing our products on a
pilot basis before they decide whether or not to purchase additional licenses
for full deployment. Even after purchase, our customers tend to deploy BackWeb
Foundation slowly, depending upon:
- the skill set of the customer;
- the size of the deployment;
- the complexity of the customer's network environment; and
5
<PAGE> 10
- the quantity of hardware and the degree of hardware configuration
necessary to deploy our products.
COMPETITION IN THE INTERNET COMMUNICATIONS MARKET MAY REDUCE THE DEMAND FOR, OR
PRICES OF, OUR PRODUCTS
The Internet communications market is intensely competitive and rapidly
changing. We expect that competition will intensify in the near-term because of
the attention the Internet is currently receiving and because there are very
limited barriers to entry. Our primary long-term competitors may not have
entered the market yet because the Internet communications market is new.
Competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business to
suffer. We may not be able to compete successfully, and competitive pressures
may harm our business.
Many of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources than we do. Some of our potential competitors are among the
largest and most well-capitalized software companies in the world. For
additional discussion of our competition, please see "Business -- Competition."
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR GROWTH
If we fail to substantially expand our direct and indirect sales and
marketing operations in our existing markets, our growth will be limited. We
have recently expanded our direct sales force in North America and Europe and
plan to hire additional sales personnel to meet market demand. As of March 31,
1999, we employed approximately 60 individuals in our sales and marketing
organizations. Currently, we believe we will need to expand our sales and
marketing organization by more than fifty percent of its current size over the
next eighteen months, although this increase is dependent on our ability to
increase sales. We might not be able to hire or retain the kind and number of
sales and marketing personnel we are targeting because competition for qualified
sales and marketing personnel in the Internet communications market is intense.
FAILURE TO DEVELOP KEY STRATEGIC
RELATIONSHIPS COULD LIMIT OUR GROWTH
We believe that our success in penetrating our target markets depends in
part on our ability to develop and maintain strategic relationships with key
independent software vendors, or ISVs, resellers, systems integrators,
distribution partners and customers. If we fail to develop these strategic
partnerships, our growth could be limited. Although we do not have any current
exclusive strategic relationships, we have recently entered into nonexclusive
agreements with SAP and Baan relating to the distribution of our products. We
have not derived significant revenues from these agreements and we may not be
able to derive significant revenues in the future from these agreements.
WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR EXPECTED GROWTH
Our ability to successfully offer products and services and to implement
our business plan in the rapidly evolving Internet communications market
requires an effective planning and management process. We continue to increase
the scope of our operations domestically and internationally and expect to grow
our headcount substantially depending on market conditions. In addition, in
connection with the recent change in our strategy from a consumer-oriented to an
enterprise-oriented Internet communications company, we have reorganized our
sales force.
These factors have placed, and our anticipated future operations will
continue to place, a significant strain on our management systems and resources.
We expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and expand, train and manage our
work force worldwide. Furthermore, we expect that we will be required to manage
multiple relationships with various customers and other third parties.
6
<PAGE> 11
THE GLOBAL NATURE OF OUR OPERATIONS
STRAINS OUR MANAGEMENT RESOURCES
If we fail to manage our geographically dispersed organization, we may fail
to meet or exceed our business plan and our revenues may decline. Our research
and development facilities are located in Canada and Israel, and our directors,
executive officers and other key employees are similarly dispersed throughout
the world. In addition, we maintain offices in the United States, Canada, Japan
and Europe to market and sell our products in those countries and surrounding
regions. This geographic dispersion requires significant management resources
that our locally-based competitors do not need to devote to their operations. In
addition, the expansion of our existing international operations and entry into
additional international markets will require significant management attention
and financial resources.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
patent, copyright, trade secret and trademark law. However, we may not be able
to adequately protect our proprietary rights which may harm our business.
Unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. Policing unauthorized use of our products is difficult,
and we cannot be certain that the steps we have taken will prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as in the United States.
For a more detailed description of the protection of our intellectual property,
please see "Business -- Intellectual Property and Proprietary Rights."
OUR PRODUCTS MAY BE USED IN AN
UNINTENDED AND NEGATIVE MANNER
Our products are used to transmit information through the Internet. Our
products could be used to transmit harmful applications, negative messages,
unauthorized reproduction of copyrighted material, inaccurate data, or computer
viruses to end-users in the course of delivery. Any such transmission could
damage our reputation or could give rise to legal claims against us. We could
spend a significant amount of time and money defending against these legal
claims.
OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS
Substantial litigation regarding intellectual property rights exists in the
software industry. A successful claim of product infringement against us and our
failure or inability to license the infringed or similar technology could harm
our business. We expect that software products may be increasingly subject to
third-party infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement against us with respect
to our products and technology. Any claims, with or without merit, could:
- be time-consuming to defend;
- result in costly litigation;
- divert management's attention and resources;
- cause product shipment delays; or
- require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. For additional information, please see
"Business -- Intellectual Property and Proprietary Rights."
WE DO NOT HAVE SUFFICIENT INSURANCE TO COVER ALL POTENTIAL PRODUCT LIABILITY AND
WARRANTY CLAIMS
Our products are integrated into our customers' networks. The sale and
support of our products may entail the risk of product liability or warranty
claims based on damage to these networks. In addition, the failure of our
products to perform to customer expectations could give rise to warranty claims.
7
<PAGE> 12
Although we carry general liability insurance, our insurance would likely not
cover potential claims of this type or may not be adequate to protect us from
all liability that may be imposed.
RAPID TECHNOLOGICAL CHANGES COULD CAUSE OUR PRODUCTS TO BECOME OBSOLETE OR
REQUIRE US TO REDESIGN OUR PRODUCTS
The Internet communications market is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements and
evolving industry standards. If we are unable to develop and introduce products
or enhancements in a timely manner to meet these technological changes, we may
not be able to successfully compete. In addition, our products may become
obsolete in which event we may not be a viable business.
OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF KEY PERSONNEL
We will need to hire a significant number of additional sales, support,
marketing, and research and development personnel in calendar 1999 and beyond to
increase our revenues. If we fail to attract qualified personnel or retain
current employees, our revenues may not increase and could decline.
Competition for these individuals is intense, and we may not be able to
attract, assimilate or retain additional highly qualified personnel in the
future. Our future success also depends upon the continued service of our
executive officers and other key sales, marketing and support personnel. In
addition, our products and technologies are complex and we are substantially
dependent upon the continued service of our existing engineering personnel, and
especially our founders. None of our officers or key employees is bound by an
employment agreement for any specific term. Our relationships with these
officers and key employees are at will. Moreover, we do not have "key person"
life insurance policies covering any of our employees.
ANY MAJOR DEVELOPMENTS IN THE POLITICAL OR ECONOMIC CONDITIONS IN ISRAEL COULD
CAUSE OUR BUSINESS TO SUFFER BECAUSE WE ARE INCORPORATED IN ISRAEL AND HAVE
IMPORTANT FACILITIES AND RESOURCES LOCATED IN ISRAEL
We are incorporated under the laws of the State of Israel. Our principal
research and development facilities as well as significant executive offices are
located in Israel. Any major hostilities involving Israel or the interruption or
curtailment of trade between Israel and its present trading partners could
significantly harm our business. Since its establishment in 1948, the State of
Israel has been and continues to be in a state of hostility with its neighbors,
varying from time to time in intensity and degree.
Some of our senior officers and key employees are currently obligated to
perform annual reserve duty in the Israel Defense Forces and are subject to
being called for active military duty at any time. Fulfillment of these
obligations may deprive us of key employees for extended periods of time.
Inflation in Israel and devaluation of the NIS could have an impact on our
financial results. Although Israel has substantially reduced the rates of
inflation and devaluation in recent years, they are still relatively high
compared to those in the United States and we could be harmed by inflation or
devaluation. If inflation rates in Israel increase again and hurt Israel's
economy as a whole, our operations and financial condition could suffer. For a
more detailed discussion of the political, military and economic environment in
Israel, please see "Conditions in Israel."
ANY FUTURE PROFITABILITY MAY BE DIMINISHED IF TAX BENEFITS FROM THE STATE OF
ISRAEL ARE REDUCED OR WITHHELD
Pursuant to the Law for the Encouragement of Capital Investments, the
Israeli government has granted "Approved Enterprise" status to our existing
capital investment programs. Consequently, we are eligible for tax benefits for
the first several years in which we generate taxable income. Our future
profitability may be diminished if all or a portion of these tax benefits are
reduced. These tax benefits may be cancelled in the event of
8
<PAGE> 13
changes in Israeli government policies or if we fail to comply with requisite
conditions and criteria. Currently the most significant conditions which we must
continue to meet include making specified investments in fixed assets,
maintaining the development and production nature of our facilities, and
financing of at least 30% of these investments through the issuance of capital
stock. For a more detailed discussion of Israeli tax laws, please see "Israeli
Taxation and Investment Programs."
OUR GROWTH MAY BE LIMITED IF WE DO NOT DEVELOP LOCALIZED VERSIONS OF OUR
PRODUCTS
Historically, most of our sales have been in the United States. In order to
expand internationally, we need to develop localized versions of our products.
If we fail to develop these localized versions, our growth prospects would be
limited. We currently have limited experience in developing localized versions
of our products and marketing and distributing our products internationally.
EXCHANGE RATE FLUCTUATIONS BETWEEN THE
U.S. DOLLAR AND THE NIS MAY NEGATIVELY AFFECT OUR EARNINGS
Although most of our revenues and a majority of our expenses are
denominated in U.S. dollars, a significant portion of our research and
development expenses are incurred in NIS. In addition, we are engaged in certain
loan transactions with affiliates denominated in and dependent on NIS. As a
result, we may be negatively affected by fluctuations in the exchange rate
between the U.S. dollar and the NIS.
THE LOSS OF OUR RIGHT TO USE SOFTWARE
LICENSED TO US BY THIRD PARTIES COULD HARM OUR BUSINESS
We license technology that is incorporated into our products from third
parties, including security and encryption software. Any interruption in the
supply or support of any licensed software could disrupt our operations and
delay our sales, unless and until we can replace the functionality provided by
this licensed software. Because our products incorporate software developed and
maintained by third parties, we depend on these third parties to deliver and
support reliable products, enhance their current products, develop new products
on a timely and cost-effective basis and respond to emerging industry standards
and other technological changes.
OUR BUSINESS WILL SUFFER IF OUR TARGET CUSTOMERS DO NOT ACCEPT INTERNET
SOLUTIONS
Our future revenues and profits, if any, depend upon the widespread
acceptance and use of the Internet as an effective medium of business and
communication by our customers. Rapid growth in the use of and interest in the
Internet has occurred only recently. As a result, acceptance and use may not
continue to develop at historical rates, and a sufficiently broad base of
consumers may not adopt, and continue to use, the Internet and other online
services as a medium of commerce and communication.
Our success will depend, in large part, on the acceptance of the Internet
in the commercial marketplace and on the ability of third parties to provide a
reliable Internet infrastructure network with the speed, data capacity, security
and hardware necessary for reliable Internet access and services. To the extent
that the Internet continues to experience increased numbers of users, increased
frequency of use or increased bandwidth requirements of users, the Internet
infrastructure may not be able to support the demands placed on it and the
performance or reliability of the Internet could suffer.
WE MAY OFFER TO REPURCHASE SOME OF OUR PREVIOUSLY GRANTED OPTIONS AND ISSUED
SHARES AND MAY BE SUBJECT TO PENALTIES UNDER CALIFORNIA SECURITIES LAWS
We may commence a rescission offer pursuant to the state securities laws of
the State of California because we failed to qualify or receive an exemption
from qualification under California state securities laws when we granted
options to some of our employees in the State of California. The rescission
offer would cover options to purchase ordinary shares issued pursuant to our
1996 U.S. Stock Option Plan and ordinary
9
<PAGE> 14
shares issued upon exercise of these options which were granted to approximately
42 people in California from 1996 to 1998. The rescission offer would allow
these people to return their equity interests in us in exchange for at least
twenty percent of the exercise price per underlying share for each outstanding
option they hold and the price per share paid by each of these people plus seven
percent interest for each share issued upon exercise of these options. If the
rescission offer is consummated in 1999, BackWeb could be required to make an
aggregate payment in an amount which we believe is not material to us and which
we currently believe will be no more than $400,000. As a legal matter, it
remains uncertain whether we have any liability under California state
securities laws since publicly traded companies are exempt from such filings. In
addition, we are not aware of any claims for rescission against us at the time
of this prospectus. Upon completing a rescission offer approved by the
California Department of Corporations the aforementioned optionees should not
have any rescission rights under California law. We may still be subject to
penalties or fines related to these issuances.
FAILURE OF OUR PRODUCTS OR COMPUTER SYSTEMS OR THOSE OF OUR CUSTOMERS TO
RECOGNIZE THE YEAR 2000 COULD DISRUPT THE OPERATION OF OUR BUSINESS AND
TECHNICAL SYSTEMS
Many currently installed computer systems and software products are not
capable of distinguishing 21st century dates from 20th century dates. As a
result, beginning on January 1, 2000, computer systems and software used by many
companies and organizations in a wide variety of industries, including
technology, transportation, utilities, finance and telecommunications, will
produce erroneous results or fail unless they have been modified or upgraded to
process date information correctly. In addition, we face the possibility that
our products will fail due to processing errors caused by inaccurate
calculations with respect to the Year 2000.
Year 2000 compliance efforts may involve significant time and expense, and
uncorrected problems could harm our business. Moreover, we may face claims based
on Year 2000 issues arising from the integration of multiple products within an
overall system. We may also experience reduced sales of our products as
potential customers reduce their budgets for our products due to increased
expenditures on their own Year 2000 compliance efforts. For a further discussion
of Year 2000 issues, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
ISRAELI REGULATIONS MAY LIMIT OUR ABILITY TO ENGAGE IN RESEARCH AND DEVELOPMENT
AND EXPORT OUR PRODUCTS
Under Israeli law we are required to obtain an Israeli government license
to engage in research and development of and export of the encryption technology
incorporated in our products. Our current government license to engage in these
activities expires April 4, 2000. Our research and development activities in
Israel and our ability to export our products out of Israel would be limited if:
- the Israeli government revokes our current license;
- our current license is not renewed;
- our license fails to cover the scope of the technology in our products;
or
- Israeli law regarding research and development or export of encryption
technologies were to change.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
- announcements of technological innovations;
- announcements relating to strategic relationships;
- conditions affecting the Internet industry; and
- trends related to the fluctuations of stock prices of Israeli companies.
10
<PAGE> 15
The trading price of our ordinary shares may be volatile. The market for
technology and Internet-related companies, has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These fluctuations may adversely affect the trading price of our
ordinary shares, regardless of our actual operating performance.
ISRAELI COURTS MIGHT NOT ENFORCE JUDGMENTS RENDERED OUTSIDE OF ISRAEL WHICH MAY
MAKE IT DIFFICULT TO COLLECT ON JUDGMENTS RENDERED AGAINST US
We are incorporated in Israel. Some of our directors and executive officers
and the Israeli experts named herein are not residents of the United States and
some of their assets and our assets are located outside the United States.
Service of process upon our non-U.S. resident directors and executive officers
or the Israeli experts named herein and enforcement of judgments obtained in the
United States against us, and our directors and executive officers, or the
Israeli experts named herein, may be difficult to obtain within the United
States. BackWeb Technologies, Inc., our U.S. subsidiary, is the U.S. agent
authorized to receive service of process in any action against us in any federal
or state court arising out of this offering or any related purchase or sale of
securities. We have not given consent for this agent to accept service of
process in connection with any other claim.
We have been informed by our legal counsel in Israel, Naschitz, Brandes &
Co., that there is doubt as to the enforceability of civil liabilities under
U.S. securities laws in original actions instituted in Israel. However, subject
to certain time limitations, an Israeli court may declare a foreign civil
judgment enforceable if it finds that:
- the judgment was rendered by a court which was, according to the laws of
the state of the court, competent to render the judgment;
- the judgment is no longer appealable;
- the obligation imposed by the judgment is enforceable according to the
rules relating to the enforceability of judgments in Israel and the
substance of the judgment is not contrary to public policy; and
- the judgment is executory in the state in which it was given.
Even if the above conditions are satisfied, an Israeli court will not
enforce a foreign judgment if it was given in a state whose laws do not provide
for the enforcement of judgments of Israeli courts (subject to exceptional
cases) or if its enforcement is likely to prejudice the sovereignty or security
of the State of Israel. An Israeli court also will not declare a foreign
judgment enforceable if:
- the judgment was obtained by fraud;
- there was no due process;
- the judgment was rendered by a court not competent to render it according
to the laws of private international law in Israel;
- the judgment is at variance with another judgment that was given in the
same matter between the same parties and which is still valid; or
- at the time the action was brought in the foreign court a suit in the
same matter and between the same parties was pending before a court or
tribunal in Israel.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF
BACKWEB AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS
We anticipate that our executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
24.9% of our outstanding ordinary shares following the completion of this
offering. These shareholders, if acting together, would be able to significantly
influence all matters requiring approval by our shareholders, including the
election of directors and the approval of mergers or other business combination
transactions.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF BACKWEB, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS
Provisions of Israeli corporate and tax law and of our Articles of
Association may
11
<PAGE> 16
have the effect of delaying, preventing or making more difficult a merger or
other acquisition of BackWeb, even if doing so would be beneficial to our
shareholders.
Israeli law regulates mergers, votes required to approve a merger,
acquisition of shares through tender offers and transactions involving
significant shareholders. In addition, our charter documents provide for a
staggered board of directors. For further discussion, please see
"Management -- Election of Directors" and "Description of Share Capital."
VIRTUALLY ALL OF OUR SHARES WILL BE ELIGIBLE FOR SALE SHORTLY AFTER THE OFFERING
AND SUBSTANTIAL SALES OF OUR SHARES COULD CAUSE OUR SHARE PRICE TO FALL
If our shareholders sell substantial amounts of our ordinary shares,
including shares issued upon the exercise of outstanding options and warrants,
in the public market following this offering, the market price of our ordinary
shares could fall dramatically. Such sales also might make it more difficult for
us to sell equity or equity-related securities in the future at a time and price
that we deem appropriate.
Upon completion of this offering, we will have outstanding 32,446,139
ordinary shares, based upon shares outstanding as of March 31, 1999. Of these
shares, the 5,500,000 shares sold in this offering are freely tradable. This
leaves 26,946,139 shares eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- --------------------- ---------------------
<S> <C>
19,300,996........... 180 days from the
date of this
prospectus
7,645,143............ At various times
thereafter through
March 24, 2000
</TABLE>
In addition, upon completion of the offering we will have 2,595,501
ordinary shares that are issuable at any time for no additional consideration
upon exchange of the BackWeb Canada exchangeable shares issued to the former
shareholders of Lanacom, Inc. in connection with our acquisition of Lanacom. We
have agreed to register the resale of these ordinary shares on the 180th day
after the date of this prospectus.
Moreover, on or prior to the 180th day after the date of this prospectus,
we intend to register for resale approximately 10.9 million ordinary shares
reserved for issuance or issued under our employee stock plans. Please see
"Shares Eligible for Future Sale" and "Underwriting."
INVESTORS IN OUR ORDINARY SHARES FACE SUBSTANTIAL IMMEDIATE DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding ordinary shares. As a result,
investors purchasing ordinary shares in this offering will incur immediate
substantial dilution of $7.45 per share. In addition, we have issued options and
warrants to acquire ordinary shares at prices significantly below the initial
public offering price. To the extent such outstanding options are ultimately
exercised, there will be further dilution to investors in this offering.
12
<PAGE> 17
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
We have made forward looking statements in this prospectus that are subject
to risks and uncertainties. Forward looking statements include information
concerning possible or assumed future results of operations of BackWeb. Also,
when we use such words as "believes," "expects," "anticipates" or similar
expressions, we are making forward looking statements. You should note that an
investment in our securities involves risks and uncertainties that could affect
future financial results. Our actual results could differ materially from those
anticipated in these forward looking statements as a result of factors,
including those set forth in "Risk Factors" and elsewhere in this prospectus.
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the 5,500,000 ordinary
shares being offered to be approximately $44.3 million at an assumed public
offering price of $9.00 per share, after deducting the underwriting discount and
estimated offering expenses payable by us, or $51.2 million if the
over-allotment option is exercised in full.
We intend to use approximately $2.9 million of the net proceeds of the
offering to repay indebtedness, of which $2.0 million bears interest at prime
rate plus 4% per annum, and approximately $900,000 bears no interest. The $2.0
million line of credit matures on December 31, 1999 and the $900,000 loan is
repaid at a rate of 2.5% of cumulative consolidated revenues in excess of $5.0
million. We are currently using the proceeds of this indebtedness for working
capital. We expect to use the balance of the net proceeds from this offering for
general corporate purposes. In addition, we may use a portion of the net
proceeds to acquire complementary products, technologies or businesses. However,
we currently have no commitments or agreements and are not involved in any
negotiations with respect to any such transactions. Pending use of the net
proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
We are not limited in our use of the proceeds of this offering. We cannot
predict that the investment of the proceeds in our operations and otherwise will
yield a favorable return.
13
<PAGE> 18
DIVIDEND POLICY
We have never paid cash dividends to our shareholders and we currently do
not intend to pay dividends for the foreseeable future. We intend to reinvest
earnings in the development and expansion of our business. We have decided to
reinvest the amount of tax exempt income derived from our Approved Enterprise
status and not to distribute such income as dividends. See Note 9 of Notes to
the Consolidated Financial Statements included in this prospectus. We may only
pay cash dividends in any fiscal year out of "profits," as determined under
Israeli law. In addition, the terms of financing arrangements restrict us from
paying dividends to our shareholders.
Because of our investment program's Approved Enterprise status, the payment
of dividends by us may be subject to certain Israeli taxes to which we would not
otherwise be subject to. The tax exempt income attributable to the Approved
Enterprise status can be distributed to shareholders without subjecting us to
taxes only upon our complete liquidation. If we decide to distribute cash
dividends out of income that has been exempt from tax, the income out of which
the dividend is distributed will be subject to Israeli corporate tax.
In the event we declare dividends in the future, we will declare those
dividends in NIS but pay those dividends to our non-Israeli shareholders in U.S.
dollars. Under current Israeli regulations, any dividends or other distributions
paid in respect of ordinary shares, may be freely repatriated in non-Israeli
currencies at the rate of exchange prevailing at the time of conversion,
provided that Israeli income tax has been paid on or withheld from such
dividends. Because exchange rates between NIS and the dollar fluctuate
continuously, a U.S. shareholder will be subject to currency fluctuation between
the date when the dividends are declared and the date the dividends are paid.
For additional discussion of Israeli tax issues involved in our payment of cash
dividends, please see "Israeli Taxation and Investment Programs."
14
<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis giving effect to the conversion of all outstanding
shares of our preferred stock as of March 31, 1999 into 23,090,238
ordinary shares automatically upon the closing of this offering other
than the Series E Preferred Stock, which will not be converted
automatically; and
- on a pro forma as adjusted basis to reflect conversion of the preferred
stock and the sale of 5,500,000 ordinary shares by us at an assumed
public offering price of $9.00 per share and our anticipated application
of the net proceeds of the offering.
You should read this information together with BackWeb's consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Line of credit and current portion of long-term
obligations............................................... $ 2,927 $ 2,927 $ --
======== ======== ========
Series B, C and D redeemable convertible preferred stock:
nominal value approximately $0.003 per share at amount
paid in; 44,737,377 shares authorized and 43,806,603
shares outstanding actual; no shares authorized or
outstanding pro forma and pro forma as adjusted
(liquidation preference of $48,712,000)................... $ 47,275 $ -- $ --
Shareholders' equity (net capital deficiency):
Series A convertible preferred stock: nominal value
approximately $0.003 per share at amount paid in;
25,464,110 shares authorized and outstanding actual; no
shares authorized or outstanding pro forma and pro forma
as adjusted (liquidation preference of $2,024,000)...... 495 -- --
Series E preferred stock: nominal value approximately
$0.003 per share at amount paid in; 1 share authorized
and outstanding actual, pro forma and pro forma as
adjusted(1)............................................. 3,454 3,454 3,454
Preferred stock, nominal value approximately $0.003 per
share; no shares authorized or outstanding actual;
50,000,000 shares authorized and no shares outstanding
pro forma and pro forma as adjusted..................... -- -- --
Ordinary shares: nominal value approximately $0.01 per
share at amount paid in; 30,000,000 shares authorized,
3,855,901 shares outstanding actual; 150,000,000 shares
authorized and 26,946,139 shares outstanding pro forma;
and 150,000,000 shares authorized and 32,446,139 shares
outstanding pro forma as adjusted(2).................... 8,314 56,084 100,419
Notes receivable from shareholders........................ (3,538) (3,538) (3,538)
Deferred stock compensation............................... (3,439) (3,439) (3,439)
Accumulated deficit....................................... (41,177) (41,177) (41,177)
-------- -------- --------
Total shareholders' equity (net capital deficiency)... (35,891) 11,384 55,719
-------- -------- --------
Total capitalization............................... $ 11,384 $ 11,384 $ 55,719
======== ======== ========
</TABLE>
- ---------------
(1) In connection with our acquisition of Lanacom, we issued to the Lanacom
selling shareholders 8,532,909 exchangeable shares of BackWeb Canada, Inc.,
a wholly owned subsidiary of BackWeb, and one share of our Series E
Preferred Stock. The exchangeable shares of BackWeb Canada, Inc. are
exchangeable for an aggregate of 2,595,501 ordinary shares.
(2) Based on the number of shares actually outstanding on March 31, 1999.
Excludes:
- 4,946,980 ordinary shares issuable upon exercise of stock options
outstanding as of March 31, 1999 at a weighted average exercise price of
$1.51 per share.
- 145,726 ordinary shares issuable upon exercise of warrants outstanding as
of March 31, 1999 at a weighted average exercise price of $3.45 per share.
- 3,646,344 ordinary shares available for future grant or issuance under our
various benefit plans as of March 31, 1999.
15
<PAGE> 20
DILUTION
Our net tangible book value as of March 31, 1999 was $10.0 million or
approximately $0.34 per share. Net tangible book value per share represents the
amount of our total tangible assets less total liabilities, divided by the
number of ordinary shares outstanding, assuming the issuance of 2,595,501
ordinary shares issuable for no additional consideration upon exchange of
BackWeb Canada exchangeable shares. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of ordinary shares in the offering made hereby and the net tangible book value
per ordinary share immediately after the completion of this offering. After
giving effect to the sale of the 5,500,000 ordinary shares offered by us hereby
at an assumed public offering price of $9.00 per share and after deducting the
underwriting discount and estimated offering expenses payable by us, our net
tangible book value at March 31, 1999 would have been approximately $54.3
million, or $1.55 per share. This represents an immediate increase in net
tangible book value of $1.21 per share to existing shareholders and an immediate
dilution in net tangible book value of $7.45 per share to new investors or
ordinary shares in this offering. The following table illustrates this dilution
on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $9.00
Net tangible book value per share as of March 31, 1999.... $0.34
Increase per share attributable to new investors.......... 1.21
-----
Net tangible book value per share after the offering........ 1.55
-----
Dilution in net tangible book value per share to new
investors................................................. $7.45
=====
</TABLE>
The following table sets forth, as of March 31, 1999, the differences
between the number of ordinary shares purchased from us, the total consideration
paid and the average price per share paid by existing holders of ordinary shares
and by the new investors, before deducting the underwriting discount and
estimated offering expenses payable by us, at an assumed public offering price
of $9.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 29,541,640 84% $ 56,533,000 53% $1.91
New investors............... 5,500,000 16 49,500,000 47 9.00
---------- --- ------------ ----
Total............. 35,041,640 100% $106,033,000 100%
========== === ============ ====
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually outstanding on March 31, 1999 and assume the issuance of 2,595,501
ordinary shares issuable for no additional consideration upon exchange of
BackWeb Canada exchangeable shares issued in connection with the Lanacom
acquisition and no exercise of options and warrants outstanding as of March 31,
1999. As of March 31, 1999, there were options outstanding to purchase 4,946,980
ordinary shares at a weighted average exercise price of $1.51 per share and
warrants outstanding to purchase 145,726 ordinary shares at a weighted average
exercise price of $3.45 per share. To the extent these options and warrants are
exercised, there will be further dilution to new investors.
16
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data set forth below for
the three years in the period ended December 31, 1998 and the selected
consolidated balance sheet data as of December 31, 1997 and 1998 have been
derived from our audited consolidated financial statements included elsewhere in
this prospectus. The selected consolidated statement of operations data for the
two months ended December 31, 1995 and the selected consolidated balance sheet
data as of December 31, 1995 and 1996 have been derived from our audited
consolidated financial statements not included in this prospectus. The selected
consolidated statement of operations data for the three months ended March 31,
1998 and 1999 and the consolidated balance sheet data at March 31, 1999 have
been derived from unaudited financial statements included elsewhere in this
prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, that BackWeb considers
necessary for a fair presentation of its financial position at such dates and
the results of operations for those periods. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. In addition, our
historical results are not necessarily indicative of results to be expected for
any future period. The data have been derived from financial statements that
have been prepared in accordance with U.S. GAAP and should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
TWO MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ----------------------------- ----------------------
1995 1996 1997 1998 1998 1999
------------ ------- -------- -------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................... $ -- $ 71 $ 5,311 $ 7,980 $ 1,395 $ 3,308
Service................................... -- -- 290 1,557 184 789
------- ------- -------- -------- ------- --------
Total revenues...................... -- 71 5,601 9,537 1,579 4,097
Cost of revenues:
License................................... -- -- 182 266 55 73
Service................................... -- -- 796 1,353 297 592
------- ------- -------- -------- ------- --------
Total cost of revenues.............. -- -- 978 1,619 352 665
Gross profit................................ -- 71 4,623 7,918 1,227 3,432
Operating expenses:
Research and development.................. 120 1,781 3,955 4,555 1,277 997
Sales and marketing....................... -- 4,535 12,224 13,182 3,321 3,831
General and administrative................ 116 1,396 2,981 3,182 811 931
Amortization of goodwill, other
intangibles, and deferred stock
compensation............................ -- -- 557 1,824 401 1,202
------- ------- -------- -------- ------- --------
Total operating expenses............ 236 7,712 19,717 22,743 5,810 6,961
------- ------- -------- -------- ------- --------
Loss from operations........................ (236) (7,641) (15,094) (14,825) (4,583) (3,529)
Interest income (expense), net.............. (2) (43) 132 218 (18) (157)
------- ------- -------- -------- ------- --------
Net loss.................................... $ (238) $(7,684) $(14,962) $(14,607) $(4,601) $ (3,686)
======= ======= ======== ======== ======= ========
Basic and diluted net loss per share........ $ (6.95) $ (6.96) $ (6.07) $ (2.02) $ (1.40)
======= ======== ======== ======= ========
Shares used in computing basic and diluted
net loss per share(1)..................... 1,106 2,151 2,408 2,283 2,627
======= ======== ======== ======= ========
Pro forma basic and diluted net loss per
share (unaudited)(2)...................... $ (0.69) $ (0.16)
======== ========
Shares used in computing pro forma basic and
diluted net loss per share
(unaudited)(1)(2)......................... 21,208 23,058
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------- MARCH 31,
1995 1996 1997 1998 1999
----- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ -- $12,068 $ 6,377 $ 6,449 $ 11,137
Working capital (deficit)................................. (36) 9,707 3,024 1,596 9,018
Total assets.............................................. 14 12,784 15,097 12,701 20,449
Long-term obligations, net of current portion............. 211 1,278 1,156 327 --
Redeemable convertible preferred stock.................... -- 16,337 25,532 37,304 47,275
Total shareholders' equity (net capital deficiency)....... (238) (7,407) (18,915) (33,178) (35,891)
</TABLE>
- -------------------------
(1) For an explanation of the number of shares used in per share computation,
see Note 1 of Notes to Consolidated Financial Statements. Loss per share for
1995 is not presented as it is not meaningful.
(2) The pro forma information gives effect to the conversion of all outstanding
shares of our preferred stock into 23,090,238 ordinary shares as of March
31, 1999 automatically upon the closing of the offering, other than the one
share of Series E Preferred Stock which will not be converted automatically.
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among others, those statements including the
words, "expects," "anticipates," "intends," "believes" and similar language. Our
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to
the risks discussed in the section titled "Risk Factors" in this prospectus.
OVERVIEW
BackWeb is a leading provider of Internet communication infrastructure
software and application-specific software that enables companies to communicate
business-critical, time-sensitive information to their customers, partners and
employees.
We were incorporated on August 31, 1995 and commenced our operations in
November 1995. During the period from commencement of operations through
December 31, 1996, we were in a development stage and had insignificant
revenues. Operating activities during this period related primarily to
developing our products, building our corporate infrastructure and raising
capital. In December 1996, we shipped the first commercial version of our
software.
In August 1997, in an effort to expand the features and functionalities of
our product offerings, we acquired all the outstanding shares of Lanacom Inc., a
Canadian corporation. The acquisition has been accounted for using the purchase
method of accounting, and accordingly the purchase price has been allocated to
the tangible and intangible assets acquired and the liabilities assumed on the
basis of their respective fair value on the acquisition date. The purchase price
of $3.9 million was determined based on the value of shares originally issued
and options granted. Of the total purchase price, approximately $3.2 million was
allocated to goodwill, representing the excess of the aggregate purchase price
on the fair value of tangible and intangible assets. The remainder of the
purchase price was allocated to net tangible liabilities assumed ($103,000),
developed technology ($400,000) and other identifiable intangible assets
($383,000). Goodwill, developed technology and other identified intangibles are
amortized on a straight-line basis over the estimated useful life which range
from 24 to 30 months. The first BackWeb product, Version 4.0, incorporating
Lanacom's Headliner product, was released in January 1998.
In early 1998, we engaged in a comprehensive reexamination of our business
strategy and changed our strategic focus from a consumer-oriented to an
enterprise-oriented Internet communication company. In connection with this
change in strategy, we undertook a fundamental repositioning and reorganization
of our work force, particularly in our sales organization. During 1998, we
continued to enhance our infrastructure software, BackWeb Foundation Version
5.0, and in December 1998 released our first packaged application, BackWeb Sales
Accelerator.
Since our inception, revenues have been derived primarily from the
licensing of our products and to a lesser extent from maintenance and support,
consulting and training services. The rate of growth of our service revenues is
not commensurate with the costs of service revenues such as salaries and related
expenses of our customer support and consulting organizations and cost of third
party contractors to provide consulting services. Accordingly, our gross margins
on service revenues are significantly lower than our gross margins on license
revenues. Our products are marketed worldwide through a combination of a direct
salesforce, resellers and system integrators.
We recognize software license revenue in accordance with Statement of
Position 97-2, or SOP 97-2, "Software Revenue Recognition," as amended by
Statement of Position 98-4, or SOP 98-4. These statements are effective for our
transactions entered into after January 1, 1998. The application of
18
<PAGE> 23
SOP 97-2 has not had a material impact on our results of operations. License
revenues are comprised of perpetual or multi-year license fees that are
primarily derived from contracts with corporate customers and resellers. We
generally recognize license revenues when a license agreement has been executed
or a definitive purchase order has been received and the product has been
delivered to end-user customers, no significant obligations with regard to
implementation remain, the fee is fixed and determinable, and collectibility is
probable. Revenues on contracts with resellers are not recognized until software
is sold through to the end-user.
Service revenues are primarily comprised of revenues from standard support
and maintenance agreements, consulting and training fees. Customers licensing
our products generally purchase the standard annual maintenance agreement.
Revenues from maintenance agreements are recognized on a straight-line basis
over the life of the agreement. Consulting services are billed at an agreed upon
rate plus out-of-pocket expenses and training services on a per session basis.
We recognize service revenues from consulting and training upon completion of
the work to be performed.
We have expended significant sums since inception on product development
and enhancement of sales and marketing capabilities, and expect that these
expenditures will continue to increase as we pursue the emerging opportunities
in our markets.
The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expenses is incurred in NIS.
The results of our operations are subject to fluctuations in the dollar-NIS
exchange rate which is influenced by various global economic factors including
inflation in Israel.
19
<PAGE> 24
RESULTS OF OPERATIONS
BackWeb's historical operating results for the years ended December 31,
1997 and 1998
and for the three months ended March 31, 1998 and 1999 as a percentage of net
revenues, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------ ---------------
1997 1998 1998 1999
------- ------- ------ -----
<S> <C> <C> <C> <C>
Revenues:
License............................................. 94.8% 83.7% 88.3% 80.7%
Service............................................. 5.2 16.3 11.7 19.3
------ ------ ------ -----
Total revenues................................. 100.0 100.0 100.0 100.0
Cost of revenues:
License............................................. 3.3 2.8 3.5 1.8
Service............................................. 14.2 14.2 18.8 14.4
------ ------ ------ -----
Total cost of revenues......................... 17.5 17.0 22.3 16.2
------ ------ ------ -----
Gross margin.......................................... 82.5 83.0 77.7 83.8
------ ------ ------ -----
Operating expenses:
Research and development............................ 70.6 47.8 80.9 24.4
Sales and marketing................................. 218.3 138.2 210.3 93.5
General and administrative.......................... 53.2 33.4 51.4 22.7
Amortization of goodwill, other intangibles and
deferred stock compensation...................... 9.9 19.1 25.4 29.3
------ ------ ------ -----
Total operating expenses....................... 352.0 238.5 368.0 169.9
------ ------ ------ -----
Loss from operations.................................. (269.5) (155.5) (290.3) (86.1)
Interest income (expense), net........................ 2.4 2.3 (1.1) (3.9)
------ ------ ------ -----
Net loss.............................................. (267.1)% (153.2)% (291.4)% (90.0)%
====== ====== ====== =====
</TABLE>
- ---------------
Because revenues from inception through December 31, 1996 totalled $71,000,
a comparison of our operating results as a percentage of net revenues during
that period or against percentages from later periods is not meaningful.
THREE MONTHS ENDED
MARCH 31, 1999 AND 1998
BackWeb incurred a net loss of approximately $3.7 million for the three
months ended March 31, 1999 compared to a net loss of $4.6 million for the three
months ended March 31, 1998.
REVENUES
Our revenues are derived primarily from licensing of BackWeb Foundation and
BackWeb Sales Accelerator and to a lesser extent from maintenance and support,
consulting and training services. Net revenues increased approximately $2.5
million or 159% from $1.6 million in the three months ended March 31, 1998 to
$4.1 million in the three months ended March 31, 1999. The increase was due to
growth in license revenues. Customers outside of the United States accounted for
18.0% of revenues in the three months ended March 31, 1999 compared to 16.5% of
revenues in the three months ended March 31, 1998.
License revenues were $3.3 million or 80.7% of revenues in the three months
ended March 31, 1999 compared to $1.4 or 88.3% of revenues in the three months
ended March 31, 1998. The decrease in license revenue as a percentage of total
revenue was primarily due to increased service revenue from support, maintenance
and consulting services. Service revenues were $789,000 or 19.3% of revenues in
the three months ended
20
<PAGE> 25
March 31, 1999 compared to $184,000 or 11.7% of revenues in the three months
ended March 31, 1998. In 1999, we expect our service revenues to increase on an
absolute basis and as a percentage of net revenues.
COST OF REVENUES
Cost of revenues consists of costs associated with generating license and
service revenues. Cost of revenues was $665,000 or 16.2% of revenues for the
three months ended March 31, 1999 compared to $352,000 or 22.3% of revenues for
the three months ended March 31, 1998. The increase in cost of revenues on an
absolute basis was primarily due to growth of our service organization in 1999.
Cost of license revenues consists primarily of expenses related to media
duplication, and packaging of our products and amortization of capitalized
developed technology. Cost of license revenues was $73,000 or 1.8% of revenues
for the three months ended March 31, 1999 compared to $55,000 or 3.5% of
revenues for the three months ended March 31, 1998.
Cost of service revenues consists primarily of expenses related to salaries
and expenses of our customer support and professional service organizations,
including related expenses of our consultants and costs of third party
consultants. Cost of service revenues was $592,000, or 14.4% of revenues, in the
three months ended March 31, 1999 compared to $297,000 or 18.8% of revenues, in
the three months ended March 31, 1998. The increase in cost of service revenues
was due to growth of the service organization during 1998 and 1999.
We expect cost of service revenues to increase primarily as a result of the
increase in our service revenues in addition to the continued expansion of our
customer support and professional services organizations.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel, equipment and supply costs for our development efforts.
These expenses are charged to operations as incurred. We have research and
development offices in Israel and Canada. Research and development expenses were
$997,000 in the three months ended March 31, 1999 compared to $1.3 million in
the three months ended March 31, 1998. The decrease was due to the consolidation
of our research and development facilities in Jerusalem and Ramat Gan.
We believe significant investment in research and development is essential
to our future success and expect that research and development expenses will
increase on an absolute basis but decrease as a percentage of revenues in future
periods.
SALES AND MARKETING. Sales and marketing expenses consist of personnel and
related costs for our direct sales force and marketing staff, and marketing
programs, including trade shows, advertising, collateral, sales materials,
seminars and public relations. We have sales personnel in offices located in the
United States, Canada, Europe and Japan. Sales and marketing expenses were $3.8
million in the three months ended March 31, 1999 compared to $3.3 million in the
three months ended March 31, 1998.
We expect that sales and marketing expenses will increase on an absolute
basis over the next year, as we hire additional sales and marketing personnel,
continue to promote our brand and establish sales offices in additional domestic
and international locations, but are expected to decrease as a percentage of
revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel and related costs for general corporate functions,
including finance, accounting, general management, human resources, information
services and legal. General and administrative expenses were $931,000 in the
three months ended March 31, 1999 compared to $811,000 in the three months ended
March 31, 1998. We expect general and administrative expenses to increase on an
absolute basis in future periods but continue to decrease as a percentage of
revenues.
21
<PAGE> 26
AMORTIZATION OF GOODWILL, OTHER INTANGIBLES AND DEFERRED STOCK
COMPENSATION. Amortization of goodwill, other intangibles and deferred stock
compensation consists of amortization of goodwill and other intangibles
associated with our acquisition of Lanacom in August 1997 and deferred stock
compensation for the three months ended March 31, 1999 and amortization of
goodwill and other intangibles only for the three months ended March 31, 1998.
Deferred stock compensation represents the aggregate differences between the
respective exercise price of options at their dates of grant and the deemed fair
market value or our ordinary shares for accounting purposes. Goodwill and other
intangibles are being amortized on a straight line basis over the estimated
useful life, generally two to two and one-half years. Deferred stock
compensation is presented as a reduction of shareholders' equity and is
amortized over the vesting period of the underlying options based on an
accelerated vesting method. Amortization expense was $1.2 million in the three
months ended March 31, 1999 compared to $401,000 in the three months ended March
31, 1998. The increase in amortization expense was due to deferred stock
compensation expense of $807,000 that was recorded in the three months ended
March 31, 1999.
We currently expect to record amortization of goodwill, other intangibles
and deferred stock compensation of approximately $4.1 million in 1999, $1.3
million in 2000, $572,000 in 2001 and $235,000 in 2002.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net includes interest income earned on our cash
and cash equivalents, offset by interest expense and fair value of warrants
issued in connection with borrowings from financial institutions and also
includes the effects of foreign currency. Net interest expense was $157,000 in
the three months ended March 31, 1999 compared to $18,000 in the three months
ended March 31, 1998. The increase in interest expense was due to interest
payments pursuant to loan agreements.
YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
REVENUES
Net revenues were $9.5 million in 1998, $5.6 million in 1997 and $71,000 in
1996. The increase in revenues from 1997 to 1998 was attributable to an increase
in both license revenues and service revenues. The increase in revenues from
1996 to 1997 was due primarily to an increase in license revenues. During 1996,
we had insignificant revenues as we were in the development stage. Revenues from
customers outside of the United States accounted for 20.6% of revenues in 1998
and 11.1% of revenues in 1997. No customer, domestic or international, accounted
for more than 10% of revenues during 1998. However, in 1997, revenues from two
customers represented 19% and 11% of revenues.
License revenues were $8.0 million, or 83.7% of revenues, in 1998, compared
to $5.3 million, or 94.8% of revenues in 1997. The increase in license revenues
was primarily due to the growth of our customer base, recurring sales to our
installed base and an increase in average transaction size.
Service revenues were $1.6 million, or 16.3% of revenues, in 1998, compared
to $290,000, or 5.2% of revenues in 1997. The increase in service revenues both
on an absolute basis and as a percentage of revenues was primarily due to
increased revenues from customer maintenance and consulting services as a result
of our efforts to build our customer support and professional services
organizations, a greater number of licenses and the complexity of larger
deployments.
COST OF REVENUES
Cost of revenues was $1.6 million, or 17.0% of revenues, for 1998 as
compared to $978,000, or 17.5% of revenues, for 1997. The increase in cost of
revenues was due to our increased revenues in 1998. The decrease in cost of
revenues as a percentage of revenues was due to increased utilization of our
customer support and professional services organization in 1998.
Cost of license revenues was $266,000, or 2.8% of license revenues, in
1998, com-
22
<PAGE> 27
pared to $182,000, or 3.3% of license revenues, in 1997. We expect cost of
license revenues to increase on an absolute basis as a result of increased
license revenues, but remain a small percentage of license revenues.
Cost of service revenues was $1.4 million in 1998, as compared to $796,000
in 1997. The increase was due primarily to the increased headcount in our
professional services organization and to a lesser extent, our technical support
group. Cost of service revenues in 1997 reflects the establishment of the
service organization infrastructure to support future growth.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses were $4.6
million in 1998, $4.0 million in 1997 and $1.8 million in 1996. The increases in
research and development expenses were primarily due to the integration of
former Lanacom employees into our research and development organization in
August 1997.
SALES AND MARKETING. Sales and marketing expenses were $13.2 million in
1998, $12.2 million in 1997 and $4.5 million in 1996. The increases in sales and
marketing expenses were primarily due to our efforts to expand our marketing
programs worldwide, increase brand awareness for our products and adjustments in
our sales force created by our shift from a consumer-oriented to an
enterprise-oriented strategy.
GENERAL AND ADMINISTRATIVE. General and administrative expenses totaled
$3.2 million in 1998, $3.0 million in 1997, and $1.4 million in 1996. The
increases in general and administrative expenses were due primarily to increased
personnel and related overhead to support our growth.
AMORTIZATION OF GOODWILL, OTHER INTANGIBLES AND DEFERRED STOCK
COMPENSATION. Amortization of goodwill, other intangibles and deferred stock
compensation expenses totaled $1.8 million in 1998 and $557,000 in 1997.
INTEREST INCOME (EXPENSE), NET
Net Interest and other income was $218,000 in 1998 and $132,000 in 1997 and
net interest expense was $43,000 in 1996.
INCOME TAXES
As of December 31, 1998, we had approximately $30.0 million of Israeli net
operating loss carryforwards and $1.0 million of U.S. federal net operating loss
carryforwards and of $4.5 million of other foreign net losses carryforwards for
tax reporting purposes available to offset future taxable income. The U.S. net
operating loss carryforwards expire in various amounts between the years 2011
and 2018. The Israeli net operating loss carryforwards have no expiration date.
23
<PAGE> 28
QUARTERLY OPERATING RESULTS
The following table presents our unaudited consolidated quarterly results
of operations for our most recent seven quarters. This data is unaudited. The
financial information has been prepared on the same basis as our annual
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial results set
forth therein. Such statement of operations data should be read in conjunction
with the Consolidated Financial Statements and related Notes thereto in this
prospectus. Our results of operations have fluctuated and are likely to continue
to fluctuate significantly from quarter to quarter. Results of operations for
any previous quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues:
License................................... $ 1,606 $ 2,332 $ 1,395 $ 1,727 $ 2,127 $ 2,731 $ 3,308
Service................................... 123 150 184 307 303 763 789
------- ------- ------- ------- ------- ------- -------
Total revenues........................ 1,729 2,482 1,579 2,034 2,430 3,494 4,097
Cost of revenues:
License................................... 70 75 55 74 45 92 73
Service................................... 229 212 297 353 361 342 592
------- ------- ------- ------- ------- ------- -------
Total cost of revenues................ 299 287 352 427 406 434 665
Gross profit................................ 1,430 2,195 1,227 1,607 2,024 3,060 3,432
Operating expenses:
Research and development.................. 1,186 1,407 1,277 1,201 1,105 972 997
Sales and marketing....................... 3,039 3,407 3,321 3,267 3,268 3,326 3,831
General and administrative................ 710 1,160 811 693 756 922 931
Amortization of goodwill, other
intangibles and deferred stock
compensation............................ 186 371 401 401 401 621 1,202
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 5,121 6,345 5,810 5,562 5,530 5,841 6,961
Loss from operations........................ (3,691) (4,150) (4,583) (3,955) (3,506) (2,781) (3,529)
Interest income (expense), net.............. (39) (96) (18) 37 186 13 (157)
------- ------- ------- ------- ------- ------- -------
Net loss.................................... $(3,730) $(4,246) $(4,601) $(3,918) $(3,320) $(2,768) $(3,686)
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF NET SALES
Revenues:
License................................... 92.9% 94.0% 88.3% 84.9% 87.5% 78.2% 80.7%
Service................................... 7.1 6.0 11.7 15.1 12.5 21.8 19.3
------- ------- ------- ------- ------- ------- -------
Total revenues............................ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
License................................... 4.0 3.0 3.5 3.6 1.9 2.6 1.8
Service................................... 13.2 8.5 18.8 17.4 14.9 9.8 14.4
------- ------- ------- ------- ------- ------- -------
Total cost of revenues.................... 17.2 11.5 22.3 21.0 16.8 12.4 16.2
Gross profit................................ 82.8 88.5 77.7 79.0 83.2 87.6 83.8
Operating expenses:
Research and development.................. 68.6 56.7 80.9 59.0 45.5 27.8 24.4
Sales and marketing....................... 175.8 137.3 210.3 160.6 134.5 95.2 93.5
General and administrative................ 41.1 46.7 51.4 34.1 31.1 26.4 22.7
Amortization of goodwill, other
intangibles and deferred stock
compensation............................ 10.8 14.9 25.4 19.7 16.5 17.8 29.3
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 296.3 255.6 368.0 273.4 227.6 167.2 169.9
Loss from operations........................ (213.5) (167.1) (290.3) (194.4) (144.4) (79.6) (86.1)
Interest income (expense), net.............. (2.3) (3.9) (1.1) 1.8 7.7 0.4 (3.9)
------- ------- ------- ------- ------- ------- -------
Net loss.................................... (215.8)% (171.0)% (291.4)% (192.6)% (136.7)% (79.2)% (90.0)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
24
<PAGE> 29
Our quarterly revenues were $1.6 million in the first quarter of 1998 as
compared to $2.5 million in the fourth quarter of 1997, primarily as a result of
our efforts to transition from a consumer-oriented to an enterprise-oriented
strategy. Since the first quarter of 1998 our revenues have grown in each
quarter.
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. Additionally,
as a strategic response to a changing competitive environment, we may elect from
time to time to make certain pricing, service, marketing or acquisition
decisions that could have a negative effect on our quarterly financial
performance. Our past has shown that a significant percentage of our quarterly
revenues come from orders placed by a small number of customers and are realized
toward the end of a quarter. A delay in the execution of a sale past the end of
a particular quarter could negatively impact results for that particular
quarter. In addition, we expect that revenues in the first quarter of each year
will be lower than the last quarter of the previous year primarily due to the
annual nature of budgetary, procurement and sales cycles.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded operations primarily through the
private placement of our equity securities, equipment lease financings and
borrowings. As of March 31, 1999, we had cash and cash equivalents of $11.1
million. Cash used by operations include expenditures associated with
development activities and marketing efforts related to commercialization of our
products. In the three months ended March 31, 1999, cash used in operations was
$5.0 million. In 1998, cash used in operations was $11.9 million, comprised of
the net loss of $14.6 million and partially offset by noncash charges of $2.5
million. In 1997, cash used in operations was $15.5 million comprised of the net
loss of $15.0 million, an increase in accounts receivable of $3.3 million,
partially offset by noncash charges of $917,000 and an increase in deferred
revenues of $1.0 million.
We have made investments in hardware, software, and furniture and fixtures.
Expenditures on property and equipment were approximately $134,000 in the three
months ended March 31, 1999, $390,000 in 1998, $860,000 in 1997 and $498,000 in
1996.
We have raised approximately $48.0 million, net of issuance costs, from
equity sales since our inception through March 31, 1999. In the three months
ended March 31, 1999, we raised $9.9 million through the sale of preferred
shares. In 1998, we raised $11.8 million through the sales of preferred shares.
In 1997, we raised $9.2 million through the sales of preferred shares. In 1996,
we raised $16.8 million through sales of preferred shares. From inception
through March 31, 1999, we raised $309,000 through the issuance of our ordinary
shares pursuant to the exercise of stock options.
Additionally, we have used debt to partially finance our operations and
capital purchases. In December 1998, we entered into a $6.5 million secured
credit facility which is secured by substantially all of our assets. This
facility includes a $1.5 million equipment line, a $3.0 million receivable line
and a $2.0 million non-formula facility. At March 31, 1999, we had borrowed $2.0
million under the non-formula facility which bears interest at the rate of prime
plus 4% per annum. In 1995 and 1996 we obtained loans from some of our
shareholders in the aggregate amount of $1.2 million of which $927,000 remained
outstanding as of March 31, 1999. The loans are linked to the Israeli consumer
price index. The loans do not bear interest and are payable at a rate of 2.5% of
cumulative consolidated revenues in excess of $5.0 million. We intend to repay
these loans with the proceeds from this offering.
Our capital requirements depend on numerous factors, including market
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and other factors. We expect to devote
substantial capital resources to hire and expand our sales, support, marketing
and product development organizations, to expand marketing programs, to
establish additional facilities
25
<PAGE> 30
worldwide and for other general corporate activities. We believe that our
current cash balances along with the proceeds raised from this offering will be
sufficient to fund our operations for at least the next 18 months.
EFFECTIVE CORPORATE TAX RATES
Our tax rate will reflect a mix of the U.S. statutory tax rate on our U.S.
income and the Israeli tax rate discussed below. We expect that most of our
taxable income will be generated in Israel. Israeli companies are generally
subject to income tax at the rate of 36% of taxable income. The majority of our
income, however, is derived from our company's capital investment program with
"Approved Enterprise" status under the Law for the Encouragement of Capital
Investments, and is eligible therefore for tax benefits. Pursuant to these
benefits, we will enjoy a tax exemption on income derived during the first two
years in which this investment program produces taxable income, provided that we
do not distribute such income as a dividend, and a reduced tax rate of 15-25%
for the next 5 to 8 years. All of these tax benefits are subject to various
conditions and restrictions. See "Israeli Taxation and Investment Programs-Law
for the Encouragement of Capital Investments, 1959." There can be no assurance
that we will obtain approval for additional Approved Enterprises Programs, or
that the provisions of the law will not change.
Since we have incurred tax losses through December 31, 1998, we have not
yet used the tax benefits for which we are eligible. See "Risk Factors" and Note
9 to the Consolidated Financial Statements.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
Most of our sales are in U.S. dollars. However, a large portion of our
costs relate to our operations in Israel. A substantial portion of our operating
expenses, primarily our research and development expenses, is denominated in
NIS. Costs not effectively denominated in U.S. dollars are translated to U.S.
dollars, when recorded, at prevailing exchange rates for the purposes of our
financial statements, and will increase if the rate of inflation in Israel
exceeds the devaluation of the Israeli currency as compared to the U.S. dollar
or if the timing of such devaluations were to lag considerably behind inflation.
Consequently, we are and will be affected by changes in the prevailing NIS/ U.S.
dollar exchange rate. We might also be affected by the U.S. dollar exchange rate
to the major European and Asian currencies due to the fact that we operate
offices throughout Europe and Asia.
The annual rate of inflation in Israel was 8.6% in 1998, 7.0% in 1997 and
10.6% in 1996. The NIS was devalued against the U.S. dollar by approximately
17.6% in 1998, 8.8% in 1997 and 3.8% in 1996.
The representative dollar exchange rate for converting the NIS to dollars,
as reported by the Bank of Israel, was NIS 4.04 for one U.S. dollar on March 31,
1999.
YEAR 2000
RISKS POSED BY YEAR 2000
We recognize that we must ensure that our products and services will not be
adversely affected by Year 2000 software failures. Although we have taken
actions and created procedures to ensure our own products and services will
properly handle the Year 2000 date change. We have tested all current products
for Year 2000 compliance. We used industry standard testing methods for Year
2000 compliance to ensure our products were compliant. These tests and methods
were run on all current and many previous versions of our products on all
current platforms. Based on results of these tests and methods, we believe our
current products are Year 2000 compliant with respect to date calculations and
internal storage of date information. However, previous versions of our products
may not be Year 2000 compliant. To the extent these products are still being
used by our customers, we are subject to the risk that these products will not
function properly with respect to the Year 2000.
Although we do not have a formal contingency plan to address Year 2000
issues, we are in the preliminary stages of assessing our internal risks
associated with the Year 2000 issue. We are working internally and with
third-party vendors to assure that we are prepared for the Year 2000. We have
invento-
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ried our internal software and hardware systems, as well as products and
services provided by third-party vendors. These systems include those related to
product delivery, customer service, internal and external communications,
accounting and payroll, which we consider critical areas of our business. We
presently will be seeking vendor certification for all third-party systems and
plan to develop a detailed risk assessment and action plan that will include
testing of both critical systems and systems for which no certification has been
obtained. The identification, certification and risk assessment phases of our
Year 2000 project are expected to be completed by the end of July 1999.
Subsequent phases will include our own tests and the development of contingency
plans and/or corrective solutions for systems which have been identified to be
noncompliant. We expect these phases will continue through the first three
quarters of 1999.
We believe that our most reasonably likely worst-case scenarios related to
the year 2000 problem are:
- a significant year 2000 problem encountered by us could result in
disruption of our communication links between our development staff in
Israel and Toronto, our staff in San Jose, California and our other
domestic and international locations;
- a significant year 2000 problem encountered by us could result in
disruption of our ability to communicate and receive orders from our
customers and to provide support and consulting services; or
- a failure of or degradation in performance due to year 2000 issues
encountered by a substantial proportion of the systems that carry
Internet traffic, which could negatively affect the performance of our
products and the demand for our products.
COSTS POSED BY YEAR 2000 COMPLIANCE
To date, our costs to address Year 2000 compliance have not been
significant. Based on our preliminary evaluations, we do not believe we will
incur significant operating expenses or be required to invest heavily in
computer system improvements to be Year 2000 compliant. Although we have not yet
developed an exact estimate of these costs, we expect the total costs to be less
than $100,000. However, significant uncertainty exists concerning the potential
costs and effects associated with Year 2000 compliance.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
We develop products in Israel and sell them in North America, Asia and
Europe. 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. As most of our sales are currently made 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. Backweb regularly assesses these risks and has
established policies and business practices to protect against the adverse
effects of these and other potential exposures. As a result, the Company does
not anticipate material losses in these areas. Due to the nature of our
short-term investments, we have concluded that there is no material market risk
exposure. Therefore, no quantitative tabular disclosures are required.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that entities
capitalize certain costs related to internal use software once certain criteria
have been met. We are required to implement SOP 98-1 for the year ending
December 31, 1999. The adoption of SOP 98-1 is expected to have no material
impact on our financial condition and results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). We are required to adopt SFAS
133 for the year ending December 31, 2000. SFAS 133
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establishes methods of accounting for derivative financial instruments and
hedging activities. Since we currently hold no derivative financial instruments
as defined by SFAS 133 and do not currently engage in hedging activities,
adoption of SFAS 133 is expected to have no material effect on our financial
condition or results of operations.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends
SOP 98-4 to extend the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. We have not yet determined
the effect of the final adoption of SOP 98-9 on our financial condition or
results of operations.
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BUSINESS
BACKWEB TECHNOLOGIES, LTD.
BackWeb is a leading provider of Internet communication infrastructure
software and application-specific software that enables companies to communicate
business-critical, time-sensitive information throughout their extended
enterprise of customers, partners and employees. Our products provide a reliable
solution for communicating large amounts of data in any digital format by
enabling our customers to automatically gather and disseminate information. Our
products efficiently disseminate this information across a network of any speed
by automatically adapting the rate of transmission to match available bandwidth.
Our infrastructure software, BackWeb Foundation, is a platform that allows
organizations to efficiently gather, target and deliver sizeable digital data of
any format to users' desktops throughout the extended enterprise. We work with
our customers, partners and third-party software vendors to develop applications
built on top of BackWeb Foundation. We have also developed our own application,
BackWeb Sales Accelerator. BackWeb Sales Accelerator enables a geographically
dispersed sales organization to stay instantly updated about competitive and
customer information from external sources, internal sales and marketing
materials, product pricing information, business applications and critical
management announcements.
INDUSTRY BACKGROUND
The Internet has changed the nature of business operations and competition.
Companies, their suppliers, customers and employees now have the means to
conduct business electronically, commonly referred to as e-business. As a
result, it is now possible for new competitors to enter and disrupt established
markets virtually overnight. The spread of electronic commerce has endowed
business customers and consumers with the ability to change vendors at the click
of a button. To compete effectively, companies need to react quickly to changing
market conditions, accelerate critical business processes and stay in closer
contact with sales people, partners and customers. To address these challenges,
companies must be able to effectively communicate the right information to the
right people at the right time. Existing Internet communication methods fall
short of the requirements of this new business environment, as these methods do
not overcome the network congestion, information overload and lack of
reliability characteristic of today's networks.
Companies face the complex challenge of reacting quickly to changes in the
competitive landscape and reliably communicating and tracking time-sensitive,
business-critical information throughout their extended enterprise. The
ineffectiveness of overloaded e-mail systems, passive websites and other
existing means of communication has impeded communication of information between
organizations and their customers, partners and employees. Companies using
existing means of communication are often unable to prioritize and personalize a
communication so that it receives the appropriate level of attention. Once a
communication is sent, companies cannot easily track the communication to ensure
it was received and interacted with, and further, are unable to elicit feedback.
In addition, recipients are inundated with information and lack an effective
means of immediately determining the importance and relevance of information
received, assigning priorities to that information and communicating their
responses. Consequently, recipients often react to this flood of information by
ignoring it or failing to respond in a timely manner. This often results in lost
business opportunities and foregone revenues.
Companies that need to communicate large amounts of digital data are often
limited by the capacity of their network connections and resources.
Bandwidth-intensive data, such as audio, video and multimedia presentations,
software applications and updates, overloads the constrained network resources
of the extended enterprise. Meanwhile, the recipients of large data files are
forced to either disrupt their work in progress or to postpone the download of
the
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file, which may be extremely time-sensitive. These problems are compounded when
users are remote or mobile and become even more complicated when multiple
networks interact.
We believe that in order for the Internet to be used efficiently as an
effective communication medium across the extended enterprise, a complementary,
more sophisticated infrastructure must be introduced. This new communication
infrastructure must:
- permit the prioritization of communications to ensure that users are
presented with relevant information in a manner designed to ensure that
these communications receive the appropriate level of attention;
- communicate large amounts of digital data in any format quickly and
efficiently with a minimal impact on the network of a company and its
extended enterprise;
- permit tracking of the communication by management and the interaction
between management and the user; and
- be an open platform that facilitates the development of applications that
are scalable and easy to deploy.
THE BACKWEB SOLUTION
We develop, market and support Internet communication infrastructure and
applications software that enables companies to communicate business-critical
information to their customers, partners and employees. Our software enables
companies to efficiently target, deliver and track the use of sizeable digital
data in any format throughout their extended enterprise. Using our products and
technology, companies can ensure that the right information reaches the right
people at the right time.
Our products and technology provide the following benefits:
IMPROVE NETWORK EFFICIENCY AND BANDWIDTH UTILIZATION
Our unique technology significantly increases the efficiency and
reliability of communications over the Internet. Our Polite Agent technology
adapts the rate of transmission to match the bandwidth that is available to
ensure that BackWeb-generated traffic does not interfere with other network
traffic on the desktop connection. Our Polite Proxy server technology adapts
BackWeb traffic to utilize available bandwidth on the wide area network, or WAN,
connection. Our Polite Neighborcast technology enables each BackWeb client to
serve as an intelligent cache for other BackWeb clients. As a result, data is
delivered only once to a local area network, or LAN, after which it is
intelligently distributed to neighboring clients, thereby resulting in a fast
and efficient distribution of data. Our network efficiency is further enhanced
by our ability to reduce redundant network traffic by automatically transmitting
only the information that has changed since the user's previous download. In
addition, if a transmission is interrupted, it resumes at the point where it was
cut off, thereby eliminating the need to re-send the entire transmission. As a
result of these capabilities, data transmission across the extended enterprise
is scalable, transparent and efficient.
PRIORITIZE AND CONTROL THE COMMUNICATIONS FLOW
Our software enhances the management of critical information throughout the
extended enterprise. Companies can readily control the destination, access
rights and priority of information being communicated. Business managers can use
our software to determine the effectiveness of their communications through
reports on delivery, usage and interactions. In addition, our products can close
the communication loop by allowing managers to collect feedback from users and
process, review and communicate this feedback throughout the extended
enterprise. Further, business managers can use our tools to automate the
collection and dissemination of information from digital sources such as news
feeds, databases, legacy systems and competitors' websites, resulting in reduced
management time and resources dedicated to data acquisition.
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CAPTURE IMMEDIATE ATTENTION TO CRITICAL INFORMATION
Our unique attention management technology incorporates intelligent
notification techniques to address the challenge of capturing attention in a
world of growing information overload. Our software increases the effectiveness
of communications throughout the extended enterprise by personalizing the
distribution of information. For example, the communication can be customized to
require the user to acknowledge receipt of the information or to automatically
launch a designated application. In addition, not only can business managers
determine the recipients of particular information, but recipients can also
subscribe to various information sources. These capabilities ensure recipients
that the information being received is important to them, and, as a result,
significantly increases the likelihood that it will be reviewed and acted upon.
In addition, the ability to elicit return responses results in greater
effectiveness of the overall communication.
STRATEGY
Our objective is to establish ourselves as the leading provider of Internet
communication infrastructure and applications software. The key elements of this
strategy include:
BECOME THE DE FACTO STANDARD FOR INTERNET COMMUNICATION INFRASTRUCTURE
We intend to establish BackWeb Foundation as the leading infrastructure
software platform for Internet communication. We believe that the recent
adoption of BackWeb Foundation by leading companies across various industries
validate our technology and should facilitate its broad market acceptance. In
addition, we believe that the selection of our products by industry leaders
should promote the adoption of our Internet communication solution by these
companies' partners, suppliers and distributors. We also believe that this
adoption, along with the competitive advantages achieved with our products, will
drive other industry participants to adopt our products as their preferred
solution. We intend to continue to focus our development efforts on increasing
the functionality and flexibility of BackWeb Foundation to facilitate its
continued adoption and to increase the technological barriers to entry.
LEVERAGE INFRASTRUCTURE PLATFORM TO INTRODUCE MULTIPLE INTERNET COMMUNICATION
APPLICATIONS
Our core technology has been designed as an open platform upon which
BackWeb, our customers, our partners and third-party vendors can develop
Internet communication applications that are easy to deploy and to which
additional capabilities can easily be added. We actively market and support our
first application built on top of our infrastructure software, BackWeb Sales
Accelerator, which enables companies to focus the attention of their sales
forces, partners and customers on timely, business-critical information. We
intend to increase our product offerings by introducing new applications,
developed both internally and through third-parties, targeted at various
business functions throughout the extended enterprise.
FOCUS ON SELECTED VERTICAL MARKETS
We target selected vertical markets where we believe our solutions offer
significant value. To date, these markets have included telecommunications, high
technology, financial services, retail and travel services. Within each
industry, we typically target the leader and then leverage our success to
generate additional sales to other companies in that market. We also partner
with large applications vendors and systems integrators that serve these
vertical markets. Through these strategic partnerships, we are able to
significantly expand our installed base as our products are incorporated into
the vendor's products and systems integrator's custom-developed applications. We
and our partners can, in turn, use this installed base to develop and market
BackWeb Foundation and additional BackWeb Foundation-based applications.
EXTEND TECHNOLOGICAL LEADERSHIP POSITION
We intend to continue to devote substantial resources to the development of
new and innovative software products and technologies. We believe that our early
understanding
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and penetration of the market for Internet communication infrastructure software
has allowed us to establish technological leadership and a time-to-market
advantage. We intend to extend our leadership position and build further
technological barriers to entry by enhancing the functionality of our current
BackWeb Foundation infrastructure software platform and developing innovative
applications on top of it.
EXPAND DIRECT AND INDIRECT DISTRIBUTION CHANNELS
We have established a direct sales force in the United States and Canada
and use a combination of direct and indirect channels in Europe and Japan. We
intend to increase the size of our direct sales force and to establish
additional sales offices both domestically and internationally. We intend to
continue to complement our direct sales force by establishing multiple
additional indirect distribution channels worldwide through original equipment
manufacturers, large applications vendors and systems integrators. These
indirect channels are intended to increase geographic sales coverage and address
potential customers that would otherwise be beyond the reach of our direct sales
organization.
TECHNOLOGY AND PRODUCTS
We currently sell BackWeb Foundation and BackWeb Sales Accelerator. We
license BackWeb Foundation to customers, developers and independent software
vendors, thereby enabling them to integrate their own applications or
third-party applications with our infrastructure software platform. BackWeb
Sales Accelerator provides our customers with a packaged application that
incorporates BackWeb Foundation.
TECHNOLOGY
Our infrastructure software platform is powered by three core technologies
that we have developed: Polite Communications, Attention Management and Closed
Loop Delivery.
POLITE COMMUNICATIONS. Polite Communications enables the transmission of
significant volumes of digital data through existing networks without
interfering with normal network applications and traffic. Polite Communications
enables companies to provide any user with rapid communication of
bandwidth-intensive data, regardless of whether they utilize high-speed data
access services. This bandwidth-sensitive delivery is accomplished through the
use of various components including the following:
- POLITE AGENT monitors the network activity of the client workstation and
communicates with BackWeb servers only when the connection is idle.
- POLITE PROXY monitors wide area network, or WAN, connections in the same
manner, using available bandwidth.
- POLITE NEIGHBORCAST enables the automatic transmission of digital data
from one BackWeb Client to others on the same local area network, or LAN,
obviating the need for transmission of the data from the server to each
BackWeb Client. The transmission from BackWeb Client to BackWeb Client on
the same LAN is a fast, efficient and cost-effective means of
disseminating the data.
- POLITE UPSTREAM enables the automatic transmission of digital data from
BackWeb Clients to the BackWeb Server when the network connection is
idle.
Polite Communications further improves the efficiency of transmission by
reducing the amount of data to be transmitted through various techniques,
including:
- compression of data;
- updating only the information which has changed since the user's previous
download; and
- eliminating the need to re-send an interrupted transmission by
progressively resuming the transmission at the point where it was
interrupted.
ATTENTION MANAGEMENT AND FLASH NOTIFICATIONS. Attention Management is an
automatic notification system that alerts users to the delivery of
business-critical information through a variety of display techniques including
tickers and Flash notifications. These
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techniques enable companies to attract immediate attention to time-sensitive
information. Flashes are a particular display technique that can be customized
to notify users and, if desired, can allow management to track the usage of the
information. For example, the recipient can be required to acknowledge their
receipt of the information, or to immediately launch and interact with a
designated application. In addition, Attention Management displays can be
programmed to play automatically according to specific scheduling and expiration
parameters, after which the information and associated data can be automatically
purged.
CLOSED LOOP DELIVERY. Our Closed Loop Delivery capabilities allow companies
to track, manage and survey the effectiveness of communications throughout their
extended enterprise. Companies can track the status and use of any digital data
delivered via BackWeb or generate reports on the overall usage of the system on
a per-user or per-content basis. Using these reports, companies can determine
what types of communication are most effective or most popular and adapt their
communication strategy appropriately.
PRODUCTS
BACKWEB FOUNDATION. Our infrastructure software platform, BackWeb
Foundation, is based on a set of flexible components including BackWeb Server,
BackWeb Client and BackWeb Add-On Components. These components enable an
organization to capture information from virtually any data source, including
websites, file servers, databases, applications and legacy systems, and
efficiently and reliably deliver it throughout its extended enterprise. BackWeb
Server is a software server which runs on standard hardware servers, and
communicates with BackWeb Client, our software program operating on personal
computers or workstations.
BackWeb Server. BackWeb Server communicates with BackWeb Clients and is
capable of receiving digital data from various sources, such as the Internet,
intranet sites, databases, applications and legacy systems and automatically
distributes that data to BackWeb Clients. The BackWeb Server is highly scalable
and optimized to support a large number of clients concurrently. Components of
BackWeb Server include:
- BackWeb Server Console. A console that allows a system administrator to
manage BackWeb Server and control the information flow across the
enterprise through a point-and-click graphical user interface.
- BackWeb Server Extension API. An application programming interface that
allows companies to integrate the BackWeb Server with any digital data
source, enabling automated publishing of content or files from any source
to the BackWeb Server.
- BackWeb Automation SDK and Automation Editor. Includes application
programming interfaces and a library of BackWeb-supplied programs which
perform tasks between the BackWeb Server and external data sources.
- BackWeb BALI Editor. Our BackWeb Authoring Language Interface Editor is
used by companies to create and modify Flashes.
BackWeb Client. BackWeb Client, our software program operating on personal
computer or workstations, operates in the background and communicates with
designated BackWeb Servers during the idle time of a user's network connection,
thereby allowing the user to receive data transparently while using other
applications without disruption. BackWeb Client:
- displays information through Flashes and other displays and user
interfaces, which may be customized;
- provides an application programming interface to enable customer and
third-party applications to integrate with BackWeb Client; and
- can be deployed by a single automatic installation file of less than 100k
in size that can be sent to the user via the Internet, e-mail or floppy
disk.
BackWeb Add-On Components. BackWeb Foundation, our infrastructure software
plat-
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form, also includes the following add-on components:
- BackWeb Enhanced Security Module. Provides encrypted communications
between BackWeb Server and BackWeb Clients and certificate authentication
of data packages. This module incorporates industry standard technologies
from RSA Data Security and Verisign.
- BackWeb AutoFile Update Manager. Enables the automatic replication of
files or file directories from any directory accessible to the BackWeb
Server. Allows the placement of the replicated files in any location on
the user's system. Allows management to have complete flexibility over
the organization of information on the user's desktop.
- StarBurst Connector. In cooperation with StarBurst, we created optional
add-ons to the BackWeb Server and BackWeb Client that allow them to
communicate via StarBurst's multicasting Internet protocol. These add-ons
work in concert with our protocols to provide a deeply integrated
communications solution for customers with multicast Internet protocol
environments.
- NewsEdge and Reuters BackWeb Connectors. In cooperation with the NewsEdge
and Reuters corporations, we created a pre-packaged set of connectors to
their content for the automatic feed of information channels from
NewsEdge and Reuters, respectively, to a customer's BackWeb Server.
- BackWeb Polite Proxy Server. A software server that:
-- caches frequently accessed material for a group of BackWeb clients,
eliminating the need for redundant data transfers from a company's
server;
-- monitors the WAN connection and communicates only when the network
connection is below a certain threshold; and
-- enables a system administrator to manage the BackWeb Proxy Server
Console.
BACKWEB SALES ACCELERATOR. In December 1998, we introduced BackWeb Sales
Accelerator, our first packaged application built on BackWeb Foundation. BackWeb
Sales Accelerator allows companies to keep their extended enterprise equipped
with the most up-to-date documents, market information and management
announcements by automating the collection and dissemination of business
critical information. This application is targeted at companies that need to
communicate to geographically dispersed sales forces and indirect sales channels
to accelerate their business execution and response time to critical changes
affecting their business. Examples of information typically communicated by
BackWeb Sales Accelerator include:
- competitive and industry news and announcements;
- new pricing policies and updated price lists;
- product release announcements and associated fact sheets, white papers,
and training materials;
- new or updated software tools;
- critical executive announcements, in video or other formats, regarding
company acquisitions or strategic priorities; and
- new or modified sales presentations and demonstrations.
BackWeb Sales Accelerator consists of the Market Intelligence Manager,
Strategic Publishing Manager and Automated Marketing Encyclopedia modules:
- Market Intelligence Manager automatically monitors, collects and
organizes information from Internet or intranet sites to keep an
organization's sales force abreast of the latest industry news,
competitive announcements and customer information.
- Strategic Publishing Manager enables managers to publish and direct the
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immediate attention of their constituents to time-sensitive and business
critical information. Editorial, publishing and access rights are
centrally controlled. The published information can be disseminated to
users' desktops using our Flash technology.
- Automated Marketing Encyclopedia enables a company to create a library of
sales information and productivity software to which extended enterprise
users can subscribe. Once subscribed, users automatically receive this
information, software and any subsequent updates.
CUSTOMERS
We sell our products to a broad base of customers from a variety of
industries, including telecommunications, high technology, financial services,
retail and travel services. Our customers include industry leaders such as:
AT&T, barnesandnoble.com, British Telecom, Carlson Travel, Cisco Systems,
Compaq, Computer Associates, Delta Airlines, Electronic Data Systems, Fidelity
Investments, Galileo, Gateway, Goldman Sachs, Hewlett-Packard, AC Nielsen,
Network Associates, o.tel., Pacific Bell, RiteAid, Schlumberger and Siemens.
In 1997, revenues from Computer Associates and CompuServe represented 19%
and 11%, respectively, of our revenues. In 1998, no customer accounted for more
than 10% of our revenues.
SALES AND MARKETING
Our sales strategy is to pursue opportunities with large accounts and
industry leaders through our direct sales force, and to penetrate various
targeted market segments through multiple indirect distribution channels and
strategic partnerships.
We maintain direct sales personnel in the United States, Canada, Japan and
Europe. The direct sales force consists of sales representatives, systems
engineers and telemarketing representatives.
We intend to increase the size of our direct sales force and to establish
additional sales offices domestically and internationally. Competition for sales
personnel is intense, and we may not be able to attract, assimilate or retain
additional qualified personnel in the future.
We also partner with large applications vendors and systems integrators
that serve our target markets. Through these strategic partnerships, we are able
to significantly expand our installed base as our products are incorporated into
the vendor's products and systems integrator's custom-developed applications.
This installed base can, in turn, be leveraged by us and our partners to develop
and market BackWeb Foundation and additional BackWeb Foundation-based
applications. We are in the early stages of building these channels and
currently have entered into written agreements with a limited number of
companies. We may not be able to enter into agreements or establish
relationships with desired distribution partners on a timely basis or ensure
that such distribution partners will devote adequate resources to selling our
products.
We believe it is important to have a strong international presence. We have
established sales offices in the United States, Canada, Japan and a number of
countries in Europe. We intend to hire additional sales and marketing personnel
in these offices and to establish additional offices to support our
international operations.
We market our products using public relations activities, partners
marketing, advertising, trade shows and marketing and sales materials.
CUSTOMER SERVICE AND SUPPORT
We are in the process of developing a comprehensive service and support
organization. Our services are primarily comprised of technical support,
consulting and training.
Our technical support is provided to our customers on an annual basis for
an additional fee. This support includes remote assistance with installation,
configuration and initial set-up of the application, run-time support and
software maintenance releases.
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We also provide consulting, training and on-site installation services. We
expect to expand our variety of services both directly and through third-party
relationships in order to meet the growing needs of our customers.
RESEARCH AND DEVELOPMENT
We believe that strong product development capabilities are essential to
our strategy of enhancing our core technology, developing additional
applications, incorporating that technology and maintaining the competitiveness
of our product and service offerings. We have invested significant time and
resources in creating a structured process for undertaking all product
development projects.
In addition, we have actively recruited key computer scientists, engineers
and software developers and have complemented these individuals by hiring senior
management with backgrounds in the commercial software development industries.
Through our acquisition of Lanacom, we enhanced our research and development
capabilities, particularly with respect to the development of software
applications.
Since our inception, we have focused our research and development efforts
on developing and enhancing BackWeb Foundation and BackWeb Sales Accelerator.
BackWeb is currently working on new applications and adding features and new
functionality to our products. Our research and development expenses totaled
$997,000 for the three months ended March 31, 1999, $4.6 million for the year
ended December 31, 1998, $4.0 million for the year ended December 31, 1997, and
$1.8 million for the year ended December 31, 1996.
COMPETITION
We compete in markets that are new, intensely competitive, highly
fragmented and rapidly changing. We have experienced and expect to continue to
experience increased competition from current and potential competitors. Many of
these companies have greater name recognition, longer operating histories,
larger customer bases and significantly greater financial, technical, marketing,
public relations, sales, distribution and other resources. In addition, some of
our potential competitors are among the largest and most well-capitalized
software companies in the world. We expect to face competition from these and
other competitors, including:
- companies addressing certain segments of our market such as Marimba and
Tibco;
- sales force automation and enterprise resource planning, or ERP, vendors
that may introduce products competitive to BackWeb Sales Accelerator; and
- communications and information management platform companies such as IBM
and its subsidiary Lotus Development Corporation, Microsoft and Sun
Microsystems.
Additional competition could come from operating system vendors, online
service providers, client/server applications and tools vendors, multimedia
companies, document management companies and network management vendors. If any
of our competitors were to become the industry standard or were to enter into or
expand relationships with significantly larger companies through mergers,
acquisitions or otherwise, our business and operating results could be seriously
harmed. In addition, potential competitors may bundle their products or
incorporate functionality into existing products in a manner that discourages
users from purchasing our products.
We expect that competition will increase in the near term and that our
primary long-term competitors may not have entered the market yet. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business to
suffer.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our products and services operate in part by making copies of material
available on the Internet and other networks and making this material available
to end-users from a central location. This creates the potential for claims to
be made against us, either directly or through contractual indemnification
provisions
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with customers, including defamation, negligence, copyright or trademark
infringement, personal injury, invasion of privacy or other legal theories based
on the nature, content or copying of such materials. These claims have been
brought and sometimes successfully pressed against online service providers in
the past. It is also possible that if any such information, or information that
is copied and stored by customers that have deployed our products, contains
errors, third parties could make claims against us for losses incurred in
reliance on such information. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed.
Our success and ability to compete are substantially dependent upon our
internally developed technology. While we rely on patent, copyright, trade
secret and trademark law to protect our technology, we believe that factors such
as the technological and creative skills of our personnel, new product
developments, frequent product enhancements and reliable product maintenance are
more essential to establishing and maintaining a technology leadership position.
Others may develop technologies that are similar or superior to our technology.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology. Policing unauthorized use of our products is difficult, and the
steps we have taken might not prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as do the laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segments grows and the functionality of products in different industry segments
overlaps. We believe that many of our competitors have filed or intend to file
patent applications covering aspects of their technology that they may claim our
technology infringes. Third parties may claim infringement by us with respect to
our products and technology. Any such claims, with or without merit, could:
- be time-consuming to defend;
- result in costly litigation;
- divert management's attention and resources;
- cause product shipment delays; or
- require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. A successful claim of product infringement against
us and our failure or inability to license the infringed or similar technology
could harm our business.
EMPLOYEES
As of March 31, 1999, we had a total of 158 employees, 151 of whom were
full-time employees. Of the total number of employees 56 were engaged in
research and development including 7 part-time employees, 64 in sales, marketing
and business development, 16 in professional services and technical support and
22 in finance, administration and operations. Our future performance depends in
significant part upon the continued service of our key technical, sales and
senior management personnel, none of whom is bound by an employment agreement
requiring service for any defined period of time. The loss of the services of
one or more of our key employees could have a material adverse effect on our
business, financial condition and results of operations. Our future success also
depends on our continuing ability to attract, train and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and we may not be able to retain our key personnel in the future. None
of our employees is represented by a labor union. We have not experienced
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any work stoppages and considers our relations with our employees to be good.
In addition, 45 of our employees are located in Israel. Israeli law and
certain provisions of the nationwide collective bargaining agreements between
the Histadrut, which is the General Federation of Labor in Israel, and the
Coordinating Bureau of Economic Organizations which is the Israeli federation of
employers' organizations, apply to our Israeli employees. These provisions
principally concern the maximum length of the work day and the work week,
minimum wages, contributions to a pension fund, insurance for work-related
accidents, procedures for dismissing employees, determination of severance pay
and other conditions of employment. Furthermore, pursuant to such provisions,
the wages of most of our employees are subject to cost of living adjustments,
based on changes in the Israeli Consumer Price Index. The amounts and frequency
of such adjustments are modified from time to time. Israeli law generally
requires the payment of severance pay upon the retirement or death of an
employee or upon termination of employment by the employer or, in certain
circumstances, by the employee. We currently fund our ongoing severance
obligations for our Israeli employees by making monthly payments for insurance
policies to cover these obligations.
FACILITIES
BackWeb leases approximately 5,400 square feet in a single office building
located in Ramat Gan, Israel and approximately 14,365 square feet in a single
office building located in San Jose, California. The office space in Ramat Gan,
Israel is leased pursuant to a lease that terminates in May 1999. We have
entered into a new lease in Ramat Gan for 7,550 square feet in a single office
building that expires in May 2004. The office space in San Jose, California is
leased pursuant to a lease that expires in January 2002. In addition, BackWeb
also maintains a lease for approximately 3,970 square feet of office space in
Toronto, Canada. This lease expires in December 2000. BackWeb also leases space
in Amsterdam, Austin, Boston, Chicago, Hamburg, London, New York City, Paris,
Stockholm and Tokyo. The term of any one of these leases does not extend past
October 2001.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND
KEY EMPLOYEES
The following table sets forth information regarding the directors,
executive officers and key employees of BackWeb as of March 31, 1999.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Eli Barkat................................... Chairman of the Board and Chief Executive
Officer
Hanan Miron.................................. Chief Financial Officer
Gwen Spertell................................ Senior Vice President, Sales, Marketing and
Business Development
Patricia Wynne............................... Vice President, North American Sales
Carla Stratfold.............................. Vice President, Business Development
Roni Or...................................... Vice President, Product Development
Charles Federman............................. Director
Joseph Gleberman............................. Director
William Larson............................... Director
Gil Shwed.................................... Director
</TABLE>
ELI BARKAT has served as our Chief Executive Officer since 1996. From 1988
to February 1996, Mr. Barkat served as a Managing Director and Vice President of
Business Development of BRM Technologies, Ltd, a technology venture firm. Prior
to 1988, Mr. Barkat held various positions with the Aurec Group, a
communications media and information company, and Daizix Technologies, a
computer assisted design applications company. In addition Mr. Barkat served as
a paratrooper in the Israel Defense Forces where he attained the rank of
lieutenant. Mr. Barkat has a bachelor of science degree in computer science and
mathematics from the Hebrew University of Jerusalem.
HANAN MIRON has served as our Vice President and Chief Financial Officer
since March 1999. From January 1997 to February 1999, Mr. Miron served as
President of North American Operations of Nice Systems Ltd., a computer
telephony integration company. From July 1992 to December 1996, Mr. Miron served
as Vice President and Chief Financial Officer of Nice Systems. Mr. Miron has an
L.L.B. degree from the Law School of the Hebrew University and a M.B.A. degree
from the Amos Tuck School of Business Administration of Dartmouth College.
GWEN SPERTELL has served as our Senior Vice President, Sales, Marketing and
Business Development since December 1997. From September 1989 to December 1997,
Ms. Spertell served in various positions at Oracle Corporation, a software
company, most recently as Vice President, Global ISV Alliances. Ms. Spertell has
a bachelor of arts degree in economics from Rutgers University.
PATRICIA WYNNE has served as our Vice President, North American Sales since
July 1998. From October 1989 to July 1998, Ms. Wynne served in various positions
at Oracle Corporation, most recently serving as Area Vice President of Sales.
Ms. Wynne received a bachelor of arts degree in American Studies from Smith
College and a master of arts degree in American Civilization from the University
of Pennsylvania.
CARLA STRATFOLD has served as our Vice President, Business Development
since December 1998. From November 1988 to November 1998, Ms. Stratfold served
in various positions at Oracle Corporation, most recently serving as its Vice
President of Product Sales and Marketing. Ms. Stratfold received a bachelor of
science degree in political science from Washington State University.
RONI OR has served as our Vice President, Product Development since May
1998. From February 1996 to May 1998, Mr. Or
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served as Director of Online Services at the
Aurec Group. From January 1991 to February 1996, Mr. Or served as Research and
Development Director of Scitex Corporation, a digital printing system company.
Mr. Or has a bachelor of science degree in computer science from the Technion
Haifa Institute of Technology and a M.B.A. from the Hebrew University of
Jerusalem.
CHARLES FEDERMAN has served as a director of BackWeb since November 1996.
Since January 1998, Mr. Federman has served as Managing Director of BRM
Technologies, Ltd. From 1983 to January 1998, Mr. Federman served in various
positions at Broadview Associates LLC, a financial advisory company, most
recently serving as Chairman. Mr. Federman serves on the Board of Directors of
Phoenix Technologies Ltd., a software company, Mathsoft, Inc., a software
company, and International Microcomputer Software, Inc., a software company. Mr.
Federman holds a bachelor of science degree from the Wharton School of the
University of Pennsylvania.
JOSEPH GLEBERMAN has served as a director of BackWeb since November 1998.
Since November 1996, Mr. Gleberman has served as a Managing Director in the
Principal Investment Area of Goldman, Sachs & Co., an investment banking firm.
From November 1990 to November 1996, Mr. Gleberman served as a partner of
Goldman, Sachs & Co., a company he joined in 1982. Mr. Gleberman serves on the
Board of Directors of Applied Analytical Industries, a pharmaceutical service
and development organization and Ticketmaster Online-
CitySearch, Inc., a provider of locally-developed online information and
transaction services. Mr. Gleberman holds a bachelor of arts and a master of
arts degree from Yale University and an M.B.A. from Stanford University Graduate
School of Business.
WILLIAM LARSON has been a director of BackWeb since September 1997. Since
September 1993, Mr. Larson has served as Chief Executive Officer of Networks
Associates, Inc., a software company, where he currently also serves as
President and Chairman of the Board. Mr. Larson has a bachelor of science degree
from the Wharton School of the University of Pennsylvania and a J.D. from
Stanford University.
GIL SHWED has served as a director of BackWeb since March 1999. Since July
1993, Mr. Shwed has served as Chief Executive Officer of Check Point Software
Technologies Ltd., a software company, where he currently also serves as
President and a director. From June 1992 to June 1993, Mr. Shwed served as a
Software Manager of Heliogram, a software development company.
ELECTION OF DIRECTORS
Our Articles of Association provide for a board of directors of not less
than four members nor more than seven. There are currently five directors on our
Board. We currently have a classified Board of Directors consisting of one Class
I director, Joseph Gleberman, two Class II directors, William Larson and Charles
Federman and two Class III directors, Eli Barkat and Gil Schwed. These directors
have been elected to serve until the annual meetings of shareholders to be held
in 2000 for the Class I director, 2001 for the Class II directors and 2002 for
the Class III directors. These provisions, when coupled with the provision of
our Articles of Association authorizing our Board to fill vacant directorships
or increase the size of the Board, may deter a shareholder from removing
incumbent directors and simultaneously gaining control of the Board. Each
director is elected by an ordinary resolution of the annual general meeting of
our shareholders, by a vote of the holders of a majority of the voting power
represented at such meeting. Each director holds office until the annual general
meeting of our shareholders for the year in which his or her term expires and
until his or her successor has been elected. Directors who are up for election
in a given year may be removed at any time during that year by an ordinary
resolution of the general meeting of the shareholders.
ALTERNATE DIRECTORS
Our Articles of Association provide that any director may appoint another
person to serve as an alternate director and may re-
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move such alternate. Any alternate director possesses all the rights and
obligations of the director who appointed him or her, except that the alternate
has no standing at any meeting while the appointing director is present and the
alternate is not entitled to remuneration.
Any individual, whether or not a director, may act as an alternate
director, and the same person may act as the alternate for several directors and
have a corresponding number of votes. Unless the appointing director limits the
time or scope of the appointment, the appointment is effective for all purposes
until the appointing director ceases to be a director or terminates the
appointment. The appointment of an alternate director does not in itself
diminish the responsibility of the appointing director as a director.
INDEPENDENT DIRECTORS
Under Israeli law, "public" Israeli companies are required to appoint at
least two directors who meet stringent standards of independence. BackWeb
believes that this requirement does not currently apply to companies that are
publicly traded only outside of Israel. However, the new Israeli Companies Law,
which will become effective on February 1, 2000, unequivocally extends the
independent director requirement to Israeli companies that are publicly traded
outside of Israel, such as on Nasdaq. Consequently, Backweb expects to appoint
two outside directors in accordance with the new law.
OFFICE HOLDERS
Israeli law codifies the duty of care and fiduciary duties that an office
holder owes to a company. An office holder is generally a director or executive
officer. Under the Companies Ordinance, an office holder's fiduciary duty
includes avoiding any conflict of interest between the office holder's position
in BackWeb and his personal affairs, avoiding any competition with BackWeb,
avoiding exploiting any business opportunity of BackWeb in order to receive
personal advantage for himself or others and revealing to BackWeb any
information or documents relating to BackWeb's affairs which the office holder
has received due to his position as an office holder. Under Israeli law, all
arrangements as to compensation by BackWeb of office holders who are not
directors require approval of the Board of Directors.
AUDIT COMMITTEE
The new Israeli Companies Law, which will become effective on February 1,
2000, provides that public companies, including Israeli companies that are
publicly traded outside of Israel, such as on Nasdaq, must appoint an audit
committee of the board of directors, a certified public accountant to audit the
company's financial statements and to report any improprieties that he or she
may discover to the chairman of the board, and an internal auditor.
APPROVAL OF RELATED PARTY TRANSACTIONS
Israeli law requires that transactions be approved as provided for in a
company's articles of association, and in some circumstances by the audit
committee and by the board of directors. The vote required by the audit
committee and the board of directors for approval of these matters is a majority
of the disinterested directors participating in a duly convened meeting.
Shareholder approval is also required under some circumstances.
Israeli law requires that an office holder of a company promptly disclose
any personal interest that he may have and all related material information
known to him, in connection with any existing or proposed transaction by the
company. Once the office holder complies with these disclosure requirements, the
company may approve the transaction in accordance with the provisions of its
articles of association. If the transaction is with a third party in which the
office holder has a personal interest, the approval must confirm that the
transaction is not adverse to the company's interest. Furthermore, if the
transaction is an extraordinary transaction, in addition to any approval
stipulated by the articles of association, it also must be approved by the
company's audit committee and then by its board of directors. An extraordinary
transaction is a transaction other than in the
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ordinary course of business, otherwise than
on market terms, or that is likely to have a material impact on the company's
profitability, assets or liabilities. Under certain circumstances, shareholder
approval is required. For example, shareholders must approve all compensation
paid to directors in whatever capacity or any transaction in which a majority of
the board members have a personal interest. An office holder with a personal
interest in any matter may not be present at any audit committee or board of
directors meeting where such matter is being approved, and may not vote.
The new Israeli Companies Law, which will become effective on February 1,
2000, applies the same disclosure requirements to a shareholder that holds 25%
or more of the voting rights in a public company, including an Israeli company
that is publicly traded outside of Israel such as on Nasdaq. Transactions
between a public company and a 25% shareholder, or transactions in which a 25%
shareholder of the company has a personal interest but which are between a
public company and another entity, require the approval of the board of
directors and of the shareholders. Moreover, an extraordinary transaction with a
25% shareholder or the terms of compensation of a 25% shareholder must be
approved by the audit committee, the board of directors and shareholders. The
shareholder approval for an extraordinary transaction must include at least one
third of the shareholders who have no personal interest in the transaction and
are present at the meeting. However, the transaction can be approved by
shareholders without this one third approval, if the total share holdings of
those who vote against the transaction do not represent more than one percent of
the voting rights in the company.
For information concerning the direct and indirect personal interests of
certain office holders and principal shareholders of BackWeb in related party
transactions with BackWeb, see "Related Party Transactions."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Israeli law permits a company to insure an office holder in respect of
liabilities incurred by him as a result of the breach of his/her duty of care to
the company or to another person, or as a result of the breach of his fiduciary
duty to the company, to the extent that he/she acted in good faith and had
reasonable cause to believe that the act would not prejudice the company. A
company can also insure an office holder for monetary liabilities as a result of
an act or omission that he/she committed in connection with his/her serving as
an office holder. Furthermore, a company can indemnify an office holder for
monetary liability in connection with his/her activities as an office holder.
Our articles of association allow us to insure and indemnify office holders
to the fullest extent permitted by law. We have acquired directors' and
officers' liability insurance covering our officers and directors and our
subsidiaries for certain claims.
COMPENSATION OF OFFICERS AND DIRECTORS
Directors do not receive cash compensation from BackWeb for services they
provide as directors, although they are reimbursed for certain expenses in
connection with attendance at board and committee meetings. From time to time,
certain directors who are not employees of BackWeb may receive grants of options
to purchase BackWeb's ordinary shares.
The aggregate compensation paid to or accrued on behalf of the eight
directors and executive officers of BackWeb as a group during 1998 was
approximately $491,000 in salary and loans and $8,200 in amounts set aside or
accrued to provide pension, retirement or similar benefits, but excluding
amounts expended by BackWeb for automobiles made available to all of its
officers, expenses reimbursed to officers and other fringe benefits commonly
reimbursed or paid by companies in Israel. As of March 31, 1999, the eight
current directors and executive officers of BackWeb held options to purchase an
aggregate of 659,125 ordinary shares and 805,000 ordinary shares subject to a
repurchase option granted in favor of BackWeb.
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OPTION PLANS
We maintain three option plans, a 1996 Israeli Option Plan, a 1996 U.S.
Option Plan and a 1998 U.S. Option Plan.
An aggregate of approximately 10.3 million shares have been reserved under
the 1996 Israeli Option Plan, the 1996 U.S. Option Plan and the 1998 U.S. Option
Plan, including those options already exercised. Under these plans, in 1997 and
1998, options to purchase 1,890,367 and 3,236,500 ordinary shares were granted
at exercise prices ranging from $1.05 to $2.10 per share and 3,385,200 and
5,304,466 were outstanding at each respective year end. In the three months
ended March 31, 1999, options to purchase 1,088,722 ordinary shares were granted
and 4,946,980 options to purchase ordinary shares were outstanding and 3,646,344
options remained available for future grant as of March 31, 1999. The options
granted generally vest over a four-year period from the date of the grant.
1996 ISRAELI OPTION PLAN
Under our Israeli Option Plan, options exercisable for ordinary shares may
be granted to employees, officers, directors and consultants of BackWeb or any
other member of the BRM group. The exercise price of options granted under the
Israeli Option Plan may not be less than the nominal value of the shares into
which such option is exercisable. Each option granted under the Israeli Option
Plan may expire no later than seven years from the date of the grant. Options
granted under the Israeli Option Plan generally vest over a four-year period.
1996 U.S. OPTION PLAN
Under our 1996 U.S. Option Plan incentive stock options exercisable for
ordinary shares have been granted only to employees, and nonstatutory stock
options may be granted to employees, officers, directors and consultants of
BackWeb and any other members of the BRM group. The 1996 U.S. Option Plan may be
administered by the Board or a committee designated by the Board. BackWeb is no
longer granting options under the 1996 U.S. Option Plan.
Options granted under the 1996 U.S. Plan generally vest over a four-year
period. Each option granted under the 1996 U.S. Plan may expire not later than
seven years from the date of the grant. The Board may amend or modify the plan
in all respects, except that no amendment or modification shall adversely affect
the rights of plan participants. In the event of a merger or sale all options
will be assumed by the successor corporation or fully vested for a period of 15
days, after which the options will expire. The 1996 U.S. Option Plan will
terminate on November 1, 2006, unless terminated earlier in accordance with its
provisions.
1998 U.S. OPTION PLAN
Our 1998 U.S. Option Plan provides for the grant of incentive stock options
to employees and nonstatutory stock options and share purchase rights to
employees, directors and consultants. The number of shares reserved for issuance
under this plan will be subject to an annual increase on each anniversary
beginning July 1, 2000 equal to the lesser of (a) 1,400,000 shares, (b) 3% of
the outstanding shares on such date or (c) an amount determined by the Board.
The 1998 U.S. Option Plan is currently administered by the Board of Directors,
although the Board may designate certain committees to administer the 1998 U.S.
Option Plan with respect to different groups of service providers.
Options and share purchase rights granted under the 1998 U.S. Option Plan
will vest as determined by the relevant administrator, and if not assumed or
substituted by a successor corporation will accelerate and become fully vested
in the event of an acquisition of BackWeb. The exercise price of options and
share purchase rights granted under the 1998 U.S. Option Plan will be as
determined by the relevant administrator, although the exercise price of
incentive stock options must be at least equal to the fair market value of our
ordinary shares on the date of grant. Options granted under the 1998 U.S. Option
Plan generally vest over a four-year period. The Board of Directors may amend,
modify or terminate the 1998 U.S. Option Plan at any time as long as such
amendment, modification or termination does not impair vesting rights of plan
participants.
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The 1998 U.S. Option Plan will terminate in 2008, unless terminated earlier by
the Board of Directors.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan, or the Purchase Plan, provides our
employees with an opportunity to purchase our ordinary shares through
accumulated payroll deductions. A total of 600,000 ordinary shares have been
reserved for issuance under the Purchase Plan, none of which have been issued.
The number of shares reserved for issuance under the Purchase Plan will be
subject to an annual increase on each anniversary beginning July 1, 2000 equal
to the lesser of (a) 833,333 shares, (b) 2% of the outstanding shares on such
date or (c) an amount determined by the Board. The Purchase Plan will be
administered by the Board of Directors or by a committee appointed by the Board.
The Purchase Plan permits eligible employees to purchase ordinary shares through
payroll deductions of up to 15% of an employee's compensation, up to a maximum
of $25,000 for all purchases ending within the same calendar year. Employees are
eligible to participate if they are employed by BackWeb for at least 20 hours
per week and more than five months in any calendar year. Unless the Board of
Directors or its committee determines otherwise, each offering period will run
for six months. The first offering period will commence on the date of this
prospectus and will continue until February 29, 2000, and new offering periods
will commence on each March 1 and September 1 thereafter. In the event of an
acquisition of BackWeb, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation. In the event that
the successor corporation refuses to assume or substitute for the option, the
offering period then in progress will be shortened by setting a new exercise
date. The price at which ordinary shares will be purchased under the Purchase
Plan is equal to 85% of the fair market value of the ordinary shares on the
first or last day of the applicable offering period, whichever is lower.
Employees may end their participation in the offering period at any time, and
participation automatically ends on termination of employment. Generally, the
Board may amend, modify or terminate the Purchase Plan at any time as long as
such amendment, modification or termination does not impair the rights of plan
participants. The Purchase Plan will terminate in 2009, unless terminated
earlier in accordance with its provisions.
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RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH BRM
In 1995, we signed an agreement with EliBarkat Holdings Ltd., a company
controlled by Eli Barkat, BackWeb's Chairman of the Board and Chief Executive
Officer, NirBarkat Holdings Ltd., a company controlled by Nir Barkat, BackWeb's
former Chairman of the Board, and Yuval 63 Holdings (1995) Ltd., a company
controlled by Yuval Rakavy, a former director of BackWeb. In accordance with the
terms of this agreement, these three companies loaned BackWeb an aggregate of
$500,000. The loan is denominated in NIS and is payable at a rate of 2.5% of
cumulative consolidated revenues in excess of $5,000,000.
Eli Barkat, Nir Barkat and Yuval Rakavy historically have provided BackWeb
with management and administrative services, through companies controlled by
them in return for fees and reimbursement of expenses. Aggregate amounts
incurred for these services were approximately $540,000, $516,000, $220,000 and
$24,000 during the years ended December 31, 1996, 1997, 1998 and the three
months ended March 31, 1999. Effective September 30, 1996, $748,000 of accounts
payable to the three companies for their services were converted into a loan
with terms substantially similar to those of the $500,000 loan.
As of September 1998, Eli Barkat became a full-time employee of BackWeb and
began to receive his full compensation as an officer from BackWeb. As of March
1999, BackWeb terminated its service arrangements with the companies controlled
by Nir Barkat and Yuval Rakavy. As of March 31, 1999, $927,000 remained
outstanding under the two loans after reflecting currency conversion adjustments
and repayment.
BackWeb historically has paid to BRM Technologies Ltd., a company
controlled by Eli Barkat, Nir Barkat and Yuval Rakavy through their holding
companies, fees for research and development services on the basis of cost plus
15% and expenses at cost. Amounts incurred for these services were approximately
$1.6 million, $1.2 million and $873,000 during the years ended December 31,
1996, 1997 and 1998 and $67,000 during the three months ended March 31, 1999.
Currently, BackWeb is reducing its use of these services and expects that
amounts payable in connection with these services will be immaterial beginning
in the second quarter of 1999.
BackWeb has exclusive ownership of all technology developed by BRM
Technology Ltd. for BackWeb and by BRM Technology Ltd.'s employees contracted to
BackWeb.
EliBarkat Holdings Ltd., NirBarkat Holdings Ltd. and Yuval 63 Holdings
(1995) Ltd. agreed that in connection with our Series A Preferred Stock
financing they would:
- purchase shares of our Series A Preferred Stock; and
- forego their right to acquire additional shares of our Series A Preferred
Stock in exchange for the right to designate employees and consultants of
BRM Technologies Ltd. as beneficiaries of options to acquire up to
792,167 ordinary shares of BackWeb, all of which have been granted.
RELATIONSHIP WITH AFFILIATE
We currently are negotiating the terms of a letter of intent with a newly
formed company relating to a nonexclusive license arrangement from us, as
licensor, to this newly formed company, as licensee. This license arrangement
would include a license to our technology enabling the licensee to provide a
directory of community rooms for publishing, sharing and delivery of digital
data among individuals over the Internet in exchange for license fees to be
determined on an arm's length basis. As part of the license arrangement, we
likely would receive approximately 30% of the outstanding capital stock of the
licensee.
Three of our major shareholders, NirBarkat Holdings Ltd., EliBarkat
Holdings Ltd., and Yuval (63) Rakavy Holdings (1995) Ltd. and BARE LLC, a
company controlled by Charles Federman, one of our directors, will hold, in the
aggregate, approximately 70% of the outstanding capital stock of the licensee.
In addition, the board of directors of the
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licensee will consist of one director nominated by us, two directors nominated
by the affiliated shareholders referred to in the preceding sentence, one
director who is the Chief Executive Officer of the licensee, and one director
not affiliated with BackWeb or its affiliates.
Execution of a binding letter of intent will be subject to shareholder
approval under Israeli law.
SALE OF SERIES D PREFERRED STOCK
Between December 1997 and March 1999, BackWeb sold its Series D Preferred
Stock in a series of private transactions with a number of investors, including
holding companies controlled by Eli Barkat, Nir Barkat and Yuval Rakavy, and
investment partnerships of which affiliates of The Goldman Sachs Group, L.P., an
affiliate of Goldman Sachs, lead manager of this offering, are general partners,
managing general partner or investment manager. The holding companies controlled
by Eli Barkat, Nir Barkat and Yuval Rakavy each purchased 1,619,073 shares of
Series D Preferred Stock. Upon closing of this offering, each block of 1,619,073
Series D Preferred Stock will convert into 539,691 ordinary shares. Investment
partnerships of which affiliates of The Goldman Sachs Group, L.P., an affiliate
of Goldman Sachs, lead manager of this offering, are general partners, managing
general partner or investment manager purchased 2,818,030 shares of Series D
Preferred Stock, which upon the closing of this offering converts into 939,343
ordinary shares. In January 1998, BancAmerica Robertson Stephens, an affiliate
of BancBoston Robertson Stephens Inc., one of the underwriters in this offering,
participated as the placement agent for the Series D Preferred Stock.
REGISTRATION RIGHTS AGREEMENT
As of March 31, 1999, the holders of 25,685,739 ordinary shares have rights
to register those shares under the Securities Act pursuant to registration
rights agreements. Holders of these registrable shares have unlimited rights to
request that these shares be included in any BackWeb-initiated underwritten
public offering of our securities. The underwriters may reduce the registrable
shares to be included on the registration statement for marketing reasons. In
addition, at any time on or prior to the earlier of December 27, 2002 or six
months after the effective date of this prospectus, holders of a majority of the
registrable shares may demand that we register these shares up to two times.
Also, one year after we become a public reporting company, holders of
registrable shares may request that we effect a registration of these shares on
a shelf registration statement once in any twelve-month period. All expenses
incurred in connection with such registrations, other than underwriters' and
brokers' discounts and commissions, will be borne by BackWeb.
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<PAGE> 51
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our ordinary shares as of March 31, 1999 and as adjusted to reflect
the sale of ordinary shares offered by us in this offering, for:
-- each person known by us to beneficially own more than 10% of the
outstanding ordinary shares; and
-- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities.
Except as indicated below, the address for each listed director and officer
is c/o BackWeb Technologies Ltd., 3 Abba Hillel Street, Ramat Gan, Israel.
Except as indicated by footnote, the persons named in the table have sole voting
and investment power with respect to all ordinary shares shown as beneficially
owned by them. The number of ordinary shares outstanding used in calculating the
percentage in the table below includes the ordinary shares underlying options or
warrants held by such person that are exercisable within 60 days of March 31,
1999, but excludes ordinary shares underlying options or warrants held by any
other person. Percentage of beneficial ownership is based on 29,541,640 ordinary
shares outstanding as of March 31, 1999 including 2,595,501 ordinary shares
issuable upon the exchange of BackWeb Canada, Inc. exchangeable shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
ORDINARY SHARES
NUMBER OF BENEFICIALLY OWNED
ORDINARY SHARES -------------------------
BENEFICIALLY PRIOR TO THE AFTER THE
OWNED OFFERING OFFERING
--------------- ------------ ---------
<S> <C> <C> <C>
Nir Barkat(1)(2)(3)................................ 3,352,342 11.3% 9.6%
Eli Barkat(2)(4)................................... 3,702,342 12.5 10.6
Yuval Rakavy(3)(5)................................. 3,352,342 11.3 9.6
Joseph Gleberman
c/o The Goldman Sachs Group, L.P.(6)............. 3,272,676 11.1 9.3
85 Broad Street
New York, New York 10004
All executive officers and directors as a group (8
persons)(7)...................................... 8,799,655 29.5% 24.9%
</TABLE>
- -------------------------
(1) Includes 3,352,342 shares held by Nir Barkat Holdings Ltd. Nir Barkat owns
substantially all of the equity and voting power of NirBarkat Ltd., the
parent company of NirBarkat Holdings Ltd.
(2) Eli Barkat and Nir Barkat are brothers.
(3) Such shareholder's address is: c/o BRM Technologies, Ltd., P.O. Box 45065, 5
Kiryat Madas Har Hotzvim, Jerusalem 91450 Israel.
(4) Includes 3,352,342 shares held by EliBarkat Holdings Ltd. and 350,000 shares
held directly by Eli Barkat subject to the right of repurchase in favor of
BackWeb during a vesting period of four years. Eli Barkat owns substantially
all of the equity and voting power of EliBarkat Holdings Ltd.
(5) Includes 3,352,342 shares held by Yuval 63 Holdings (1995) Ltd. Yuval Rakavy
owns substantially all of the equity and voting power of Yuval Rakavy Ltd.,
the parent company of Yuval 63 Holdings (1995) Ltd.
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<PAGE> 52
(6) Represents 3,272,676 shares owned by investment partnerships, of which
affiliates of The Goldman Sachs Group are the general partner, managing
general partner or investment manager, including:
-- 1,955,591 ordinary shares held by GS Capital Partners II, L.P.;
-- 777,427 ordinary shares held by GS Capital Partners II Offshore, L.P.;
-- 72,132 ordinary shares held by Goldman, Sachs & Co. Verwaltungs GmbH;
-- 278,594 ordinary shares held by Stone Street Fund 1996, L.P.; and
-- 188,932 ordinary shares held by Bridge Street Fund 1996, L.P.
The Goldman Sachs Group disclaims beneficial ownership of the shares owned
by such investment partnerships to the extent attributable to partnership
interests therein held by persons other than The Goldman Sachs Group and
its affiliates. Each of such investment partnerships shares voting and
investment power with certain of its respective affiliates. Mr. Gleberman,
a Managing Director of Goldman, Sachs & Co. and a director of BackWeb,
disclaims beneficial ownership of ordinary shares which may be deemed to be
beneficially owned by The Goldman Sachs Group except to the extent of his
pecuniary interest arising from his interest in The Goldman Sachs Group.
(7) Includes 1,836,900 ordinary shares held by executive officers and directors
subject to the right of repurchase in favor of BackWeb during a vesting
period of four years. Includes 337,737 ordinary shares held by executive
officers and directors subject to options which are exercisable within 60
days of March 31, 1999. Includes 3,352,342 ordinary shares held by EliBarkat
Holdings Ltd. and 3,272,676 ordinary shares beneficially owned by investment
partnerships, of which affiliates of The Goldman Sachs Group are the general
partner, managing general partner or investment manager.
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<PAGE> 53
DESCRIPTION OF SHARE CAPITAL
DESCRIPTION OF SHARES
Set forth below is a summary of the material provisions governing our share
capital. This summary is not complete and should be read together with our
memorandum of association and articles of association, a copy of each of which
has been filed as an exhibit to the registration statement of which this
prospectus forms a part.
Our authorized share capital consists of 200 million shares, NIS 0.01
nominal value per share, including 150 million ordinary shares, 50 million
preferred shares and one Series E Preferred Share. As of March 31, 1999, there
were 26,946,139 ordinary shares issued and outstanding.
DESCRIPTION OF ORDINARY SHARES
All issued and outstanding ordinary shares of BackWeb are, and the ordinary
shares offered hereby when issued and paid for will be, duly authorized and
validly issued, fully paid and non-assessable. The ordinary shares do not have
preemptive rights. Neither the memorandum of association or articles of
association of BackWeb nor the laws of the State of Israel restrict in any way
the ownership or voting of ordinary shares by non-residents of Israel, except
with respect to subjects of countries which are in a state of war with Israel.
DIVIDEND AND LIQUIDATION RIGHTS
The ordinary shares offered by this prospectus, when issued, will be
entitled to the full amount of any cash or share dividend declared from the date
of the consummation of this offering. Subject to the rights of the holders of
shares with preferential or other special rights that may be authorized, the
holders of ordinary shares are entitled to receive dividends out of legally
available assets and, in the event of the winding up of BackWeb, to share
ratably in all assets remaining after payment of liabilities, subject to
applicable law. The board of directors may declare interim dividends and
recommend a final annual dividend from retained earnings available for cash
dividends as determined for statutory purposes at such times and in such amounts
as the board of directors may determine. Declaration of the final annual
dividend requires shareholder approval at a general meeting, which may reduce
but not increase such dividend from the amount recommended by the board of
directors. See "Dividend Policy."
In case of a share dividend, holders of shares can receive shares of a
class whether such class existed prior thereto or was created therefor or shares
of the same class that conferred upon the holders the right to receive such
dividend.
VOTING, SHAREHOLDER MEETINGS AND RESOLUTIONS
Holders of ordinary shares have one vote for each ordinary share held on
all matters submitted to a vote of shareholders. Such rights may be affected by
the future grant of any special voting rights to the holders of a class of
shares with preferential rights. As of the closing of this offering, all of the
outstanding Series A, Series B, Series C and Series D Preferred Shares will be
converted into ordinary shares, and there will be no shares outstanding with
preferential rights over the ordinary shares. Any change in the registered
capital of BackWeb, which does not include the issuance of registered but
unissued shares, including the creation of a new class of shares with rights
superior or inferior to existing classes of shares may be adopted by a "special
resolution." A special resolution is the resolution of the holders of 75% or
more of the shares participating in a general meeting.
An annual general meeting shall be held once every calendar year at such
time, but not later than 15 months after the last annual general meeting, and at
such place, either within or outside of the State of Israel, as may be
determined by the board of directors. The quorum required for a general meeting
of shareholders consists of at least two shareholders present in person or by
proxy and holding, or representing, more than fifty percent of the voting rights
of the issued share
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<PAGE> 54
capital. A meeting adjourned for lack of a
quorum may be adjourned to the same day in the next week at the same time and
place, or to such time and place as the chairman of the meeting may determine
with the consent of the holders of a majority of the shares present in person or
by proxy and voting on the question of adjournment. At such adjourned meeting,
any two shareholders present in person or by proxy will constitute a quorum.
Most shareholder resolutions, including resolutions for the election of
directors, the declaration of dividends, the appointment of auditors or the
approval of transactions with office holders as required by the Companies
Ordinance will be deemed adopted if approved by the holders of a majority of the
voting power represented at the meeting, in person or by proxy, and voting
thereon. See "Management -- Approval of Certain Transactions." Certain corporate
actions such as:
- amending the articles of association;
- amending the memorandum of association;
- changing our name;
- making changes in our capital structure such as a reduction of capital,
increase of capital or share split;
- merger or consolidation;
- voluntary winding up; and
- authorizing a new class of shares or changing special rights of a class
of shares
must be approved by a "special resolution" and will be deemed adopted only if
approved by the voting power represented in person or by proxy at the meeting
and voting thereon.
Upon completion of this offering, our executive officers, directors and 10%
or greater shareholders will own beneficially an aggregate of approximately
44.2% of our outstanding ordinary shares, including 2,595,501 ordinary shares
issuable upon exchange of BackWeb Canada, Inc. exchangeable shares, or
approximately 43.2% if the underwriters' over-allotment option is exercised in
full. See "Principal Shareholders."
TRANSFER OF SHARES AND NOTICES
Fully paid ordinary shares are issued in registered form and may be
transferred freely. Each shareholder of record is entitled to receive at least 7
days' prior notice of shareholder meetings. A special resolution can be adopted
only if shareholders are given 21 days' prior notice of the meeting at which
such resolution will be voted on, unless all shareholders entitled to vote agree
that the meeting may be held on a shorter notice period. For purposes of
determining the shareholders entitled to notice and to vote at such meeting, the
board of directors may fix the record date not less than 24 days prior to the
date of a meeting at which a special resolution is to be submitted for vote, and
not less than ten days prior to the date of any other meeting.
MODIFICATION OF CLASS RIGHTS
If at any time the share capital is divided into different classes of
shares, the rights attached to any class, unless otherwise provided by our
articles of association, may be modified or abrogated by BackWeb by a special
resolution subject to the consent in writing of the holders of the issued shares
of the class, or with the adoption of a special resolution passed at a separate
general meeting of the holders of the shares of such class.
DESCRIPTION OF PREFERRED STOCK
BackWeb has one share of Series E Preferred Stock outstanding. In
connection with our acquisition of Lanacom, Inc., a Canadian company, in August
1997, we are obligated to issue to the former Lanacom shareholders an aggregate
of 2,595,501 ordinary shares in exchange for the exchangeable shares in BackWeb
Canada held by the former Lanacom shareholders at any time, at the election of
the holders thereof, into our ordinary shares. The share of Series E Preferred
Stock was issued to a trustee for the former Lanacom shareholders pursuant to a
Voting and Exchange Trust Agreement. Under this agreement, the exchangeable
sharehold-
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<PAGE> 55
ers are entitled to exercise voting rights equivalent to voting rights attaching
to the same number of ordinary shares by and through the trustee of the share of
Series E Preferred Stock. The share of Series E Preferred Stock will be canceled
at such time that no exchangeable shares are held by the former Lanacom
shareholders. The exchangeable share structure is a common tax-advantageous
structure used in acquisitions of Canadian companies.
BackWeb has an additional 50 million preferred shares authorized. The board
of directors has the authority to issue the preferred shares without further
vote or action by the shareholders in one or more series and to fix the rights,
preferences, privileges and restrictions of the preferred shares, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series. If the board of directors issues preferred shares, this
may delay, defer or prevent a change in control of BackWeb without further
action by the shareholders. For example, the board of directors could issue
preferred shares that have the power to prevent a change of control transaction.
The issuance of preferred shares with voting and conversion rights may adversely
affect the voting power of the holders of ordinary shares, including the loss of
voting control to others. BackWeb currently has no plans to issue any of the
unissued preferred shares.
OPTIONS AND WARRANTS
As of March 31, 1999, options to purchase 4,946,980 ordinary shares were
outstanding. These outstanding options are subject to the 1996 Israeli Option
Plan, 1996 U.S. Option Plan or 1998 U.S. Option Plan. See "Management -- Option
Plans." BackWeb has also issued warrants to purchase an aggregate of 145,726
ordinary shares at a weighted exercise price of $3.45 per share.
REGISTRATION RIGHTS
As of March 31, 1999, the holders of 25,685,739 ordinary shares have rights
to register those shares under the Securities Act pursuant to registration
rights agreements. Holders of these registrable shares have unlimited rights to
request that these shares be included in any BackWeb-initiated underwritten
public offering of our securities. The underwriters may reduce the registrable
shares to be included on the registration statement for marketing reasons. In
addition, at any time the earlier of December 27, 2002 or six months after the
effective date of this prospectus, holders of a majority of the registrable
shares may demand that we register these shares up to two times. Also, one year
after we become a public reporting company, holders of registrable shares may
request that we effect a registration of these shares on a shelf registration
statement once in any twelve-month period. In addition, we have agreed to
register the resale of the ordinary shares issuable upon the exchange of the
exchangeable shares held by the former shareholders of Lanacom, Inc., on the
180th day after the date of this prospectus and thereafter. All expenses
incurred in connection with such registrations, other than underwriters' and
brokers' discounts and commissions, will be borne by BackWeb.
ANTI-TAKEOVER EFFECTS OF ISRAELI LAWS
The Israeli Companies Ordinance, which governs Israeli corporations, does
not contain provisions that deal specifically with a merger that allows for the
elimination of minority shareholders. Provisions that deal with "arrangements"
between a company and its shareholders have been used, however, to effect
squeeze-out mergers. These provisions generally require that the merger be
approved by at least 75% of the shareholders present and voting on the proposed
merger, at a shareholders meeting that has been called on at least 21 days'
advance notice. In addition to shareholder approval, court approval of the
merger is required, which entails further delay and may entail the imposition of
additional requirements at the court's discretion. Alternatively, the acquiror
can eliminate minority shareholders if it acquires at least 90% of all
outstanding shares, excluding shares held by the acquiror prior to the
acquisition, and none of the minority shareholders seeks to block the
acquisition in court. The new Israeli
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<PAGE> 56
Companies Law that will come into effect on February 1, 2000, does address
squeeze-out mergers but does not significantly modify these requirements.
The new Companies Law also provides that an acquisition of shares in a
public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company.
Similarly, the new Companies Law provides that an acquisition of shares in a
public company must be made by means of a tender offer if as a result of the
acquisition the purchaser would become a 45% shareholder of the company. This
rule does not apply if someone else is already a majority shareholder of the
company. Since regulations implementing these new rules have not yet been
promulgated, we do not know to what extent or how these rules will apply to
Israeli companies that are publicly traded outside of Israel. Finally, Israeli
tax law treats certain acquisitions, particularly stock-for-stock swaps between
an Israeli company and a foreign company, less favorably than United States tax
law. Israeli tax law may, for instance, subject a shareholder who exchanges his
BackWeb shares for shares in a foreign corporation to immediate taxation.
ACCESS TO INFORMATION
We file reports with the Israeli Registrar of Companies regarding our
registered address, our registered capital, our shareholders of record and the
number of shares held by each, the identity of the directors and details
regarding security interests on our assets. In addition, we must file with the
Registrar of Companies our articles of association and a copy of any special
resolution adopted by a general meeting of shareholders. The information filed
with the Registrar of Companies is available to the public. In addition to the
information available to the public, our shareholders are entitled, upon
request, to review and receive copies of all minutes of meetings of our
shareholders.
TRANSFER AGENT AND REGISTRAR
BackWeb has appointed American Stock Transfer and Trust Company as the
transfer agent and registrar for the ordinary shares.
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<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
If our shareholders sell substantial amounts of our ordinary shares,
including shares issued upon the exercise of outstanding options and warrants,
in the public market following this offering, the market price of our ordinary
shares could fall dramatically. These sales also might make it more difficult
for us to sell equity or equity-related securities in the future at a time and
price that we deem appropriate.
The number of ordinary shares available for sale in the public market is
limited by restrictions under federal securities law and by certain "lock-up"
agreements that our shareholders have entered into with the underwriters. The
lock-up agreements restrict our shareholders from selling or otherwise disposing
of any of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Goldman Sachs. Goldman Sachs
may, however, in its sole discretion and without notice, release all or any
portion of the shares from the restrictions in the lock-up agreements.
Upon completion of this offering, we will have outstanding 32,446,139
ordinary shares, based upon shares outstanding as of March 31, 1999. Of these
shares, the 5,500,000 shares sold in this offering are freely tradable. This
leaves 26,946,139 shares eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- --------------------- ---------------------
<S> <C>
19,300,996........... 180 days from the
date of this
prospectus
7,645,143............ At various times
thereafter through
March 24, 2000
</TABLE>
Any ordinary shares that may be purchased in this offering by our
"affiliates," as defined in Rule 144 of the Securities Act, will be subject to
the volume and other selling limitations under Rule 144 of the Securities Act.
All but 5,762,820 of the shares eligible for sale at the 180th day after the
date of this prospectus or afterward will be subject initially to certain volume
and other limitations under Rule 144 of the Securities Act.
In addition, upon completion of the offering we will have 2,595,501
ordinary shares that are issuable at any time for no additional consideration
upon exchange of the BackWeb Canada exchangeable shares issued to the former
shareholders of Lanacom in connection with our acquisition of Lanacom.
Moreover, on or prior to the 180th day following the date of this
prospectus, we intend to register for resale approximately 10.9 million ordinary
shares reserved for issuance or issued under our employee stock plans.
The holders of approximately 25,685,739 ordinary shares have the right to
require us to register their shares for sale to the public. In addition, we have
agreed to register the resale of the ordinary shares issuable upon the exchange
of the exchangeable shares held by the former shareholders of Lanacom, Inc., on
the 180th day after the date of this prospectus and thereafter. If these holders
cause a large number of shares to be registered and sold in the public market,
our stock price could fall materially.
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<PAGE> 58
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences relating to an investment in ordinary shares as of the date
hereof. The summary is based on the Internal Revenue Code of 1986, and existing
final, temporary and proposed Treasury Regulations, Rulings and judicial
decisions, all of which are subject to prospective and retroactive changes. We
will not seek a ruling from the Internal Revenue Service, or the IRS, with
regard to the United States federal income tax treatment relating to investment
in ordinary shares and, therefore, there can be no assurance that the IRS will
agree with the conclusions set forth below. The summary does not purport to
address all federal income tax consequences that may be relevant to a particular
investor and you may want to consult your own tax advisor regarding your
specific tax situation. For example, the summary applies only to holders who
hold ordinary shares as a capital asset within the meaning of Section 1221 of
the Code, and does not address the tax consequences that may be relevant to
investors in special tax situations including, for example:
- insurance companies,
- tax-exempt organizations,
- dealers in securities or currency,
- banks or other financial institutions,
- investors that hold ordinary shares as part of a hedge, straddle or
conversion transaction, or
- holders that own, directly or indirectly, ten percent or more of our
outstanding ordinary shares.
Further, it does not address the alternative minimum tax consequences of an
investment in ordinary shares or the indirect consequences to holders of equity
interests in entities that own ordinary shares. In addition, this summary does
not address the state, local and foreign tax consequences of an investment on
the ordinary shares.
For purposes of this discussion, "U.S. holder" means a holder of ordinary
shares that is:
- a citizen or resident of the United States,
- a partnership or corporation created or organized in or under the laws of
the United States or any State thereof, including the District of
Columbia,
- an estate, the income of which is subject to United States federal income
tax regardless of its source or a trust if (a) a court within the United
States is able to exercise primary supervision over its administration
and (b) one or more United States persons have the authority to control
all substantial decisions of the trusts.
The term "non-U.S. holder" refers to any holder of ordinary shares other
than a U.S. holder.
TAXATION OF U.S. HOLDERS
DISTRIBUTIONS ON ORDINARY SHARES
Distributions made by us with respect to ordinary shares generally will
constitute foreign source dividends for federal income tax purposes. These
distributions will be taxable to a U.S. holder as ordinary income to the extent
of our undistributed current or accumulated earnings and profits (as determined
for United States federal income tax purposes). Distributions in excess of
current or accumulated earnings and profits will be treated first as a
non-taxable return of capital which will reduce the U.S. holder's tax basis in
the ordinary shares. Any such distributions in excess of a U.S. holder's tax
basis in the ordinary shares will be treated as capital gain to the U.S. holder
and will be either long-term or short-term capital gain depending upon the U.S.
holder's federal income tax holding period for the ordinary shares.
Dividends paid by us generally will not be eligible for the dividends
received deduction available to certain United States corporate shareholders
under Code Sections 243 and 245.
The amount of any cash distribution paid in a foreign currency will equal
the U.S. dollar value of the distribution, calculated by refer-
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<PAGE> 59
ence to the exchange rate in effect at the time the dividends are received. A
U.S. holder should not recognize any foreign currency gain or loss if such
foreign currency is converted into U.S. dollars on the day received. If a U.S.
holder does not convert the foreign currency into U.S. dollars on the date of
receipt, however, such holder may recognize gain or loss upon a subsequent sale
or other disposition of the foreign currency (including an exchange of the
foreign currency for U.S. dollars). Such foreign currency gain or loss, if any,
will be U.S. source ordinary income or loss for United States federal income tax
purposes.
Subject to certain conditions and limitations, any Israeli withholding tax
imposed upon distributions under United States income tax law will be eligible
for credit against a U.S. holder's federal income tax liability. Alternatively,
a U.S. holder may claim a deduction for such amount, but only for a year in
which a U.S. holder elects to do so with respect to all foreign income taxes.
The overall limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose,
dividends distributed by us with respect to ordinary shares will generally
constitute foreign source "passive income."
SALE OR EXCHANGE OF ORDINARY SHARES
A U.S. holder of ordinary shares generally will recognize capital gain or
loss upon the sale or exchange of the ordinary shares measured by the difference
between the amount realized and the U.S. holder's tax basis in the ordinary
shares. Gain or loss will be computed separately for each block of shares sold
(shares acquired separately at different times and prices). The gain or loss on
such disposition will be long term-capital gain or loss if the ordinary shares
had been held for more than one year. In general, any capital gain or loss
recognized by a U.S. holder upon the sale or exchange of ordinary shares will be
treated as United States source income or loss, as the case may be, for United
States foreign tax credit purposes. The deductibility of capital losses is
restricted and generally may only be used to reduce capital gains to the extent
thereof. However, individual taxpayers generally may deduct annually $3,000 of
capital losses in excess of their capital gains.
PASSIVE FOREIGN INVESTMENT COMPANY
A foreign corporation generally will be treated as a "passive foreign
investment company," or PFIC, if, after applying certain "look-through" rules,
either
- 75% or more of its gross income for the taxable year is passive income or
- on average for the taxable year (by value or, if BackWeb so elects, by
adjusted basis) 50% or more of its assets produce or are held for the
production of passive income.
Passive income for this purpose generally includes:
- dividends
- interest
- rents
- royalties and the excess of gains over losses from securities and
commodities transactions
The look-through rules provide in part that a foreign corporation that owns
at least 25%, by value, of an operating subsidiary will treat that proportion of
the subsidiaries assets and income as held or received directly by the foreign
parent.
We believe that we were not a PFIC as of December 31, 1998, and do not
anticipate that we will be a PFIC in the future because we expect that less than
75% of our annual gross income will be passive income and less than 50% of our
assets will be passive assets, based on the look-through rules, our current
income and assets and the manner in which we anticipate conducting our
businesses in the future. We do not believe we were a PFIC at the end of our
last fiscal year based upon our determination of our income and assets. However,
there can be no assurance that we are not or will not be treated as a PFIC in
the future.
If we were to be treated as a PFIC, all U.S. holders may be required, in
certain
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<PAGE> 60
circumstances, to pay an interest charge together with tax calculated at maximum
rates on certain "excess distributions," including any gain on the sale of
ordinary shares. In order to avoid this tax consequence, a U.S. holder
- may be permitted to make a "qualified electing fund" election, in which
case, in lieu of the treatment described in the previous sentence, the
U.S. holder would be required to include in its taxable income certain
undistributed amounts of our income or
- may elect to mark-to-market the ordinary shares and recognize ordinary
income (or possible ordinary loss) each year with respect to such
investment and on the sale or other disposition of the ordinary shares.
Neither we nor our advisors has the duty to, or will undertake to inform,
U.S. holders of changes in circumstances that would cause us to become a PFIC.
U.S. holders should consult their own tax advisors concerning our status as a
PFIC at any time after the date of this Prospectus. We do not currently intend
to take the action necessary for a U.S. holder to make a "qualified electing
fund" election in the event we are determined to be a PFIC.
FOREIGN PERSONAL HOLDING COMPANY
A foreign corporation may be classified as a foreign personal holding
company, or FPHC, for federal income tax purposes if both of the following tests
are satisfied:
- at any time during the taxable year five or fewer individuals who are
United States citizens or residents own or are deemed to own, under
certain attribution rules, more than 50% of its stock, by vote or value,
and
- at least 60%, 50% for years subsequent to the year in which it becomes a
FPHC, of its gross income regardless of its source, as specifically
adjusted, "is foreign personal holding company income," which includes
dividends, interest, rents, royalties and gain from the sale of stock or
securities.
We do not believe that we are currently a FPHC nor do we anticipate that we
will be a FPHC in the future. However, no assurance can be given that we are not
or will not become a FPHC as a result of future changes of ownership or changes
in the nature of the income of BackWeb. If we were to be classified as a FPHC,
each U.S. holder would be required to include in income as a taxable
constructive dividend its pro rata share of our undistributed foreign personal
holding company income.
TAXATION OF NON-U.S. HOLDERS
DISTRIBUTIONS ON ORDINARY SHARES
In general, distributions by us to non-U.S. holders who are not engaged in
the conduct of a trade or business within the United States will be subject to
United States federal income tax only if 25% or more of our gross income, from
all sources for the three-year period ending with the close of the taxable year
preceding the declaration of the distribution, was effectively connected with
our conduct of a trade or business in the United States. We do not anticipate
engaging in the conduct of a trade or business within the United States, except
through our subsidiaries. However, if the 25% threshold for such period is
exceeded, a portion of any distribution paid by us to a non-U.S. holder may be
subject to federal income tax withholding at the rate of 30%. The portion of the
distribution that may be subject to withholding will generally correspond to the
portion of our gross income for the period that is effectively connected to the
conduct of a trade or business within the United States.
SALE OR EXCHANGE OF ORDINARY SHARES
Non-U.S. holders will not be subject to United States federal income tax on
any gain realized upon the sale or exchange of ordinary shares, unless
(i) such gain is effectively connected with a United States trade or
business of the non-U.S. holder or,
(ii) in the case of gain recognized by an individual non-U.S. holder, such
individual is present in the United States for 183 days or more during
the taxable year of disposition and certain other conditions are
satisfied.
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UNITED STATES TRADE OR BUSINESS
A non-U.S. holder engaged in a trade or business in the United States whose
income from the ordinary shares (including gain from the sale or exchange
thereof) is effectively connected with the conduct of such trade or business
will generally be subject to regular United States federal income tax on such
income in the same manner as if it were a U.S. Holder. In addition, if such a
holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% of its effectively connected earnings and profits for the taxable year,
subject to adjustments.
BACKUP WITHHOLDING
Distributions made by us with respect to the ordinary shares and gross
proceeds received from the disposition of the ordinary shares may be subject to
certain information reporting requirements to the IRS and to a 31% backup
withholding tax. However, backup withholding generally will not apply to
payments made to certain exempt recipients such as a corporation or financial
institution or to a holder who furnishes a correct taxpayer identification
number or provides a certificate of foreign status and provides certain other
required information. If backup withholding applies, the amount withheld is not
an additional tax, but is credited against such holder's United States federal
income tax liability.
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ISRAELI TAXATION AND INVESTMENT PROGRAMS
The following is a summary of the current tax laws of the state of Israel
as they relate to BackWeb and our shareholders. This summary does not discuss
all aspects of Israeli tax law that may be relevant to a particular investor in
light of his personal investment circumstances or to certain types of investor
subject to special treatment under Israeli law. The following also includes a
discussion of certain Israeli government programs benefiting various Israeli
businesses such as BackWeb. To the extent that the discussion is based on new
legislation yet to be subject to judicial or administrative interpretation,
there can be no assurance that the views expressed herein will accord with any
such interpretation in the future. This discussion is not intended and should
not be construed as legal or professional tax advice, and does not cover all
possible tax considerations.
GENERAL CORPORATE TAX STRUCTURE
The general corporate tax rate in Israel is 36%. However, the effective tax
rate payable by a Company which derives income from an "Approved Enterprise" may
be considerably lower. See "-- Law for the Encouragement of Capital Investments,
1959."
BackWeb's tax loss carry-forwards were approximately $30.0 million as of
December 31, 1998. The amount of BackWeb's tax loss carry-forwards will be
reduced by any future income of BackWeb that would be fully tax-exempt for a
defined period.
TAXATION UNDER INFLATIONARY CONDITIONS
The income Tax Law (Adjustment for Inflation), 1985 attempts to overcome
some of the problems experienced in a traditional tax system by an economy
experiencing rapid inflation, which was the case in Israel at the time the
Adjustment for Inflation Law was enacted. Generally, the Adjustment for
Inflation Law was designed to neutralize for Israeli tax purposes the erosion of
capital investments in businesses and to prevent unintended tax benefits
resulting from the deduction of inflationary financing expenses. The Adjustment
for Inflation Law applies a supplementary set of inflationary adjustments to a
normal taxable profit computed according to regular historical cost principles.
The Adjustment for Inflation Law introduced a special tax adjustment for
the preservation of equity based on changes in the Israeli consumer price index,
or CPI, whereby certain corporate assets are classified broadly into fixed
(inflation resistant) assets and non-fixed assets. Where shareholders' equity,
as defined in the Adjustment for Inflation Law exceeds the depreciated cost of
fixed assets, a corporate tax deduction which takes into account the effect of
the applicable annual rate of inflation on such excess is allowed, up to a
ceiling of 70% of taxable income for companies in any single tax year, with the
unused portion permitted to be carried forward on a linked basis with no
ceiling. If the depreciated cost of fixed assets exceeds shareholders' equity,
then such excess multiplied by the applicable annual rate of inflation is added
to taxable income.
In addition, subject to certain limitations depreciation deductions on
fixed assets and losses carried forward are adjusted for inflation based on
changes in the Israeli CPI. The net effect of the Adjustment for Inflation Law
on BackWeb might be that our taxable income, as determined for Israeli corporate
tax purposes, will be different than our U.S. dollar income, as reflected in its
financial statements, due to the difference between the annual changes in the
Israeli CPI and in the NIS exchange rate with respect to the U.S. Dollar,
causing changes in the actual tax rate.
LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969
We currently qualify as an "Industrial Company" within the definition of
the Law for the Encouragement of Industry (Taxes), 1969, or the Industry
Encouragement Law. According to the Industry Encouragement Law, an "Industrial
Company" is a company resident in Israel, at least 90% of the income of which in
any tax year determined in Israeli currency exclusive of income from defense
loans, capital gains, interest and dividends, is derived from an "Industrial
Enterprise" owned by it. An "Industrial Enterprise" is defined by
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that law as an enterprise whose major activity in a given tax year is industrial
production activity.
Tax benefits for an Industrial Company include deductions of 12.5% per
annum of the purchase price of a good faith acquisition of a patent or of
know-how, an election under some conditions to file a consolidated tax return
with additional related Israeli Industrial Companies and accelerated
depreciation rates on equipment and buildings.
Eligibility for the benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any governmental authority. We cannot
assure you that we will continue to qualify as an "Industrial Company" or that
the benefits described above will be available in the future.
LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959
The Law for the Encouragement of Capital Investments, 1959, as amended, or
the Investment Law, provides that a capital investment in eligible facilities
may, upon application to the Israeli Investment Center, be designated as an
Approved Enterprise. Each certificate of approval for an Approved Enterprise
relates to specific program delineated both by its financial scope, including
its capital sources, and by its physical characteristics, i.e., the equipment to
be purchased and utilized pursuant to the program. The tax benefits derived from
any such certificate of approval relate only to taxable income attributable to
the specific Approved Enterprise.
BackWeb's investment program has been granted the status of an "Approved
Enterprise" under the Investment Law. As of December 31, 1998, the Investment
Program had not been completed.
In the event a company operates under more than one approval, or only part
of its capital investments are approved, or it generates income from sources
other than its Approved Enterprise Program, its effective corporate tax rate is
the result of a weighted combination of the various applicable rates.
According to the provisions of the Investment Law, we chose the
"Alternative Benefits Program" -- waiver of grants in return for tax exemption.
Accordingly, our income from the Approved Enterprise will be tax-exempt for a
period of two years commencing with the year we first earn taxable income, and
subject to corporate tax at the rate of 10% to 25%, for an additional period of
five to eight years depending on the percentage of the foreign investment in
BackWeb.
This period of tax benefits is subject to a limit of 12 years from the
commencement of production, or 14 years from receiving the approval, whichever
is earlier. Under these conditions, the period of benefits for BackWeb's present
plan will terminate by the year 2009.
If dividends are distributed out of such tax-exempt profits, we will be
liable for corporate tax at the rate which would have been applied if we had not
chosen the alternative tax benefits program (currently 25%).
The dividend recipient is taxed at the reduced rate applicable to dividends
from Approved Enterprises (15%). This tax must be withheld by the company at
source regardless of whether the dividend is converted into foreign currency.
See "-- Capital Gains and Income Taxes Applicable to Non-Israeli Shareholders."
The Investment Law also provides that an Approved Enterprise is entitled to
accelerated depreciation on its property and equipment that are included in an
approved investment program.
Incentives received by a company in accordance with the Investment Law
remain subject to final ratification by the Israeli Investment Center, such
ratification being conditional upon fulfillment of all terms of the approved
program. Failure to comply with all such terms may require the return of such
incentives, inclusive of interest and penalties.
We believe that we have operated and will continue to operate in compliance
with all the "Approved Enterprise" conditions and criteria applicable, although
there can be no assurance of this, and that the likelihood is remote that we
will be required to refund tax benefits under the "Approved Enterprise"
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status. We cannot assure you that the tax benefits will continue.
Future applications to the Investment Center will be reviewed separately
with approvals based upon several factors, including the prevailing criteria set
forth in the Investment Law, the specific objectives of the applicant company
and the financial criteria of the applicant company.
CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS
Israeli law generally imposes a capital gains tax on the sale of securities
and any other capital asset. The basic rate applicable to corporations is
currently 36%. The maximum tax rate for individuals is 50%. These rates are
subject to the provisions of any applicable bilateral double taxation treaty,
including the double taxation treaty between the United States and Israel
discussed below.
Under existing regulations any capital gain realized by an individual
shareholder with respect to the ordinary shares acquired on or after the
registration of such shares will be exempt from Israeli Capital Gains Tax if the
ordinary shares are listed on an approved foreign securities market, (including
the Nasdaq in the United States), and provided that (a) BackWeb continues to
qualify as an Industrial Company under Israeli law and (b) the individual does
not hold such shares for business purposes.
We cannot assure you that we will maintain such qualification or our status
as an Industrial Company. If we do not maintain our status as an Industrial
Company, then subject to any applicable tax treaty, the applicable Israeli
capital gains tax rates would be up to 50% for non-resident individuals and for
any pre-initial public offering gains of resident individuals, 35% for
post-initial public offering gains of resident individuals and 36% for resident
and non-resident companies. Individuals who are non-residents of Israel are
subject to income tax on income derived from sources in Israel, or received in
Israel. Such sources of income include passive income such as dividends,
royalties and interests as well as non-passive income from services rendered in
Israel. Upon a distribution of dividends other than bonus shares (stock
dividends), income tax is generally withheld at source at the rate of 25%, with
a rate of 15% for dividends generated by an Approved Enterprise, unless a double
taxation treaty is in effect between Israel and the shareholders country of
residence that provides for a lower tax rate in Israel on dividends.
A tax treaty between the United States and Israel, or the Treaty, effective
since January 1, 1995, provides for a maximum tax of 25% on dividends paid to a
resident of the United States as defined in the Treaty. Dividends distributed by
an Israeli company and derived from the income of an approved enterprise are
subject to a 15% dividend withholding tax. The Treaty further provides that a
12.5% Israeli dividend withholding tax would apply to dividends paid to a United
States corporation owning 10% or more of an Israeli Company's voting stock
during both the preceding year and the current year through the dividend payment
date. The 12.5% rate applies only on dividends from a company that does not have
an "Approved Enterprise" in the applicable period.
Residents of the United States generally will have withholding tax in
Israel deducted at the source. They may be entitled to a credit or deduction for
U.S. federal income tax purposes in the amount of the taxes withheld, subject to
detailed rules contained in the Treaty and in U.S. tax legislation. See "United
States Federal Income Tax Considerations -- Taxation of U.S. Holders." If for
any reason shareholders do not receive the above exemption for a sale of shares
in an Industrial Company, the Treaty provides U.S. resident investors with an
exemption from Israeli capital gains tax, although there may still be U.S.
taxes, upon a disposition of shares in the Company if they held under 10% of the
Company's voting stock through the 12 months before the share disposition. If
Israeli capital gains tax is payable, it may be credited against U.S. tax in
certain circumstances under special provisions in the Treaty. Special tax rules
apply to businesses in Israel, and regular Israeli taxation will apply to
securities dealers in Israel. A non-resident of Israel who has had dividend
income derived or accrued in Israel from which tax was
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withheld at source is currently exempt from the duty to file an annual Israeli
tax return with respect to such income, provided such income was not derived
from a business carried on in Israel by such non-resident and that such
non-resident does not derive other non-passive income from sources in Israel.
Proposals are being formulated to expand the requirement to file annual Israeli
tax returns.
TAX BENEFITS FOR RESEARCH AND DEVELOPMENT
Israeli tax law allows under certain conditions a tax deduction in the year
incurred for expenditures (including non-depreciable capital expenditures) in
scientific research and development projects, if the expenditures are approved
by the relevant Israeli Government Ministry (determined by the field of
research) and the research and development is for the promotion of the
enterprise. and is carried out by or on behalf of the company seeking such
deduction. Expenditures not so approved are deductible over a three-year period.
However, according to Israeli Supreme Court decisions, expenditures made out of
the proceeds of government grants are not deductible, i.e., we will be able to
deduct the unfunded portion of the research and development expenditures and not
the gross amount.
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CONDITIONS IN ISRAEL
BackWeb is incorporated under the laws of the State of Israel, and
substantially all of our research and development and significant executive
facilities are located in Israel. Accordingly, BackWeb is directly affected by
political, economic and military conditions in Israel. Our operations would be
materially adversely affected if major hostilities involving Israel should occur
or if trade between Israel and its present trading partners should be curtailed.
POLITICAL CONDITIONS
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its neighbors. A state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and
Palestinian representatives have been signed. In addition, Israel and several
Arab States have announced their intention to establish trade and other
relations and are discussing certain projects. Israel has not entered into any
peace agreement with Syria or Lebanon, and there have been difficulties in the
negotiations with the Palestinians. We cannot be certain as to how the peace
process will develop or what effect it may have upon BackWeb.
Despite the progress towards peace between Israel, its Arab neighbors and
the Palestinians, certain countries, companies and organizations continue to
participate in a boycott of Israeli firms. BackWeb does not believe that the
boycott has had a material adverse effect on BackWeb, but restrictive laws,
policies or practices directed towards Israel or Israeli businesses may have an
adverse impact on the expansion of BackWeb's business.
Generally, all male adult citizens and permanent residents of Israel under
the age of 51 are obligated to perform up to 39 days, or longer under certain
circumstances, of military reserve duty annually. Additionally, all such
residents are subject to being called to active duty at any time under emergency
circumstances. Currently, some of our senior officers and key employees are
obligated to perform annual reserve duty. While we have operated effectively
under these requirements since we began operations, no assessment can be made as
to the full impact of such requirements on our workforce or business if
conditions should change, and no prediction can be made as to the effect on us
of any expansion or reduction of such obligations.
ECONOMIC CONDITIONS
Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and civil unrest. The Israeli government has, for these and other reasons,
intervened in various sectors of the economy, employing, among other means,
fiscal and monetary policies, import duties, foreign currency restrictions and
controls of wages, prices and foreign currency exchange rates.
Until May 1998, Israel imposed restrictions on transactions in foreign
currency. These restrictions affected our operations in various ways, and also
affected the right of non-residents of Israel to convert into foreign currency
amounts they received in Israeli currency, such as the proceeds of a judgment
enforced in Israel. Despite these restrictions, foreign investors who purchased
shares with foreign currency were able to repatriate in foreign currency both
dividends, after deduction of withholding tax, and the proceeds from the sale of
the shares. In 1998, the Israeli currency control regulations were liberalized
significantly, as a result of which Israeli residents generally may freely deal
in foreign currency and non-residents of Israel generally may freely purchase
and sell Israeli currency and assets. There are currently no Israeli currency
control restrictions on remittances of dividends on the ordinary shares or the
proceeds from the sale of the shares; however, legislation remains in effect
pursuant to
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which currency controls can be imposed by administrative action at any time.
TRADE AGREEMENTS
Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is also a signatory to the General Agreement on
Tariffs and Trade, which provides for reciprocal lowering of trade barriers
among its members. In addition, Israel has been granted preferences under the
Generalized System of Preferences from Australia, Canada and Japan. These
preferences allow Israel to export the products covered by such programs either
duty-free or at reduced tariffs.
Israel has entered into preferential trade agreements with the European
Union, the United States and the European Free Trade Association. In recent
years, Israel has established commercial and trade relations with a number of
the other nations, including Russia, China and India, with which Israel had not
previously had such relations.
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WHERE YOU CAN FIND MORE INFORMATION
BackWeb has filed with the Securities and Exchange Commission a
registration statement on Form F-1 under the Securities Act with respect to the
ordinary shares offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits filed as a part thereof, certain parts
of which are omitted in accordance with the rules and regulations of the SEC.
For further information with respect to BackWeb and the ordinary shares offered
hereby, reference is made to the registration statement and to the exhibits
filed as a part thereof. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and are qualified in their entirety by reference to each
such contract, agreement or other document which is filed as an exhibit to the
registration statement. The registration statement, including the exhibits and
schedules thereto, may be inspected without charge at the principal office of
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the
Regional Offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300,
New York, New York 10048. In addition, such material will be available for
inspection at the offices of The Nasdaq Stock Market, Inc., at 1735 K Street,
N.W., Washington D.C. 20006. Copies of such material may be obtained by mail
from the Public Reference Branch of the commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
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REPORTS TO SECURITY HOLDERS
Upon consummation of this offering, BackWeb will be subject to the
information requirements of the Securities Exchange Act of 1934, applicable to
foreign private issuers, and in accordance therewith will file reports,
including annual reports on Form 20-F, reports on Form 6-K and other information
with the Securities and Exchange Commission. Such reports and other information
filed by BackWeb can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and l3th Floor, 7 World Trade Center, New York, New York 10048.
Copies of such materials can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed
rates. Although the rules of the Nasdaq National Market will require BackWeb to
solicit proxies from its shareholders, as a foreign private issuer, we are
exempt from the rules under the Exchange Act prescribing the furnishing and the
content of proxy statements.
Additionally, we are subject to disclosure requirements under Israeli laws,
as described in "Description of Share Capital -- Access to Information."
LEGAL MATTERS
Certain legal matters in connection with this offering with respect to
United States law will be passed upon for BackWeb by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. The validity of the
ordinary shares offered hereby and certain other legal matters in connection
with this offering with respect to Israeli law will be passed upon for BackWeb
by Naschitz, Brandes & Co., Tel-Aviv, Israel. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Shearman & Sterling, Menlo Park, California, with respect to United States law
and by Meitar, Liquornik, Geva & Co., Ramat Gan, Israel, with respect to Israeli
law. Naschitz, Brandes & Co. is the owner of 863,997 ordinary shares.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1997 and 1998, and for each of the years in
the three-year period ended December 31, 1998 as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given upon the
authority of such firm as experts in accounting and auditing.
ISA EXEMPTION
We have received from the Securities Authority of the State of Israel an
exemption from Israel's prospectus publication requirements. Nothing in such
exemption should be construed as authenticating the matters contained in this
prospectus or as an approval of their reliability or adequacy or as an
expression of opinion as to the quality of the securities offered in this
prospectus.
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BACKWEB TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Financial Statements
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Redeemable Convertible Preferred
Stock and Changes in Shareholders' Equity (Net Capital
Deficiency)............................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
BackWeb Technologies Ltd.
We have audited the accompanying consolidated balance sheets of BackWeb
Technologies Ltd. as of December 31, 1997 and 1998, and the related consolidated
statements of operations, redeemable convertible preferred stock and changes in
shareholders' equity (net capital deficiency), and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of BackWeb'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 in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
BackWeb Technologies Ltd. at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles in the United States.
ERNST & YOUNG LLP
Palo Alto, California
March 25, 1999,
Except for Note 11, as to which the date
is May 28, 1999.
F-2
<PAGE> 72
BACKWEB TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY AT
------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
-------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 6,377 $ 6,449 $ 11,137
Trade accounts receivable, net of allowance for doubtful
accounts of $475 and $561 at December 31, 1997 and
1998................................................... 3,359 2,590 5,753
Other current assets..................................... 538 712 1,085
-------- -------- --------
Total current assets............................... 10,274 9,751 17,975
Property and equipment, net................................ 1,169 1,030 989
Goodwill and other purchased intangibles, net.............. 3,587 1,824 1,389
Other assets............................................... 67 96 96
-------- -------- --------
$ 15,097 $ 12,701 $ 20,449
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Line of credit........................................... $ 1,030 $ 2,000 $ 2,000
Accounts payable and accrued liabilities................. 3,825 3,357 3,689
Deferred revenue......................................... 1,036 1,666 2,201
Payable to related parties............................... 767 304 140
Current portion of shareholders' loans................... 592 828 927
-------- -------- --------
Total current liabilities.......................... 7,250 8,155 8,957
Accrued severance pay, net................................. 74 93 108
Long-term portion of shareholders' loans................... 665 327 --
Long-term debt............................................. 491 --
Commitments and contingencies
Series B, C and D redeemable convertible preferred stock:
nominal value approximately $0.003 per share at amount
paid in; 36,039,377 shares authorized at December 31,
1997 and 1998 and 44,737,377 at March 31, 1999;
24,906,741, 35,158,788 and 43,806,603 shares issued and
outstanding at December 31, 1997 and 1998 and March 31,
1999; no shares authorized, issued or outstanding pro
forma; aggregate liquidation preference of $38,767 at
December 31, 1998 and $48,712 at March 31, 1999.......... 25,532 37,304 47,275
Shareholders' equity (net capital deficiency):
Series A Convertible preferred stock, nominal value
approximately $0.003 per share at amount paid in;
25,464,110 shares authorized issued and outstanding at
December 31, 1997 and 1998 and March 31, 1999; no
shares authorized, issued or outstanding pro forma;
aggregate liquidation preference of $2,024 at December
31, 1998 and March 31, 1999............................ 495 495 495 $ --
Series E preferred stock, nominal value approximately
$0.003 per share at amount paid in; one share
authorized issued and outstanding at December 31, 1997
and 1998 and March 31, 1999 and pro forma (representing
voting rights with respect to 2,595,501 ordinary shares
at March 31, 1999.).................................... 3,454 3,454 3,454 3,454
Ordinary shares, nominal value approximately $0.01 per
share at amounts paid in; 30,000,000 shares authorized;
2,163,573, 2,518,443 and 3,855,901 shares issued and
outstanding at December 31, 1997 and 1998 and March 31,
1999; 150,000,000 shares authorized and 26,946,139
shares issued and outstanding pro forma................ 20 2,002 8,314 56,084
Notes receivable from shareholders....................... -- -- (3,538) (3,538)
Deferred stock compensation.............................. -- (1,638) (3,439) (3,439)
Accumulated deficit...................................... (22,884) (37,491) (41,177) (41,177)
-------- -------- -------- --------
Total shareholders' equity (net capital
deficiency)...................................... (18,915) (33,178) (35,891) $ 11,384
-------- -------- -------- ========
$ 15,097 $ 12,701 $ 20,449
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
BACKWEB TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License................................ $ 71 $ 5,311 $ 7,980 $ 1,395 $ 3,308
Service................................ -- 290 1,557 184 789
------- -------- -------- ------- -------
Total revenues................. 71 5,601 9,537 1,579 4,097
Cost of revenues:
License................................ -- 182 266 55 73
Service................................ -- 796 1,353 297 592
------- -------- -------- ------- -------
Total cost of revenues......... -- 978 1,619 352 665
------- -------- -------- ------- -------
Gross profit............................. 71 4,623 7,918 1,227 3,432
Operating expenses:
Research and development............... 1,781 3,955 4,555 1,277 997
Sales and marketing.................... 4,535 12,224 13,182 3,321 3,831
General and administrative............. 1,396 2,981 3,182 811 931
Amortization of goodwill, other
intangibles, and deferred stock
compensation........................ -- 557 1,824 401 1,202
------- -------- -------- ------- -------
Total operating expenses....... 7,712 19,717 22,743 5,810 6,961
------- -------- -------- ------- -------
Loss from operations..................... (7,641) (15,094) (14,825) (4,583) (3,529)
Interest Income and other................ -- 247 424 48 54
Interest Expense and other............... (43) (115) (206) (66) (211)
------- -------- -------- ------- -------
Net loss................................. $(7,684) $(14,962) $(14,607) $(4,601) $(3,686)
======= ======== ======== ======= =======
Basic and diluted net loss per share..... $ (6.95) $ (6.96) $ (6.07) $ (2.02) $ (1.40)
======= ======== ======== ======= =======
Shares used in computing basic and
diluted net loss per share............. 1,106 2,151 2,408 2,283 2,627
======= ======== ======== ======= =======
Pro forma basic and diluted net loss per
share (unaudited)...................... $ (0.69) $ (0.16)
======== =======
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited)............................ 21,208 23,058
======== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
BACKWEB TECHNOLOGIES LTD.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
CHANGES IN SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
REDEEMABLE -------------------------------------------------------
CONVERTIBLE NOTES
PREFERRED STOCK PREFERRED SHARES ORDINARY SHARES RECEIVABLE
-------------------- ------------------- ------------------ FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS
---------- ------- ---------- ------ --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ -- $ -- -- $ -- 93,333 $ -- $ --
Issuance of ordinary shares............. -- -- -- -- 2,055,240 20 --
Issuance of Series A convertible
preferred shares, net of $5 of issuance
costs.................................. -- -- 25,464,110 495 -- -- --
Issuance of Series B redeemable
convertible preferred shares, net of
$140 of issuance costs................. 4,237,640 3,090 -- -- -- -- --
Issuance of Series C-1 redeemable
convertible preferred shares, net of
$192 of issuance costs................. 9,613,043 10,863 -- -- -- -- --
Issuance of Series C-2 redeemable
convertible preferred shares, net of
$41 of issuance costs.................. 1,586,957 1,784 -- -- -- -- --
Conversion of payable to related parties
into Series C-2 redeemable preferred
shares................................. 521,739 600 -- -- -- -- --
Net loss................................ -- -- -- -- -- -- --
---------- ------- ---------- ------ --------- ------ -------
Balance at December 31, 1996............ 15,959,379 16,337 25,464,110 495 2,148,573 20 --
Issuance of Series C-1 redeemable
convertible preferred shares, net of
$28 of issuance costs.................. 869,565 972 -- -- -- -- --
Issuance of one Series E preferred share
representing rights with respect to
2,844,303 ordinary shares, pursuant to
Lanacom, Inc. acquisition.............. -- -- 1 3,454 -- -- --
Issuance of ordinary shares upon
exercise of stock options.............. -- -- -- -- 15,000 -- --
Issuance of Series D redeemable
convertible preferred shares, net of
$640 of issuance costs and net of
shareholders' receivable of $426....... 8,077,797 8,223 -- -- -- -- --
Net loss................................ -- -- -- -- -- -- --
---------- ------- ---------- ------ --------- ------ -------
Balance at December 31, 1997............ 24,906,741 25,532 25,464,111 3,949 2,163,573 20 --
Issuance of Series D redeemable
convertible preferred shares including
the collection of shareholders'
receivable of $426, net of $437 of
issuance costs......................... 9,313,511 10,699 -- -- -- -- --
Issuance of ordinary shares pursuant to
options exercised...................... -- -- -- -- 320,885 123 --
Issuance of ordinary shares in
connection with Series D redeemable
preferred shares to placement agent.... -- -- -- -- 33,985 -- --
Issuance of Series C-2 redeemable
convertible preferred shares pursuant
to warrants exercised, net of $6 of
issuance costs......................... 938,536 1,073 -- -- -- -- --
Deferred stock compensation............. -- -- -- -- -- 1,859 --
Amortization of deferred stock
compensation........................... -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- -- --
---------- ------- ---------- ------ --------- ------ -------
Balance at December 31, 1998............ 35,158,788 $37,304 25,464,111 $3,949 2,518,443 $2,002 --
Issuance of Series D redeemable
convertible preferred shares, net of
$29 of issuance costs (Unaudited)...... 8,647,815 9,915 -- -- -- -- --
Issuance of ordinary shares pursuant to
options exercised (Unaudited).......... -- -- -- -- 1,337,458 3,704 --
Note receivable from shareholders
(Unaudited)............................ -- -- -- -- -- -- (3,538)
Deferred stock compensation
(Unaudited)............................ -- -- -- -- -- 2,608 --
Amortization of deferred stock
compensation and warrant (Unaudited)... -- 56 -- -- -- -- --
Net loss (Unaudited).................... -- -- -- -- -- -- --
---------- ------- ---------- ------ --------- ------ -------
Balance at March 31, 1999 (Unaudited)... 43,806,603 $47,275 25,464,111 $3,949 3,855,901 $8,314 $(3,538)
========== ======= ========== ====== ========= ====== =======
<CAPTION>
SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
------------------------------------------------
TOTAL
DEFERRED SHAREHOLDERS'
STOCK ACCUMULATED EQUITY (NET
COMPENSATION DEFICIT CAPITAL DEFICIENCY)
------------ ----------- -------------------
<S> <C> <C> <C>
Balance at December 31, 1995............ $ -- $ (238) $ (238)
Issuance of ordinary shares............. -- -- 20
Issuance of Series A convertible
preferred shares, net of $5 of issuance
costs.................................. -- -- 495
Issuance of Series B redeemable
convertible preferred shares, net of
$140 of issuance costs................. -- -- --
Issuance of Series C-1 redeemable
convertible preferred shares, net of
$192 of issuance costs................. -- -- --
Issuance of Series C-2 redeemable
convertible preferred shares, net of
$41 of issuance costs.................. -- -- --
Conversion of payable to related parties
into Series C-2 redeemable preferred
shares................................. -- -- --
Net loss................................ -- (7,684) (7,684)
------- -------- --------
Balance at December 31, 1996............ -- (7,922) (7,407)
Issuance of Series C-1 redeemable
convertible preferred shares, net of
$28 of issuance costs.................. -- -- --
Issuance of one Series E preferred share
representing rights with respect to
2,844,303 ordinary shares, pursuant to
Lanacom, Inc. acquisition.............. -- -- 3,454
Issuance of ordinary shares upon
exercise of stock options.............. -- -- --
Issuance of Series D redeemable
convertible preferred shares, net of
$640 of issuance costs and net of
shareholders' receivable of $426....... -- -- --
Net loss................................ -- (14,962) (14,962)
------- -------- --------
Balance at December 31, 1997............ -- (22,884) (18,915)
Issuance of Series D redeemable
convertible preferred shares including
the collection of shareholders'
receivable of $426, net of $437 of
issuance costs......................... -- -- --
Issuance of ordinary shares pursuant to
options exercised...................... -- -- 123
Issuance of ordinary shares in
connection with Series D redeemable
preferred shares to placement agent.... -- -- --
Issuance of Series C-2 redeemable
convertible preferred shares pursuant
to warrants exercised, net of $6 of
issuance costs......................... -- -- --
Deferred stock compensation............. (1,859) -- --
Amortization of deferred stock
compensation........................... 221 -- 221
Net loss................................ -- (14,607) (14,607)
------- -------- --------
Balance at December 31, 1998............ $(1,638) $(37,491) $(33,178)
Issuance of Series D redeemable
convertible preferred shares, net of
$29 of issuance costs (Unaudited)...... -- -- --
Issuance of ordinary shares pursuant to
options exercised (Unaudited).......... -- -- 3,704
Note receivable from shareholders
(Unaudited)............................ -- -- (3,538)
Deferred stock compensation
(Unaudited)............................ (2,608) -- --
Amortization of deferred stock
compensation and warrant (Unaudited)... 807 -- 807
Net loss (Unaudited).................... -- (3,686) (3,686)
------- -------- --------
Balance at March 31, 1999 (Unaudited)... $(3,439) $(41,177) $(35,891)
======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
BACKWEB TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................. $(7,684) $(14,962) $(14,607) $(4,601) $(3,686)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of intangibles, warrant and deferred
stock compensation............................... -- 617 1,984 456 1,298
Depreciation....................................... 42 300 529 150 175
Remeasurement of stockholders' loans............... -- (21) (102) (23) 25
Changes in operating assets and liabilities, net of
effects of acquisition:
Accounts receivable.............................. (12) (3,324) 769 711 (3,163)
Other assets..................................... (159) (126) (174) (139) (373)
Payable to related parties....................... 413 354 (463) (755) (164)
Other liabilities and accrued expenses........... 781 133 (292) 222 703
Accounts payable................................. 890 123 (621) (336) (237)
Accrued compensation............................. 440 357 445 (95) (134)
Deferred revenue................................. -- 1,036 630 168 535
Severance pay.................................... 39 35 19 9 15
------- -------- -------- ------- -------
Net cash used in operating activities................ (5,250) (15,478) (11,883) (4,233) (5,006)
------- -------- -------- ------- -------
INVESTING ACTIVITIES
Cash received upon acquisition of Lanacom............ -- 120 -- --
Purchase of other assets............................. -- (197) -- --
Purchases of property and equipment.................. (498) (860) (390) (140) (134)
Other assets......................................... (75) 8 (29) (5) --
------- -------- -------- ------- -------
Net cash used in investing activities................ (573) (929) (419) (145) (134)
------- -------- -------- ------- -------
FINANCING ACTIVITIES
Proceeds from bank line of credit.................... -- 2,821 2,500 -- --
Repayment of bank line of credit..................... -- (1,300) (2,021) -- --
Repayment of stockholders loan....................... -- -- -- (253)
Proceeds from issuance of preferred shares........... 16,232 9,195 11,772 426 9,915
Proceeds from issuance of ordinary shares............ 20 -- 123 36 166
Proceeds from shareholders' loans.................... 1,039 -- -- -- --
Advances from related parties........................ 600 -- -- -- --
------- -------- -------- ------- -------
Net cash provided by financing activities............ 17,891 10,716 12,374 462 9,828
------- -------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 12,068 (5,691) 72 (3,916) 4,688
Cash and cash equivalents at beginning of the
period............................................. -- 12,068 6,377 6,377 6,449
------- -------- -------- ------- -------
Cash and cash equivalents at end of the period....... $12,068 $ 6,377 $ 6,449 2,461 $11,137
======= ======== ======== ======= =======
NONCASH INVESTING AND FINANCING TRANSACTIONS
Conversion of payable to related parties into
redeemable convertible preferred stock............. $ 600 $ -- $ -- -- --
======= ======== ======== ======= =======
Issuance of Series E preferred stock upon acquisition
of Lanacom......................................... $ -- $ 3,454 $ -- -- --
======= ======== ======== ======= =======
Issuance of ordinary shares for notes receivable..... -- -- -- (3,538)
======= ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE
Interest paid during the period...................... $ 3 $ 25 $ 87 $ 64 $ 4
======= ======== ======== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
BackWeb Technologies Ltd. was incorporated under the laws of Israel in
August 1995 and commenced operations in November 1995. BackWeb Technologies Ltd.
and its subsidiaries (collectively, "BackWeb" or the "Company") is a provider of
Internet communication infrastructure and applications software that enables
companies to communicate business-critical, time-sensitive information
throughout their enterprise of customers, partners and employees. BackWeb sells
its products primarily to end users from a variety of industries, including the
telecommunications, financial and the computer industries.
Subsidiaries consist of its wholly owned subsidiaries, BackWeb
Technologies, Inc., a U.S. corporation; BackWeb Canada, Inc., a Canadian
corporation; and BackWeb B.V., a Netherlands corporation, and BackWeb K.K. Ltd,
a Japanese corporation.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States. Intercompany
accounts and transactions have been eliminated in consolidation.
A majority of BackWeb's revenues are derived from sales to a limited number
of customers in the United States. U.S. sales represented 100%, 89%, 79% and 82%
of total revenues in 1996, 1997, 1998 and in the three months ended March 31,
1999.
INTERIM FINANCIAL INFORMATION
The financial information at March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited but, in the opinion of management, has been
prepared on the same basis as the annual financial statements and includes all
adjustments (consisting only of normal recurring adjustments) and that BackWeb
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for those periods. Results for the
interim period are not necessarily indicative of the results to be expected for
the entire year.
REVENUE RECOGNITION
License revenues are comprised of perpetual or multiyear licensee fees
which are primarily derived from contracts with corporate customers and
resellers. License revenue is recognized when a license agreement has been
executed or a definitive purchase order has been received, the product has been
delivered to end customers, no significant BackWeb obligations with regard to
implementation remain, the fee is fixed and determinable, and collectibility is
probable. For electronic delivery, the software is considered to have been
delivered when BackWeb has provided the customer with the access codes that
allow for immediate possession of the software. If the fee due from the customer
is not fixed and determinable, revenue is recognized as payments become due from
the customer. If collectibility is not considered probable, revenue is
recognized when the fee is collected. Revenue on arrangements with customers who
are not the ultimate users (primarily resellers) is not recognized until the
product is delivered to the end user.
Service revenues are comprised of revenue from support arrangements,
consulting fees and training. BackWeb's policy is to recognize license revenue
when these associated services that are not essential to the functionality of
the product. To date, these services have not been
F-7
<PAGE> 77
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
essential to the functionality of the product. Support arrangements provide
technical support and the right to unspecified upgrades on an
if-and-when-available basis. Revenue from support arrangements is deferred and
recognized on a straight-line basis as services revenue over the life of the
related agreement, which is typically one year. Consulting and training revenue
is deferred and recognized when provided to the customer. Customer advances and
billed amounts due from customers in excess of revenue recognized are recorded
as deferred revenue.
BackWeb adopted Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), and Statement of Position 98-4, "Deferral of the Effective Date of
a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"), as of
January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing revenue
on software transactions and supersede Statement of Position 91-1. The adoption
of SOP 97-2 and SOP 98-4 did not have a material impact on BackWeb's financial
results.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends
SOP 98-4 to extend the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. BackWeb has not yet
determined the effect of the final adoption of SOP 98-9 on its financial
condition or results of operations.
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 these estimates.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as
incurred. Statement of Financial Accounting Standard ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," requires capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on BackWeb's
product development process, technological feasibility is established upon the
completion of a working model. BackWeb generally does not incur any costs
between the completion of the working model and the point at which the product
is ready for general release. Therefore, through December 31, 1998, BackWeb has
charged all software development costs to research and development expense in
the period incurred.
FOREIGN CURRENCY TRANSACTIONS
BackWeb has elected to prepare its financial statements in U.S. dollars,
which is also BackWeb's functional currency. Most of our sales are in U.S.
dollars. However, a significant substantial portion of BackWeb's research and
development expenses are denominated in New Israeli Shekels ("NIS"). Since the
U.S. dollar is the primary currency in the economic
F-8
<PAGE> 78
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSACTIONS (CONTINUED)
environment in which BackWeb conducts its operations the U.S. dollar is the
functional currency of BackWeb Technologies Ltd. and each of its subsidiaries.
Monetary accounts maintained in currencies other than the dollar
(principally cash and liabilities) are remeasured using the foreign exchange
rate at the balance sheet date in accordance with SFAS No. 52, "Foreign Currency
Translations." Operational accounts and nonmonetary balance sheet accounts are
measured and recorded in current operations at the rate in effect at the date of
the transaction. The foreign currency remeasurement effect for 1998 was a gain
of $163,000. The foreign currency remeasurement effects were insignificant in
1996 and 1997.
ADVERTISING COSTS
BackWeb accounts for advertising costs as expense in the period in which
the costs are incurred. Advertising expense for the years ended December 31,
1996, 1997 and 1998 were $846,000, $756,000 and $42,000.
CASH EQUIVALENTS
Cash equivalents consist of money market accounts and bank time deposits.
BackWeb considers all highly liquid investments with an original maturity from
date of purchase of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the assets, generally three to five years.
INTANGIBLE ASSETS
BackWeb recorded goodwill representing the excess of the aggregate purchase
price over the fair value of the tangible and intangible assets acquired in
connection with the acquisition of Lanacom, Inc., ("Lanacom") (see Note 2).
Goodwill, developed technology and other identified intangibles are amortized on
a straight-line basis over the estimated useful life. The amortization of
developed technology, amounting to $60,000, $160,000 and $40,000 in 1997, 1998
and in the three months ended March 31, 1999 is included in cost of license
revenues. BackWeb regularly performs reviews to determine if the carrying value
of the assets is impaired. The reviews take into consideration the existence of
facts or circumstances, either internal or external, which indicate that the
carrying value of the asset cannot be recovered. No such impairment has been
indicated to date. If such impairment will be indicated, the recoverability
analysis of the long lived assets will consist of calculation of the present
value of the undiscounted expected future cash flows from the respective assets
and comparison of the resulting present value to the carrying
F-9
<PAGE> 79
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS (CONTINUED)
amount. Intangible assets, which include $4,007,000 of intangibles acquired
pursuant to the Lanacom acquisition and $197,000 of other intangibles, consist
of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL ---------------- MARCH 31,
LIFE 1997 1998 1999
---------- ------ ------ -----------
(IN YEARS) (UNAUDITED)
<S> <C> <C> <C> <C>
Goodwill.............................. 2.5 $3,224 $3,224 $3,224
Developed technology.................. 2.5 400 400 400
Other intangibles..................... 2 580 580 580
------ ------ ------
4,204 4,204 4,204
Less: Accumulated amortization........ 617 2,380 2,815
------ ------ ------
Goodwill and other intangibles, net... $3,587 $1,824 $1,389
====== ====== ======
</TABLE>
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject BackWeb to concentrations
of credit risk, consist of cash investments and trade receivables. BackWeb's
cash investments generally consist of money market funds and a certificate of
deposit with qualified financial institutions. The carrying amount of these
financial instruments, as well as debt instruments, are recorded at cost, which
approximates their fair value.
BackWeb sells its products to customers primarily in the United States.
BackWeb performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. BackWeb maintains reserves
to provide for estimated credit losses. Provisions for bad debts in the years
ended December 31, 1997 and 1998 were $485,000 and $677,000. Write-offs of
uncollectible accounts in the years ended December 31, 1997 and 1998 totaled
$10,000 and $591,000. In 1997, revenues from two customers represented 19% and
11% of total revenues. No customer represented more than 10% of total revenues
in 1998.
NET LOSS PER SHARE
Basic and diluted net loss per share are presented in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS 128"), for all periods presented. Pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin No. 98,
ordinary shares and convertible preferred shares issued or granted for nominal
consideration prior to the anticipated effective date of BackWeb's initial
public offering (the "Offering", see Note 11) must be included in the
calculation of basic and diluted net loss per share as if they had been
outstanding for all periods presented. To date, BackWeb has not had any
issuances or grants for nominal consideration.
Basic and diluted net loss per share have been computed using the
weighted-average number of ordinary shares outstanding during the period. Basic
and diluted pro forma net loss per share, as presented in the statements of
operations, have been computed as described above and also give effect to the
conversion of all preferred shares excluding, the Series E preferred share
comprised of the redeemable convertible preferred and the convertible preferred
F-10
<PAGE> 80
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE (CONTINUED)
shares that will convert automatically upon completion of the Offering (using
the as-if converted method) from original date of issuance.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per ordinary share (in thousands, except per
share data):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1998 1999
------------ ---------------
(UNAUDITED)
<S> <C> <C>
Net loss................................................ $(14,607) $ (3,686)
======== ========
Basic and diluted:
Weighted-average shares............................... 2,408 2,703
Less weighted-average shares subject to repurchase.... -- (76)
-------- --------
Shares used in computing basic and diluted net loss per
share................................................. 2,408 2,627
======== ========
Basic and diluted net loss per share.................... $ (6.07) $ (1.40)
======== ========
Pro forma:
Shares used above..................................... 2,408 2,627
Pro forma adjustment to reflect weighted effect of
assumed conversion of redeemable convertible and
convertible preferred stock (unaudited)............ 18,800 20,431
-------- --------
Shares used in computing pro forma basic and diluted
net loss per share (unaudited)..................... 21,208 23,058
======== ========
Pro forma basic and diluted net loss per share
(unaudited)........................................ $ (0.69) $ (0.16)
======== ========
</TABLE>
All preferred stock, outstanding stock options, and warrants have been
excluded from the calculation of the diluted loss per ordinary share because all
such securities are antidilutive for all periods presented. The total number of
ordinary shares related to preferred stock, outstanding options and warrants
excluded from the calculations of diluted net loss per share were 16,069,329,
20,796,354, 25,657,825 and 28,182,944 for the years ended December 31, 1996,
1997, 1998 and the three months ended March 31, 1999. Also excluded from the per
share calculation are the BWC exchangeable shares represented by the one share
of Series E Preferred Stock (see Note 2). Such securities would have been
included in the computation of diluted net income per share using the treasury
stock method.
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
If the Offering is consummated, all of the preferred stock, with the
exception of the Series E preferred stock, will be automatically converted into
ordinary shares upon completion of the Offering (see Note 8). Unaudited pro
forma shareholders' equity at March 31, 1999, as adjusted for the assumed
conversion of such shares, is disclosed on the balance sheet.
F-11
<PAGE> 81
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
BackWeb has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. The alternative fair value accounting
provided for under SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, when the exercise price
of BackWeb's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized. See the pro
forma disclosures of the application of SFAS 123 in Note 8.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, BackWeb adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
and display of comprehensive income and its components in a full set of general
purpose financial statements. Adoption of SFAS 130 had no impact on BackWeb's
financial position, results of operations and disclosures, as BackWeb had no
items of other comprehensive income in any period presented.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
superseded SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in interim financial
reports. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS 131 did not effect results of operations or financial position, but did
affect the disclosure of geographic information for assets (see Note 10).
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). BackWeb is required to adopt
SFAS 133 for the year ending December 31, 2000. SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities. Because
BackWeb currently holds no derivative financial instruments as defined by SFAS
133 and does not currently engage in hedging activities, adoption of SFAS 133 is
not expected to have a material effect on BackWeb's financial condition or
results of operations.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that entities
capitalize certain costs related to internal use software once certain criteria
have been met. BackWeb is required to implement SOP 98-1 for the year ending
December 31, 1999. Adoption of SOP 98-1 is not expected to have a material
impact on BackWeb's financial condition or results of operations.
2. ACQUISITION OF LANACOM, INC.
In August 1997, BackWeb acquired all of the outstanding shares of Lanacom,
a Canadian corporation, a developer of technology software products in a
stock-for-stock transaction. The transaction was carried out through a wholly
owned subsidiary of BackWeb Technologies Ltd., BackWeb Canada, Inc. ("BWC"), and
was accounted for under the purchase method of accounting.
F-12
<PAGE> 82
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. ACQUISITION OF LANACOM, INC. (CONTINUED)
Under the terms of the agreement, BackWeb issued 8,532,909 shares of BWC
and granted options to purchase 341,667 BackWeb ordinary shares, to Lanacom's
stock and option holders at the date of the acquisition. 2,867,373 shares of BWC
exchangeable common shares were placed in escrow. The escrow shares were to be
distributed to the Lanacom shareholders during 1998, and were for the
satisfaction of (i) any shortfall in Lanacom's recorded net liabilities at the
closing or (ii) any losses to BackWeb resulting from any losses incurred by
BackWeb by reason of the breach by Lanacom of any representations, warranties,
covenants or agreements in the acquisition agreement. As of the date of the
acquisition, management believed that all escrow shares were to be distributed
to Lanacom's shareholders. On March 25, 1999, BackWeb entered into a settlement
agreement and mutual release with a former shareholder of Lanacom pursuant to
which 746,404 shares of BWC exchangeable common stock which had been previously
held in escrow and which were further subject to certain employment continuation
conditions, under the former shareholder employment contract, were released to
BackWeb. The release of these shares is reflected in the financial statements at
December 31, 1998.
Each exchangeable BWC share issued in connection with the acquisition is
exchangeable, at any time and at the election of the holder thereof, into 0.33
ordinary shares of BackWeb reflecting the one-for-three reverse ordinary stock
split described in Note 11 (subject to further adjustments for stock splits,
stock dividends, reclassifications, and the like). In connection with the
acquisition, BackWeb issued one share of Series E preferred stock which entitled
each holder of a BWC exchangeable share to voting rights equal to 0.33 ordinary
shares of BackWeb, reflecting the one-for-three reverse ordinary stock split.
The purchase price of $3,904,000 was determined based on the value of the
shares originally issued and options granted. The purchase price was allocated
based upon the estimated fair value of the net assets acquired as follows (in
thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $3,224
Acquired developed technology............................... 400
Acquired other identifiable intangible assets............... 383
Assumed liabilities in excess of assets acquired............ (103)
------
$3,904
======
</TABLE>
The acquired developed technology is comprised of three related software
products which as of the acquisition date, had achieved technological
feasibility. The valuation was based on the stand alone technology of Lanacom,
not considering BackWeb's plans of integration. To determine the value of the
acquired developed technology, the expected future cash flows of the existing
developed technology were based on forecasts of future results that management
believed were likely to occur, at the time of the acquisition. However, no
assurance can be given that deviations from these projections will not occur.
The future cash flows were discounted taking into account the expected income
stream, size of existing markets, growth rates of existing and future markets,
as well as the evaluation of anticipated product life cycles, and associated
risks. Revenues and related expenses for the developed technology were estimated
from the date of the acquisition and extended through the year 2000.
PRO FORMA FINANCIAL INFORMATION
The operations of Lanacom are included in BackWeb's consolidated operating
results from August 1, 1997. The following unaudited pro forma information
presents the results of operations of BackWeb and Lanacom for the year ended
December 31, 1997 as if the acquisition had been
F-13
<PAGE> 83
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. ACQUISITION OF LANACOM, INC. (CONTINUED)
PRO FORMA FINANCIAL INFORMATION (CONTINUED)
consummated as of January 1, 1997. This pro forma information does not purport
to be indicative of what would have occurred had the acquisition been made as of
this date or of results which may occur in the future (in thousands, except per
share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C>
Total revenues.............................................. $ 5,625
========
Net loss.................................................... $(17,182)
========
Basic and diluted net loss per share........................ $ (7.99)
========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at cost, consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment....................... $1,227 $1,493 $ 1,600
Office equipment, furniture, fixtures,
and other.............................. 284 408 435
------ ------ -------
1,511 1,901 2,035
Less accumulated depreciation............ (342) (871) (1,046)
------ ------ -------
Property and equipment, net.............. $1,169 $1,030 $ 989
====== ====== =======
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable......................... $1,462 $ 841 $ 604
Accrued compensation..................... 811 1,256 1,122
Other.................................... 1,552 1,260 1,963
------ ------ ------
$3,825 $3,357 $3,689
====== ====== ======
</TABLE>
5. RELATED PARTIES
SHAREHOLDERS' LOAN
In 1995, BackWeb signed an agreement with its early investors (the "Early
Investors"), according to which the Early Investors provided BackWeb with loan
financing in the amount of
F-14
<PAGE> 84
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. RELATED PARTIES (CONTINUED)
SHAREHOLDERS' LOAN (CONTINUED)
$500,000. The loan is denominated in NIS and linked to the Israeli consumer
price index. The loan is payable at a rate of 2.5% of cumulative consolidated
revenues in excess of $5,000,000. In addition, effective September 30, 1996,
$748,000 of accounts payable to the Early Investors were converted into a
shareholders' loan on the same terms as the $500,000 loan. As of December 31,
1998, no repayment has been made. As of December 31, 1998, the loan balance,
reflecting currency conversion adjustments, is $1,155,000. As of March 31, 1999,
the loan balance was $927,000 reflecting currency conversion adjustments and
repayment.
SERVICES FROM AFFILIATES
The Early Investors provide BackWeb with professional services relating
primarily to management and administrative services, in return for reimbursement
of specifically identified expenses and salaries. Amounts incurred for these
services were approximately $540,000, $516,000, $220,000 and $24,000 during the
years ended December 31, 1996, 1997, 1998 and the three months ended March 31,
1999.
BackWeb reimburses BRM Technologies Ltd. ("BRM"), a related party, for
technology and administrative services on the basis of specific cost plus markup
and specifically identified expenses at cost. Amounts incurred for these
services were approximately $1.6 million, $1.2 million, $873,000 and $67,000
during the years ended December 31, 1996, 1997, 1998 and the three months ended
March 31, 1999.
BackWeb believes that the amounts charged in connection with the services
from founders approximate the cost that would have been incurred if BackWeb
would have incurred these costs internally.
STOCK OPTIONS
Pursuant to the Founding Agreement, BackWeb granted to its Early Investors
the right to grant stock options for up to 792,167 ordinary shares any person or
entity. Through December 31, 1998, options for 722,084 ordinary shares have been
granted and 70,083 shares remained available and are reflected in the option
activity summary in Note 8. This pool of options has been used by the Early
Investors in granting options to employees and consultants of BRM and related
companies.
Deferred compensation expense related to the Early Investors' options
amounting to $290,000 is included in amortization of goodwill, other intangibles
and deferred stock compensation for the three months ended March 31, 1999. No
compensation expense was recorded in prior periods as amounts ascribed to these
options were immaterial.
F-15
<PAGE> 85
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES
LEASES
BackWeb leases its office facilities under cancelable and noncancelable
operating leases. Future rental payments on a fiscal year basis under
noncancelable operating leases with initial terms in excess of one year are as
follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 830
2000........................................................ 781
2001........................................................ 693
2002........................................................ 153
------
$2,457
======
</TABLE>
Rent expense approximated $165,000, $458,000, and $695,000 for the years
ended December 31, 1996, 1997, and 1998.
BANK LINE OF CREDIT
In December 1998, BackWeb entered into a line of credit agreement with a
bank which provides for formula and nonformula revolving credit loans
aggregating up to $6,500,000. The line of credit is secured by substantially all
of BackWeb's assets. Borrowings under the line of credit bear interest at the
bank's prime rate plus 2%-4%. The borrowing under the line of credit at December
31, 1998 and March 31, 1999 in the amount of $2,000,000 bears interest at prime
plus 4%.
The amount available under the formula loans is limited to the lower of
$3,000,000 or an amount equal to 85% of eligible accounts receivable. The amount
available under the nonformula loans and term loans are $2,000,000 and
$1,500,000, respectively. As of December 31, 1998, BackWeb had $1,220,000 in
unused availability under the formula and nonformula line of credit and utilized
$2,000,000 of the amount available under the line of credit. The loan is due in
December 1999.
In 1997, BackWeb had a credit agreement with a different financial
institution. BackWeb repaid the outstanding balance under this credit agreement
in 1998.
ROYALTY COMMITMENTS
In 1997, BackWeb entered into an in-license agreement which include future
royalty commitments at the rate of generally 1% of product revenues which
incorporate the licensed technology into products sold by BackWeb. As of
December 31, 1998, such royalty commitments have not been met.
7. ACCRUED SEVERANCE PAY, NET
BackWeb's liability for severance pay is calculated pursuant to Israeli
severance pay law based on the most recent salary of the employees multiplied by
the number of years of employment as of the balance sheet date. BackWeb records
as expense the net increase in its funded or unfunded severance liability.
Employees are entitled to one month salary for each year of employment, or a
portion thereof. The Company's liability is fully provided by monthly deposits
with severance pay funds, insurance policies and by an accrual. Deposits with
severance pay funds and insurance policies are not under the control of BackWeb.
F-16
<PAGE> 86
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
7. ACCRUED SEVERANCE PAY, NET (CONTINUED)
The deposited funds include investment income accumulated up to the balance
sheet date. The deposited funds may be withdrawn only upon the fulfillment of
the obligation pursuant to Israeli severance pay law or labor agreements. The
value of the deposited funds are based on the cash surrendered value of these
policies, and include the accumulated investment income, which has been
immaterial to date.
The net accrual severance pay liability reported in the balance sheets
reflects the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
----- -----
<S> <C> <C>
Accrued severance pay....................................... $ 197 $ 279
Less amount funded.......................................... (123) (186)
----- -----
Unfunded portion, net accrued severance pay................. $ 74 $ 93
===== =====
</TABLE>
Severance expense for the years ended December 31, 1996, 1997 and 1998 was
$88,000, $197,000 and $279,000.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
PREFERRED STOCK
Preferred stock consists of the following:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED LIQUIDATION
AUTHORIZED AT AND OUTSTANDING PREFERENCE AT
DECEMBER 31, ------------------------------------- --------------------------
1997 AND DECEMBER 31, MARCH 31, DECEMBER 31, MARCH 31,
1998 1997 1998 1999 1998 1999
------------- ---------- ---------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Redeemable
convertible
preferred stock:
Series B............. 4,237,640 4,237,640 4,237,640 4,237,640 $ 3,207,893 $ 3,207,893
Series C-1........... 10,482,608 10,482,608 10,482,608 10,482,608 12,054,999 12,054,999
Series C-2........... 3,919,129 2,108,696 3,047,232 3,047,232 3,504,317 3,504,317
Series D............. 17,400,000 8,077,797 17,391,308 26,039,123 20,000,004 29,944,991
---------- ---------- ---------- ---------- ----------- -----------
36,039,377 24,906,741 35,158,788 43,806,603 $38,767,213 $48,712,200
========== ========== ========== ========== =========== ===========
Series A convertible
preferred stock.... 25,464,110 25,464,110 25,464,110 25,464,110 $ 2,024,397 $ 2,024,397
========== ========== ========== ========== =========== ===========
Series E preferred
stock.............. 1 1 1 1 -- --
========== ========== ========== ========== =========== ===========
</TABLE>
Each share of Series A convertible preferred stock and each share of Series
B, C, and D redeemable convertible preferred stock is convertible at the option
of the holder, at any time, into 0.33 ordinary shares, subject to certain
antidilution adjustments, including for issuances of additional ordinary shares
for consideration per share less than the conversion price of any series of
redeemable convertible preferred and convertible preferred stock. Outstanding
shares of convertible preferred stock automatically convert into ordinary shares
on the closing of an
F-17
<PAGE> 87
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY) (CONTINUED)
PREFERRED STOCK (CONTINUED)
underwritten public offering of ordinary shares in which BackWeb receives at
least $15,000,000 of net proceeds and the offering price per share is at least
$6.90 (subject to adjustment for share splits, share dividends, and like
events).
Series A convertible preferred shareholders are entitled to receive
dividends as and when declared for holders of ordinary shares calculated on the
basis of the number of ordinary shares into which Series A convertible preferred
stock could then be converted. Series B, C, and D redeemable convertible
preferred shareholders are entitled to dividends in preference to other shares
at an annual rate equal to 7% of the applicable issuance price when declared by
the board of directors out of legally available funds. No dividends have been
declared as of December 31, 1998.
The Series A convertible preferred shareholders and the Series B, C, and D
redeemable convertible preferred shareholders are entitled to receive, upon
liquidation and in certain circumstances as upon a merger, acquisition or
similar event, an amount per share equal to the equivalent in Israeli currency
(subject to stock splits, stock dividends, reclassifications, and the like) at
$0.0795, $0.757, $1.15, and $1.15, plus all declared but unpaid dividends. Any
remaining assets shall be distributed on a pro rata basis among the holders of
all preferred and ordinary shares.
The Series A convertible preferred shareholders and the Series B, C, and D
redeemable convertible preferred shareholders have voting rights based on the
number of ordinary shares into which the preferred stock is convertible into.
With the consent of a majority of the Series B, C-1, and D redeemable
convertible preferred stock, in each case, voting separately as a single class,
BackWeb, at the discretion of the board of directors, may redeem, in whole or in
part, any of the outstanding Series B, C, or D redeemable convertible preferred
stock at the price paid for each share plus all declared but unpaid dividends.
In addition, upon the written request at any time after the 10th anniversary of
the issuance of the Series D redeemable convertible preferred share, of the
holders of a majority of the Series B, C-1, and D redeemable convertible
preferred stock, voting together as a single class, BackWeb shall redeem all the
Series B, C, and D redeemable convertible preferred stock outstanding at the
applicable issuance price, together with all declared but unpaid dividends.
Series E preferred stock was issued to a trustee in connection with the
Lanacom acquisition (see Note 2) and represents the voting and exchange rights
of the BWC exchangeable common shares. The registered holder of the Series E
preferred stock is entitled to have a number of votes equal to the number of
outstanding exchangeable shares of BWC. The holder of the Series E preferred
stock shall not be entitled to receive any dividend declared and paid by
BackWeb. However, if such dividend is declared by BackWeb, an equivalent
dividend will be declared simultaneously by BWC on the exchangeable shares.
Series E preferred stock shall be canceled when there will be no outstanding
exchangeable shares of BWC.
On March 24, 1999, BackWeb issued 8,647,815 shares of Series D redeemable
convertible preferred stock to investors at $1.15 per share, resulting in gross
cash proceeds of approximately $9.9 million.
F-18
<PAGE> 88
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY) (CONTINUED)
ORDINARY SHARES
Ordinary shares subject to future issuance are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Conversion of redeemable convertible preferred
and convertible preferred stock (Series A-D)... 20,207,632 23,090,237
Exchange of BWC shares (represented by Series E
preferred stock) into ordinary shares.......... 2,844,303 2,595,501
Exercise of outstanding options.................. 5,304,466 4,946,980
Ordinary shares available for grant under stock
option plans................................... 1,026,316 3,646,344
Exercise of preferred stock warrants outstanding
and conversion to Ordinary shares.............. 145,726 145,726
---------- ----------
29,528,443 34,424,788
========== ==========
</TABLE>
STOCK WARRANTS
In December 1996 and March 1997, in connection with the Series C financing,
BackWeb issued warrants to purchase 1,810,432 Series C-2 redeemable convertible
preferred shares at an exercise price of $1.15 per share. In December 1998,
warrants to purchase 938,536 shares were exercised while the remainder of
871,896 expired.
In August 1997, in connection with a bank line of credit, BackWeb issued a
warrant for the purchase of 52,178 shares of Series D redeemable convertible
preferred shares at $1.15 per share. The warrant is exercisable through the
earlier of August 2002 or an initial public offering of BackWeb's ordinary
stock. The value ascribed to these warrants is immaterial for financial
statement purposes.
In December 1998, in connection with a bank loan, BackWeb issued a warrant
for the purchase of 385,000 shares of Series C-2 redeemable convertible
preferred shares at $1.15 per share. The warrant is exercisable through the
earlier of a merger or consolidation of BackWeb, or December 2003. The warrant
fair value of $224,000 is amortized over the term of the bank line of credit.
STOCK OPTION PLANS
Under the 1996 Israeli Stock Option Plan (the "1996 Israeli Plan"), BackWeb
is authorized to grant options to purchase ordinary shares to its Israeli
employees and other eligible participants. Options granted under the 1996
Israeli Plan expire seven years from the date of grant and terminate upon
termination of the optionee's employment or other relationship with BackWeb. The
options vest ratably over a four-year period.
Under the 1996 U.S. Stock Option Plan (the "1996 U.S. Plan"), BackWeb is
authorized to grant incentive stock options to employees and nonstatutory stock
options to employees, officers, directors and consultants at BackWeb or any
other member of the BRM group. Options granted under the 1996 U.S. Plan expire
no later than seven years from the date of grant and
F-19
<PAGE> 89
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY) (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
generally vest over a four year period. BackWeb is no longer granting options
under the 96 U.S. Plan. In the event of merger, sale or dissolution of the
Company, all options will terminate immediately, except to the extent options
are assumed by the successor Company.
Under the 1998 U.S. Option Plan (the "1998 U.S. Plan"), BackWeb is
authorized to grant incentive stock options to employees and nonstatutory stock
options and share purchase rights to employees, directors and consultants. The
exercise price of incentive stock options must not be less than the fair market
value of its ordinary share at the date of grant. Options granted under the 1998
U.S. Option Plan generally vest over four years. In the event of an acquisition
of BackWeb, if the options are not assumed by the successor corporation, the
options will accelerate and become fully vested.
As of December 31, 1998, an aggregate of 6,666,667 shares have been
reserved under the 1996 Israeli Plan, the 1996 U.S. Plan and the 1998 U.S. Plan,
including those options already exercised.
BackWeb's 1999 Employee Stock Purchase Plan was adopted by the board of
directors on March 25, 1999 to be effective following the Offering. BackWeb has
reserved a total of 600,000 shares for issuance under the plan. The number of
shares reserved under the plan is subject to an annual increase on each
anniversary beginning July 1, 2000 equal to lesser of 833,333 shares, 2% of the
then outstanding shares or an amount determined by the Board. Eligible employees
may purchase ordinary shares at 85% of the lesser of the fair market value of
BackWeb's ordinary shares on the first day of the applicable offering period or
the last day of the applicable purchase period.
Also on March 25, 1999, the board of directors approved an increase to the
number of shares reserved under the 1998 U.S. Plan by 3,600,000. The number of
shares authorized and reserved under the plan will be subject to an annual
increase on each anniversary beginning July 1, 2000 equal to the lesser of
1,400,000 shares, 3% of the outstanding shares on such date or an amount
determined by the Board.
F-20
<PAGE> 90
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY) (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
A summary of activity under the stock option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
WEIGHTED- AVERAGE
SHARES AVERAGE FAIR VALUE
AVAILABLE OPTIONS PRICE PER EXERCISE OF OPTION
FOR GRANT OUTSTANDING SHARE PRICE GRANTED
---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Options authorized.............. 5,000,000 -- -- --
Options granted................. (1,751,500) 1,751,500 $0.03-$0.36 $0.21
Options canceled................ 50,000 (50,000) $0.24-$0.36 $0.24
---------- ----------
Balance at December 31, 1996...... 3,298,500 1,701,500 $0.03-$0.36 $0.09 $0.03
Options granted................. (1,890,367) 1,890,367 $1.05-$1.20 $1.17
Options exercised............... -- (15,000) $0.03-$0.24 $0.18
Options canceled................ 191,667 (191,667) $0.03-$1.20 $0.90
---------- ----------
Balance at December 31, 1997...... 1,599,800 3,385,200 $0.03-$1.20 $0.66 $0.21
Options authorized.............. 1,666,667 -- -- --
Options granted................. (3,236,500) 3,236,500 $1.20-$2.10 $1.83
Options exercised............... -- (320,885) $0.03-$1.20 $0.39
Options canceled................ 996,349 (996,349) $0.12-$1.50 $1.05
---------- ----------
Balance at December 31, 1998...... 1,026,316 5,304,466 $0.03-$2.10 $1.32 $0.33
---------- ----------
Options authorized (Unaudited).. 3,600,000 -- -- --
Options granted (Unaudited)..... (1,088,722) 1,088,722 $1.50-$6.30 $4.03
Options exercised (Unaudited)... -- (1,337,458) $0.03-$5.79 $2.77
Options canceled (Unaudited).... 108,750 (108,750) $0.24-$3.00 $1.80
---------- ----------
Balance at March 31, 1999
(Unaudited)..................... 3,646,344 4,946,980 $ 0.03-6.30 $1.51 $0.62
========== ==========
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 and the
weighted-average remaining contractual life are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ---------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
-------- -------------- ----------- --------- -------------- ---------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$0.03 824,667 4.0 $0.03 808,000 $0.03
$0.12 - $1.05 464,833 5.0 $0.34 193,000 $0.29
$1.20 1,023,133 6.2 $1.20 327,811 $1.20
$1.50 1,161,000 7.6 $1.50 -- --
$2.10 1,830,833 9.2 $2.10 11,667 2.10
- --------------------- --------- ---- ----- --------- -----
$0.03 - $2.10........ 5,304,466 7.0 $1.32 1,340,478 $0.37
===================== ========= ==== ===== ========= =====
</TABLE>
F-21
<PAGE> 91
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY) (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
As of March 31, 1999, there were 1,692,954 ordinary shares options
exercisable at a weighted average exercise price of $0.9.
During the year ended December 31, 1998 and the three months ended March
31, 1999, in connection with the grant of certain share options, BackWeb
recorded deferred stock compensation of $1,859,000 and $2,608,000 respectively
representing the difference between the exercise price and the deemed fair value
of BackWeb's ordinary share on the date such stock options were granted. Such
amount is being amortized based on an accelerated method over the vesting period
of the options, generally four years. In 1998 and the three months ended March
31, 1999, BackWeb recorded amortization of deferred stock compensation expense
of approximately $221,000 and $807,000 respectively. At March 31, 1999, BackWeb
had a total of $3,439,000 remaining to be amortized.
RESTRICTED SHARES ISSUED FOR PROMISSORY NOTES
On March 25, 1999, several key employees and one director exercised options
for 1,141,333 ordinary shares for promissory notes in the aggregate amount of
$3,538,000. The notes are full recourse and are secured by the shares, bear
interest at a rate of 6% per annum and are payable over the remaining options
vesting period. The shares are restricted and are subject to a right of
repurchase in favor of BackWeb in accordance with the original options' vesting
schedule which is generally four years.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Pro forma information regarding net loss is required by SFAS 123, which
also requires that the information be determined as if BackWeb has accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these awards was estimated at the date of grant using the minimum
value options pricing model. The minimum value options pricing valuation model
was developed for use in estimating the fair value of options that have no
vesting restrictions and are fully transferable. Option valuation models require
the input of highly subjective assumptions. Because BackWeb's stock-based awards
have characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards. The fair value of these options was estimated at the date of
grant using the minimum value method option pricing model with the following
weighted-average assumptions for 1996, 1997, and 1998: risk-free interest rates
of approximately 6%, no dividend yield; and a weighted-average expected life of
the option of approximately 3.46, 3.32, and 3.34 years.
F-22
<PAGE> 92
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY) (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. BackWeb's pro
forma information follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997 1998
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss:
As reported............................. $(7,684) $(14,962) $(14,607)
Pro forma............................... $(7,688) $(15,055) $(14,731)
Basic and diluted loss per share:
As reported............................. $ (6.95) $ (6.96) $ (6.07)
Pro forma............................... $ (6.95) $ (7.00) $ (6.12)
</TABLE>
9. INCOME TAXES
Pretax loss from foreign operations (non-Israeli) was $719,000 in 1996,
$2,648,000 in 1997 and $3,621,000 in 1998.
ISRAELI INCOME TAXES
BackWeb's investment program has been granted the status of "Approved
Enterprise" by the Israeli government under the law for the Encouragement of
Capital Investments, 1959 (the "Law"). Israeli income derived from the "Approved
Enterprise" entitles BackWeb to tax exemption for a period of two years
commencing the first year that it will earn taxable income, and to a reduced tax
rate of 10%-25% for an additional 5 to 8 year period (depending on the rate of
foreign investment in BackWeb). The tax benefit period is limited to the
earliest of 12 years from completion of the investment under the plan or
December 31, 2009. Thereafter, BackWeb will be subject to the regular corporate
tax rate of 36% on its Israeli income. Income from sources other than the
"Approved Enterprise" will be subject to tax at the regular rate of 36%.
BackWeb currently has no plans to distribute such tax-exempt income as
dividend and intends to retain future earnings to finance the development of the
business. If the retained tax-exempt income is distributed in a manner other
than in the complete liquidation of BackWeb, it would be taxed at the corporate
tax rate applicable to such profits (currently 25%). As of December 31, 1998,
BackWeb is in the process of completing the investments required under the
program. Should BackWeb fail to meet conditions stipulated by the law and by the
Approval certification, including making specified investments in fixed assets,
maintaining the development and production nature of its facilities, and
financing of at least 30% of the investment program through equity, it could be
subject to corporate tax in Israel at the corporate rate of 36% and could be
required to refund tax benefits already received at that time (inclusive of
interest and penalties).
As of December 31, 1998, BackWeb had approximately $30,000,000 of Israeli
net operating loss carryforwards. The Israeli loss carryforwards have no
expiration date. The Company expects that during the period these tax losses are
utilized, its income would be substantially tax exempt.
F-23
<PAGE> 93
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
ISRAELI INCOME TAXES (CONTINUED)
Accordingly, there will be no tax benefit available from such losses and no
deferred income taxes have been included in these financial statements.
U.S. INCOME TAXES
At December 31, 1998, BackWeb had a U.S. federal net operating loss
carryforward for income tax purposes of approximately $1,000,000. The net
operating loss expires in various amounts between the years 2011 and 2018.
Utilization of U.S. net operating losses may be subject to substantial
annual 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 before utilization.
DEFERRED INCOME TAXES
Deferred tax assets and liabilities reflect the net tax effects of net
operating loss and of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and the amounts used for income
tax purposes. Significant components of BackWeb's deferred tax assets and
liabilities for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
U.S. net operating loss carryforwards................ $ 300 $ 400
Other foreign net operating loss carryforwards....... 400 1,400
Reserve not currently deductible..................... 200 200
Other, net........................................... 100 200
------- -------
Total deferred assets.................................. 1,000 2,200
Valuation allowance.................................... (1,000) (2,200)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>
For the year ended December 31, 1997, the valuation allowance increased by
$700,000.
At December 31, 1998, BackWeb had other foreign net operating loss
carryforwards of approximately $4.5 million. The net operating losses expire in
various amounts between 2002 and 2005.
10. SEGMENTS AND GEOGRAPHIC INFORMATION
BackWeb operates in one industry segment, the development and marketing of
network application software. Operations in Israel and Canada include research
and development and local sales. Operations in the U.S. include marketing and
sales. The following is a summary of
F-24
<PAGE> 94
BACKWEB TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
operations within geographic areas based on the location of the entity making
that sale (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------- THREE MONTHS ENDED
1996 1997 1998 MARCH 31, 1999
----- ------ ------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues from sales to
unaffiliated customers:
Israel....................... $ -- $ 593 $1,623 $ 724
United States................ 71 4,979 7,574 3,360
Canada....................... -- 29 340 13
----- ------ ------ ------
$ 71 $5,601 $9,537 $4,097
===== ====== ====== ======
Long-lived assets:
Israel....................... $ 193 $ 257 $ 257 $ 345
United States................ 272 972 650 574
Canada....................... -- 3,527 1,849 1,436
Other........................ -- -- 98 23
----- ------ ------ ------
$ 465 $4,756 $2,854 $2,378
===== ====== ====== ======
</TABLE>
Revenues generated in the U.S. and Canada (collectively, North America) are
all to customers located in those geographic regions. Revenues generated in
Israel consist of export sales to customers located in Europe and the Far East.
11. PROPOSED PUBLIC OFFERING AND RELATED MATTERS
The board of directors has authorized BackWeb to file a registration
statement with the U.S. Securities and Exchange Commission for an initial public
offering of its ordinary shares.
On March 25, 1999, the board of directors approved an increase in the
authorized share capital of BackWeb to 150,000,000 ordinary shares and
50,000,000 shares of undesignated preferred stock.
On May 28, 1999, the board of directors ratified a one-for-three reverse
ordinary stock split. The reverse stock split will be effected prior to the time
of the Offering. All ordinary share numbers and preferred stock conversion
ratios have been retroactively adjusted to reflect the reverse stock split.
F-25
<PAGE> 95
UNDERWRITING
BackWeb and the underwriters 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., BancBoston
Robertson Stephens Inc., Lehman Brothers Inc. and Wit Capital Corporation are
the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co.........................................
BancBoston Robertson Stephens Inc...........................
Lehman Brothers Inc.........................................
Wit Capital Corporation.....................................
---------
Total..................................................... 5,500,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 825,000
shares from BackWeb 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 BackWeb. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by the Company
---------------------------
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 such
securities dealers may resell any shares purchased from the underwriters to
certain 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.
Wit Capital, a member of the National Association of Securities Dealers,
Inc. will participate in the offering as one of the underwriters. The National
Association of
Securities Dealers, Inc. approved the membership of Wit Capital on September 4,
1997. Except for its participation as a manager in this offering, Wit Capital
has no relationship with BackWeb or any of its founders or significant
shareholders.
We have agreed with the underwriters not to dispose of or hedge any of our
ordinary shares or securities convertible into or exchangeable for ordinary
shares during the period from the date of this prospectus continuing through the
date 180 days after the date of this prospectus, except for certain gift to
immediate family or 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 certain transfer restrictions.
In addition, our officers and directors and substantially all holders of
shares of capital stock of BackWeb have agreed that, subject to certain limited
exceptions, they will not offer to sell, sell, contract to sell, pledge, grant
any option to purchase, make any short sale or otherwise dispose of any ordinary
shares owned of record or beneficially prior to the offering or any securities
convertible into or exchangeable for such ordinary shares, for a period of 180
days following the date of the final prospectus for this offering without the
prior written consent of the representatives (other than certain transfers to
immediate family).
U-1
<PAGE> 96
At our request, the underwriters have reserved up to 349,000 ordinary
shares for sale, at the initial public offering price, to employees and other
friends of BackWeb through a directed share program. BackWeb has requested that
the underwriters reserve an additional 200,000 ordinary shares at the initial
public offering price to be offered to U S WEST Innovations, Inc., an affiliate
of U S WEST Communications, Inc., one of BackWeb's customers. The number of
ordinary shares available for sale to the general public in the public offering
will be reduced to the extent such persons purchase such reserved shares.
Prior to the offering, there has been no public market for the shares. The
initial public offering price has been negotiated among BackWeb 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 BackWeb's historical performance, estimates of our business
potential and earnings prospects, an assessment of our management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
We have applied for quotation of the ordinary shares on the Nasdaq National
Market under the symbol "BWEB."
In connection with the offering, the underwriters may purchase and sell
ordinary shares 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 ordinary shares
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 ordinary shares. As a result, the price of the
ordinary shares 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 number of shares offered.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1.7 million.
We have agreed to indemnify the several underwriters against liabilities
under the Securities Act of 1933 or contribute to payments which the
underwriters may be required to make in that respect.
Certain investment partnerships of which affiliates of The Goldman Sachs
Group, L.P., an affiliate of Goldman Sachs (lead manager of this offering), are
general partner, managing general partner or investment manager, hold 9,818,029
preferred shares of BackWeb which upon the closing of this offering convert into
3,272,676 ordinary shares. Because of the economic interest based on contributed
capital of Goldman Sachs and its employees in those investment partnerships, the
aggregate beneficial ownership interest (as determined in accordance with the
Conduct Rules of the National Association of Securities Dealers, Inc.) of
BackWeb attributable to Goldman Sachs is approximately 3.6%. In January 1998,
BancAmerica Robertson Stephens Inc., an affiliate of BancBoston Robertson
Stephens, one of the underwriters in this offering, participated as the
placement agent for the Series D Preferred Shares.
U-2
<PAGE> 97
- ----------------------------------------------------------
- ----------------------------------------------------------
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....................... 1
Risk Factors............................. 4
Special Note Regarding Forward Looking
Statements............................. 13
Use of Proceeds.......................... 13
Dividend Policy.......................... 14
Capitalization........................... 15
Dilution................................. 16
Selected Consolidated Financial Data..... 17
Management's Discussion and Analysis of
Financial Condition and Results
Operations............................. 18
Business................................. 29
Management............................... 39
Related Party Transactions............... 45
Principal Shareholders................... 47
Description of Share Capital............. 49
Shares Eligible for Future Sale.......... 53
Material United States Federal Income Tax
Considerations......................... 54
Israeli Taxation and Investment
Programs............................... 58
Conditions in Israel..................... 62
Where You Can Find More Information...... 64
Reports to Security Holders.............. 65
Legal Matters............................ 65
Experts.................................. 65
ISA Exemption............................ 65
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.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
5,500,000 Shares
BACKWEB TECHNOLOGIES
LTD.
Ordinary Shares
------------------------------
[BACKWEB LOGO]
------------------------------
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
WIT CAPITAL CORPORATION
Representatives of the Underwriters
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee, the NASD filing fee and the NASDAQ National Market
Fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 17,584
NASD filing fee............................................. 6,825
NASDAQ National Market Fees................................. 95,000
Blue Sky qualification fees and expenses.................... 5,000
Israeli stamp duty.......................................... 569,250
Printing and engraving expenses............................. 150,000
Accountant's fees and expenses.............................. 300,000
Legal fees and expenses..................................... 500,000
Miscellaneous............................................... 56,341
----------
Total............................................. $1,700,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Israeli law permits a company to insure an office holder in respect of
liabilities incurred by him as a result of the breach of his duty of care to the
company or to another person, or as a result of the breach of his fiduciary duty
to the company, to the extent that he acted in good faith and had reasonable
cause to believe that the act would not prejudice the company. A company can
also insure an office holder for monetary liabilities as a result of an act or
omission that he committed in connection with his serving as an office holder.
Furthermore, a company can indemnify an office holder for monetary liability in
connection with his activities as an office holder.
The Articles of Association of BackWeb allow BackWeb to insure and
indemnify office holders to the fullest extent permitted by law. BackWeb has
acquired directors' and officers' liability insurance covering the officers and
directors of BackWeb and its subsidiaries for certain claims.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since January 1, 1996, the Registrant has issued and sold (without
payment of any selling commission to any person) the following
unregistered securities:
(1) Prior to the completion of this offering, the Registrant intends to
effect a three-for-one reverse stock split of its outstanding ordinary
shares in which every outstanding ordinary share will be split into
three ordinary shares.
(2) In July 1996, the Registrant issued and sold its Series B Preferred
Shares convertible into an aggregate of 1,412,547 ordinary shares to a
total of two investors for an aggregate purchase price of
$3,207,893.40.
(3) From December 1996 to March 1997, the Registrant issued and sold its
Series C Preferred Shares convertible into an aggregate of 4,197,101
ordinary shares to a total of ten investors for an aggregate purchase
price of $14,479,998.
II-1
<PAGE> 99
(4) In December 1996 and March 1997, the Registrant issued Series C-2
warrants convertible into 603,477 ordinary shares to a total of seven
investors. In December 1998, two investors exercised those warrants
convertible into 312,845 ordinary shares for an aggregate purchase
price of $1,079,316.
(5) In August 1997, in connection with the Registrant's acquisition of
Lanacom Inc., a Canadian company, the Registrant issued its
exchangeable shares convertible into an aggregate of 2,844,303 ordinary
shares.
(6) From December 1997 to March 1999, the Registrant issued and sold its
Series D Preferred Shares convertible into an aggregate of 8,679,707
ordinary shares to a total of twenty-one investors for an aggregate
purchase price of $29,944,990.
(7) In August 1997, the Registrant issued a warrant for its Series D
Preferred Shares convertible into an aggregate of 17,393 ordinary
shares to one investor at an exercise price of $3.45 per share.
(8) In December 1998, the Registrant issued a warrant for its Series C
Preferred Shares convertible into an aggregate of 128,333 ordinary
shares to one investor at an exercise price of $3.45 per share.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities. The issuances described in
Items 15(a)(2), 15(a)(3), 15(a)(4), 15(a)(5) and 15(a)(6) were deemed exempt
from registration under the Securities Act in reliance upon Section 4(2) thereof
as transactions by an issuer not involving any public offering. The issuances
described in Item 15(a)(7) were deemed exempt from registration under the
Securities Act in reliance upon Rule 701 promulgated thereunder in that they
were offered or sold either pursuant to a written contract relating to
compensation, as provided by Rule 701. In addition, such issuances were deemed
to be exempt from registration under Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends where affixed to the
securities issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<S> <C> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Articles of Association of Registrant.......................
3.2 Memorandum of Association of Registrant (English
translation)................................................
4.1 Specimen of Ordinary Share Certificate......................
4.2 Fourth Amended and Restated Rights Agreement................
4.3 Form of Liquidity Proposal between BackWeb Technologies,
Ltd. and the Exchangeable shareholders......................
5.1 Opinion of Naschitz, Brandes & Co. as to the validity of the
shares......................................................
10.1 1996 Israeli Share Option Plan (English translation)........
10.2 1996 U.S. Share Option Plan.................................
</TABLE>
II-2
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<S> <C> <C>
10.3 1998 U.S. Share Option Plan.................................
10.4 1999 Employee Stock Purchase Plan...........................
10.5 Lease Agreement for 3 Abba Hillel Street, Ramat Gan, Israel
(English translation).......................................
10.6 Lease Agreement for 34 Tuval Street, Ramat Gan, Israel
(English translation).......................................
10.7 Lease Agreement for 2077 Gateway Place, Suite 500, San Jose,
California..................................................
10.8 Form of Agreement by and among Interad (1995) Ltd. and Nir
Barkat Holdings Ltd., Eli Barkat Holdings Ltd., Yuval 63
Holdings (1995) Ltd., and Lior Hass and Iftah Sneh..........
10.9 Loan and Security Agreement, and schedule thereto, between
BackWeb Technologies Ltd. and Transamerica Business Credit
Corporation, dated as of December 24, 1998..................
10.10 Voting and Exchange Trust Agreement between BackWeb
Technologies Ltd., BackWeb Canada Inc. and the Trust Company
of Bank of Montreal, dated as of August 8, 1997.............
10.11* Fourth Amended and Restated Rights Agreement, dated as of
March 24, 1999..............................................
10.12* Agreement and Plan of Acquisition by and among BackWeb
Technologies Ltd., BackWeb Canada Inc., Lanacom Inc. and
Anthony Davis, dated as of July 1, 1997.....................
10.13+ Software License and Distribution Agreement for Embedded
Products, by and between BackWeb Technologies Ltd. and SAP
AG, dated March 17, 1999....................................
10.14+ Software Development and OEM License Agreement by and
between BackWeb Technologies Ltd. and Baan Development B.V.,
dated as of December 30, 1998...............................
21.1 Subsidiaries of the Registrant..............................
23.1* Consent of Ernst & Young LLP, Independent Auditors..........
23.2 Consent of Naschitz, Brandes & Co. (contained in Exhibit
5.1)........................................................
24.1 Powers of Attorney (included on page II-4)..................
</TABLE>
- -------------------------
* Filed herewith. All other exhibits have been previously filed.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the consolidated financial
statements and notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
II-3
<PAGE> 101
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto, duly authorized, in the City of San Jose, California, on June 4,
1999.
BACKWEB TECHNOLOGIES LTD.
By: /s/ ELI BARKAT
------------------------------------
Eli Barkat
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ELI BARKAT Chief Executive Officer and Director June 4, 1999
- --------------------------------------- (Principal Executive Officer)
Eli Barkat
/s/ HANAN MIRON Chief Financial Officer (Principal June 4, 1999
- --------------------------------------- Financial And Accounting Officer)
Hanan Miron
/s/ CHARLES FEDERMAN* Director June 4, 1999
- ---------------------------------------
Charles Federman
/s/ WILLIAM LARSON* Director June 4, 1999
- ---------------------------------------
William Larson
/s/ JOSEPH GLEBERMAN* Director June 4, 1999
- ---------------------------------------
Joseph Gleberman
/s/ GIL SHWED* Director June 4, 1999
- ---------------------------------------
Gil Shwed
</TABLE>
AUTHORIZED UNITED STATES REPRESENTATIVE
BACKWEB TECHNOLOGIES, INC.
By: /s/ ELI BARKAT
---------------------------------------
Eli Barkat
President
June 4, 1999
*By: /s/ ELI BARKAT
---------------------------------------
Eli Barkat
Attorney-in-Fact
II-5
<PAGE> 103
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Articles of Association of Registrant.......................
3.2 Memorandum of Association of Registrant (English
translation)................................................
4.1 Specimen of Ordinary Share Certificate......................
4.2 Fourth Amended and Restated Rights Agreement................
4.3 Form of Liquidity Proposal between BackWeb Technologies,
Ltd. and the Exchangeable shareholders......................
5.1 Opinion of Naschitz, Brandes & Co. as to the validity of the
shares......................................................
10.1 1996 Israeli Share Option Plan (English translation)........
10.2 1996 U.S. Share Option Plan.................................
10.3 1998 U.S. Share Option Plan.................................
10.4 1999 Employee Stock Purchase Plan...........................
10.5 Lease Agreement for 3 Abba Hillel Street, Ramat Gan, Israel
(English translation).......................................
10.6 Lease Agreement for 34 Tuval Street, Ramat Gan, Israel
(English translation).......................................
10.7 Lease Agreement for 2077 Gateway Place, Suite 500, San Jose,
California..................................................
10.8 Form of Agreement by and among Interad (1995) Ltd. and Nir
Barkat Holdings Ltd., Eli Barkat Holdings Ltd., Yuval 63
Holdings (1995) Ltd., and Lior Hass and Iftah Sneh..........
10.9 Loan and Security Agreement, and schedule thereto, between
BackWeb Technologies Ltd. and Transamerica Business Credit
Corporation, dated as of December 24, 1998..................
10.10 Voting and Exchange Trust Agreement between BackWeb
Technologies Ltd., BackWeb Canada Inc. and the Trust Company
of Bank of Montreal, dated as of August 8, 1997.............
10.11* Fourth Amended and Restated Rights Agreement, dated as of
March 24, 1999..............................................
10.12* Agreement and Plan of Acquisition by and among BackWeb
Technologies Ltd., BackWeb Canada Inc., Lanacom Inc. and
Anthony Davis, dated as of July 1, 1997.....................
10.13+ Software License and Distribution Agreement for Embedded
Products, by and between BackWeb Technologies Ltd. and SAP
AG, dated March 17, 1999....................................
10.14+ Software Development and OEM License Agreement by and
between BackWeb Technologies Ltd. and Baan Development B.V.,
dated as of December 30, 1998...............................
21.1 Subsidiaries of the Registrant..............................
23.1* Consent of Ernst & Young LLP, Independent Auditors..........
23.2 Consent of Naschitz, Brandes & Co. (contained in Exhibit
5.1)........................................................
24.1 Powers of Attorney (included on page II-4)..................
</TABLE>
- -------------------------
* Filed herewith. All other exhibits have been previously filed.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
II-6
<PAGE> 1
Exhibit 10.11
FOURTH AMENDED AND RESTATED RIGHTS AGREEMENT
This FOURTH AMENDED AND RESTATED RIGHTS AGREEMENT (the "AGREEMENT"),
is entered into as of March 24, 1999, by and among BackWeb Technologies Ltd., a
company organized under the laws of the State of Israel and formerly known as
BackWeb Ltd. (the "COMPANY"), and the holders of the Company's Series A
Convertible Preferred Stock (the "SERIES A HOLDERS"), the holders of the
Company's Series B Convertible Preferred Stock (the "SERIES B HOLDERS"), the
holders of the Company's Series C Convertible Preferred Stock (the "SERIES C
HOLDERS"), the holders of the Company's Series D Convertible Preferred Stock
(the "SERIES D HOLDERS") and the holders of Exchangeable Shares (the
"EXCHANGEABLE SHARE HOLDERS") of BackWeb Canada, Inc., an Ontario corporation
and majority-owned subsidiary of the Company ("BACKWEB CANADA"), all as listed
on Schedule I attached hereto (collectively, the "PURCHASERS").
R E C I T A L S
WHEREAS, the Series A Holders own an aggregate of 25,464,110 shares of
Series A Convertible Preferred Shares of the Company (the "SERIES A PREFERRED");
WHEREAS, Softbank Holdings Inc., a Delaware corporation ("SOFTBANK
HOLDINGS"), purchased 3,852,400 shares of Series B Convertible Preferred Shares
of the Company (the "SERIES B PREFERRED") pursuant to that certain Stock
Purchase Agreement dated July 15, 1996 (the "SOFTBANK PURCHASE AGREEMENT");
WHEREAS, Softbank Holdings has transferred all of its shares of Series B
Preferred and its accompanying rights and obligations to its affiliate SOFTBANK
Ventures, Inc., a Japanese corporation, ("SOFTBANK");
WHEREAS, Peter J. Mooney as nominee for the Broadview Investor Group
("BROADVIEW"), purchased 385,240 shares of Series B Preferred pursuant to that
certain Letter Agreement dated July 10, 1996;
WHEREAS, the Company and Softbank Holdings have previously entered into
a Registration Rights Agreement dated July 15, 1996, providing for certain
registration and other rights to Softbank Holdings (the "ORIGINAL AGREEMENT"),
and the Softbank Purchase Agreement provides for certain additional rights to
Softbank Holdings, which rights have been transferred to Softbank;
WHEREAS, the Company and certain of the Series C Holders entered into a
Share Purchase Agreement dated December 9, 1996 pursuant to which, among other
things, such Series C Holders purchased an aggregate of up to 12,591,304 Series
C-1 Convertible Preferred Shares and Series C-2
<PAGE> 2
Convertible Preferred Shares (collectively, the "SERIES C PREFERRED")
convertible into Ordinary Shares and warrants to purchase an aggregate of up to
1,810,432 shares of Series C-2 Convertible Preferred (the "WARRANTS");
WHEREAS, NirBarkat Holdings Ltd., EliBarkat Holdings Ltd. and Yuval 63
Holdings (1995) Ltd. (collectively, the "FOUNDERS") have acquired, pursuant to
conversion of an aggregate of US$600,000 of indebtedness of the Company to the
Founders, an aggregate of 521,739 Series C-2 Convertible Preferred Shares.
WHEREAS, the Company, the Series A Holders, Series B Holders and Series
C Holders have previously entered into an Amended and Restated Rights Agreement
dated December 9, 1996 (the "AMENDED AND RESTATED AGREEMENT"), which replaced
the Original Agreement;
WHEREAS, the Company, the Series A Holders, the Series B Holders, the
Series C Holders and Intel Corporation entered into an Addendum to the Amended
and Restated Rights Agreement, dated May 22, 1997 (the "ADDENDUM"), which
modified the Amended and Restated Agreement;
WHEREAS, pursuant to that certain Agreement and Plan of Acquisition
dated July 1, 1997, BackWeb Canada acquired Lanacom Inc., an Ontario corporation
("LANACOM"), in an amalgamation under which all issued and outstanding Lanacom
Common Shares have been exchanged for Class A Shares of BackWeb Canada, which
Class A Shares were immediately thereafter changed into exchangeable non-voting
shares (the "EXCHANGEABLE SHARES") of BackWeb Canada (the "AMALGAMATION"); and
each such Exchangeable Share is exchangeable for one Ordinary Share of the
Company;
WHEREAS, the Company, the Series A Holders, the Series B Holders, the
Series C Holders and the Exchangeable Share Holders entered into a Second
Amended and Restated Rights Agreement dated as of August 8, 1997 (the "SECOND
RIGHTS AGREEMENT"), which replaced the Addendum and the Amended and Restated
Agreement;
WHEREAS, the Company and certain of the Series D Holders entered into a
Share Purchase Agreement dated as of December 26, 1997 (the "1997 PURCHASE
AGREEMENT") pursuant to which, among other things, such Series D Holders
purchased an aggregate of 17,391,308 Series D Convertible Preferred Shares
(collectively, the "SERIES D PREFERRED") convertible into Ordinary Shares, at
closings held on December 26, 1997, May 6, 1998 and June 4, 1998;
WHEREAS, in order to induce certain of the Series D Holders to purchase
Shares of Series D Preferred pursuant to the 1997 Purchase Agreement, the
Company, the Series A Holders, the Series B Holders, the Series C Holders and
the Exchangeable Share Holders entered into a Third Amended and Restated Rights
Agreement dated December 26, 1997 (the "THIRD RIGHTS AGREEMENT"), which replaced
the Second Rights Agreement and which granted to such Series D Holders the
registration and other rights set forth therein;
-2-
<PAGE> 3
WHEREAS, the Company and the Series D Holders are parties to two side
letters, dated May 6, 1998 and May 29, 1998, respectively (collectively, the
"SERIES D SIDE LETTERS"), which grant to the Series D Holders certain additional
rights and assurances to those granted to them by the Company in the 1997
Purchase Agreement and the Third Rights Agreement;
WHEREAS, in connection with the 1997 Purchase Agreement, the Company
certified to Intel Corporation as to certain confidentiality obligations
pursuant to a Certificate of BackWeb Technologies Ltd. dated December 26, 1997
(the "INTEL CONFIDENTIALITY CERTIFICATE");
WHEREAS, the Company and CDC Valeurs de Croissance ("CDC") are parties
to a side letter dated May 4, 1998 (the "CDC SIDE LETTER" and, collectively with
the Series D Side Letters and the Intel Confidentiality Certificate, the "SIDE
LETTERS") pursuant to which, among other things, the Company granted to CDC
certain rights to observe board meetings of the Company;
WHEREAS, the Company and General Electric Pension Trust ("GE") are
parties to a side letter dated as of May 6, 1998 (the "GE SIDE LETTER"),
pursuant to which, among other things, the Company granted to GE certain
additional rights;
WHEREAS, the Company and certain of the Series D Holders are entering
into a Share Purchase Agreement (the "PURCHASE AGREEMENT") dated the date hereof
(the "CLOSING DATE") pursuant to which, among other things, such Series D
Holders will purchase an aggregate of up to 8,700,000 Shares of Series D
Preferred convertible into Ordinary Shares; and
WHEREAS, in order to induce certain of the Series D Holders to purchase
Shares of Series D Preferred pursuant to the Purchase Agreement, the Company,
the Series A Holders, the Series B Holders, the Series C Holders, the current
Series D Holders and the Exchangeable Share Holders desire that the Company
grant to (x) CDC the rights previously granted to it in the CDC Side Letter, (y)
Intel Corporation the rights previously granted to it in the Intel
Confidentiality Certificate, and (z) all of the Series D Holders (i) the rights
previously granted to them in the Series D Side Letters and (ii) the
registration and other rights set forth herein, and wish to replace and
supersede the Third Rights Agreement, the Side Letters and any and all similar
arrangements in effect among any of the parties, with this Agreement, except
only that, as between the Company and GE, the GE Side Letter shall continue to
remain in full force and effect and as between the Company and all of the Series
D Holders, the representations and warranties contained in the side letter dated
May 6, 1998 between the Company and the Series D Holders shall survive as set
forth in paragraph 3 thereof.
NOW, THEREFORE, in reliance on the foregoing recitals, and in and for
the mutual covenants and consideration set forth herein, the parties hereto
agree as follows:
-3-
<PAGE> 4
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
1.1 "AFFILIATE" and "AFFILIATED" shall refer to any person who
is an "affiliate" as defined in Rule 12b-2 of the General Rules and Regulations
under the U.S. Securities Exchange Act of 1934, as amended. For purposes of this
definition, "person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, governmental authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
1.2 "COMMISSION" shall mean the U.S. Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.3 "CONVERSION STOCK" shall mean the Ordinary Shares issued
or issuable pursuant to conversion of the Preferred or exchange of the
Exchangeable Shares.
1.4 "EXCHANGEABLE SHARES" shall mean the Exchangeable Shares
issued in connection with the Amalgamation.
1.5 "EXCHANGEABLE SHARE INITIATING HOLDERS" shall mean any
Exchangeable Share Holders who in the aggregate are holders of sixty-six and
two-thirds percent (66 2/3%) or more of the Exchangeable Share Registrable
Securities.
1.6 "HOLDER" shall mean any Purchaser holding Registrable
Securities and any person holding Registrable Securities to whom the rights
under this Agreement have been transferred in accordance with Section 14 hereof.
1.7 "INITIATING HOLDERS" shall mean any Holders (other than
Exchangeable Share Holders) who in the aggregate are holders of in excess of
fifty percent (50%) of the Registrable Securities (other than the Exchangeable
Share Registrable Securities).
1.8 "MAJOR HOLDER" shall mean (i) in the case of Holders
holding Preferred or Ordinary Shares issuable upon conversion thereof, each
Holder who is a holder of at least 800,000 shares of Registrable Securities (as
adjusted for any stock split, stock dividend or similar capital reorga
nization), and permitted assignees under Section 17(d) hereof or (ii) in the
case of Holders holding Exchangeable Shares or Ordinary Shares issuable upon
conversion thereof, each Holder who is a holder of at least 800,000 shares of
Registrable Securities (as adjusted for any stock spit, stock dividend or
similar reorganization), and permitted assignees under Section 17(d) hereof.
1.9 "ORDINARY SHARES" shall mean the Company's Ordinary
Shares.
1.10 "PREFERRED" shall mean the Series A Preferred, Series B
Preferred, Series C Preferred, and Series D Preferred.
-4-
<PAGE> 5
1.11 "QUALIFIED IPO" shall mean the first firmly underwritten
sale of Ordinary Shares to the public in an offering in which (i) the proceeds
to the Company are not less than US$15 million (net of underwriting discounts)
and (ii) the offering price to the public (prior to underwriting commissions and
expenses) is at least US $2.30 per share (subject to adjustment for share
splits, share dividends, reclassifications and like events).
1.12 "REGISTRABLE SECURITIES" shall mean (i) the Ordinary
Shares issuable or issued upon conversion of the Series A Preferred by the
Series A Holders and any other Ordinary Shares issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of the
aforementioned Series A Preferred or Ordinary Shares (collectively, the "SERIES
A REGISTRABLE SECURITIES"), (ii) the Ordinary Shares issuable or issued upon
conversion of the Series B Preferred by the Series B Holders and any other
Ordinary Shares issued as a dividend or other distribution with respect to, or
in exchange for or in replacement of the aforementioned Series B Preferred or
Ordinary Shares (collectively, the "SERIES B REGISTRABLE SECURITIES"), (iii) the
Ordinary Shares issuable or issued upon conversion of the Series C Preferred
(including, without limitation, the Series C-2 Convertible Preferred issued upon
exercise of the Warrants and the Series C-2 Convertible Preferred Shares issued
to the Founders) by the Series C Holders and any other Ordinary Shares issued as
a dividend or other distribution with respect to, or in exchange for or in
replacement of the aforementioned Series C Preferred or Ordinary Shares
(collectively, the "SERIES C REGISTRABLE SECURITIES"), (iv) the Ordinary Shares
issuable or issued upon conversion of the Series D Preferred by the Series D
Holders and any other Ordinary Shares issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of the aforementioned
Series D Preferred or Ordinary Shares (collectively, the "SERIES D REGISTRABLE
SECURITIES"), (v) the Ordinary Shares issuable or issued upon exchange of the
Exchangeable Shares and any other Ordinary Shares issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of the
aforementioned Exchangeable Shares or Ordinary Shares (collectively, the
"EXCHANGEABLE SHARE REGISTRABLE SECURITIES") provided, however, that Ordinary
Shares or other securities shall only be treated as Registrable Securities if
and so long as they have not been (i) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or (ii)
subject to Section 16 below, sold or are available for sale in the opinion of
counsel to the Company in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.
1.13 The terms "REGISTER," "REGISTERED" and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of the effectiveness of such registration statement by the Commission.
1.14 "REGISTRATION EXPENSES" shall mean all reasonable
expenses, except as otherwise stated below, incurred by the Company in complying
with Sections 5, 6 and 7 hereof, including all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, fees and disbursements for one counsel for the Holders selected
by the Holders registering Registrable Securities and approved by the Company
(which consent will not be unreasonably withheld), blue sky fees and expenses,
but excluding (a) the compensation of regular employees of the
-5-
<PAGE> 6
Company, which shall be paid in any event by the Company, and (b) Selling
Expenses. Notwithstanding the foregoing, only reasonable fees and disbursements
of one counsel to all Holders registering Registrable Securities up to a maximum
of $10,000 per registration shall be required to be paid and borne by the
Company.
1.15 "RESTRICTED SECURITIES" shall mean the securities of the
Company required to bear the legend set forth in Section 3 hereof and the
Exchangeable Shares bearing any restrictive legend required under applicable
Canadian law.
1.16 "SECURITIES ACT" shall mean the U.S. Securities Act of
1933, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
1.17 "SELLING EXPENSES" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all reasonable fees
and disbursements of counsel for any Holder other than the fees and
disbursements of counsel included in Registration Expenses.
1.18 "UNDERWRITER" shall mean the managing underwriter or
underwriters in a public offering pursuant to Section 5, Section 6 or Section 7
hereof.
2. RESTRICTIONS ON TRANSFERABILITY. The Preferred, the Exchangeable
Shares, the Warrants and the Conversion Stock shall not be sold, assigned,
transferred or pledged except upon the conditions specified in this Agreement,
which conditions are intended to ensure compliance with the provisions of the
Securities Act. Each Purchaser shall cause any proposed purchaser, assignee,
transferee, or pledgee of Preferred, Exchangeable Shares, Warrants or Conversion
Stock held by such Purchaser to agree to take and hold such securities subject
to the provisions and upon the conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing (a) the
Preferred (including, without limitation, the Series C-2 Convertible Preferred
issued upon exercise of the Warrants), (b) the Conversion Stock, and (c) any
other securities issued in respect of the Preferred or the Conversion Stock upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event shall (unless otherwise permitted by the provisions of Section 4
below) be stamped or otherwise imprinted with the following legends (in addition
to any legend required under applicable state securities laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF
-6-
<PAGE> 7
SAID ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE
OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY."
Each Purchaser consents to the Company or BackWeb Canada, as the
case may be, making a notation on its records and giving instructions to any
transfer agent of the Preferred, the Exchangeable Shares or the Conversion Stock
in order to implement the restrictions on transfer established in this
Registration.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (a) a
transfer not involving a change in beneficial ownership (which shall be deemed
to include without limitation a transfer between and among affiliates), (b) in
transactions involving the distribution without consideration of Restricted
Securities by any of the Purchasers to any of its partners, or retired partners,
or to the estate of any of its partners or retired partners, or a transfer to
one or more affiliated partnerships managed by it, so long as each such
transferee agrees in writing to be bound by the terms of this Agreement or (c)
the exchange of any Exchangeable Shares for Ordinary Shares), unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense by either (a) an unqualified written
opinion of legal counsel addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (b) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to Rule 144,
the appropriate restrictive legend set forth in Section 3 above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for such holder and the Company such legend is not required in order to
establish compliance with any provision of the Securities Act.
5. REQUESTED REGISTRATION.
5.1 Notice of Registration; Registration. In case the Company
shall receive from Initiating Holders or Exchangeable Share Initiating Holders,
as the case may be, a written request that the Company effect any registration,
qualification or compliance (other than a registration on Form F-3 or any
successor form) with respect to (a) Registrable Securities that, as of the date
of the request, have
-7-
<PAGE> 8
an aggregate market value of at least $15 million or (b) such Registrable
Securities represent at least 10% of the then outstanding Ordinary Shares of the
Company, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its best efforts
to effect such registration, qualification or compliance (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as may be so requested and 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 given within fifteen (15) days after receipt of
such written notice from the Company, provided, however, that the Company shall
not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 5:
(1) 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;
(2) Prior to the earlier of (a) five (5)
years following December 26, 1997, or (b) six months after the effective date of
the registration statement pertaining to the first underwritten firm commitment
public offering of securities of the Company for its own account (other than a
registration relating solely to a Commission Rule 145 transaction or a
registration relating solely to employee benefit plans);
(3) (i) In the case of a demand made by
Initiating Holders, if the Company has previously effected two (2) such
registrations of Preferred (and Ordinary Shares issued upon conversion thereof)
such registrations have been declared or ordered effective and the securities
offered pursuant to such registrations have been sold and (ii) in the case of a
demand made by the Exchangeable Share Initiating Holders, if the Company has
previously effected one (1) such registration of Exchangeable Shares (and
Ordinary Shares issued upon conversion thereof) and such registration has been
declared or ordered effective and the securities offered pursuant to such
registration has been sold.
(4) If at the time of the request to
register Registrable Securities the Company gives notice within thirty (30) days
of such request that it is engaged or has fixed plans to engage within thirty
(30) days of the time of the request in a firmly underwritten registered public
offering in which the Holders may include Registrable Securities pursuant to
Section 5, 6 or 7 hereof.
(5) Within 180 days after the effective
date of any other registration effected pursuant to this Section 5.1.
-8-
<PAGE> 9
Subject to the foregoing clauses (1) through (5) and to Section
5.3, 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 of the Initiating Holders or the Exchangeable Share Initiating
Holders, as the case may be.
5.2 Underwriting.
(a) If the Initiating Holders or the Exchangeable Share
Initiating Holders, as the case may be, 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 5 and the
Company shall include such information in the written notice referred to in
Section 5.1. The right of any Holder to registration pursuant to Section 5 shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders or the Exchangeable Share Initiating Holders, as the case
may be, and such Holder) as provided herein.
(b) The Company shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the Underwriter selected for
such underwriting by a majority in interest of the Initiating Holders or the
Exchangeable Share Initiating Holders, as the case may be. If any Holder
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the Underwriter and the Initiating
Holders or the Exchangeable Share Initiating Holders, as the case may be. The
Registrable Securities and/or other securities so withdrawn from such
underwriting shall also be withdrawn from such registration; provided, however,
that, if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in proportion (as nearly as practicable) to the total amount of
Registrable Securities held by each such Holder.
(c) Notwithstanding any other provision of this Section
5, if the Underwriter determines that marketing factors require a limitation on
the number of shares to be underwritten, the Underwriter may limit the number of
Registrable Securities to be included in the registration and underwriting;
provided, however, that the number of shares of Registrable Securities offered
by the Holders and other holders that may be included in the registration and
underwriting shall be allocated among the Holders and other holders in
proportion, as nearly as practicable, to the respective aggregate amounts of
Registrable Securities and other securities entitled to registration held by
such Holders and other holders at the time of filing the registration statement.
If the Underwriter has not so limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account or the
account of others in such registration if the Underwriter so agrees and if the
number of Registrable Securities which would otherwise have been included in
such registration and underwriting will not thereby be limited or the price
applicable to such included Registrable Securities will not thereby be reduced.
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5.3 Subordination of Certain Rights. To the extent that the
Exchangeable Share Holders shall be able to utilize the closing date of the
Amalgamation as the original purchase date with respect to the Ordinary Shares
that such Exchangeable Share Holders ultimately receive in respect of such
Exchangeable Shares, for purposes of the holding period required under Rule
144(d) of the Securities Act (other than an inability to use such closing date
as the original purchase date for the purposes of Rule 144(d) due to an action
taken by the holder thereof, such as a pledge of shares, which tolls the holding
period under Rule 144(d)) so that such Exchangeable Shares Holders shall be able
to sell their Registrable Securities without registration under the Securities
Act, then the right of the Exchangeable Share Holders to include their
Registrable Securities in any registration as to which they exercise
registration rights shall be subordinate to the other holders of registration
rights and, in this regard, in the event that the underwriters of an offering
determine that marketing restrictions require a limitation in the total number
of shares to be included in the offering on behalf of holders of registration
rights, then all other holders of registration rights shall be entitled to
include the full number of shares in such registration and offering desired by
them before inclusion of shares in such registration and offering on the part of
the Exchangeable Share Holders. This Section 5.3 shall also apply to any
registration effectuated under the terms of Article 6 of this Agreement.
5.4 Delay of Registration. If the Company shall furnish to the
Initiating Holders or the Exchangeable Share Initiating Holders, as the case may
be, 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 not in
the best interests of the Company and its stockholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore appropriate to defer the filing of such registration statement, then
the Company may direct that such request for registration be delayed for a
period not in excess of one hundred and eighty (180) days, such right to delay a
request to be exercised by the Company no more than once in any twelve month
period.
6. COMPANY REGISTRATION.
6.1 Notice of Registration. If at any time or from time to
time the Company shall determine to register any of its equity securities,
either for its own account or the account of a security holder or holders, other
than (a) a registration relating solely to employee benefit plans, or (b) a
registration relating solely to a Rule 145 transaction, the Company shall:
(i) promptly give to each Holder written notice
thereof; and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within fifteen (15) days after receipt of such
written notice from the Company, by any Holder.
6.2 Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 6.1(i). In such event the right of any Holder to
registration pursuant to this Section 6 shall be conditioned upon such Holder's
participation in such
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<PAGE> 11
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the Underwriter selected for such
Underwriting by the Company. Notwithstanding any other provision of this Section
6, if the Underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may limit, on a pro
rata basis, the Registrable Securities to be included in such registration;
provided, however, that in no public offering shall other holders of "piggyback"
registration rights participate in such offering unless the Holders (including
the Exchangeable Share Holders, unless such Exchangeable Share Holders shall be
entitled to use the closing date of the Amalgamation as the original purchase
date for their Ordinary Shares for Rule 144(d) purposes in the manner
contemplated by Section 5.3) have participated to the full extent requested. The
Company shall so advise all Holders and other holders distributing their
securities through such underwriting and the number of shares of Registrable
Securities and other securities that may be included in the registration and
underwriting shall be allocated among all Holders and other holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities entitled to registration held by such Holders
and other holders at the time of filing the registration statement. To
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to any Holder or holder to the
nearest one hundred (100) shares. If any Holder or holder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Company and the managing underwriter.
6.3 Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 6 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
7. REGISTRATION ON FORM F-3.
(a) If any Holder or Holders request that the Company file a
registration statement on Form F-3 (or any successor form to Form F-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $1,000,000 and the Company is a
registrant entitled to use Form F-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be obligated to effect more than four (4) registrations under this
Section 7.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 7: (i) more than once in
any twelve (12) month period; (ii) 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; (iii) if the Company, within ten (10) days of the receipt of
the request of a Holder or Holders pursuant to this Section 7, gives notice of
its bona fide intention to effect the filing of a registration statement with
the
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<PAGE> 12
Commission within sixty (60) days of receipt of such request (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities) in which such Holders can
exercise their rights pursuant to Section 6 hereof; or (iv) during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on the date three (3) months immediately following, the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective.
(c) Registrations effected pursuant to this Section 7 shall
not be counted as demands for registration or registrations effected pursuant to
Section 5 or Section 6, respectively.
8. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the consent of Holders of
in excess of 50% of the Registrable Securities, enter into any agreement
granting any holder or prospective holder of any securities of the Company
registration rights with respect to such securities, unless (i) such new
registration rights, including standoff obligations, are on a basis no more
favorable to the holders thereof than those rights of the Holders hereunder
(other than Exchangeable Share Holders, to the extent of subordination under
Section 5.3); or (ii) such new registration rights, including standoff
obligations, are subordinate to the registration rights granted Holders
hereunder.
9. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with all registrations pursuant to Section 5, Section 6 and Section 7
shall be borne by the Company. All Selling Expenses relating to securities
registered on behalf of the Holders shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered.
Notwithstanding anything in this Section 9 to the contrary, if the Company
and/or others include securities for their own account pursuant to Section 5.2,
then the Company and such others shall bear their pro rata share of the
Registration Expenses and Selling Expenses.
10. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company shall keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company shall:
(a) Prepare and file with the Commission a registration
statement, and all requisite supplements and amendments thereto, with respect to
such securities and use its best efforts to cause such registration statement,
as amended, to become and remain effective for at least one hundred twenty (120)
days or until the distribution described in the Registration Statement has been
completed;
(b) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, and all supplements and
amendments thereto, preliminary prospectus, final prospectus and such other
documents as such Holders may reasonably request in order to facilitate the
public offering of such securities and
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<PAGE> 13
such other information necessary to allow the Holders participating in such
registration to remain reasonably informed about the public offering;
(c) 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 participating in such registration; provided, however, 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 for process in
any such states or jurisdictions;
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the underwriter of such offering;
(e) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and
(f) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to Section 5, Section 6 or
Section 7 above, on the date that such Registrable Securities are delivered to
the underwriters for sale in connection with a registration statement pursuant
to Section 5, Section 6 or Section 7 above, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of counsel
representing the Company for the purposes of registration, if any, and addressed
to the Holders requesting registration of Registrable Securities, in form and
substance as is customarily given by counsel representing the Company to the
underwriters in an underwritten public offering, and (ii) a letter, dated such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
11. INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, 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 to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, or the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), against all
expenses, claims, losses, damages or liabilities (joint or several) (or actions
in respect thereof), to which they become subject under the Securities Act or
the Exchange Act, including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
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<PAGE> 14
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, 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, in the light of the circumstances in which they were
made, not misleading, or any violation by the Company of the Securities Act or
the Exchange Act or any rule or regulation promulgated thereunder applicable to
the Company in connection with any such registration, qualification or
compliance, and the Company will pay to each such Holder, each of its officers
and directors, 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 as such expenses are incurred in connection with
investigating, preparing or defending 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 or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein;
provided, however, that the indemnity agreement contained in this Section 11(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, 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 or the Exchange Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act or the Exchange Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) to which
any of the foregoing persons may become subject under the Securities Act or the
Exchange Act, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred as such
expenses are 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 an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the indemnity agreement contained in this Section 11(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, the liability of each Holder under this Section 11(b) shall be
limited to an amount equal to the aggregate proceeds received by such Holder
from the sale of Registrable Securities hereunder, unless such liability arises
out of or is based on willful conduct by such Holder.
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<PAGE> 15
(c) Each party entitled to indemnification under this Section
11 (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 litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. 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.
12. INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
13. RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Ordinary Shares of the Company, 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
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act.
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) Take such action, including the voluntary registration of
its Ordinary Shares under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form F-3 for the sale of their Registrable
Securities, such registration under Section 12 to be taken as soon as
practicable after the six-month period following the date on which the first
registration statement filed by the Company for the offering of its securities
to the general public is declared effective.
(d) So long as a Purchaser owns any Restricted Securities to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting
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<PAGE> 16
requirements of said Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and
the 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 of the Company and other
information in the possession of or reasonably obtainable by the Company as a
Purchaser may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Purchaser to sell any such securities without
registration.
14. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted to a Holder under Sections 5, 6 and 7 may be
assigned (i) to partners and constituent members, former partners and former
constituent members and Affiliates of that Holder, and (ii) to other persons
provided that (a) such transfer may otherwise be effected in accordance with
applicable securities laws, (b) such assignee or transferee acquires at least
800,000 shares of Registrable Securities (as may be appropriately adjusted upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event) and (c) such assignee or transferee agrees to be bound by the
terms of this Agreement and assumes all of the obligations of the transferring
Holder hereunder.
15. STANDOFF AGREEMENT. Each Holder hereby agrees that, during the
period of duration specified by the Company and an underwriter of Ordinary
Shares or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, it shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except Ordinary Shares
included in such registration; provided, however, that:
(a) all officers and directors of the Company enter into
similar agreements; and
(b) the Company shall use all reasonable efforts to obtain a
similar covenant from all holders of at least 1% of the Company's outstanding
securities;
(c) such market stand-off time period shall not exceed one
hundred eighty (180) days except as may be agreed by holders of a majority of
the then outstanding Registrable Securities.
Each Holder agrees to provide to the other underwriters of any public
offering such further agreement as such underwriter may require in connection
with this market stand-off agreement. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
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<PAGE> 17
16. TERMINATION OF REGISTRATION RIGHTS. The rights granted and
obligations imposed pursuant to Sections 1 through 15 of this Agreement shall
terminate as to any Holder at such time as such Holder beneficially owns less
than 1% of the Company's outstanding capital stock.
17. RIGHT OF FIRST REFUSAL FOR ISSUANCE OF NEW SECURITIES. The
Company hereby grants to each Major Holder the right of first refusal to
purchase a Pro Rata Share (as defined below) of any New Securities (as defined
in subsection 17(a)) which the Company may, from time to time, propose to sell
and issue. A "PRO RATA SHARE," for purposes of this right of first refusal,
shall be a fraction, the numerator of which is the sum of the number of shares
of Ordinary Shares then held by such Major Holder or issuable to such Major
Holder upon conversion of the Preferred, Exchangeable Shares or Warrants held by
such Major Holder, and the denominator of which is the sum of the total number
of Ordinary Shares then outstanding and the number of Ordinary Shares issuable
upon conversion or exercise of all outstanding capital stock, options or
warrants convertible into or exercisable for Ordinary Shares (without giving
effect to up to 3,746,308 options available for grant pursuant to the Company's
option plan).
(a) Except as set forth below, "NEW SECURITIES" shall mean any
shares of capital stock of the Company, including Ordinary Shares and Preferred,
whether now authorized or not. Not withstanding the foregoing, "NEW SECURITIES"
does not include:
(i) any dividend payable in Ordinary Shares or any
shares issued upon a subdivision or combination of Ordinary Shares;
(ii) Ordinary Shares issued upon conversion of
outstanding equity securities of the Company, including the Preferred and the
Exchangeable Shares;
(iii) Ordinary Shares, or options exercisable therefor,
including options outstanding on the date of this Agreement, issued pursuant to
any existing stock or option plan, as may be amended, or pursuant to a
compensatory stock or option plan which is hereafter approved by the Board of
Directors;
(iv) securities issued in consideration for an
acquisition (whether by merger or otherwise) by the Company;
(v) New Securities sold by the Company in an
underwritten or other public offering pursuant to an effective registration
statement or a prospectus under U.S. or Israeli securities laws;
(vi) New Securities issued in connection with equipment
leases or secured debt financings;
(vii) securities issued on exercise of options or
conversion of convertible securities where the original issuance of the option
or convertible security was subject to this right of first refusal; or
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(viii) securities issued in a transaction where holders of
greater than (a) 66 2/3% of the Series D Preferred, (b) 66 2/3% of the Series
C-1 Convertible Preferred, (c) 50% of the Series B Preferred and (d) 50% of the
Series A Preferred, each agree that this right of first refusal will not apply.
(b) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Major Holder written notice of
its intention, describing the type of New Securities, and the price and terms
upon which the Company proposes to issue the same. Each such Major Holder shall
have twenty (20) days from the date of receipt of any such notice to agree to
purchase up to its respective 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 that such Major Holder fails to exercise the
right of first refusal within said fifteen (15) day period, 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 thirty (30) days from the date of said agreement) to sell the New
Securities not elected to be purchased by such Major Holder at the price and
upon terms no more favorable to the purchasers of such securities than specified
in the Company's notice. In the event that the Company has not sold the New
Securities 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 thirty (30) days from the date of said agreement), the Company
shall not thereafter issue or sell any New Securities without first offering
such securities in the manner provided above.
(d) The right of first refusal hereunder is not assignable, in
whole or in part, except (i) by a Major Holder that is a partnership to any of
its partners, (ii) by a Major Holder that is any venture capital group or fund
to an Affiliated entity or person, and (iii) by a Major Holder that is a
corporation to any of its shareholders, provided in any such case that the
transferee beneficially owns following such transfer a sufficient number of
shares of Registrable Securities to constitute a Major Holder.
(e) The right of first refusal granted under this Agreement
shall expire immediately prior to the closing of a Qualified IPO.
18. AFFIRMATIVE COVENANTS. The Company and each Purchaser hereby
covenant and agree as follows:
18.1 Financial Information.
The Company shall provide each Major Holder with the
following financial information:
(a) within 30 days following each month for the twelve
months following December 9, 1996 and within 30 days following each fiscal
quarter thereafter, an executive summary discussing the revenues and operations
of the Company, together with unaudited summary financial
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information (accompanied by an officer's certificate of compliance) for such
period and for the fiscal year to date;
(b) within 90 days following the end of each fiscal
year, a consolidated balance sheet of the Company and its subsidiaries as of
such fiscal year end, consolidated statements of income and cash flow for such
fiscal year, audited and accompanied by the reports of the Company's certified
public accountants (which certified public accountant shall be a "BIG SIX"
accounting firm), and a related management letter as soon as such reports are
available;
(c) Copies of all filings made with the Commission; and
(d) any other financial or other information available
to the Company which such Major Holder shall reasonably request for purposes
properly related to such Major Holder's corporate status as a shareholder of the
Company.
18.2 Confidential Information.
(a) Each Major Holder agrees that any information
obtained by such Major Holder pursuant to Section 18.1 which is, or would
reasonably be perceived to be, proprietary to the Company or otherwise
confidential will not be disclosed without the prior written consent of the
Company. Notwithstanding the foregoing, each Major Holder may disclose such
information, on a need to know basis, to its employees, accountants or
attorneys, or to the employees, accountants or attorneys of its general partner
or investment manager (so long as each such person to whom confidential
information is disclosed agrees to keep such information confidential), in
compliance with a court order or when otherwise necessary to enforce any of the
Major Holder's rights hereunder. Such information may also be disclosed to a
Major Holder's constituent partners, members or shareholders (so long as each
such person to whom confidential information is disclosed agrees to keep such
information confidential). Each Major Holder further acknowledges and
understands that any information will not be utilized by such Major Holder in
connection with purchases and/or sales of the Company's securities except in
compliance with applicable state and federal antifraud statutes.
(b) Information of Intel. The following additional
provisions are included for the benefit of Intel Corporation ("INTEL") only:
Notwithstanding anything to the contrary herein, confidential or proprietary
information disclosed by Intel or the Company under the Purchase Agreement, as
well as the terms of the Purchase Agreement and Intel's investment in the
Company, shall be considered confidential information and shall not be disclosed
by the Company to any third party. In the event that the Company or any other
party becomes legally compelled (by statute or regulation or by oral questions,
interrogatories, request for information or documents, subpoena, criminal or
civil investigative demand or similar process, including without limitation, in
connection with any public or private offering of the Company's capital stock)
to disclose any of such confidential information, such party (the "DISCLOSING
PARTY") shall provide the other party (the "NON-DISCLOSING PARTY") with prompt
written notice of such required disclosure. In such event, the Disclosing Party
shall furnish only that portion of such confidential information which is
legally required and shall exercise reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded such confidential
information to the extent reasonably requested by the Non-Disclosing Party.
Notwithstanding anything else to the contrary herein, from
and after the Closing Date, the Company may disclose the existence of the
Purchase Agreement and the general terms of this Section 18.2, as well as
Intel's investment in the Company solely to the Company's investors, investment
bankers, lenders, accountants, legal counsel, business partners, and bona fide
prospective investors, employees, lenders and business partners, in each case
only where such persons or entities are under appropriate nondisclosure
obligations. In addition, the Company may disclose the fact that Intel has
invested in the Company to third parties without the requirement for
nondisclosure agreements.
Notwithstanding the foregoing, Intel may disclose its own
investment in the Company and the terms thereof to third parties or to the
public at Intel's discretion, and the Company shall have the right to disclose
to third parties any such information disclosed by Intel in a press release or
other public announcement.
-19-
<PAGE> 20
18.3 Assignment of Rights to Financial Information. The rights
and obligations pursuant to Sections 18.1 and 18.2 may be assigned or otherwise
conveyed by any Major Holder, or by any subsequent transferee of any such rights
to a transferee, other than to a competitor or customer of the Company, upon
prior written notice to the Company, upon the transfer by such Major Holder of
at least 800,000 shares of Registrable Securities; provided, however, that the
Company shall not be obligated under Section 18.1 to provide to any transferee
information which it deems in good faith to be a trade secret or similar
confidential information.
18.4 Corporate Existence, Licenses and Permits; Maintenance of
Properties. The Company will at all times do or cause to be done all things
necessary to maintain, preserve and renew its existence as a corporation
organized under the laws of Israel, preserve and keep in force and effect, and
cause each of its subsidiaries to preserve and keep in force and effect, all
licenses and permits necessary and material to the conduct of the business of
the Company and its consolidated subsidiaries, taken as a whole, and to maintain
and keep, and cause each of its subsidiaries to maintain and keep, its and their
respective properties in good repair, working order and condition (except for
normal wear and tear), and from time to time to make all needful and proper
repairs, renewals and replacements, including without limitation all trade name
and trademark registration renewals, so that any business material to the
Company carried on in connection therewith may be properly and advantageously
conducted at all times.
18.5 Taxes. The Company will duly pay and discharge, and cause
each of its subsidiaries duly to pay and discharge, all taxes, assessments and
governmental charges upon or against the Company or its subsidiaries or their
respective properties, in each case before the same become delinquent and before
penalties accrue thereon, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and the Company and its
subsidiaries shall have set aside on their books adequate reserves with respect
thereto.
18.6 Insurance. The Company will apply for and continue in
force, or cause to be applied for and continued in force, adequate insurance
covering the respective risks of the Company and its subsidiaries
-20-
<PAGE> 21
of such types and in such amounts and with such deductibles as are customary for
other corporations engaged in similar lines of business and with good and
responsible insurance companies.
18.7 Books and Accounts. The Company will, and will cause each
subsidiary to, maintain proper books of record and account in which full, true
and correct entries shall be made of its transactions and set aside on its books
from its earnings for each fiscal year all such proper reserves as in each case
shall be required in accordance with generally accepted accounting principles.
18.8 Notice of Events Involving Securities. The Company will
give the Purchasers (a) within ten days thereafter, notice of the filing by the
Company with the Securities and Exchange Commission or with any national
securities exchange either an application to register any securities of the
Company pursuant to Section 12 of the Exchange Act, or a registration statement
under Section 5 of the Securities Act, relating to any securities of the
Company, and (b) as promptly as practicable after any acquisition by it or by
any subsidiary of any of the Company's equity securities in excess in one
transaction of 10% of the number of such securities then outstanding and, in any
event, at the close of each fiscal year, notice of all acquisitions by it or by
any subsidiary of any of the Company's equity securities, specifying the class
and number of such equity securities so acquired.
18.9 Employee Benefit Plans. Neither the Company nor any ERISA
Affiliate (as defined in ERISA) will establish, maintain, contribute to or incur
an obligation to contribute to an Employee Benefit Plan which (i) is subject to
Title IV of ERISA or Section 412 of the Internal Revenue Code or (ii) provides,
or has any liability to provide, life insurance, medical or other employee
welfare benefits after retirement or termination of employment, except as may be
required by Section 4980B of the Internal Revenue Code or similar state laws.
Neither the Company nor any other person, including any fiduciary, will engage
in any transaction prohibited by Section 406 of ERISA or Section 4975 of the
Internal Revenue Code, which could subject the Company, any subsidiary of the
Company or any entity that the Company has an obligation to indemnify to any tax
or penalty imposed under Section 4975 of the Internal Revenue Code or Section
502 of ERISA.
18.10 Lost, etc. Certificates Evidencing Shares; Exchange. Upon
receipt of written notice or other evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of any of the Company's
shares and, in the case of any such loss, theft or destruction, upon receipt of
a Purchaser's unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such shares, the Company, at the
Company's expense, will make and deliver a new certificate in lieu of the lost,
stolen, destroyed or mutilated certificate carrying the same rights and
obligations as the original certificate. The Company will also pay the cost of
all deliveries of certificates for such shares to such Purchaser (including the
cost of insurance against loss or theft in an amount satisfactory to the
holders) upon any exchange thereof.
18.11 Compliance with Environmental Laws. The Company will use
its best efforts not, and will cause each subsidiary to use its best efforts
not, except in any such case in compliance with applicable Environmental Laws
and except to the extent such activity or the consequences therefore shall not
have a material adverse effect on the Company, individually, or on the Company
and its subsidiaries, taken as a whole, (a) to use any of the property of the
Company or any subsidiary or any portion thereof for the handling, processing,
storage or disposal of Hazardous Substances, (b) to cause or permit to be
located on any of such property any underground tank or other underground
storage receptacle for Hazardous Substances, (c) to generate any Hazardous
Substances on any of such property, (d) to conduct any activity on such property
or use any property in any manner so as to cause a release or threat or
potential for a release of any Hazardous
-21-
<PAGE> 22
Substance on, upon or into such property, or (e) to otherwise conduct any
activity on such property or use any property in any manner that would expose
the Company or any subsidiary to material liability under any Environmental
Laws.
"Environmental Laws" shall mean all federal, state or
local judgments, decrees, orders, laws, licenses, ordinances,
rules or regulations pertaining to environmental matters in any
jurisdiction (whether in the United States, Israel or elsewhere)
in which the Company or any subsidiary is located.
"Hazardous Substances" shall mean any and all hazardous
wastes that in any physical state might represent danger to the
environmental balance because of their corrosive, toxic,
venomous, reactive, explosive, flammable, biological or
irritating conditions, such as: (a) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos
in any form that is ore could become friable, urea, formaldehyde,
foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyl,
and radon gas; (b) any chemicals, materials, substances or wastes
which are now or hereafter become refined as or included in the
definition of "hazardous substances," "hazardous wastes," "toxic
substances," "toxic pollutants," or words of similar import,
under any applicable Environmental Laws; and (c) any other
chemical, material, substance, or waste, exposure to which is now
or hereafter prohibited, limited or regulated by any
Environmental Law or by any federal, state or municipal authority
(whether in the United States, Israel or elsewhere).
18.12 Termination of Rights. The covenants set forth in Section
18 (other than the covenants set forth in Section 18.9 hereof) shall terminate
upon the closing of a Qualified IPO.
19. BOARD OBSERVERS.
(a) Subject to paragraph 19(b) below, each of Softbank, DS
Polaris Ltd. on behalf of the LLC and Other Funds and Accounts ("POLARIS"),
Intel, Evergreen and CDC and their respective affiliates, until the earlier of
(a) such time as such holder or its affiliates hold less than an aggregate of
50% of the Series B Preferred, Series C Preferred or Series D Preferred, as the
case may be, originally purchased by them (and Ordinary Shares issued upon
conversion thereof) and (b) immediately prior to the closing of a Qualified IPO,
shall be entitled (to the extent each such holder does not have a representative
sitting on the Board of Directors) to designate one (1) observer each
(collectively, the "OBSERVERS"), who will attend all meetings of the Board of
Directors and will receive all materials distributed to the Board of Directors.
Softbank's designee shall initially be Ron Schrieber. Polaris' designee shall
initially be Chemi Peres. Evergreen's designee shall initially be Alan Adler.
CDC's designee shall initially be Albert Miguel-Montanes. Each such holder may
change its designee at any time upon notice to the Company.
(b) Each of Softbank, Polaris, Intel, Evergreen and CDC
covenants to keep confidential all information provided to or obtained by their
respective Observers. Furthermore, each of the Observers shall not serve in a
similar capacity of any other company which, in the judgment of the Company, is
engaged in a business that competes with the Company. Insofar as any possibility
of conflict
-22-
<PAGE> 23
of interest may arise with respect to any Observer, all duties and obligations
that a member of the Board of Directors may have by virtue of the law, shall
apply to such Observer.
20. MISCELLANEOUS.
20.1 Aggregation of Shares. For purposes of any provision of
this Agreement requiring a person or entity to hold a minimum number of shares
of Preferred or Exchangeable Shares (or Ordinary Shares issued upon conversion
thereof) or Registrable Securities in order to gain the benefit of such
provision, all shares beneficially owned by Affiliated entities or persons
(including partners and constituent members and former partners and former
constituent members) shall be aggregated together for the purposes of
determining such Holder's status or rights under such provision. For purposes of
this Section 20.1, Bayview shall be deemed an affiliate of Evergreen.
20.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Israel with respect to
matters of corporate law and the State of California with respect to all other
matters; provided, however, that (notwithstanding the foregoing) Section 18 of
this Agreement shall be governed and construed in accordance with the laws of
the State of California, and the Company hereby consents to the jurisdiction of
of any state or federal court in Santa Clara County, California arising out of
or in connection with Section 18 hereof. Each of the Purchasers and the Company
hereby submits to the nonexclusive jurisdiction of the courts in Tel Aviv,
Israel or the United States District Court for the Northern District of
California or any California state court sitting in Santa Clara County,
California, as the case may be, for purposes of all legal proceedings arising
out of or relating to this Agreement and the transactions contemplated hereby.
Each of the Purchasers and the Company irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
20.3 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser of
the Series D Preferred and the closing of the transactions contemplated hereby.
20.4 Successors and Assigns. Except as otherwise 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. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
20.5 (a) Entire Agreement; Amendment. This Agreement and the
other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party
in any manner by any warranties, representations or
covenants except as specifically set forth herein or
therein. In this regard, the parties to each of the Third
Rights Agreement and the Side Letters
-23-
<PAGE> 24
agree that the Third Rights Agreement and the Side Letters are hereby terminated
and shall have no further force and effect, except only that, as between the
Company and GE, the GE Side Letter shall continue to remain in full force and
effect and as between the Company and all of the Series D Holders, the
representations and warranties contained in the side letter dated May 6, 1998
between the Company and the Series D Holders shall survive as set forth in
paragraph 3 thereof. Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; provided, however, that
any provision of this Agreement may be amended, waived or modified with the
written consent of (i) the Company, (ii) the holders of at least a majority of
the Series B Preferred (and Ordinary Shares issued upon conversion thereof) then
outstanding, (iii) the holders of at least 66 2/3% of the Series C-1 Convertible
Preferred (and Ordinary Shares issued upon conversion thereof) then outstanding,
(iv) the holders of at least 66 2/3% of the Series D Convertible Preferred (and
Ordinary Shares issued upon conversion thereof) then outstanding, and (v) the
holders of at least a majority of the Exchangeable Shares (and Ordinary Shares
issued upon conversion thereof) then outstanding and having rights pursuant to
this Agreement.
(b) Additional Parties. The Company and the
Shareholders whose signatures appear on the signature page hereto agree that
should the Company sell additional shares of Series D Preferred to Additional
Purchasers (as defined in the Purchase Agreement), such Additional Purchasers
shall, after executing copies of this Agreement as an additional Purchaser
hereunder, become Shareholders hereunder and shall have all rights of
Shareholders hereunder.
20.6 Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid if addressed to a
party in the same country or twenty (20) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid if addressed to a party in a different country, (b) upon
delivery, if delivered by hand, (c) two (2) business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid or
(d) one (1) business day after the business day of facsimile transmission, if
delivered by facsimile transmission with copy by first class mail, postage
prepaid, and shall be addressed (i) if to a Purchaser, at such Purchaser's
address as set forth in the Purchase Agreement other than for the Exchangeable
Share Holders whose address shall be as set forth in the records of the Company,
and (ii) if to the Company, at the address of its principal corporate offices
(attention: Secretary), or at such other address as a party may designate by ten
days' advance written notice to the other party pursuant to the provisions
above.
20.7 Delays or Omissions. Except as expressly provided herein,
no delay or omission to exercise any right, power or remedy accruing to any
Holder of any Registrable Securities, 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
-24-
<PAGE> 25
or default under this Agreement, or any waiver on the part of any Holder of any
provisions or conditions of this agreement, must be 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.
20.8 Enforcement of Covenants. The Company hereby acknowledges
that remedies at law may be inadequate to protect the Purchasers against any
actual or threatened breach by the Company or any of its subsidiaries of the
covenants contained in Section 18 hereof and agree that the Purchasers shall be
entitled to seek specific performance of such covenants and injunctive or other
equitable relief as a remedy for any such breach; the Company further agrees to
waive any requirement for the securing or posting of any bond in connection with
such remedy. Such remedy shall not be deemed to be the exclusive remedy for the
breach of such covenants, but shall be in addition to all other remedies
available to the Purchasers at law or equity.
20.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which may be executed by less than all of the
Purchasers, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
20.10 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
20.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not considered in
construing or interpreting this Agreement.
-25-
<PAGE> 26
[Signature Page to Fourth Amended and Restated Rights Agreement]
The foregoing agreement is hereby executed as of the date first
above written.
BACKWEB TECHNOLOGIES LTD.
By: /s/ [Signature Illegible]
------------------------------------
Name:
Title:
<PAGE> 27
[Signature Page to Fourth Amended and Restated Rights Agreement]
SOFTBANK VENTURES, INC.
By: /s/ YOSHITAKA KITAO
------------------------------------
Name: Yoshitaka Kitao
Title: President and CEO
<PAGE> 28
[Signature Page to Fourth Amended and Restated Rights Agreement]
GS CAPITAL PARTNERS II, L.P.,
By: GS Advisors, L.P.
Its General Partner
By: GS Advisors, Inc.
Its General Partner
By: /s/ EVE M. GERRIETS
------------------------------------
Name: Eve M. Gerriets
Title: Vice President
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
Its General Partner
By: GS Advisors II, Inc.
Its General Partner
By: /s/ EVE M. GERRIETS
------------------------------------
Name: Eve M. Gerriets
Title: Vice President
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By: /s/ [Signature Illegible]
------------------------------------
Managing Director
and
/s/ EVE M. GERRIETS
------------------------------------
Registered Agent
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.,
General Partner
By: /s/ EVE M. GERRIETS
------------------------------------
Vice President
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.
Managing General Partner
By: /s/ EVE M. GERRIETS
------------------------------------
Vice President
<PAGE> 29
[Signature Page to Fourth Amended and Restated Rights Agreement]
TRINITY VENTURES V, L.P.
By: /s/ [Signature Illegible]
------------------------------------
Name:
Title:
<PAGE> 30
[Signature Page to Fourth Amended and Restated Rights Agreement]
TRINITY V SIDE-BY-SIDE FUND, L.P.
By: /s/ [Signature Illegible]
------------------------------------
Name:
Title: General Partner of Trinity TVL
Partners, V, L.P.
General Partner for Trinity V
Side-By-Side Fund, L.P.
<PAGE> 31
[Signature Page to Fourth Amended and Restated Rights Agreement]
POLARIS FUND II (TAX EXEMPT) LLC
On behalf of the LLC and Other Funds and Accounts
By: /s/ CHEMI PERES
---------------------------------------------
Name: Chemi Peres
Title: Managing General Partner
<PAGE> 32
[Signature Page to Fourth Amended and Restated Rights Agreement]
NIRBARKAT HOLDINGS LTD.
By: /s/ [Signature Illegible]
------------------------------------
Name:
Title:
<PAGE> 33
[Signature Page to Fourth Amended and Restated Rights Agreement]
ELIBARKAT HOLDINGS LTD.
By: /s/ [Signature Illegible]
------------------------------------
Name:
Title:
<PAGE> 34
[Signature Page to Fourth Amended and Restated Rights Agreement]
YUVAL RAKAVY 63 HOLDINGS (1995) LTD.
By: /s/ [Signature Illegible]
------------------------------------
Name:
Title:
<PAGE> 35
[Signature Page to Fourth Amended and Restated Rights Agreement]
INTEL CORPORATION
By: /s/ ARVIND SODHANI
------------------------------------
Name: Arvind Sodhani
Title: Vice President and Treasurer
<PAGE> 36
[Signature Page to Fourth Amended and Restated Rights Agreement]
1247582 ONTARIO INC.
By: /s/ ANTHONY DAVIS
------------------------------------
Anthony Davis
<PAGE> 37
[Signature Page to Fourth Amended and Restated Rights Agreement]
/s/ JOE LEVY
----------------------------------------
Joe Levy
<PAGE> 38
[Signature Page to Fourth Amended and Restated Rights Agreement]
/s/ PETER KESTENBAUM
----------------------------------------
Peter Kestenbaum
<PAGE> 39
[Signature Page to Fourth Amended and Restated Rights Agreement]
CDC VALEURS DE CROISSANCE
By: /s/ [Signature Illegible]
------------------------------------
Name: [Illegible]
Title: COO
<PAGE> 40
[Signature Page to Fourth Amended and Restated Rights Agreement]
GENERAL ELECTRIC PENSION TRUST
by General Electric Investment Corporation,
its Investment Manager
By: /s/ DAVID W. WIEDERACHT
---------------------------------------
Name: David W. Wiederacht
Title: Vice President
<PAGE> 41
[Signature Page to Fourth Amended and Restated Rights Agreement]
NIPPON INVESTMENT & FINANCE CO.
By: /s/ RYONOSUKE MIYOSHI
---------------------------------------
Name: Ryonosuke Miyoshi
Title: Senior Managing Director
Investment Enterprise Partnership "NIF9"
By: /s/ RYONOSUKE MIYOSHI
---------------------------------------
Name: Ryonosuke Miyoshi
Title: Senior Managing Director
Investment Enterprise Partnership "NIF10A"
By: /s/ RYONOSUKE MIYOSHI
---------------------------------------
Name: Ryonosuke Miyoshi
Title: Senior Managing Director
Investment Enterprise Partnership "NIF10B"
By: /s/ RYONOSUKE MIYOSHI
---------------------------------------
Name: Ryonosuke Miyoshi
Title: Senior Managing Director
Investment Enterprise Partnership
"NIF Ventures 21A"
By: /s/ RYONOSUKE MIYOSHI
---------------------------------------
Name: Ryonosuke Miyoshi
Title: Senior Managing Director
Investment Enterprise Partnership
"NIF Ventures 21B"
By: /s/ RYONOSUKE MIYOSHI
---------------------------------------
Name: Ryonosuke Miyoshi
Title: Senior Managing Director
<PAGE> 42
[Signature Page to Fourth Amended and Restated Rights Agreement]
By: /s/ [Signature Illegible]
---------------------------------------
Name:
Title:
<PAGE> 43
[Signature Page to Fourth Amended and Restated Rights Agreement]
EVERGREEN INTERNATIONAL
INVESTMENTS N.V.
By: /s/ [Signature Illegible]
---------------------------------------
Name:
Title:
EVERGREEN CANADA-ISRAEL MANAGEMENT
LIMITED
By: /s/ [Signature Illegible]
---------------------------------------
Name:
Title:
<PAGE> 44
[Signature Page to Fourth Amended and Restated Rights Agreement]
Investment Enterprise Partnership
"NIF New Technology Fund '98"
By: /s/ RYONOSUKE MIYOSHI
---------------------------------------
Name: Ryonosuke Miyoshi
Title: Senior Managing Director
By: /s/ [Signature Illegible]
---------------------------------------
Name:
Title:
<PAGE> 45
[Signature Page to Fourth Amended and Restated Rights Agreement]
COLIN SAMPALEANU
By: /s/ COLIN SAMPALEANU
---------------------------------------
Colin Sampaleanu
<PAGE> 46
[Signature Page to Fourth Amended and Restated Rights Agreement]
DENNIS BENNIE
By: /s/ DENNIS BENNIE
---------------------------------------
Dennis Bennie
<PAGE> 47
[Signature Page to Fourth Amended and Restated Rights Agreement]
ALTAMIRA MANAGEMENT LIMITED
As Agent for Royal Trust Corporation of
Canada, in Trust for Account No.
104072001
THE TRIATE GROWTH FUND
By: /s/ ALEX SASSO
---------------------------------------
Name: Alex Sasso
Title: VP
<PAGE> 48
[Signature Page to Fourth Amended and Restated Rights Agreement]
FIRST MARATHON SECURITIES LTD.
By: /s/ GERHARD WETZEL
---------------------------------------
Name: Gerhard Wetzel
Title: Vice President Compliance
<PAGE> 49
[Signature Page to Fourth Amended and Restated Rights Agreement]
ALBERT AMATO
By: /s/ ALBERT AMATO
---------------------------------------
Albert Amato
<PAGE> 50
[Signature Page to Fourth Amended and Restated Rights Agreement]
JENNIFER SILVER
By: /s/ JENNIFER SILVER
---------------------------------------
Jennifer Silver
<PAGE> 51
[Signature Page to Fourth Amended and Restated Rights Agreement]
FIRST MARATHON SECURITIES LTD.
(M. Skapinker) 307618 Canada Inc.
By: /s/ [Signature Illegible]
---------------------------------------
Name: Illegible
Title: Illegible
<PAGE> 52
[Signature Page to Fourth Amended and Restated Rights Agreement]
RANDY BUSCH
By: /s/ RANDY BUSCH
---------------------------------------
Randy Busch
<PAGE> 53
[Signature Page to Fourth Amended and Restated Rights Agreement]
GARY REWALD
By: /s/ GARY REWALD
---------------------------------------
Gary Rewald
<PAGE> 54
[Signature Page to Fourth Amended and Restated Rights Agreement]
PROTEGE SOFTWARE (HOLDINGS) LTD
By: /s/ [Signature Illegible]
---------------------------------------
Name: Illegible
Title: Illegible
<PAGE> 55
[Signature Page to Fourth Amended and Restated Rights Agreement]
DAVID DAVIS
By: /s/ DAVID DAVIS
---------------------------------------
David Davis
<PAGE> 56
[Signature Page to Fourth Amended and Restated Rights Agreement]
EUGENE ELLENBOGEN
By: /s/ EUGENE ELLENBOGEN
---------------------------------------
Eugene Ellenbogen
<PAGE> 57
[Signature Page to Fourth Amended and Restated Rights Agreement]
BITAHON LTD.
By: /s/ [Signature Illegible]
---------------------------------------
Name: Illegible
Title: President
<PAGE> 58
Schedule I
SERIES A HOLDERS
NIRBARKAT HOLDINGS LTD.
ELIBARKAT HOLDINGS LTD.
YUVAL RAKAVY (63) HOLDINGS LTD.
NASCHITZ, BRANDES & CO.
SERIES B HOLDERS
SOFTBANK VENTURES, INC.
PETER J. MOONEY AS NOMINEE FOR THE BROADVIEW INVESTOR GROUP
SERIES C HOLDERS
GOLDMAN, SACHS & CO. VERWALTUNGS GMBH
GS CAPITAL PARTNERS II, L.P.
GS CAPITAL PARTNERS II OFFSHORE, L.P.
STONE STREET FUND 1996, L.P.
BRIDGE STREET FUND 1996, L.P.
TRINITY VENTURES V, L.P.
TRINITY V SIDE-BY-SIDE FUND, L.P.
DS POLARIS LTD. ON BEHALF OF THE LLC AND OTHER FUNDS AND ACCOUNTS
EVERGREEN INTERNATIONAL INVESTMENTS N.V.
EVERGREEN CANADA-ISRAEL MANAGEMENT LIMITED
IJT TECHNOLOGIES LTD. N.V.
BAYVIEW, LTD.
PETER J. MOONEY AS NOMINEE FOR THE BROADVIEW INVESTOR GROUP
NIRBARKAT HOLDINGS LTD.
ELIBARKAT HOLDINGS LTD.
YUVAL RAKAVY (63) HOLDINGS LTD.
INTEL CORPORATION
SERIES D HOLDERS
NIRBARKAT HOLDINGS LTD.
ELIBARKAT HOLDINGS LTD.
YUVAL RAKAVY (63) HOLDINGS LTD.
BARE L.L.C. (Charles Federman)
GOLDMAN, SACHS & CO. VERWALTUNGS GMBH
GS CAPITAL PARTNERS II, L.P.
GS CAPITAL PARTNERS II OFFSHORE, L.P.
STONE STREET FUND 1996, L.P.
BRIDGE STREET FUND 1996, L.P.
TRINITY VENTURES V, L.P.
TRINITY V SIDE-BY-SIDE FUND, L.P.
DS POLARIS LTD. ON BEHALF OF THE LLC AND OTHER FUNDS AND ACCOUNTS
EVERGREEN INTERNATIONAL INVESTMENTS N.V.
EVERGREEN CANADA-ISRAEL MANAGEMENT LIMITED
<PAGE> 59
IJT TECHNOLOGIES LTD. N.V.
BAYVIEW, LTD.
INTEL CORPORATION
CLARIDEN BANK
NIPPON INVESTMENT & FINANCE CO.
NIF 8
NIF 9
NIF 10-A
NIF 10-B
NIF 11
NIF VENTURES 21A
NIF VENTURES 21B
SOFTBANK VENTURES, INC.
GENERAL ELECTRIC PENSION TRUST
IBOCCI 2 LIMITED
CDC VALEURS DE CROISSANCE
WILLIAM DONNER
RAMSEY BEIRNE PARTNERS LLC
ML IBK POSITIONS, INC.
MARK FINKEL
EXCHANGEABLE SHARE HOLDERS
1247582 ONTARIO INC.
DENNIS BENNIE
ALBERT AMATO
DAVID DAVIS
LAWRENCE & COMPANY INC.
ALTAMIRA MANAGEMENT LIMITED AS AGENT FOR ROYAL TRUST CORPORATION OF
CANADA, IN TRUST FOR ACCOUNT NO. 104072001
BLOOM INVESTMENT COUNSEL
AMARANTH RESOURCES LIMITED
THE CANADA TRUST COMPANY A/C 05105803 2
TORBAY COMPANY
BRANT INVESTMENTS LIMITED
FIRST MARATHON SECURITIES LIMITED
FIRST MARATHON SECURITIES LIMITED (M. SKAPINKER)
LEE TURNER
MELVIN DINNER
JEAN BARFORD
EUGENE ELLENBOGEN
GLEN MORELL
RANDY BUSCH
DENNIS WU
GARY REWALD
MARK VIDOV
JENNIFER SILVER
COLIN SAMPALEANU
PROTEGE SOFTWARE
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<PAGE> 60
BackWeb Ltd.
[Signature Page to Fourth Amended and Restated Rights Agreement]
By: /s/ ARVIND SODHANI
---------------------------------------
Name: Arvind Sodhani
Title: President and Treasurer
<PAGE> 1
EXHIBIT 10.12
***AGREEMENT AND PLAN OF ACQUISITION***
AGREEMENT AND PLAN OF ACQUISITION
BY AND AMONG
BACKWEB TECHNOLOGIES LTD.
BACKWEB CANADA INC.
LANACOM INC.
AND
ANTHONY DAVIS
DATED AS OF JULY 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
<S> <C> <C>
ARTICLE I - THE PLAN OF ACQUISITION..............................................................2
1.1 The Amalgamation..................................................................2
1.2 Closing Time......................................................................2
1.3 Effect of the Amalgamation........................................................2
1.4 Directors and Officers............................................................2
1.5 Effect on Lanacom Common Shares...................................................2
1.6 Adjustments in the Aggregate Share Number.........................................4
1.7 Net Liabilities Adjustment after Closing Date.....................................5
1.8 Dissenting Shares.................................................................7
1.9 Escrow............................................................................7
1.10 Surrender of Certificates.........................................................8
1.11 No Further Ownership Rights in Lanacom Common Shares..............................9
1.12 Lost, Stolen or Destroyed Certificates............................................9
1.13 BackWeb Parent Special Voting Share...............................................9
1.14 Taking of Necessary Action; Further Action.......................................10
1.15 Accounting Treatment.............................................................10
1.16 Support Agreement between BackWeb Parent and the Surviving Corporation...........10
1.17 Voting and Exchange Trust Agreement..............................................10
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF LANACOM
AND THE FOUNDER ...................................................................10
2.1 Organization, Standing and Power.................................................10
2.2 Capital Structure of Lanacom and its Subsidiaries................................11
2.3 Authority, Conflicts, Consents...................................................12
2.4 Lanacom Financial Statements.....................................................13
2.5 Absence of Undisclosed Liabilities...............................................14
2.6 No Changes.......................................................................14
2.7 Tax Matters......................................................................16
2.8 Restrictions on Business Activities..............................................18
2.9 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment ..18
2.10 Intellectual Property............................................................18
2.11 Agreements, Contracts and Commitments............................................20
2.12 Interested Party Transactions....................................................22
2.13 Governmental Authorization.......................................................22
2.14 Litigation.......................................................................22
2.15 Accounts Receivable..............................................................22
2.16 Minute Books.....................................................................23
2.17 Environmental Matters............................................................23
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
2.18 Brokers' and Finders' Fees.......................................................23
2.19 Employee Benefit Plans and Compensation..........................................23
2.20 Proprietary Information Agreements...............................................25
2.21 Insurance........................................................................26
2.22 Compliance with Laws.............................................................26
2.23 Complete Copies of Materials.....................................................26
2.24 Representations Complete.........................................................26
2.25 Disclosure Schedule..............................................................26
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF BACKWEB
PARENT AND BACKWEB CANADA ........................................................27
3.1 Organization, Standing and Power.................................................27
3.2 Capital Structure of BackWeb Parent and its Subsidiaries.........................27
3.3 Authority, Conflicts, Consents...................................................28
3.4 Financial Statements.............................................................29
3.5 Absence of Certain Changes.......................................................29
3.6 Absence of Undisclosed Liabilities...............................................30
3.7 Intellectual Property............................................................30
3.8 Litigation.......................................................................30
3.9 Brokers' and Finders' Fees.......................................................30
3.10 Compliance with Laws.............................................................31
3.11 Representations Complete.........................................................31
3.12 Disclosure Schedule..............................................................31
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME................................................31
4.1 Conduct of Business of Lanacom. ................................................31
4.2 No Solicitation..................................................................33
ARTICLE V - ADDITIONAL AGREEMENTS...............................................................34
5.1 Access to Information............................................................34
5.2 Confidentiality..................................................................34
5.3 Expenses.........................................................................35
5.4 Public Disclosure................................................................35
5.5 Consents.........................................................................35
5.6 Legal Requirements...............................................................35
5.7 Notification of Certain Matters..................................................36
5.8 Shareholders Agreements..........................................................36
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C> <C>
5.9 Further Assurances...............................................................36
5.10 BackWeb Parent Options...........................................................36
5.11 Appointment of Director to BackWeb Parent Board of Directors.....................36
5.13 Registration Rights..............................................................37
ARTICLE VI - CONDITIONS TO THE AMALGAMATION.....................................................38
6.1 Conditions to Obligations of Each Party to Effect the Amalgamation. ............38
6.2 Additional Conditions to Obligations of Lanacom..................................39
6.3 Additional Conditions to the Obligations of BackWeb Parent. ....................40
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW ...............................41
7.1 Survival of Representations and Warranties.......................................41
7.2 Escrow Arrangements..............................................................42
ARTICLE VIII - CERTAIN RIGHTS OF BACKWEB PARENT TO ACQUIRE
EXCHANGEABLE SHARES..............................................................51
8.1 BackWeb Parent Liquidation Call Right............................................51
8.2 BackWeb Parent Redemption Call Right.............................................52
8.3 Withholding Rights...............................................................53
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER .................................................54
9.1 Termination......................................................................54
9.2 Effect of Termination............................................................55
9.3 Amendment........................................................................55
9.4 Extension; Waiver................................................................55
ARTICLE X - GENERAL PROVISIONS..................................................................55
10.1 Notices..........................................................................55
10.2 Interpretation...................................................................58
10.3 Counterparts.....................................................................58
10.4 Entire Agreement; Assignment.....................................................58
10.5 Severability.....................................................................58
10.6 Other Remedies...................................................................58
10.7 Governing Law....................................................................58
10.8 Rules of Construction............................................................59
</TABLE>
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<PAGE> 5
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit A Form of Amalgamation Agreement
Exhibit B Form of Articles of Amalgamation
Exhibit C Provisions for the Special Voting share
Exhibit D Form of Support Agreement
Exhibit E Form of Voting and Exchange Trust Agreement
Exhibit F Form of Shareholder Agreement
Exhibit G Form of BackWeb Shareholders' Agreement
Exhibit H Form of Employment and Non-Competition Agreement
Exhibit I Form of Legal Opinion of Israeli Counsel to BackWeb Parent
Exhibit J Form of Legal Opinion of Counsel to Lanacom
</TABLE>
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<PAGE> 6
AGREEMENT AND PLAN OF ACQUISITION
This AGREEMENT AND PLAN OF ACQUISITION (the "Agreement") is made and
entered into as of July 1, 1997 by and among (i) BackWeb Technologies Ltd., a
company organized under the laws of Israel (the "BackWeb Parent"), (ii) BackWeb
Canada, Inc., a corporation incorporated under the laws of Ontario ("BackWeb
Canada"), (iii) Lanacom Inc., a corporation organized under the laws of Ontario,
("Lanacom") and (iv) Anthony Davis, the founder, President and principal
shareholder of Lanacom (the "Founder").
RECITALS
A. The Boards of Directors of each of BackWeb Parent, BackWeb Canada
and Lanacom believe it is in the best interests of each company and their
respective shareholders that BackWeb Parent acquire Lanacom through the
amalgamation of BackWeb Canada and Lanacom (the "Amalgamation"; the corporation
continuing from such Amalgamation shall be referred to herein as the "Surviving
Corporation") and, in furtherance thereof, have approved the Amalgamation.
B. Pursuant to the Amalgamation, among other things, all of the
issued and outstanding common shares of Lanacom ("Lanacom Common Shares") shall
be exchanged for Class A Shares of the Surviving Corporation ("Class A Shares"),
which Class A Shares will immediately thereafter be changed into exchangeable
non-voting shares of the Surviving Corporation ("Exchangeable Shares") pursuant
to articles of amendment to be filed by the Surviving Corporation (the "Articles
of Reorganization") in accordance with the terms and subject to the conditions
set forth in this Agreement. Each Exchangeable Share shall thereafter be
exchangeable in accordance with its terms and the terms and conditions set forth
in a Voting and Exchange Trust Agreement (as defined in Section 1.17 herein) to
be entered into pursuant hereto, for one ordinary share of BackWeb Parent (a
"BackWeb Parent Ordinary Share"). To the extent that Lanacom has other
outstanding securities at the Closing Time (as defined below) representing
rights to acquire Lanacom Common Shares or other voting securities ("Other
Lanacom Securities"), all such rights under such Other Lanacom Securities shall
become rights to acquire Class A Shares and, subsequently, Exchangeable Shares,
in accordance with this Agreement.
C. A portion of the Exchangeable Shares otherwise deliverable by the
Surviving Corporation to the holders of Lanacom Shares in connection with the
transactions contemplated hereunder shall be placed in escrow, the release of
which shall be contingent upon certain events and conditions.
D. BackWeb Parent, BackWeb Canada, Lanacom and the Founder desire to
make certain representations and warranties and other agreements in connection
with the Amalgamation.
<PAGE> 7
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration, the parties to this Agreement hereby agree as follows:
ARTICLE I
THE PLAN OF ACQUISITION
1.1 The Amalgamation. At the Closing Time (as defined in Section 1.2
below) and subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the Business Corporations Act (Ontario) (the "Act")
BackWeb Canada and Lanacom shall be amalgamated in order to create the Surviving
Corporation.
1.2 Closing Time. Unless this Agreement is earlier terminated
pursuant to Section 9.1, the closing of the Amalgamation (the "Closing") will
take place as promptly as practicable, but no later than two (2) business days
following the later of (a) satisfaction or waiver of the conditions set forth in
Article VI, and (b) ten (10) business days following the date of this Agreement
at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
650 Page Mill Road, Palo Alto, California, unless another place or time is
expressly agreed to in writing by BackWeb Parent and Lanacom. The date upon
which the Closing actually occurs is herein referred to as the "Closing Date."
On the Closing Date, the parties hereto shall cause the Amalgamation to be
consummated by (i) executing and delivering an agreement (the "Amalgamation
Agreement") substantially in the form attached hereto as Exhibit A, duly
completed in accordance with this Agreement, and (ii) filing Articles of
Amalgamation with the Director under the Act in the form attached as Exhibit B
hereto (the "Articles of Amalgamation"), in accordance with the relevant
provisions of the Act (the time that such Articles of Amalgamation become
effective under the Act being referred to herein as the "Closing Time").
1.3 Effect of the Amalgamation. At the Closing Time, the effect of
the Amalgamation shall be as provided under Section 179 of the Act. Without
limiting the generality of the foregoing, and subject thereto, at the Closing
Time, the separate corporate existence of each of BackWeb Canada and Lanacom
shall cease, all the property, rights, privileges, powers and franchises of
BackWeb Canada and Lanacom shall vest in the Surviving Corporation, and all
debts, liabilities, obligations and duties of BackWeb Canada and Lanacom shall
become the debts, liabilities, obligations and duties of the Surviving
Corporation. The name of the Surviving Corporation shall be "BackWeb Canada
Inc."
1.4 Directors and Officers. The directors of the Surviving
Corporation immediately after the Closing Time shall be the individuals
identified as directors of the Surviving Corporation in the Amalgamation
Agreement.
1.5 Effect on Lanacom Common Shares. Subject to the terms and
conditions of this Agreement, as of the Closing Time, by virtue of the
Amalgamation and without any action on the part of BackWeb Canada, Lanacom or
the holder of any Lanacom Common Shares, and immediately
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<PAGE> 8
thereafter, upon the filing of the Articles of Reorganization by the Surviving
Corporation, in each case as more fully described below, the following shall
occur:
(a) Definitions.
(i) Aggregate Common Number. The "Aggregate Common
Number" shall mean the aggregate number of Lanacom Common Shares and other
voting securities outstanding immediately prior to the Closing Time.
(ii) Aggregate Option Number. The "Aggregate Option
Number" shall mean the aggregate number of Lanacom Common Shares and other
voting securities issuable upon conversion or exercise of all Other Lanacom
Securities outstanding immediately prior to the Closing Time, whether or not
such Other Lanacom Securities shall then be vested and exercisable.
(iii) Fully Diluted Common Number. The "Fully Diluted
Common Number" shall mean, without duplication, the sum of (y) the Aggregate
Common Number and (z) the Aggregate Option Number.
(iv) Aggregate Share Number or Amalgamation
Consideration. The "Aggregate Share Number" or "Amalgamation Consideration"
shall consist of an aggregate of 9,557,909 Class A Shares to be changed into
9,557,909 Exchangeable Shares (subject to adjustment to reflect the effect of
any stock split, stock dividend, reorganization, recapitalization or the like
with respect to the BackWeb Parent Ordinary Shares and subject to adjustment
pursuant to Sections 1.6 and 5.10 hereof).
(v) Exchange Ratio. The "Exchange Ratio" shall mean the
quotient obtained by dividing (y) the Aggregate Share Number by (z) the Fully
Diluted Common Number.
(vi) Escrow Amount. The "Escrow Amount" shall consist of
an aggregate of 2,867,373 Exchangeable Shares (being 30% of the Aggregate Share
Number) as adjusted pursuant to Section 7.2(d)(iv)).
(vii) Proportionate Escrow Interest. The "Proportionate
Escrow Interest" applicable to each holder of record of Lanacom Common Shares
(each, a "Holder in Escrow") as of immediately prior to the Closing Time, shall
mean the quotient obtained by dividing (x) the total number of Lanacom Common
Shares held of record by such holder as of immediately prior to the Closing
Time, by (y) the total number of Lanacom Common Shares outstanding as of
immediately prior to the Closing Time.
(b) Exchange of Lanacom Common Shares for Class A Shares. Upon
the Amalgamation each Lanacom Common Share issued and outstanding immediately
prior to the Closing Time (other than any Dissenting Shares (as defined in and
to the extent provided in Section 1.8)) will automatically be exchanged for that
number of Class A Shares equal to the Exchange Ratio (as defined in Section
1.5(a) above).
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<PAGE> 9
(c) Change of Class A Shares into Exchangeable Shares.
Immediately following the amalgamation and the exchange of Lanacom Common Shares
for Class A Shares pursuant to paragraph (b) above, the Surviving Corporation
shall file the Articles of Reorganization and, pursuant thereto, each Class A
Share issued upon the Amalgamation shall immediately be changed without further
action on the part of any holder of Class A Shares, into one Exchangeable Share.
(d) Delivery of Exchangeable Shares; Escrow. Upon the issuance
of the Exchangeable Shares in accordance with paragraph (c) above, that number
of Exchangeable Shares equal to the Escrow Amount shall be placed in escrow in
accordance with Section 1.9 and Article VII hereof to be distributed in
accordance with Article VII hereof, and all other Exchangeable Shares shall be
distributed to the registered holders thereof (being the registered holders of
the Lanacom Common Shares exchanged for Class A Shares upon the Amalgamation
which were changed into such Exchangeable Shares upon the filing of the Articles
of Reorganization) and certificates representing such Exchangeable Shares shall
be delivered to such holders in accordance with section 1.10.
(e) Other Lanacom Securities. At the Closing Time, all Other
Lanacom Securities shall continue to have, and be subject to, the same terms and
conditions of such Other Lanacom Securities immediately prior to the Closing
Time, except that (A) each Other Lanacom Security shall be exercisable for that
whole number of Class A Shares equal to the product of the number of Lanacom
Common Shares that were issuable upon exercise of such Other Lanacom Security
immediately prior to the Closing Time multiplied by the Exchange Ratio (as
defined in Section 1.5 above), rounded up to the nearest whole number of Class A
Shares, (B) the per share exercise price for Class A Shares issuable upon
exercise of such Other Lanacom Security shall be equal to the quotient
determined by dividing the exercise price per Lanacom Common Share at which such
Other Lanacom Security was exercisable immediately prior to the Closing Time by
the Exchange Ratio, rounded down to the nearest whole cent. Immediately
following the Closing Time and upon the filing of the Articles of
Reorganization, the right to receive Class A Shares upon exercise of such Other
Lanacom Securities shall become a right to receive the same number of
Exchangeable Shares, and the Surviving Corporation will issue to each holder of
outstanding Other Lanacom Securities a document evidencing the foregoing changes
to such Other Lanacom Securities.
(f) Fractional Shares. No fraction of a Class A Share shall be
issued, but in lieu thereof, the number of Class A Shares issuable to any holder
of Lanacom Common Shares shall be rounded up to the nearest whole Class A Share,
after aggregating all fractional Class A Shares to be received by such holder.
1.6 Adjustments in the Aggregate Share Number. The Aggregate Share
Number shall be subject to adjustment on the Closing Date as provided in this
Section 1.6.
(a) Preliminary Balance Sheet. On the date being five (5) days
prior to the Closing Date, Lanacom shall deliver a balance sheet of Lanacom, as
of June 30, 1997 (as adjusted to reflect (x) the exercise of outstanding Lanacom
Warrants for Lanacom Common Shares, or the expiration or cancellation of the
Lanacom Warrants and (y) the exchange of outstanding Lanacom indebtedness for
Lanacom Common Shares, in each case pursuant to the Pre-Closing Reorganization
(as defined in Section 2.2(a)(iii) hereof), at any time from June 30, 1997 to
Closing), prepared by Lanacom in consultation with Lanacom's auditors and
BackWeb Parent (the "Preliminary Balance Sheet"). The
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<PAGE> 10
Preliminary Balance Sheet shall be prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP") consistent with the
basis of accounting and procedures and methods employed by Lanacom in preparing
the Lanacom Financial Statements.
(b) Definition of Net Asset Value. "Net Asset Value" shall
mean the aggregate of all tangible assets of Lanacom, including cash, net
accounts receivable (less (without duplication) allowances for doubtful
accounts), any amounts receivable in respect of an anticipated tax credit or
return, net value of inventory (adjusted for all applicable write-downs and
write-offs) and prepaid expenses, less all liabilities of any kind, including,
but not limited to, accounts payable, royalties payable, warranty and other
reserves, accrued bonuses, accrued vacation, employee expense obligations,
deferred revenue and all other liabilities to the extent that such liabilities
shall be required to be reflected in accordance with Canadian GAAP.
(c) Adjustment on Closing Date. In the event that the Net
Asset Value as set forth on the Preliminary Balance Sheet (the "Preliminary Net
Asset Value") is more negative than US$(100,000), then the Aggregate Share
Number shall be reduced (reflecting the parties' agreement that one-third of the
risk of such event shall be borne by the shareholders of Lanacom and two-thirds
of the risk shall be borne by BackWeb Parent) by a number of Class A Shares
equal to one-third of the quotient obtained by dividing (y) the sum of the
Preliminary Net Asset Value plus US$100,000 by (z) the value of the BackWeb
Parent Ordinary Shares on the Closing Date, US$0.50 per share.
1.7 Net Liabilities Adjustment after Closing Date. The Aggregate
Share Number shall be subject to adjustment after the Closing Date as provided
in this Section 1.7, but only to the extent of any differences between the
Preliminary Balance Sheet and the Final Balance Sheet so as not to duplicate any
adjustment in the Aggregate Share Number effected pursuant to Section 1.6.
(a) Final Closing Balance Sheet. As soon as practicable (but
in no event later than 60 days) after the Closing Date, the Surviving
Corporation will prepare and cause to be audited by Ernst & Young LLP,
independent auditors (or such other independent auditors as are selected by
BackWeb Parent), and the Surviving Corporation will deliver to BackWeb Parent
and the Agent (as defined in Article VII), a balance sheet of Lanacom, as of
June 30, 1997 (as adjusted to reflect (x) the exercise of outstanding Lanacom
Warrants for Lanacom Common Shares, or the expiration or cancellation of the
Lanacom Warrants and (y) the exchange of outstanding Lanacom indebtedness for
Lanacom Common Shares, in each case pursuant to the Pre-Closing Reorganization
(as defined in Section 2.2(a)(iii) hereof), at any time from June 30, 1997 to
Closing), (the "Final Balance Sheet"). The Final Balance Sheet shall be prepared
in accordance with Canadian GAAP consistent with the basis of accounting and
procedures and methods employed by Lanacom in preparing the Lanacom Financial
Statements. During the conduct of such audit, the Surviving Corporation shall
cooperate in all respects with the independent auditors for the purpose of
completing the Final Balance Sheet. In addition, the Surviving Corporation and
the independent auditors shall be available for periodic inquiry by BackWeb
Parent and the Agent, and the independent auditors will answer such questions as
BackWeb Parent or the Agent may have and provide such additional schedules and
materials as BackWeb Parent or the Agent may reasonably request in order to
permit a meaningful review of the Final Balance Sheet.
(b) Adjustment Pursuant to Final Balance Sheet. In the event
that the Net Asset Value as set forth on the Final Balance Sheet (the "Final Net
Asset Value") is more negative than
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<PAGE> 11
US$100,000 and is more negative than the Preliminary Net Asset Value, then the
Aggregate Share Number shall be reduced (reflecting the parties' agreement that
one-third of the risk of such event shall be borne by the shareholders of
Lanacom and two-thirds of the risk shall be borne by BackWeb Parent) by a number
of Exchangeable Shares equal to one-third of the quotient obtained by dividing
(y) the difference between the lesser of (i) US$100,000 and the Preliminary Net
Asset Value and (ii) the Final Net Asset Value by (z) the value of the BackWeb
Parent Ordinary Shares on the Closing Date, US$0.50 per share. BackWeb Parent
shall provide written notice of such deficiency to the Escrow Agent pursuant to
the provisions of Section 7.2(d). This reduction in the Aggregate Share Number
shall be effected by the delivery by the Escrow Agent to the Surviving
Corporation of such specified number of Exchangeable Shares remaining in the
Escrow Fund pursuant to the escrow claim procedures set forth in such Section
7.2(d), for cancellation by the Surviving Corporation for no consideration.
(c) Disputes. At any time within 30 days following the
delivery of the Final Balance Sheet to BackWeb Parent and the Agent (the "Review
Period"), BackWeb Parent or the Agent may dispute any amounts reflected or not
reflected on the Final Balance Sheet to the extent the net effect of all such
disputed amounts in the aggregate would affect the Net Asset Value, but only on
the basis that such amounts were not arrived at in accordance with Section 1.7;
each of BackWeb Parent and the Agent will notify the other in writing of each
such disputed item, and will specify the amount thereof in dispute, not later
than the expiration of the Review Period. If BackWeb and the Agent are able to
resolve all the disputed items, then the Final Balance Sheet agreed upon by
BackWeb and the Agent will be final, binding and conclusive on the parties
hereto. If BackWeb and the Agent are unable to resolve any disputed item and are
therefore unable to agree as to the Final Balance Sheet and the resultant Final
Net Asset Value within 20 days following the expiration of the Review Period,
then within 10 days thereafter either BackWeb Parent or the Agent may elect that
the items remaining in dispute be submitted for resolution to a nationally
recognized accounting firm (the member of which who will be primarily
responsible for resolving such disputes will have had substantial auditing
experience and substantial experience in arbitration or other dispute resolution
proceedings concerning accounting issues) selected by mutual agreement of
BackWeb Parent and the Agent (or failing such agreement between BackWeb Parent
and the Agent, as selected by mutual agreement between BackWeb Parent's
independent accountants and Lanacom's independent accountants (prior to the
Amalgamation), or failing such agreement between BackWeb Parent's and Lanacom's
respective independent accounts, appointed by the American Arbitration
Association) (the "Accountants"). The Accountants will, within 30 days after
submission, determine, based solely on presentations by BackWeb Parent and the
Agent (and their representatives) and not by independent review, and render a
written report to the parties upon, such remaining disputed items and the
resultant calculation of the Final Balance Sheet and the Final Net Asset Value
in accordance with the provisions hereof, and such report and the resultant
Final Balance Sheet will be final, binding and conclusive on the parties hereto.
In resolving any disputed item, the Accountants may not assign a value to such
item greater than the greatest value for such item claimed by either party or
less than the smallest value for such item claimed by either party. The fees and
disbursements of the Accountants (and of the American Arbitration Association,
if any) (a) will be paid by the Surviving Corporation, and BackWeb Parent shall
be deemed to have incurred a Loss under Article VII equal to the amount thereof,
if the Final Net Asset Value finally determined pursuant to this Section 1.7
shall be less than US$10,000 greater than the Final Net Asset Value reflected on
the Final Balance Sheet originally submitted pursuant to Section 1.7, or (b)
will be borne by BackWeb Parent with
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<PAGE> 12
no deemed Loss under Article VII hereof, if the Final Net Asset Value finally
determined pursuant to this Section 1.7 is more than US$10,000 greater than the
Net Asset Value amount reflected on the Final Balance Sheet originally submitted
pursuant to Section 1.7 hereof. BackWeb Parent, the Surviving Corporation and
the Agent hereby agree to cooperate and work in good faith and as expeditiously
as reasonably possible to resolve any and all Final Balance Sheet disputes.
1.8 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any Lanacom Common Shares held by a holder who has exercised dissent
rights for such shares in accordance with Section 185 of the Act and who, as of
the Closing Time, has not effectively withdrawn or lost such dissent rights
("Dissenting Shares"), shall not be exchanged for Class A Shares pursuant to
Section 1.5, but the holder thereof shall only be entitled to such rights as are
granted by Section 185 of the Act.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his or her dissent rights, then, as of the later of
Closing Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Class A
Shares as provided in Section 1.5(b) (and, upon the change thereof pursuant to
the Articles of Reorganization under Section 1.5(c), Exchangeable Shares),
without interest thereon, upon surrender of the certificate representing such
shares, subject to the conditions set forth below and throughout this Agreement,
including without limitation the escrow provisions set forth in Section 1.9 and
Article VII hereof.
(c) Lanacom shall give BackWeb Parent (i) prompt notice of any
exercise of dissent rights received by Lanacom pursuant to the applicable
provisions of Section 185 of the Act and (ii) the opportunity to participate in
all negotiations and proceedings with respect thereto. Lanacom shall not, except
with the prior written consent of BackWeb Parent, voluntarily make any payment
with respect to any such demands or offer to settle or settle any such exercise
of dissent rights. To the extent that BackWeb Parent or Lanacom makes any
payment or payments in respect of any Dissenting Shares, BackWeb Parent shall be
deemed to have incurred a Loss under Article VII hereof equal to (x) the
aggregate amount by which such payment or payments exceed the aggregate
Amalgamation Consideration that otherwise would have been payable in respect of
such Dissenting Shares plus (y) one-half of the aggregate fees and expenses
(including reasonable attorneys' fees and expenses) incurred by BackWeb Parent
or the Surviving Corporation in connection with calculating, settling or
litigating the amount of, or making, any such payment.
1.9 Escrow. Promptly after the Closing Time and upon the issuance of
the Exchangeable Shares pursuant to Section 1.5(c), the Surviving Corporation
shall deposit Exchangeable Shares constituting the Escrow Amount into an escrow
account pursuant to Article VII below. The portion of the Escrow Amount
contributed on behalf of each Holder in Escrow shall be nearly as may be
practical in proportion to the product of (x) the aggregate number of
Exchangeable Shares constituting the Escrow Amount times (y) such holder's
Proportionate Escrow Interest (as defined in Section 1.5).
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1.10 Surrender of Certificates.
(a) Exchange Agent. The Surviving Corporation or such other
party mutually agreed by the parties shall act as exchange agent in the
Amalgamation (the "Exchange Agent").
(b) Surviving Corporation to Provide Exchangeable Shares.
Promptly after the Closing Time, the Surviving Corporation shall make available
to the Exchange Agent, for exchange in accordance with this Article I, the
aggregate number of Exchangeable Shares outstanding following the change
(pursuant to the Articles of Reorganization) of the Class A Shares issuable
pursuant to Section 1.5 in exchange for outstanding Lanacom Common Shares;
provided that (i) no Exchangeable Shares shall be deposited in respect of
Lanacom Common Shares as to which dissent rights have been exercised and not
withdrawn under Section 1.8 and (ii) the Surviving Corporation shall deposit
into escrow on behalf of the holders of Lanacom Common Shares a number of
Exchangeable Shares equal to the Escrow Amount.
(c) Exchange Procedures. As soon as reasonably practicable
after the Closing Time, the Surviving Corporation shall cause to be delivered,
to each holder of record of a certificate or certificates (the "Certificates")
which immediately prior to the Closing Time represented outstanding Lanacom
Common Shares whose shares were exchanged for Class A Shares upon the
Amalgamation and changed into Exchangeable Shares pursuant to Section 1.5, (i),
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions as BackWeb Parent may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing Exchangeable Shares. No certificates shall be issued
by the Surviving Corporation in respect of any Class A Shares. Upon surrender of
a Certificate for cancellation to the Exchange Agent or to such agent or agents
as may be appointed by BackWeb Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing the number of whole Exchangeable Shares issued to
such holder pursuant to Section 1.5 (subject to the escrow provisions of Section
1.9 and Article VII) and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate that, prior to the
Closing Time, represented Lanacom Common Shares, will be deemed from and after
the Closing Time, to evidence only the right to receive Exchangeable Shares in
respect of each such share (subject to the escrow provisions of Section 1.9 and
Article VII).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Exchangeable Shares declared or
made after the Closing Time and with a record date after the Closing Time will
be paid to the holder of any unsurrendered Certificate with respect to the
Exchangeable Shares represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole Exchangeable Shares issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Closing Time
theretofore payable with respect to such whole number of Exchangeable Shares.
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(e) Transfers of Ownership. If any certificate for
Exchangeable Shares is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and shall otherwise appear in proper form for transfer and
that the person requesting such exchange will have paid to BackWeb Parent or any
agent designated by it any transfer or other taxes required by reason of the
issuance of a certificate for Exchangeable Shares in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of BackWeb Parent or any agent designated by it that such tax has
been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.10, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of Lanacom Common Shares for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.11 No Further Ownership Rights in Lanacom Common Shares. All Class A
Shares issued upon the Amalgamation in exchange for Lanacom Common Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Lanacom Common Shares, and there
shall be no further registration of transfers on the records of the Surviving
Corporation of Lanacom Common Shares which were outstanding immediately prior to
the Closing Time. If, after the Closing Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I (subject to the escrow provisions of Article VII).
1.12 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
make payment in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit in a form satisfactory to BackWeb Parent and the
Exchange Agent of that fact by the holder thereof, such amount as may be
required pursuant to Section 1.5; provided, however, that BackWeb Parent may, in
its sole discretion and as a condition precedent to the issuance thereof,
require the owner of any such lost, stolen or destroyed Certificates to deliver
a bond in such sum as BackWeb Parent may reasonably direct as indemnity against
any claim that may be made against BackWeb Parent, the Surviving Corporation or
the Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.13 BackWeb Parent Special Voting Share.
(a) Prior to the Closing Time, BackWeb Parent shall amend its
Articles of Association to create the BackWeb Special Preferred Share (the
"Special Voting Share") having the terms and conditions set out in Exhibit C.
(b) Immediately following the Amalgamation and
contemporaneously with the filing of the Articles of Reorganization in
accordance with subsection 1.5(c), BackWeb Parent shall issue one Special Voting
Share to The Trust Company of the Bank of Montreal as trustee to be held by it
in trust for the benefit of the holders from time to time of Exchangeable Shares
(other than BackWeb Parent)
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in accordance with the provisions of the Voting and Exchange Trust Agreement (as
defined in Section 1.17 hereof).
1.14 Taking of Necessary Action; Further Action. If, at any time after
the Closing Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Lanacom and BackWeb Canada or to vest BackWeb Parent with
control in the Surviving Corporation, the officers and directors of the
Surviving Corporation are fully authorized in the name of the Surviving
Corporation or otherwise to take, and will take, all such lawful and necessary
and/or desirable action so long as such action is consistent with this
Agreement.
1.15 Accounting Treatment. The Amalgamation is intended to be
accounted for by BackWeb Parent using the purchase method of accounting in
accordance with United States generally accepted accounting principles ("US
GAAP").
1.16 Support Agreement between BackWeb Parent and the Surviving
Corporation. Immediately following the Amalgamation, BackWeb Parent and the
Surviving Corporation shall enter into a Support Agreement substantially in the
form attached hereto as Exhibit D (the "Support Agreement"), pursuant to which
BackWeb Parent shall agree among other things and subject to certain conditions,
to issue one BackWeb Parent Ordinary Share in exchange for each Surviving
Corporation Exchangeable Share. For so long as any Exchangeable Shares remain
outstanding, the parties agree to comply with all of the terms of the Support
Agreement and not to amend the Support Agreement without the written consent of
the Agent (as defined in Section 7.2(f)).
1.17 Voting and Exchange Trust Agreement. Immediately following the
Amalgamation, BackWeb Parent, the Surviving Corporation and the trustee
thereunder shall enter into a Voting and Exchange Trust Agreement substantially
in the form attached hereto as Exhibit E (the "Voting and Exchange Trust
Agreement"), providing for the exercise of voting rights in BackWeb Parent by
holders of Exchangeable Shares and certain other matters.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF LANACOM AND THE FOUNDER
Except as disclosed in a document of even date herewith and delivered by
Lanacom and the Founder to BackWeb Parent prior to the execution and delivery of
this Agreement and referring to the representations and warranties in this
Agreement (the "Lanacom Disclosure Schedule"), Lanacom and the Founder, jointly
and severally, represent and warrant to BackWeb Parent as follows:
2.1 Organization, Standing and Power. Each of Lanacom, Lanacom Europe
Limited, a company organized under the laws of the United Kingdom ("Lanacom
Europe"), and Lanacom (US) Inc., a Delaware corporation ("Lanacom US" and
together with Lanacom Europe, the "Lanacom Subsidiaries"), is a corporation duly
organized, validly existing and in good standing under the laws of
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the jurisdiction of its incorporation. Each of Lanacom and the Lanacom
Subsidiaries has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
it is required to be so qualified. Lanacom has delivered a true and correct copy
of the Articles and Bylaws or other charter documents, as applicable, of Lanacom
and each of the Lanacom Subsidiaries, each as amended to date, to BackWeb
Parent. Neither Lanacom nor any of the Lanacom Subsidiaries is in violation of
any of the provisions of its Articles or Bylaws (or equivalent organizational
documents).
2.2 Capital Structure of Lanacom and its Subsidiaries.
(a) Lanacom.
(i) The authorized capital of Lanacom consists of an
unlimited number of Lanacom Common Shares, of which 1,500,000 are issued and
outstanding, and an unlimited number of Preference Shares, none of which is
issued or outstanding. There are no other outstanding shares of capital stock or
voting securities. Special Warrants to purchase an aggregate of 100,000 Lanacom
Common Shares (the "Lanacom Special Warrants") are outstanding; Common Share
Warrants to purchase an aggregate of 600,000 Lanacom Common Shares (the "Lanacom
Common Warrants") are outstanding; Developer Warrants to purchase an aggregate
of 600,000 Lanacom Common Shares (the "Lanacom Developer Warrants") are
outstanding; Lanacom has reserved an aggregate of 600,000 Lanacom Common Shares
for issuance to employees pursuant to its stock option plans (the "Lanacom
Option Plans"), and options to purchase an aggregate of 568,000 Lanacom Common
Shares are outstanding pursuant to such Lanacom Option Plans (the "Lanacom
Employee Options"); and Broker Options to purchase an aggregate of 150,000
Lanacom Common Shares (the "Lanacom Broker Options" and together with the
Lanacom Special Warrants, the Lanacom Common Warrants, the Lanacom Developer
Warrants, and the Lanacom Employee Options, the "Lanacom Warrants") are
outstanding. There are no Other Lanacom Securities outstanding, and at the
Closing there will be no Other Lanacom Securities outstanding, except for
Lanacom Warrants. All outstanding Lanacom Common Shares and Lanacom Warrants are
duly authorized, validly issued, fully paid and non-assessable and are free of
any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles or Bylaws of Lanacom or
any agreement to which Lanacom is a party or by which it is bound. The Company
has reserved an aggregate of 2,950,000 Common Shares for issuance upon the
exercise of the Lanacom Warrants.
(ii) Except as described in Section 2.2 of the Lanacom
Disclosure Schedule, there are no other options, warrants, calls, rights,
commitments or agreements of any character other than the Lanacom Warrants to
which Lanacom is a party or by which it is bound obligating Lanacom to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of Lanacom or obligating Lanacom to grant,
extend, accelerate the vesting of, change the price of, or otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement. The
terms of each of the Lanacom Warrants will cause the rights of the holders
thereof to expire if not exercised prior to the Closing Time or will permit the
assumption or substitution of options or warrants, as applicable, to purchase
Class A Shares upon the Amalgamation and Exchangeable Shares upon the
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filing of the Articles of Reorganization as provided in this Agreement, without
the consent or approval of the holders of such securities, holders of Lanacom
Common Shares, or otherwise as follows: the Lanacom Special Warrants and Lanacom
Broker Options will either be exercised by their holders for Lanacom Common
Shares prior to the Closing Time or will become exercisable for Class A Shares
upon the Amalgamation and Exchangeable Shares upon the Filing of Articles of
Reorganization, the Lanacom Common Warrants will become exercisable for Class A
Shares upon the Amalgamation and Exchangeable Shares upon the Filing of Articles
of Reorganization, and the Lanacom Developer Warrants and the Lanacom Employee
Options will expire if unexercised prior to the Closing Time. True and complete
copies of all agreements and instruments relating to or issued under the Lanacom
Option Plans have been made available to BackWeb Parent and its counsel and such
agreements and instruments have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement such agreements or
instruments in any case from the form made available to BackWeb Parent and its
counsel.
(iii) As of or prior to the Closing Time, Lanacom shall
undertake a reorganization pursuant which (x) outstanding Lanacom Warrants may
either be exercised for Lanacom Common Shares or may expire or be canceled, (y)
outstanding Lanacom indebtedness may be exchanged for Lanacom Common Shares and
(z) Lanacom shall become the sole owner of all of the issued and outstanding
capital stock of Lanacom Europe and the Founder shall transfer all of the
Lanacom Common Shares and Lanacom Warrants owned by him into a holding Company
("Founder Holdco") wholly owned by him (collectively the "Pre-Closing
Reorganization").
(b) Lanacom Europe. The authorized capital stock of Lanacom
Europe consists of 1,000 Shares, of which 1,000 shares are issued and
outstanding, 825 of which are owned by Lanacom and 175 of which are owned by
Protege Software Holdings Limited ("Protege"). Lanacom has all requisite rights
to become the owner of and shall, as of or prior to the Closing Time, become the
owner of all of the issued and outstanding stock of Lanacom Europe in accordance
with the terms of the Agreement between Lanacom and Protege in exchange solely
for Lanacom Common Shares, which Lanacom Common Shares shall be included within
the Fully Diluted Common Number.
(c) Lanacom US. The authorized capital stock of Lanacom US
consists of 1,000 shares of Common Stock, par value US$0.01 per share, of which
1,000 shares are issued and outstanding, all of which are owned by Lanacom.
2.3 Authority, Conflicts, Consents.
(a) Lanacom has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Lanacom, except for the approval of this
Agreement and the Amalgamation by holders of Lanacom Common Shares, which
approval is a closing condition to the Amalgamation as set forth in Section
6.1(a) of this Agreement. This Agreement has been duly executed and delivered by
Lanacom and constitutes the valid and binding obligation of Lanacom, enforceable
in accordance with its terms.
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<PAGE> 18
(b) Except as described in Section 2.3 of the Lanacom
Disclosure Schedule, the execution and delivery of this Agreement by Lanacom
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (any
such event, a "Conflict") (i) any provision of the Articles or Bylaws of
Lanacom, as amended, or (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Lanacom
or any of the Lanacom Subsidiaries or any of their properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality (each, a
"Governmental Entity") other than such as may be required under the laws of
Israel is required by or with respect to Lanacom or any of the Lanacom
Subsidiaries in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) the
filing of the Articles of Amalgamation as provided in Section 1.2; (ii) the
filing of the Articles of Reorganization as provided in subsection 1.5(c); and
(iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable provincial
securities laws and the securities laws of any foreign country; and (iii) the
notification filing required under the provisions of the Investment Canada Act
(Canada). Section 2.3 of the Lanacom Disclosure Schedule sets forth a full and
complete list of all necessary consents, waivers and approvals of third parties
applicable to the operations of Lanacom or any of the Lanacom Subsidiaries that
are required to be obtained by Lanacom in connection with the execution and
delivery of this Agreement by Lanacom or the consummation by Lanacom of the
transactions contemplated hereby. Prior to the Closing Date, Lanacom will
obtain, and will cause the Lanacom Subsidiaries to obtain, all such consents.
2.4 Lanacom Financial Statements.
(a) Lanacom has furnished to BackWeb Parent its unaudited
balance sheet, statements of operations and statements of shareholders equity
and cash flows as of and for the period from incorporation to March 31, 1997 and
its unaudited balance sheet and statements of operations as of and for the
period from incorporation to May 31, 1997 and the unaudited balance sheet and
statement of operations for Lanacom Europe for the period from incorporation to
May 31, 1997 (collectively, the "Lanacom Financial Statements"). The Lanacom
Financial Statements, including the notes thereto, if any, were complete and
correct in all material respects as of their respective dates, complied as to
form in all material respects with applicable accounting requirements as of
their respective dates, and have been prepared in accordance with Canadian GAAP
applied on a basis consistent throughout the periods indicated and consistent
with each other. The Lanacom Financial Statements are in accordance with the
books and records of Lanacom and fairly present the consolidated financial
condition and operating results of Lanacom at the dates and during the periods
indicated therein (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments). There has been no change in Lanacom accounting
policies.
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(b) The financial projections of Lanacom previously furnished
to BackWeb Parent (the "Projections"), were prepared by Lanacom in good faith.
Lanacom makes no representations and warranties, and expressly disclaims all
express or implied representations and warranties, relating to the Projections
except that such Projections were prepared by Lanacom in good faith.
2.5 Absence of Undisclosed Liabilities. Lanacom and the Lanacom
Subsidiaries have no obligations or liabilities of any nature (matured or
unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the Lanacom Balance Sheet dated May 31, 1997, a true, correct
and complete copy of which has been provided to BackWeb Parent (the "Lanacom
Balance Sheet"), (ii) those incurred in the ordinary course of business and not
required to be set forth in the footnotes to audited financial statements
prepared in accordance with Canadian GAAP, (iii) those incurred in the ordinary
course of business since the Lanacom Balance Sheet Date and consistent with past
practice, which do not in any event exceed $25,000 in the aggregate and (iv)
those set forth in Section 2.5 of the Lanacom Disclosure Schedule.
2.6 No Changes. Since the date of the Lanacom Balance Sheet there has
not been, occurred or arisen any:
(a) transaction by Lanacom or any of the Lanacom Subsidiaries
except in the ordinary course of business as conducted on that date;
(b) capital expenditure or commitment by Lanacom or any of the
Lanacom Subsidiaries that has exceeded $25,000 individually or $50,000 in the
aggregate;
(c) destruction of, damage to or loss of any material assets,
business or customer of Lanacom or any of the Lanacom Subsidiaries (whether or
not covered by insurance);
(d) labor trouble or claim of wrongful discharge of which
Lanacom or any of the Lanacom Subsidiaries has received written notice or of
which Lanacom or any of the Lanacom Subsidiaries is aware or other unlawful
labor practice or action (Section 2.6(d) of the Lanacom Disclosure Schedule
includes a list of all employees who have been terminated by Lanacom or any of
the Lanacom Subsidiaries since Lanacom's inception);
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Lanacom or any of
the Lanacom Subsidiaries;
(f) revaluation by Lanacom or any of the Lanacom Subsidiaries
of any of their respective assets other than depreciation as required by
Canadian GAAP and reflected on the Lanacom Balance Sheet;
(g) declaration, setting aside or payment of any dividends on
or any other distribution (whether in cash, stock or property) in respect of any
of the Lanacom Common Shares or any capital stock of any of the Lanacom
Subsidiaries, or any split, combination or reclassification of any of the
Lanacom Common Shares or any capital stock of any of the Lanacom Subsidiaries or
the issuance or
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authorization of the issuance of any of the securities in respect of, in lieu of
or in substitution for Lanacom Common Shares or any capital stock of any of the
Lanacom Subsidiaries, or the repurchase, redemption or other acquisition,
directly or indirectly, of any Lanacom Common Shares or any capital stock of any
of the Lanacom Subsidiaries (or options, warrants, or other rights exercisable
therefor).
(h) increase in the salary or other compensation payable or to
become payable by Lanacom or any of the Lanacom Subsidiaries to any of their
officers, directors, employees or advisors, or the declaration, payment or
commitment or obligation of any kind for the payment, by Lanacom or any of the
Lanacom Subsidiaries, of a bonus or other additional salary or compensation to
any such person, except as otherwise contemplated by this Agreement or as made
in the ordinary course of business in accordance with the past practices of
Lanacom or any of the Lanacom Subsidiaries;
(i) sale, lease, license or other disposition of any of the
assets or properties of Lanacom or the Lanacom Subsidiaries, except in the
ordinary course of business;
(j) amendment or termination or violation of any material
contract, agreement or license to which Lanacom or any of the Lanacom
Subsidiaries is a party or by which it is bound other than termination by
Lanacom or any of the Lanacom Subsidiaries pursuant to the terms thereof in the
ordinary course of business;
(k) loan by Lanacom or any of the Lanacom Subsidiaries to any
person or entity, other than advances to employees for travel and business
expenses in the ordinary course of business and consistent with past practices,
or incurring by Lanacom or any of the Lanacom Subsidiaries of any indebtedness
other than trade debt in the ordinary course of business consistent with past
practices, guaranty of Lanacom or any of the Lanacom Subsidiaries of any
indebtedness, issuance or sale of any debt securities of Lanacom or any of the
Lanacom Subsidiaries or guaranteeing of any debt securities of others;
(l) waiver or release of any material right or claim of
Lanacom or any of the Lanacom Subsidiaries, including any material write-off or
other compromise of any account receivable of Lanacom or any of the Lanacom
Subsidiaries;
(m) the commencement or notice or threat of commencement of
any lawsuit or proceeding against or investigation of Lanacom or any of the
Lanacom Subsidiaries or their affairs;
(n) claim of ownership by a third party of Lanacom's
Intellectual Property (as defined in Section 2.10 below), or of infringement by
Lanacom or any of the Lanacom Subsidiaries of any third party's Intellectual
Property rights;
(o) issuance, sale or exemption by Lanacom or any of the
Lanacom Subsidiaries of any of its capital stock, or securities exchangeable,
convertible or exercisable therefor, or of any other securities except for
issuances or sales (i) as a result of exercises of outstanding share options
granted under the Lanacom Option Plan or other rights previously granted to
purchase Lanacom Common
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Shares, provided that such options and other rights are included among the
options and rights specified in paragraph 2.2 above, or (ii) pursuant to the
Pre-Closing Reorganization;
(p) change in pricing or royalties set or charged by Lanacom
or any of the Lanacom Subsidiaries;
(q) any event or condition of any character that has had an
effect that is materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, business, operating, results of operations or
prospects of Lanacom and the Lanacom Subsidiaries taken as a whole (a "Material
Adverse Effect"), other than any such events or conditions occurring in the
economy, capital markets or software industry generally which have had a similar
effect on other companies in the same sector of the software industry as BackWeb
Parent and Lanacom; or
(r) agreement by Lanacom, the Founder, any of the Lanacom
Subsidiaries or any officer or employees thereof to do any of the things
described in the preceding clauses (a) through (q) (other than by negotiations
with BackWeb Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.7 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes", means (i) any and all federal, provincial,
state and local Canadian and foreign taxes, and similar assessments and other
governmental charges, duties, impositions, fees, royalties, withholdings,
contributions and liabilities, including taxes based upon or measured by gross
receipts, gross income, gross profits, sales (including goods and services), use
and occupation, and value added, ad valorem, transfer, franchise, stamp,
documentary, severance, net income, capital, employer health, workers
compensation, pension, withholding, payroll, recapture, employment, excise and
property taxes, assessments, charges, duties, impositions, fees, royalties,
withholdings, contributions and liabilities, together with all interest,
penalties and additions imposed with respect to such amounts; (ii) any liability
for the payment of any amounts of the type described in clause (i) as a result
of being a member of an affiliated, consolidated, combined or unitary group for
any period; and (iii) any liability for the payment of any amounts of the type
described in clause (i) or (ii) as a result of any express or implied obligation
to indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) Lanacom and the Lanacom Subsidiaries as of the
Closing Time will have prepared and timely filed all required federal,
provincial, state and local Canadian and foreign returns, declarations,
remittances, estimates, information statements and reports ("Returns") relating
to any and all Taxes imposed on or assessed with respect to or measured by or
charged against or attributable to Lanacom or any of the Lanacom Subsidiaries,
such Returns are true and correct in all respects and have
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been completed in accordance with applicable law and no material facts or facts
have been omitted from such Returns which would make any of them misleading.
(ii) Lanacom and the Lanacom Subsidiaries as of the
Closing Time: (A) will have paid all Taxes shown on the Returns, all Taxes due
and payable by them and all Taxes assessed or reassessed against them and (B)
will have withheld/collected and remitted in a timely manner any Taxes required
to be withheld/collected and remitted.
(iii) Neither Lanacom nor any of the Lanacom Subsidiaries
have been delinquent in the payment of any Tax. There is no Tax deficiency
assessed or proposed against Lanacom or any of the Lanacom Subsidiaries, nor
have Lanacom or any of the Lanacom Subsidiaries executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax that is still in effect.
(iv) Neither Lanacom nor any of the Lanacom Subsidiaries
have received notice of any audit or other examination relating to Taxes or any
request for such an audit or examination and there are no claims, actions, suits
litigation, arbitrations, proceedings or appeals pending, proposed or threatened
in respect of Taxes imposed on or assessed with respect to or measured by or
charged against or attributable to Lanacom or any of the Lanacom Subsidiaries.
(v) Lanacom and the Lanacom Subsidiaries are accrual
basis taxpayers and do not have any liabilities for unpaid Taxes not yet due
which have not been accrued or reserved against in accordance with Canadian GAAP
on the Lanacom Balance Sheet, whether asserted or unasserted, contingent or
otherwise.
(vi) There are no liens, pledges, charges, claims,
security interests or other encumbrances of any sort ("Liens") on the assets of
Lanacom or any of the Lanacom Subsidiaries relating to or attributable to Taxes
other than Liens for taxes not yet due and payable.
(vii) Neither Lanacom nor any of the Lanacom Subsidiaries
are a party to a tax sharing, indemnification or allocation agreement (other
than this Agreement) nor does Lanacom or any of the Lanacom Subsidiaries owe any
amount under any such agreement.
(viii) Lanacom and the Lanacom Subsidiaries have charged,
collected and remitted on a timely basis all Taxes as required under applicable
law on any sale, supply or delivery whatsoever made by each of them.
(ix) There are no circumstances existing which could
result in the application of Section 78 of the Income Tax Act (Canada) or any
equivalent provincial provision to Lanacom or any of the Lanacom Subsidiaries.
(x) None of Sections 80 through to and including
Section 80.04 of the Income Tax Act (Canada) or any equivalent provincial
provisions have applied to Lanacom or any of the Lanacom Subsidiaries.
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(xi) Neither Lanacom nor any of the Lanacom Subsidiaries
have acquired an asset from a person with which it deals at non-arm's length for
consideration greater than the fair market value of such asset at the time of
its acquisition.
(xii) Neither Lanacom nor any of the Lanacom Subsidiaries
have ever entered into an agreement contemplated by Section 191.3 of the Income
Tax Act (Canada) or any equivalent provincial provision.
2.8 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which Lanacom or any of the Lanacom Subsidiaries is a party or, otherwise
binding upon Lanacom or any of the Lanacom Subsidiaries which has or reasonably
could be expected to have the effect of prohibiting or impairing any business
practice of Lanacom or any of the Lanacom Subsidiaries, any acquisition of
property (tangible or intangible) by Lanacom or any of the Lanacom Subsidiaries
or the conduct of business as currently conducted or as proposed to be conducted
by Lanacom or any of the Lanacom Subsidiaries.
2.9 Title to Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) Section 2.9(a) of the Lanacom Disclosure Schedule sets
forth a list of all real property currently owned or leased by Lanacom and the
Lanacom Subsidiaries and, in the case of leased property, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) of Lanacom.
(b) Lanacom and the Lanacom Subsidiaries have good and valid
title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of their tangible properties and assets free and clear of any
Liens, except as reflected in the Lanacom Financial Statements and except for
Liens for taxes not yet due and payable.
(c) The equipment owned or leased by Lanacom and the Lanacom
Subsidiaries, taken as a whole, is (i) adequate for the conduct of the business
of Lanacom and the Lanacom Subsidiaries as currently conducted (ii) generally in
good operating condition, subject to normal wear and tear, and (iii) reasonably
maintained.
2.10 Intellectual Property.
(a) Except as set forth in Section 2.10(a) of the Lanacom
Disclosure Schedule, Lanacom and the Lanacom Subsidiaries own, or are licensed
or otherwise possess legally enforceable and irrevocable rights to use, all
patents, industrial designs, trademarks, trade names, service marks, copyrights,
and any applications therefor, net lists, schematics, technology, know-how,
computer software programs or applications (in both source code and object code
form as to software
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programs and applications owned by Lanacom or the Lanacom Subsidiaries and in
object code form as to software programs and applications licensed by Lanacom or
the Lanacom Subsidiaries ), and tangible or intangible proprietary information
or material (collectively, "Lanacom Intellectual Property") that are used or
proposed to be used in the business of Lanacom or the Lanacom Subsidiaries as
currently conducted or as currently proposed to be conducted by Lanacom or the
Lanacom Subsidiaries.
(b) Section 2.10(b) of the Lanacom Disclosure Schedule sets
forth a complete list of all patents, industrial designs, registered and
material unregistered trademarks, registered copyrights, trade names and service
marks, and any applications therefor in respect of any of the foregoing,
included in the Lanacom Intellectual Property, and specifies, where applicable,
the jurisdictions in which the rights to such Lanacom Intellectual Property have
been issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. All registered
patents, industrial designs, trademarks, service marks and copyrights held by
Lanacom and the Lanacom Subsidiaries are valid and subsisting.
(c) Section 2.10(c) of the Lanacom Disclosure Schedule sets
forth a complete list of all licenses, sublicenses and other agreements
(including all amendments and supplements thereto) as to which Lanacom or any of
the Lanacom Subsidiaries are a party and pursuant to which Lanacom or any of the
Lanacom Subsidiaries are entitled to use intellectual property of a third party
or any other person is authorized to use Lanacom Intellectual Property that is
material to Lanacom and the Lanacom Subsidiaries, taken as a whole, and includes
the identity of all parties thereto. Neither Lanacom nor any of the Lanacom
Subsidiaries are in violation of any license, sublicense or agreement described
on such list. Neither Lanacom nor any of the Lanacom Subsidiaries has infringed
and the business of each of Lanacom or the Lanacom Subsidiaries as currently
conducted, or as currently proposed by Lanacom or the Lanacom Subsidiaries to be
conducted, does not infringe any copyright, patent, trademark, service mark,
industrial design, trade search or other proprietary right of any third party.
The execution and delivery of this Agreement by Lanacom, and the consummation of
the transactions contemplated hereby, will not (i) cause Lanacom or any of the
Lanacom Subsidiaries to be in violation or default under any such license,
sublicense or agreement, (ii) entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement or (iii) require Lanacom or any of the Lanacom Subsidiaries to repay
any funds already received by it from a third party or make to a third party any
incremental payment. Except for rights granted in agreements, licenses or
sublicenses described in Sections 2.10(b) and (c) of the Lanacom Disclosure
Schedule, Lanacom or one of the Lanacom Subsidiaries is the sole and exclusive
owner or licensee of, with all right, title and interest in and to (free and
clear of any Liens), the Lanacom Intellectual Property, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which the
Lanacom Intellectual Property is being used.
(d) No claims contesting Lanacom's ownership of or right to
use Lanacom Intellectual Property, or asserting any right of a third party to
use any Lanacom Intellectual Property, have been asserted or threatened to
Lanacom or any of the Lanacom Subsidiaries or their agents, nor are there any
valid grounds for any bona fide claims (i) against the use by Lanacom or any of
the Lanacom Subsidiaries of any Lanacom Intellectual Property used in the
business of Lanacom or any of the Lanacom Subsidiaries as currently conducted or
as currently proposed to be conducted by Lanacom or
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any of the Lanacom Subsidiaries, or (ii) challenging the validity,
effectiveness, or ownership by Lanacom of any of the Lanacom Intellectual
Property.
(e) (i) There is no unauthorized use, infringement or
misappropriation of any of the Lanacom Intellectual Property by any third party,
including any employee or former employee of Lanacom or its Subsidiaries, and
(ii) no Lanacom Intellectual Property or product of Lanacom or any of the
Lanacom Subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by Lanacom or any of
the Lanacom Subsidiaries. Lanacom and each of the Lanacom Subsidiaries has a
policy requiring each employee and contractor materially involved in proprietary
aspects of the business to execute nondisclosure of proprietary information and
confidentiality agreements in the standard forms, and all current and former
employees, consultants and contractors of Lanacom and the Lanacom Subsidiaries
involved in proprietary aspects of the business of Lanacom or any of the Lanacom
Subsidiaries have executed such an agreement.
2.11 Agreements, Contracts and Commitments.
(a) Except as set forth in Section 2.11(a) of the Lanacom
Disclosure Schedule, neither Lanacom nor any of the Lanacom Subsidiaries have
continuing obligations under, nor are any of them a party to nor are bound by:
(i) any voluntary recognition agreements, accreditation
order or collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay, post- employment liabilities or obligations or "golden parachute"
provisions (or similar provisions which provide for payment of consideration
upon the completion of the transactions contemplated herein);
(iii) any bonus, incentive, deferred compensation,
pension, profit sharing or retirement plans, or any other employee benefit plans
or arrangements;
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement, except as provided herein;
(vi) any fidelity or surety bond or completion bond;
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(vii) any lease of personal property having annual lease
payments individually in excess of $25,000;
(viii) any agreement of indemnification, warranty or
guaranty other than in the ordinary course of business;
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of Lanacom or any of the Lanacom Subsidiaries
to engage in any line of business or to compete with any person;
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000;
(xi) any agreement, contract or commitment relating to
the disposition or acquisition of any material assets, or any interest in any
business enterprise outside the ordinary course of Lanacom and the Lanacom
Subsidiaries' business, taken as a whole;
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(xiii) any distribution, joint marketing or development
agreement;
(xiv) any agreement, contract or commitment with any
customer which, during the last two fiscal years of Lanacom, accounted, or is
expected to account during Lanacom's current fiscal year, for more than 5% of
Lanacom's revenue or trade payables;
(xv) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty (30)
days;
(xvi) transfer or license to any third party or otherwise
extend, amend or modify any rights to Lanacom Intellectual Property or acquire,
license or otherwise procure any intellectual property right of any third party;
or
(xvii) enter into any agreement restricting Lanacom or any
of the Lanacom Subsidiaries from any business activity.
(b) Except for any alleged breaches, violations and defaults,
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, all as noted in Section 2.11(b) of the
Lanacom Disclosure Schedule, neither Lanacom nor any of the Lanacom Subsidiaries
have breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment to which it is bound (including those set
forth in the Lanacom Disclosure Schedule (any such agreement, contract or
commitment, of Lanacom or its Subsidiaries (a "Lanacom Contract")). Each Lanacom
Contract is in full force and effect and, except as otherwise disclosed in
Section 2.11(b) of the Lanacom Disclosure
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Schedule, is not subject to any default thereunder of which Lanacom or any of
the Lanacom Subsidiaries is aware by any party obligated to Lanacom or any of
the Lanacom Subsidiaries pursuant thereto.
2.12 Interested Party Transactions. Except as disclosed in Section
2.12 of the Lanacom Disclosure Schedule, no officer, director, employee or
shareholder of more than 5% of the Lanacom Common Shares (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an interest in any entity which furnished
or sold, or furnishes or sells, services or products that Lanacom or any of the
Lanacom Subsidiaries furnish or sell, or propose to furnish or sell, or (ii) any
interest in any entity that purchases from or sells or furnishes to, Lanacom or
any of the Lanacom Subsidiaries, any goods or services or (iii) a beneficial
interest in any contract or agreement set forth in Section 2.11(a) of the
Lanacom Disclosure Schedule; provided, however, that passive ownership of no
more than five percent (5%) of the outstanding voting stock of a corporation
shall not be deemed an "interest in any entity" for purposes of this Section
2.12.
2.13 Governmental Authorization. Section 2.13 of the Lanacom
Disclosure Schedule accurately lists each consent, license, permit, grant or
other authorization issued to Lanacom or any of the Lanacom Subsidiaries by a
Governmental Entity (i) pursuant to which Lanacom or any of the Lanacom
Subsidiaries currently operates or holds any interest in any of its properties
or (ii) which is required for the operation of its business or the holding of
any such interest (herein collectively called "Lanacom Authorizations"), which
Lanacom Authorizations are in full force and effect and constitute all Lanacom
Authorizations required to permit Lanacom or any of the Lanacom Subsidiaries to
operate or conduct their business or hold any interest in their properties or
assets, in each case except for routine local business permits automatically
granted once a filing and fee payment have been made.
2.14 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, threatened against Lanacom or any of the
Lanacom Subsidiaries or any of their properties or their officers or directors
(in their capacities as such). There is no judgment, decree or order against
Lanacom or any of the Lanacom Subsidiaries any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin, alter or
delay any of the transactions contemplated by this Agreement or that has a
reasonable risk of having a Material Adverse Effect on Lanacom or any of the
Lanacom Subsidiaries. No employee or consultant of Lanacom or any of the Lanacom
Subsidiaries is subject to any criminal proceeding or any action, suit,
proceeding, claim, arbitration or investigation by any former employer alleging:
(i) the violation of any agreement with a former employer, (ii) any breach of
duty to such former employer, or (iii) any misappropriation of such employer's
intellectual property rights.
2.15 Accounts Receivable. All accounts receivable of Lanacom reflected
on the Lanacom Balance Sheet ("Accounts Receivable") arose in the ordinary
course of business, are carried at values determined in accordance with Canadian
GAAP consistently applied and, are collectible except to the extent of reserves
therefor set forth in the Lanacom Balance Sheet. No person has any Lien on any
such Accounts Receivable and no request or agreement for deduction or discount
has been made with respect to any of such Accounts Receivable.
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2.16 Minute Books. The minute books of Lanacom and the Lanacom
Subsidiaries made available to BackWeb Parent and its counsel are the only
minute books of Lanacom and the Lanacom Subsidiaries and contain an accurate
summary of all material transactions approved by the directors (or committees
thereof) and shareholders since the time of incorporation of Lanacom and the
Lanacom Subsidiaries.
2.17 Environmental Matters. (A) Neither Lanacom nor any of the Lanacom
Subsidiaries have been in violation of any federal, provincial, local or foreign
statute, law, rule, regulation, ordinance, code, guideline or policy and any
judicial or administrative interpretation thereof including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, those relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of or exposure of employees
to Hazardous Materials (collectively, "Environmental Laws"), (B) Lanacom and the
Lanacom Subsidiaries have all permits, authorizations and approvals required
under any applicable Environmental Laws and is in compliance with their terms
and conditions, (C) there are no existing, pending or threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, orders, directions, warnings,
investigations or proceedings relating to any Environmental Law against Lanacom
and the Lanacom Subsidiaries, and (D) there are no events or circumstances that
might reasonably be expected to form the basis of an order, including an order
for clean-up or remediation, or an action, suit or proceeding by any private
party or governmental body or agency, against or affecting Lanacom or any of the
Lanacom Subsidiaries relating to any Hazardous Materials or the violation of any
Environmental Laws, (E) there have been no releases or disposal of Hazardous
Materials on, from, under or to any premises at any time, owned, occupied,
operated by Lanacom or any of the Lanacom Subsidiaries nor has Lanacom or any of
the Lanacom Subsidiaries caused the release or disposal of Hazardous substances
on, under or to other properties, (f) there are no waste disposal sites,
underground storage tanks, PCBs or asbestos containing materials located on, at
or under any premises owned, occupied or operated by Lanacom or any of the
Lanacom Subsidiaries.
2.18 Brokers' and Finders' Fees. Neither Lanacom nor any of the
Lanacom Subsidiaries have incurred, nor will either incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.19 Employee Benefit Plans and Compensation.
(a) Plans. Section 2.19(a) of the Lanacom Disclosure Schedule
contains a true and complete list of each employee benefit plan or arrangement,
and any plan, agreement or program providing for pensions, retirement income,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation that (i) is entered into,
maintained or contributed to, as the case may be, by Lanacom or any of the
Lanacom Subsidiaries and (ii) covers any employee or former employee of Lanacom
or any of the Lanacom Subsidiaries (collectively "Benefit
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Arrangements"). Each Benefit Arrangement has been maintained and administered in
material compliance with its terms and with the requirements prescribed by any
and all statutes, laws, ordinances and regulations which are applicable to such
Benefit Arrangements. No Benefit Arrangement has unfunded liabilities that, as
of the Closing, will not be offset by insurance or fully accrued or reserved
against in the Lanacom Balance Sheet. Except as required by law or by the
provisions of such Benefit Arrangement, no condition exists that would prevent
Lanacom or any of the Lanacom Subsidiaries from amending or terminating any
Benefit Arrangement.
(b) No Post-Employment Obligations. Except as set forth in
Section 2.19(b) of the Lanacom Disclosure Schedule, no Benefit Arrangement
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and neither
Lanacom nor any of the Lanacom Subsidiaries have ever represented, promised or
contracted (whether in oral or written form) to any employee (either
individually or to employees as a group) that such employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(c) Employment Matters. Section 2.19(c) of the Lanacom
Disclosure Schedule lists all current employees of Lanacom and the Lanacom
Subsidiaries and their position, gross remuneration and length of employment.
Lanacom and the Lanacom Subsidiaries (i) are in compliance in all material
respects with all applicable foreign, federal and provincial laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to employees; (ii)
have withheld all amounts required by law or by agreement to be withheld from
the wages, salaries and other payments to employees; (iii) are not liable for
any arrears of wages or any taxes or any penalty for failure to comply with any
of the foregoing; and (iv) except as required by applicable law or statute, are
not liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(d) Labor. Except as set forth in Section 2.19(d) of the
Lanacom Disclosure Schedule, neither Lanacom nor any of the Lanacom Subsidiaries
are involved in or threatened with any labor dispute, grievance, litigation or
claim relating to labor, occupational health and safety or human rights matters
involving any employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability having a material adverse
effect on Lanacom and the Lanacom Subsidiaries, taken as a whole. Neither
Lanacom nor any of the Lanacom Subsidiaries have engaged in any unfair labor
practices which would, individually or in the aggregate, directly or indirectly
result in liability to Lanacom or any of the Lanacom Subsidiaries. Except as set
forth in Section 2.19(d) of the Lanacom Disclosure Schedule, neither Lanacom nor
any of the Lanacom Subsidiaries are presently, nor have they been in the past, a
party to, or bound by, any collective bargaining agreement or union contract
with respect to employees and no collective bargaining agreement is being
negotiated by Lanacom or any of the Lanacom Subsidiaries or is being organized
or is threatened.
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(e) Occupational Health and Safety. Lanacom has provided
BackWeb Parent and its counsel with a copy of any Lanacom or Lanacom Subsidiary
health and safety policies in effect. Lanacom has provided BackWeb Parent and
its counsel with all inspection reports under the Occupational Health and Safety
Act (Ontario) relating to Lanacom and the Lanacom Subsidiaries, and there are no
outstanding inspection orders made under the Occupational Health and Safety Act
(Ontario) relating to Lanacom and the Lanacom Subsidiaries. The business of
Lanacom and the Lanacom Subsidiaries complies with all Occupational Health and
Safety Rules and Regulations in all material respects and there are no
outstanding violations of such Rules and Regulations. Section 2.19(e) of the
Lanacom Disclosure Schedule sets forth the details of any charges, prosecutions,
fines or convictions under the Occupational Health and Safety Act (Ontario)
relating to Lanacom or the Lanacom Subsidiaries.
(f) Workers' Compensation. Section 2.19(f) of the Lanacom
Disclosure Schedule sets forth the details of any assessments made by the
Workers' Compensation Board and the current classification and rates of
assessment in each case, relating to Lanacom and any of the Lanacom
Subsidiaries. Section 2.19(f) of the Lanacom Disclosure Schedule sets forth the
details of any Workers' Compensation Board claims, pensions and awards,
including experience rating information. Lanacom has provided BackWeb Parent and
its counsel with a copy of the most recent annual report of payroll statement
submitted to the Workers' Compensation Board and details of the actual payroll
earnings for the year to date. There are no notices of assessment, provisional
assessment or increased assessment (collectively, "assessments") or any other
communications related thereto which Lanacom or any of the Lanacom Subsidiaries
have received from any Workers' Compensation Board or similar authorities in any
jurisdictions where its business is carried on. There are no assessments which
are unpaid on the date hereof or which will be unpaid at the Closing Date, and
there are no facts or circumstances which may result in a material increase in
liability or assessments to BackWeb Parent from any applicable workers'
compensation legislation, regulations or rules after the Closing Date.
(g) Pay Equity. Lanacom has provided BackWeb Parent and its
counsel with a copy of any pay equity policies or plans in effect relating to
Lanacom and the Lanacom Subsidiaries. Section 2.19(g) of the Lanacom Disclosure
Schedule sets forth the details of any outstanding obligations, orders,
complaints, investigations or inquiries under any applicable pay equity
legislation.
(h) Human Rights. Lanacom has provided BackWeb Parent and its
counsel with a copy of all policies and posted directives with respect to human
rights policies, procedures and guidelines relating to Lanacom and the Lanacom
Subsidiaries.
2.20 Proprietary Information Agreements. Each former employee and
presently employed employee of Lanacom and each of the Lanacom Subsidiaries has
executed a proprietary information agreement in Lanacom's standard form, a copy
of which is attached hereto as part of Section 2.20 of the Lanacom Disclosure
Schedule. Such proprietary information agreements constitute valid and binding
obligations of Lanacom and its Subsidiaries. Neither the execution or delivery
of such agreements, nor the carrying on of the business or Lanacom or any of the
Lanacom Subsidiaries as employees by such persons, nor the conduct of the
business of Lanacom or any of the Lanacom Subsidiaries as currently
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proposed, will conflict with or result in a breach of the terms, conditions or
provisions of or constitute a default under any contract, covenant or instrument
under which any such employee is now obligated.
2.21 Insurance. Section 2.21 of the Lanacom Disclosure Schedule lists
all insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors of Lanacom
and the Lanacom Subsidiaries. Except as disclosed in Section 2.21 of the Lanacom
Disclosure Schedule such policies and bonds are sufficient in amount to allow
Lanacom or the Lanacom Subsidiaries (as applicable) to replace any of its
properties that might be damaged or destroyed. There is no claim by Lanacom or
any of the Lanacom Subsidiaries pending under any of such policies or bonds as
to which Lanacom or any of the Lanacom Subsidiaries have received notice that
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Lanacom or the applicable Lanacom Subsidiary are
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
There is no threatened termination of, or material premium increase with respect
to, any of such policies.
2.22 Compliance with Laws. Lanacom and each of the Lanacom
Subsidiaries has complied with, are not in violation of, and have not received
any notices of violation with respect to, any foreign, federal, provincial or
local statute, law or regulation with respect to the conduct of its business, or
the ownership or operation of their business, assets or properties.
2.23 Complete Copies of Materials. Lanacom has delivered or made
available to BackWeb Parent true and complete copies of each agreement,
contract, commitment or other document (or summaries of same) that is referred
to in the Lanacom Disclosure Schedule or that has been requested in writing by
BackWeb Parent or its counsel.
2.24 Representations Complete. None of the representations or
warranties made herein by Lanacom (as modified by the Lanacom Disclosure
Schedule), nor any statement made in any schedule or certificate furnished by
Lanacom pursuant to this Agreement, or furnished in or in connection with
documents mailed or delivered to the shareholders of Lanacom in connection with
soliciting their consent to this Agreement and the Amalgamation, contains or
will contain at the Closing Time, any untrue statement of a material fact, or
omits or will omit at the Closing Time to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
2.25 Disclosure Schedule. The Lanacom Disclosure Schedule has been
prepared and executed by Lanacom and dated and delivered on the date of this
Agreement. Lanacom shall endeavor to disclose in the Lanacom Disclosure Schedule
each item of information in each separate section in which such item may
reasonably be required to be disclosed, provided, however, that any item of
information disclosed in any one section of the Lanacom Disclosure Schedule may
be cross-referenced in other relevant sections thereof for purposes of
disclosure under this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
BACKWEB PARENT AND BACKWEB CANADA
Except as disclosed in a document of even date herewith and delivered by
BackWeb Parent and BackWeb Canada to Lanacom and the Founder prior to the
execution and delivery of this Agreement and referring to the representations
and warranties in this Agreement (the "BackWeb Disclosure Schedule"), BackWeb
Parent and BackWeb Canada represent and warrant to Lanacom and the Founder as
follows:
3.1 Organization, Standing and Power. Each of BackWeb Parent, BackWeb
Canada and BackWeb Technologies Inc., a Delaware corporation ("BackWeb Tech")
("BackWeb Canada" and collectively with BackWeb Tech, the "Subsidiaries"), is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Each of BackWeb Parent and its
Subsidiaries has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
it is required to be so qualified. BackWeb Parent has delivered a true and
correct copy of the Articles of Association or other charter documents, as
applicable, of BackWeb Parent and each of its Subsidiaries, each as amended to
date, to Lanacom. Neither BackWeb Parent nor any of its Subsidiaries is in
violation of any of the provisions of its Articles of Association (or equivalent
organizational documents). BackWeb Parent is the owner of all outstanding shares
of capital stock of each of its Subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such Subsidiary are owned by BackWeb Parent free
and clear of all Liens. There are no outstanding subscriptions, options,
warrants, puts, calls, rights, exchangeable or convertible securities or other
commitments or agreements of any character relating to the issued or unissued
capital stock or other securities of any such Subsidiary, or otherwise
obligating BackWeb Parent or any such Subsidiary to issue, transfer, sell,
purchase, redeem or otherwise acquire any such securities. BackWeb Parent does
not directly or indirectly own any equity or similar interest in, or any
interest convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity, other than in its Subsidiaries.
3.2 Capital Structure of BackWeb Parent and its Subsidiaries.
(a) BackWeb Parent. The authorized capital stock of BackWeb
Parent consists of 20,000,0000 Ordinary Shares, nominal value NIS 0.01 each (the
"BackWeb Parent Ordinary Shares"), of which 6,445,720 shares are issued and
outstanding and 44,103,487 Preferred Shares, nominal value NIS 0.01 each,
consisting of (a) 25,464,110 Series A Preferred Shares (the "Series A
Preferred"), of which 25,464,110 shares are issued and outstanding, (b)
4,237,640 Series B Preferred Shares (the "Series B Preferred"), of which
4,237,640 shares are issued and outstanding, and (c)14,401,737 Series C
Preferred Shares, of which 10,482,608 shares are Series C-1 Preferred Shares
(the "Series C-1 Preferred"), of which 10,482,608 shares are issued and
outstanding and of which 3,919,129 shares are Series C-2 Preferred (the "Series
C-2 Preferred", and collectively with the Series A Preferred, Series B Preferred
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and Series C-1 Preferred, the "BackWeb Parent Preferred"), of which 2,108,696
shares are issued and outstanding. BackWeb Parent has issued warrants (the
"BackWeb Parent Warrants")to purchase an aggregate of up to 1,810,432 shares of
Series C-2 Preferred. There are no other outstanding shares of capital stock or
voting securities. Each outstanding share of BackWeb Parent Preferred and shares
of Series C-2 Preferred issuable upon exercise of the BackWeb Parent Warrants
are convertible into BackWeb Parent Ordinary Shares. There are currently not
more than 60,000,000 BackWeb Parent Ordinary Shares outstanding, on a fully
diluted basis. All outstanding BackWeb Parent Ordinary Shares and BackWeb Parent
Preferred Shares are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and, except as set
forth in Section 3.2(a) of the BackWeb Disclosure Schedule, are not subject to
preemptive rights or rights of first refusal created by statute, or any
agreement to which BackWeb Parent is a party or by which it is bound. BackWeb
Parent has reserved 11,170,190 BackWeb Parent Ordinary Shares for issuance to
employees and consultants pursuant to the Company's 1996 United States Stock
Option Plan and 1996 Israeli Stock Option Plan (collectively, the "BackWeb
Option Plans") of which 0 shares have been issued pursuant to option exercises
and 8,079,100 shares are subject to outstanding, unexercised options. Other than
as set forth in Section 3.2(a) of the BackWeb Disclosure Schedule, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which BackWeb Parent is a party or by which it is bound obligating
BackWeb Parent to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
BackWeb Parent.
(b) BackWeb Canada. The authorized capital of BackWeb Canada
consists of an unlimited number of common shares, of which one common share is
issued and outstanding.
(c) BackWeb Tech. The authorized capital stock of BackWeb Tech
consists of 10,000 shares of Common Stock, par value US$0.01 per share, of which
10,000 shares are issued and outstanding.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Lanacom. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Time, Lanacom agrees (except to the extent that BackWeb
Parent shall otherwise consent in writing), to carry on its business and the
business of the Lanacom Subsidiaries in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due unless validly withheld, to pay or perform other obligations when
due, and, to the extent consistent with such business and except as agreed to by
BackWeb Parent and Lanacom, use all reasonable efforts consistent with past
practice and policies to preserve intact the present business organization, keep
available the services of its present officers and key employees and preserve
their relationships with customers and others having business dealings with it,
all with the goal of preserving unimpaired Lanacom and the Lanacom Subsidiaries'
goodwill and ongoing businesses at the Closing Time. Lanacom shall promptly
notify BackWeb Parent of any event or occurrence or emergency not in the
ordinary course of business of Lanacom or the Lanacom Subsidiaries, and any
material event involving Lanacom or the Lanacom Subsidiaries. Except as
expressly contemplated by this Agreement, Lanacom and the Lanacom Subsidiaries
shall not, without the prior written consent of BackWeb Parent:
(a) Enter into any commitment or transaction not in the
ordinary course of business or any commitment or transaction of the type
described in Section 2.6 hereof;
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(b) Transfer to any person or entity any rights to the Lanacom
Intellectual Property (other than such transfers effectuated in the ordinary
course of business);
(c) Enter into or amend any agreements not cancelable by
Lanacom without penalty on ninety (90) days notice or less pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of Lanacom or any of the Lanacom
Subsidiaries;
(d) Amend, terminate or violate any distribution agreement or
material contract, agreement or license which Lanacom or any of the Lanacom
Subsidiaries are a party or by which either is bound other than termination by
Lanacom or any of the Lanacom Subsidiaries pursuant to the terms thereof in the
ordinary course of business and without financial penalty to Lanacom or any of
the Lanacom Subsidiaries;
(e) Commence any material litigation;
(f) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Lanacom Common Shares, or split, combine or reclassify any Lanacom Common
Shares;
(g) Except for the issuance of Lanacom Common Shares upon
exercise or conversion of presently outstanding Lanacom Warrants, becoming the
owner of all of the outstanding shares of Lanacom Europe or otherwise in
connection with the Pre-Closing Reorganization, issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase, propose the
purchase of, repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such shares or other convertible
securities, including those of any of the Lanacom Subsidiaries;
(h) Except to facilitate the closing of the transactions
contemplated by this Agreement, cause or permit any amendments to its or any of
the Lanacom Subsidiaries' Articles of Incorporation or Bylaws (or comparable
organizational documents);
(i) Acquire or agree to acquire by merging, amalgamating or
consolidating with, or by purchasing any of the assets or equity securities of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to the business of Lanacom and the Lanacom Subsidiaries, taken as
a whole;
(j) Sell, lease, license or otherwise dispose of any of its or
the Lanacom Subsidiaries' properties or assets except in the ordinary course of
business;
(k) Incur any indebtedness for borrowed money (except with
respect to indebtedness incurred by Lanacom or any of the Lanacom Subsidiaries
in the ordinary course of business and under
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existing term loans or revolving credit lines in an amount not more than
$50,000) or guarantee any such indebtedness or issue or sell any debt securities
of Lanacom or any of the Lanacom Subsidiaries or guarantee any debt securities
of others;
(l) Grant any severance or termination pay to, or accelerate
any benefits of, (i) any director or officer or (ii) any other employee except
payments made pursuant to written agreements outstanding on the date hereof and
disclosed in Section 2.11(a) of the Lanacom Disclosure Schedule;
(m) Adopt or amend any employee benefit plan, or enter into
any employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees other than hirings and terminations in the ordinary course of
business and other than customary increases associated with annual reviews
scheduled during such period;
(n) Revalue any of its assets including, without limitation,
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of
$10,000 (in any one case) or $50,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business or liabilities reflected or reserved against in the Lanacom
Financial Statements (or the notes thereto) or in connection with the
Pre-Closing Reorganization;
(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(q) Enter into any development, joint marketing or other
strategic arrangement or agreement except for such marketing agreements that are
(i) entered into in the ordinary course of business, (ii) do not provide for the
exclusive grant of any rights and (iii) terminable at Lanacom's or the
applicable Lanacom Subsidiary's option at any time without the payment of any
termination fees; or
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any other action that
would prevent Lanacom from performing or cause Lanacom not to perform the
transactions contemplated herein or its covenants hereunder.
4.2 No Solicitation.
(a) Until the Closing Time or the date of termination of this
Agreement pursuant to the provisions of Section 9.1 hereof, as the case may be,
Lanacom will not (nor will Lanacom permit any of Lanacom's officers, directors,
agents, representatives or affiliates to) directly or indirectly, take any of
the following actions with any party other than BackWeb Parent or its designees:
(i) solicit, conduct discussions with or engage in negotiations with any person,
relating to the possible acquisition by any
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person other than BackWeb Parent or Lanacom of any material portion of the
business of Lanacom or its Subsidiaries (whether by way of reorganization,
merger, purchase of capital stock, purchase of assets or otherwise) (an
"Alternative Acquisition") or of any portion of the capital stock or assets of
Lanacom or its Subsidiaries (an "Equity Transaction"), (ii) provide information
with respect to it to any person, other than BackWeb Parent, relating to or in
connection with an Alternative Acquisition or Equity Transaction, (iii) enter
into an agreement with any person, other than BackWeb Parent, providing for an
Alternative Acquisition or Equity Transaction or (iv) make or authorize any
statement, recommendation or solicitation in support of an Alternative
Acquisition or Equity Transaction.
(b) If, prior to the Closing Time or the termination of this
Agreement, Lanacom receives any bona fide offer or proposal relating to any of
the above, Lanacom shall immediately notify BackWeb Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be; provided, however, that Lanacom shall not be required to notify BackWeb
Parent of any contacts with parties who have previously made offers to Lanacom
where such parties repeat such previously made offers, Lanacom declines such
previously made offers, and the parties have no further contact.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information. Lanacom shall afford BackWeb Parent and
its accountants, counsel and other representatives, reasonable access during
normal business hours upon reasonable notice during the period prior to the
Closing Time or the termination of this Agreement to (a) all of Lanacom's and
Lanacom Subsidiaries' properties, books, contracts, commitments and records, and
(b) with the consent of Lanacom, which consent shall not be unreasonably
withheld, all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of Lanacom as
BackWeb Parent may reasonably request including, without limitation, access upon
reasonable request to Lanacom's and Lanacom Subsidiaries' employees, customers
and vendors for due diligence inquiry. Lanacom agrees to provide to BackWeb
Parent and its accountants, counsel and other representatives copies of internal
financial statements, business plans and projections promptly upon request. No
information or knowledge obtained in any investigation pursuant to this Section
5.1 or otherwise shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Amalgamation.
5.2 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
5.1, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential in accordance
with the terms of the confidentiality agreement executed by BackWeb Parent and
Lanacom in June 1997, (the "Confidentiality Agreement").
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5.3 Expenses.
5.4 Public Disclosure. Unless otherwise required by law, the parties
hereto agree that they shall not make any disclosure, by means of the issuance
of any reports, statements, releases or other public disclosure, or any other
third party disclosure, relating to the terms and conditions of this Agreement
and the transactions contemplated hereby, except for (a) disclosure by BackWeb
Parent of the intention of the parties to effect the transactions contemplated
herein (disclosing only the nature but not the terms of the transaction), in
such manner as BackWeb Parent shall determine, subject to Lanacom's reasonable
approval, (b) such disclosures as may be required by applicable law (provided
that the disclosing party shall use reasonable efforts to notify the other party
in advance), and (c) such other disclosures as the parties shall mutually agree.
Notwithstanding the foregoing, however, and except as may be otherwise required
by law, the amount of the Amalgamation Consideration shall not be disclosed, by
means of the issuance of any reports, statements, releases or other public
disclosure, or any other third party disclosure, by any party without the
consent of the other parties.
5.5 Consents. Each of BackWeb Parent and Lanacom shall promptly apply
for or otherwise seek, and use its best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the
Amalgamation, and Lanacom shall use its best efforts to obtain all consents,
waivers and approvals under any of Lanacom's agreements, contracts, licenses or
leases in order to preserve the benefits thereunder for the Surviving
Corporation and otherwise in connection with the Amalgamation.
5.6 Legal Requirements. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable best
efforts to take promptly, or cause to be taken, all reasonable actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations
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and filings and to remove any injunctions or other impediments or delays, legal
or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties hereto
the benefits contemplated by this Agreement.
5.7 Notification of Certain Matters. Lanacom shall give prompt notice
to BackWeb Parent, and BackWeb Parent shall give prompt notice to Lanacom, of
(i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which may cause any representation or warranty of Lanacom on
the one hand and BackWeb Parent, on the other hand, contained in this Agreement
to be untrue or inaccurate at the Closing Time and (ii) any failure of Lanacom
or any of the Lanacom Subsidiaries or BackWeb Parent or any of its Subsidiaries,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.7 shall not limit or
otherwise affect any remedies available to the party receiving such notice.
5.8 Shareholders Agreements. Lanacom shall deliver or cause to be
delivered to BackWeb Parent concurrently with the execution of this Agreement
(from the shareholders of Lanacom listed in Section 5.8 of the Lanacom
Disclosure Schedule (the "Lanacom Shareholders") as being required to sign a
Shareholders Agreement), executed Shareholders Agreements substantially in the
form attached hereto as Exhibit F hereto (the "Shareholders Agreement").
5.9 Further Assurances. Each of the parties to this Agreement shall
use its best efforts to effectuate the transactions contemplated hereby and to
fulfill or cause to be fulfilled the conditions to closing under this Agreement.
Each party hereto, at the reasonable request of another party hereto, shall
execute and deliver such other instruments and do and perform such other acts
and things as may be necessary or desirable for effecting completely the
consummation of this Agreement and the transactions contemplated hereby.
5.10 BackWeb Parent Options. Prior to the Closing Date, Lanacom shall
provide BackWeb Parent with a list of those employee of Lanacom who shall
continue to be employees of the Surviving Corporation and the number of options
to purchase BackWeb Parent Ordinary Shares which such employees shall be granted
under BackWeb Parent's employee stock option plan. The total number of such new
BackWeb Parent options to be issued to such employees stock option plan. The
total number of such new BackWeb Parent options to be issued to such employees,
including such options as shall be issued to Tony Davis, is referred to as the
"Total BackWeb Option Number". The Total BackWeb Option Number shall be not less
than 1,000,000. BackWeb Parent and Lanacom hereby agree that immediately after
the Closing Time, options to purchase BackWeb Parent Ordinary Shares (the
"Employee Options") shall be granted to such employees as so specified by
Lanacom. Each such option shall vest in accordance with BackWeb Parent's
standard vesting schedule of 25% of such options vesting upon each of the first,
second, third and fourth anniversaries of the date of grant, provided that the
date of grant shall be deemed the later of (i) the date such optionee commenced
employment with Lanacom and (ii) one year prior to the Closing Date. The
exercise price of each such option shall be equal to US$0.50 per BackWeb Parent
Ordinary Share.
5.11 Appointment of Director to BackWeb Parent Board of Directors.
BackWeb Parent shall use its best efforts to cause a nominee of the holders of
Lanacom Common Shares, which nominee shall be reasonably acceptable to BackWeb
Parent, to be elected to the BackWeb Parent Board of Directors effective upon
the Closing. In furtherance of the foregoing, as a condition to closing under
Section 6.2(g) hereof, either (i) that certain Amended and Restated Shareholders
Agreement of BackWeb Parent dated as of December 9, 1996 shall be amended to
provide in Section 5 thereof that for so long as the shareholders of Lanacom
immediately prior to the Closing Time (the "Lanacom Holders") shall continue to
hold at least 5,000,000 Exchangeable Shares or BackWeb Parent Ordinary Shares
(subject to appropriate adjustment for all stock splits, dividends,
combinations, recapitalization and the like), the holders of a majority of the
Exchangeable Shares and BackWeb Parent Ordinary Shares then held by all Lanacom
Holders shall be entitled to appoint, replace or remove one member of the Board
of Directors of BackWeb parent, or (ii) Nir Barkat Holdings Ltd., Eli Barkat
Holdings Ltd. and Yuval Rakavy (63) Holdings Ltd. (collectively, the "BackWeb
Founders") shall enter into an agreement with the holders of Exchangeable
Shares, in substantially the form attached hereto as Exhibit G (the "BackWeb
Shareholders' Agreement"), to vote the BackWeb Founders' BackWeb Parent capital
stock in favor of one nominee to the BackWeb Parent Board of Directors
designated by the holders of a majority of the Exchangeable Shares, subject to
certain conditions. It is understood that the Board of Directors rights set
forth herein shall terminate upon the first firmly underwritten sale of Ordinary
Shares of BackWeb Parent to the public in an offering in which the proceeds to
BackWeb Parent are not less than US$15,000,000 (at an underwriting discount).
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5.12 Bring Along Rights. On or prior to November 1, 1997, Anthony
Davis shall become a party to that certain Amended and Restated Shareholders
Agreement of BackWeb Parent dated as of December 9, 1996, as a Shareholder
thereunder, and as such shall be subject to the provisions of Section 2 (Bring
Along Rights) thereof. Mr. Davis shall not be a "Founder" or "Major Holder"
under such agreement. As a condition to Mr. Davis becoming subject to such
agreement, the agreement shall be amended by the Shareholders thereunder to
permit the inclusion of Mr. Davis within such agreement. The parties shall also
use all commercially reasonable efforts to include other Major Shareholders of
Lanacom as Shareholders under such agreement on similar terms as Mr. Davis.
5.13 Registration Rights. The parties agree to use their commercially
reasonable efforts to have that certain Amended and Restated Rights Agreement
(the "Rights Agreement") by and among BackWeb Parent and the Purchasers thereto
amended on or prior to November 1, 1997 in order to provide to all of the
holders of Exchangeable Shares (the "Rights Holders") registration rights
pertaining to the BackWeb Parent Ordinary Shares issuable pursuant to their
Exchangeable Shares, which registration rights shall be substantially similar to
those granted to the Series B and Series C Holders (as defined in the Rights
Agreement), except as described herein. If the parties are unable, after
solicitation of all of the Rights Holders, to cause such amendment of the Rights
Agreement to the benefit of holders of at least 75% of the Exchangeable Shares
earned in connection with the Acquisition on or prior to November 1, 1997
(including obtaining necessary consents from existing holders of registration
rights and acceptance of such rights from Lanacom Holders), BackWeb Parent shall
enter into a separate registration rights agreement with the Rights Holders,
which separate agreement shall provide to the Rights Holders registration rights
substantially similar to those granted to the Series B and the Series C Holders
under the Rights Agreement, except as described herein. The agreement providing
the Rights Holders with their registration rights under this Section 5.12 shall
provide, inter alia, that the number of BackWeb Parent Ordinary Shares required
to exercise a demand registration right shall be no higher
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than the number equal to two-thirds of the number of Exchangeable Shares
provided to the Rights Holders under this Agreement and entitled to such
registration rights, and that demand rights may be exercised at any time at
least 6 months following an initial public offering of BackWeb Parent, subject
only to normal blackout periods generally applicable to holders of BackWeb
registration rights which shall not exceed 6 months in duration. It is
understood that in the event that the Rights Holders shall be able to utilize
the Closing Date of the Acquisition (upon which date they shall receive the
Exchangeable Shares) as the original purchase date with respect to the BackWeb
Parent Ordinary Shares that such holders ultimately receive in respect of such
Exchangeable Shares, for the purposes of the holding period requirement set
forth in Rule 144 under the Securities Exchange Act of 1993, as amended (other
than any inability to use such Closing Date as original purchase date for the
purposes of Rule 144 solely due to an action taken by the holder thereof, such
as a pledge of shares, which tolls the holding period under Rule 144), then the
right of the Rights Holders to include shares in any registration as to which
they exercise registration rights shall be subordinate to the registration
rights of other holders of registration rights. In this regard, in the event
that the underwriters of an offering determine that marketing restrictions
require a limitation in the number of shares to be included in the offering on
behalf of holders of registration rights, then other holders of registration
rights shall be entitled to include the full number of shares in such
registration and offering desired by them before inclusion of shares in such
registration and offering on the part of the Rights Holders.
ARTICLE VI
CONDITIONS TO THE AMALGAMATION
6.1 Conditions to Obligations of Each Party to Effect the
Amalgamation. The respective obligations of each party to this Agreement to
effect the Amalgamation shall be subject to the satisfaction at or prior to the
Closing Time of the following conditions:
(a) Corporate Approvals. This Agreement and the Amalgamation
shall have been approved and adopted by the directors of Lanacom and by the
requisite vote of the holders of Lanacom Common Shares and BackWeb Canada's
Common shares, as applicable.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Amalgamation or restricting the conduct or
operations of the business of the Surviving Corporation shall be in effect, nor
shall any proceeding brought by a Governmental Entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Amalgamation, which makes the consummation of the Amalgamation unlawful.
(c) BackWeb Parent Shareholder Approval. The issuance by
BackWeb Parent of additional BackWeb Parent Ordinary Shares as contemplated
herein shall have been approved and authorized by the requisite vote of the
shareholders of BackWeb Parent.
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(d) Governmental Approval. Each of BackWeb Parent and Lanacom
shall have timely obtained from each Governmental Entity (including without
limitation any special permits from the Controller of Foreign Currency in the
Bank of Israel, approvals from the Investment Center of the Ministry of Industry
and Commerce of Israel, and all other applicable Governmental Entities in
Israel) all approvals, waivers and consents, if any, necessary for consummation
of or in connection with the Amalgamation and the transactions contemplated
hereby.
(e) Employment Agreements. BackWeb Parent and not less than
four of those persons listed on Section 6.1(e) of the Lanacom Disclosure
Schedule shall have entered into the Employment and Noncompetition Agreements
(the "Employment and Noncompetition Agreements") substantially in the form
attached hereto as Exhibit H).
6.2 Additional Conditions to Obligations of Lanacom. The obligations
of Lanacom to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Time of each of the following conditions, any of which may be waived, in
writing, exclusively by Lanacom:
(a) Representations, Warranties and Covenants. The
representations and warranties of BackWeb Parent continued in this Agreement
shall be true and correct in all material respects on and as of the Closing
Time, with the same force and effect as if made on the Effective Date and of
BackWeb Parent shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Closing Time.
(b) Certificate of BackWeb Parent. Lanacom shall have been
provided with a certificate executed on behalf of BackWeb Parent by its
President and its Chief Financial Officer to the effect that, as of the Closing
Time:
(i) all representations and warranties made by BackWeb
Parent under this Agreement are true and correct in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by BackWeb Parent on or before such date have been so
performed in all material respects.
(c) Claims. There shall not have occurred any claims (whether
asserted or unasserted in litigation) which may materially and adversely affect
the consummation of the transactions contemplated hereby or the business, assets
(including intangible assets), financial condition or results of operations of
BackWeb Parent and its Subsidiaries, taken as a whole.
(d) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against BackWeb Parent
and its Subsidiaries, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Amalgamation or the
other transactions contemplated by the terms of this Agreement.
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(e) Third Party Consents. Lanacom shall have been furnished
with evidence satisfactory to it that BackWeb Parent and its Subsidiaries have
obtained all consents, approvals and waivers as set forth is Section 3.3(c) of
the BackWeb Disclosure Schedule.
(f) Legal Opinion. Lanacom shall have received from Naschitz,
Brandes & Co., Israeli counsel to BackWeb Parent, a legal opinion, dated the
Closing Date, substantially in the form attached as Exhibit I.
(g) BackWeb Shareholders' Agreement. The BackWeb Founders and
the holders of Exchangeable Shares shall have entered into the BackWeb
Shareholders' Agreement.
6.3 Additional Conditions to the Obligations of BackWeb Parent. The
obligations of BackWeb Parent to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Time of each of the following conditions, any of which may
be waived, in writing, exclusively by BackWeb Parent:
(a) Representations, Warranties and Covenants. The
representations and warranties of Lanacom and the Founder contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Time as, with the same force and effect as if made on the Effective Date
(except as expressly contemplated in this Agreement) and Lanacom and the Founder
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by each of them as of the Closing Time.
(b) Certificate of Lanacom. BackWeb Parent shall have been
provided with a certificate executed on behalf of Lanacom by its Chief Executive
Officer and its Chief Financial Officer or Treasurer to the effect that, as of
the Closing Time:
(i) all representations and warranties made by Lanacom
in this Agreement are true and correct in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Lanacom on or before such date have been so
performed in all material respects.
(c) Certificate of the Founder. BackWeb Parent shall have been
provided with a certificate executed by the Founder to the effect that, as of
the Closing Time:
(i) all representations and warranties made by the
Founder in this Agreement are true and correct in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by the Founder on or before such date have been so
performed in all material respects.
(d) Claims. There shall not have occurred any claims (whether
asserted or unasserted in litigation) which may materially and adversely affect
the consummation of the transactions
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contemplated hereby or could reasonably be anticipated to have a Material
Adverse Effect on Lanacom and the Lanacom Subsidiaries, taken as a whole, or the
Surviving Corporation.
(e) Third Party Consents. BackWeb Parent shall have been
furnished with evidence satisfactory to it that Lanacom has obtained all
consents, approvals and waivers as set forth in Section 2.3(c) of the Lanacom
Disclosure Schedule.
(f) Legal Opinion. BackWeb Parent shall have received from
Osler, Hoskin & Harcourt, counsel to Lanacom, a legal opinion substantially in
the form attached as Exhibit J hereto.
(g) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against Lanacom or its
Subsidiaries, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Amalgamation or the other
transactions contemplated by the terms of this Agreement.
(h) No Material Adverse Effect. There shall not have occurred
any Material Adverse Effect on Lanacom or its Subsidiaries.
(i) Shareholder's Agreement. BackWeb Parent shall have
received from each of the Lanacom Shareholders an executed Shareholder's
Agreement, which shall be in full force and effect.
(j) No Dissenters. Holders of more than 5% of the outstanding
Lanacom Common Shares shall not have exercised, nor shall they continue to have
the right to exercise, appraisal rights with respect to the transactions
contemplated by this Agreement.
(k) Conversion of Loans. Holders of an aggregate of
Cdn$500,000 in indebtedness owed to them by the Company shall have converted
such indebtedness into Lanacom Common Shares.
(l) Delivery of Lanacom Common Shares. BackWeb Parent shall
have received from each of the holders of Lanacom Common Shares all certificates
representing such Lanacom Common Shares.
(m) Davis Resignation. The Founder shall have resigned as an
employee of Lanacom, contingent upon the Closing, and shall have released
Lanacom from any and all claims relating to his employment with Lanacom, subject
to the Founder's becoming an employee of BackWeb Parent in accordance with the
terms of the Employment Agreement.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All covenants to be
performed by BackWeb Parent prior to the Closing Time, and all representations
and warranties of the Founder and BackWeb Parent set forth in this Agreement or
in any instrument delivered pursuant to this Agreement, shall
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survive until the Second Escrow Release Date (as defined below), except that the
representations and warranties contained in (a) Sections 2.7 and 2.17 shall
survive until the expiration of all applicable statutes of limitation (the
"Statutory Periods") and (b) Section 2.2 shall survive indefinitely.
Notwithstanding the foregoing, nothing contained in this Section 7.1 shall
preclude a party from bringing an action for fraud. All covenants,
representations and warranties of Lanacom shall terminate at the Closing Time.
The Founder waives any right to contribution or indemnity as against the
Surviving Corporation in respect of Lanacom's covenants, representations and
warranties.
7.2 Escrow Arrangements.
(a) Escrow Fund. As soon as practicable after the Closing,
that number of Exchangeable Shares comprising the Escrow Amount will be
deposited by the Surviving Corporation, without any act of any Holder in Escrow,
with Bank of Montreal Trust Company (or another institution acceptable to
BackWeb Parent and the Agent (as defined in Section 7.2(f) below)) as Escrow
Agent (the "Escrow Agent"), such deposit to constitute an escrow fund (the
"Escrow Fund") to be governed by the terms set forth herein. The Escrow Amount
contributed on behalf of any Holder in Escrow shall be a fraction of the total
Escrow Amount equal to such Holder's Proportional Escrow Amount, and shall be
deducted from the portion of the Amalgamation Consideration to which such holder
of Lanacom Common Shares would otherwise be entitled to receive pursuant to
Section 1.5. A list of the respective Escrow Amounts contributed by the Holders
shall be provided to the Escrow Agent. The Escrow Amount deposited in the Escrow
Fund shall be used effectively to reduce the Amalgamation Consideration in the
event of (y) a reduction required pursuant to Section 1.7 of this Agreement and
(z) any claim, loss, expense, liability or other damage, including reasonable
attorneys' fees, to the extent of the amount of such claim, loss, expense,
liability or other damage (collectively with any amounts payable pursuant to
Section 1.7, the "Losses") that BackWeb Parent or any of its affiliates have
incurred by reason of the breach by Lanacom of any representation, warranty,
covenant or agreement of Lanacom contained in this Agreement. BackWeb Parent,
Lanacom and the Agent each acknowledge that such Losses, if any, shall be deemed
to relate to unresolved contingencies existing at the Closing Date which, if
resolved at the Closing Date, would have led to a reduction in the Amalgamation
Consideration. Nothing herein shall limit the liability of Lanacom, the Founder
or any holder of Lanacom Common Shares for any breach of any covenant, or any
willful breach of any representation or warranty, if the Amalgamation does not
close. In addition, notwithstanding the foregoing, the Surviving Corporation
shall not be entitled to receive any Escrow Amounts from the Escrow Fund unless
and until Officer's Certificates (as defined in paragraph (d) below) identifying
Losses, the aggregate amount of which exceed an aggregate US$50,000 deductible
amount, have been delivered to the Escrow Agent as provided in paragraph (d); in
such case the Escrow Agent shall deliver to the Surviving Corporation for
cancellation for no consideration, and in full satisfaction of the aggregate
claims of BackWeb Parent (or its affiliates) the number of Exchangeable Shares
remaining in the Escrow Fund having an aggregate value (based on the value of
the Exchangeable Shares on the Closing Date of US$0.50 per share) equal to
one-third of the aggregate amount of such Losses (reflecting the parties'
agreement that one-third of the risk of such event shall be borne by the
shareholders of Lanacom and two-thirds of the risk shall be borne by BackWeb
Parent) minus the one time aggregate deductible amount of US$50,000.
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(b) Escrow Period; Distribution upon the First and Second
Escrow Release Dates. Subject to the requirements set forth in this Section
7.2(b), the Escrow Fund shall remain in existence immediately following the
Closing Time and shall terminate at 5:00 p.m., California Time on the Second
Escrow Release Date (as defined below). As used herein "First Escrow Release
Date" shall mean the earlier of (i) the date thirty (30) days after the date of
delivery by BackWeb Parent's independent auditors to BackWeb Parent of signed,
audited consolidated financial statements for the BackWeb Parent fiscal year
ended December 31, 1997 and (ii) May 1, 1998. BackWeb Parent shall notify the
Escrow Agent in writing of the establishment of the First Release Date. As used
herein "Second Escrow Release Date" shall mean the date being six months after
the First Escrow Release Date. The First Escrow Release Date and the Second
Escrow Release Date are referred to herein collectively as the "Escrow Release
Dates." On the First Escrow Release Date, a portion of the Escrow Fund shall be
released from escrow to the Holders in Escrow as reasonably practicable in
proportion to their respective Proportionate Escrow Interest in an amount equal
to one half of the entire Escrow Amount, less any Holdover Amount (as defined
below). On the Second Escrow Release Date, a portion of the Escrow Fund shall be
released from escrow to the Holders in Escrow as reasonably practicable in
proportion to their respective Proportionate Escrow Interest in an amount equal
to the entire Escrow Amount then remaining in the Escrow Fund less any Holdover
Amount. As soon as all claims relating to a Holdover Amount have been resolved,
the Escrow Agent shall deliver to the appropriate Holders in Escrow the
remaining portion of the Escrow Fund not required to satisfy such claims and the
Escrow Fund shall be terminated. Deliveries of Escrow Amounts from the Escrow
Fund to the Holders in Escrow pursuant to this Section 7.2(b) shall be made in
proportion to their respective Proportionate Escrow Interest as reasonably
practicable. As used herein "Holdover Amount" shall mean (y) any amounts
previously returned for cancellation to the Surviving Corporation including,
without limitation, such amounts returned pursuant to Section 1.7 of this
Agreement and (z) any additional amount which, in the reasonable judgment of
BackWeb Parent, subject to the objection of the Agent and subsequent arbitration
of the matter in the manner provided in Section 7.2(e) hereof, is necessary to
satisfy any unsatisfied claims specified in any Officer's Certificate delivered
to the Escrow Agent prior to the applicable Escrow Release Date (which amount
shall remain in the Escrow Fund until such claims have been resolved). If any
Holdover Amount shall exist on the Second Escrow Release Date, such Holdover
Amount shall cause the Escrow Fund to remain in existence until such claims have
been resolved.
(c) Protection of Escrow Fund. The Escrow Agent shall hold and
safeguard the Escrow Fund during the period that the Escrow Fund remains in
existence, shall treat such fund as a trust fund in accordance with the terms of
this Agreement and not as the property of BackWeb Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof. The Holders
in Escrow shall be treated as the owners of the Escrow Fund for all purposes,
subject to the rights of BackWeb Parent and the Surviving Corporation under this
Agreement.
(d) Claims Upon Escrow Fund; Distributions; Voting;
Conversion.
(i) Upon receipt by the Escrow Agent at any time on or
before the Second Escrow Release Date of a certificate signed by any officer of
BackWeb Parent (an "Officer's Certificate"): (A) stating that BackWeb Parent has
paid or properly accrued or reasonably anticipates that it will have to pay or
accrue Losses, and (B) specifying in reasonable detail the individual items of
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Losses included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the nature of
the misrepresentation, breach of warranty or claim to which such item is
related, the Escrow Agent shall, subject to the provisions of Section
7.2(d)(iii), deliver to the Surviving Corporation for cancellation for no
consideration that number of Exchangeable Shares specified in the Officer's
Certificate, which shall be those Exchangeable Shares remaining in the Escrow
Fund having an aggregate value (based on the value of the Exchangeable Shares on
the Closing Date of US$0.50 per share) equal to one-third of the amount of
such Losses (reflecting the parties' agreement that one-third of the risk of
such event shall be borne by the shareholders of Lanacom and two-thirds of the
risk shall be borne by BackWeb Parent) claimed less the aggregate US$50,000
deductible amount (or, to the extent the deductible has been previously applied,
less any remaining portion of such aggregate US$50,000 deductible), all as
calculated by BackWeb Parent and set forth in the Officer's Certificate. The
Escrow Agent shall have no duty or obligation to verify the information or
calculations provided to it in such Officer's Certificate.
(ii) [intentionally left blank]
(iii) At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Agent (as defined in Section 7.2(f)), and for a period
of thirty (30) days after such delivery to the Escrow Agent, it shall make no
delivery to the Surviving Corporation of any Escrow Amounts pursuant to Section
7.2(b) hereof unless the Escrow Agent shall have received written authorization
from the Agent to make such delivery. After the expiration of such thirty (30)
day period, the Escrow Agent shall make delivery of an amount from the Escrow
Fund in accordance with Section 7.2(b) hereof, provided that no such payment or
delivery may be made if the Agent shall object in a written statement to the
claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
(iv) Any Exchangeable Shares or other equity securities
issued or distributed in respect of the Exchangeable Shares (including shares
issued upon a stock split) (collectively, "New Shares") in respect of
Exchangeable Shares which have not been released from the Escrow Fund shall be
added to the Escrow Fund and shall become part of the Escrow Amount for all
purposes of this Article VII. All cash dividends, if any, paid on Exchangeable
Shares, shall be paid to the holders of Exchangeable Shares in accordance with
their respective contributions to the Escrow Fund.
(v) Each holder of Exchangeable Shares shall have all
voting and other contractual rights with respect to Exchangeable Shares
contributed to the Escrow Fund on behalf of any such holder (and any New Shares
having voting rights) so long as such Exchangeable Shares or other voting
securities are held in the Escrow Fund, except to the extent that BackWeb Parent
and the Agent agree in writing.
(vi) None of the Exchangeable Shares in the Escrow Fund
shall be exchanged for BackWeb Parent Ordinary Shares while in the Escrow Fund,
except to the extent that BackWeb Parent and the Agent agree in writing, in
their discretion, provided that in such event the BackWeb Parent Ordinary Shares
issued in respect of such Exchangeable Shares shall be placed into escrow under
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the terms and conditions hereof. A copy of such agreement, together with a joint
letter of instruction, shall be delivered to the Escrow Agent directing it as to
any exchange.
(vii) Notwithstanding any of the foregoing in this
Article VII, the procedures in Sections 7.2(d)(i) and (iii) above shall be
deemed inapplicable in the case of claims made against the Escrow pursuant to
Section 1.7 of this Agreement. In such case, upon BackWeb Parent's presentation
to the Escrow Agent of an Officer's Certificate, within five (5) days following
the receipt of such Officer's Certificate, the Escrow Agent shall cause to be
distributed to the Surviving Corporation for cancellation for no consideration
that number of Exchangeable Shares as specified in the Officer's Certificate,
which shall be based upon the Final Balance Sheet containing the Accountants'
final determination of a Final Net Asset Value more negative than US$100,000
and more negative than the Preliminary Net Asset Value, as determined pursuant
to Section 1.7(b) hereof.
(e) Resolution of Conflicts; Arbitration.
(i) In case the Agent shall so object in writing to any
claim or claims made in any Officer's Certificate, the Agent and BackWeb Parent
shall attempt in good faith to agree upon the rights of the respective parties
with respect to each of such claims. If the Agent and BackWeb Parent should so
agree, a memorandum setting forth such agreement shall be prepared and signed by
both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall
be entitled to rely on any such memorandum and distribute amounts from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either BackWeb Parent or the Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by three
arbitrators. BackWeb Parent and the Agent shall each select one arbitrator, and
the two arbitrators so selected shall select a third arbitrator. The arbitrators
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgement of the arbitrators, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys fees and costs, to the extent
as a court of competent law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision of a
majority of the three arbitrators as to the validity and amount of any claim in
such arbitration award shall be binding and conclusive upon the parties to this
Agreement. BackWeb Parent shall deliver to the Escrow Agent a copy of such
arbitration award together with an Officer's Certificate directing the Escrow
Agent to comply with such arbitration award and, notwithstanding anything in
Section 7.2(d) to the contrary, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
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(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Clara County, California, under the rules then in effect of the
American Arbitration Association. For purposes of this Section 7.2(e), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is in dispute, BackWeb Parent shall be deemed to be the
"Non-Prevailing Party" in the event that the arbitrators award BackWeb Parent
less than the sum of one-half (1/2) of the disputed amount; otherwise, the
holders of Exchangeable Shares as represented by the Agent shall be deemed to
be the Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall
pay its own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration.
(iv) Notwithstanding any of the foregoing, the disputes
arising in connection with provisions set forth in Sections 7.2(e)(i)-(iii)
above, which provisions include, without limitation, procedures for conflicts
resolution and arbitration, shall be deemed inapplicable in the case of claims
made against the Escrow pursuant to Section 1.9 of this Agreement. In such case,
Section 1.7(c) shall govern. The Escrow Agent shall not be responsible, nor
shall it have any duty or obligation to determine, under which Section hereof
has been made or may arise under.
(f) Agent of the Stockholders; Power of Attorney.
(i) In the event that the Amalgamation is approved,
effective upon such vote, and without further act of any shareholder, Anthony
Davis shall be appointed as agent and attorney-in-fact (the "Agent") for each
Holder in Escrow, to give and receive notices and communications, to authorize
delivery to BackWeb Parent of Exchangeable Shares from the Escrow Fund in
satisfaction of claims by BackWeb Parent, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Agent for the accomplishment of the foregoing. Such agency may be changed by the
Holders in Escrow from time to time upon not less than thirty (30) days prior
written notice to BackWeb Parent and the Escrow Agent; provided that the Agent
may not be removed unless holders of a two-thirds interest of the Escrow Fund
agree to such removal and to the identity of the substituted agent. The Agent
may resign from such agency at any time upon written notice to BackWeb Parent
and the Escrow Agent, whereupon holders of not less than a two-thirds interest
in the Escrow Fund shall promptly appoint a replacement Agent and shall notify
BackWeb Parent and the Escrow Agent in writing of any replacement Agent. No bond
shall be required of the Agent, and the Agent shall not receive compensation for
his or her services. Notices or communications to or from the Agent shall
constitute notice to or from each of the Holders in Escrow.
(ii) The Agent shall not be liable for any act done or
omitted hereunder as Agent except to the extent the Agent acts in bad faith or
is grossly negligent. The Holders in Escrow on whose behalf the Escrow Amount
was contributed to the Escrow Fund shall severally indemnify the Agent and hold
the Agent harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of the Agent and arising out of or in
connection with the acceptance or administration of the Agent's duties
hereunder, including the reasonable fees and expenses of any legal
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counsel retained by the Agent. The Agent shall be entitled to make payment from
the Escrow Fund of all expenses, including reasonable fees and expenses of any
such legal counsel, incurred by the Agent in connection with the acceptance or
administration of the Agent's duties hereunder.
(iii) A decision, act, consent or instruction of the
Agent shall constitute a decision of all the Holders in Escrow and shall be
final, binding and conclusive upon each of such shareholders, and the Escrow
Agent and BackWeb Parent may rely upon and shall be fully protected in relying
upon any such decision, act, consent or instruction of the Agent as being the
decision, act, consent or instruction of each every such Holder in Escrow. The
Escrow Agent and BackWeb Parent are hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Agent.
(g) Third Party Claims.
(i) In the event BackWeb Parent becomes aware of a
third party claim which BackWeb Parent believes may result in a demand against
the Escrow Fund, BackWeb Parent shall notify the Agent of such claim, and the
Agent and the Holders in Escrow shall be entitled, at their expense, to
participate in any defense of such claim. BackWeb Parent shall consult with the
Agent prior to settlement of any such claim and discuss with the Agent in good
faith any input regarding the claim and potential settlement the Agent may have
prior to any settlement. After such consultation, BackWeb Parent shall have the
right to settle any such claim; provided, however, that except with the consent
of the Agent (which shall not be unreasonably withheld), no settlement of any
such claim with third-party claimants shall alone be determinative of the amount
of any claim against the Escrow Fund. In the event that the Agent has consented
to any such settlement, the Agent shall have no power or authority to object
under any provision of this Article VII to the amount of any claim by BackWeb
Parent against the Escrow Fund with respect to such settlement.
(ii) If any claim is asserted against BackWeb Parent or
its affiliates that the use of HeadLiner software by Lanacom, BackWeb Parent or
any of their licensed customers infringes or otherwise violates the copyright
(or author's and moral rights) of a third party in any content located on a
Website accessed by such software, then BackWeb Parent shall use its
commercially reasonable efforts to obtain permission or a license from the owner
or holder of such copyright (or author's and moral right) to allow the software
to access such content. In the event that such permission or license is not
granted, BackWeb Parent agrees that it shall to the extent commercially
reasonable (i) de-list the relevant Website(s) from the software's directory
list, (ii) stop using the software to access the relevant Website(s) and/or
(iii) prevent its licensed customers from accessing such Websites. Such efforts
could include without limitation (to the extent commercially reasonable)
notifying licensed customers of prohibited Websites and making minor
modifications to the software to prevent such access. BackWeb Parent agrees that
it will consult with Founder in respect of such copyright issues as they arise
and will attempt to the extent commercially reasonable to settle any litigation
commenced by such parties regarding such issues as efficiently as possible in
light of the circumstances.
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(h) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth in this Article VII,
and as set forth in any additional written escrow instructions which the Escrow
Agent may receive after the date of this Agreement which are signed by an
officer of BackWeb Parent and the Agent, and no implied duties or obligations
shall be read into this Agreement against the Escrow Agent. The Escrow Agent may
rely and shall be protected in relying or refraining from acting on any
instrument, instruction, notice or other document reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings of judicial proceedings or similar actions given
by any of the parties hereto or by any other person, excepting only orders or
process of courts of law, and is hereby expressly authorized to comply with and
obey orders, judgments or decrees of any court. In case the Escrow Agent obeys
or complies with any such order, judgment or decree of any court, the Escrow
Agent shall not be liable to any of the parties hereto or to any other person by
reason of such compliance, notwithstanding any such order, judgment or decree
being subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, instruction, notice or other document,
including any written statement of affidavit provided for in this Agreement that
the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow
Agent be liable or responsible for forgeries, fraud, impersonations, or
determining the scope of any representative authority. In addition, the Escrow
Agent may consult with the legal counsel in connection with Escrow Agent's
duties under this Agreement and shall be fully protected in any act taken,
suffered, or permitted by him/her in good faith in accordance with the advice of
counsel. The Escrow Agent is not responsible for determining and verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement.
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(vi) If any controversy arises between the parties to
this Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Surviving Corporation Exchangeable Shares
and may wait for settlement of any such controversy by final appropriate legal
proceedings or other means as, in the Escrow Agent's discretion, the Escrow
Agent may be required, despite what may be set forth elsewhere in this
Agreement. In such event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Surviving Corporation
Exchangeable Shares held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the Escrow Agent may recoup directly from the Escrow Fund. Upon
initiating such action, the Escrow Agent shall be fully released and discharged
of and from all obligations and liability imposed by the terms of this
Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter, such indemnity to be satisfied directly from the Escrow Fund. This right
of indemnification shall survive the termination of this Agreement and the
resignation or removal of the Escrow Agent. The costs and expenses of enforcing
this right of indemnification shall also be paid by the parties.
(viii) The Escrow Agent may resign at any time upon giving
at least thirty (30) days written notice to BackWeb Parent and the Agent;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as follows:
BackWeb Parent and Agent shall use their best efforts to mutually agree on a
successor escrow agent within thirty (30) days after receiving such notice. If
the parties fail to agree upon a successor escrow agent within such time,
BackWeb Parent shall have the right to appoint a successor escrow agent
authorized to do business in the Province of Ontario, Canada. The successor
escrow agent shall execute and deliver an instrument accepting such appointment
and it shall, without further acts, be vested with all the estates, properties,
rights, powers, and duties of the predecessor escrow agent as if originally
named as escrow agent. The Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
(ix) The Escrow Agent's duties shall be determined only
with reference to this Article VII and are not changed with any duty, obligation
or responsibility in connection with any other Article in this Agreement, nor
with any other document or agreement.
(i) Exclusivity of Remedies. Resort to the provisions of this
Article VII and Section 1.7 providing for the delivery of Exchangeable Shares to
the Surviving Corporation for cancellation from
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the Escrow Fund shall be BackWeb Parent's (and its affiliates') exclusive remedy
for any Losses, except for Losses resulting from breaches of representations and
warranties contained in Sections 2.2, 2.7 and 2.17 of this Agreement and Losses
resulting from fraud (collectively, the "Special Losses"). The parties agree
that BackWeb Parent shall be able to recover from Founder Holdco for all Special
Losses, including any Losses above the Escrow Amount, during the applicable
survival period set forth in Section 7.1 hereof; provided however, that Founder
Holdco's aggregate liability with respect to all Special Losses (including
Founder Holdco's proportionate share of any amounts paid to BackWeb Parent out
of the Escrow Fund) shall not exceed the total Amalgamation Consideration
received by Founder Holdco (including Exchangeable Shares placed in Escrow
pursuant to the provisions of Section 1.9 and Article VII). The Founder agrees
that until such time as the Escrow Fund shall have been terminated in accordance
with Section 7.2(b), the Founder will remain the owner of all right, title and
interest in and to all of the outstanding shares of Founder Holdco, that Founder
Holdco will remain the owner of all right, title and interest in and to all of
the Exchangeable Shares delivered to it under this Agreement, that Founder
Holdco shall not effect any borrowings or incur any liabilities other than
potential liabilities to BackWeb Parent or BackWeb Canada under this Agreement
and that Founder Holdco will not be used for any purpose other than as
contemplated by this Agreement. The parties hereto agree that the Founder shall
not be personally liable for any breach of this Agreement (except for a breach
of the preceding sentence which actually reduces the ability of the Surviving
Corporation or BackWeb Parent to recover Exchangeable Shares for cancellation
which it would have otherwise been entitled to recover under this Agreement, and
in such circumstances only to the extent of such actual reduction) and that
(except for any breach of the preceding sentence) recourse to the Escrow Fund or
to Founder Holdco in accordance with this Section 7.2(i) shall be BackWeb
Parent's (and its affiliates') exclusive remedy hereunder.
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ARTICLE VIII
CERTAIN RIGHTS OF BACKWEB PARENT
TO ACQUIRE EXCHANGEABLE SHARES
8.1 BackWeb Parent Liquidation Call Right.
(a) BackWeb Parent shall have the overriding right (the
"Liquidation Call Right"), in the event of and notwithstanding the proposed
liquidation, dissolution or winding-up of the Surviving Corporation pursuant to
Article 5 of the provisions of the Exchangeable Shares (the "Exchangeable Share
Provisions") to purchase from all but not less than all of the holders of
Exchangeable Shares on the Liquidation Date (as defined in the Exchangeable
Share Provisions) all, but not less than all of the Exchangeable Shares held by
each such holder on payment by BackWeb Parent of an amount per Exchangeable
Share equal to (a) the Current Market Price (as defined in the Exchangeable
Share Provisions) of a BackWeb Parent Ordinary Share on the last Business Day
prior to the Liquidation Date, which shall be satisfied in full by causing to be
delivered to such holder one BackWeb Parent Ordinary Share, plus (b) an
additional amount equivalent to the full amount of all dividends declared and
unpaid on such Exchangeable Share and all dividends declared on BackWeb Parent
Ordinary Shares which have not been declared on such Exchangeable Shares in
accordance with section 7.1 of the Exchangeable Share Provisions (collectively
the "Liquidation Call Purchase Price"), provided that if the record date for any
such declared and unpaid dividends occurs on or after the Liquidation Date, the
Liquidation Call Price shall not include such additional amount equivalent to
such dividends. In the event of the exercise of the Liquidation Call Right by
BackWeb Parent, each holder shall be obligated to sell all the Exchangeable
Shares held by the holder to BackWeb Parent on the Liquidation Date on payment
by BackWeb Parent to the holder of the Liquidation Call Purchase Price for each
such Exchangeable Share.
(b) To exercise the Liquidation Call Right, BackWeb Parent
must notify the Surviving Corporation's transfer agent (the "Transfer Agent"),
as agent for the holders of Exchangeable Shares, and the Surviving Corporation
of BackWeb Parent's intention to exercise such right at least 30 days before the
Liquidation Date in the case of a voluntary liquidation, dissolution or winding
up of the Surviving Corporation and at least five Business Days before the
Liquidation Date in the case of an involuntary liquidation, dissolution or
winding up of the Surviving Corporation. The Transfer Agent will notify the
holders of Exchangeable Shares as to whether or not BackWeb Parent has exercised
the Liquidation Call Right forthwith after the expiry of the period during which
the same may be exercised by BackWeb Parent. If BackWeb Parent exercises the
Liquidation Call Right, on the Liquidation Date BackWeb Parent will purchase and
the holders will sell all of the Exchangeable Shares then outstanding for a
price per Exchangeable Share equal to the Liquidation Call Purchase Price.
(c) For the purposes of completing the purchase of the
Exchangeable Shares pursuant to the Liquidation Call Right, BackWeb Parent shall
deposit with the Transfer Agent, on or before the Liquidation Date, certificates
representing the aggregate number of BackWeb Parent Ordinary Shares deliverable
by BackWeb Parent in payment of the total Liquidation Call Purchase Price and a
cheque or cheques in the amount of the remaining portion, if any, of the total
Liquidation Call Purchase Price. Provided that the total Liquidation Call
Purchase Price has been so deposited with the Transfer Agent,
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on and after the Liquidation Date the rights of each holder of Exchangeable
Shares will be limited to receiving such holder's proportionate part of the
total Liquidation Call Purchase Price payable by BackWeb Parent upon
presentation and surrender by the holder of certificates representing the
Exchangeable Shares held by such holder and the holder shall on and after the
Liquidation Date be considered and deemed for all purposes to be the holder of
the BackWeb Parent Ordinary Shares delivered to it. Upon surrender to the
Transfer Agent of a certificate or certificates representing Exchangeable
Shares, together with such other documents and instruments as may be required to
effect a transfer of Exchangeable Shares under the Act and the by-laws of the
Surviving Corporation and such additional documents and instruments as the
Transfer Agent may reasonably require, the holder of such surrendered
certificate or certificates shall be entitled to receive in exchange therefor,
and the Transfer Agent on behalf of BackWeb Parent shall deliver to such holder,
certificates representing the BackWeb Parent Ordinary Shares to which the holder
is entitled and a cheque or cheques of BackWeb Parent payable at par and in
Canadian dollars at any Canadian branch of the bankers of BackWeb Parent or of
the Surviving Corporation in Canada in payment of the remaining portion, if any,
of the total Liquidation Call Purchase Price. If BackWeb Parent does not
exercise the Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of the Exchangeable Shares will be entitled to
receive in exchange therefor the liquidation price otherwise payable by the
Surviving Corporation in connection with the liquidation, dissolution or
winding-up of the Surviving Corporation pursuant to Article 5 of the
Exchangeable Share Provisions.
8.2 BackWeb Parent Redemption Call Right.
(a) BackWeb Parent shall have the overriding right (the
"Redemption Call Right"), notwithstanding the proposed redemption of
Exchangeable Shares by the Surviving Corporation pursuant to Article 7 of the
Exchangeable Share Provisions, to purchase from all but not less than all of the
holders of Exchangeable Shares to be redeemed on the Redemption Date (as defined
in the Exchangeable Share Provisions) all but not less than all of the
Exchangeable Shares held by each such holder on payment by BackWeb Parent to the
holder of an amount per Exchangeable Share equal to (a) the Current Market Price
(as defined in the Exchangeable Share Provisions) of a BackWeb Parent Ordinary
Share on the last Business Day prior to the Redemption date, which shall be
satisfied in full by causing to be delivered to such holder one BackWeb Parent
Ordinary Share, plus (b) an additional amount equivalent to the full amount of
all dividends declared and unpaid on such Exchangeable Share in accordance with
section 7.1 of the Exchangeable Share Provisions (collectively the "Redemption
Call Purchase Price"), provided that if the record date for any such declared
and unpaid dividend occurs on or after the Redemption Date, the Redemption Call
Purchase Price shall not include such additional amount equivalent to such
dividends. In the event of the exercise of the Redemption Call Right by BackWeb
Parent, each holder shall be obligated to sell all the Exchangeable Shares held
by the holder and otherwise to be redeemed to BackWeb Parent on the Redemption
Date on payment by BackWeb Parent to the holder of the Redemption Call Purchase
Price for each such Exchangeable Share.
(b) To exercise the Redemption Call Right, BackWeb Parent must
notify the Transfer Agent, as agent for the holder of Exchangeable Shares, and
the Surviving Corporation of BackWeb Parent's intention to exercise such right
at least 20 days before the Automatic Redemption Date (as defined in
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the Exchangeable Share Provisions), in the case of the Automatic Redemption (as
defined in the Exchangeable Share Provisions). The Transfer Agent will notify
the holders of the Exchangeable Shares as to whether or not BackWeb Parent has
exercised the Redemption Call Right forthwith after the expiry of the period
during which the same may be exercised by BackWeb Parent. If BackWeb Parent
exercises the Redemption Call Right, on the Redemption Date BackWeb Parent will
purchase and the holders will sell all of the Exchangeable Shares to be redeemed
for a price per Exchangeable Share equal to the Redemption Call Purchase Price.
(c) For the purposes of completing this purchase of
Exchangeable Shares pursuant to the Redemption Call Right, BackWeb Parent shall
deposit with the Transfer Agent, on or before the Redemption Date, certificates
representing the aggregate number of BackWeb Parent Ordinary Shares deliverable
by BackWeb Parent in payment of the total Redemption Call Purchase Price and a
cheque or cheques in the amount of the remaining portion, if any, of the total
Redemption Call Purchase Price. Provided that the total Redemption Call Purchase
Price has been so deposited with the Transfer Agent, on and after the Redemption
Date the rights of each holder of Exchangeable Shares so purchased will be
limited to receiving such holder's proportionate part of the total Redemption
Call Purchase Price payable by BackWeb Parent upon presentation and surrender by
the holder of certificates representing the Exchangeable Shares purchased by
BackWeb Parent from such holder and the holder shall on and after the Redemption
Date be considered and deemed for all purposes to be the holder of the BackWeb
Parent Ordinary Shares delivered to such holder. Upon surrender to the Transfer
Agent of a certificate or certificates representing Exchangeable Shares,
together with such other documents and instruments as may be required to effect
a transfer of Exchangeable Shares under the Act and the bylaws of the Surviving
Corporation and such additional documents and instruments as the Transfer Agent
may reasonably require, the holder of such surrendered certificate or
certificates shall be entitled to receive in exchange therefor, and the Transfer
Agent on behalf of BackWeb Parent shall deliver to such holder, certificates
representing the BackWeb Parent Ordinary Shares to which the holder is entitled
and a cheque or cheques of BackWeb Parent payable at par and in Canadian dollars
at any branch of the bankers of BackWeb Parent or of the Surviving Corporation
in Canada in payment of the remaining portion, if any, of the total Redemption
Call Purchase Price. If BackWeb Parent does not exercise the Redemption Call
Right in the manner described above, on the Redemption Date the holder of the
Exchangeable Shares will be entitled to receive in exchange therefor the
redemption price otherwise payable by the Surviving Corporation in connection
with the redemption of Exchangeable Shares pursuant to Article 7 of the
Exchangeable Share Provisions.
8.3 Withholding Rights. BackWeb Parent and the Transfer Agent shall
be entitled to deduct and withhold from the consideration otherwise payable to
any holder of Exchangeable Shares such amounts as BackWeb Parent or the Transfer
Agent is required or permitted to deduct and withhold with respect to such
payment under the Income Tax Act (Canada) or any provision of Israeli state,
provincial, local or foreign tax law. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes hereof as
having been paid to the holder of shares in respect of which such deduction and
withholding was made, provided that such withheld amounts are actually remitted
to the appropriate taxing authority. To the extent that the amount so required
or permitted to be deducted or withheld from any payment to a holder exceeds the
cash portion of such consideration as is necessary to provide sufficient funds
to BackWeb Parent or the Transfer Agent, as the case may be, BackWeb Parent is
hereby authorized to sell or otherwise dispose of, or direct to have sold or
disposed of, at fair
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market value, such portion of the Exchangeable Shares or consideration payable
to the holder as is necessary in order to enable BackWeb Parent to comply with
such deduction or withholding requirement and BackWeb Parent or the Transfer
Agent shall give an accounting to the holder with respect thereto and any
balance of such proceeds of sale.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this
Agreement may be terminated and the Amalgamation abandoned at any time prior to
the Closing Time:
(a) by mutual consent of Lanacom and BackWeb Parent; or
(b) by BackWeb Parent or Lanacom if the Closing has not
occurred by August 31, 1997, other than due to the failure of the party seeking
to terminate this Agreement to perform its obligations under this Agreement
which are required to be performed at or prior to the Closing Time; or
(c) by BackWeb Parent or Lanacom if there shall be a final
nonappealable order of a court in effect preventing consummation of the
Amalgamation; or there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Amalgamation by any Governmental Entity which would make the consummation of the
Amalgamation illegal; or
(d) by BackWeb Parent or Lanacom if there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the Amalgamation by any Governmental Entity, which
would: (i) prohibit BackWeb Parent's or Lanacom's ownership or operation of all
or a material portion of the business of Lanacom or (ii) compel BackWeb Parent
or Lanacom to dispose of or hold separate all or a material portion of the
business or assets of Lanacom or BackWeb Parent as a result of the Amalgamation;
or
(e) by BackWeb Parent if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Lanacom, provided, that, if such breach is curable by Lanacom within
five (5) business days through the exercise of its reasonable best efforts, then
for so long as Lanacom continues to exercise such reasonable best efforts
BackWeb Parent may not terminate this Agreement under this Section 9.1(e) unless
such breach is not cured within five (5) business days following written
notification of such breach to Lanacom from BackWeb Parent (with the provision
that no cure period shall be required for a breach which by its nature cannot be
cured); or
(f) by Lanacom if it is not in breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this
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Agreement on the part of BackWeb Parent, provided that, if such breach is
curable by BackWeb Parent within five (5) business days through the exercise of
its reasonable best efforts, then for so long as BackWeb Parent continues to
exercise such reasonable best efforts Lanacom may not terminate this Agreement
under this Section 9.1(f) unless such breach is not cured within five (5)
business days following written notice of such breach to BackWeb Parent by
Lanacom (with the provision that no cure period shall be required for a breach
which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 9.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of BackWeb Parent or
Lanacom, or their respective officers, directors or shareholders; provided,
however, that each party shall remain liable for any breaches of this Agreement
prior to its termination; and provided further that, Sections 5.2, 5.3, 5.4,
Article IX and Article X of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law
after the shareholders of Lanacom approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Closing Time, BackWeb
Parent, on the one hand, and Lanacom, on the other hand, may, to the extent
legally allowed: (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) upon
delivery, if delivered by hand, (b) five (5) business days after the business
day of deposit with Federal Express or similar courier for overnight delivery,
freight prepaid or (c) one (1) business day after the business day of facsimile
transmission, if delivered by facsimile transmission with copy by first class
mail, postage prepaid, and shall be addressed to the address set forth below (or
at such other address as a party may designate by fifteen (15) days' advance
written notice to the other party pursuant to the provisions above):
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(a) if to BackWeb Parent or the Surviving Corporation, to:
BackWeb Technologies Ltd.
5 Kiryat Mada, Har Hotzvim
Jerusalem, Israel
Attn: Nir Barkat, Chairman of the Board
Facsimile No.: 972-2-587-0449
Telephone No.: 972-2-587-0444
with copies to:
BackWeb Technologies Ltd.
c/o BackWeb Technologies Inc.
2077 Gateway Place, Suite 500
San Jose, California 95110
Attn: Carolyn Aver
Facsimile No.: 1-408-437-0200
Telephone No.: 1-408-437-0214
and:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Howard S. Zeprun, Esq.
Facsimile No.: 1-415-493-6811
Telephone No.: 1-415-492-9300
and:
Naschitz, Brandes & Co.
"Beit Tzarfat", 5 Tuval Street
Tel-Aviv, Israel
Attention: Gil Brandes, Esq.
Facsimile No.: 972-3-623-5000
Telephone No.: 972-3-623-5005
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(b) if to Lanacom, to:
Lanacom Inc.
251 Consumers Road, Suite 910
Toronto, Ontario
Canada M2J 4R3
Attn: Anthony Davis
Facsimile No.: 1-416-490-8601
Telephone No.: 1-416-490-7744
with a copy to:
Osler, Hoskin & Harcourt
P.O. Box 50
1 First Canadian Place, Suite 600
Toronto, Ontario
Canada M5X 1B8
Attn: Richard Nathan
Facsimile No.: 1-416-862-6666
Telephone No.: 1-416-362-2111
(c) if to the Agent, to:
Anthony Davis
c/o Lanacom Inc.
251 Consumers Road, Suite 910
Toronto, Ontario
Canada M2J 4R3
Facsimile No.: 1-416-490-8601
Telephone No.: 1-416-490-7744
with a copy to:
Osler, Hoskin & Harcourt
P.O. Box 50
1 First Canadian Place, Suite 600
Toronto, Ontario
Canada M5X 1B8
Attn: Richard Nathan
Facsimile No.: 1-416-862-6666
Telephone No.: 1-416-362-2111
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10.2 Interpretation. Any reference to dollar amounts in this Agreement
shall be to United States Dollars ("US$"), unless expressly stated otherwise
herein. Amounts expressed in Canadian dollars are preceded by "Cdn$." The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation." References to "business
day" shall mean any day upon which banks are ordinarily open for business in
both Toronto, Canada and the State of California. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts (including by means of telecopier), all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party, it being understood that all parties need not sign the same
counterpart.
10.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder except that the Agent and the
Escrow Agent shall have the express rights articulated in Article VII hereof;
and (c) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided, except that BackWeb Parent may assign its
rights and delegate its obligations hereunder to its affiliates provided that
BackWeb parent shall continue to be bound thereby.
10.5 Severability. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
10.7 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Each of the parties hereto irrevocably (i) agrees
that any legal suit, action or proceeding against the other parties to this
Agreement in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein may be instituted in a federal or
state court within the federal Northern District of California or in any federal
or provincial court in the Province of Ontario, Canada (ii) waives to the
fullest extent it may effectively do so, any objection which it may now or
hereafter have to the laying of venue of any
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such proceeding, and (iii) submits to the non-exclusive jurisdiction of such
courts in any suit, action or proceeding. Lanacom has appointed CT Corporation
System, 818 West 7th Street, Los Angeles, California 90017 as its authorized
agent and BackWeb Parent has appointed BackWeb Technologies Inc., 2077 Gateway
Place, Suite 500, San Jose, California 95110 as its authorized agent (each an
"Authorized Agent") upon whom process may be served in connection with any
action based on this Agreement or any transaction contemplated hereby which may
be instituted in any federal or state court within the federal Northern District
of California and BackWeb Parent has appointed BackWeb Canada as an additional
Authorized Agent upon whom process may be served in connection with any action
based on this Agreement or any transaction contemplated hereby which may be
instituted in any federal or provincial court in the Province of Ontario,
Canada. In each case, such appointment shall be irrevocable. Each of the parties
hereto represents and warrants that the Authorized Agent has agreed to act as
such agent for service of process and agrees to taken any and all action,
including the filing of any and all documents and instruments, that may be
necessary to continue such appointment in full force and effect as aforesaid.
Service of process upon an Authorized Agent and written notice of such service
to the applicable party shall be deemed, in every respect, effective service of
process upon such party.
10.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
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IN WITNESS WHEREOF, BackWeb Parent, BackWeb Canada, Lanacom and the
Founder have caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
BACKWEB TECHNOLOGIES LTD. LANACOM INC.
By: ___________________________ By: ___________________________
Name: _________________________ Name: _________________________
Title: ________________________ Title: ________________________
BACKWEB CANADA INC.
By: ___________________________
Name: _________________________
Title: ________________________
ANTHONY DAVIS
_______________________________
Anthony Davis
With respect to the matters set forth in Article VII only, each of the Agent and
the Escrow Agent has caused this Agreement to be signed by it or its duly
authorized representative, as of the date first written above.
AGENT ESCROW AGENT
_______________________________ By: ___________________________
Anthony Davis
Name: _________________________
Title: ________________________
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AMALGAMATION AGREEMENT made as of the 7th day of August, 1997 between BACKWEB
CANADA INC., a corporation incorporated under the laws of the Province of
Ontario ("BackWeb"), and LANACOM INC., a corporation incorporated under the laws
of the Province of Ontario ("Lanacom").
WHEREAS:
A. BackWeb was incorporated under the OBCA by certificate and articles
of incorporation effective June 26, 1997.
B. The authorized capital of BackWeb consists of an unlimited number of
common shares of which one common share is issued and outstanding at the date
hereof.
C. Lanacom was incorporated under the OBCA by certificate and articles
of incorporation effective August 7, 1996, as amended by certificates and
articles of amendment effective October 16, 1996.
D. The authorized capital of Lanacom consists of an unlimited number of
Common Shares and an unlimited number of Preference Shares, issuable in series,
of which 4,001,052 common shares and no Preference Shares are issued and
outstanding at the date hereof.
E. BackWeb and Lanacom propose to amalgamate and continue as one
corporation pursuant to the OBCA upon the terms and subject to the conditions
hereinafter set out.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
mutual covenants and agreements hereinafter set out, the parties covenant and
agree as follows:
1. INTERPRETATION
(1) DEFINITIONS. In this Agreement, including the recitals hereto, the
following words and expressions have the respective meanings ascribed to them
below:
"Agreement" means this agreement as the same may be amended, modified or
supplemented from time to time;
"Amalgamated Corporation" means the corporation continuing from the
Amalgamation.
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"Amalgamation" means the amalgamation of BackWeb and Lanacom contemplated
by this Agreement.
"Certificate of Amalgamation" means the certificate of amalgamation issued
by the Director in respect of the Amalgamation.
"Director" means the Director appointed under section 278 of the OBCA.
"Effective Date" means the date of the Certificate of Amalgamation.
"OBCA" means the Business Corporations Act (Ontario), as amended or
re-enacted from time to time.
"party" means a party to this Agreement.
"Resident Canadian" has the meaning ascribed to the term "resident
Canadian" in the OBCA.
(2) GENERAL RULES OF INTERPRETATION. The division of this Agreement into
sections, subsections and a schedule and the provision of titles for sections,
subsections and the schedule shall not affect the interpretation of this
Agreement. The schedule to this agreement constitutes an integral part of this
Agreement. The terms "herein", "hereto" and "hereinafter" refer to this
Agreement as a whole and not to any particular section or subsection or the
schedule.
(3) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein.
2. AMALGAMATION
BackWeb and Lanacom hereby agree to amalgamate and continue as one
corporation under the provisions of the OBCA upon the terms and subject to the
conditions hereinafter set out.
3. NAME
The name of the Amalgamated Corporation shall be "BACKWEB CANADA
INC.".
4. REGISTERED OFFICE. The registered office of the Amalgamated
Corporation shall be located at 251 Consumers Road, Suite 910, Toronto,
Ontario, Canada, M2J 4R3.
<PAGE> 68
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5. AUTHORIZED CAPITAL
The authorized capital of the Amalgamated Corporation shall consist of (i)
an unlimited number of shares of a class designated common shares; and (ii) an
unlimited number of shares of a class designated Class A shares. The rights,
privileges, restrictions and conditions attaching to each class of shares of
the Amalgamated Corporation are set out in Schedule 1 to this Agreement.
6. DIRECTORS
The board of directors of the Amalgamated Corporation shall consist of a
minimum of one director and a maximum of 15 directors. The number of directors
of the Amalgamated Corporation and the number of directors to be elected at the
annual meeting of the shareholders of the Amalgamated Corporation or by the
signing of a resolution in lieu thereof, until changed in accordance with the
OBCA, shall be two. The first directors of the Amalgamated Corporation shall be
the persons named below:
<TABLE>
<CAPTION>
RESIDENT
NAME ADDRESS CANADIAN
<S> <C> <C>
Anthony Davis 10 Prescott Court Yes
Thornhill, Ontario L3T 5W7
Carolyn Vanderhorst 880 East Freemont Avenue No
Aver Apt. 417
Sunnyvale, California 44087
United States of America
</TABLE>
Such persons shall hold office until the first meeting of the shareholders of
the Amalgamated Corporation or until their successors are elected or appointed.
7. RESTRICTIONS ON BUSINESS
These shall be no restrictions on the business which the Amalgamated
Corporation is authorized to carry on or on the powers which the Amalgamated
Corporation may exercise.
<PAGE> 69
-4-
8. ENTITLEMENTS ON AMALGAMATION
(1) On the Effective Date:
(i) the one issued and outstanding common share of BackWeb shall be
converted into one issued and fully paid common share of the
Amalgamated Corporation; and
(ii) each issued and outstanding Common Share of Lanacom shall be
converted into 2.13266602 Class A shares of the Amalgamated
Corporation.
(2) No fraction of a Class A share shall be issued, but in lieu thereof,
the number of Class A shares issuable to any holder of common shares of Lanacom
shall be rounded up to the nearest whole Class A share, after aggregating all
fractional Class A shares to be received by such holder.
9. STATED CAPITAL OF THE AMALGAMATED CORPORATION
(1) Common Shares. The amount to be added to the stated capital account
maintained in respect of the common shares issued on the Effective Date shall
be equal to the stated capital of the common shares of BackWeb immediately
prior to the Amalgamation.
(2) Class A Shares. The amount to be added to the stated capital account
maintained in respect of the Class A shares issued on the Effective Date shall
be equal to the stated capital of the Common Shares of Lanacom immediately
prior to the Amalgamation.
10. RESTRICTIONS ON THE TRANSFER OF SHARES
The right to transfer shares of the Amalgamated Corporation shall be
restricted in that no shares shall be transferred without either:
(a) the consent of the directors of the Amalgamated Corporation,
expressed by a resolution passed by the directors or by an instrument or
instruments in writing signed by a majority of the directors, which consent may
be given either prior or subsequent to the time of transfer of such shares; or
(b) the consent of the holder or holders of shares of the Amalgamated
Corporation to which are attached at least a majority of the votes attached to
all shares of the Amalgamated Corporation for the time being outstanding
carrying a voting right either under all circumstances or under circumstances
that have occurred and are continuing, expressed by resolution passed by such
holder or holders or by an instrument or
<PAGE> 70
-5-
instruments in writing signed by such holder or holders, which consent may be
given either prior or subsequent to the time of transfer of such shares.
Notwithstanding the previous paragraph, a holder may transfer shares of the
Amalgamated Corporation to a "related person" (as defined in the Business
Corporations Act (Ontario)) of such holder, provided that written notice of
such proposed transfer is given to the Amalgamated Corporation at least 10 days
prior to the proposed transfer date and the proposed transferee agrees, in form
satisfactory to the Amalgamated Corporation, to assume all obligations of the
holder under any agreements with shareholders of the Amalgamated Corporation.
11. LIMITATION ON NUMBER OF SHAREHOLDERS
The number of shareholders of the Amalgamated Corporation, exclusive of
persons who are in the employment of the Amalgamated Corporation and exclusive
of persons who, having been formerly in the employment of the Amalgamated
Corporation, were, while in that employment, and have continued after the
termination of that employment to be, shareholders of the Amalgamated
Corporation, is limited to not more than 50, two or more persons who are the
joint registered owners of one or more shares being counted as one shareholder.
12. PROHIBITION AGAINST DISTRIBUTION OF SECURITIES
Any invitation to the public to subscribe for any securities of the
Amalgamated Corporation is hereby prohibited.
13. BY-LAWS
(1) The by-laws of the Amalgamated Corporation shall be the by-laws of
BackWeb in effect immediately prior to the Amalgamation.
(2) A copy of the proposed by-laws of the Amalgamated Corporation may be
examined at any time prior to the Effective Date at the proposed registered
office of the Amalgamated Corporation.
14. ARTICLES OF AMALGAMATION
Upon the shareholder of BackWeb and the shareholders of Lanacom approving
the Amalgamation, this Agreement and any variations thereof, BackWeb and
Lanacom shall as promptly as practicable thereafter complete and send to the
Director articles of amalgamation in prescribed form providing for the
Amalgamation and such other documents as may be required pursuant to the OBCA.
<PAGE> 71
-6-
15. EXPENSES
If the Amalgamation is not consummated, all fees and expenses incurred in
connection with the transactions contemplated by this Agreement including
without limitation, all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties incurred by BackWeb, on the one
hand, or by Lanacom, on the other hand, in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses.
16. FINANCIAL YEAR-END
Unless otherwise determined by resolution of the directors of the
Amalgamated Corporation, the financial year of the Amalgamated Corporation
shall end on December 31 in each year.
17. AMENDMENT
This Agreement may at any time and from time to time before or after
approval thereof by the shareholders of BackWeb and Lanacom be amended by
written agreement of the parties without, subject to applicable law, further
notice to or authorization on the part of their respective shareholders and any
such amendment may, without limitation, change the time for performance of any
of the obligations or acts of the parties or waive compliance with or modify
any of the covenants herein contained and waive or modify performance of any of
the obligations of the parties hereto, provided that no such amendment shall
change the provisions hereof regarding the consideration to be received by
shareholders of Lanacom in exchange for their Common Shares of Lanacom without
approval by the holders of such Common Shares given in the same manner as
required for the approval of the Amalgamation.
18. FURTHER ASSURANCES
Each of the parties agrees to execute and deliver such further instruments
and to do such further acts and things as may be reasonably necessary or
appropriate to carry out the intent of this Agreement.
19. TIME OF ESSENCE
Time shall be of the essence of this Agreement.
<PAGE> 72
-7-
20. CURRENCY
All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada unless specified to be in coin or currency of the United
States of America ("United States dollars" or "U.S.$").
21. BINDING EFFECT
This Agreement shall be binding upon and enure to the benefit of the
parties and their successors and permitted assigns.
22. ASSIGNMENT
Neither party may assign any of its rights or obligations under this
Agreement without the prior written consent of the other party.
IN WITNESS WHEREOF the parties have executed this Agreement.
BACKWEB CANADA INC.
by: /s/ [Signature Illegible]
-------------------------------------
Chief Financial Officer
LANACOM INC.
by: /s/ [Signature Illegible]
-------------------------------------
President
<PAGE> 73
SCHEDULE 1
TO AMALGAMATION AGREEMENT BETWEEN
BACKWEB CANADA INC. AND LANACOM INC.
PROVISIONS ATTACHING TO COMMON SHARES
The common shares in the capital of the Amalgamated Corporation shall have
attached thereto the following rights, privileges, restrictions and conditions:
Dividends
Subject to the prior rights of the holders of any shares ranking senior to
the common shares with respect to priority in the payment of dividends, the
holders of common shares shall be entitled to receive dividends and the
Amalgamated Corporation shall pay dividends thereon, as and when declared by
the board of directors of the Amalgamated Corporation out of moneys properly
applicable to the payment of dividends, in such amount and in such form as the
board of directors may from time to time determine and all dividends which the
directors may declare on the common shares shall be declared and paid in equal
amounts per share on all common shares at the time outstanding.
Dissolution
In the event of the dissolution, liquidation or winding-up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
distribution of assets of the Amalgamated Corporation among its shareholders
for the purpose of winding up its affairs, subject to the prior rights of the
holders of the exchangeable non-voting shares and to any other shares ranking
senior to common shares with respect to priority in the distribution of assets
upon dissolution, liquidation or winding-up, the holders of the common shares
shall be entitled to receive the remaining property and assets of the
Amalgamated Corporation ratably with the holders of the common shares.
Voting Rights
The holders of the common shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Amalgamated
Corporation and shall have one vote for each common share held at all meetings
of the shareholders of the Amalgamated Corporation, except for meetings at
which only holders of another specified class or series of shares of the
Amalgamated Corporation are entitled to vote separately as a class or series.
<PAGE> 74
-2-
PROVISIONS ATTACHING TO CLASS A SHARES
The Class A shares in the capital of the Amalgamated Corporation shall
have attached thereto the following, rights, privileges, restrictions and
conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior to
the Class A shares with respect to priority in the payment of dividends, the
holders of Class A shares shall be entitled to receive dividends and the
Amalgamated Corporation shall pay dividends thereon, as and when declared by the
board of directors of the Amalgamated Corporation out of moneys properly
applicable to the payment of dividends,in such amount and in such form as the
board of directors may from time to time determine and all dividends which the
directors may declare on the Class A shares shall be declared and paid in equal
amounts per share on all Class A shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
distribution of assets of the Amalgamated Corporation among its shareholders for
the purpose of winding up its affairs, subject to the prior rights of the
holders of the exchangeable non-voting shares and to any other shares ranking
senior to the Class A shares with respect to priority in the distribution of
assets upon dissolution, liquidation or winding-up, the holders of the Class A
shares shall be entitled to receive the remaining property and assets of the
Amalgamated Corporation ratably with the holders of the common shares.
VOTING RIGHTS
Except where specifically provided by the Business Corporations Act
(Ontario), the holders of the Class A shares shall not be entitled to receive
notice of or to attend meetings of the shareholders of the Amalgamated
Corporation and shall not be entitled to vote at any meeting of shareholders of
the Amalgamated Corporation. The holders of the Class A shares are not entitled
to vote separately as a class upon any proposal to amend the articles of the
Amalgamated Corporation to effect an exchange, reclassification or cancellation
of the Class A shares or to create a new class of shares equal or superior to
the Class A shares, except in the case of a series under section 25 of the
Business Corporations Act (Ontario).
<PAGE> 75
-7-
20. CURRENCY
All sums of money which are referred to in this Agreement are
expressed in lawful money of Canada unless specified to be in coin or currency
of the United States of America ("United States dollars" or "U.S.$").
21. BINDING EFFECT
This Agreement shall be binding upon an enure to the benefit of the
parties and their successors and permitted assigns.
22. ASSIGNMENT
Neither party may assign any of its rights or obligations under
this Agreement without the prior written consent of the other party.
IN WITNESS WHEREOF the parties have executed this Agreement.
BACKWEB CANADA INC.
by:
-----------------------------------
CHIEF FINANCIAL OFFICER
LANACOM INC.
by:
-----------------------------------
PRESIDENT
<PAGE> 76
SCHEDULE 1
TO AMALGAMATION AGREEMENT BETWEEN
BACKWEB CANADA INC. AND LANACOM INC.
PROVISIONS ATTACHING TO COMMON SHARES
The common shares in the capital of the Amalgamated Corporation shall have
attached thereto the following rights, privileges, restrictions and conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior to
the common shares with respect to priority in the payment of dividends, the
holders of common shares shall be entitled to receive dividends and the
Amalgamated Corporation shall pay dividends thereon, as and when declared by the
board of directors of the Amalgamated Corporation out of moneys properly
applicable to the payment of dividends, in such amount and in such form as the
board of directors may from time to time determine and all dividends which the
directors may declare on the common shares shall be declared and paid in equal
amounts per share on all common shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
distribution of assets of the Amalgamated Corporation among its shareholders
for the purpose of winding up its affairs, subject to the prior rights of the
holders of the exchangeable non-voting shares and to any other shares ranking
senior to common shares with respect to priority in the distribution of assets
upon dissolution, liquidation or winding-up, the holders of the common shares
shall be entitled to receive the remaining property and assets of the
Amalgamated Corporation ratably with the holders of the common shares.
VOTING RIGHTS
The holders of the common shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Amalgamated Corporation
and shall have one vote for each common share held at all meetings of the
shareholders of the Amalgamated Corporation, except for meetings at which only
holders of another specified class or series of shares of the Amalgamated
Corporation are entitled to vote separately as a class or series.
<PAGE> 77
-2-
PROVISIONS ATTACHING TO CLASS A SHARES
The Class A shares in the capital of the Amalgamated Corporation shall
have attached thereto the following, rights, privileges, restrictions and
conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior to
the Class A shares with respect to priority in the payment of dividends, the
holders of Class A shares shall be entitled to receive dividends and the
Amalgamated Corporation shall pay dividends thereon, as and when declared by
the board of directors of the Amalgamated Corporation out of moneys properly
applicable to the payment of dividends, in such amount and in such form as the
board of directors may from time to time determine and all dividends which the
directors may declare on the Class A shares shall be declared and paid in equal
amounts per share on all Class A shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
distribution of assets of the Amalgamated Corporation among its shareholders
for the purpose of winding up its affairs, subject to the prior rights of the
holders of the exchangeable non-voting shares and to any other shares ranking
senior to the Class A shares with respect to priority in the distribution of
assets upon dissolution, liquidation or winding-up, the holders of the Class A
shares shall be entitled to receive the remaining property and assets of the
Amalgamated Corporation ratably with the holders of the common shares.
VOTING RIGHTS
Except where specifically provided by the Business Corporations Act
(Ontario), the holders of the Class A shares shall not be entitled to receive
notice of or to attend meetings of the shareholders of the Amalgamated
Corporation and shall not be entitled to vote at any meeting of shareholders of
the Amalgamated Corporation. The holders of the Class A shares are not entitled
to vote separately as a class upon any proposal to amend the articles of the
Amalgamated Corporation to effect an exchange, reclassification or cancellation
of the Class A shares or to create a new class of shares equal or superior to
the Class A shares, except in the case of a series under section 25 of the
Business Corporations Act (Ontario).
<PAGE> 78
<TABLE>
<S> <C> <C>
Ministry of Ministere de Ontario Corporation Number
Consumer and la Consommation Numero de la compagnie en Ontario
Commercial Relations et du Commerce
CERTIFICATE CERTIFICAT 1250113
This is to certify that these Ceci certifie que les presents
articles are effective on statuts entrent en vigueur lo
AUGUST 08 AOUT, 1997 Trade Line Corp Method
Code No. Stat. Type Incorp. Share
/s/ [Signature Illegible]
[A] [0] [0] [A] [3] [S]
Director / Directeur ?? 20 28 29 30 31
Business Corporations Act/Loi sur les societes par actions
Notice
Req'd Jurisdiction
[N] [ONTARIO] [A]
32 33 47 57
</TABLE>
FORM 4
BUSINESS
CORPORATIONS
ACT
AGENDA
NOMBRE 4
LOI
SUR LES
COMPAGNIES
ARTICLES OF AMALGAMATION
STATUTS DE FUSION
1. The name of the amalgamated corporation is:
Denomination sociale de la compagnie issue de la fusion:
BACKWEB CANADA INC.
2. The address of the registered office is:
Addresse du siege social:
251 Consumers Road, Suite 910
- --------------------------------------------------------------------------------
(Street & No. or R.R. No. & if Multi-Office Building give Room No.)
Rue et numbero ou number de la R.R. et ???
Toronto, Ontario [M 2 J 4 R 3]
- --------------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de le municipalite ou du bureau de postal) (Code Postal)
3. Number (or minimum and maximum number) of directors is:
Nombre (ou nombres et maximal) d'administrateurs:
A minimum of 1 and a maximum of 15.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
4. The director(s) is/are: Administrateur(s): Resident
Canadian
First name, initials and last name Residence address, giving Street & No. or R.R. No., State
Prenom, initiales et nom de famille Municipality and Postal Code Yes or No
Adresse personnelle, y compris la rue et le numero, Resident
le numero de la R.R., le nom de la municipalite Canadien
et le code postal Oui/Non
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Anthony Davis 10 Prescott Court Yes
Thornhill, Ontario
L3T 5W7
Carolyn Vanderhorst Aver 880 East Freemont Avenue, Apt. 417 No
Sunnyvale, California
44087
</TABLE>
<PAGE> 79
2
5. A) The amalgamation agreement has been duly adopted by the shareholders
of each of the amalgamating corporations as required by subsection
176(4) of the Business Corporations Act on the date set out below.
[X]
A) Les actionnaires de chaque societe qui fusionne ont dument adopte la
convention de fusion conformement au paragraphe 176(4) de la Loi sur
les societes par actions a la date mentionnee ci-dessous.
[ARROW UP]
Check Cocher
A or B A ou B
[ARROW DOWN]
B) The amalgamation has been approved by the directors of each
amalgamating corporation by a resolution as required by section 177
of the Business Corporations Act on the date set out below.
The articles of amalgamation in substance contain the provisions of
the articles of incorporation of
[ ]
B) Les administrateurs de chaque societe qui fusionne ont approuve la
fusion par voia de resolution conformement a l'article 177 de la Loi
sur les societes par actions a la date mentionnee ci-dessous. Les
statuts de fusion reprennent essentiellement les dispositions des
statuts constitutits de
- --------------------------------------------------------------------------------
and are more particularly set out in et sont enonces textuellement aux
these articles. presents statuts.
Names of amalgamating Ontario Corporation Date of Adoption/Approval
corporations Number
Denomination sociale des Numero de la societe Date d'adoption ou
societes qui fusionnent en Ontario d'approbation
- --------------------------------------------------------------------------------
BACKWEB CANADA INC. 1244604 June 30, 1997
LANACOM INC. 1194146 July 2, 1997
<PAGE> 80
3
6. Restrictions, if any, on business the corporation may carry on or on
powers the corporation exercises.
Limites, s'il a lieu, imposees aux activites commerciales ou aux pouvoirs
de la societe.
None.
7. The classes and any maximum number of shares that the corporation is
authorized to issue.
Categories et nombre maximal, s'il y a lieu, d'actions que la societe est
autorisee a emettre:
The Corporation is authorized to issue:
(i) an unlimited number of shares of a class designated common
shares; and
(ii) an unlimited number of shares of a class designated Class A
shares.
<PAGE> 81
4
8. Rights, privileges, restrictions and conditions (if any) attaching to each
class of shares and directors authority with respect to any class of
shares which is to be issued in series:
Droits, privileges, restrictions et conditions, s'il y a lieu, rattaches a
chaque categorie d'actions et pouvoirs des administrateurs relatis a
chaque categorie d'actions oui peut eire emise en serie:
PROVISIONS ATTACHING TO COMMON SHARES
The common shares in the capital of the corporation shall have
attached thereto the following rights, privileges, restrictions and
conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking
senior to the common shares with respect to priority in the payment of
dividends, the holders of common shares shall be entitled to receive
dividends and the corporation shall pay dividends thereon, as and when
declared by the board of directors of the corporation out of moneys
properly applicable to the payment of dividends, in such amount and in
such form as the board of directors may from time to time determine and
all dividends which the directors may declare on the common shares shall
be declared and paid in equal amounts per share on all common shares at
the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
corporation, whether voluntary or involuntary, or any other distribution
of assets of the corporation among its shareholders for the purpose of
winding up its affairs, subject to the prior rights of the holders of the
exchangeable non-voting shares and to any other shares ranking senior to
common shares with respect to priority in the distribution of assets upon
dissolution, liquidation or winding-up, the holders of the common shares
shall be entitled to receive the remaining property and assets of the
corporation ratably with the holders of the common shares.
VOTING RIGHTS
The holders of the common shares shall be entitled to receive notice
of and to attend all meetings of the shareholders of the corporation and
shall have one vote for each common share held at all meetings of the
shareholders of the corporation, except for meetings at which only holders
of another specified class or series of shares of the corporation are
entitled to vote separately as a class or series.
PROVISIONS ATTACHING TO CLASS A SHARES
The Class A shares in the capital of the corporation shall have
attached thereto the following, rights, privileges, restrictions and
conditions:
<PAGE> 82
4-A
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking
senior to the Class A shares with respect to priority in the payment of
dividends, the holders of Class A shares shall be entitled to receive
dividends and the corporation shall pay dividends thereon, as and when
declared by the board of directors of the corporation out of moneys
properly applicable to the payment of dividends, in such amount and in
such form as the board of directors may from time to time determine and
all dividends which the directors may declare on the Class A shares shall
be declared and paid in equal amounts per share on all Class A shares at
the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
corporation, whether voluntary or involuntary, or any other distribution
of assets of the corporation among its shareholders for the purpose of
winding up its affairs, subject to the prior rights of the holders of the
exchangeable non-voting shares and to any other shares ranking senior to
the Class A shares with respect to priority in the distribution of assets
upon dissolution, liquidation or winding-up, the holders of the Class A
shares shall be entitled to receive the remaining property and assets of
the corporation ratably with the holders of the common shares.
VOTING RIGHTS
Except where specifically provided by the Business Corporations Act
(Ontario), the holders of the Class A shares shall not be entitled to
receive notice of or to attend meetings of the shareholders of the
corporation and shall not be entitled to vote at any meeting of
shareholders of the corporation. The holders of the Class A shares are not
entitled to vote separately as a class upon any proposal to amend the
articles of the corporation to effect an exchange, reclassification or
cancellation of the Class A shares or to create a new class of shares
equal or superior to the Class A shares, except in the case of a series
under section 25 of the Business Corporations Act (Ontario).
<PAGE> 83
5
9. The issue, transfer or ownership of shares is/is not restricted and the
restrictions (if any) are as follows:
L'emission, le tranfert ou la propriete d'actions est/n'est pas restreint.
Les restrictions, s'il y a lieu, sont les suivantes:
The right to transfer shares of the corporation shall be restricted in that
no shares shall be transferred without either:
(a) the consent of the directors of the corporation, expressed by a
resolution passed by the directors or by an instrument or instruments in
writing signed by a majority of the directors, which consent may be given
either prior or subsequent to the time of transfer of such shares; or
(b) the consent of the holder or holders of shares of the corporation to
which are attached at least a majority of the votes attached to all shares
of the corporation for the time being outstanding carrying a voting right
either under all circumstances or under circumstances that have occurred and
are continuing, expressed by resolution passed by such holder or holders or
by an instrument or instruments in writing signed by such holder or holders,
which consent may be given either prior or subsequent to the time of
transfer of such shares.
Notwithstanding the previous paragraph, a holder may transfer shares of the
corporation to a "related person" (as defined in the Business Corporations
Act (Ontario)) of such holder, provided that written notice of such proposed
transfer is given to the corporation at least 10 days prior to the proposed
transfer date and the proposed transferee agrees, in form satisfactory to
the corporation, to assume all obligations of the holder under any
agreements with shareholders of the corporation.
10. Other provisions, (if any):
(1) The number of shareholders of the corporation, exclusive of persons
who are in the employment of the corporation and exclusive of persons who,
having been formerly in the employment of the corporation, were, while in
that employment, and have continued after the termination of that employment
to be, shareholders of the corporation, is limited to not more than 50, two
or more persons who are the joint registered owners of one or more shares
being counter as one shareholders.
(2) Any invitation to the public to subscribe for any securities of the
corporation is hereby prohibited.
11. The statements required by subsection 178(2) of the Business Corporations
Act are attached as Schedule "A".
Les declarations exigees aux termes du paragraphe 178(2) de la Loi sur les
societes par actions constituent l'annexe "A".
12. A copy of the amalgamation agreement or directors resolutions (as the case
may be) is/are attached as Scheduled "B".
Une copie de la convention de fusion ou les resolutions des administratuers
(selon le cas) constitute(nt) l'annexe "B".
<PAGE> 84
6
These articles are signed in duplicate.
Les presents statutes sont signes en double exerptaire.
Names of the amalgamating corporation and signatures and descriptions of office
of their proper officers.
Denomination sociale des sociates qui fusionnard, signature et fonction de
leurs dingeants regufiarement designes.
BACKWEB CANADA INC.
by: /s/ Carolyn V. Aver
-----------------------------------
Chief Financial Officer
LANACOM INC.
by: /s/ [Signature Illegible]
-----------------------------------
President
<PAGE> 85
A-1
SCHEDULE "A"
PART 1
BACKWEB CANADA INC.
Statement of an Officer
I, CAROLYN AVER, the Chief Financial Officer of BACKWEB CANADA INC. (the
"Corporation"), hereby state that:
(a) There are reasonable grounds for believing that:
(i) each of the Corporation and Lanacom Inc. and, upon the amalgamation
thereof, the amalgamated corporation to be named BACKWEB CANADA INC. (the
"Amalgamated Corporation") will be able to pay its liabilities as they
become due, and
(ii) the realizable value of the Amalgamated Corporation's assets will not be
less than the aggregate of its liabilities and stated capital of all
classes.
(b) There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation.
(c) No creditor has notified the Corporation that he, she or it objects to the
amalgamation.
DATED August 8, 1997.
/s/ CAROLYN AVER
--------------------
Carolyn Aver
<PAGE> 86
A-2
SCHEDULE "A"
PART 2
LANACOM INC
STATEMENT OF AN OFFICER
I, Anthony Davis, the President of LANACOM INC. (the "Corporation"),
hereby state that:
(a) There are reasonable grounds for believing that:
(i) each of the Corporation and BackWeb Canada Inc. and, upon the amalgamation
thereof, the amalgamated corporation to be named BACKWEB CANADA INC. (the
"Amalgamated Corporation") will be able to pay its liabilities as they
become due, and
(ii) the realizable value of the Amalgamated Corporation's assets will not be
less than the aggregate of its liabilities and stated capital of all
classes.
(b) There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation.
(c) No creditor has notified the Corporation that he, she or it objects to the
amalgamation.
DATED August 8, 1997.
/s/ ANTHONY DAVIS
------------------------------
Anthony Davis
<PAGE> 87
SCHEDULE "B"
AMALGAMATION AGREEMENT made as of the 8th day of August, 1997 between BACKWEB
CANADA INC., a corporation incorporated under the laws of the Province of
Ontario ("BackWeb"), and LANACOM INC., a corporation incorporated under the
laws of the Province of Ontario ("Lanacom").
WHEREAS:
A. BackWeb was incorporated under the OBCA by certificate and articles of
incorporation effective June 26, 1997.
B. The authorized capital of BackWeb consists of an unlimited number of
common shares of which one common share is issued and outstanding at the date
hereof:
C. Lanacom was incorporated under the OBCA by certificate and articles of
incorporation effective August 7, 1996, as amended by certificates and articles
of amendment effective October 16, 1996.
D. The authorized capital of Lanacom consists of an unlimited number of
Common Shares and an unlimited number of Preference Shares, issuable in series,
of which 4,001,052 common shares and no Preference Shares are issued and
outstanding at the date hereof.
E. BackWeb and Lanacom propose to amalgamate and continue as one
corporation pursuant to the OBCA upon the terms and subject to the conditions
hereinafter set out.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the
mutual covenants and agreements hereinafter set out, the parties covenant and
agree as follows:
1. INTERPRETATION
(1) DEFINITIONS. In this Agreement, including the recitals hereto, the
following words and expressions have the respective meanings ascribed to them
below:
"Agreement" means this agreement as the same may be amended, modified or
supplemented from time to time;
"Amalgamated Corporation" means the corporation continuing from the
Amalgamation.
<PAGE> 88
-2-
"Amalgamation" means the amalgamation of BackWeb and Lanacom contemplated
by this Agreement.
"Certificate of Amalgamation" means the certificate of amalgamation issued
by the Director in respect of the Amalgamation.
"Director" means the Director appointed under section 278 of the OBCA.
"Effective Date" means the date of the Certificate of Amalgamation.
"OBCA" means the Business Corporations Act (Ontario), as amended or
re-enacted from time to time.
"party" means a party to this Agreement.
"Resident Canadian" has the meaning ascribed to the term "resident
Canadian" in the OBCA.
(2) GENERAL RULES OF INTERPRETATION. The division of this Agreement into
sections, subsections and a schedule and the provision of titles for sections,
subsections and the schedule shall not affect the interpretation of this
Agreement. The schedule to this agreement constitutes an integral part of this
Agreement. The terms "herein", "hereto" and "hereinafter" refer to this
Agreement as a whole and not to any particular section or subsection or the
schedule.
(3) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein.
2. AMALGAMATION
BackWeb and Lanacom hereby agree to amalgamate and continue as one
corporation under the provisions of the OBCA upon the terms and subject to the
conditions hereinafter set out.
3. NAME
The name of the Amalgamated Corporation shall be "BACKWEB CANADA INC."
4. Registered Office. The registered office of the Amalgamated Corporation
shall be located at 251 Consumers Road, Suite 910, Toronto, Ontario, Canada,
M2J 4R3.
<PAGE> 89
-3-
5. AUTHORIZED CAPITAL
The authorized capital of the Amalgamated Corporation shall consist
of (i) an unlimited number of shares of a class designated common shares; and
(ii) an unlimited number of shares of a class designated Class A shares. The
rights, privileges, restrictions and conditions attaching to each class of
shares of the Amalgamated Corporation are set out in Schedule 1 to this
Agreement.
6. DIRECTORS
The board of directors of the Amalgamated Corporation shall consist
of a minimum of one director and a maximum of 15 directors. The number of
directors of the Amalgamated Corporation and the number of directors to be
elected at the annual meeting of the shareholders of the Amalgamated Corporation
or by the signing of a resolution in lieu thereof, until changed in accordance
with the OBCA, shall be two. The first directors of the Amalgamated Corporation
shall be the persons named below:
<TABLE>
<CAPTION>
RESIDENT
NAME ADDRESS CANADIAN
<S> <C> <C>
Anthony Davis 10 Prescott Court Yes
Thornhill, Ontario L3T 5W7
Carolyn Vanderhorst 880 East Freemont Avenue No
Aver Apt. 417
Sunnyvale, California 44087
United States of America
</TABLE>
Such persons shall hold office until the first meeting of the shareholders of
the Amalgamated Corporation or until their successors are elected or appointed.
7. RESTRICTIONS ON BUSINESS
There shall be no restrictions on the business which the
Amalgamated Corporation is authorized to carry on or on the powers which the
Amalgamated Corporation may exercise.
<PAGE> 90
-4-
8. ENTITLEMENTS ON AMALGAMATION
(1) On the Effective Date;
(i) the one issued and outstanding common share of BackWeb shall be
converted into one issued and fully paid common share of the
Amalgamated Corporation; and
(ii) each issued and outstanding Common Share of Lanacom shall be
converted into 2.13266602 Class A shares of the Amalgamated
Corporation.
(2) No fraction of a Class A share shall be issued, but in lieu thereof,
the number of Class A shares issuable to any holder of common shares of Lanacom
shall be rounded up to the nearest whole Class A share, after aggregating all
fractional Class A shares to be received by such holder.
9. STATED CAPITAL OF THE AMALGAMATED CORPORATION
(1) COMMON SHARES. The amount to be added to the stated capital account
maintained in respect of the common shares issued on the Effective Date shall be
equal to the stated capital of the common shares of BackWeb immediately prior to
the Amalgamation.
(2) CLASS A SHARES. The amount to be added to the stated capital account
maintained in respect of the Class A shares issued on the Effective Date shall
be equal to the stated capital of the Common Shares of Lanacom immediately prior
to the Amalgamation.
10. RESTRICTIONS ON THE TRANSFER OF SHARES
The right to transfer shares of the Amalgamated Corporation shall be
restricted in that no shares shall be transferred without either;
(a) the consent of the directors of the Amalgamated Corporation,
expressed by a resolution passed by the directors or by an instrument or
instruments in writing signed by a majority of the directors, which consent may
be given either prior or subsequent to the time of transfer of such shares; or
(b) the consent of the holder or holders of shares of the
Amalgamated Corporation to which are attached at least a majority of the votes
attached to all shares of the Amalgamated Corporation for the time being
outstanding carrying a voting right either under all circumstances or under
circumstances that have occurred and are continuing, expressed by resolution
passed by such holder or holders or by an instrument or
<PAGE> 91
-5-
instruments in writing signed by such holder or holders, which consent may be
given either prior or subsequent to the time of transfer of such shares.
Notwithstanding the previous paragraph, a holder may transfer shares of
the Amalgamated Corporation to a "related person" (as defined in the Business
Corporations Act (Ontario)) of such holder, provided that written notice of
such proposed transfer is given to the Amalgamated Corporation at least 10 days
prior to the proposed transfer date and the proposed transferee agrees, in form
satisfactory to the Amalgamated Corporation, to assume all obligations of the
holder under any agreements with shareholders of the Amalgamated Corporation.
11. LIMITATION ON NUMBER OF SHAREHOLDERS
The number of shareholders of the Amalgamated Corporation, exclusive of
persons who are in the employment of the Amalgamated Corporation and exclusive
of persons who, having been formerly in the employment of the Amalgamated
Corporation, were, while in that employment, and have continued after the
termination of that employment to be, shareholders of the Amalgamated
Corporation, is limited to not more than 50, two or more persons who are the
joint registered owners of one or more shares being counted as one shareholder.
12. PROHIBITION AGAINST DISTRIBUTION OF SECURITIES
Any invitation to the public to subscribe for any securities of the
Amalgamated Corporation is hereby prohibited.
13. BY-LAWS
(1) The by-laws of the Amalgamated Corporation shall be the by-laws of
BackWeb in effect immediately prior to the Amalgamation.
(2) A copy of the proposed by-laws of the Amalgamated Corporation may be
examined at any time prior to the Effective Date at the proposed registered
office of the Amalgamated Corporation.
14. ARTICLES OF AMALGAMATION
Upon the shareholder of BackWeb and the shareholders of Lanacom approving
the Amalgamation, this Agreement and any variations thereof, BackWeb and
Lanacom shall as promptly as practicable thereafter complete and send to the
Director articles of amalgamation in prescribed form providing for the
Amalgamation and such other documents as may be required pursuant to the OBCA.
<PAGE> 92
-6-
15. EXPENSES
If the Amalgamation is not consummated, all fees and expenses incurred in
connection with the transactions contemplated by this Agreement including
without limitation, all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties incurred by BackWeb, on the one
hand, or by Lanacom, on the other hand, in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses.
16. FINANCIAL YEAR-END
Unless otherwise determined by resolution of the directors of the
Amalgamated Corporation, the financial year of the Amalgamated Corporation
shall end on December 31 in each year.
17. AMENDMENT
This Agreement may at any time and from time to time before or after
approval thereof by the shareholders of BackWeb and Lanacom be amended by
written agreement of the parties without, subject to applicable law, further
notice to or authorization on the part of their respective shareholders and any
such amendment may, without limitation, change the time for performance of any
of the obligations or acts of the parties or waive compliance with or modify
any of the covenants herein contained and waive or modify performance of any of
the obligations of the parties hereto, provided that no such amendment shall
change the provisions hereof regarding the consideration to be received by
shareholders of Lanacom in exchange for their Common Shares of Lanacom without
approval by the holders of such Common Shares given in the same manner as
required for the approval of the Amalgamation.
18. FURTHER ASSURANCES
Each of the parties agrees to execute and deliver such further instruments
and to do such further acts and things as may be reasonably necessary or
appropriate to carry out the intent of this Agreement.
19. TIME OF ESSENCE
Time shall be of the essence of this Agreement.
<PAGE> 93
-7-
20. CURRENCY
All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada unless specified to be in coin or currency of the United
States of America ("United States dollars" or "U.S.$").
21. BINDING EFFECT
This Agreement shall be binding upon and enure to the benefit of the
parties and their successors and permitted assigns.
22. ASSIGNMENT
Neither party may assign any of its rights or obligations under this
Agreement without the prior written consent of the other party.
IN WITNESS WHEREOF the parties have executed this Agreement.
BACKWEB CANADA INC.
by: /s/ [Signature Illegible]
-------------------------------------
Chief Financial Officer
LANACOM INC.
by: /s/ [Signature Illegible]
-------------------------------------
President
<PAGE> 94
SCHEDULE 1
TO AMALGAMATION AGREEMENT BETWEEN
BACKWEB CANADA INC. AND LANACOM INC.
PROVISIONS ATTACHING TO COMMON SHARES
The common shares in the capital of the Amalgamated Corporation shall have
attached thereto the following rights, privileges, restrictions and conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior to
the common shares with respect to priority in the payment of dividends, the
holders of common shares shall be entitled to receive dividends and the
Amalgamated Corporation shall pay dividends thereon, as and when declared by the
board of directors of the Amalgamated Corporation out of moneys properly
applicable to the payment of dividends, in such amount and in such form as the
board of directors may from time to time determine and all dividends which the
directors may declare on the common shares shall be declared and paid in equal
amounts per share on all common shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
distribution of assets of the Amalgamated Corporation among its shareholders
for the purpose of winding up its affairs, subject to the prior rights of the
holders of the exchangeable non-voting shares and to any other shares ranking
senior to common shares with respect to priority in the distribution of assets
upon dissolution, liquidation or winding-up, the holders of the common shares
shall be entitled to receive the remaining property and assets of the
Amalgamated Corporation ratably with the holders of the common shares.
VOTING RIGHTS
The holders of the common shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Amalgamated Corporation
and shall have one vote for each common share held at all meetings of the
shareholders of the Amalgamated Corporation, except for meetings at which only
holders of another specified class or series of shares of the Amalgamated
Corporation are entitled to vote separately as a class or series.
<PAGE> 95
-2-
PROVISIONS ATTACHING TO CLASS A SHARES
The Class A shares in the capital of the Amalgamated Corporation shall
have attached thereto the following, rights, privileges, restrictions and
conditions:
DIVIDENDS
Subject to the prior rights of the holders of any shares ranking senior to
the Class A shares with respect to priority in the payment of dividends, the
holders of Class A shares shall be entitled to receive dividends and the
Amalgamated Corporation shall pay dividends thereon, as and when declared by
the board of directors of the Amalgamated Corporation out of moneys properly
applicable to the payment of dividends, in such amount and in such form as the
board of directors may from time to time determine and all dividends which the
directors may declare on the Class A shares shall be declared and paid in equal
amounts per share on all Class A shares at the time outstanding.
DISSOLUTION
In the event of the dissolution, liquidation or winding-up of the
Amalgamated Corporation, whether voluntary or involuntary, or any other
distribution of assets of the Amalgamated Corporation among its shareholders
for the purpose of winding up its affairs, subject to the prior rights of the
holders of the exchangeable non-voting shares and to any other shares ranking
senior to the Class A shares with respect to priority in the distribution of
assets upon dissolution, liquidation or winding-up, the holders of the Class A
shares shall be entitled to receive the remaining property and assets of the
Amalgamated Corporation ratably with the holders of the common shares.
VOTING RIGHTS
Except where specifically provided by the Business Corporations Act
(Ontario), the holders of the Class A shares shall not be entitled to receive
notice of or to attend meetings of the shareholders of the Amalgamated
Corporation and shall not be entitled to vote at any meeting of shareholders of
the Amalgamated Corporation. The holders of the Class A shares are not entitled
to vote separately as a class upon any proposal to amend the articles of the
Amalgamated Corporation to effect an exchange, reclassification or cancellation
of the Class A shares or to create a new class of shares equal or superior to
the Class A shares, except in the case of a series under section 25 of the
Business Corporations Act (Ontario).
<PAGE> 96
SUPPORT AGREEMENT
MEMORANDUM OF AGREEMENT made as of August __, 1997.
BETWEEN:
BACKWEB TECHNOLOGIES LTD.
a corporation existing under the laws of Israel
(hereinafter referred to as the "Parent"),
OF THE FIRST PART,
- and -
BACKWEB CANADA INC.
a corporation amalgamated under the laws of the Province of Ontario,
(hereinafter referred to as the "Company"),
OF THE SECOND PART.
WHEREAS pursuant to that certain Agreement and Plan of Acquisition
dated as of July 1, 1997, by and among (i) the Parent, (ii) BackWeb Canada Inc.,
a predecessor to the Company, (iii) Lanacom Inc., a corporation incorporated
under the laws of Ontario ("Lanacom") and (iv) Anthony Davis, the principal
shareholder of Lanacom (such agreement as it may be amended or restated is
hereinafter referred to as the "Acquisition Agreement"), the parties agreed that
on the Closing Date (as defined in the Acquisition Agreement), the Parent and
the Company would execute and deliver a Support Agreement containing, among
other things, the terms and conditions set forth in Section 1.16 to the
Acquisition Agreement together with such other terms and conditions as may be
agreed to by the parties to the Acquisition Agreement acting reasonably;
AND WHEREAS, pursuant to an amalgamation (the "Amalgamation"), among
other things, all of the issued and outstanding common shares of Lanacom
("Lanacom Shares") shall be exchanged for Class A Common Shares of the Company
("Class A Shares"), which Class A Shares will immediately thereafter be changed
into exchangeable shares of the Company ("Exchangeable Shares") in accordance
with the terms and subject to the conditions set forth in the Acquisition
Agreement. Each Exchangeable Share shall thereafter be exchangeable in
accordance with the terms and conditions of (i) the Acquisition Agreement and
(ii) the Voting and Exchange Trust Agreement (as defined in Section 1.17 of the
Acquisition Agreement) entered into by and among the parties
<PAGE> 97
hereto, for one ordinary share of BackWeb Parent (each, a "Parent
Common Share" and collectively, the "Parent Common Stock");
AND WHEREAS the articles of Amendment to be filed immediately after the
Amalgamation set forth the rights, privileges, restrictions and conditions
(collectively the "Exchangeable Share Provisions") attaching to the Exchangeable
Shares;
AND WHEREAS the parties hereto desire to make appropriate provision and
to establish a procedure whereby the Parent will take certain actions and make
certain payments and deliveries necessary to ensure that the Company will be
able to make certain payments and to deliver or cause to be delivered shares of
Parent Common Stock in satisfaction of the obligations of the Company under the
Exchangeable Share Provisions with respect to the payment and satisfaction of
dividends, Liquidation Amounts, Retraction Prices and Redemption Prices, all in
accordance with the Exchangeable Share Provisions;
NOW THEREFORE in consideration of the respective covenants and
agreements provided in this agreement and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Defined Terms. Each term denoted herein by initial capital letters
and not otherwise defined herein shall have the meaning ascribed thereto in the
Exchangeable Share Provisions, unless the context requires otherwise.
1.2 Interpretation not Affected by Headings, etc. The division of this
agreement into articles, sections and paragraphs and the insertion of headings
are for convenience of reference only and shall not affect the construction or
interpretation of this agreement.
1.3 Number, Gender, etc. Words importing the singular number only shall
include the plural and vice versa. Words importing the use of any gender shall
include all genders.
ARTICLE 2
COVENANTS OF THE PARENT AND THE COMPANY
2.1 Covenants of Parent Regarding Exchangeable Shares. So long as any
Exchangeable Shares which are registered in the name of holders other than
Parent or any of its affiliates or subsidiaries ("Affiliates") are outstanding,
the Parent will:
(a) not declare or pay any dividend on Parent Common stock unless
(i) the Company will have sufficient assets, funds and other property available
to enable the due declaration
<PAGE> 98
and the due and punctual payment in accordance with applicable law, of an
equivalent dividend on the Exchangeable Shares and (ii) the Company shall
simultaneously declare or pay, as the case may be, an equivalent dividend on the
Exchangeable Shares, in each case in accordance with the Exchangeable Share
Provisions;
(b) cause the Company to declare simultaneously with the
declaration of any dividend on Parent Common Stock an equivalent dividend on the
Exchangeable Shares and, when such dividend is paid on Parent Common Stock,
cause the Company to pay simultaneously therewith such equivalent dividend on
the Exchangeable Shares, in each case in accordance with the Exchangeable Share
Provisions;
(c) advise the Company sufficiently in advance of the declaration
by Parent of any dividend on Parent Common Stock and take all such other actions
as are necessary, in cooperation with the Company, to ensure that the respective
declaration date, record date and payment date for a dividend on the
Exchangeable Shares shall be the same as the record date, declaration date and
payment date for the corresponding dividend on Parent Common Stock and such
dividend on the Exchangeable Shares shall correspond with any requirement of the
stock exchange on which the Exchangeable Shares are listed;
(d) ensure that the record date for any dividend declared on Parent
Common Stock is not less than 10 Business Days after the declaration date for
such dividend;
(e) take all such actions and do all such things as are necessary
or desirable to enable and permit the Company, in accordance with applicable
law, to pay and otherwise perform its obligations with respect to the
satisfaction of the Liquidation Amount in respect of each issued and outstanding
Exchangeable Share upon the liquidation, dissolution or winding-up of the
Company, including without limitation all such actions and all such things as
are necessary or desirable to enable and permit the Company to cause to be
delivered shares of Parent Common Stock to the holders of Exchangeable Shares in
accordance with the provisions of Article 5 of the Exchangeable Share
Provisions;
(f) take all such actions and do all such things as are necessary
or desirable to enable and permit the Company, in accordance with applicable
law, to pay and otherwise perform its obligations with respect to the
satisfaction of the Retraction Price and the Redemption Price, including without
limitation all such actions and all such things as are necessary or desirable to
enable and permit the Company to cause to be delivered shares of Parent Common
Stock to the holders of Exchangeable Shares, upon the retraction or redemption
of the Exchangeable Shares in accordance with the provisions of Article 6 or
Article 7 of the Exchangeable Share Provisions, as the case may be; and
(g) not exercise its vote as a shareholder to initiate the
voluntary liquidation, dissolution or winding-up of the Company nor take any
action or omit to take any action that is designed to result in the liquidation,
dissolution or winding-up of the Company.
<PAGE> 99
2.2 Reservation of Shares of Parent Common Stock. The Parent hereby
represents, warrants and covenants that it has irrevocably reserved for issuance
and will at all times keep available, free from pre-emptive and other rights,
out of its authorized and unissued capital stock such number of shares of Parent
Common Stock (or other shares or securities into which the Parent Common Stock
may be reclassified or changed as contemplated by section 2.6 hereof) (a) as is
equal to the sum of (i) the number of Exchangeable Shares issued and outstanding
from time to time and (ii) the number of Exchangeable Shares issuable upon the
exercise of all rights to acquire Exchangeable Shares outstanding from time to
time and (b) as are now and may hereafter be required to enable and permit the
Company to meet its obligations hereunder, under the Voting and Exchange Trust
Agreement, under the Exchangeable Share Provisions and under any other security
or commitment pursuant to which the Parent may now or hereafter be required to
issue shares of Parent Common Stock.
2.3 Notification of Certain Events. In order to assist the Parent to
comply with its obligations hereunder, the Company will give the Parent notice
of each of the following events at the time set forth below pursuant to Section
3.9 hereof.
(a) in the event of any determination by the Board of Directors of
the Company to institute voluntary liquidation, dissolution or winding up
proceedings with respect to the Company or to effect any other distribution of
the assets of the Company among its shareholders for the purpose of winding up
its affairs, at least 60 days prior to the proposed closing date of such
liquidation, dissolution, winding up or other distribution;
(b) immediately, upon the earlier of (i) receipt by the Company of
notice of, and (ii) the Company otherwise becoming aware of, any threatened or
instituted claim, suit, petition or other proceedings with respect to the
involuntary liquidation, dissolution or winding up of the Company or to effect
any other distribution of the assets of the Company among its shareholders for
the purpose of winding up its affairs;
(c) immediately, upon receipt by the Company of a Retraction
Request (as defined in the Exchangeable Share Provisions);
(d) at least 60 days prior to any accelerated Automatic Redemption
Date determined by the Board of Directors of the Company in accordance with the
Exchangeable Share Provisions; and
(e) as soon as practicable upon the issuance by the Company of any
Exchangeable Shares or rights to acquire Exchangeable Shares (other than the
issuance of Exchangeable Shares upon the conversion of outstanding Class A
shares following the Amalgamation).
2.4 Delivery of Shares of Parent Common Stock. In furtherance of its
obligations under sections 2.1(a) and 2.1(b) hereof, upon notice of any event
which requires the Company to cause to
<PAGE> 100
be delivered shares of Parent Common Stock to any holder of Exchangeable Shares,
the Parent shall forthwith issue and deliver the requisite shares of Parent
Common Stock to or to the order of the former holder of the surrendered
Exchangeable Shares, as the Company shall direct. All such shares of Parent
Common Stock shall be duly issued as fully paid and non-assessable and shall be
free and clear of any lien, claim, encumbrance, security interest or adverse
claim. In consideration of the issuance of each such share of Parent Common
Stock by the Parent, the Company shall issue to the Parent, or as the Parent
shall direct, such number of Company common shares as is equal to the fair value
of such shares of Parent Common Stock.
2.5 Qualification of Shares of Parent Common Stock. The Parent
covenants that if any shares of Parent Common Stock (or other shares or
securities into which the Parent Common Stock may be reclassified or changed as
contemplated by Section 2.6 hereof) to be issued and delivered hereunder,
including for greater certainty, pursuant to the Exchangeable Share Provisions,
or pursuant to the Exchange Right or the Automatic Exchange Rights require
registration or qualification with or approval of or the filing of any document
including any prospectus or similar document or the taking of any proceeding
with or the obtaining of any order, ruling or consent from any governmental or
regulatory authority under any Canadian or United States federal, provincial or
state law or regulation or pursuant to the rules and regulations of any
regulatory authority or the fulfillment of any other legal requirement
(collectively, the "Applicable Laws") before such shares (or other shares or
securities into which the Parent Common Stock may be reclassified or changed as
contemplated by Section 2.6 hereof) may be issued and delivered by the Parent to
the initial holder thereof, the Parent will use all commercially reasonable
efforts to take all such actions and do all such things as are necessary to
cause such shares of Parent Common Stock (or other shares or securities into
which the Parent Common Stock may be reclassified or changed as contemplated by
Section 2.6 hereof) to be and remain duly registered, qualified or approved. The
Parent represents and warrants that it has in good faith taken all actions and
done all things as are necessary under Applicable Laws (other than Applicable
Laws relating to the ability to freely trade securities) as they exist on the
date hereof to cause the shares of Parent Common Stock (or other shares or
securities into which the Parent Common Stock may be reclassified or changed as
contemplated by Section 2.6 hereof) to be issued and delivered hereunder,
including for greater certainty, pursuant to the Exchangeable Share Provisions
or pursuant to the Exchange Right and the Automatic Exchange Rights. The Parent
will use all commercially reasonable efforts to take all such actions and do all
such things as are necessary to cause all shares of Parent Common Stock (or
other shares or securities into which the Parent Common Stock may be
reclassified or changed as contemplated by Section 2.6 hereof) to be delivered
hereunder in accordance with the terms of this Section 2.5.
2.6 Economic Equivalence.
(a) The Parent will not without the prior approval of the Company
and the prior approval of the holders of the Exchangeable Shares given in
accordance with the terms of the Exchangeable Share Provisions;
(i) issue or distribute shares of Parent Common Stock (or
securities exchangeable for or convertible into or carrying rights to acquire
shares of Parent Common Stock) to
<PAGE> 101
the holders of all or substantially all of the then outstanding Parent Common
Stock by way of stock dividend or other distribution, other than an issue of
shares of Parent Common Stock (or securities exchangeable for or convertible
into or carrying rights to acquire shares of Parent Common Stock) to holders of
shares of Parent Common Stock who exercise an option to receive dividends in
Parent Common Stock (or securities exchangeable for or convertible into or
carrying rights to acquire shares of Parent Common Stock) in lieu of receiving
cash dividends; or
(ii) issue or distribute rights, options or warrants to the
holders of all or substantially all of the then outstanding shares of Parent
Common Stock entitling them to subscribe for or to purchase shares of Parent
Common Stock (or securities exchangeable for or convertible into or carrying
rights to acquire shares of Parent Common Stock); or
(iii) issue or distribute to the holders of all or
substantially all of the then outstanding shares of Parent Common Stock (A)
shares or securities of the Parent of any class other than Parent Common Stock
(other than shares convertible into or exchangeable for or carrying rights to
acquire shares of Parent Common Stock), (B) rights, options or warrants other
than those referred to in subsection 2.6(a)(ii) above, (C) evidences of
indebtedness of the Parent or (D) assets of the Parent;
unless (i) the Company is permitted under applicable law to issue or distribute
the economic equivalent on a per share basis of such rights, options,
securities, shares, evidences of indebtedness or other assets to holders of the
Exchangeable Shares and (ii) the Company shall issue or distribute such rights,
options, securities, shares, evidences of indebtedness or other assets
simultaneously to holders of the Exchangeable Shares.
(b) The Parent will not without the prior approval of the Company
and the prior approval of the holders of the Exchangeable Shares given in
accordance with the terms of the Exchangeable Share Provisions;
(i) subdivide, redivide or change the then outstanding shares
of Parent Common Stock into a greater number of shares of Parent Common Stock;
or
(ii) reduce, combine or consolidate or change the then
outstanding shares of Parent Common Stock into a lesser number of shares of
Parent Common Stock; or
(iii) reclassify or otherwise change the shares of Parent
Common Stock or effect an amalgamation, merger, reorganization or other
transaction affecting the shares of Parent Common Stock;
unless (i) the Company is permitted under applicable law to simultaneously make
the same or an economically equivalent change to, or in the rights of holders
of, the Exchangeable Shares and (ii) the same or an economically equivalent
change is made to, or in the rights of the holders of, the Exchangeable Shares.
<PAGE> 102
(c) The independent auditors selected by Parent (the "Auditors")
shall determine, in good faith, economic equivalence for the purposes of any
event referred to in subsection 2.6(a) or 2.6(b) above and each such
determination shall be conclusive and binding on the Company. In making each
such determination, the following factors shall, without excluding other factors
determined by the Auditors to be relevant, be considered by the Auditors.
(i) in the case of any stock dividend or other distribution
payable in shares of Parent Common Stock, the number of such shares issued in
proportion to the number of shares of Parent Common Stock previously
outstanding;
(ii) in the case of the issuance or distribution of any rights,
options or warrants to subscribe for or purchase shares of Parent Common Stock
(or securities exchangeable for or convertible into or carrying rights to
acquire shares of Parent Common Stock), the relationship between the exercise
price of each such right, option or warrant and the current market value (as
determined by the Auditors in the manner above contemplated) of a share of
Parent Common Stock;
(iii) in the case of the issuance or distribution of any other
form of property (including without limitation any shares or securities of the
Parent of any class other than Parent Common Stock, any rights, options or
warrants other than those referred to in subsection 2.6(c)(ii) above, any
evidences of indebtedness of the Parent or any assets of the Parent), the
relationship between the fair market value (as determined by the Auditors in the
manner above contemplated) of such property to be issued or distributed with
respect to each outstanding share of Parent Common Stock and the current market
value (as determined by the Auditors in the manner above contemplated) of a
share of Parent Common Stock; and
(iv) in the case of any subdivision, redivision or change of
the then outstanding shares of Parent Common Stock into a greater number of
shares of Parent Common Stock or the reduction, combination or consolidation or
change of the then outstanding shares of Parent Common Stock into a lesser
number of shares of Parent Common Stock or any amalgamation, merger,
reorganization or other transaction affecting the Parent Common Stock, the
effect thereof upon the then outstanding shares of Parent Common Stock.
For purposes of the foregoing determinations, the current market value
of any security shall be determined by the Auditors, in good faith, and provided
that any such determination by the Auditors shall be conclusive and binding on
the Company.
2.7 Tender Offers, Etc. In the event that a tender offer, share
exchange offer, issuer bid, takeover bid or similar transaction with respect to
Parent Common Stock (an "Offer") is proposed by the Parent or is proposed to the
Parent or its shareholders and is recommended by the Board of Directors of the
Parent, or is otherwise effected or to be effected with the consent or approval
of the Board of Directors of the Parent, the Parent will use its best efforts
expeditiously and in good faith to take all such actions and do all such things
as are necessary or desirable to enable and permit holders
<PAGE> 103
of Exchangeable Shares to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of shares of Parent Common Stock,
without discrimination. Without limiting the generality of the foregoing, the
Parent will use its best efforts expeditiously and in good faith to ensure that
holders of Exchangeable Shares may participate in all such Offers without being
required to retract Exchangeable Shares as against the Company (or, if so
required, to ensure that any such retraction shall be effective only upon, and
shall be conditional upon, the closing of the Offer and only to the extent
necessary to tender or deposit to the Offer).
2.8 Ownership of Outstanding Shares. Without the prior approval of the
Company and the prior approval of the holders of the Exchangeable Shares given
in accordance with the terms of the Exchangeable Share Provisions, the Parent
covenants and agrees in favor of the Company that, as long as any outstanding
Exchangeable Shares are owned by any person or entity other than the Parent or
any of its Affiliates, the Parent will be and remain the direct or indirect
beneficial owner of all issued and outstanding shares in the capital of the
Company and all outstanding securities of the Company carrying or otherwise
entitled to voting rights in any circumstances, in each case other than the
Exchangeable Shares.
2.9 Due Performance. On and after the Closing Date, the Parent shall
duly and timely perform all of its obligations provided for in the Acquisition
Agreement, including any obligations that may arise upon the exercise of the
Parent's rights under the Exchangeable Share Provisions.
ARTICLE 3
GENERAL
3.1 Term. This agreement shall come into force and be effective as of
the date hereof and shall terminate and be of no further force and effect at
such time as no Exchangeable Shares (or securities or rights convertible into or
exchangeable for or carrying rights to acquire Exchangeable Shares) are held by
any party other than the Parent and any of its Affiliates.
3.2 Changes in Capital of Parent and the Company. Notwithstanding the
provisions of section 3.4 hereof, at all times after the occurrence of any event
effected pursuant to section 2.6 or 2.7 hereof, as a result of which either the
Parent Common Stock or the Exchangeable Shares or both are in any way changed,
this agreement shall forthwith be amended and modified as necessary in order
that it shall apply with full force and effect, mutatis mutandis, to all new
securities into which the Parent Common Stock or the Exchangeable Shares or both
are so changed and the parties hereto shall execute and deliver an agreement in
writing giving effect to and evidencing such necessary amendments and
modifications.
3.3 Severability. If any provision of this agreement is held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remainder of this agreement shall not in any way be affected or impaired
thereby and this agreement shall be carried out as nearly as possible in
accordance with its original terms and conditions.
<PAGE> 104
3.4 Amendments, Modifications, etc. This agreement may not be amended
or modified except by an agreement in writing executed by the Company and the
Parent and approved by the holders of the Exchangeable Shares in accordance with
the terms of the Exchangeable Share Provisions.
3.5 Ministerial Amendments. Notwithstanding the provisions of section
3.4, the parties to this agreement may in writing, at any time and from time to
time, without the approval of the holders of the Exchangeable Shares, amend or
modify this agreement for the purposes of:
(a) adding to the covenants of either or both parties for the
protection of the holders of the Exchangeable Shares;
(b) making such amendments or modifications not inconsistent with
this agreement as may be necessary or desirable with respect to matters or
questions which, in the opinion of the Board of Directors of each of the Company
and the Parent, it may be expedient to make, provided that each such board of
directors shall be of the opinion that such amendments or modifications will not
be prejudicial to the interests of the holders of the Exchangeable Shares; or
(c) making such changes or corrections which, on the advice of
counsel to the Company and the Parent, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error, provided that the boards of directors of
each of the Company and the Parent shall be of the opinion that such changes or
corrections will not be prejudicial to the interests of the holders of the
Exchangeable Shares.
3.6 Meeting to Consider Amendments. The Company, at the request of the
Parent, shall call a meeting or meetings of the holders of the Exchangeable
Shares for the purpose of considering any proposed amendment or modification
requiring approval pursuant to section 3.4 hereof. Any such meeting or meetings
shall be called and held in accordance with the bylaws of the Company, the
Exchangeable Share Provisions and all applicable laws.
3.7 Amendments only in Writing. No amendment to or modification or
waiver of any of the provisions of this agreement otherwise permitted hereunder
shall be effective unless made in writing and signed by all of the parties
hereto.
3.8 Inurement. This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
<PAGE> 105
3.9 Notices to Parties. All notices and other communications required
or permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) upon
delivery, if delivered by hand, (b) five (5) business days after the business
day of deposit with Federal Express or similar courier for overnight delivery,
freight prepaid or (c) one (1) business day after the business day of facsimile
transmission, if delivered by facsimile transmission with copy by first class
mail, postage prepaid, and shall be addressed to the address set forth below (or
at such other address as a party may designate by fifteen (15) days' advance
written notice to the other party pursuant to the provisions above):
(i) if to Parent, to:
BackWeb Technologies Ltd.
5 Kiryat Mada, Har Hotzvim
Jerusalem, Israel
Attn: Nir Barkat, Chairman of the Board
Facsimile No.: 972-2-587-0449
Telephone No.: 972-2-587-0444
with copies to:
BackWeb Technologies Ltd.
c/o BackWeb Technologies Inc.
2077 Gateway Place, Suite 500
San Jose, California 95110
Attn: Carolyn Aver
Facsimile No.: 1-408-437-0200
Telephone No.: 1-408-437-0214
and:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Howard S. Zeprun, Esq.
Facsimile No.: 1-415-493-6811
Telephone No.: 1-415-492-9300
<PAGE> 106
and:
Naschitz, Brandes & Co.
"Beit Tzarfat", 5 Tuval Street
Tel-Aviv, Israel
Attention: Gil Brandes, Esq.
Facsimile No.: 972-3-623-5000
Telephone No.: 972-3-623-5005
(ii) if to the Company, to:
BackWeb Canada Inc.
251 Consumers Road, Suite 910
Toronto, Ontario
Canada M2J 4R3
Attn: Anthony Davis
Facsimile No.: 1-416-490-8601
Telephone No.: 1-416-490-7744
with a copy to:
Osler, Hoskin & Harcourt
P.O. Box 50
1 First Canadian Place, Suite 600
Toronto, Ontario
Canada M5X 1B8
Attn: Richard Nathan
Facsimile No.: 1-416-862-6666
Telephone No.: 1-416-362-2111
3.10 Counterparts. This agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
3.11 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Each of the parties hereto irrevocably (i) agrees
that any legal suit, action or proceeding against the other parties to this
Agreement in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein may be instituted in a federal or
state court within the federal Northern District of California, (ii) waives to
the fullest extent it may effectively do so, any objection which it may now or
hereafter have to the laying of venue of any such proceeding, and (iii) submits
to the non-exclusive jurisdiction of such courts in any suit, action or
proceeding. Lanacom has appointed CT Corporation System, 818 West 7th Street,
Los Angeles, California 90017 as its authorized agent
<PAGE> 107
and Parent has appointed BackWeb Technologies Inc., 2077 Gateway Place, Suite
500, San Jose, California 95110 as its authorized agent (each an "Authorized
Agent") upon whom process may be served on in connection with any action based
of this Agreement or any transaction contemplated which may be instituted in any
federal or state court within the federal Northern District of California. In
each case, such appointment shall be irrevocable. Each of the parties hereto
represents and warrants that the Authorized Agent has agreed to act as such
agent for service of process and agrees to taken any and all action, including
the filing of any and all documents and instruments, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon an Authorized Agent and written notice of such service to the
applicable party shall be deemed, in every respect, effective service of process
upon such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BACKWEB TECHNOLOGIES LTD.
By
BACKWEB CANADA INC.
By
<PAGE> 108
SECOND AMENDED AND RESTATED SHAREHOLDERS AGREEMENT
AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (the "AGREEMENT"), dated as
of August 8, 1997 by and among the founders of BackWeb Technologies Ltd., a
company incorporated under the laws of the state of Israel and formerly known as
BackWeb Ltd. (the "COMPANY"), as listed on Exhibit A attached hereto
(collectively, the "FOUNDERS"), the holders of Series B Convertible Preferred
Stock of the Company as listed on Exhibit A attached hereto (collectively, the
"SERIES B HOLDERS"), the holders of Series C Convertible Preferred Stock of the
Company as listed on Exhibit A attached hereto (collectively the "SERIES C
HOLDERS") and the holders of Exchangeable Shares (the "EXCHANGEABLE SHARE
HOLDERS") of BackWeb Canada Inc., a corporation incorporated under the laws of
Ontario and a majority owned subsidiary of the Company ("BACKWEB CANADA"), as
listed on Exhibit A attached hereto (as used herein, the term "SHAREHOLDERS"
shall include, collectively, the Founders, the Series B Holders and the Series C
Holders, and shall also include the Exchangeable Share Holders for the purposes
of Sections 2, 5 and 6 hereof only).
WHEREAS, the Founders own an aggregate of 24,792,120 shares of Series A
Convertible Preferred Shares of the Company (the "FOUNDERS' SHARES");
WHEREAS, Softbank Holdings Inc., a Delaware corporation ("SOFTBANK
HOLDINGS"), previously purchased 3,852,400 shares of Series B Convertible
Preferred Shares of the Company (the "SERIES B PREFERRED") pursuant to that
certain Stock Purchase Agreement dated July 15, 1996;
WHEREAS, Softbank Holdings has transferred all of its shares of Series
B Preferred and its accompanying rights and obligations to its affiliate
SOFTBANK Ventures, Inc., a Japanese corporation ("SOFTBANK");
WHEREAS, Peter J. Mooney as nominee for the Broadview Investor Group
("BROADVIEW"), previously purchased 385,240 shares of the Series B Preferred
pursuant to that certain Letter Agreement dated July 10, 1996;
WHEREAS, the Founders and Softbank Holdings have previously entered
into a Shareholders Agreement dated July 15, 1996 (the "ORIGINAL AGREEMENT"),
providing for certain co-sale rights and rights of first refusal, which rights
have been transferred to Softbank;
WHEREAS, the Company and certain of the Series C Holders entered into a
Share Purchase Agreement (the "PURCHASE AGREEMENT") dated December 9, 1996
pursuant to which, among other things, such Series C Holders purchased an
aggregate of up to 12,069,565 Series C-1 Convertible Preferred Shares and Series
C-2 Convertible Preferred Shares of the Company (collectively, the "SERIES C
PREFERRED) convertible into Common Shares and warrants to purchase an aggregate
of up to 1,810,432 shares of Series C-2 Convertible Preferred (the "WARRANTS");
WHEREAS, the Founders have acquired an aggregate of 521,739 Series C-2
Convertible Preferred Shares pursuant to conversion of an aggregate of
US$600,000 of indebtedness of the Company to the Founders, and it is the intent
of the parties that such shares be subject to the
<PAGE> 109
provisions of Sections 2, 4 and 5 hereof (but not Section 3 hereof);
WHEREAS, the Founders, Series B Holders and Series C Holders have
previously entered into an Amended and Restated Shareholders Agreement dated
December 9, 1996, which replaced the Original Agreement;
WHEREAS, the Founders, Series B Holders and Series C Holders have
previously entered into an Addendum to the Amended and Restated Shareholders
Agreement dated May 22, 1997 (the Amended and Restated Shareholders Agreement as
further amended by the Addendum is referred to herein as the "PRIOR AGREEMENT");
WHEREAS, pursuant to that certain Agreement and Plan of Acquisition
dated July 1, 1997, BackWeb Canada will acquire Lanacom Inc., an Ontario
corporation ("LANACOM"), in an amalgamation under which all issued and
outstanding Lanacom Common Shares shall be exchanged for Class A Shares of
BackWeb Canada, which Class A Shares shall immediately thereafter be changed
into exchangeable non-voting shares (the "EXCHANGEABLE SHARES") of BackWeb
Canada (the "AMALGAMATION"); and each such Exchangeable Share shall be
exchangeable for one Ordinary Share of the Company;
AND WHEREAS, in order to induce the Exchangeable Share Holders to
consummate the Amalgamation, the Founders, the Series B Holders and the Series C
Holders desire to grant the Exchangeable Share Holders the bring-along rights
and the rights pertaining to the election of a member of the Board of Directors
of the Company as set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. The preamble to this Agreement constitutes an integral part of the
Agreement.
2. Bring Along Rights.
2.1 Subject to the rights set forth in Section 4 hereof, each
Shareholder agrees that, from and after December 9, 1998, in the event that
Shareholders owning at least seventy five percent (75%) of the total number of
shares of capital stock of the Company held by all Shareholders (on a fully
diluted basis) (the "PROPOSING SHAREHOLDERS") shall have approved in writing a
transaction or series of related transactions with any person or persons
regarding a sale of all Shares held by such Proposing Shareholders, such
Proposing Shareholders shall be entitled, at their option, to require each other
Shareholder to include all of its Shares in such transfer by providing each such
other Shareholder with a notice (the "BRING-ALONG NOTICE"), at least thirty (30)
days prior to the consummation of the proposed transaction, setting forth in
reasonable detail the material terms and conditions of the proposed transaction
and the price per share at which such other Shareholders shall be required to
sell their Shares (which price shall be equal to the price at which such
Proposing Shareholders have agreed to sell their shares). (Such entitlement
shall be referred to herein as the "BRING-ALONG RIGHTS".) Upon receipt of
the Bring-Along Notice, each such other Shareholder shall
<PAGE> 110
be obligated to sell all its Shares in connection with such proposed
transaction.
(a) At the closing of the proposed transaction (which date,
place and time shall be designated by the Proposing Shareholders and provided to
each other Shareholder in writing at least five (5) business days prior
thereto), each such other Shareholder shall deliver certificates evidencing all
its Shares, duly endorsed, or accompanied by written instruments of transfer in
form satisfactory to the proposed purchaser, duly executed, by such Shareholder,
free and clear of any liens, against delivery of the purchase price therefor.
(b) The Bring-Along Rights shall not apply to a disposition by
any Shareholder to (a) any other shareholder of the Company or (b) an affiliate
of the disposing Shareholder (including any family member of a Shareholder or
trust for the benefit of a Shareholder or family members), provided the
transferee agrees in writing to be subject to the terms and conditions of this
Agreement as if it were an original party thereto.
3. Right of Co-Sale.
3.1 Notice of Purchase Offer. Except as provided in section
3.2(e) and subject to the rights and obligations set forth in Section 2 hereof,
in the event that any Founder decides to sell, transfer, or otherwise dispose of
the Founder's Shares (any such event, a "DISPOSITION"), pursuant to a bona fide
offer, then the Founder shall notify each Series B Holder and each Series C
Holder owning at least 800,000 shares of Series B Preferred or Series C
Preferred (and Ordinary Shares issued upon conversion thereof) (subject to
adjustment for all stock splits, dividends, reclassifications and like events)
(each, a "MAJOR HOLDER") of the terms and conditions of such a proposed
Disposition (a "PROPOSED DISPOSITION").
3.2 Co-Sale Right.
(a) If the Founder proposes to enter into a Proposed
Disposition, then, as a condition to such Proposed Disposition, the Major
Holders shall have the right (a "CO-SALE RIGHT"), to sell their Series B
Preferred and Series C Preferred (and Ordinary Shares issued upon conversion
thereof), as the case may be, to the proposed purchaser in such a transaction on
a pro rata basis (determined as provided below) for the same consideration and
otherwise on the same terms as the Founders.
(b) The pro ration of the Co-Sale Right of each Major
Holder shall be calculated in such a manner that each Major Holder shall have
the right to sell in the Proposed Disposition a number of Preferred or Ordinary
Shares, as the case may be, equal to the aggregate number of Preferred or
Ordinary Shares, as the case may be, proposed to be sold multiplied by a
fraction, the numerator of which is the aggregate number of Ordinary Shares
owned by such Major Holder (on a fully-diluted basis, assuming conversion of all
Preferred), and the denominator of which is the sum of the aggregate number of
Ordinary Shares owned by all Founders and all Major Holders (on a fully-diluted
basis, assuming conversion of all Preferred).
<PAGE> 111
(c) For purposes of this Section 3.2, to the extent
that Ordinary Shares issuable upon conversion of the Preferred are to be sold
pursuant to the Co-Sale Right, and to the extent any of the Major Holders
decides to exercise its Co-Sale Right, such Major Holder will convert an
appropriate number of shares of its Preferred into Ordinary Shares at such time.
(d) A notice of a Proposed Disposition shall be sent
to each of the Major Holders not less than 30 days before the proposed
consummation date of the sale specified in such notice. A Co-Sale Right pursuant
to this Section 3.2 shall be exercisable upon written notice by each of the
Major Holders not less than five business days prior to such specified
consummation date (the "NOTICE PERIOD"). If any of the Major Holders does not
elect during the Notice Period to participate in a particular sale for which
notice has been given pursuant to this Section 3.2(d), then such Major Holder
shall not have any further Co-Sale Right with respect to such Proposed
Disposition and the Founders shall be free to sell, transfer or otherwise
dispose of the shares that such Major Holder was entitled to purchase; provided,
that there has been no material change to any of the material terms of the
Proposed Disposition.
(e) The Co-Sale Right shall not apply to a
disposition by the Founders to (i) an affiliate of the Founders (including any
family member of a Founder or trust for the benefit of a Founder or family
members), (ii) any other shareholder of the Company, or (iii) de minimis
dispositions (not exceeding a total of 98,000 shares in any 12 month period by
any Founder, subject to an aggregate limit of 392,000 shares for each Founder),
provided the transferee agrees in writing to be subject to the terms and
conditions of this Agreement as if it were an original party thereto.
4. Right of First Refusal.
The rights of first refusal set forth in Article 19 of the
Company's Articles of Association are incorporated herein by reference.
5. Board of Directors. Each Shareholder agrees to vote its shares of
capital stock in the Company to give effect, and to cause the Company to give
effect, to the provisions of this Section 5(a).
(a) (i) All of the members of the Board of Directors
shall be elected by holders of a majority of the Series A Preferred and Ordinary
Shares then outstanding, voting together as a class, except only as follows:
(ii) Until the first to occur of (a) such time as the
original purchasers of the Series B Preferred and Series C Preferred retain less
than 50% of the aggregate Series B Preferred and the Series C Preferred
originally issued to them, and (b) immediately prior to the closing of a
Qualified IPO (as defined below), the holders of a majority of the Series B
Preferred and of the Series C Preferred held by persons other than GS Capital
Partners II, L.P. and its affiliates (collectively, "GOLDMAN"), voting together,
shall be entitled to appoint, replace or remove one member of the Board of
Directors (the "SERIES B/C DIRECTOR"); provided, however, that for so long
<PAGE> 112
as any other member of the Board of Directors is a representative of Softbank,
the holders of the Series B Preferred shall not be entitled to participate in
the appointment, replacement or removal of the Series B/C Director and all
decisions relating to the appointment, replacement or removal of the Series B/C
Director shall be taken by the holders of the Series C Preferred other than
Goldman; and provided, further, that should a majority of the holders of all
shares of the Company with voting rights nominate a candidate to the Board of
Directors who is a professional of recognized standing in the media,
entertainment or software industries, to serve in the Series B/C Director board
position the Series B/C Director then serving, if any, shall promptly resign and
the holders of the majority of the Series C Preferred shall appoint such
candidate as the Series B/C Director.
For purposes of this Agreement, a "QUALIFIED IPO" shall mean the first
firmly underwritten sale of Ordinary Shares to the public in an offering in
which (x) the proceeds to the Company are not less than US$15 million (net of
underwriting discounts) and (y) the offering price to the public (prior to
underwriting commissions and expenses) is at least US$2.30 per share (subject to
adjustment for stock splits, stock dividends, reclassifications and like
events).
(iii) For so long as the original purchasers of the
Series C Preferred shall hold at least 50% of the Series C Preferred originally
purchase by them, the Designating C Holders (as defined below) shall be entitled
to appoint, replace or remove one member of the Company's Board of Directors
(the "SERIES C DIRECTOR"). The "DESIGNATING C HOLDERS" shall mean: (a) Goldman,
until such time as Goldman holds less than 70% of the Series C Preferred
originally purchased by it, and (b) the holders of a majority of the issued and
outstanding Series C Preferred, beginning at such time as Goldman holds less
than 70% of the Series C Preferred originally purchased Goldman.
(iv) Until the first to occur of (x) such time as the
Exchangeable Share Holders immediately following the closing of the Amalgamation
shall cease to hold at least 5,000,000 Exchangeable Shares or Ordinary Shares
issued on exchange thereof (subject to appropriate adjustment for all stock
splits, dividends, combinations, recapitalizations and the like) and (y)
immediately prior to the closing of the Qualified IPO, the holders of a majority
of the Exchangeable Shares shall be entitled to appoint, replace or remove one
member of the Board of Directors (the "LANACOM DIRECTOR").
(b) All Shareholders entitled to appoint a director covenant
to keep confidential all information provided to or obtained by their respective
directors. Furthermore, the Series B/C Director, the Series C Director and the
Lanacom Director shall not serve in a similar capacity of any other company
which, in the judgment of the Company, is engaged in business that competes with
the Company.
(c) For so long as the Designating C Holders shall have the
right to appoint the Series C Director, the Series C Director shall be entitled
to serve as a member of all committees of the Board of Directors and shall have
access to any information available to any other director.
<PAGE> 113
(d) The Company shall reimburse all reasonable expenses
incurred by directors relating to attendance at Board and Board committee
meetings and other activities on behalf of the Company.
<PAGE> 114
6. Miscellaneous.
6.1 Termination. All provisions of this Agreement other than
Sections 5 and 6 hereof shall terminate immediately prior to the closing of (and
the rights herein shall not apply to) the first firmly underwritten public
offering of the Company. Sections 5 and 6 of this Agreement shall terminate
immediately prior to the closing of (and the rights herein shall not apply to) a
Qualified IPO.
6.2 Aggregation of Shares. For purposes of any provision of
this agreement requiring a person or entity to hold a minimum number of
Founders' Shares, Series B Preferred or Series C Preferred (or Ordinary Shares
issued upon conversion thereof), all shares beneficially owned by Affiliated (as
defined in the Amended and Restated Rights Agreement dated the date hereof)
entities or persons (including partners and constituent members and former
partners and former constituent members) shall be aggregated together for the
purposes of determining status and rights under such provision. For purposes of
this Section 6.2, Evergreen International Investments N.V. and Bayview
Investors, Ltd. shall be deemed to be affiliates.
6.3 Notices. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid if addressed to a
party in the same country or twenty (20) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid if addressed to a party in a different country, (b) upon
delivery, if delivered by hand, (c) five (5) business days after the business
day of deposit with Federal Express or similar overnight courier, freight
prepaid or (d) two (2) business days after the business day of facsimile
transmission, if delivered by facsimile transmission with copy by first class
mail, postage prepaid, and shall be addressed to a Shareholder, at such
Shareholder's address as set forth on Exhibit A hereto, or at such other address
as a party may designate by fifteen (15) days' advance written notice to the
other party pursuant to the provisions above.
6.4 Governing Law; Forum for Dispute Resolution. This
Agreement shall be governed by the laws of the State of New York (without regard
to the principles of conflict of laws thereof). The Shareholders hereby consent
to the jurisdiction of any state or federal court in New York, New York arising
out of or in connection with this Agreement.
6.5 Entire Agreement; Amendment; Additional Parties.
(a) Amendment. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein, and supersedes and cancels all prior agreements, negotiations,
correspondence, undertakings and communications of the parties (including,
without limitation, the Prior Agreement), oral or written, respecting such
subject matter. There are no restrictions, promises, representations,
warranties, agreements or undertaking of any
<PAGE> 115
party hereto with respect to the matters contemplated hereby, other than those
set forth or made hereunder. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, dis charged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that Sections 3 and 4 of this Agreement may be amended, waived or
modified with the written consent of (i) holders of at least 50% of the
outstanding Founders' Shares, (ii) holders of at least 50% of the outstanding
shares of Series B Preferred and (iii) holders of at least 66 2/3% of the
outstanding shares of Series C-1 Convertible Preferred and Sections 1, 2 and 6
of this Agreement may be amended, waived or modified with the written consent of
(i) holders of at least 50% of the outstanding Founders' Shares, (ii) holders of
at least 50% of the outstanding shares of Series B Preferred, (iii) holders of
at least 66 2/3% of the outstanding shares of Series C-1 Convertible Preferred
and (iv) holders of at least 50% of the outstanding Exchangeable Shares.
(b) Additional Parties. The Company and the
Shareholders whose signatures appear on the signature page hereto agree that
should the Company sell additional shares of Series C Preferred to Additional
Purchasers (as defined in the Purchase Agreement), such Additional Purchasers
shall, after executing copies of this Agreement as an additional Purchaser
hereunder, become Shareholders hereunder and shall have all rights of
Shareholders hereunder.
6.6 Headings. The headings contained in this Agreement are
solely for convenience of reference and shall not affect the interpretation of
this Agreement.
6.7 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.8 Delays or Omissions; Waiver. No waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver of
any other provision thereof. No delay or omission to exercise any right, power
or remedy accruing to any of the Shareholders upon any breach or default by
another party under this Agreement shall impair any such right, power or remedy
nor shall it be construed to be a waiver of any such breach or default, or any
acquiescence therein or in any similar breach or default thereafter occurring.
6.9 Severability. In case any provision in this 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.
6.10 No Implied Rights. Nothing herein express or implied, is
intended to or shall be construed to confer upon or give to any person, firm,
corporation or legal entity, other than the parties hereto and their affiliates,
any interests, rights, remedies or other benefits with respect to or in
connection with any agreement or provision contained herein or contemplated
hereby.
6.11 Further Actions. At any time and from time to time, each
party agrees,
<PAGE> 116
[Signature Page to Second Amended and Restated Shareholders Agreement]
without further consideration, to take such actions and to execute and deliver
such documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
IN WITNESS WHEREOF, the parties, each by its duly authorized signatory,
have executed this Agreement as of the date first above written.
NIRBARKAT HOLDINGS LTD.
By:
Name:
Title:
<PAGE> 117
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 118
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 119
[Signature Page to Second Amended and Restated Shareholders Agreement]
ELIBARKAT HOLDINGS LTD.
By:
Name:
Title:
<PAGE> 120
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 121
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 122
[Signature Page to Second Amended and Restated Shareholders Agreement]
YUVAL 63 HOLDINGS (1995) LTD.
By:
Name:
Title:
<PAGE> 123
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 124
[Signature Page to Second Amended and Restated Shareholders Agreement]
SOFTBANK VENTURES, INC.
By:
Name: Yoshitaka Kitao
Title: President
<PAGE> 125
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 126
[Signature Page to Second Amended and Restated Shareholders Agreement]
PETER J. MOONEY AS NOMINEE FOR THE
BROADVIEW INVESTOR GROUP
By:
Peter J. Mooney
<PAGE> 127
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 128
[Signature Page to Second Amended and Restated Shareholders Agreement]
GS CAPITAL PARTNERS II, L.P.,
By: GS Advisors, L.P.
Its General Partner
By: GS Advisors, Inc.
Its General Partner
By:
Name: Richard A. Friedman
Title: President
GS CAPITAL PARTNERS II OFFSHORE, L.P.
By: GS Advisors II (Cayman), L.P.
Its General Partner
By: GS Advisors II, Inc.
Its General Partner
By:
Name: Richard A. Friedman
Title: President
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By:
Managing Director
and
Managing Director or Registered Agent
STONE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.,
General Partner
By:
Vice President
BRIDGE STREET FUND 1996, L.P.
By: Stone Street Empire Corp.
Managing General Partner
<PAGE> 129
[Signature Page to Second Amended and Restated Shareholders Agreement]
By:
Vice President
TRINITY VENTURES V, L.P.
By:
Name:
Title:
TRINITY V SIDE-BY-SIDE FUND, L.P.
By:
Name:
Title:
<PAGE> 130
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 131
[Signature Page to Second Amended and Restated Shareholders Agreement]
EVERGREEN INTERNATIONAL
INVESTMENTS N.V.
By:
Name:
Title:
EVERGREEN CANADA-ISRAEL MANAGEMENT
LIMITED
By:
Name:
Title:
<PAGE> 132
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 133
[Signature Page to Second Amended and Restated Shareholders Agreement]
DS POLARIS LTD.
On behalf of the LLC and Other Funds and Accounts
By:
Name: Chemi Peres
Title: Managing General Partner
<PAGE> 134
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 135
[Signature Page to Second Amended and Restated Shareholders Agreement]
INTEL CORPORATION
By:
Name:
Title:
<PAGE> 136
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 137
[Signature Page to Second Amended and Restated Shareholders Agreement]
Anthony Davis
<PAGE> 138
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 139
[Signature Page to Second Amended and Restated Shareholders Agreement]
Dennis Bennie
<PAGE> 140
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 141
[Signature Page to Second Amended and Restated Shareholders Agreement]
Albert Amato
<PAGE> 142
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 143
[Signature Page to Second Amended and Restated Shareholders Agreement]
David Davis
<PAGE> 144
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 145
[Signature Page to Second Amended and Restated Shareholders Agreement]
Tom Watson
<PAGE> 146
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 147
[Signature Page to Second Amended and Restated Shareholders Agreement]
LAWRENCE & COMPANY INC.
By:
Name:
Title:
<PAGE> 148
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 149
[Signature Page to Second Amended and Restated Shareholders Agreement]
ROYAL TRUST CORPORATION OF CANADA,
IN TRUST FOR ACCOUNT NO. 104072001
By:
Name:
Title:
<PAGE> 150
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 151
[Signature Page to Second Amended and Restated Shareholders Agreement]
BLOOM INVESTMENT COUNSEL
By:
Name:
Title:
<PAGE> 152
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 153
[Signature Page to Second Amended and Restated Shareholders Agreement]
AMARANTH RESOURCES LIMITED
By:
Name:
Title:
<PAGE> 154
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 155
[Signature Page to Second Amended and Restated Shareholders Agreement]
THE CANADA TRUST COMPANY
By:
Name:
Title:
<PAGE> 156
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 157
[Signature Page to Second Amended and Restated Shareholders Agreement]
TORBAY COMPANY
By:
Name:
Title:
<PAGE> 158
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 159
[Signature Page to Second Amended and Restated Shareholders Agreement]
BRANT INVESTMENTS LIMITED
By:
Name:
Title:
<PAGE> 160
[Signature Page to Second Amended and Restated Shareholders Agreement]
<PAGE> 161
[Signature Page to Second Amended and Restated Shareholders Agreement]
FIRST MARATHON SECURITIES LIMITED
By:
Name:
Title:
<PAGE> 162
EXHIBIT A
<TABLE>
<CAPTION>
Shares
Name and Address Series A Series B Series C-1 Series C-2
Founders Preferred Preferred Preferred Preferred Warrants
- ------------------ --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
NirBarkat Holdings Ltd. 8,264,040 173,913
c/o BRM Technologies Ltd.
5 Kiryat Mada, Har Hotzvim
Jerusalem, Israel
Telephone: 972-2-870444
Facsimile: 972-2-870449
EliBarkat Holdings Ltd. 8,264,040 173,913
c/o BRM Technologies Ltd.
5 Kiryat Mada, Har Hotzvim
Jerusalem, Israel
Telephone: 972-2-870444
Facsimile: 972-2-870449
Yuval Rakavy (63) Holdings Ltd. 8,264,040 173,913
c/o BRM Technologies Ltd.
5 Kiryat Mada, Har Hotzvim
Jerusalem, Israel
Telephone: 972-2-870444
Facsimile: 972-2-870449
Preferred Holders
- ------------------
SoftBank Ventures, Inc. 3,852,400
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103
JAPAN
Telephone: 011-81-3-5642-8001
Facsimile: 011-81-3-5641-3402
Peter J. Mooney as Nominee for the 385,240 113,044 16,957
Broadview Investor Group
One Bridge Plaza
Fort Lee, NJ 07024
Telephone:
Facsimile: 201-346-9191
GS Capital Partners II, L.P. 2,688,980 948,288 545,590
85 Broad Street
New York, New York 10004
Fax: (212) 357-5505
GS Capital Partners II Offshore, L.P. 1,068,980 376,983 216,894
85 Broad Street
New York, New York 10004
Fax: (212) 357-5505
</TABLE>
<PAGE> 163
<TABLE>
<CAPTION>
Series A Series B Series C-1 Series C-2
Preferred Holders Preferred Preferred Preferred Preferred Warrants
- ----------------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Goldman, Sachs & Co. Verwaltungs GmbH 99,183 34,978 20,124
85 Broad Street
New York, New York 10004
Fax: (212) 357-5505
Stone Street Fund 1996, L.P. 383,070 135,092 77,724
85 Broad Street
New York, New York 10004
Fax: (212) 357-5505
Bridge Street Fund 1996, L.P. 259,787 91,616 52,710
85 Broad Street
New York, New York 10004
Fax: (212) 357-5505
DS Polaris Ltd. on behalf of the LLC 2,608,695 391,304
and Other Funds and Accounts
"Europe House"
Tel-Aviv 64928 Israel
Fax: 011-972-3-695-3137
Evergreen Canada-Israel 34,782 5,217
Top Tower, 20th Floor
Dizengoff Center
Tel-Aviv, Israel
Fax: 011-972-3-525-5356
Trinity Ventures V, L.P. 1,232,335 184,850
155 Bovet Road
Suite 660
San Mateo, California 94402
Fax: (415) 358-9785
Trinity V Side-By-Side Fund, L.P. 72,013 10,801
155 Bovet Road
Suite 660
San Mateo, California 94402
Fax: (415) 358-9785
Intel Corporation 869,565 130,435
2200 Mission College Blvd.
Santa Clara, California 95052
Fax: (408)
Exchangeable Share Holders
- --------------------------
Anthony Davis
Dennis Bennie
<CAPTION>
Series A Series B Series C-1 Series C-2
Exchangeable Share Holders Preferred Preferred Preferred Preferred Warrants
- -------------------------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Albert Amato
David Davis
Tom Watson
Lawrence & Company Inc.
Royal Trust Corporation of Canada,
in Trust for Account No. 104072001
Bloom Investment Counsel
Amaranth Resources Limited
The Canada Trust Company
Torbay Company
Brant Investments Limited
First Marathon Securities Limited
</TABLE>
<PAGE> 164
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement"), dated as of
July 1, 1997, is entered into by and among (i) BackWeb Canada Inc. ("Old BackWeb
Canada"), a corporation incorporated under the laws of Ontario and a
wholly-owned subsidiary of BackWeb Technologies Ltd., an Israeli company
("BackWeb Parent"), and (ii) Anthony Davis, the undersigned executive (the
"Executive").
Recitals
A. This Agreement is entered into in connection with and is ancillary
to an Agreement and Plan of Acquisition ("Acquisition Agreement") dated as of
July 1, 1997 between BackWeb Parent, Old BackWeb Canada, Lanacom Inc., an
Ontario corporation ("Lanacom") and Executive, which requires, among other
things, that the Executive enter into this Agreement in connection with the
amalgamation ("Amalgamation"), as described in the Acquisition Agreement;
B. The Executive is an employee of Lanacom. Upon the closing of the
Acquisition Agreement (the "Closing") the Executive shall remain an employee of
the amalgamated company, also called BackWeb Canada Inc. ("BackWeb Canada");
C. The Executive is a founder and executive of Lanacom and has been
actively involved in the development and marketing of Lanacom's products.
BackWeb Canada intends to continue the business of Lanacom after the Closing. To
preserve and protect the assets of Lanacom, including Lanacom's goodwill,
customers and trade secrets of which the Executive has, and will, in his role as
an employee of BackWeb Canada or its subsidiaries, have knowledge, and to
preserve and protect BackWeb Canada's goodwill and business interests going
forward, and in consideration for Old BackWeb Canada's entering into and
performing under the Acquisition Agreement, the Executive has agreed to enter
into this Agreement; and
D. The parties hereto believe the limitations as to time, geographical
area and scope of activity contained in this Agreement hereof are reasonably
necessary to, and no greater than that required to, protect the goodwill and
business interests purchased by BackWeb Canada.
NOW, THEREFORE, IT IS HEREBY AGREED by and between the parties hereto
as follows:
1. Effectiveness of Agreement; Employment.
(a) Effectiveness of Agreement. This Agreement shall become
effective as of the
<PAGE> 165
Closing and shall continue in full force and effect until the second anniversary
of the Closing, unless terminated earlier pursuant to Section 3 hereunder. In
the event that the Amalgamation is not consummated, this Agreement shall be null
and void and neither party hereto shall have any claim (existing, accruing or
future) against the other party under or pursuant to this Agreement.
(b) Duties. Executive shall be employed by BackWeb Canada as its
President and shall also be an executive officer of BackWeb Parent, as Senior
Vice President, Product Management and Research and Development. Executive
agrees to perform such reasonable responsibilities and duties as may be required
of him by BackWeb Canada; provided, however, that the Board of Directors of
BackWeb Canada (the "Board"), including Eli Barkat, Chairman of the Board,
President and Chief Executive Officer of BackWeb Parent ("Chairman"), shall have
the right to revise such responsibilities from time to time as the Board may
deem appropriate. The Executive acknowledges that in the fulfillment of his
duties, he will be required to spend a substantial portion of his time, which
may be as much as half of his time, in the United States, Israel and other
locales necessary for the performance of his duties; provided, however, that
BackWeb Canada will consult with the Executive to accommodate his reasonable
requests regarding his travel schedule. The Executive shall carry out his duties
and responsibilities hereunder in a diligent and competent manner and shall
devote his full business time, attention and energy thereto. The Executive shall
report directly to the Chairman.
(c) Termination. BackWeb Canada and the Executive acknowledge and
agree that either BackWeb Canada or the Executive shall have the right to
terminate the Executive's employment at any time. If the Executive's employment
terminates for any reason, the Executive shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided in Section 3 of
this Agreement, or as may otherwise be available in accordance with BackWeb
Canada's established employee plans and policies in place at the time of
termination.
(d) Charitable and Other Activities. The Executive may (i) serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions, and (iii)
manage personal and immediate family investments, so long as such activities do
not interfere in any way with the Executive's duties and responsibilities
pursuant to this Agreement.
2. Compensation and Benefits.
(a) Base Compensation. BackWeb Canada shall pay the Executive as
compensation for his services a base salary at the annualized rate of
Cdn$151,250.00. Such salary shall be subject to applicable tax withholding and
shall be paid periodically in accordance with normal BackWeb Canada payroll. The
annual compensation specified in this Section 2, together with any increases in
such compensation that the Board may, in its sole discretion, grant from time to
time, is referred to in this Agreement as "Base Compensation."
(b) Bonus. In addition to his Base Compensation, the Executive shall
be entitled
<PAGE> 166
to participate in the BackWeb Canada bonus program. The Executive's annual bonus
shall be up to a maximum of Cdn$72,875.00 and shall be payable based upon
achievement of specified BackWeb Canada and individual objectives, which
objectives shall be determined by agreement between BackWeb Canada and the
Executive, each acting reasonably.
(c) Options. As of the Closing, the Executive shall be granted an
option ("Option") to purchase an aggregate of up to ______________ BackWeb
Parent Ordinary Shares at an exercise price of US$0.50 per share. The Option
shall be granted to the Executive pursuant to and in accordance with Back Web
Parent's standard terms and conditions, including vesting over four (4) years
(commencing, in the case if the Executive, on July 1, 1996) and such other terms
and conditions as set forth in Back Web Parent's standard option agreement.
(d) Executive Benefits. The Executive shall be eligible to
participate in (i) the employee benefit plans and arrangements which are
available or which become available, in the discretion of BackWeb Canada's
Board, to other executives and employees of BackWeb Canada and (ii) the employee
benefit plans and arrangements of BackWeb Parent which are available or which
become available, in the discretion of BackWeb Parent's Board, to the executives
and employees of the subsidiaries of BackWeb Parent; subject in each case to the
generally applicable terms and conditions of the plan or program in question and
to the determination of any committee administering such plan or program.
BackWeb Parent shall use commercially reasonable efforts to ensure that
Executive's benefits package as a whole is comparable to the benefits package of
other executive officers of BackWeb Parent.
(e) Vacation. The Executive shall be entitled to three (3) weeks of
vacation per year in accordance with the normal vacation policies of BackWeb
Canada.
3. Severance Payments.
(a) Termination Without Cause. If the Executive's employment
terminates as a result of a termination for any reason other than Cause (as
defined below) or death or disability ("Termination Without Cause"), BackWeb
Canada shall be obligated to pay (i) Base Compensation to the Executive as of
the date of such Termination Without Cause, in an amount equal to three (3)
months of Base Compensation, (ii) a pro-rated amount in respect of his
entitlement to a bonus payment, based on the portion of the relevant bonus
period during which Executive shall be employed and (iii) any accrued and unused
vacation pay to the date of termination of employment, in lieu of any payments
that would be payable to the Executive under applicable Ontario statutory or
common law. The Executive agrees that as a condition to such payments he will
sign a Release of Claims in the form attached as Exhibit A hereto upon receipt
of all amounts contemplated by Section 4 thereof. It is understood by the
parties hereto that a "Termination Without Cause" shall include a material
change or diminution in the Executive's responsibilities at BackWeb Canada or as
a senior executive officer of BackWeb Parent, which change or diminution results
in the Executive's resignation.
(b) Voluntary Resignation; Termination for Cause. If the Executive's
<PAGE> 167
employment terminates by reason of the Executive's voluntary resignation, or if
the Executive is terminated for Cause, the Executive shall not be entitled to
receive (i) any distributions of the Escrow Fund to which Executive would
otherwise be entitled pursuant to Section 7.2(b) of the Acquisition Agreement or
(ii) severance or other benefits, except any accrued and unused vacation pay and
for those (if any) as may then be established under BackWeb Canada's
then-existing severance and benefits pursuant to this Agreement.
(c) Death or Disability. If the Executive's employment terminates as
a result of his death or disability, no compensation or payments will be made to
the Executive other than any accrued and unused vacation pay and those to which
he is entitled under BackWeb Canada's existing benefit plans and policies in
place at the time of such termination.
4. Definitions. As used herein, the term "Cause" means the Executive's
termination only upon:
(a) The Executive has engaged in wilful and material misconduct,
including, without limitation, wilful and material failure to perform his duties
as an officer or employee of BackWeb Canada or a material breach of this
Agreement and has failed to "cure" such default within thirty (30) days after
receipt of written notice of default from BackWeb Canada;
(b) The commission of an act of fraud or embezzlement which results
in loss, damage or injury to BackWeb Canada or any of its affiliates or
subsidiaries, including without limitation BackWeb Parent or any of its
Affiliates, whether directly or indirectly;
(c) The Executive's use of narcotics, liquor or illicit drugs has
had a detrimental effect on the performance of his employment responsibilities,
as determined by BackWeb Canada's Board of Directors;
(d) The arrest, indictment or filing of charges relating to an
indictable or summary offence, either in connection with the performance of the
Executive's obligations to BackWeb Canada or which shall adversely affect the
Executive's ability to perform such obligations;
(e) Gross negligence, dishonesty, breach of fiduciary duty or
material breach of the terms of this Agreement or any other agreement in favor
of BackWeb Canada or any of its Affiliates;
(f) The commission of an act which constitutes unfair competition
with BackWeb Canada or any of its Affiliates, or which induces any customer of
BackWeb Canada or any of its Affiliates to break a contract with BackWeb Canada
or its Affiliates, as applicable.
5. Confidential Information.
(a) BackWeb Canada Information. The Executive agrees at all times
during the
<PAGE> 168
term of the Executive's employment and thereafter, to hold in strictest
confidence, and not to use, except for the benefit of BackWeb Canada or its
Affiliates, or to disclose to any person, firm or corporation without written
authorization of the Board or of a senior officer of BackWeb Parent any
Confidential Information of BackWeb Canada or any of its Affiliates. The
Executive understands that "Confidential Information" means any proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, products, services, customer lists and
customers (including, but not limited to, customers of BackWeb Canada or any of
its Affiliates) on whom the Executive called or with whom the Executive became
acquainted during the term of the Executive's employment), markets, software,
developments, inventions, processes, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing, finances or other
business information of BackWeb Canada or any of its Affiliates disclosed to the
Executive by BackWeb Canada or any of its Affiliates either directly or
indirectly in writing, orally or by drawings or observation of parts or
equipment. The Executive further understands that Confidential Information does
not include any of the foregoing items which have become publicly known and made
generally available through no wrongful act of the Executive or of others who
were under confidentiality obligations as to the item or items involved.
(b) Third Party Information. The Executive recognizes that BackWeb
Canada (or its Affiliates) has received and in the future will receive from
third parties their confidential or proprietary information subject to a duty on
BackWeb Canada's (or its Affiliates) part to maintain the confidentiality of
such information and to use it only for certain limited purposes. The Executive
agrees to hold all such confidential or proprietary information in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out the Executive's work for BackWeb Canada
(or its Affiliates) consistent with BackWeb Canada's (or its Affiliates)
agreement with such third party.
6. Invention Assignment Agreement. The Executive shall duly execute and
deliver BackWeb Canada's standard Invention Assignment Agreement and shall abide
by all of its terms and conditions.
7. Noncompetition and Nonsolicitation. For two years following the
Closing, or two years from the termination of the Executive's employment by (i)
voluntary resignation, (ii) because of termination for Cause, or (iii) because
of termination without cause, provided that in such case reasonable severance be
paid to the Executive pursuant to Section 3 hereof, whichever is longer, the
Executive will not individually or as an employee, partner, officer, director or
stockholder (other than as the stockholder of a publicly traded company in which
he shall own less than an aggregate of three percent (3%) of such public
company's outstanding stock) or in any other capacity whatsoever of or for any
person, firm, partnership, company or corporation other than BackWeb Canada or
any of its Affiliates:
(a) Own, manage, operate, sell, control or participate in the
ownership, management, operation, sales or control of any business engaged, in
the geographical areas referred to in Section 8 below, in the design, research,
development, marketing, sale, or licensing of any
<PAGE> 169
product that is competitive with any product created, distributed or known by
the Executive to be under development by BackWeb Canada or any of its Affiliates
at the time of, or during the period of Executive's employment with BackWeb
Canada within the three (3) years prior to, the Executive's termination of
employment with BackWeb Canada;
(b) Own, manage, operate, sell, control or participate in the
ownership, operation, sales or control of any business engaged, in the
geographical areas referred to in Section 8 below, in the design, research,
development, marketing, sale, or licensing of any product that is competitive
with the products of BackWeb Canada or any of its Affiliates;
(c) Directly or indirectly develop any product that is competitive
with any other products the creation or development of which he participated in
during the Executive's employment with Lanacom or BackWeb Canada; or
(d) Directly or indirectly induce, encourage, solicit, recruit, take
away, attempt to hire, attempt to induce, solicit, assist others in recruiting
or hiring, refer to others concerning employment, in or with respect to the
geographical areas referred to in Section 8 below, any person who is an employee
of BackWeb Canada or any of its Affiliates, or otherwise cause to induce any
such employee, to terminate his or her employment with BackWeb Canada or such
Affiliate, as applicable.
Provided, however, that nothing is this Section 7 shall restrict the
Executive from employment with any employer (including participation in such
employer's employee stock option plans) having products which are competitive
with those of BackWeb Canada or its Affiliates where such employment does not
involve any participation by the Executive in the design, research development,
marketing, sale or licensing of any such competitive products or the hiring of
any employees for activities related to the foregoing.
8. Geographic Area.
(a) The geographical areas in which the restrictions provided for in
this Agreement apply include all provinces, cities and other localities of
Canada and all states, cities, counties and other localities of the United
States, and all other countries and localities, in which BackWeb Canada or any
of its Affiliates has engaged in licensing or sales or otherwise conducted
business or selling or licensing efforts at any time prior to the Closing hereof
or during the term of this Agreement. The agreement not to compete in each such
geographic subdivision is a separate and severable agreement from all such other
agreements. The Executive acknowledges that the scope and period of restrictions
and the geographical area to which the restrictions imposed in this Section 8
applies are fair and reasonable and are reasonably required for the protection
of BackWeb Canada and its Affiliates and that this Agreement accurately
describes the business to which the restrictions are intended to apply.
9. Injunctions. The Executive acknowledges that any breach of the
covenants of this
<PAGE> 170
Agreement will result in immediate and irreparable injury to BackWeb Canada and,
accordingly, consents to the application of injunctive relief and such other
equitable remedies for the benefit of BackWeb Canada as may be appropriate in
the event such a breach occurs or is threatened. The foregoing remedies will be
in addition to all other legal remedies to which BackWeb Canada may be entitled
hereunder, including, without limitation, monetary damages.
10. Prior Agreements. The Executive represents that the Executive has
not entered into any agreements, understandings, or arrangements with any person
or entity which would be breached by the Executive as a result of, or that would
in any way preclude or prohibit the Executive from entering into this Agreement
with BackWeb Canada or performing any of the duties and responsibilities
provided for in this Agreement. The Executive acknowledges that he will resign
as an employee of Lanacom immediately prior to the Closing and shall release
Lanacom from any and all liabilities pertaining to his employment by Lanacom.
11. Conflicting Employment. The Executive agrees that, during the term
of the Executive's employment with BackWeb Canada, the Executive shall not
accept any other employment whatsoever. The Executive will not engage in any
other employment, occupation, consulting or other business activity directly
related to the business in which BackWeb Canada or any of its Affiliates is now
involved or becomes involved during the term of the Executive's employment, nor
will the Executive engage in any other activities that conflict with the
Executive's obligations to BackWeb Canada.
12. Returning BackWeb Canada Documents. The Executive agrees that, at
the time of leaving the employ of BackWeb Canada, the Executive will deliver to
BackWeb Canada (and will not keep in the Executive's possession, recreate or
deliver to anyone else), whether in hard copy or soft copy, any and all devices,
records, data, notes, reports, proposals, lists, correspondence, specifications,
drawings blueprints, sketches, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by the
Executive pursuant to the Executive's employment with BackWeb Canada or
otherwise belonging to BackWeb Canada.
13. Notices. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given upon receipt or, if earlier, (a) fifteen (15) days
after deposit with the applicable postal service, if delivered by first class
mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) five (5)
business days after the business day of deposit with Federal Express or similar
overnight courier, freight prepaid or (d) one (1) business day after the
business day of facsimile transmission, if delivered by facsimile transmission
with copy by first class mail, postage prepaid, and shall be addressed to the
address set forth below (or at such other address as a party may designate by
fifteen (15) days' advance written notice to the other party pursuant to the
provisions above):
If to the Executive, at the address set forth below the Executive's
signature at the end hereof.
<PAGE> 171
If to BackWeb Canada:
BackWeb Canada Inc.
c/o BackWeb Technologies Inc.
2077 Gateway Place, Suite 500
San Jose, CA 95110
Attn: Carolyn Aver
With copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: Howard S. Zeprun, Esq.
and
Naschitz, Brandes & Co.
"Beit Tzarfat", 5 Tuval Street
Tel-Aviv, Israel
Attn: Gil Brandes, Esq.
or to such other address as any party hereto may designate by notice given as
herein provided.
14. Amendments. This Employment Agreement shall not be changed or
modified in whole or in part except by an instrument in writing signed by each
party hereto.
15. Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect. If
for any reason a court of competent jurisdiction or binding arbitration
proceedings finds any provision of this Agreement, or the application thereof,
to be unenforceable, the remaining provisions of this Agreement will be
interpreted so as best to reasonably effect the intent of the parties. The
parties further agree that the court or arbitrator shall replace any such
invalid or unenforceable provisions with valid and enforceable provisions
designed to achieve, to the extent possible, the business purposes and intent of
such unenforceable provisions.
16. Successors.
(a) BackWeb Canada's Successors. This Agreement shall enure to the
benefit of BackWeb Canada and their respective successors and any successor
(whether direct or indirect and whether by purchase, lease, merger,
amalgamation, consolidation, liquidation or otherwise) to all or substantially
all of BackWeb Canada's business and/or assets shall, pursuant to an Assumption
Agreement duly executed and delivered by such successor to BackWeb Canada (the
"Assumption Agreement"), assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as BackWeb Canada would be required to perform such
obligations in the absence of a succession whereupon BackWeb Canada shall be
released from its obligations thereunder. For all purposes under this Agreement,
the
<PAGE> 172
term "BackWeb Canada" shall include any successor to BackWeb Canada's business
and/or assets which executes and delivers the Assumption Agreement described in
this subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. The terms of this Agreement and all
rights of the Executive hereunder shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successor, heirs, distributees, devisees or legatees.
17. Entire Agreement. This Agreement shall supersede and replace all
prior agreements or understandings relating to the subject matter hereof
(including, without limitation, and employment agreements or understandings with
Lanacom), and no agreement, representations or understandings (whether oral or
written or whether express or implied) which are not expressly set forth in this
Agreement have been made or entered into by either party with respect to the
relevant matter hereof.
18. Amalgamation. This Agreement shall remain in effect from the
Closing throughout the specified term unless the Amalgamation contemplated by
the Acquisition Agreement is not consummated and the Acquisition Agreement is
terminated pursuant to Article IX thereof. In the event of such a termination,
the Executive's obligations hereunder shall terminate effective as of the
termination of the Acquisition Agreement.
19. Governing Law; Jurisdiction. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the Province of
Ontario (without regard to conflict of law provisions thereof). The parties
expressly stipulate that any litigation under this Agreement shall be brought in
the Ontario courts. The parties agree to submit to the jurisdiction and venue of
such courts.
20. Counterparts. This Agreement may be executed in several
counterparts (including by means of a telecopier), each of which shall be an
original, but all of which together shall constitute one and the same agreement.
21. Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
22. Definitions. All capitalized terms used herein shall have the
meaning defined in the Acquisition Agreement, unless otherwise defined herein.
<PAGE> 173
IN WITNESS WHEREOF, the parties hereto have executed this Employment
and Noncompetition Agreement as of the date first written above.
BACKWEB CANADA INC.
By:
Name:
Title:
EXECUTIVE
Anthony Davis
(Print Address)
(Print Telephone Number)
The Undersigned Parent of BackWeb Canada
hereby guarantees such corporation's
obligations hereunder
BACKWEB TECHNOLOGIES LTD.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 23.1
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 March 25, 1999 (except for Note 11, as to which the
date is May 28, 1999, in the Registration Statement (Form F-1) and related
Prospectus of BackWeb Technologies, Ltd., for the registration of 6,325,000
shares of its ordinary stock.
/s/ ERNST & YOUNG, LLP
Palo Alto, California
June 4, 1999
