<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1999
REGISTRATION NO. 333-10358
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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 3, 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.
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 Checkpoint Software
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 $406,000 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.
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
shareholders 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
50
<PAGE> 55
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 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
51
<PAGE> 56
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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<PAGE> 61
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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<PAGE> 63
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.
Palo Alto, California
March 25, 1999,
Except for Note 11, as to which the date
is , 1999.
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
the ordinary share split described in Note 11 to the consolidated financial
statements.
ERNST & YOUNG LLP
Palo Alto, California
June 3, 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 a one-for-three reverse
ordinary stock split. The reverse stock split will be effected prior to the
effective date of the Offering. All ordinary share numbers and preferred stock
conversion ratios have been retroactively adjusted to reflect the reverse stock
split.
Also 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.
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. 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>
- -------------------------
+ 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. 1 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 3,
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. 1 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 3, 1999
- --------------------------------------- (Principal Executive Officer)
Eli Barkat
/s/ HANAN MIRON Chief Financial Officer (Principal June 3, 1999
- --------------------------------------- Financial And Accounting Officer)
Hanan Miron
/s/ CHARLES FEDERMAN* Director June 3, 1999
- ---------------------------------------
Charles Federman
/s/ WILLIAM LARSON* Director June 3, 1999
- ---------------------------------------
William Larson
/s/ JOSEPH GLEBERMAN* Director June 3, 1999
- ---------------------------------------
Joseph Gleberman
/s/ GIL SHWED* Director June 3, 1999
- ---------------------------------------
Gil Shwed
</TABLE>
AUTHORIZED UNITED STATES REPRESENTATIVE
BACKWEB TECHNOLOGIES, INC.
By: /s/ ELI BARKAT
---------------------------------------
Eli Barkat
President
June 3, 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>
- -------------------------
+ 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 1.1
BACKWEB TECHNOLOGIES LTD.
ORDINARY SHARES
----------------------
UNDERWRITING AGREEMENT
__________ __, 1999
Goldman, Sachs & Co.,
BancBoston Robertson Stephens Inc.
Lehman Brothers Inc.
Wit Capital Corporation
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
2765 Sand Hill Road
Menlo Park, CA 94025
Ladies and Gentlemen:
BackWeb Technologies Ltd., an Israeli corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of ................ ordinary shares (the "Ordinary Shares") (the "Firm Shares")
and, at the election of the Underwriters, up to ................ additional
Ordinary Shares (the "Optional Shares"). The Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
1. The Company and BackWeb Technologies, Inc., a Delaware
corporation (the "U.S. Subsidiary") each, jointly and severally, represents and
warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form F-1 (File No. 333-....)
(the "Initial Registration Statement") in respect of the Shares has been
filed with the Securities and
<PAGE> 2
Exchange Commission (the "Commission"); the Initial Registration
Statement and any post-effective amendment thereto, each in the form
heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act), which became effective upon filing, no
other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending
the effectiveness of the Initial Registration Statement, any
post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in the Initial Registration Statement or filed with
the Commission pursuant to Rule 424(a) of the rules and regulations of
the Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and
the Rule 462(b) Registration Statement, if any, including all exhibits
thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the
Act in accordance with Section 5(a) hereof and deemed by virtue of Rule
430A under the Act to be part of the Initial Registration Statement at
the time it was declared effective, each as amended at the time such
part of the Initial Registration Statement became effective or such part
of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant
to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply
to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date
as to the Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
<PAGE> 3
furnished in writing to the Company by an Underwriter through Goldman,
Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its significant
subsidiaries (as defined in Rule 405 under the Act and as indicated on
Schedule II hereto) (the "Subsidiaries") has sustained since the date of
the latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change
in the share capital or long-term debt of the Company or any of the
Subsidiaries or any material adverse change, or any development which
could reasonably be expected to result in a material adverse change, in
or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and the
Subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus; Schedule II attached hereto sets forth a
list of all subsidiaries of the Company;
(e) The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and the
Subsidiaries; and any real property and buildings held under lease by
the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed
to be made of such property and buildings by the Company and the
Subsidiaries;
(f) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the State of Israel, with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus; the U.S. Subsidiary has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware, with corporate power
and authority to own its properties and conduct its business as it is
currently being conducted;
(g) Each of the Company and the U.S. Subsidiary has been duly
qualified as a foreign corporation for the transaction of business and
is in good standing under the laws of each other jurisdiction in which
it owns or leases properties or conducts any business so as to require
such qualification, except where the failure to so qualify would not,
individually or in the aggregate, have a material adverse effect on the
general affairs, management, or current of future financial position,
shareholders' equity, results of operations or business prospects of the
Company and the subsidiaries taken as a whole ("Material Adverse
Effect"); and each Subsidiary (excluding the U.S. Subsidiary) has been
duly incorporated and is validly existing as a corporation in good
standing
<PAGE> 4
under the laws of its jurisdiction of incorporation;
(h) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of the Company have been
duly and validly authorized and issued and are fully paid and
non-assessable and conform to the description of the Ordinary Shares
contained in the Prospectus; and all of the issued shares of capital
stock of each Subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims; the holders of outstanding shares of capital stock
of the Company are not entitled to preemptive or other rights to acquire
the Shares, except for such rights as have been waived, nor does any
such holder have rights to require registration of any securities of the
Company in connection with the registration of the Shares, except for
such rights as have been satisfied or waived; there are no outstanding
securities convertible into or exchangeable for, or warrants, rights or
options to purchase from the Company, or obligations of the Company to
issue, Ordinary Shares or any other class of share capital of the
Company, except as set forth in the Prospectus; and there are no
restrictions on subsequent transfers of the Shares under the laws of
State of Israel and of the United States, except as set forth in the
Prospectus;
(i) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable and will
conform to the description of the Ordinary Shares contained in the
Prospectus;
(j) All dividends and other distributions declared and payable
on the Shares may under the current laws and regulations of the State of
Israel be paid in Israeli currency that may be converted into foreign
currency that may be freely transferred out of the State of Israel, and,
except as described in the Prospectus, all such dividends and other
distributions will not be subject to withholding or other taxes under
the laws and regulations of the State of Israel and are otherwise free
and clear of any other tax, withholding or deduction in the State of
Israel and without the necessity of obtaining any Governmental
Authorization in the State of Israel;
(k) The issue and sale of the Shares to be sold by the Company
hereunder and the compliance by the Company and the U.S. Subsidiary with
the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any
of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries is bound or to which any of the property or assets of the
Company or any of the Subsidiaries is subject, nor will such action
result in any violation of the provisions of the charter documents of
the Company or the U.S. Subsidiary or any statute or any order, rule or
regulation of any court or governmental agency or body or any stock
exchange authority (hereinafter referred to as a "Governmental Agency")
having jurisdiction over the
<PAGE> 5
Company or any of the Subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration, clearance or
qualification of or with any such Governmental Agency (hereinafter
referred to as "Governmental Authorizations") is required for the issue
and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except (A) the registration
under the Act of the Shares, (B) such Governmental Authorizations as
have been duly obtained and are in full force and effect and copies of
which have been furnished to you (C) the approval by the National
Association of Securities Dealers, Inc. ("NASD") of the terms of the
sale of the Shares and (D) such Governmental Authorizations as may be
required under state securities or Blue Sky laws;
(l) Neither the Company nor any of the Subsidiaries is in
violation of its charter documents or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party
or by which it or any of its properties may be bound;
(m) No stamp or other issuance or transfer taxes or duties
and, assuming that the Underwriters are not otherwise subject to
taxation in Israel, no capital gains, income, withholding or other taxes
are payable by or on behalf of the Underwriters to the State of Israel
or any political subdivision or taxing authority thereof or therein in
connection with the sale and delivery by the Company of the Shares to or
for the respective accounts of the Underwriters;
(n) The statements set forth in the Prospectus under the
caption "Description of Share Capital", insofar as they purport to
constitute a summary of the terms of the Ordinary Shares and under the
captions "Risk Factors -- We are incorporated in Israel and have
important facilities and resources located in Israel", "-- We rely upon
tax benefits and other funding from the State of Israel" and "-- Israeli
courts might not enforce judgments rendered outside of Israel" and
"United States Federal Income Tax Consideration", "Israeli Taxation and
Investment Programs", "Conditions in Israel" and "Underwriting", insofar
as they purport to describe the provisions of the laws and documents
referred to therein, are accurate summaries of and descriptions of such
terms and provisions in all material respects;
(o) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of
the Subsidiaries is a party or of which any property of the Company or
any of the Subsidiaries is the subject which, if determined adversely to
the Company or any of the Subsidiaries, would individually or in the
aggregate have a Material Adverse Effect; and, to the Company's and the
U.S. Subsidiary's knowledge, no such proceedings are threatened or
contemplated by any Governmental Agency or threatened by others;
(p) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company", as
such term is defined in the Investment
<PAGE> 6
Company Act of 1940, as amended (the "Investment Company Act");
(q) The Company is not, as of the Time of Purchase, a Passive
Foreign Investment Company ("PFIC") within the meaning of Section 1296
of the United States Internal Revenue Code of 1986, as amended, and, to
the Company's knowledge, is not likely to become a PFIC;
(r) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes;
(s) Ernst & Young LLP, who have certified certain financial
statements of the Company and the Subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(t) The Company has reviewed its operations and that of the
Subsidiaries and any third parties with which the Company or any of the
Subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or any of the Subsidiaries
will be affected by the Year 2000 Problem. As a result of such review,
the Company represents and warrants that the disclosure in the
Registration Statement relating to the Year 2000 Problem is accurate and
complies in all material respects with the rules and regulations of the
Act. The "Year 2000 Problem" as used herein means the Year 2000 issues
described in or contemplated by the Commission's Interpretation:
Disclosure of Year 2000 Issues and Consequences by Public Companies,
Investment Advisers, Investment Companies, and Municipal Securities
Issuers (Release No. 33-7558);
(u) The Company is in material compliance with all terms and
conditions of the laws and regulations regarding all "Approved
Enterprise" designations under the Law for Encouragement of Capital
Investments, 1959, of the State of Israel, as amended (the "Investment
Act");
(v) The Company qualifies as an "Industrial Company" within
the definition of the Law for the Encouragement of Industry (Taxes),
1969, of the State of Israel (the "Industry Act");
(w) The Company and the Subsidiaries have sufficient interest
in all licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks and trade names, and all patents and patent rights ("Intellectual
Property") necessary to carry on its respective business as described in
the Prospectus, and, except as set forth in the Prospectus, neither the
Company nor any Subsidiary has received any written or to the Company's
knowledge, oral correspondence relating to any Intellectual Property of
the Company or notice of infringement of or conflict with asserted
rights of others with respect to any Intellectual
<PAGE> 7
Property of the Company which the Company or the U.S. Subsidiary
believes would, singly or in the aggregate, have a Material Adverse
Effect;
(x) No material labor dispute with the employees of the
Company or any Subsidiary exists, or, to the knowledge of the Company or
the U.S. Subsidiary, is imminent; and neither the Company nor the U.S.
Subsidiary is aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could reasonably be expected to result
in a Material Adverse Effect;
(y) The Company and the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the business in which
they are engaged; and the Company and the Subsidiaries have no reason to
believe that they will not be able to renew their existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue their business at
a cost that would not have a Material Adverse Effect;
(z) Each of the Company and the Subsidiaries possesses all
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
its respective business, except to the extent that the failure to
possess such certificates, authorizations and permits would not have a
Material Adverse Effect, and neither the Company nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in Material Adverse Effect;
and
(aa) Each of the Company and the Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company at a purchase
price per Share of $.........., the number of Firm Shares (to be adjusted by you
so as to eliminate fractional shares) set forth opposite the name of such
Underwriter in Schedule I hereto and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company at
the purchase price per Share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional
<PAGE> 8
shares) determined by multiplying such number of Optional Shares by a fraction
the numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to .......... Optional Shares, at the purchase price per Share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares,
the several Underwriters propose to offer the Firm Shares for sale upon the
terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as Goldman, Sachs & Co. may request upon at least forty-eight
hours' notice to the Company prior to Time of Delivery (as defined
below) (the "Notification Time"), shall be delivered by or on behalf of
the Company to Goldman, Sachs & Co., through the facilities of the
Depository Trust Company ("DTC") for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase
price therefor by wire transfer of immediately available funds to the
account specified by the Company to Goldman, Sachs & Co. at least
forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging
at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated
custodian (the "Designated Office").
The time and date of such delivery and payment shall be, with
respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1999 or such other time and date as Goldman, Sachs & Co.
and the Company may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York City time, on the date specified by
Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co.
of the Underwriters' election to purchase such Optional Shares, or such
other time and date as Goldman, Sachs & Co. and the Company may agree
upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for
delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date
for delivery is herein called a "Time of Delivery".
<PAGE> 9
(b) The documents to be delivered at each Time of Delivery by
or on behalf of the parties hereto pursuant to Section 7 hereof,
including the cross-receipt for the Shares and any additional documents
requested by the Underwriters pursuant to Section 7 hereof, will be
delivered at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page
Mill Road, Palo Alto, California 94304 (the "Closing Location"), and the
Shares will be delivered as specified in Section (a) above, all at such
Time of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts of
the documents to be delivered pursuant to the preceding sentence will be
available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus prior to the last Time of Delivery
which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or prospectus, of the suspension
of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the withdrawal
of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to
time, to furnish the
<PAGE> 10
Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine
months after the time of issue of the Prospectus in connection with the
offering or sale of the Shares and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Prospectus is delivered, not misleading, or, if for
any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you
and upon your request to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Prospectus or a
supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter, to
prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Ordinary Shares or any such
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities (including any warrants)
outstanding as of, the date of this Agreement), without the prior
written consent of Goldman Sachs & Co.;
(f) To furnish to its shareholders as soon as practicable
after the end of each fiscal year an annual report (in English)
(including a balance sheet and statements of income, shareholders'
equity and cash flows of the Company and its consolidated subsidiaries
certified by independent public accountants and prepared (i) in
conformity with generally accepted accounting principles in the State of
Israel ("Israel GAAP") which as of the date hereof is identical in all
material respects as applied to the company to generally accepted
accounting principles in the U.S. ("U.S. GAAP") or (ii) in conformity
with U.S. GAAP) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the
<PAGE> 11
effective date of the Registration Statement), to make available to its
shareholders consolidated summary financial information of the Company
and its subsidiaries for such quarter in reasonable detail and prepared
in accordance with Israel GAAP or U.S. GAAP;
(g) During a period of four years from the effective date of
the Registration Statement, upon your request to furnish to you copies
of all reports or other communications (financial or other) furnished to
shareholders, and to deliver to you (i) as soon as they are available,
copies of any reports and financial statements furnished to or filed
with the Commission or any securities exchange on which any class of
securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its shareholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of
the Shares pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares
on NASDAQ;
(j) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement, and the Company shall at the
time of filing either pay to the Commission the filing fee for the Rule
462(b) Registration Statement or give irrevocable instructions for the
payment of such fee pursuant to Rule 111(b) under the Act; and
(k) To file with the Commission such information on its
periodic reports filed pursuant to Section 13(a) and 15(d) of the
Exchange Act as may be required by Rule 463 under the Act.
6. The Company covenants and agrees and with the several
Underwriters that will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Selling Agreements (if
applicable), the Blue Sky Memorandum, closing documents (including compilations
thereof) and any other documents in connection with the offering, purchase, sale
and delivery of the Shares; (iii) all reasonable expenses in connection with the
qualification of the Shares for offering and sale under state securities laws as
provided in Section 5(b) hereof, including the fees and disbursements of counsel
for the Underwriters in connection with such qualification and in connection
with the Blue Sky surveys; (iv) all fees and expenses in connection with listing
the Shares and on the NASDAQ; (v) the filing fees incident
<PAGE> 12
to, and the fees and disbursements of counsel for the Underwriters in connection
with, securing any required review by the NASD of the terms of the sale of the
Shares; (vi) the fees and expenses of the Authorized Agent (as defined in
Section 15 hereof); (vii) the cost of preparing stock certificates; (vii) the
cost and charges of any transfer agent or registrar; and (ix) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes (other than any imposed by the State
of Israel or any political subdivision or taxing authority thereof or therein)
on resale of any of the Shares by them, and any advertising expenses connected
with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares
to be delivered at each Time of Delivery, shall be subject, in their discretion,
to the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its and their
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part
of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall
have furnished to you their written opinion (a draft of such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (xiii) and the
penultimate paragraph in subclause (c) below and such other matters as
you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
(c) Wilson, Sonsini, Goodrich & Rosati, P.C., counsel for the
Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex II(b) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect that:
(i) This Agreement has been duly executed and delivered
by the U.S. Subsidiary;
(ii) The U.S. Subsidiary has been duly incorporated and
is validly existing as a corporation in good standing under the
laws of Delaware, with all
<PAGE> 13
requisite corporate power and authority to own its properties and
conduct its business as described in the Prospectus;
(iii) The U.S. Subsidiary has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in which
it owns or leases properties or conducts any business so as to
require such qualification, except where the failure to so
register or qualify would not have a Material Adverse Effect
(such counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(iv) All of the issued shares of capital stock of the
U.S. Subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable, and are owned directly or
indirectly by the Company, to such counsel's knowledge free and
clear of all liens, encumbrances, equities or claims (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters
of fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such
opinions and certificates);
(v) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending or threatened to which the U.S. Subsidiary is
a party or of which any property of the U.S. Subsidiary is the
subject which are of a character required to be disclosed in the
Registration Statement and which are not adequately disclosed in
the Prospectus;
(vi) The issue and sale of the Shares and the compliance
by the Company and the U.S. Subsidiary with the provisions of
this Agreement and the consummation of the transactions herein
and therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to
such counsel to which the U.S. Subsidiary is a party or by which
the U.S. Subsidiary is bound or to which any of the property or
assets of the U.S. Subsidiary is subject and which is filed as an
exhibit to the Registration Statement, nor will such action
result in any violation of the provisions of the charter
documents of the U.S. Subsidiary or any statute or any order,
rule or regulation known to such counsel of any United States
Federal or California or Delaware Governmental Agency having
jurisdiction over the U.S. Subsidiary or any of its properties;
(vii) To the knowledge of such counsel, the U.S.
Subsidiary is not in violation of its charter documents or in
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any indenture,
<PAGE> 14
mortgage, deed of trust, loan agreement, lease or other agreement
or instrument to which it is a party or by which it or any of its
properties may be bound and which is filed as an Exhibit to the
Registration Statement;
(viii) All of the Ordinary Shares (including the Shares)
have been duly approved for inclusion on NASDAQ, subject to the
consummation of the transactions contemplated by this Agreement
and to official notice of issuance;
(ix) No Governmental Authorization of the United States
or the States of California or Delaware is required for the
execution and delivery of this Agreement or the consummation by
the Company of the transactions contemplated by this Agreement,
except the registration under the Act of the Shares or filings
and other actions required pursuant to the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereof,
the approval by the NASD of the terms of the sale of the Shares,
and such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(x) The statements set forth in the Prospectus under
the caption "United States Federal Income Tax Considerations",
insofar as they purport to describe the provisions of United
States Federal income tax laws referred to therein, are accurate
summaries and descriptions of such terms and provisions in all
material respects, subject to the limitations set forth therein;
(xi) The Company is not an "investment company", as such
term is defined in the Investment Company Act; and
(xii) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and notes thereto and related schedules and the other
financial and accounting data included therein or omitted
therefrom, as to which such counsel need express no opinion) as
of their respective effective and issue dates complied as to form
in all material respects with the requirements of the Act and the
rules and regulations thereunder.
Although they have not independently verified or
confirmed and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except to the limited
extent set forth to in the opinion in subsection (xi) of this
Section 7(c), nothing has come to their attention that has caused
them to believe that, as of its effective date or such Time of
Delivery, the Registration Statement or any further amendment
thereto made by the Company prior to such Time of Delivery (other
than the financial statements and notes thereto and related
schedules and the other financial and accounting data included
therein or omitted therefrom, as to which such counsel need
express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact required
<PAGE> 15
to be stated therein or necessary to make the statements therein
not misleading, or that, as of its date or such Time of Delivery,
the Prospectus or any further amendment or supplement thereto
made by the Company prior to such Time of Delivery (other than
the financial statements and notes thereto and related schedules
and the other financial and accounting data included therein or
omitted therefrom, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and they
do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as
required.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
States of California and Delaware and the federal laws of the United
States.
(d) Meitar, Liquornik, Geva & Co., Israeli counsel for the
Underwriters, shall have furnished to you their written opinion (a draft
of such opinion is attached as Annex II(c) hereto), dated such Time of
Delivery, with respect to the matters covered in paragraphs (i), (ii)
(with respect to the Shares), (iii), (vi), (viii), (x), (xi), (xii),
(xiii), and (xvi) of subclause (e) below and such other matters as you
may reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass
upon such matters;
(e) Naschitz, Brandes & Co., Israeli counsel for the Company,
shall have furnished to you their written opinion (a draft of such
opinion is attached as Annex II(d) hereto), dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation under the laws of the State of
Israel, with power and authority (corporate and other) to own its
properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued share capital of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and
are fully paid and non-assessable; under the Company's Memorandum
of Association and Articles of Association, under the laws of the
State of Israel and under agreements known to such counsel, the
holders of the outstanding share capital of the Company are not
entitled to preemptive or other rights to acquire the Shares to
be purchased from the Company under this Agreement which have not
been complied with or waived; the Shares are freely transferable
by the Company to or for the account of the several Underwriters
in the manner contemplated herein and, except as set forth
<PAGE> 16
in the Prospectus, there are no restrictions on subsequent
transfers of Shares; and the Shares conform to the description of
the Ordinary Shares contained in the Prospectus;
(iii) All Governmental Authorizations of and with any
Governmental Agency in the State of Israel required for the
Shares to be duly and validly authorized and issued have been
obtained or made and are in full force and effect;
(iv) The Company has good and marketable title in fee
simple to all real property in Israel owned by it, free and clear
of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company; and any
real property and buildings in Israel held under lease by the
Company are held by it under valid, subsisting and enforceable
leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such
property and buildings by the Company;
(v) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any
Subsidiary is a party or of which any property of the Company or
any of the Subsidiaries is the subject which, if determined
adversely to the Company or any of the Subsidiaries, would
individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position,
shareholders' equity or results of operations of the Company and
the Subsidiaries; and such counsel is not aware of any such
proceedings that are threatened or contemplated by any
Governmental Agency or threatened by others;
(vi) This Agreement has been duly authorized, executed
and delivered by the Company;
(vii) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the
compliance by the Company with the provisions of this Agreement
and the consummation of the transactions herein contemplated will
not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which the
Company is a party or by which the Company is bound or to which
any of the property or assets of the Company is subject, nor will
such action result in any violation of the provisions of the
charter documents of the Company or any statute or any order,
rule or regulation known to such counsel of any State of Israel
Governmental Agency having jurisdiction over the Company or any
of its properties;
(viii) No Governmental Authorization of or with any
Governmental
<PAGE> 17
Agency in the State of Israel is required for the issue and sale
of the Shares by the Company or the consummation by the Company
of the transactions contemplated by this Agreement, except such
as have been duly obtained and are in full force and effect;
(ix) The statements in the Prospectus under "Description
of Share Capital", insofar as they purport to constitute a
summary of the terms of the Ordinary Shares and under the
captions "Risk Factors -- We are incorporated in Israel and have
important facilities and resources located in Israel", "-- We
rely upon tax benefits and other funding from the State of
Israel", "-- Israeli courts might not enforce judgments rendered
outside of Israel", and "Israeli Taxation and Investment
Programs", to the extent such statements relate to matters of law
or regulation or to the provisions of documents therein
described, are accurate summaries of such matters in all material
respects;
(x) No stamp or other issuance or transfer taxes or
duties and no capital gains, income, withholding or other taxes
are payable by or on behalf of the Underwriters to the State of
Israel or to any political subdivision or taxing authority
thereof or therein in connection with the sale and delivery by
the Company of the Shares to or for the respective accounts of
the Underwriters in the manner contemplated herein;
(xi) Insofar as matters of Israeli law are concerned,
the Registration Statement and the filing of the Registration
Statement with the Commission have been duly authorized by and on
behalf of the Company; and the Registration Statement has been
duly executed pursuant to such authorization by and on behalf of
the Company;
(xii) The Company's agreement to the choice of law
provisions set forth in Section 17 hereof will be recognized by
the courts of the State of Israel; the Company can sue and be
sued in its own name under the laws of the State of Israel; the
irrevocable submission of the Company to the exclusive
jurisdiction of a New York Court, the waiver by the Company of
any objection to the venue of a proceeding of a New York Court
and the agreement of the Company that this Agreement shall be
governed by and construed in accordance with the laws of the
State of New York are legal, valid and binding; and service of
process effected in the manner set forth in Section 14 hereof
will be effective, insofar as the law of the State of Israel is
concerned, to confer valid personal jurisdiction over the
Company. Subject to certain time limitations, an Israeli court
may declare a judgment obtained in a New York Court arising out
of or in relation to the obligations of the Company under this
Agreement enforceable against the Company if it finds that (a)
the judgment was rendered by a court which was, according to the
laws of the state of the court, competent to render the judgment;
(b) the judgment is no longer appealable; (c) 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
<PAGE> 18
policy; and (d) 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 such as the
above 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 such as the above
enforceable if (i) the judgment was obtained by fraud, (ii) there
was no due process, (iii) the judgment was rendered by a court
not competent to render it according to the laws of private
international law in Israel, (iv) the judgment is at variance
with another judgment that was given in the same manner between
the same parties and which is still valid, or (v) at the time the
action was brought in the foreign court a suit in the same manner
and between the same parties was pending before a court or
tribunal in Israel;
(xiii) All dividends and other distributions declared and
payable on the Shares may under the current laws and regulations
of the State of Israel be paid in New Israeli Shekels that may be
converted into foreign currency that may be freely transferred
out of the State of Israel, and, except as set forth in the
Prospectus, all such dividends and other distributions will not
be subject to withholding or other taxes under the laws and
regulations of the State of Israel and are otherwise free and
clear of any other tax, withholding or deduction in the State of
Israel and without the necessity of obtaining any Governmental
Authorization in the State of Israel;
(xiv) The Company is not in violation of its charter
documents or, to such counsel's knowledge, in default in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties
may be bound;
(xv) To the best of such counsel's knowledge, (a) the
Company has all licenses and concessions of and from all
Governmental Agencies that are necessary to own or lease its
properties and conduct its businesses as described in the
Prospectus; and (b) the Company has all franchises, permits,
authorizations, approvals and orders and other licenses and
concessions of and from all Governmental Agencies that are
necessary to own or lease its other properties and conduct its
businesses as described in the Prospectus except for such
licenses, franchises, permits, authorizations, approvals and
orders the failure to obtain which will not have a material
adverse effect on the financial condition or results of
operations of the Company and the Subsidiaries; and
(xvi) Although they do not assume any responsibility for
the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except
for those referred to in the opinion in subsection (x) of this
Section 7(d), they have no reason to believe that, as of its
effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of
Delivery (other than the financial
<PAGE> 19
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading.
In giving such opinion, such counsel may state that with respect
to all matters of United States law they have relied upon the opinions
of United States counsel for the Company delivered pursuant to paragraph
(c) of this Section 7.
(f) On the date of the Prospectus of a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at
each Time of Delivery, Ernst & Young LLP shall have furnished to you a
letter or letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in Annex
I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft
of the form of letter to be delivered on the effective date of any
post-effective amendment to the Registration Statement and as of each
Time of Delivery is attached as Annex I(b) hereto);
(g) (i) Neither the Company nor any of the Subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus, and (ii) since the respective dates as of which information
is given in the Prospectus there shall not have been any change in the
share capital or long-term debt of the Company or any of the
Subsidiaries or any change, or any development which could reasonably be
expected to result in a prospective change, in or affecting the general
affairs, management, financial position, shareholders' equity or results
of operations of the Company and the Subsidiaries, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is in the judgment of the
representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the
<PAGE> 20
Prospectus;
(h) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act,
and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its
rating of any of the Company's debt securities;
(i) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in trading
in securities generally on the New York Stock Exchange, on NASDAQ or the
Tel Aviv Stock Exchange; (ii) a suspension or material limitation in
trading in the Company's securities on NASDAQ; (iii) a general
moratorium on commercial banking activities in New York or the State of
Israel declared by the relevant authorities; (iv) a change or
development involving a prospective change in Israeli taxation affecting
the Company, the Shares or the transfer thereof or the imposition of
exchange controls by the United States or the State of Israel, if the
effect of any such change or development specified in this clause (iv)
in the judgment of the representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus; or (v) the outbreak or escalation
of hostilities involving the United States, the United Kingdom or the
State of Israel or the declaration by the United States, the United
Kingdom or the State of Israel of a national emergency or war, if the
effect of any such event specified in this clause (v) in the judgment of
the representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered
at such Time of Delivery on the terms and in the manner contemplated in
the Prospectus or (vi) the occurrence of any material adverse change in
the existing financial, political or economic conditions in the United
States and the State of Israel or elsewhere which, in the judgment of
the representatives would materially and adversely affect the financial
markets or the market for the Shares and other equity securities;
(j) The Shares to be sold by the Company at such Time of
Delivery shall have been duly approved, subject to notice of issuance,
for quotation on NASDAQ;
(k) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on
the New York Business Day next succeeding the date of this Agreement;
(l) The Company shall have furnished or caused to be furnished
to you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as
to the performance by the Company of all of their respective obligations
hereunder to be performed at or prior to such Time of Delivery, and as
to such other matters as you may reasonably request, and the Company
shall have furnished or caused to be furnished certificates as to the
matters set forth in subsections
<PAGE> 21
(a) and (f) of this Section, and as to such other matters as you may
reasonably request; and
(m) You shall have received the lock-up agreements in the form
attached hereto as Annex III from all directors and executive officers
of the Company and all Stockholders holding more than [__]% of the
Company's share capital.
8. (a) The Company and the U.S. Subsidiary will, jointly and
severally, indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company and the U.S. Subsidiary
shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the
Company and the U.S. Subsidiary against any losses, claims, damages or
liabilities to which the Company or the U.S. Subsidiary may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through
Goldman, Sachs & Co. expressly for use therein; and will reimburse the
Company and the U.S. Subsidiary for any legal or other expenses
reasonably incurred by the Company or the U.S. Subsidiary in connection
with investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such
<PAGE> 22
subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any
legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry
of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action or claim
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion
as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the U.S. Subsidiary on the one
hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the U.S. Subsidiary on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares purchased under this Agreement
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters with
respect to the Shares purchased under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact
<PAGE> 23
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The Company, the U.S. Subsidiary and the
Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this subsection
(d), no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds
the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this
subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company and the U.S. Subsidiary
under this Section 8 shall be in addition to any liability which the
Company or the U.S. Subsidiary may otherwise have and shall extend, upon
the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability
which the respective Underwriters may otherwise have and shall extend,
upon the same terms and conditions, to each officer and director of the
Company or the U.S. Subsidiary (including any person who, with his or
her consent, is named in the Registration Statement as about to become a
director of the Company) and to each person, if any, who controls the
Company or the U.S. Subsidiary within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time
of Delivery, you may in your discretion arrange for you or another party
or other parties to purchase such Shares on the terms contained herein.
If within thirty-six hours after such default by any Underwriter you do
not arrange for the purchase of such Shares, then the Company shall be
entitled to a further period of thirty-six hours within which to procure
another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for
the purchase of such Shares, or the Company notify you that they have so
arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more
than seven days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agrees to file promptly
any amendments to the Registration Statement or the
<PAGE> 24
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by
you and the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed
one-eleventh of the aggregate number of all of the Shares to be
purchased at such Time of Delivery, then the Company shall have the
right to require each non-defaulting Underwriter to purchase the number
of Shares which such Underwriter agreed to purchase hereunder at such
Time of Delivery and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of
Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by
you and the Company as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one- eleventh of
the aggregate number of all of the Shares to be purchased at such Time
of Delivery, or if the Company shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase
Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares)
shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the U.S. Subsidiary and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company or the U.S. Subsidiary, or any officer or
director or controlling person of the Company or the U.S. Subsidiary, or any
controlling person, and shall survive delivery of and payment for the Shares.
Anything herein to the contrary notwithstanding, the indemnity agreement
of the Company and the U.S. Subsidiary in subsection (a) of Section 8 hereof,
the representations and warranties in subsections (b) and (c) of Section 1
hereof and any representation or warranty as to the accuracy of the Registration
Statement or the Prospectus contained in any certificate furnished by the
Company pursuant to Section 7 hereof, insofar as they may constitute a basis for
indemnification for liabilities (other than payment by the Company of
<PAGE> 25
expenses incurred or paid in the successful defense of any action, suit or
proceeding) arising under the Act, shall not extend to the extent of any
interest therein of a controlling person or partner of an Underwriter who is a
director, officer or controlling person of the Company when the Registration
Statement has become effective, except in each case to the extent that an
interest of such character shall have been determined by a court of appropriate
jurisdiction as not against public policy as expressed in the Act. Unless in the
opinion of counsel for the Company the matter has been settled by controlling
precedent, the Company will, if a claim for such indemnification is asserted,
submit to a court of appropriate jurisdiction the question of whether such
interest is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company and the U.S. Subsidiary shall not then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company as provided herein, the Company will reimburse the Underwriters through
you for all out-of-pocket expenses approved in writing by you, including fees
and disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company and the U.S. Subsidiary shall then be under no further liability
to any Underwriter in respect of the Shares not so delivered except as provided
in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Chief Financial Officer; provided, however,
that any notice to an Underwriter pursuant to Section 8 (c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
by you upon request. Any such statements, requests, notices or agreements shall
take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company, the U.S. Subsidiary and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, the U.S. Subsidiary or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
14. Each of the parties hereto irrevocably (i) agrees that any legal
suit, action or
<PAGE> 26
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby may be instituted in any Federal or State Court in the City
of New York, (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 exclusive jurisdiction of such courts in any
such suit, action or proceeding. The Company hereby designates and appoints the
U.S. Subsidiary, as its authorized agent (the "Authorized Agent") upon whom
process may be served in any such action arising out of or based on this
Agreement or the transactions contemplated hereby which may be instituted in any
New York Court by any Underwriter or by any person who controls any Underwriter,
expressly consents to the jurisdiction of any such court in respect of any such
action, and waives any other requirements of or objections to personal
jurisdiction with respect thereto. Such appointment shall be irrevocable unless
and until a successor authorized agent acceptable to the Underwriters in their
sole and absolute discretion shall have been appointed by the Company.. The
Company represents and warrants that the Authorized Agent has agreed to act as
such agent for service at process and agrees to take 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 the Authorized Agent and written notice of such service
to the Company shall be deemed, in every respect, effective service of process
upon the Company.
15. In respect of any judgment or order given or made for any amount
due hereunder that is expressed and paid in a currency (the "judgment currency")
other than United States dollars, the Company, as the case may be, will
indemnify each Underwriter against any loss incurred by such Underwriter as a
result of any variation as between (i) the rate of exchange at which the United
States dollar amount is converted into the judgment currency for the purpose of
such judgment or order and (ii) the rate of exchange at which such Underwriter
on the date such judgment currency is actually received by the Underwriter is
able to purchase United States dollars with the amount of the judgment currency
so received by such Underwriter. The foregoing indemnity shall constitute a
separate and independent obligation of the Company and shall continue in full
force and effect notwithstanding any such judgment or order as aforesaid. The
term "rate of exchange" shall include any premiums and costs of exchange payable
in connection with the purchase of or conversion into United States dollars.
16. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
17. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
18. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
<PAGE> 27
If the foregoing is in accordance with your understanding, please sign
and return to us [__] counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters, the
Company and the U.S. Subsidiary. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
BackWeb Technologies Ltd.
By:
Name:
Title:
BackWeb Technologies, Inc.
By:
Name:
Title:
Accepted as of the date hereof at
........, ...............:
Goldman, Sachs & Co.
BancBoston Robertson Stephens Inc.
Lehman Brothers Inc.
Wit Capital Corporation
By:
(Goldman, Sachs & Co.)
<PAGE> 28
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares to be Maximum Option
Underwriter Purchased Exercised
- -----------
<S> <C> <C>
Goldman, Sachs & Co.
BancBoston Robertson Stephens Inc.
Lehman Brothers Inc.
Wit Capital Corporation
Total
</TABLE>
<PAGE> 1
EXHIBIT 3.1
THE COMPANIES ORDINANCE
A COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
OF
BACKWEB TECHNOLOGIES LTD.
(the "Company")
---------------------------
PRELIMINARY
1. Table "A" Excluded
The regulations contained in the second schedule to the
Companies Ordinance (New Version), 5743-1983 (the "Companies Ordinance") shall
not apply to the Company.
2. Public Company
This Company is a Public Company, as such term is defined in the
Companies Ordinance.
SHARE CAPITAL
3. Share Capital
(a) The authorized share capital of the Company is NIS
6,002,034.88, divided into 50,000,000 (fifty million) Preferred Shares of
undesignated series ("Preferred Shares"), nominal value NIS 0.03 per share (or
such other nominal value recommended by the Board of Directors), 150,000,000
(One hundred fifty million)
<PAGE> 2
Ordinary Shares, nominal value NIS 0.03 per share, and 1 (one) Series E
Preferred Share, nominal value NIS 0.01 ("Series E Preferred").
(b) The Preferred Shares may be issued from time to time as
shares of one or more series, with such distinctive serial designations as may
be stated or expressed in the resolution or resolutions providing for the
issuance of such shares from time to time adopted by the Board of Directors of
the Company. In the resolution or resolutions providing for the issuance of such
shares, the Board of Directors of the Company is expressly authorized, without
the need for shareholder action, to fix the terms and preferences of the shares
of such series, including without limitation the dividend rate, the redemption
price, the voting rights, the right or obligation of the Company to redeem the
shares, and the terms upon which the shares are convertible into or exchangeable
for shares of any other class or classes.
(c) The Ordinary Shares all rank pari passu.
(d) The Series E Preferred shall have the rights, preferences,
privileges and restrictions granted to and imposed on the Series E Preferred as
may be specifically indicated herein and/or as the context may so reasonably
require. The registered holder of the Series E Preferred Share shall be entitled
to have a number of votes equal to the number of outstanding exchangeable shares
of BackWeb Canada Inc. (the BackWeb Canada Exchangeable Shares"), a corporation
incorporated under the laws of Ontario, Canada and a subsidiary of the Company,
from time to time (excluding those owned by the Company and its affiliates which
are corporations or partnerships or other like entities), and with respect to
such votes, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of that same number of Ordinary Shares,
and shall be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the Articles of Association of the
Company, and shall be entitled to vote, together with holders of Ordinary
Shares, for the election of directors and with respect to any question upon
which holders of Ordinary Shares have the right to vote. The holder of the
Series E Preferred shall not be entitled to receive any dividends declared and
paid by the Company. On such date as no BackWeb Canada Exchangeable Shares
remain outstanding and there are no securities, or other agreements of BackWeb
Canada Inc. which could give rise to the issuance of any BackWeb Canada
Exchangeable Shares to any person (other than the Company or its affiliates
which are corporations or partnerships or other like entities), the Series E
Preferred shall be canceled and shall have no further rights. Upon liquidation,
dissolution or winding up of the Company, the holder of the Series E Preferred
shall be entitled to receive only the par value of the Series E Preferred, 0.01
NIS, subject to any prior rights of holders of Preferred Shares and in parity
with the holders of Ordinary Shares.
4. Increase of Authorized Share Capital
2
<PAGE> 3
(a) The Company may, from time to time, by Special Resolution,
whether or not all the shares then authorized have been issued, and whether or
not all the shares previously issued have been called up for payment, increase
its authorized share capital. Any such increase shall be in such amount and
shall be divided into shares of such nominal amounts, and such shares shall
confer such rights and preferences, and shall be subject to such restrictions,
as such Special Resolution shall provide.
(b) Except to the extent otherwise provided in such Special
Resolution, any new shares included in the authorized share capital so increased
shall be subject to all the provisions of these Articles which are applicable to
shares of such class included in the existing share capital without regard to
class (and, if such new shares are of the same class as a class of shares
included in the existing share capital, to all of the provisions which are
applicable to shares of such class included in the existing share capital).
5. Special Rights; Modification of Rights
(a) Subject to the provisions of the Memorandum of Association
of the Company, and without prejudice to any special rights previously conferred
upon the holders of existing shares in the Company, the Company may, from time
to time, by Special Resolution, provide for shares with such preferred or
deferred rights or rights of redemption, or other special rights and/or such
restrictions, whether in regard to dividends, voting repayment of share capital
or otherwise, as may be stipulated in such Special Resolution.
(b) (i) If at any time the share capital is divided into
different classes of shares, the rights attached to any class, unless otherwise
provided by these Articles, may be modified or abrogated by the Company, by
Special Resolution, subject to the consent in writing of the holders of
seventy-five percent (75%) of the issued shares of such class.
(ii) The provisions of these Articles relating to
General Meetings shall, mutatis mutandis, apply to any separate General Meeting
of the holders of the shares of a particular class; provided, however, that the
requisite quorum at any such separate General Meeting shall be two or more
members present in person or proxy and holding not less than seventy-five
percent (75%) of the issued shares of such class.
(iii) Unless otherwise provided by these Articles, the
enlargement of an authorized class of shares, or the issuance of additional
shares thereof out of the authorized and unissued share capital, shall not be
deemed, for purposes of this Article 5(b), to modify or abrogate the rights
attached to previously issued shares of such class or of any other class.
6. Consolidation, Subdivision, Cancellation and Reduction of Share Capital
3
<PAGE> 4
(a) The Company may, from time to time, by Special Resolution
(subject, however, to the provisions of Article 5(b) hereof and to applicable
law):
(i) consolidate and divide all or any part of its issued
or unissued authorized share capital into shares of a per share nominal value
which is larger than the per share nominal value of its existing shares;
(ii) subdivide its shares (issued or unissued) or any of
them, into shares of smaller nominal value than is fixed by the Memorandum of
Association (subject, however, to the provisions of Section 144(4) of the
Companies Ordinance);
(iii) cancel any shares which, at the date of the
adoption of such Special Resolution, have not been taken or agreed to be taken
by any person, and diminish the amount of its share capital by the amount of the
shares so cancelled; or
(iv) reduce its share capital in any manner, subject to
any consent required by law.
(b) With respect to any consolidation of issued shares of a
larger nominal value per share, and with respect to any other action which may
result in fractional shares, the Board of Directors may settle any difficulty
which may arise with regard thereto, as it deems fit, and in connection with any
such consolidation or other action which would result in fractional shares may,
without limiting its power:
(i) determine, as to the holder of the shares so
consolidated, which issued shares shall be consolidated into a share of a larger
nominal value per share;
(ii) allot, in contemplation of or subsequent to such
consolidation or other action, shares or fractional shares sufficient to
preclude or remove fractional share holdings;
(iii) redeem, in the case of redeemable preference
shares and subject to applicable law, such fractional shares sufficient to
preclude or remove fractional share holdings;
(iv) cause the transfer of fractional shares by certain
shareholders of the Company to other shareholders so as to most expediently
preclude or remove any fractional shareholdings, and cause the transferees of
such fractional shares to pay the transferors thereof the fair value thereof,
and the Board of Directors is hereby authorized to act in connection with such
transfer as agent for the transferors and transferees of any such fractional
shares, with full power of substitution, for the purposes of implementing the
provisions of this sub-Article 6(b)(iv).
4
<PAGE> 5
SHARES
7. Issuance of Share Certificates; Replacement of Lost Certificates
(a) Share certificates shall be issued under the corporate seal
of the Company and shall bear the signature of one Director, or of any other
person or persons authorized by the Board of Directors.
(b) Each member shall be entitled to one numbered certificate
for all the shares of any class registered in his name, and if the Board of
Directors so approves, to several certificates, each for one or more of such
shares. Each certificate shall specify the serial numbers of the shares
represented thereby and may also specify the amount paid up thereon.
(c) A share certificate registered in the names of two or more
persons shall be delivered to the person first named in the Register of Members
in respect of such co-ownership.
(d) A share certificate which has been defaced, lost or
destroyed may be replaced, and the Company shall issue a new certificate to
replace such defaced, lost or destroyed certificate, upon payment of such fee,
and upon the furnishing of such evidence of ownership and such indemnity, as the
Board of Directors in its discretion deems fit.
8. Registered Holder
Except as otherwise provided in these Articles, the Company
shall be entitled to treat the registered holder of each share as the absolute
owner thereof, and accordingly shall not, except as ordered by a court of
competent jurisdiction or as required by statute, be obligated to recognize any
equitable or other claim to, or interest in, such share on the part of any other
person.
9. Allotment of Shares
The unissued shares from time to time shall be under the control
of the Board of Directors. The Board of Directors shall have the power to allot,
issue or otherwise dispose of shares to such persons, on such terms and
conditions (including terms relating to calls as set forth in Article 11(f)
hereof), and either at par or at a premium, or, subject to the provisions of the
Companies Ordinance, at a discount and/or with payment of commission, and at
such times, as the Board of Directors deems fit. The
5
<PAGE> 6
Board of Directors shall also have the power to give to any person the option to
acquire from the Company any shares, either at par or at a premium, or, subject
as aforesaid, at a discount and/or with payment of commission, during such time
and for such consideration as the Board of Directors deems fit.
10. Payment in Installments
If, pursuant to the terms of the allotment or issue of any
share, all or any portion of the price thereof shall be payable in installments,
every such installment shall be paid to the Company on the due date thereof by
the then registered holder(s) of the share or the person(s) then entitled
thereto.
11. Calls on Shares
(a) The Board of Directors may, from time to time, as it in its
discretion deems fit, make calls for payment upon members in respect of any sum
which has not been paid up in respect of shares held by such members and which
is not, pursuant to the terms of allotment or issue of such shares or otherwise,
payable at a fixed time, and each member shall pay the amount of every call so
made upon him (and of each installment thereof if the same is payable in
installments) to the person(s) and at the time(s) and place(s) designated by the
Board of Directors, as any such time(s) may be thereafter extended and/or such
person(s) or place(s) changed. Unless otherwise stipulated in the resolution of
the Board of Directors (and in the notice hereafter referred to), each payment
in response to a call shall be deemed to constitute a pro rata payment on
account of all the shares in respect of which such call was made.
(b) Notice of any call for payment by a member shall be given in
writing to such member not less than fourteen (14) days prior to the time of
payment fixed in such notice, and shall specify the time and place of payment,
and the person to whom such payment is to be made. Prior to the time for any
such payment fixed in a notice of a call given to a member, the Board of
Directors may in its absolute discretion, by notice in writing to such member,
revoke such call in whole or in part, or stipulate different place of payment or
person to whom payment is to be made. In the event of a call payable in
installments, only one notice thereof need be given.
(c) If, pursuant to the terms of allotment or issue of a share
or otherwise, an amount is made payable at a fixed time (whether on account of
such share or by way of premium), such amount shall be payable at such time as
if it were payable by virtue of a call made by the Board of Directors and for
which notice was given in accordance with paragraphs (a) and (b) of this Article
11, and the provisions of these Articles with regard to calls (and the
non-payment thereof) shall be applicable to such amount (and the non-payment
thereof).
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(d) Joint holders of a share shall be jointly and severally
liable to pay all calls for payment in respect of such share and all interest
payable thereon.
(e) Any amount called for payment which is not paid when due
shall bear interest from the date fixed for payment until actual payment
thereof, at such rate (not exceeding the then prevailing debitory rate charged
by leading commercial banks in Israel) and payable at such time(s) as the Board
of Directors may prescribe.
(f) Upon the allotment of shares, the Board of Directors may
provide for differences among the allottees of such shares as to the amounts and
times for payment of calls for payment in respect of such shares.
12. Prepayment
With the approval of the Board of Directors, any member may pay
to the Company any amount not yet payable in respect of his shares, and the
Board of Directors may approve the payment by the Company of interest on any
such amount until the same would be payable if it had not been paid in advance,
at such rate and time(s) as may be approved by the Board of Directors. The Board
of Directors may at any time cause the Company to repay all or any part of the
money so advanced, without premium or penalty. Nothing in this Article 12 shall
derogate from the right of the Board of Directors to make any call for payment
before or after receipt by the Company of any such advance.
13. Forfeiture and Surrender
(a) If any member fails to pay an amount payable by virtue of a
call, or interest thereon as provided for in these Articles, on or before the
day fixed for payment of the same, the Board of Directors may, at any time after
the day fixed for such payment, so long as such amount (or any portion thereof)
or interest thereon (or any portion thereof) remains unpaid, forfeit all or any
of the shares in respect of which such payment was called. All expenses incurred
by the Company in attempting to collect any such amount or interest thereon,
including without limitation attorneys' fees and costs of legal proceedings,
shall be added to, and shall for all purposes (including the accrual of interest
thereon) constitute a part of, the amount payable to the Company in respect of
such call.
(b) Upon the adoption of a resolution as to the forfeiture of a
member's share, the Board of Directors shall cause notice thereof to be given to
such member, which notice shall state that, in the event of the failure to pay
the entire amount so payable by a date specified in the notice (which date shall
be not less than fourteen (14) days after the date such notice is given and
which may be extended by the Board of Directors), such shares shall be ipso
facto forfeited; provided, however, that prior to such date, the Board of
Directors may nullify such resolution of forfeiture, but no such
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<PAGE> 8
nullification shall stop the Board of Directors from adopting a further
resolution of forfeiture in respect of the non-payment of the same amount.
(c) Without derogating from Articles 54 and 59 hereof, whenever
shares are forfeited as herein provided, all dividends, if any, previously
declared in respect thereof and not actually paid shall be deemed to have been
forfeited at the same time.
(d) The Company, by resolution of the Board of Directors, may
accept the voluntary surrender of any share.
(e) Any share forfeited or surrendered as provided herein shall
become the property of the Company, and the same, subject to the provisions of
these Articles, may be sold, re-allotted or otherwise disposed of as the Board
of Directors deems fit.
(f) Any member whose shares have been forfeited or surrendered
shall cease to be a member in respect of the forfeited or surrendered shares,
but shall nevertheless be liable to pay, and shall immediately pay to the
Company, all calls, interest and expenses owing on or in respect of such shares
at the time of forfeiture or surrender, together with interest thereon from the
time of forfeiture or surrender until actual payment, at the rate prescribed in
Article 11(e) above. The Board of Directors in its discretion may, but shall not
be obligated to, enforce the payment of such moneys or any part thereof. In the
event of such forfeiture or surrender, the Company, by resolution of the Board
of Directors, may accelerate the date(s) of payment of any or all amounts then
owing to the Company by the member in question (but not yet due) in respect of
all shares owned by such member, solely or jointly with another.
(g) The Board of Directors may at any time, before any share so
forfeited or surrendered shall have been sold, re-allotted or otherwise disposed
of, nullify the forfeiture or surrender on such conditions as it deems fit, but
no such nullification shall stop the Board of Directors from re-exercising its
powers of forfeiture pursuant to this Article 13.
14. Lien
(a) Except to the extent the same may be waived or subordinated
in writing, the Company shall have a first and paramount lien upon all the
shares registered in the name of each member (without regard to any equitable or
other claim or interest in such shares on the part of any other person), and
upon the proceeds of the sale thereof, for his debts, liabilities and
obligations to the Company arising from any amount payable by such member in
respect of any unpaid or partly paid share, whether or not such debt, liability
or obligation has matured. Such lien shall extend to all dividends from time to
time declared or paid in respect of such share. Unless otherwise provided, the
registration by the Company of a transfer of shares shall be deemed to be a
waiver on the part of the Company of the lien (if any) existing on such shares
immediately prior to such transfer.
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<PAGE> 9
(b) The Board of Directors may cause the Company to sell a share
subject to such a lien when the debt, liability or obligation giving rise to
such lien has matured, in such manner as the Board of Directors deems fit, but
no such sale shall be made unless such debt, liability or obligation has not
been satisfied within fourteen (14) days after written notice of the intention
to sell shall have been served on such member, his executors or administrators.
(c) The net proceeds of any such sale, after payment of the
costs thereof, shall be applied in or toward satisfaction of the debts,
liabilities or obligations of such member in respect of such share (whether or
not the same have matured), and the residue (if any) shall be paid to the
member, his executors, administrators or assigns.
15. Sale after Forfeiture or Surrender or in Enforcement of Lien
Upon any sale of a share after forfeiture or surrender or for
enforcing a lien, the Board of Directors may appoint any person to execute an
instrument of transfer of the share so sold and cause the purchaser's name to be
entered in the Register of Members in respect of such share. The purchaser shall
be registered as the shareholder and shall not be bound to see to the regularity
of the sale proceedings, or to the application of the proceeds of such sale, and
after his name has been entered in the Register of Members in respect of such
share the validity of the sale shall not be impeached by any person and the
remedy of any person aggrieved by the sale shall be in damages only and against
the Company exclusively.
16. Redeemable Shares
The Company may, subject to applicable law, issue redeemable
shares and redeem the same.
17. Conversion of Shares into Stock
(a) The Board of Directors may, with the sanction of the members
previously given by Special Resolution, convert any paid-up shares into stock,
and may with like sanction reconvert any stock into paid-up shares of any
denomination.
(b) The holders of stock may transfer the same, or any part
thereof, in the same manner and subject to the same regulations as the shares
from which the stock arose might have been transferred prior to conversion, or
as near thereto as circumstances admit; provided, however, that the Board of
Directors may from time to time fix the minimum amount of stock so transferable,
and restrict or forbid the transfer of fractions
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<PAGE> 10
of such minimum, but the minimum shall not exceed the nominal value of each of
the shares from which such stock arose.
(c) The holders of stock shall, in accordance with the amount of
stock held by them, have the same rights and privileges as regards the minimum
amount of stock so transferable, and restrict or forbid the transfer of
fractions of such minimum, but the minimum shall not exceed the nominal value of
each of the shares from which such stock arose.
(d) The holders of stock shall, in accordance with the amount of
stock held by them, have the same rights and privileges as regards dividends,
voting at meetings of the Company and other matters as if they held the shares
from which such stock arose, but no such right or privilege except participation
in the dividends and profits of the Company shall be conferred by any such
aliquot part of such stock as would not, if existing in shares, have conferred
that right or privilege.
(e) Such of the Articles of the Company as are applicable to
paid-up shares shall apply to stock, and the words "share" and "shareholder" (or
"member") therein shall include "stock" and "stockholder."
TRANSFER OF SHARES
18. Registration of Transfer
(a) No transfer of shares shall be registered unless a proper
writing or instrument of transfer (in any customary form or any other form
satisfactory to the Board of Directors) has been submitted to the Company (or
its transfer agent), together with the share certificate(s) and such other
evidence of title as the Board of Directors may reasonably require. Until the
transferee has been registered in the Register of Members in respect of the
shares so transferred, the Company may continue to regard the transferor as the
owner thereof.
(b) The Board of Directors may, in its discretion to the extent
it deems necessary, close the Register of Members for registrations of transfers
of shares during any year for a period determined by the Board of Directors, and
no registrations of transfers of shares shall be made by the Company during any
such period during which the Register of Members is so closed.
19. Record Date for Notices of General Meetings
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Notwithstanding any other contrary provision of these Articles,
the Board of Directors may fix a date, not exceeding ninety (90) days prior to
the date of any General Meeting, as the date as of which shareholders entitled
to notice of and to vote at such meetings shall be determined, and all persons
who were holders of record of voting shares on such date and no others shall be
entitled to notice of and to vote at such meeting.
TRANSMISSION OF SHARES
20. Decedent's Shares
(a) In case of a share registered in the names of two or more
holders, the Company may recognize the survivor(s) as the sole owner(s) thereof
unless and until the provisions of Article 21(b) have been effectively invoked.
(b) Any person becoming entitled to a share in consequence of
the death of any person, upon producing evidence of the grant of probate or
letters of administration or declaration of succession (or such other evidence
as the Board of Directors may reasonably deem sufficient), shall be registered
as a member in respect of such share, or may, subject to the regulations as to
transfer contained in these Articles, transfer such share.
21. Receivers and Liquidators
(a) The Company may recognize any receiver, liquidator or
similar official appointed to wind-up, dissolve or otherwise liquidate a
corporate member, and a trustee, manager, receiver, liquidator or similar
official appointed in bankruptcy or in connection with the reorganization of, or
similar proceeding with respect to, a member or its properties, as being
entitled to the shares registered in the name of such member.
(b) Such receiver, liquidator or similar official appointed to
wind-up, dissolve or otherwise liquidate a corporate member and such trustee,
manager, receiver, liquidator, or similar official appointed in bankruptcy or in
connection with the reorganization of, or similar proceedings with respect to, a
member or its properties, upon producing such evidence as the Board of Directors
may deem sufficient to his authority to act in such capacity or under this
Article, shall with the consent of the Board of Directors (which the Board of
Directors may grant or refuse in its absolute discretion), be registered as a
member in respect of such shares, or may, subject to the regulations as to
transfer contained in these Articles, transfer such shares.
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<PAGE> 12
BUSINESS COMBINATIONS
22. Business Combinations with Interested Shareholders
(a) Notwithstanding any other provision of these Articles, the
Company shall not engage in any business combination with any interested
shareholder for a period of three years following the time that such shareholder
became an interested shareholder, unless:
(1) prior to such time the Board of Directors of the
Company approved either the business combination or the transaction which
resulted in the shareholder becoming an interested shareholder, or
(2) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 75% of the voting shares of the Company outstanding
at the time the transaction commenced.
(b) As used in this Article only, the term:
(1) "affiliate" means a person that directly, or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with another person.
(2) "associate," when used to indicate a relationship
with any person, means (i) any corporation, partnership, unincorporated
association or other entity of which such person is a director, officer or
partner or is, directly or indirectly, the owner of 20% or more of any class of
voting share, (ii) any trust or other estate in which such person has at least a
20% beneficial interest or as to which such person serves as trustee or in a
similar fiduciary capacity, and (iii) any relative or spouse of such person, or
any relative of such spouse, who has the same residence as such person.
(3) "business combination," when used in reference to
the Company and any interested shareholder of the Company, means:
(i) any merger or consolidation of the Company
or any direct or indirect majority owned subsidiary of the Company with (A) an
interested shareholder, or (B) with any other corporation, partnership,
unincorporated association or other entity if the merger or consolidation is
caused by an interested shareholder and as a
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result of such merger or consolidation subsection (a) of this Article is not
applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in one transaction or a series of
transactions), except proportionately as a shareholder of such Company to or
with the interested shareholder, whether as part of a dissolution or otherwise,
of assets of the Company or of any direct or indirect majority owned subsidiary
of the Company, which assets have an aggregate market value equal to 10% or more
of either the aggregate market value of all of the assets of the Company
determined on a consolidated basis or the aggregate market value of all of the
outstanding shares of the Company;
(iii) any transaction which results in the
issuance or transfer by the Company or by any direct or indirect majority-owned
subsidiary of the Company of any shares of the Company or of such subsidiary to
the interested shareholder, except (A) pursuant to the exercise, exchange or
conversion of securities exercisable for or convertible into shares of the
Company or any such subsidiary, which securities were outstanding prior to the
time that the interested shareholder became such, (B) pursuant to a dividend or
distribution paid or made, or the exercise, exchange or conversion of securities
exercisable for, exchangeable for or convertible into shares of the Company or
any such subsidiary, which security is distributed pro rata to all holders of a
class or series of shares of the Company subsequent to the time the interested
shareholder became such, (C) pursuant to an exchange offer by the Company to
purchase shares made on the same terms to all holders of said shares or, (D) any
issuance or transfer of shares by the Company; provided, that in no case under
(B)-(D) above shall there be an increase in the interested shareholder's
proportionate share of the shares of any class or series of the Company or of
the voting shares of the Company;
(iv) any transaction involving the Company or
any direct or indirect majority owned subsidiary of the Company which has the
effect directly or indirectly of increasing the proportionate share of the
shares of any class or series or securities convertible into the shares of any
class or series of the Company or of any such subsidiary which is owned by the
interested shareholder except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or redemption of any
shares not caused, directly or indirectly, by the interested shareholder; or
(v) any receipt by the interested shareholder of
the benefit, directly or indirectly (except proportionately as a shareholder of
such Company), of any loans, advances, guarantees, pledges or any other
financial benefits (other than those expressly permitted in subparagraphs
(i)-(iv) above) provided by or through the Company or any direct or indirect
majority owned subsidiary.
(4) "control" including the term "controlling,"
"controlled by" and "under common control with," means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a person, whether
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through the ownership of voting shares, by contract or otherwise. A person who
is the owner of 20% or more of the outstanding voting shares of any corporation,
partnership, unincorporated association or other entity shall be presumed to
have control of such entity. Notwithstanding the foregoing, a presumption of
control shall not apply where such person holds voting shares in good faith and
not for the purpose of circumventing this Article as an agent, bank, broker,
nominee, custodian or trustee for one or more owners who do not individually or
as a group have control of such entity.
(5) "interested shareholder" means any person (other
than the Company and any direct or indirect majority owned subsidiary of the
Company) that (i) is the owner of 15% or more of the outstanding voting shares
of the Company, or (ii) is an affiliate or associate of the Company and was the
owner of 15% or more of the outstanding voting shares of the Company at any time
within the three year period immediately prior to that date on which it is
sought to be determined whether such person is an interested shareholder and the
affiliates and associates of such person. For the purpose of determining whether
a person is an interested shareholder, the voting shares of the Company deemed
to be outstanding shall include shares deemed to be owned by the person through
application of paragraph (8) of this subsection but shall not include any other
unissued shares of the Company which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(6) "person" means any individual, corporation,
partnership, unincorporated association or other entity.
(7) "share" means with respect to any corporation shares
of its capital and with respect to any other entity any equity interest.
(8) "voting shares" means with respect to any
corporation shares of any class or series entitled to vote generally in the
election of directors and, with respect to any entity that is not a corporation,
any equity interest entitled to vote generally in the election of the governing
body of such entity.
(9) "owner," including the terms "own" and "owned," when
used with respect to any share, means a person that individually or with or
through any of its affiliates or associates:
(i) beneficially owns such share, directly or
indirectly: or
(ii) has (A) the right to acquire such share
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, warrants or options, or otherwise; provided,
however, that a person shall not be deemed the owner of share tendered pursuant
to a tender or exchange; or (B) the right to vote such share pursuant to any
agreement, arrangement or understanding; provided, however, that a
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person shall not be deemed the owner of any share because of such person's right
to vote such share if the agreement, arrangement, or understanding to vote such
share arises solely from a recoverable proxy or consent given in response to a
proxy or consent solicitation made to 10 or more persons: or
(iii) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except voting
pursuant to a revocable proxy or consent as described in item (B) of clause (ii)
of this paragraph) or disposing of such share with any other person that
beneficially owns or whose affiliates or associates beneficially own, directly
or indirectly, such share.
GENERAL MEETINGS
23. Annual General Meeting
An Annual General Meeting shall be held once in every calendar
year at such time (within a period of not more than fifteen (15) months after
the last preceding Annual General Meeting) and at such place, either within or
out of the State of Israel, as may be determined by the Board of Directors.
24. Extraordinary General Meetings
All General Meetings other than Annual General Meetings shall be
called "Extraordinary General Meetings." The Board of Directors may, whenever it
thinks fit, convene an Extraordinary General Meeting, at such time and place,
within or out of the State of Israel, as may be determined by the Board of
Directors, and shall be obliged to do so upon a request in writing in accordance
with Section 109 of the Companies Ordinance.
25. Notice of General Meetings; Omission to Give Notice
(a) Not less than seven (7) days' prior notice shall be given of
every General Meeting; provided, however, that a Special Resolution shall not be
passed unless at least twenty-one (21) days' prior notice shall have been given
of the meeting at which it is proposed to pass the same. Each such notice shall
specify the place and the day and hour of the meeting and the general nature of
each item to be acted upon, such notice to be given to all members who would be
entitled to attend and vote at such meeting. Anything herein to the contrary
notwithstanding, with the consent of all members entitled to vote thereon a
resolution may be proposed and passed at such meeting although a lesser notice
than prescribed above has been given.
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(b) The accidental omission to give notice of a meeting to any
member, or the non-receipt of notice sent to such member, shall not invalidate
the proceedings at such meeting.
PROCEEDINGS AT GENERAL MEETINGS
26. Quorum
(a) No business shall be transacted at a General Meeting, or at
any adjournment thereof, unless the quorum required under these Articles for
such General Meeting or such adjourned meeting, as the case may be, is present
when the meeting proceeds to business.
(b) In the absence of contrary provisions in these Articles, two
or more members (not in default in payment of any sum referred to in Article
32(a) hereof), present in person or by proxy and holding shares conferring in
the aggregate more than fifty percent of the voting power of the Company, shall
constitute a quorum of General Meetings.
(c) If within half an hour from the time appointed for the
meeting a quorum is not present, the meeting, if convened upon request under
Section 109 of the Companies Ordinance, shall be dissolved, but in any other
case it shall be adjourned to the same day in the next week, at the same time
and place, or to such day and at such time and place as the Chairman 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. No business shall
be transacted at any adjourned meeting except business which might lawfully have
been transacted at the meeting as originally called. At such adjourned meeting
(other than an adjourned separate meeting of a particular class of shares as
referred to in Article 5 of these Articles), any two (2) members (not in default
as aforesaid) present in person or by proxy shall constitute a quorum.
27. Chairman
The Chairman, if any, of the Board of Directors shall preside as
Chairman at every General Meeting of the Company. If at any meeting the Chairman
is not present within fifteen (15) minutes after the time fixed for holding the
meeting or is unwilling to act as Chairman, the Co-Chairman shall preside at the
meeting. If at any such meeting both the Chairman and the Co-Chairman are not
present or are unwilling to act as Chairman, members present shall choose
someone of their number to be Chairman. The office of Chairman shall not, by
itself, entitle the holder thereof to vote at any General Meeting nor shall it
entitle such holder to a second or casting vote (without derogating,
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however from the rights of such Chairman to vote as a shareholder or proxy of a
shareholder if, in fact, he is also a shareholder or such proxy).
28. Adoption of Resolutions at General Meetings
(a) (i) An Ordinary Resolution shall 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.
(ii) A Special or Extraordinary Resolution shall be
deemed adopted if approved by the holders of not less then seventy-five per cent
(75%) of the voting power represented at the meeting in person or by proxy and
voting thereon.
(b) Every question submitted to a General Meeting shall be
decided by a show of hands, but if a written ballot is demanded by any member
present in person or by proxy and entitled to vote at the meeting, the same
shall be decided by such ballot. A written ballot may be demanded before the
proposed resolution is voted upon or immediately after the declaration by the
Chairman of the results of the vote by a show of hands. If a vote by written
ballot is taken after such declaration, the results of the vote by a show of
hands shall be of no effect, and the proposed resolution shall be decided by
such written ballot. The demand for a written ballot may be withdrawn at any
time before the same is conducted, in which event another member may then demand
such written ballot. The demand for a written ballot shall not prevent the
continuance of the meeting for the transaction of business other than the
question on which the written ballot has been demanded.
(c) A declaration by the Chairman of the meeting that a
resolution has been carried unanimously, or carried by a particular majority, or
lost, and an entry to that effect in the minute book of the Company, shall be
conclusive evidence of the fact without proof of the number or proportion of the
votes recorded in favor of or against such resolution.
29. Resolutions in Writing
A resolution in writing signed by all members of the Company
then entitled to attend and vote at General Meetings or to which all such
members have given their written consent (by letter, telegram, telex, facsimile
or otherwise) shall be deemed to have been unanimously adopted by a General
Meeting duly convened and held.
30. Power to Adjourn
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The Chairman of a General Meeting at which a quorum is present
may, with the consent of the holders of a majority of the voting power
represented in person or by proxy and voting on the question of adjournment (and
shall if so directed by the meeting), adjourn the meeting from time to time and
from place to place, but no business shall be transacted at any adjourned
meeting except business which might lawfully have been transacted at the meeting
as originally called.
31. Voting Power
Subject to the provisions of Articles 3(b) and 32(a) and subject
to any other provision conferring special rights as to voting, or restricting
the right to vote, every member shall have one vote for each share held by him
of record, on every resolution, without regard to whether the vote thereon is
conducted by a show of hands, by written ballot or by any other means.
32. Voting Rights
(a) No member shall be entitled to vote at any General Meeting
(or be counted as a part of the quorum) unless all calls then payable by him in
respect of his shares in the Company have been paid, but this Article 32(a)
shall not apply to separate General Meetings of the holders of a particular
class of shares pursuant to Article 5(b).
(b) A company or other corporate body being a member of the
Company may duly authorize any person to be its representative at any meeting of
the Company or to execute or deliver a proxy on its behalf. Any person so
authorized shall be entitled to exercise on behalf of such member all the power
which the latter could have exercised if it were an individual shareholder. Upon
the request of the Chairman of the meeting, written evidence of such
authorization (in form acceptable to the Chairman) shall be delivered to him.
(c) Any member entitled to vote may vote either in person or by
proxy (who need not be a member of the Company) or, if the member is a company
or other corporate body, by a representative authorized pursuant to Article
32(b).
(d) If two or more persons are registered as joint holders of
any shares, the vote of the senior who tenders a vote, in person or by proxy,
shall be accepted to the exclusion of the vote(s) of the other joint holder(s).
For the purpose of this Article 32(d), seniority shall be determined by the
order of registration of the joint holders in the Register of Members.
PROXIES
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33. Instrument of Appointment
(a) An instrument appointing a proxy shall be in writing and
shall be substantially in the following form:
"I_______________________ of ______________________________________
(Name of Shareholder) (Address of Shareholder)
being a member of BackWeb Technologies Ltd. hereby appoint
_______________________ of _____________________________
(Name of Proxy) (Address of Proxy)
as my Proxy to vote for me and on my behalf at the General Meeting of
the Company to be held on the _________ day of ___________, ________ and
at any adjournment(s) thereof.
Signed this _____________ day of _______________, ____________.
_____________________________
(Signature of Appointor)"
or in any usual or common form or in such other form as may be approved by the
Board of Directors. Such proxy shall be duly signed by the appointor or such
person's duly authorized attorney or, if such appointor is a company or other
corporate body, under its common seal or stamp or the hand of its duly
authorized agent(s) or attorney(s).
(b) The instrument appointing a proxy (and the power of attorney
or other authority, if any, under which such instrument has been signed) shall
either be delivered to the Company (at its registered office, at its principal
place of business, at the offices of its registrar or transfer agent, or at such
place as the Board of Directors may specify) not less than 24 hours before the
time fixed for the meeting at which the person named in the instrument proposes
to vote, or presented to the Chairman at such meeting.
34. Effect of Death of Appointor or Transfer of Share and/or Revocation of
Appointment
(a) A vote cast in accordance with an instrument appointing a
proxy shall be valid notwithstanding the prior death or bankruptcy of the
appointing member (or of his attorney-in-fact, if any, who signed such
instrument), or the transfer of the share in
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respect of which the vote is cast, unless written notice of such matters shall
have been received by the Company or by the Chairman of such meeting prior to
such vote being cast.
(b) An instrument appointing a proxy shall be deemed revoked (i)
upon receipt by the Company or the Chairman, subsequent to receipt by the
Company of such instrument, of written notice signed by the person signing such
instrument or by the member appointing such proxy cancelling the appointment
thereunder (or the authority pursuant to which such instrument was signed) or of
an instrument appointing a different proxy (and such other documents, if any,
required under Article 33(b) for such new appointment), provided such notice of
cancellation or instrument appointing a different proxy were so received at the
place and within the time for delivery of the instrument revoked thereby as
referred to in Article 33(b) hereof, or (ii) if the appointing member is present
in person at the meeting for which such instrument of proxy was delivered, upon
receipt by the Chairman of such meeting of written notice from such member of
the revocation of such appointment, or if and when such member votes at such
meeting. A vote cast in accordance with an instrument appointing a proxy shall
be valid notwithstanding the revocation or purported cancellation of the
appointment, or the presence in person or vote of the appointing member at a
meeting for which it was rendered, unless such instrument of appointment was
deemed revoked in accordance with the foregoing provisions of this Article 34(b)
at or prior to the time such vote was cast.
BOARD OF DIRECTORS
35. Powers of Board of Directors
(a) In General
The management of the business of the Company shall be vested in
the Board of Directors, which may exercise all such powers and do all such acts
and things as the Company is authorized to exercise and do, and are not hereby
or by law required to be exercised or done by the Company by action of its
members at a General Meeting. The authority conferred on the Board of Directors
by this Article 35 shall be subject to the provisions of the Companies
Ordinance, these Articles and any regulation or resolution consistent with these
Articles adopted from time to time by the Company by action of its members at a
General Meeting; provided, however, that no such regulation or resolution shall
invalidate any prior act done by or pursuant to a decision of the Board of
Directors which would have been valid if such regulation or resolution had not
been adopted.
(b) Borrowing Power
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The Board of Directors may from time to time, at its discretion,
cause the Company to borrow or secure the payment of any sum or sums of money
for the purposes of the Company, and may secure or provide for the repayment of
such sum or sums in such manner, at such times and upon such terms and
conditions as it deems fit, and, in particular, by the issuance of bonds,
perpetual or redeemable debentures, debenture stock, or any mortgages, charges
or other securities on the undertaking or the whole or any part of the property
of the Company, both present and future, including its uncalled or called but
unpaid capital for the time being.
(c) Reserves
The Board of Directors may, from time to time, set aside any
amount(s) out of the profits of the Company as a reserve or reserves for any
purpose(s) which the Board of Directors, in its absolute discretion, shall deem
fit, and may invest any sum so set aside in any manner and from time to time
deal with and vary such investments and dispose of all or any part thereof, and
employ any such reserve or any part thereof in the business of the Company
without being bound to keep the same separate from other assets of the Company,
and may subdivide or redesignate any reserve or cancel the same or apply the
funds therein for another purpose, all as the Board of Directors may from time
to time think fit.
36. Exercise of Powers of Board of Directors
(a) A meeting of the Board of Directors at which a quorum is
present shall be competent to exercise all the authorities, powers and
discretion vested in or exercisable by the Board of Directors.
(b) A resolution proposed at any meeting of the Board of
Directors shall be deemed adopted if approved by a majority of the Directors
present when such resolution is put to a vote and voting thereon.
(c) A resolution in writing signed by all the members of the
Board of Directors then in office and lawfully entitled to vote thereon or to
which all such Directors have given their written consent (by letter, telegram,
telex, facsimile, electronic mail or otherwise) shall be deemed to have been
unanimously adopted by a meeting of the Board of Directors duly convened and
held.
37. Delegation of Powers
(a) The Board of Directors may, subject to the provisions of the
Companies Ordinance, delegate any or all of its powers to committees, each
consisting of one or more persons (who are Directors), and it may from time to
time revoke such delegation or alter the composition of any such committee. Any
Committee so formed
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(in these Articles referred to as a "Committee of the Board of Directors"),
shall, in the exercise of the powers so delegated, conform to any regulations
imposed on it by the Board of Directors. The meetings and proceedings of any
such Committee of the Board of Directors shall, mutatis mutandis, be governed by
the provisions contained in these Articles for regulating the meetings of the
Board of Directors, so far as not superseded by any regulations adopted by the
Board of Directors under this Article. Unless otherwise expressly provided by
the Board of Directors in delegating powers to a Committee of the Board of
Directors, such Committee shall not be empowered to further delegate such
powers.
(b) Without derogating from the provisions of Article 50, the
Board of Directors may from time to time appoint a Secretary to the Company, as
well as officers, agents, employees and independent contractors, as the Board of
Directors deems fit, and may terminate the service of any such person. The Board
of Directors may, subject to the provisions of the Companies Ordinance,
determine the powers and duties, as well as the salaries and emoluments, of all
such persons, and may require security in such cases and in such amounts as it
deems fit.
(c) The Board of Directors may from time to time, by power of
attorney or otherwise, appoint any person, company, firm or body of persons to
be the attorney or attorneys of the Company at law or in fact for such purpose
(s) and with such powers, authorities and discretion, and for such period and
subject to such conditions, as it deems fit, and any such power of attorney or
other appointment may contain such provisions for the protection and convenience
of persons dealing with any such attorney as the Board of Directors deems fit,
and may also authorize any such attorney to delegate all or any of the powers,
authorities and discretions vested in him.
38. Number of Directors
The Board of Directors shall consist of five (5) directors, or
such other number which is no less than four (4) and no more than seven (7), as
may be determined from time to time by an ordinary resolutions of the
shareholders; provided, that the number of directors may be increased from time
to time by resolution adopted by the affirmative vote of a majority of the
Continuing Directors (as defined below). The directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors.
39. Election and Removal of Directors
(a) Subject to the provisions of Article 42, following the
closing of the Company's initial public offering, the Directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of
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Directors. At the first annual meeting of shareholders following the closing of
the Company's initial public offering, the term of office of Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of shareholders following the closing of the
Company's initial public offering, the term of office of Class II directors
shall expire and Class II directors shall be elected for a full term of three
years. At the third annual meeting of shareholders following the closing of the
Company's initial public offering, the term of office of Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of shareholders, Directors shall be
elected for a full term of three years to succeed the Directors of the class
whose terms expire at such annual meeting, subject to the provisions of Article
42. A director shall hold office until the annual meeting for the year in which
his or her term expires and until his or her successor shall be elected and
qualified. If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible. The holders of a majority of the voting
power represented at a General Meeting in person or by proxy and voting thereon
at such Meeting shall be entitled to remove any Director(s) from office.
(b) Notwithstanding the foregoing nor and the provisions of
Article 41, whenever the holders of any one or more classes or series of shares
issued by the Corporation Company throughout the Articles shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of shareholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms so provided
under the Articles of Association applicable at that time thereto such class or
series, and such directors so elected shall not be divided into classes pursuant
to this Article, and the number of such directors shall not be counted in
determining the maximum number of directors permitted under the foregoing
provision of this Article, in each case unless expressly provided by such terms.
40. Qualification of Directors
No person shall be disqualified to serve as a Director by reason
of his not holding shares in the Company or by reason of his having served as a
Director in the past.
41. Continuing Directors in the Event of Vacancies
Any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of the class, but in no case will a decrease in
the number of directors shorten the term of any incumbent director. Any vacancy
on the Board of Directors for any reason, and any directorships resulting from
any increase in the number of directors of the Board of Directors, may be filled
by a decision of the majority of the Board of Directors then in office, even
where less than a quorum, and any directors so chosen shall hold office until
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the next election of the class for which such directors shall have been chosen
and until their successors shall be elected and qualified.
42. Vacation of Office
(a) The office of a Director shall be vacated, ipso facto, upon
his death, or if he be found lunatic or become of unsound mind, or if he becomes
bankrupt, or if the Director is a company upon its winding-up.
(b) The office of a Director shall be vacated by his written
resignation. Such resignation shall become effective on the date fixed therein,
or upon the delivery thereof to the Company, whichever is later.
43. Remuneration of Directors
A Director shall be paid remuneration by the Company for his
services as Director to the extent such remuneration shall have been approved by
a General Meeting of the Company and in accordance with the Companies Ordinance.
44. Conflict of Interests
Subject to the provisions of the Companies Ordinance, no
Director shall be disqualified by virtue of his office from holding any office
or place of profit under the Company or under any company in which the Company
shall be a shareholder or otherwise interested, or from contracting with the
Company as vendor, purchaser or otherwise, nor shall any such contract, or any
contract or arrangement entered into by or on behalf of the Company in which any
Director shall be in any way interested, be avoided, nor, other than as required
under the Companies Ordinance, shall any Director be liable to account to the
Company for any profit arising from any such office or place of profit or
realized by any such contract or arrangement by reason only of such Director's
holding that office or of the fiduciary relations thereby established, but the
nature of his interest, as well as any material fact or document, must be
disclosed by him at the meeting of the Board of Directors at which the contract
or arrangement is first considered, if his interest then exists, or, in any
other case, no later than at the first meeting of the Board of Directors after
the acquisition of his interest.
45. Alternate Directors
(a) A Director may, by written notice to the Company given in
the manner set forth in Article 45(b) below, appoint any individual (whether or
not such person is
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then a member of the Board of Directors) as an alternate for himself (in these
Articles referred to as "Alternate Director"), remove such Alternate Director
and appoint another Alternate Director in place of any Alternate Director
appointed by him whose office has been vacated for any reason whatsoever. Unless
the appointing Director, by the instrument appointing an Alternative Director or
by written notice to the Company, limits such appointment to a specified period
of time or restricts it to a specified meeting or action of the Board of
Directors, or otherwise restricts its scope, the appointment shall be for all
purposes, and for a period of time concurrent with the term of the appointing
Director.
(b) Any notice to the Company pursuant to Article 45(a) shall be
given in person to, or by sending the same by mail to the attention of, the
General Manager of the Company at the principal office of the Company, to such
other persons or place as the Board of Directors shall have determined for such
purpose, and shall become effective on the date fixed therein or upon the
receipt thereof by the Company, whichever is later.
(c) An Alternate Director shall have all the rights and
obligations of the Director who appointed him; provided, however, that (i) he
may not in turn appoint an alternate for himself (unless the instrument
appointing him otherwise expressly provides), (ii) an Alternate Director shall
have no standing at any meeting of the Board of Directors or any committee
thereof while the Director who appointed him is present, and (iii) the Alternate
Director is not entitled to remuneration.
(d) Any individual, whether or not he be a member of the Board
of Directors, may act as an Alternate Director. One person may act as Alternate
Director for several Directors, and in such event he shall have a number of
votes (and shall be treated as the number of persons for purposes of
establishing a quorum) equal to the number of Directors for whom he acts as
Alternative Director. If an Alternate Director is also a Director in his own
right, his rights as an Alternate Director shall be in addition to his rights as
a Director.
(e) An Alternate Director shall alone be responsible for his own
acts and defaults, and he shall not be deemed the agent of the Director(s) who
appointed him.
(f) The office of an Alternate Director shall be vacated under
the circumstances, mutatis mutandis, set forth in Article 42, and such office
shall ipso facto be vacated if the Director who appointed such Alternate
Director ceases to be a Director.
PROCEEDINGS OF THE BOARD OF DIRECTORS
46. Meetings
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(a) The Board of Directors may meet and adjourn its meeting and
otherwise regulate such meetings and proceedings as the Directors think fit.
(b) Any Director may at any time, and the Secretary, upon the
request of such Director, shall, convene a meeting of the Board of Directors,
but not less than seven (7) days' notice shall be given of any meeting so
convened. Notice of any such meeting may be given orally, by telephone, in
writing or by mail, electronic mail, telex, cablegram or facsimile.
Notwithstanding anything to the contrary herein, failure to deliver notice to a
Director of any such meeting in the manner required hereby may be waived by such
Director, and a meeting shall be deemed to have been duly convened
notwithstanding such defective notice if such failure or defect is waived prior
to action being taken at such meeting by all Directors entitled to participate
at such meeting to whom notice was not duly given as aforesaid.
47. Quorum
Until otherwise unanimously decided by the Board of Directors, a
quorum at a meeting of the Board of Directors shall be constituted by the
presence in person or by telephone conference of a majority of the Directors
then in office who are lawfully entitled to participate in the meeting. No
business shall be transacted at a meeting of the Board of Directors unless the
requisite quorum is present (in person or by telephone conference) when the
meeting proceeds to business.
48. Chairman of the Board of Directors
The Board of Directors may from time to time elect one of its
members to be the Chairman of the Board of Directors and another of its members
to be the Co-Chairman, remove such Chairman and Co-Chairman from office, and
appoint others in their place. The Chairman of the Board of Directors shall
preside at every meeting of the Board of Directors, but if there is no such
Chairman, or if at any meeting he is not present within fifteen (15) minutes of
the time fixed for the meeting or if he is unwilling to take the chair, the
Co-Chairman shall preside. If both the Chairman and the Co-Chairman are not
present or are unwilling to take the chair, the Directors present shall choose
one of their number to be the chairman of such meeting.
49. Validity of Acts Despite Defects
All acts done bona fide at any meeting of the Board of
Directors, or of a Committee of the Board of Directors, or by any person (s)
acting as Director (s), shall, notwithstanding that it may afterwards be
discovered that there was some defect in the appointment of the participants in
such meetings or any of them or any person(s) acting as
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aforesaid, or that they or any of them were disqualified, be as valid as if
there were no such defect of disqualification.
CHIEF EXECUTIVE OFFICER AND PRESIDENT
50. Chief Executive Officer and President
The Board of Directors may from time to time appoint one or more
persons, whether or not Directors, as Chief Executive Officer or Officers,
General Manager or Managers, or President of the Company and may confer upon
such person(s), and from time to time modify or revoke, such title(s) and such
duties and authorities of the Board of Directors as the Board of Directors may
deem fit, subject to such limitations and restrictions as the Board of Directors
may from time to time prescribe. Unless otherwise determined by the Board of
Directors, the Chief Executive Officer shall have authority with respect to the
management of the Company in the ordinary course of business. Such appointment
(s) may be either for a fixed term or without any limitation of time, and the
Board of Directors may from time to time (subject to the provisions of the
Companies Ordinance and of any contract between any such person and the Company)
fix his or their salaries and emoluments, remove or dismiss him or them from
office and appoint another or others in his or their place or places.
MINUTES
51. Minutes
(a) Minutes of each General Meeting and of each meeting of the
Board of Directors shall be recorded and duly entered in books provided for that
purpose, and shall be held by the Company at its registered office or such other
place as shall have been determined by the Board of Directors. Such minutes
shall, in all events, set forth the names of the persons present at the meeting
and all resolutions adopted thereat.
(b) Any minutes as aforesaid, if purporting to be signed by the
chairman of the meeting or by the chairman of the next succeeding meeting, shall
constitute prima facie evidence of the matters recorded therein.
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DIVIDENDS
52. Declaration of Dividends
The Board of Directors may from time to time declare, and cause
the Company to pay, such interim dividend as may appear to the Board of
Directors to be justified by the profits of the Company. The final dividend in
respect of any fiscal period shall be proposed by the Board of Directors and
shall be payable only after the same has been approved by Ordinary Resolution of
the Company, but no such resolution shall provide for the payment of an amount
exceeding that proposed by the Board of Directors for the payment of such final
dividend, and no such resolution or any failure to approve a final dividend
shall affect any interim dividend previously declared and paid. The Board of
Directors shall determine the time for payment of such dividends, both interim
and final, and the record date for determining the shareholders entitled
thereto.
53. Funds Available for Payment of Dividends
No dividend shall be paid otherwise than out of the profits of
the Company.
54. Amount Payable by Way of Dividends
(a) Subject to the rights of the holders of shares as to
dividends, any dividend paid by the Company shall be allocated among the members
entitled thereto in proportion to the sums paid up or credited as paid up on
account of the nominal value of their respective holdings of the shares in
respect of which such dividend is being paid, without taking into account the
premium paid up for the shares. The amount paid up on account of a share which
has not yet been called for payment or fallen due for payment and upon which the
Company pays interest to the shareholder shall not be deemed, for the purposes
of this Article, to be a sum paid on account of the share.
(b) Whenever the rights attached to any shares or the terms of
issue of the share do not provide otherwise, shares which are fully paid up or
which are credited as fully or partly paid within any period in respect of which
dividends are paid shall entitle the holders thereof to a dividend in proportion
to the amount paid up or credited as paid up in respect of the nominal value of
such shares and to the date of payment thereof (pro rata temporis).
55. Interest
No dividend shall carry interest as against the Company.
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56. Payment in Specie
Upon the recommendation of the Board of Directors approved by
Ordinary Resolution of the Company, the Company (i) may cause any moneys,
investments, or other assets forming part of the undivided profits of the
Company, standing to the credit of a reserve fund, to the credit of a reserve
fund for the redemption of capital or in the hands of the Company and available
for dividends, or representing premiums received on the issuance of shares and
standing to the credit of the share premium account, to be capitalized and
distributed among such of the shareholders as would be entitled to receive the
same if distributed by way of dividend and in the same proportion, on the
footing that they become entitled thereto as capital, or may cause any part of
such capitalized fund to be applied on behalf of such shareholders in paying up
in full, either at par or at such premium as the resolution may provide, any
unissued shares or debentures or debenture stock of the Company which shall be
distributed accordingly, in payment, in full or in part, of the uncalled
liability on any issued shares or debentures or debenture stock; and (ii) may
cause such distribution or payment to be accepted by such shareholders in full
satisfaction of their interest in the said capitalized sum.
57. Implementation of Powers under Article 56
For the purpose of giving full effect to any resolution under
Article 56, and without derogating from the provisions of Article 6(b) hereof,
the Board of Directors may settle any difficulty which may arise in regard to
the distribution as it thinks expedient, and, in particular, may issued
fractional certificates, and may fix the value for distribution of any specific
assets, and may determine that cash payments shall be made to any member upon
the footing of the value so fixed, or that fractions of less value than the
nominal value of one share may be disregarded in order to adjust the right of
all parties, and may vest any such cash, shares, debentures, debenture stock or
specific assets in trustees upon such trusts for the persons entitled to the
dividend or capitalized fund as may seem expedient to the Board of Directors.
Where requisite, a proper contract shall be filed in accordance with Section 130
of the Companies Ordinance, and the Board of Directors may appoint any person to
sign such contract on behalf of the persons entitled to the dividend or
capitalized fund.
58. Dividends on Unpaid Shares
Without derogating from Article 54 hereof, the Board of
Directors may give an instruction which shall prevent the distribution of a
dividend to the holders of shares whose full nominal amount has not been paid
up.
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59. Retention of Dividends
(a) The Board of Directors may retain any dividend or other
moneys payable or property distributable in respect of a share on which the
Company has a lien, and may apply the same in or toward satisfaction of the
debts, liabilities or obligations in respect of which the lien exists.
(b) The Board of Directors may retain any dividend or other
moneys payable or property distributable in respect of a share in respect of
which any person is, under Articles 20 or 21, entitled to become a member, or
which any person is, under said Articles, entitled to transfer, until such
person shall become a member in respect of such share or shall transfer the
same.
60. Unclaimed Dividends
All unclaimed dividends or other moneys payable in respect of a
share may be invested or otherwise made use of by the Board of Directors for the
benefit of the Company until claimed. The payment by the Directors of any
unclaimed dividend or such other moneys into a separate account shall not
constitute the Company a trustee in respect thereof. The principal (and only the
principal) of an unclaimed dividend or such other moneys shall be, if claimed,
paid to a person entitled thereto.
61. Mechanics of Payment
Any dividend or other moneys payable in cash in respect of a
share may be paid by check or warrant sent through the post to, or left at, the
registered address of the person entitled thereto or by transfer to a bank
account specified by such person (or, if two or more persons are registered as
joint holders of such share or are entitled jointly thereto in consequence of
the death or bankruptcy of the holder or otherwise, to the joint holder whose
name is registered first in the Register of Members of his bank account or the
person who the Company may then recognize as the owner thereof or entitled
thereto under Article 20 or 21 hereof, as applicable, or such person's bank
account), or to such person and at such other address as the person entitled
thereto may be writing direct. Every such check or warrant shall be made payable
to the order of the person to whom it is sent, or to such person as the person
entitled thereto as aforesaid may direct, and payment of the check or warrant by
the banker upon whom it is drawn shall be a good discharge to the Company.
62. Receipt from a Joint Holder
If two or more persons are registered as joint holders of any
share, or are entitled jointly thereto in consequence of the death or bankruptcy
of the holder or
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otherwise, any one of them may give effectual receipts for any dividend or other
moneys payable or property distributable in respect of such shares.
ACCOUNTS
63. Books of Account
The Board of Directors shall cause accurate books of account to
be kept in accordance with the provisions of the Companies Ordinance and of any
other applicable law. Such books of account shall be kept at the Registered
Office of the Company, or at such other place or places as the Board of
Directors may think fit, and they shall always be open to inspection by all
Directors. No member, not being a Director, shall have any right to inspect any
account or book or other similar document of the Company, except as conferred by
law or authorized by the Board of Directors or by Ordinary Resolution of the
Company.
64. Audit
At least once in every fiscal year the accounts of the Company
shall be audited and the correctness of the profit and loss account and balance
sheet certified by one or more duly qualified auditors.
65. Auditors
The appointment, authorities, rights and duties of the
auditor(s) of the Company shall be regulated by applicable law; provided,
however, that in exercising its authority to fix the remuneration of the
auditor(s), the members in General Meeting may, by Ordinary Resolution, act (and
in the absence of any action in connection therewith shall be deemed to have so
acted) to authorize the Board of Directors to fix such remuneration subject to
such criteria or standards, if any, as may be provided in such Ordinary
Resolution, and if no such criteria or standards are so provided, such
remuneration shall be fixed in an amount commensurate with the volume and nature
of the services rendered by such auditor(s).
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BRANCH REGISTERS
66. Branch Registers
Subject to and in accordance with the provisions of Sections 71
to 80, inclusive, of the Companies Ordinance and to all orders and regulations
issued thereunder, the Company may cause branch registers to be kept in any
place outside Israel as the Board of Directors may think fit, and, subject to
all applicable requirements of law, the Board of Directors may from time to time
adopt such rules and procedures as it may think fit in connection with the
keeping of such branch registers.
67. Audit Committee
(a) For purposes of these Articles the terms "Office Holder,"
"Personal Interest" and "Relative" shall be defined as set forth in Section
96(24) of the Companies Ordinance.
(b) The Board of Directors shall appoint an Audit Committee
which shall be composed of three members, none of whom shall be Chairman or
Co-Chairman of the Board of Directors, the Chief Executive Officer, Controller,
Secretary or any other Office Holder who is an employee of the Company, and the
majority of whom shall not be shareholders of the Company holding more than 5%
(five percent) of the issued and outstanding share capital of the Company, or
their relatives.
(c) All of the following matters shall be brought before the
Audit Committee, and no action in respect thereof shall be taken prior to
receiving the Audit Committee's and the Board of Director's approval. Approval
of the Board of Directors may be given only following the Audit Committee's
approval:
(i) proposed transactions to which the Company intends
to be a party in which an Officer Holder has a direct or indirect Personal
Interest;
(ii) actions which may otherwise be deemed to constitute
a breach of fiduciary duty or the duty of care, as defined in Section 96(27) of
the Companies Ordinance, of an Office Holder of the Company;
(iii) agreements with directors as to the terms of their
services; and
(iv) indemnification of Office Holders.
(d) Approval by the majority of the Members of the Audit
Committee shall be deemed approval of the Audit Committee for the purposes of
this Article.
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(e) The Audit Committee shall meet upon receiving at least seven
days' prior written notice from the Board of Directors of a meeting. Such prior
written notice shall contain details of the action in respect of which the
meeting will be convened.
(f) Should a majority of the Audit Committee of the Board of
Directors have a Personal Interest in any of the matters detailed in Section
67(c) above, the action shall be raised at the next General Meeting, and shall
be subject to approval of the General Meeting.
(g) Any Office Holder whose interest is brought before the Audit
Committee and the Board of Directors for approval shall not be present nor shall
he have a vote at any meeting at which his interest shall be discussed or voted
upon.
INDEMNITY AND INSURANCE
68. Indemnity and Insurance
Subject to the provisions of the Companies Ordinance, the
Company may (i) procure insurance for, or indemnify any Office Holder, to the
fullest extent permitted and not prohibited by Sections 96(41) and 96(42) of the
Companies Ordinance, or any successor provisions; provided, however, that the
procurement of any such insurance or provision of any such indemnification, as
the case may be, is approved by the Audit Committee of the Company and otherwise
as required by law; or (ii) procure insurance for or indemnify any person who is
not an Office Holder, including, without limitation, any employee, agent,
consultant or contractor of the Company who is not an Office Holder.
WINDING UP
69. Winding up
If the Company is wound up, then, subject to applicable law and
to the rights of the holders of shares with special rights upon winding up, the
assets of the Company available for distribution among the members shall be
distributed to them in proportion to the nominal value of their respective
holdings of the shares in respect of which such distribution is being made.
33
<PAGE> 34
RIGHTS OF SIGNATURE, STAMP AND SEAL
70. Rights of Signature, Stamp and Seal
(a) The Board of Directors shall be entitled to authorize any
person or persons (who need not be Directors) to act and sign on behalf of the
Company, and the acts and signature of such person(s) on behalf of the Company
shall bind the Company insofar as such person(s) acted and signed within the
scope of his or their authority.
(b) The Board of Directors may provide for a seal. If the Board
of Directors so provides, it shall also provide for the safe custody thereof.
Such seal shall not be used except by the authority of the Board of Directors
and in the presence of the person(s) authorized to sign on behalf of the
Company, who shall sign every instrument to which such seal is affixed.
(c) The Company may exercise the powers conferred by Section 102
of the Companies Ordinance regarding a seal for use abroad, and such powers
shall be vested in the Board of Directors.
NOTICES
71. Notices
(a) Any written notice or other document may be served by the
Company upon any member either personally or by sending it by prepaid mail
(airmail if sent internationally) addressed to such member at his address as
described in the Register of Members or such other address as he may have
designated in writing for the receipt of notices and other documents. Any
written notice or other document may be served by any member upon the Company by
tendering the name in person to the Secretary or the General Manager of the
Company at the principal office of the Company or by sending it by prepaid
registered mail (airmail if posted outside Israel) to the Company at its
registered office. Any such notice or other document shall be deemed to have
been served forty-eight (48) hours after it has been posted (seven (7) business
days if sent internationally), or when actually received by the addressee if
sooner than forty-eight hours or seven days, as the case may be, after it has
been posted, or when actually tendered in person, to such member (or to the
Secretary) or the General Manager). Notice sent by cablegram, telex, facsimile
or electronic mail shall be deemed to have been served when actually received by
such member (or by the Company). If a notice is, in fact, received by the
addressee, it shall be deemed to have been duly served when received,
notwithstanding that it was defectively addressed or failed, in some other
respect, to comply with the provisions of this Article 71(a).
34
<PAGE> 35
(b) All notices to be given to the members shall, with respect
to any share to which persons are jointly entitled, be given to whichever of
such persons is named first in the Register of Members, and any notice so given
shall be sufficient notice to the holders of such share.
(c) Any member whose address is not described in the Register of
Members, and who shall not have designated in writing an address for the receipt
of notices, shall not be entitled to receive any notice from the Company.
(d) Notwithstanding anything to the contrary contained herein,
notice by the Company of a General Meeting which is published in at least two
daily newspapers in the State of Israel within the time otherwise required for
giving notice of such meeting under Article 25 hereof and containing the
information required to be set forth in such notice under such Article shall be
deemed to be a notice of such meeting duly given, for purposes of these
Articles, to any member whose address as registered in the Register of Members
is located in the State of Israel.
35
<PAGE> 1
EXHIBIT 3.2
THE COMPANIES ORDINANCE
COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION OF
INTERAD (1995) LTD.
1. Name of the Company In Hebrew: [Illegible] (1995) [Illegible]
Name of the Company in English: INTERAD (1995) LTD.
2. The purposes for which the Company was established are:
A. To provide advertisement services and consulting services on
advertisement issues.
B. To perform any additional activity permitted by law and specifically
in order to fulfill the foregoing purposes.
3. The Company is entitled to engage in any lawful activity in order to
achieve its purposes.
4. The liability of the members of the Company shall be limited.
5. The share capital of the Company shall consist of NIS 28,000, divided into
28,000 Ordinary Shares of nominal value NIS 1.00 each.
WE, the undersigned, wish to join the Company in accordance with this
Memorandum of Association and each agree to take the number of shares of the
share capital as listed beside our name.
- ---------------------------------------------------------------------------
Number
Name I.D. No. Address of Shares Signature
- ---------------------------------------------------------------------------
Heichal 51-108753-8 136 Rothschild 1 Ordinary Heichal Habima
Habima Trust Blvd. Tel Aviv Trust Company
Company Ltd. Ltd.
(-)
- ---------------------------------------------------------------------------
Elgom 51-097522-0 136 Rothschild 1 Ordinary Elgom
Industries Blvd. Tel Aviv Industries Ltd.
Ltd. (-)
- ---------------------------------------------------------------------------
Total shares issued: 2 Ordinary Shares
- --------------------
Witness:
- --------
Executed today: 29-8-95 Before: Jonathan Feuchtwanger. Adv. (-)
------- --------------------------- -----------
Signature
<PAGE> 1
EXHIBIT 4.1
[BACKWEB LOGO]
INCORPORATED UNDER THE LAWS OF THE STATE OF ISRAEL
CUSIP
THIS CERTIFIES THAT
SHARES
SEE REVERSE FOR CERTAIN DEFINITIONS
IS THE REGISTERED HOLDER OF
FULLY PAID AND NON-ASSESSABLE ORDINARY SHARES OF THE PAR VALUE OF 0.01 NEW
ISRAELI SHEKELS EACH, OF
BACKWEB TECHNOLOGIES, LTD.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate property
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Memorandum of Association and
Articles of Association and amendments thereto of the Corporation, to all of
which the holder by acceptance hereof asserts. This certificate is not valid
unless countersigned and registered by the Transfer Agent and Registrar.
Dated:
/s/ HANAN MIRON /s/ E. Barkat
- ----------------------- -----------------------
CHIEF FINANCIAL OFFICER [SEAL] CHIEF EXECUTIVE OFFICER
AMERICAN BANK NOTE COMPANY MAY 20, 1999 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 004942fc
(562) 989-2333
(FAX) (562) 428-7450
<PAGE> 2
BACKWEB TECHNOLOGIES LTD.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _______________Custodian_______________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ___________________________________
in common (State)
UNIF TRF MIN ACT -- ___________Custodian (until age _______)
(Cust)
_________________under Uniform Transfers
(Minor)
to Minors Act __________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
<TABLE>
<S> <C>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
___________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________ Ordinary Shares
represented by the within Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________________________________________________________________________________Attorney
to transfer the said Ordinary Shares on the books of the within-named Corporation with full power of substitution in the premises.
Dated ___________________________________________
X ____________________________________________________________________________
X ____________________________________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
NOTICE: WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_____________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE> 1
Exhibit 4.2
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.
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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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<PAGE> 10
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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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
-18-
<PAGE> 19
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.
-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
-2-
<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 4.3
LIQUIDITY PROPOSAL, BACKWEB TECHNOLOGIES
LOCKUP Each holder of exchangeable shares will execute the
underwriters' standard lock-up agreement, establishing a lockup
period for 180 days following the IPO. This lock-up will be
effective only if the Company and its underwriters' obtain a
180-day lock-up from holders of at least 90% of the outstanding
shares in the aggregate, excluding for the calculation the
exchangeable shares Moreover, the Company and its underwriters
will agree that no BackWeb shareholder's lock-up will be
released without releasing the former holders of exchangeable
shares (and the associated BackWeb shares) to a proportionate
extent, and the Company will provide prompt notice of any such
release to each exchangeable share holder. The Company also
requests that each exchangeable share holder execute the
Company's Fourth Amended and Restated Rights Agreement and
Fourth Amended and Restated Shareholders Agreement.
LIQUIDITY Each holder of exchangeable shares who agrees to these
RIGHT procedures will receive the following from the Company:
The Company will commit to obtain, if possible, a no-action
letter from the Securities and Exchange Commission indicating
that the Rule 144 holding period commenced effective as of the
date of the acquisition. This will enable holders of
exchangeable shares to sell their BackWeb shares into the public
market, following expiration of the 180-day lock-up. If the
Company is unable to obtain such a no-action letter in a timely
manner, then the Company will reinstate each such holder's
registration rights under the Rights Agreement (notwithstanding
that the holder might own less than 1% of the outstanding
shares).
The registration rights would be on the terms and conditions of
the existing Rights Agreement, except (i) as noted above, the 1%
limitation will not apply, (ii) the Company will commence the
process of a demand registration on Form S-1/F-1, on behalf of
the holders of exchangeable shares, 30 days before the end of
the 180-day lock up period, and will use its best efforts to
cause the registration statement to become effective at the
expiration of the lock-up or as soon thereafter as possible
(subject to the existing limitations in the Rights Agreement,
except that the threshold requirements for triggering a demand
registration will not be required), and (iii) the Company will
use its best efforts to cause a registration statement on Form
S-3/F-3 to be effective one year following the effective date of
the Company's initial public offering (or as soon thereafter as
possible), covering all BackWeb shares issued or issuable in
respect of the exchangeable shares and not previously sold into
the public market (regardless of any threshold requirements
stated in the Rights Agreement for the number of shares or
dollar value of shares proposed to be sold). These rights will
be subject to the limitations in the registration rights
agreement, including the coexisting pro rata rights of other
holders.
IF THIS IS ACCEPTABLE, PLEASE INDICATE YOUR AGREEMENT HERE:
SHAREHOLDER: BACKWEB TECHNOLOGIES, LTD.
Signature: By:
Print name: Title:
Date: Date:
<PAGE> 1
EXHIBIT 5.1
Tel-Aviv, June 3, 1999
BackWeb Technologies Ltd.
3 Abba Hillel St.
Ramat Gan
Israel
Ladies and Gentlemen:
We refer to the registration statement and amendments thereto on Form
F-1, registration no. 333-10358 (the "Registration Statement"), originally filed
on May 14, 1999 by BackWeb Technologies Ltd. (the "Company") with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, in
connection with the sale of up to 5,500,000 Ordinary Shares, nominal value NIS
0.01 per share, of the Company (the "Shares") to the Underwriters as described
in the Registration Statement for resale to the public. The Company will issue
and sell these 5,500,000 Shares. The underwriters may, as described in the
Registration Statement, purchase up to an additional 825,000 Ordinary Shares,
nominal value NIS 0.01 per share (the "Additional Shares") from the Company at
the initial public offering price less the underwriting discount.
As special Israeli counsel to the Company in connection with the
offering of the Shares pursuant to the Registration Statement, we have examined
such corporate records and documents and such questions of law as we have
considered necessary or appropriate for the purpose of this opinion. Upon the
basis of such examination, we are of the opinion that the Shares and the
Additional Shares to be issued and sold by the Company, as contemplated by the
Prospectus included in the Registration Statement, are duly and validly
authorized and, when issued and sold in the manner contemplated by the
Underwriting Agreement filed as an exhibit to the Registration Statement (the
"Underwriting Agreement") and upon receipt by the Company of payment therefor as
provided in the Underwriting Agreement, will be legally and validly issued,
fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement and
elsewhere in the Registration Statement and Prospectus.
Very truly yours,
Naschitz, Brandes & Co.
<PAGE> 1
EXHIBIT 10.1
BACKWEB TECHNOLOGIES LTD. (THE "COMPANY" OR "BACKWEB")
SUMMARY OF 1996 ISRAELI EMPLOYEES STOCK OPTION PLAN
In 1996 the company's Board of Directors adopted an Employee Stock Option Plan
(the "Plan"). The Plan is divided into two separate Plans. The first plan --
adopted pursuant to Section 102 of the Israeli Income Tax Ordinance (the
"Ordinance"), and the second -- adopted pursuant to Section 3(9) of the
Ordinance ("Plan-I" and "Plan II", respectively).
According to the Plan I the company may grant its employees, for no
consideration, non transferable options to purchase same number of common stock
of the company, nominal value NIS 0.01 (which number shall be adjusted for
bonus shares). Such options regularly vest in four equal installments over a
four year period, at an exercise price determined by the Board of Directors
from time to time, and are subject to a lock up period of 24 months during
which such options or any shares issued upon exercise are held by a trustee.
According to the Plan, each employee is required to sign an irrevocable proxy
granting Naschitz Brandes & Co. the right to participate and vote on his/her
behalf at all company shareholders meetings and general meetings. This proxy
shall expire upon the earlier of (i) a consummation of an IPO, or (ii) a merger
and/or change in control and/or sale of the company to a third party.
The rights to options or shares which have not yet vested pursuant to Plan I
shall expire in the event that the employee's employment in the company is
terminated during the lock up period.
Plan II, intended for certain employees and consultants, has the same terms and
conditions as Plan I (including but not limited to the proxy requirement),
excluding the lock up period which shall be 12 months from the date of grant of
each option.
<PAGE> 1
EXHIBIT 10.2
BACKWEB TECHNOLOGIES LTD.
1996 UNITED STATES STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 United States Stock Option Plan is intended to
promote the interests of BackWeb Technologies Ltd., an Israeli corporation, by
providing eligible persons with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. Administration of the Plan may, at the Board's discretion, be
vested in the Committee, or the Board may retain the power to administer the
Plan with respect to all persons. The members of the Committee may be Board
members who are Employees eligible to receive discretionary option grants under
the Plan or any stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any other member of the BRM Group).
B. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to such Committee.
C. The Plan Administrator shall, within the scope of its
administrative functions under the plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue
such interpretations of, the provisions of such Plan and any outstanding
options thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the Plan
under its jurisdiction or any option thereunder.
D. Service on the Committee shall constitute service as a Board
member, and members of each such committee shall accordingly be entitled to
full indemnification and
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reimbursement as Board members for their service on such committee. No member of
the Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grants made under the Plan.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) employees of the BRM Group,
(ii) non-employee members of the board of directors of any member
of the BRM Group, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any other member of the BRM Group).
B. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority (subject to the provisions of
the Plan) to determine, with respect to the option grants under the Plan, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times at which each option is to become
exercisable and the vesting schedule (if any) applicable to the option shares
and the maximum term for which the option is to remain outstanding.
IV. SHARES SUBJECT TO THE PLAN
A. The shares issuable under the Plan shall be authorized but unissued
Ordinary Shares. The maximum number of Ordinary Shares which may be issued over
the term of the Plan shall not exceed 12,460,067 shares.
B. Ordinary Shares subject to outstanding options shall be available for
subsequent issuance under the Plan to the extent (i) the options expire or
terminate for any reason prior to exercise in full or, (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan, whether or not those shares are subsequently
purchased by the Corporation or its designee pursuant to the purchase rights
under the Plan, shall reduce on a share-for-share basis the number of Ordinary
Shares available for subsequent issuance under the Plan.
C. Should any change be made to the Ordinary Shares (or, prior to the
Section 12(g) Registration Date, to the Corporation's equity securities into
which the Ordinary Shares are convertible on the Section 12(g) Registration
Date) by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Ordinary Shares (or, prior to the Section 12(g) Registration Date,
to the Corporation's equity securities into which the Ordinary Shares
2
<PAGE> 3
are convertible on the Section 12(g) Registration Date) as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(i) the maximum number and/or class of securities issuable under the Plan, (ii)
the number and/or class of securities for which any one person may be granted
options per calendar year or over the term of the Plan, and (iii) the number
and/or class of securities and the exercise price per share in effect under each
outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator, provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per Ordinary Share on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Three
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. The option may also be exercised for vested shares
through a special sale and remittance procedure pursuant to which the Optionee
shall concurrently provide irrevocable written instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Israeli and
Federal, state and local income and employment taxes required to be withheld by
the Corporation by reason of such exercise, and (b) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction. Except to the extent the sale and
remittance procedure is used, payment of the exercise price for the purchased
shares must be made on the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by
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<PAGE> 4
the Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of seven (7) years measured from
the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option exercisable in whole or in part at the time of
the Optionee's cessation of Service for any reason shall remain exercisable for
a period of 50 days following such cessation of Service, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the expiration of the applicable exercise period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding to the extent it is
not exercisable for vested shares on the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(v) In the event of a Corporate Transaction, the provisions of
Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary in this
section.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in effect for that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
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(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
Ordinary Shares for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more additional
installments in which the Optionee would have vested under the option had the
Optionee continued in Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no shareholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of the
purchased shares.
E. RIGHT OF FIRST REFUSAL. Should an Optionee who has exercised Options
or Ordinary Shares wish to sell or otherwise transfer his or her Ordinary
Shares acquired upon the exercise of Options prior to the Section 12(g)
Registration Date, the Corporation or its designee shall have a right of first
refusal on such Ordinary Shares. The terms upon which such right of first
refusal shall be exercisable (including the periods and procedures for
exercise) shall be established by the Plan Administrator and set forth in the
document evidencing such right of first refusal.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the options shall be exercisable only by the Optionee and shall not
be assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned (i) to a member of the immediate family of the Optionee or to a
trust established for the benefit of one or more members of the immediate family
of the Optionee, provided that the assignment shall not be effective until
approved in writing by the Plan Administrator, or (ii) in accordance with terms
approved in advance by the Plan Administrator. The terms applicable to the
assigned option (or portion thereof) shall be the same as those in effect for
the option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Three shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under
the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may be granted only to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per Ordinary Share on
the option grant date.
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C. TEN PERCENT SHAREHOLDER. To the extent required by Code Section 422,
if any Employee to whom an Incentive Option is granted is a Ten Percent
Shareholder, then the exercise price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value per Ordinary Share on the
option grant date, and the option term shall not exceed five (5) years measured
from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Immediately following the consummation of a Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
B. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the Option remains
outstanding, to provide for the acceleration of one or more outstanding Options
upon the occurrence of a Corporate Transaction, whether or not those Options
are to be assumed or replaced (or those repurchase rights are to be assigned)
in the Corporate Transaction. The Plan Administrator shall have the discretion,
exercisable either at the time the Option is granted or at any time while the
Option remains outstanding, to (i) provide for the automatic acceleration of
one or more outstanding Options upon the occurrence of a Change in Control or
(ii) condition any such Option acceleration upon the subsequent Involuntary
Termination of the Optionee's Service within a specified period following the
effective date of such Change in Control. Any Options accelerated in connection
with a Change in Control shall remain fully exercisable until the expiration or
sooner termination of the Option term.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.
D. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent the such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax Laws.
E. The grant of options under the Plan shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business
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structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution new options covering the same or different number of Ordinary
Shares but with an exercise price per share based on the Fair Market Value per
Ordinary Share on the new option grant date.
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee to pay the option
exercise price under the Plan by delivering a promissory note payable in one or
more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Promissory notes may be authorized with
or without security or collateral. In all events, the maximum credit available
to the Optionee may not exceed the sum of (i) the aggregate option exercise
price payable for the purchased shares, plus (ii) any Israeli and United States
Federal, state and local income and employment tax liability incurred by the
Optionee in connection with the option exercise.
B. The Plan Administrator may, in its discretion, determine that one or
more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Plan Effective Date and
options may be granted under the Plan from and after the Plan Effective Date.
However, no options granted under the Plan may be exercised until the Plan is
approved by the Corporation's shareholders. If such shareholder approval is not
obtained within twelve (12) months after the Plan Effective Date, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall terminate upon the earliest of (i) November 1, 2006,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options under the Plan, or
(iii) the termination of all out-
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standing options in connection with a Corporate Transaction. Upon such Plan
termination, all options outstanding on such date shall thereafter continue to
have force and effect in accordance with the provisions of the documents
evidencing such options.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options at the time outstanding under the Plan unless the Optionee consents to
such amendment or modification. In addition, the Board shall not, without the
approval of the Corporation's shareholders, (i) materially increase the maximum
number of shares issuable under the Plan or the maximum number of shares for
which any one person may be granted options in the aggregate over the term of
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation, or (iii) materially increase the benefits
accruing to Plan participants.
B. Options to purchase Ordinary Shares may be granted under the Plan
that are in excess of the number of shares then available for issuance under
the Plan, provided any excess shares actually issued under those programs are
held in escrow until there is obtained shareholder approval of an amendment
sufficiently increasing the number of Ordinary Shares available for issuance
under the Plan. If such shareholder approval is not obtained within twelve (12)
months after the date the first such excess issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding, and (ii) the Corporation shall promptly refund to
the Optionees the exercise price paid for any excess shares issued under the
Plan and held in escrow, without interest, and such shares shall thereupon be
automatically canceled and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
Ordinary Shares under the Plan shall be used for general corporate purposes.
V. REGULATORY APPROVALS
A. All of the provisions of this Plan are subject to the provisions of
Israeli law. Any provision of this Plan that is inconsistent with Israeli law
shall be deemed to be stricken from the Plan, without affecting the validity of
any other provision.
B. The implementation of the Plan, the granting of any option under
the Plan and the issuance of any Ordinary Shares upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory
8
<PAGE> 9
authorities having jurisdiction over the Plan, the options granted under it and
the Ordinary Shares issued pursuant to it.
C. No Ordinary Shares or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Israeli law and United States Federal and state
securities laws, and all applicable listing requirements of any Stock Exchange
(or Nasdaq, if applicable) on which the Ordinary Shares are then listed for
trading.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any other
member of the BRM Group employing or retaining such person) or of the Optionee,
which rights are hereby expressly reserved by each, to terminate such person's
Service at any time for any reason, with or without cause.
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APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. BRM GROUP shall mean the Corporation and any other company that
directly or indirectly controls, is controlled by or is under common control
with BRM Technologies Ltd., an Israeli company.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Corporation), of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were still in
office at the time the Board approved such election or nomination.
D. CODE shall mean the United States Internal Revenue Code of 1986, as
amended.
E. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board of Directors to administer the Plan.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction; or
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(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
G. CORPORATION shall mean BackWeb Technologies Ltd., an Israeli
corporation.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any other member of the BRM Group), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
J. FAIR MARKET VALUE per Ordinary Share on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Ordinary Shares are at the time traded on Nasdaq, then
the Fair Market Value shall be the closing price per Ordinary Share on the date
in question, as such price is reported by the National Association of
Securities Dealers on Nasdaq or any successor system. If there is no closing
price for the Ordinary Shares on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for which
such quotation exists.
(ii) If the Ordinary Shares are at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
Ordinary Share on the date in question on the Stock Exchange determined by the
Plan Administrator to be the primary market for the Ordinary Shares, as such
price as officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Ordinary Shares on the
date in question, then the Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation exists.
(iii) For purposes of option grants made on the date the Underwriting
Agreement is executed and the initial public offering price of the Ordinary
Shares is established, the Fair Market Value shall be deemed to be equal to the
established initial offering price per share. For purposes of option grants
made prior to such date, the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan Administrator
shall deem appropriate.
K. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
effected through the following transaction:
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<PAGE> 12
(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, and
(ii) more than fifty percent (50%) of the securities so acquired are
accepted from persons other than Section 16 Insiders.
L. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
M. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and participation in corporate-
performance based bonus or incentive programs) by more than fifteen percent
(15%) or (C) a relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or relocation is
effected by the Corporation without the individual's consent.
N. MISCONDUCT shall mean the commission of any act or fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any other
member of the BRM Group), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any other
member of the BRM Group) in a material manner. The foregoing definition shall
not be deemed to be inclusive of all the acts or omissions which the Corporation
(or any other member of the BRM Group) may consider as grounds for the dismissal
or discharge of any Optionee or other person in the Service of the Corporation
(or any other member of the BRM Group).
O. 1934 ACT shall mean the United States Securities Exchange Act of 1934,
as amended.
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
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<PAGE> 13
Q. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
R. ORDINARY SHARE shall mean the Corporation's Ordinary Shares.
S. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment expected to result in death
or to be of continuous duration of twelve (12) months or more.
T. PLAN shall mean the Corporation's 1996 United States Stock Option
Plan, as set forth in this document.
U. PLAN ADMINISTRATOR shall mean the particular entity, whether the Board
or the Committee, which is authorized to administer the Plan with respect to one
or more classes of eligible persons, to the extent such entity is carrying out
its administrative functions under those programs with respect to the persons
under its jurisdiction.
V. PLAN EFFECTIVE DATE shall mean ____________, 1996.
W. SECTION 12(g) REGISTRATION DATE shall mean the first date on which the
Corporation's equity securities are registered under Section 12(g) of the 1934
Act.
X. SERVICE shall mean the provision of services to the Corporation (or
any other member of the BRM Group) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
Y. STOCK EXCHANGE shall mean the New York Stock Exchange, the American
Stock Exchange, the Tel-Aviv Stock Exchange and any other securities market
certified by the Plan Administrator.
Z. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
per Ordinary Share on the date the option is surrendered to the Corporation in
connection with a Hostile Take-Over or (ii) the highest reported price per
Ordinary Shares paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (i) price per share.
AA. TAXES shall mean the Israeli and United States Federal, state and
local income and employment tax liabilities incurred by the holder of
Non-Statutory Options or unvested Ordinary Shares in connection with the
exercise of those options or the vesting of those shares.
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<PAGE> 14
BB. TEN PERCENT STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any other
member of the BRM Group).
CC. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Corporation's equity securities.
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EXHIBIT 10.3
BACKWEB TECHNOLOGIES LTD.
1998 UNITED STATES STOCK OPTION PLAN
(AMENDED AND RESTATED MARCH __, 1999)
1. Purposes of the Plan. The purposes of this 1998 United States Stock
Option Plan are:
o to attract and retain the best available personnel for positions
of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means BackWeb Technologies Ltd., an Israeli
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
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(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
A Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between locations of
the Company or between the Company, its Parent, any Subsidiary, or any
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed
by statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave any
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option. Neither service as a Director nor payment of a director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
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(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 United States Stock Option Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
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(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is [15,000,000] Shares plus an annual increase to be added
on the [first day of the Company's fiscal year or on the date of the Company's
annual stockholder meeting] beginning in 2000 equal to the lesser of (i)
[ ] shares, (ii) [ %] of the outstanding Common Stock on that date, or
(iii) an amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have actually
been issued under the Plan, whether upon exercise of an Option or Right, shall
not be returned to the Plan and shall not become available for future
distribution under the Plan, except that if Shares of Restricted Stock are
repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
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(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based
in each case on such factors as the Administrator, in its sole discretion,
shall determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority
to extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
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(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted
only to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value on the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options;
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 500,000 Shares.
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(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 13), the cancelled Option will be counted against the limits set
forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided
in the Option Agreement. Moreover, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
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(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option may
be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the issuance
of Shares to the extent permitted by Applicable Laws.
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10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service Provider
as a result of the Optionee's Disability, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain
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exercisable for twelve (12) months following the Optionee's termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert
to the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the laws
of descent or distribution. If the Option is not so exercised within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Stock Purchase Rights
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to
be paid, and the time within which the offeree must accept such offer. The
offer shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price of Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
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<PAGE> 11
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchaser is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights.
Unless determined otherwise by the Administrator, an Option or Stock Purchase
Right may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the life time of the Optionee, only
by the Optionee. If the Administrator makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right shall contain such additional
terms and conditions as the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of Common Stock
covered by each outstanding Option and Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but as to which no Options or Stock Purchase Rights have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, as well as the price per share of Common Stock
covered by such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not
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<PAGE> 12
otherwise be exercisable. In addition, the Administrator may provide that any
Company repurchase option applicable to any Shares purchased upon exercise of
an Option or Stock Purchase Right shall lapse as to all such Shares, provided
the proposed dissolution or liquidation takes place at the time and in the
manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock Purchase
Right, the Optionee shall fully vest in and have the right to exercise the
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale or assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merge or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
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<PAGE> 13
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to
exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Rights unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Share
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company or any liability in respect
of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the manner and to
the degree required under Applicable Laws.
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BACKWEB TECHNOLOGIES, LTD.
1998 US STOCK OPTION PLAN
STOCK OPTION GRANT AGREEMENT
To: The Optionee named in the Notice of Grant of Stock Option ("Notice") to
which this Stock Option Grant Agreement ("Agreement") is attached.
1. Grant of Option. BackWeb Technologies, Ltd. (the "Corporation") hereby
grants you an option ("the Option") to purchase the number of Ordinary Shares
of the Corporation ("Shares") set forth in the Notice of Grant ("Notice"), at
the exercise price per share ("Exercise Price") set forth in the Notice,
subject to the terms and conditions of the Corporation's 1998 United States
Stock Option Plan (the "Plan") (the 1998 Plan applies to grants made after
March 31, 1998). In the event of a conflict between the terms and conditions of
the Plan and the terms and conditions of this Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an ISO under Section 422 of the
Code. However, if this Option is intended to be an ISO, to the extent that it
exceeds the $100,000 rule of Section 422(d), that portion which exceeds the
$100,000 limit shall be treated as a nonstatutory stock option ("NSO") under
Section 422. See the Plan Summary and Prospectus for additional information
regarding ISOs and NSOs.
2. Exercise of Option.
(a) Vesting Schedule. Subject to the limitations contained herein and in
the Plan, this Option shall be exercisable according to the following
vesting schedule.
25% of the Shares subject to each Option Grant shall vest on each
anniversary of the vesting start date for the Grant as provided in
the Grant Notice. Prior to vesting, the Shares available to Optionee
shall be unvested. In no event shall any additional shares vest after
Optionee's cessation of Service except as provided herein.
(b) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set forth above and the other
applicable provisions of this Option Grant Agreement and the Plan,
including the provisions applicable in the event of the Optionee's death,
disability or termination of employment or consulting relationship.
(c) Minimum Number of Shares. The minimum number of shares with respect to
which this Option may be exercised at any one time is the lesser of (a)
fifty (50) Shares or (b) the number of Shares that have vested in the
preceding six (6) month period prior to the exercise.
(d) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in a form designated by the Corporation and attached
hereto as Exhibit A ("the Exercise Notice"), which shall state the
election to exercise the Option, the number of Shares in respect of which
the Option is being exercised (the "Exercised Shares"), and such other
representations and agreements as may be required by the Corporation
pursuant to the provisions of the Plan. The Exercise
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<PAGE> 15
Notice shall be signed by the Optionee and shall be delivered in person or
by certified mail to the Stock Administrator of the Corporation. The
Exercise Notice shall be accompanied by payment (in any of the manners set
forth in Section 3 below) of the aggregate Exercise Price as to all
Exercised Shares. This Option shall only be deemed to be exercised upon
receipt by the Corporation of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.
(e) Issuance of Shares. No Shares shall be issued pursuant to the
exercise of this Option unless such issuance and exercise complies with all
relevant provisions of law and the requirements of any stock exchange or
quotation service upon which the Shares are then listed. Assuming such
compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised
with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) delivery of a properly executed Exercise Notice together with each
other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and
delivery to the Corporation of the sale or loan proceeds required to
pay the exercise price; or
(d) surrender of other Shares that (i) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4. Non-transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Agreement shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.
5. Optionee's Representations. In the event that the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this
option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver to
the Company his or her Investment Representation statement in the form attached
hereto as Exhibit B. Optionee agree to read all applicable rules of the
Commissioner of Corporations attached to such Investment Representations
Statement.
6. Lock-Up Period. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters ("the Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180 day period (or such
other period as may be requested by the Managing Underwriter and agreed to in
writing by the Company) (the "Market Standoff Period") following the effective
date of a registration statement of the
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<PAGE> 16
Company filed under the Securities Act. Such restriction shall apply only to the
first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
7. Restriction on Exercise. This Option may not be exercised until such time
as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
law.
8. Non-transferability of Option. This Option may not be transferred in any
manner other than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by Optionee. The terms of the
Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
9. Term of Option. The term of this Option commences on the date of the grant
and, unless sooner terminated as set forth below or in the Plan, terminates on
the date that is seven (7) years later. Upon termination of the Optionee's
employment with the Corporation, this Option may be exercised only as to that
number of shares as to which it was exercisable on the date of termination and
only for a period of sixty (60) days thereafter (but not later than the term of
this Option set forth above) and shall then terminate. Upon the death or
disability of the Optionee, however, this Option may be exercised for such
longer period as provided in the Plan.
10. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES THAT
THE VESTING OF THE SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY
BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE
ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).
OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE IN ANY WAY WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
11. Tax Consequences. Set forth below is a brief summary as of the date of this
Option of some of the federal tax consequences of exercise of this Option and
disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be no
regular federal income tax liability upon exercise of the Option,
although the
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<PAGE> 17
excess, if any of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price will be treated as an adjustment to
the alternative minimum tax for federal tax purposes and may subject
the Optionee to the alternative minimum tax in the year of exercise.
(b) Exercise of NSO. There may be a regular federal income tax liability
upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold
from Optionee's compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to
honor the exercise and refuse to deliver the Shares if such withholding
amounts are not delivered at the time of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held for at
least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In
the case of an ISO, if Shares transferred pursuant to the Option are
held for at least one year after exercise and at least two years after
the Date of Grant, any gain realized on the disposition of the Shares
will be also treated as long-term capital gain for federal income tax
purposes. If Shares purchased under an ISO are disposed of within one
year after exercise or two years after the Date of Grant, any gain
realized on such dispositions will be treated as compensation income
(taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value
of the Shares on the date of exercise, or (2) the sale price of the
Shares. Any additional gain will be taxed as capital gain, short-term
or long-term depending on the period that the ISO shares were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two (2) years after the Vesting
Start Date, or (ii) one (1) year after the exercise date, the Optionee
shall immediately notify the Corporation in writing of such
disposition. The Optionee agrees that he or she may be subject to
income tax withholding by the Corporation on the compensation income
recognized from such early disposition of the ISO Shares by payment in
cash or out of the current earnings paid to the Optionee.
12. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Optionee
with respect to the subject matter hereof, and may not be modified adversely to
the Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option
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<PAGE> 18
in their entirety, has had an opportunity to obtain the advice of counsel prior
to executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions arising under the
Plan or this Option. Optionee further agrees to notify the Company upon any
change in the residence address listed below.
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EXHIBIT A
BACKWEB TECHNOLOGIES, LTD. 1998 US STOCK OPTION PLAN
EXERCISE NOTICE
BackWeb Technologies, Ltd.
2077 Gateway Place, Suite 500
San Jose, CA 95110
Attention: Stock Plan Administrator
1. Exercise of Option. Effective as of today, ______, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _______ Ordinary Shares (the "Shares") of BackWeb Technologies, Inc.
(the "Corporation") under and pursuant to the 1998 US Stock Option Plan (the
"Plan") and the related Stock Option Agreement (the "Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Corporation
the full purchase price of the Shares, as set forth in the Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Agreement and agrees to abide by
and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Corporation or of a duly
authorized transfer agent of the Corporation), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be
issued to the Optionee as soon as practicable after the Option is exercised. No
adjustment shall be made for a dividend or other right for which the record
date is prior to the date of issuance.
5. Corporation's Right of First Refusal. Before any Shares held by
Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Corporation or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth
below in this Section:
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Corporation a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for which
the Holder proposes to transfer the Shares (the "Offered Price"), and the
Holder shall offer the Shares at the Offered Price to the Corporation or its
assignee(s).
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<PAGE> 20
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Corporation and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not
less than all, of the Shares proposed to be transferred to any one or more of
the Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Corporation or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Corporation in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Corporation or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Corporation (or, in the case of repurchase by an assignee, to the
assignee), or by any combination thereof within 30 days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by
the Corporation and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that
any such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Corporation, and the Corporation and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Corporation to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
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<PAGE> 21
6. Tax Consultation. Optionee understands that Optionee may
suffer adverse tax consequences as a result of Optionee's purchase or
disposition of the Shares. Optionee represents that Optionee has consulted with
any tax consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Corporation
for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders
(a) Legends. Optionee understands and agrees that the
Corporation shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership
of the Shares together with any other legends that may be required by the
Corporation or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT TO FIRST REFUSAL
OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN
THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER
OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND
RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
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Optionee understands that transfer of the Shares may be
restricted by Section 260.141.11 of the Rules of the California Corporations
Commissioner, a copy of which is attached as the Investment Representation
Statement.
(b) Stop-Transfer Notices. Optionee agrees that, in order
to ensure compliance with the restrictions referred to herein, the Corporation
may issue appropriate "stop transfer" instructions to its transfer agent, if
any, and that, if the Corporation transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) Refusal to Transfer. The Corporation shall not be
required (i) to transfer on its books any Shares that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement
or (ii) to treat as owner of such Shares or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such Shares shall have
been so transferred.
8. Successors and Assigns. The Corporation may assign any of its
rights under this Agreement to single or multiple assignees, and this Agreement
shall inure to the benefit of the successors and assigns of the Corporation.
Subject to the restrictions on transfer herein set forth, this Agreement shall
be binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
9. Interpretation. Any dispute regarding the interpretation of
this Agreement shall be submitted by Optionee or by the Corporation forthwith
to the Administrator which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on all parties.
10. Governing Law; Severability. This Agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Agreement are incorporated
herein by reference. This Agreement, the Plan, the Restricted Stock Purchase
Agreement, the Agreement and the Investment Representation Statement constitute
the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the
Corporation and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a writing
signed by the Corporation and Optionee.
SUBMITTED BY: ACCEPTED BY:
OPTIONEE:__________________________ BackWeb Technologies, Ltd.
Signature:_________________________ _____________________________________
Print Name:________________________ _____________________________________
Address:___________________________ 2077 Gateway Place, Suite 500
San Jose 95110
___________________________ Date Received________________________
9
<PAGE> 23
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE : ____________________________
COMPANY : BackWeb Technologies, Ltd.
SECURITY : Ordinary Shares of Common Stock
AMOUNT : As provided in the attached Exercise Notice
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution"
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory
basis for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred
sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the
future. Optionee further understands that the Securities must be held
indefinitely unless they are subsequently registered under the Securities Act
or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to
register the Securities. Optionee understands that the certificate evidencing
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the opinion of counsel satisfactory to the Company, a legend prohibiting
their transfer without the consent of the Commissioner of Corporations of the
State of [state] and any other legend required under applicable state securities
laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides
10
<PAGE> 24
that if the issuer qualifies under Rule 701 at the time of the grant of the
Option to the Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities
were sold by the Company or the date the Securities were sold by an affiliate of
the Company, within the meaning of Rule 144; and, in the case of acquisition of
the Securities by an affiliate, or by a non-affiliate who subsequently holds
the Securities less than three years, the satisfaction of the conditions set
forth in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that
an exemption from registration is available for such offers or sales, and that
such persons and their respective brokers who participate in such transactions
do so at their own risk. Optionee understands that no assurances can be given
that any such other registration exemption will be available in such event.
(e) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee: ______________________
11
<PAGE> 25
STATE OF CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon which a
restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules) except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned.
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule is not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112, or
25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped on printed
thereon in capital letters of not less than 10-point size, reading as follows:
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<PAGE> 26
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF
THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE
ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
13
<PAGE> 1
EXHIBIT 10.4
BACKWEB TECHNOLOGIES, LTD.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Ordinary
Shares of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Ordinary Shares" shall mean the Ordinary Shares of BackWeb
Technologies Ltd.
(d) "Company" shall mean BackWeb Technologies, Ltd., a company
incorporated under the laws of the State of Israel, and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean (i) the total compensation paid in
cash by Company or a Designated Subsidiary, including, salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax-contributions made by the participant under Section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave. Notwithstanding the
<PAGE> 2
foregoing, an individual shall not be considered an eligible Employee if his or
her participation in the Plan is prohibited by the law of any country which has
jurisdiction over him or her or if he or she is subject to a collective
bargaining agreement that does not provide for participation in the Plan.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Ordinary Shares determined as follows:
(1) If the Ordinary Shares are listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Ordinary Shares are regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Ordinary Shares on the date of such determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Ordinary Shares, the Fair Market Value thereof shall be determined in good faith
by the Board.
(k) "Offering Period" shall mean a period of approximately six
(6) months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after March 1 and terminating on the
last Trading Day in the period ending the following August 31, or commencing on
the first Trading Day on or after September 1 and terminating on the last
Trading Day in the period ending on the last day of February; provided, however,
that the first Offering Period under the Plan shall commence with the first
Trading Day on or after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the last
Trading Day on or before February 29, 2000. The duration of Offering Periods may
be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Ordinary Shares on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of Ordinary Shares covered
by each option under the Plan which have not yet been exercised and the number
of Ordinary Shares which have been authorized for issuance under the Plan but
not yet placed under option.
<PAGE> 3
(o) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company or any of
its Designated Subsidiaries on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after March 1 and September 1 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof; provided, however, that the first Offering Period under
the Plan shall commence with the first Trading Day on or after the date on which
the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before February 29,
2000. The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected
thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such
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<PAGE> 4
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period. Such deduction shall be a whole percentage of the participant's
Compensation, but not less than 1% nor more than 15%.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. A participant shall make no more than one election to
make a participation rate change per quarter. The Board may, in its discretion,
further limit or expand the number of participation rate changes during any
Offering Period. The change in rate shall be effective with the first full
payroll period following five (5) business days after the Company's receipt of
the new subscription agreement unless the Company elects to process a given
change in participation more quickly. A participant's subscription agreement
shall remain in effect for successive Offering Periods unless terminated as
provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Ordinary Shares issued under the Plan
are disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Ordinary Shares. At any
time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Ordinary Shares by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the
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<PAGE> 5
Exercise Date of such Offering Period (at the applicable Purchase Price) up to a
number of the Company's Ordinary Shares determined by dividing such Employee's
payroll deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during each
Offering Period more than 10,000 shares (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The Option shall expire on the last day
of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll
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<PAGE> 6
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of the Company's
Ordinary Shares which shall be made available for sale under the Plan shall be
1,800,000 shares, plus an annual increase to be added on July 1st of each year
beginning in 2000 equal to the lesser of (i) 2,500,000 shares, (ii) 2% of the
outstanding shares on such date or (iii) an amount determined by the Board. If,
on a given Exercise Date, the number of shares with respect to which options are
to be exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
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<PAGE> 7
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Ordinary Shares covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Ordinary
Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Ordinary Shares, or any other increase or
decrease in the number of shares of Ordinary Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of
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<PAGE> 8
stock of any class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Ordinary Shares subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and Section 20 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly
-8-
<PAGE> 9
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Ordinary Shares for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its committee)
determines in its sole discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE> 1
EXHIBIT 10.5
BACKWEB TECHNOLOGIES LTD. (THE "COMPANY" OR "BACKWEB")
SUMMARY TRANSLATION OF LEASE AGREEMENTS IN ISRAEL
1. Lease Agreement by and between BackWeb and Ben Artzi Holdings
The Company currently leases 256 square meters (plus parking space) from Ben
Artzi Holdings, pursuant to a lease agreement originally signed by the parties
on May 28, 1996 and extended for an additional period on March 31, 1997 (the
"Extension"). Monthly rent is the equivalent in NIS of US$ 6,720 (calculated on
the basis of the exchange rate as of march 31, 1997 and linked to the CPI.
The term of the Extension is until May 21, 1999.
2. Lease Agreement by and among Ashtrom Assets Ltd., The Company For Assets
and Buildings Ltd., F.I.B.I. Holdings Ltd., Sahar Insurance Company Ltd.,
Shiloah Insurance Company Ltd. (the "Lessor") and the Company, dated February
21, 1999 (the "Lease Agreement").
The Lease Property: 1,095 square meters (plus storage rooms and parking space)
in Aba Hillel Street, Ramat Gan, Israel.
The Company received an option to lease additional 332 square meters (the
"Option"), provided that the Company send a written notice no later than 1.9.99,
informing the Lessor of the Company's intention to exercise the Option (the
"Notice"), and a bank guaranty in the amount of NIS 81,300 (approximately
$20,000) is issued in favor of the Lessor.
Term: A term of five years which shall commence on the earlier of (i) May 15,
1999 (i.e., a "Grace" period of two months); and (ii) 90 days from the date in
which the Company submits the plans for dividing the office space approved by
the Company and signed by two of its advisors.
The Company may terminate the Lease Agreement after three years provided that a
written notice is sent to the Lessor 180 in advance.
In the event that the Company exercises the Option, the term of rent with
respect to the additional 332 square meters shall commence on the earlier of (i)
120 days from the date in which the Notice was given; and (ii) the date in which
the Company received possession of the additional space, and shall terminate
upon the termination of the Lease Agreement.
Rent: The Company shall pay monthly rent of NIS 77,571 (approximately $19,500)
for office space and parking to be paid quarterly. The Company shall be exempt
from paying rent during the first 108 rent days. In the event that the Option is
exercised, the Company shall be exempt from paying rent for the additional
space, during the first 60 rent days.
<PAGE> 2
Sub-Lease. Without receiving the prior written consent of the Lessor, the
Company may not sub-lease or grant any other right with respect to the leased
property or any part thereof, excluding 250 square meters, with respect to
which, the Company may sublease it, provided that the Company guaranties the
fulfillment of all obligations by the sub-lessee.
Collateral. The Company shall (i) issue a promissory note in the amount
equivalent to nine months rent in favor of the Lessor; (ii) provide the Lessor
with an irrevocable and unconditional bank guaranty in the amount of NIS 609,705
(approximately $152,000); and (iii) provide the Lessor with two personal
guaranties.
Additional Terms and Restrictions:
* The Lessor is obligated to link the Company's computer room to a separate
24 hour air condition system;
* Without receiving the Lessor's prior written consent, which consent shall
not be unreasonably withheld, the Company may not approve the transfer of its
shares which may result in a new shareholder (i) holding 25% or more of the
rights to receive dividend; (ii) having the right to appoint more than 25% of
the rights to vote at the Company's shareholders meetings. The foregoing shall
not apply to the transfer of shares to an affiliated company.
<PAGE> 1
EXHIBIT 10.6
BACKWEB TECHNOLOGIES LTD. (THE "COMPANY" OR "BACKWEB")
SUMMARY TRANSLATION OF LEASE AGREEMENTS IN ISRAEL
1. Lease Agreement by and between BackWeb and Ben Artzi Holdings
The Company currently leases 256 square meters (plus parking space) from Ben
Artzi Holdings, pursuant to a lease agreement originally signed by the parties
on May 28, 1996 and extended for an additional period on March 31, 1997 (the
"Extension"). Monthly rent is the equivalent in NIS of US$6,720 (calculated on
the basis of the exchange rate as of March 31, 1997 and linked to the CPI.
The term of the Extension is until May 21, 1999.
2. Lease Agreement by and among Ashtrom Assets Ltd. The Company For Assets
and Buildings Ltd., F.I.B.I. Holdings Ltd. Sahar Insurance Company Ltd., Shiloah
Insurance Company Ltd. (the "Lessor") and the Company, dated February 21, 1999
(the "Lease Agreement").
The Lease Property: 1,095 square meters (plus storage rooms and parking space)
in Aba Hillel Street, Ramat Gan, Israel.
The Company received an option to lease additional 332 square meters (the
"Option"), provided that the Company send a written notice no later than
1.9.99, informing the Lessor of the Company's intention to exercise the Option
(the "Notice"), and a bank guaranty in the amount of NIS 81,300 (approximately
$20,000) is issued in favor of the Lessor.
Term: A term of five years which shall commence on the earlier of (i) May 15,
1999 (i.e., a "Grace" period of two months); and (ii) 90 days from the date in
which the Company submits the plans for dividing the office space approved by
the Company and signed by two of its advisors.
The Company may terminate the Lease Agreement after three years provided that a
written notice is sent to the Lessor 180 in advance.
In the event that the Company exercises the Option, the term of rent with
respect to the additional 332 square meters shall commence on the earlier of (i)
120 days from the date in which the Notice was given; and (ii) the date in which
the Company received possession of the additional space, and shall terminate
upon the termination of the Lease Agreement.
Rent: The Company shall pay monthly rent of NIS 77,571 (approximately $19,500)
for office space and parking to be paid quarterly. The Company shall be exempt
from paying rent during the first 108 rent days. In the event that the Option
is exercised, the Company shall be exempt from paying rent for the additional
space, during the first 60 rent days.
<PAGE> 2
Sub-Lease. Without receiving the prior written consent of the Lessor, the
Company may not sub-lease or grant any other right with respect to the leased
property or any part thereof, excluding 250 square meters, with respect to
which, the Company may sublease it, provided that the Company guarantees the
fulfillment of all obligations by the sub-lessee.
Collateral. The Company shall (i) issue a promissory note in the amount
equivalent to nine months rent in favor of the Lessor; (ii) provide the Lessor
with an irrevocable and unconditional bank guaranty in the amount of NIS
609,705 (approximately $152,000); and (iii) provide the Lessor with two
personal guarantees.
Additional Terms and Restrictions:
* The Lessor is obligated to link the Company's computer room to a separate 24
hour air condition system;
* Without receiving the Lessor's prior written consent, which consent shall not
be unreasonably withheld, the Company may not approve the transfer of its shares
which may result in a new shareholder (i) holding 25% or more of the rights to
receive dividend; (ii) having the right to appoint more than 25% of the members
of the Company's executive committee; or (iii) having more than 25% of the
rights to vote at the Company's shareholders meetings. The foregoing shall not
apply to the transfer of shares of an affiliated company.
<PAGE> 1
EXHIBIT 10.7
BASIC LEASE INFORMATION
OFFICE NET
<TABLE>
<S> <C>
LEASE DATE: December 23, 1998
TENANT: BackWeb Technologies, Inc., a Delaware corporation
TENANT'S NOTICE ADDRESS: 2077 Gateway Place, Suite 500, San Jose, CA 95110
TENANT'S BILLING ADDRESS: 2077 Gateway Place, Suite 500, San Jose, CA 95110
TENANT CONTACT: Madhu Ranganathan PHONE NUMBER: 408-437-0200
FAX NUMBER: 408-933-1800
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 2077 Gateway Place, Suite 100, San Jose, CA 95110
LANDLORD'S REMITTANCE ADDRESS: Spieker Properties, P.O. Box 45587, Department 10088,
San Francisco, CA 95145-0587
Project Description: San Jose Gateway, San Jose, CA
Building Description: Building known as 2077 Gateway Place, San Jose, CA
Premises: Approximately 3,476 rentable square feet, Suite 510
Permitted Use: General Office and Administrative
Occupancy Density: 14 people
Parking Density: 4/1000 square feet
Scheduled Term Commencement Date: January 1, 1999
Scheduled Length of Time: Thirty-seven (37) months
Scheduled Term Expiration Date: January 31, 2002
Rent:
Base Rent: See Paragraph 39.A.
Estimated First Year Operating
Expenses: See Paragraph 39.A.
Security Deposit: $11,471.00
Tenant's Proportionate Share
of Building: 4.6%
</TABLE>
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
<TABLE>
<S> <C>
LANDLORD TENANT
Spieker Properties, L.P., BackWeb Technologies, Inc.
a California limited partnership a Delaware corporation
By: Spieker Properties, Inc.,
a Maryland corporation, By: /s/ Eli Barkat
its general partner ----------------------------
Eli Barkat
Its: CEO
By: /s/ John W. Peterson
---------------------------
John W. Peterson
Its: Vice President
</TABLE>
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Basic Lease Information ............................................ 1
Table of Contents .................................................. 2
1. Premises .......................................................... 3
2. Possession and Lease Commencement ................................, 3
3. Term .............................................................. 3
4. Use ............................................................... 3
5. Rules and Regulations ............................................. 4
6. Rent .............................................................. 4
7. Operating Expenses ................................................ 4
8. Insurance and Indemnification ..................................... 6
9. Waiver of Subrogation ............................................. 7
10. Landlord's Repairs and Maintenance ................................ 8
11. Tenant's Repairs and Maintenance .................................. 8
12. Alterations ....................................................... 8
13. Signs ............................................................. 8
14. Inspection/Posting Notices ........................................ 9
15. Services and Utilities ............................................ 9
16. Subordination ..................................................... 10
17. Financial Statements .............................................. 10
18. Estoppel Certificate .............................................. 10
19. Security Deposit .................................................. 10
20. Limitation of Tenant's Remedies ................................... 10
21. Assignment and Subletting ......................................... 10
22. Authority of Tenant ............................................... 11
23. Condemnation ...................................................... 11
24. Casualty Damage ................................................... 12
25. Holding Over ...................................................... 12
26. Default ........................................................... 12
27. Liens ............................................................. 14
28. Substitution ...................................................... 14
29. Transfers by Landlord ............................................. 14
30. Right of Landlord to Perform Tenant's Covenants ................... 14
31. Waiver ............................................................ 14
32. Notices ........................................................... 14
33. Attorney's Fees ................................................... 15
34. Successors and Assigns ............................................ 15
35. Force Majeure ..................................................... 15
36. Surrender of Premises ............................................. 15
37. Parking ........................................................... 15
38. Miscellaneous ..................................................... 16
39. Additional Provisions ............................................. 16
40. Jury Trial Waiver ................................................. 17
Signatures ........................................................ 17
EXHIBITS:
Exhibit A .........................................Rules and Regulations
Exhibit B .............................. Site Plan, Property Description
Exhibit C ....................... Tenant Improvements and Specifications
Additional Exhibits as Required
</TABLE>
<PAGE> 3
LEASE
THIS LEASE is made as of the 23rd day of December, 1998, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"LANDLORD"), and BackWeb Technologies, Inc., a Delaware corporation
(hereinafter called "TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "PREMISES") outlined
in red on EXHIBIT B and described in the Basic Lease Information. The Premises
shall be all or part of a building (the "BUILDING") and of a project (the
"PROJECT"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are outlined in blue and green respectively on EXHIBIT B. Landlord and
Tenant acknowledge that physical changes may occur from time to time in the
Premises, Building or Project, and that the number of buildings and additional
facilities which constitute the Project may change from time to time, which may
result in an adjustment in Tenant's Proportionate Share, as defined in the Basic
Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in which the
interior improvements have already been constructed ("EXISTING IMPROVEMENTS"),
the provisions of this Paragraph 2.A. shall apply and the term commencement date
("TERM COMMENCEMENT DATE") shall be the earlier of the date on which: (1) Tenant
takes possession of some or all of the Premises; or (2) Landlord notifies Tenant
that Tenant may occupy the Premises. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on the scheduled Term Commencement Date,
Landlord shall not be subject to any liability therefor, nor shall Landlord be
in default hereunder nor shall such failure affect the validity of this Lease,
and Tenant agrees to accept possession of the Premises at such time as Landlord
is able to deliver the same, which date shall then deemed the Term Commencement
Date. Tenant shall not be liable for any Rent (defined below) for any period
prior to the Term Commencement Date. Tenant acknowledges that Tenant has
inspected and accepts the Premises in their present condition, "as is," and as
suitable for, the Permitted Use (as defined below), and for Tenant's intended
operations in the Premises. Tenant agrees that the Premises and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the condition
or repair of the Premises nor promises to alter, remodel or improve the Premises
have been made by Landlord or any agents of Landlord unless such are expressly
set forth in this Lease. Upon Landlord's request, Tenant shall promptly execute
and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among
other things, to acceptance of the Premises and to the determination of the Term
Commencement Date, in accordance with the terms of this Lease, but Tenant's
failure or refusal to do so shall not negate Tenant's acceptance of the Premises
or affect determination of the Term Commencement Date.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and the term commencement date ("TERM COMMENCEMENT DATE") shall be the
earlier of the date on which: (1) Tenant takes possession of some or all of the
Premises; or (2) the improvements to be constructed or performed in the Premises
by Landlord (if any) shall have been substantially completed in accordance with
the plans and specifications, if any, described on EXHIBIT C and Tenant's taking
of possession of the Premises or any part thereof shall constitute Tenant's
confirmation of substantial completion for all purposes hereof, whether or not
substantial completion of the Building or Project shall have occurred. If for
any reason Landlord cannot deliver possession of the Premises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder nor shall such failure
affect the validity of this Lease, and Tenant agrees to accept possession of the
Premises at such time as such improvements have been substantially completed,
which date shall then be deemed the Term Commencement Date. Tenant shall not be
liable for any Rent for any period prior to the Term Commencement Date (but
without affecting any obligations of Tenant under any improvement agreement
appended to this Lease). In the event of any dispute as to substantial
completion of work performed or required to be performed by Landlord, the
certificate of Landlord's architect or general contractor shall be conclusive.
Substantial completion shall have occurred notwithstanding Tenant's submission
of a punchlist to Landlord, which Tenant shall submit, if at all, within three
(3) business days after the Term Commencement Date or otherwise in accordance
with any improvement agreement appended to this Lease. Upon Landlord's request,
Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease, but Tenant's failure to refusal to do so shall not negate
Tenant's acceptance of the Premises or affect determination of the Term
Commencement Date.
3. TERM
The term of this Lease (the "TERM") shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified
as the Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a date
other than the first day of the calendar month, the Term shall be the number of
months of the Length of Term in addition to the remainder of the calendar month
following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in
the Basic Lease Information ("PERMITTED USE") and for no other use or purpose.
Tenant shall control Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, assignees and subtenants (collectively, "TENANT'S
PARTIES") in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the occupant density (the "OCCUPANCY DENSITY") or the parking density
(the "PARKING DENSITY") specified in the Basic Lease Information at any time. So
long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have
the nonexclusive right to use, in common with other parties occupying the
Building or Project, the parking areas, driveways and other common areas of the
Building and Project, subject to the terms of this Lease and such rules and
regulations as Landlord may from time to time prescribe. Landlord reserves the
right, without notice or liability to Tenant, and without the same constituting
an actual or constructive eviction, to alter or modify the common areas from
time to time, including the location and configuration thereof, and the
amenities and facilities which Landlord may determine to provide from time to
time.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises or from any portion
of the common areas as a result of Tenant's or any Tenant's Party's use thereof,
nor take any action which would constitute a nuisance or would disturbed,
obstruct or endanger any other tenants or occupants of the Building or Project
or elsewhere, or interfere with their use of their respective premises or common
areas. Storage outside the Premises of materials, vehicles or any other
3
<PAGE> 4
items is prohibited. Tenant shall not use or allow the Premises to be used for
any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain
or permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer the commission of any waste in, on or about the Premises. Tenant shall
not allow any sale by auction upon the Premises, or place any loads upon the
floors, walls or ceilings which could endanger the structure, or place any
harmful substances in the drainage system of the Building or Project. No waste,
materials or refuse shall be dumped upon or permitted to remain outside the
Premises. Landlord shall not be responsible to Tenant for the non-compliance by
any other tenant or occupant of the Building or Project with any of the
above-referenced rules or any other terms or provisions of such tenant's
occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall
at its sole cost and expense strictly comply with all existing or future
applicable municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenant's use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) (collectively "REGULATIONS"). Tenant shall at
its sole cost and expense obtain any and all licenses or permits necessary for
Tenant's use of the Premises. Tenant shall at its sole cost and expense
promptly comply with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted. Tenant shall not do or permit
anything to be done in, on, under or about the Project or bring or keep
anything which will in any way increase the rate of any insurance upon the
Premises, Building or Project or upon any contents therein or cause a
cancellation of said insurance or otherwise affect said insurance in any
manner. Tenant shall indemnify, defend (by counsel reasonably acceptable to
Landlord), protect and hold Landlord harmless from and against any loss, cost,
expense, damage, attorneys' fees or liability arising out of the failure of
Tenant to comply with any Regulation. Tenant's obligations pursuant to the
foregoing indemnity shall survive the expiration or earlier termination of this
Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substance defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, stored, released or
disposed of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or not caused by Tenant. Landlord shall have the right at
all reasonable times to impact the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Tenant if Landlord has reasonable grounds to believe that Tenant is in
violation of the foregoing provisions of this Paragraph 4.D. Tenant shall
indemnify, defend (by counsel reasonably acceptable to Landlord), protect and
hold Landlord harmless from and against any and all claims, liabilities, losses,
costs, loss of rents, liens, damages, injuries or expenses (including attorneys'
and consultants' fees and court costs), demands, causes of action, or judgments
directly or indirectly arising out of or related to the use, generation,
storage, release, or disposal of Hazardous Materials by Tenant or any of
Tenant's Parties, in, on, under or about the Premises, the Building or the
Project or surrounding land or environment, excluding Hazardous Materials
present prior to the date of this Lease Date, which indemnity shall include,
without limitation, damages for personal or bodily injury, property damage,
damage to the environment or natural resources occurring on or off the Premises,
losses attributable to diminution in value or adverse effects on marketability,
the cost of any investigation, monitoring, government oversight, repair,
removal, remediation, restoration, abatement, and disposal, and the preparation
of any closure or other required plans, whether such action is required or
necessary prior to or following the expiration or earlier termination of this
Lease. Neither the consent by Landlord to the use, generation, storage, release
or disposal of Hazardous Materials nor the strict compliance by Tenant with all
laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's
obligation of indemnification pursuant to this Paragraph 4.D. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as EXHIBIT A and any other rules and regulations
and any modifications or additions thereto which Landlord may from time to time
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, any other tenant's or occupant's lease or
any Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever, at the Remittance Address specified in the Basic
Lease Information or to such other place as Landlord may from time to time
designate in writing. Base Rent for the first full month of the Term shall be
paid be Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
elsewhere in this Lease, as applicable. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share
of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraph 26.C. and D., and any monies spent by Landlord pursuant to Paragraph
30, shall be considered additional rent ("Additional Rent"). "Rent" shall mean
Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share of
the Building and/or Project (as applicable), as defined in the Basic Lease
Information, of Operating Expenses (defined below) in the manner set forth
below. Tenant shall pay the applicable Tenant's Proportionate Share of each
such Operating Expenses. Landlord and Tenant acknowledge that if the number of
buildings which constitute the Project increases or decreases, or if physical
changes are made to the Premises, Building or Project or the configuration of
any thereof, Landlord may at its discretion reasonably adjust Tenant's
Proportionate Share of the Building or Project to reflect the change.
Landlord's determination of Tenant's Proportionate Share of the Building and of
the Project shall be conclusive so long as it is reasonably and consistently
applied. "Operating
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EXPENSES" shall mean all expenses and costs of every kind and nature which
Landlord shall pay or become obligated to pay, because of or in connection with
the ownership, management, maintenance, repair, preservation, replacement and
operation of the building or Project and its supporting facilities and such
additional facilities now and in subsequent years as may be determined by
Landlord to be necessary or desirable to the Building and/or Project (as
determined in a reasonable manner) other than those expenses and costs which
are specifically attributable to Tenant or which are expressly made the
financial responsibility of Landlord or specific tenants of the Building or
Project pursuant to this Lease. Operating Expenses shall include, but are not
limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes or
fees, gross receipts taxes, service payments in lieu of such taxes or
fees, annual or periodic license or use fees, excises, transit charges,
and other impositions, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind (including fees "in-lieu" of
any such tax or assessment) which are now or hereafter assessed, levied,
charged, confirmed, or imposed by any public authority upon the Building
or Project, its operations or the Rent (or any portion or component
thereof), or any tax, assessment or fee imposed in substitution, partially
or totally, of any of the above. Operating Expenses shall also include any
taxes, assessments, reassessments, or other fees or impositions with
respect to the development, leasing, management, maintenance, alteration,
repair, use or occupancy of the Premises, Building or Project or any
portion thereof, including, without limitation, by or for Tenant, and all
increases therein or reassessments thereof whether the increases or
reassessments result from increased rate and/or valuation (whether upon a
transfer of the building or Project or any portion thereof or any interest
therein or for any other reason). Operating Expenses shall not include
inheritance or estate taxes imposed upon or assessed against the interest
of any person in the Project, or taxes computed upon the basis of the net
income of any owners of any interest in the Project. If it shall not be
lawful for Tenant to reimburse Landlord for all or any part of such taxes,
the monthly rental payable to Landlord under this Lease shall be revised
to net Landlord the same net rental after imposition of any such taxes by
landlord as would have been payable to Landlord prior to the payment of
any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of insurance
incurred by Landlord, including for the insurance coverage set forth in
Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for the
Building and Project and public and common areas and facilities of
and comprising the Building and Project, including, but not limited
to, the roof and roof membrane, windows, elevators, restrooms,
conference rooms, health club facilities, lobbies, mezzanines,
balconies, mechanical rooms, building exteriors, alarm systems, pest
extermination, landscaped areas, parking and service areas,
driveways, sidewalks, loading areas, fire sprinkler systems, sanitary
and storm sewer lines, utility services, heating/ventilation/air
conditioning systems, electrical, mechanical or other systems,
telephone equipment and wiring servicing, plumbing, lighting, and any
other items or areas which affect the operation or appearance of the
Building or Project, which determination shall be at Landlord's
discretion, except for: those items expressly made the financial
responsibility of Landlord pursuant to Paragraph 10 hereof; those
items to the extent paid for by the proceeds of insurance; and those
items attributable solely or jointly to specific tenants of the
Building or Project.
(b) Repairs, replacements, and general maintenance shall include the
cost of any capital improvements made to or capital assets acquired
for the Project or Building that in Landlord's discretion may reduce
any other Operating Expenses, including present or future repair
work, are reasonably necessary for the health and safety of the
occupants of the Building or Project, or are required to comply with
any Regulation, such costs or allocable portions thereof to be
amortized over such reasonable period as Landlord shall determine,
together with interest on the unamortized balance at the publicly
announced "prime rate" charged by Wells Fargo Bank, N.A. (San
Francisco) or its successor at the time such improvements or capital
assets are constructed or acquired, plus two (2) percentage points,
or in the absence of such prime rate, then at the U.S. Treasury
six-month market note (or bond, if so designated) rate as published
by any national financial publication selected by Landlord, plus four
(4) percentage points, but in no event more than the maximum rate
permitted by law, plus reasonable financing charges.
(c) Payment under or for any easement, license, permit, operating
agreement, declaration, restrictive covenant or instrument relating
to the Building or project.
(d) All expenses and rental related to services and costs of
supplies, materials and equipment used in operating, managing and
maintaining the Premises, Building and Project, the equipment therein
and the adjacent sidewalks, driveways, parking and service areas,
including, without limitation, expenses related to service agreements
regarding security, fire and other alarm systems, janitorial
services, window cleaning, elevator maintenance, Building exterior
maintenance, landscaping and expenses related to the administration,
management and operation of the Project, including without limitation
salaries, wages and benefits and management office rent.
(e) the cost of supplying any services and utilities which benefit
all or a portion of the Premises, Building or Project, including
without limitation services and utilities provided pursuant to
Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified public
accountants; provided, however, that legal expenses chargeable as
Operating Expenses shall not include the cost of negotiating leases,
collecting rents, evicting tenants nor shall it include costs
incurred in legal proceedings with or against any tenant or to
enforce the provisions of any lease.
(g) A management and accounting cost recovery fee equal to five
percent (5%) of the sum of the Project's base rents and Operating
Expenses (other than such management and accounting fee).
If the rentable area of the Building and/or Project is not fully occupied during
any fiscal year of the Term as determined by Landlord, an adjustment may be made
in Landlord's reasonable discretion in computing the Operating Expenses for such
year so that Tenant pays an equitable portion of all variable items (e.g.,
utilities, janitorial services and other component expenses that are affected by
variations in occupancy levels) of Operating Expenses, as reasonably determined
by Landlord; provided, however, that in no event shall Landlord be entitled to
collect in excess of one hundred percent (100%) of the total Operating Expenses
from all of the tenants in the Building or Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant improvements
or other specific costs incurred for the account of, separately billed to and
paid by specific tenants of the Building or Project, the initial construction
cost of the Building, or debt service on any mortgage or deed of trust recorded
with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above.
Notwithstanding anything herein to the contrary, in any instance wherein
Landlord, in Landlord's reasonable discretion, deems Tenant to be responsible
for any amounts greater than Tenant's Proportionate Share, Landlord shall have
the right to allocate costs in any manner Landlord deems appropriate.
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The above enumeration of services and facilities shall not be deemed to impose
an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that
it shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
Notwithstanding anything in the definition of Operating Expenses in this Lease
to the contrary, Operating Expenses shall not include the following, except to
the extent specifically permitted by a specific exception to the following:
i) Costs of capital improvements, replacements or equipment and any
depreciation or amortization expenses thereon, except as specifically set forth
in the definition of Operating Expenses in Paragraph 7.A of the Lease;
ii) Costs incurred by Landlord due to the violation by Landlord of the
terms and conditions of any lease of space in the Building or the Project;
iii) Costs for acquisition of sculpture, paintings or other objects of
art in common areas.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "Estimated Operating Expenses"
for any particular year shall mean Landlord's estimate of the Operating
Expenses for such fiscal year made with respect to such fiscal year as
hereinafter provided. Landlord shall have the right from time to time to revise
its fiscal year and interim accounting periods so long as the periods as so
revised are reconciled with prior periods in a reasonable manner. During the
last month of each fiscal year during the Term, or as soon thereafter as
practicable, Landlord shall give Tenant written notice of the Estimated
Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's
Proportionate Share of the Estimated Operating Expenses with installments of
Base Rent for the fiscal year to which the Estimated Operating Expenses applies
in monthly installments on the first day of each calendar month during such
year, in advance. Such payment shall be construed to be Additional Rent for all
purposes hereunder. If at any time during the course of the fiscal year.
Landlord determines that Operating Expenses are projected to vary from the then
Estimated Operating Expenses by more than five percent (5%), Landlord may, by
written notice to Tenant, revise the Estimated Operating Expenses for the
balance of such fiscal year, and Tenant's monthly installments for the
remainder of such year shall be adjusted so that by the end of such fiscal
year Tenant has paid to Landlord Tenant's Proportionate Share of the revised
Estimated Operating Expenses for such year, such revised installment amounts to
be Additional Rent for all purposes hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "Operating expense
Adjustment" shall mean the difference between Estimated Operating Expenses and
actual Operating Expenses for any fiscal year determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each fiscal
year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a
statement of actual Operating Expenses for the fiscal year just ended,
accompanied by a computation of Operating Expense Adjustment. If such statement
shows that Tenant's payment based upon Estimated Operating Expenses is less
than Tenant's Proportionate Share of Operating Expenses, then Tenant shall pay
to Landlord the difference within twenty (20) days after receipt of such
statement, such payment to constitute Additional Rent for all purposes
hereunder. If such statement shows that Tenant's payments of Estimated
Operating Expenses exceed Tenant's Proportionate Share of Operating Expenses,
then (provided that Tenant is not in default under this Lease) Landlord shall
pay to Tenant the difference within twenty (20) days after delivery of such
statement to Tenant. If this Lease has been terminated or the Term hereof has
expired prior to the date of such statement, then the Operating Expense
Adjustment shall be paid by the appropriate party within twenty (20) days after
the date of delivery of the statement. Should this Lease commence or terminate
at any time other than the first day of the fiscal year, Tenant's Proportionate
Share of the Operating Expense Adjustment shall be prorated based on a month of
30 days and the number of calendar months during such fiscal year that this
Lease is in effect. Notwithstanding anything to the contrary contained in
Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements
within the time periods specified in those paragraphs shall in no way excuse
Tenant from its obligation to pay Tenant's Proportionate Share of Operating
Expenses.
D. NET LEASES. This shall be a triple net Lease and Base Rent shall be paid
to Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. The provisions for payment of
Operating Expenses and the Operating Expense Adjustment are intended to pass on
to Tenant and reimburse Landlord for all costs and expenses of the nature
described in Paragraph 7.A. incurred in connection with the ownership,
management, maintenance, repair, preservation, replacement and operation of the
Building and/or Project and its supporting facilities and such additional
facilities now and in subsequent years as may be determined by Landlord to be
necessary or desirable to the Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any
statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall
have the right, not later than twenty (20) days following receipt of such
statement and upon the condition that Tenant shall first deposit with Landlord
the full amount in dispute, to cause Landlord's books and records with respect
to Operating Expenses for such fiscal year to be audited by certified public
accountants selected by Tenant and subject to Landlord's reasonable right of
approval. The Operating Expense Adjustment shall be appropriately adjusted on
the basis of such audit. If such audit discloses a liability for a refund in
excess of ten percent (10%) of Tenant's Proportionate Share of the Operating
Expenses previously reported, the cost of such audit shall be borne by
Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant
shall not request an audit in accordance with the provisions of this Paragraph
7.E. within twenty (20) days after receipt of Landlord's statement provided
pursuant to Paragraph 7.B. or 7.C., such statement shall be final and binding
for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for
the sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risk including
fire, vandalism, and malicious mischief in an amount not less than the
replacement cost thereof, in the form and with deductibles and
endorsements as selected by Landlord. At its election, Landlord may
instead (but shall have no obligation to) obtain "All Risk" coverage, and
may also obtain earthquake, pollution, and/or flood insurance in amounts
selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but
shall have no obligation to) carry insurance against loss of rent, in an amount
equal to the amount of Base Rent and Additional Rent that Landlord could be
required to abate to all Building tenants in the event of condemnation or
casualty damage for a period of twelve (12) months. Landlord may also (but
shall have no obligation to) carry such other insurance as Landlord may
deem prudent or advisable, including, without limitation, liability insurance
in such amounts and on such terms as Landlord shall determine. Landlord shall
not be obligated to insure, and shall have no responsibility whatsoever for any
damage to, any furniture, machinery, goods, inventory or suppliers, or
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other personal property or fixtures which Tenant may keep or maintain in
the Premises, or any leasehold improvements, additions or alterations
within the Premises.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of his Lease and at all times
until the end of the Term, insurance on all personal property and fixtures
of Tenant and all improvements, additions or alterations made by or for
Tenant to the Premises on an "All Risk" basis, insuring such property for
the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance covering
bodily injury and property damage liability occurring in or about the
Premises or arising out of the use and occupancy of the Premises and the
Project, and any part of either, and any areas adjacent thereto, and the
business operated by Tenant or by any other occupant of the Premises. Such
insurance shall include contractual liability insurance coverage insuring
all of Tenant's indemnity obligations under this Lease. Such coverage shall
have a minimum combined single limit of liability of at least Two Million
Dollars ($2,000,000.00), and a minimum general aggregate limit of Three
Million Dollars ($3,000,000.00), with an "Additional Insured -- Managers or
Lessors of Premises Endorsement." All such policies shall be written to
apply to all bodily injury (including death), property damage or loss,
personal and advertising injury and other covered loss, however occasioned,
occurring during the policy term, shall be endorsed to add Landlord and any
party holding an interest to which this Lease may be subordinated as an
additional insured, and shall provide that such coverage shall be "primary"
and non-contributing with any insurance maintained by Landlord, which shall
be excess insurance only. Such coverage shall also contain endorsements
including employees as additional insureds if not covered by Tenant's
Commercial General Liability Insurance. All such insurance shall provide
for the severability of interests of insureds; and shall be written on an
"occurrence" basis, which shall afford coverage for all claims based on
acts, omissions, injury and damage, which occurred or arose (or the onset
of which occurred or arose) in whole or in part during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant shall
carry Workers' Compensation Insurance as required by any Regulation,
throughout the Term at Tenant's sole cost and expense. Tenant shall also
carry Employers' Liability Insurance in amounts not less than One Million
Dollars ($1,000,000) each accident for bodily injury by accident; One
Million Dollars ($1,000,000) policy limit for bodily injury by disease; and
One Million Dollars ($1,000,000) each employee for bodily injury by
disease, throughout the Term at Tenant's sole cost and expense.
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty (30)
days' notice of cancellation or change in terms; and (ii) waive all rights
of subrogation by the insurance carrier against Landlord. If at any time
during the Term the amount or coverage of insurance which Tenant is
required to carry under this Paragraph 8.B. is, in Landlord's reasonable
judgment, materially less than the amount or type of insurance coverage
typically carried by owners or tenants of properties located in the general
area in which the Premises are located which are similar to and operated
for similar purposes as the Premises or if Tenant's use of the Premises
should change with or without Landlord's consent, Landlord shall have the
right to require Tenant to increase the amount or change the types of
insurance coverage required under this Paragraph 8.B. All insurance
policies required to be carried by Tenant under this Lease shall be written
by companies rated A X or better in "Best's Insurance Guide" and authorized
to do business in the State of California. In any event deductible amounts
under all insurance policies required to be carried by Tenant under this
Lease shall not exceed Five Thousand Dollars ($5,000.00) per occurrence.
Tenant shall deliver to Landlord on or before the Term Commencement Date,
and thereafter at least thirty (30) days before the expiration dates of the
expired policies, certified copies of Tenant's insurance policies, or a
certificate evidencing the same issued by the insurer thereunder, and, if
Tenant shall fail to procure such insurance, or to deliver such policies or
certificates, Landlord may, at Landlord's option and in addition to
Landlord's other remedies in the event of a default by Tenant hereunder,
procure the same for the account of Tenant, and the cost thereof shall be
paid to Landlord as Additional Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use or
occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or
from activities or failures to act of Tenant or Tenant's Parties; (2) claims
arising from work or labor performed, or for materials or supplies furnished to
or at the request or for the account of Tenant in connection with performance of
any work done for the account of Tenant within the Premises or Project; (3)
claims arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease; and (4) claims arising from
the negligence or intentional acts or omissions of Tenant or Tenant's Parties.
The foregoing indemnity by Tenant shall not be applicable to claims to the
extent arising from the gross negligence or willful misconduct of Landlord.
Landlord shall not be liable to Tenant and Tenant hereby waives all claims
against Landlord for any injury or damage to any person or property in or about
the Premises, Building or Project by or from any cause whatsoever (other than
Landlord's gross negligence or willful misconduct) and, without limiting the
generality of the foregoing, whether caused by water leakage of any character
from the roof, walls, basement or other portion of the Premises, Building or
Project, or caused by gas, fire, oil or electricity in, on or about the
Premises, Building or Project. The provisions of this Paragraph shall survive
the expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage provided
by insurance to be maintained hereunder or any other rights or remedies,
Landlord and Tenant each waive any right to recover against the other for: (a)
damages for injury to or death of persons; (b) damage to property, including
personal property; (c) damages to the Premises or any part thereof; and (d)
claims arising by reason of the foregoing due to hazards covered by insurance
maintained or required to be maintained pursuant to this Lease to the extent of
proceeds recovered therefrom, or proceeds which would have been recoverable
therefrom in the case of the failure of any party to maintain any insurance
coverage required to be maintained by such party pursuant to this Lease. This
provision is intended to waive fully, any rights and/or claims arising by reason
of the foregoing, but only to the extent that any of the foregoing damages
and/or claims referred to above are covered or would be covered, and only to the
extent of such coverage, by insurance actually carried or required to be
maintained pursuant to this Lease by either Landlord or Tenant. This provision
is also intended to waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation on any insurance
carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its
rights as specified in this Paragraph 9 with respect to any subtenant that it
has approved pursuant to Paragraph 2.1 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord upon such
subtenant taking possession of the Premises or a portion thereof. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any policy.
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10. LANDLORD'S REPAIRS AND MAINTENANCE.
Landlord shall at Landlord's expense maintain in good repair, reasonable wear
and tear excepted, the structural soundness of the roof, foundations, and
exterior walls of the Building. The term "exterior walls" as used herein shall
not include windows, glass or plate glass, doors, special store fronts or office
entries. Any damage caused by or repairs necessitated by any negligence or act
of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option
and Tenant's expense. Tenant shall immediately give Landlord written notice of
any defect or need of repairs in such components of the Building for which
Landlord is responsible, after which Landlord shall have a reasonable
opportunity and the right to enter the Premises at all reasonable times to
repair same. Landlord's liability with respect to any defects, repairs, or
maintenance for which Landlord is responsible under any of the provisions of
this Lease shall be limited to the cost of such repairs or maintenance, and
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making of
repairs, alterations or improvements in or to any portion of the Premises, the
Building or the Project or to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24. By taking possession of the
Premises, Tenant accepts them "as is," as being in good order, condition and
repair and the condition in which Landlord is obligated to deliver them and
suitable for the Permitted Use and Tenant's intended operations in the Premises,
whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a first-class, good, clean and secure condition
and promptly make all necessary repairs and replacements, as determined by
Landlord, with materials and workmanship of the same character, kind and quality
as the original. Notwithstanding anything to the contrary contained herein,
Tenant shall, at its expense, promptly repair any damage to the Premises or the
Building or Project resulting from or caused by any negligence or act of Tenant
or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with the Building or the Project and its mechanical,
plumbing, electrical, heating/ventilation/air conditioning systems, and will not
cause the Building or Project or such systems to be required to be modified to
comply with any Regulations (including, without limitation, the Americans With
Disabilities Act); and (c) will not interfere with the use and occupancy of any
other portion of the Building or Project by any other tenant or its invitees.
Specifically, but without limiting the generality of the foregoing, Landlord
shall have the right of written consent for all plans and specifications for the
proposed Alterations, construction means and methods, all appropriate permits
and licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules and
regulations for contractors and subcontractors performing such work. Tenant
shall also supply to Landlord any documents and information reasonably requested
by Landlord in connection with Landlord's consideration of a request for
approval hereunder. Tenant shall cause all Alterations to be accomplished in a
first-class, good and workmanlike manner, and to comply with all applicable
Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense,
perform any additional work required under applicable Regulations due to the
Alterations hereunder. No review or consent by Landlord of or to any proposed
Alteration or additional work shall constitute a waiver of Tenant's obligations
under this Paragraph 12, nor constitute any warranty or representation that the
same complies with all applicable Regulations, for which Tenant shall at all
times be solely responsible. Tenant shall reimburse Landlord for all costs which
landlord may incur in connection with granting approval to Tenant for any such
Alterations, including any costs or expenses which Landlord may incur in
electing to have outside architects and engineers review said plans and
specifications, and shall pay landlord an administration fee of fifteen percent
(15%) of the cost of the Alterations as Additional Rent hereunder. All such
Alterations shall remain the property of Tenant until the expiration or earlier
termination of this Lease, at which time they shall be and become the property
of Landlord; provided, however, that Landlord may, at Landlord's option, require
that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant
and restore the Premises by the expiration or earlier termination of this Lease,
to their condition existing prior to the construction of any such Alterations.
All such removals and restoration shall be accomplished in a first-class and
good and workmanlike manner so as not to cause any damage to the Premises or
Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade
fixtures or furniture or other personal property, Landlord may keep and use them
or remove any of them and cause them to be stored or sold in accordance with
applicable law, at Tenant's sole expense. In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses,
Tenant shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the value
of Alterations within the Premises, and on Tenant's interest pursuant to this
Lease, or any increase in any of the foregoing based on such Alterations. To the
extent that any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without obligation),
all or any portion of the Alterations shall be performed by Landlord for
Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof
(including a reasonable charge for Landlord's overhead and profit) prior to
commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of
removing any such Alterations and restoring the Premises to their original
condition such cost to include a reasonable charge for Landlord's overhead and
profit as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices,
graphics or banners whatsoever or any window decor which is visible in or from
public view or corridors, the common areas or the exterior of the Premises or
the Building, in or on any exterior window or window fronting upon any common
areas or service area without Landlord's prior written approval which Landlord
shall have the right to withhold in its absolute and sole discretion; provided
that Tenant's name shall be included in any Building-standard door and directory
signage, if any, in accordance with Landlord's Building signage program,
including without limitation, payment by Tenant of any fee charged by Landlord
for maintaining such signage, which fee shall constitute Additional Rent
hereunder. Any installation of signs, notices, graphics or banners on or about
the Premises or Project approved by Landlord shall be subject to any Regulations
and to any other requirements imposed by Landlord. Tenant shall remove all such
signs or graphics by the expiration or any earlier termination of this Lease.
Such installations and removals shall be made in such manner as to avoid injury
to or defacement of the Premises, Building or Project and any other improvements
contained therein, and Tenant shall repair any injury or defacement including
without limitation discoloration caused by such installation or removal.
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14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs, improvements or
alterations to the Premises, Building or Project or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted or
required by law to prevent the perfection of liens against Landlord's interest
in the Project or to exhibit the Premises to prospective tenants, purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
necessary or desirable; provided, however, that Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's business operations. Tenant
shall not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry. Tenant waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby.
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, upon and about the Premises, excluding Tenant's vaults and safes
or special security areas (designated in advance), and Landlord shall have the
right to use any and all means which Landlord may deem necessary or proper to
open said doors in an emergency, in order to obtain entry to any portion of the
Premises, and any entry to the Premises or portions thereof obtained by
Landlord by any of said means, or otherwise, shall not be construed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portions
thereof. At any time within six (6) months prior to the expiration of the Term
or following any earlier termination of this Lease or agreement to terminate
this Lease, Landlord shall have the right to erect on the Premises, Building
and/or Project a suitable sign indicating that the Premises are available for
lease.
15. SERVICES AND UTILITIES
A. Subject to the provisions elsewhere herein contained and to the rules and
regulations of the Building, Landlord shall furnish to the Premises during
ordinary business hours of generally recognized business days, to be determined
by Landlord (but exclusive, in any event, of Saturdays, Sundays and legal
holidays), water for lavatory and drinking purposes and electricity, heat and
air conditioning as usually furnished or supplied for use of the Premises, for
reasonable and normal office use as of the date Tenant takes possession of the
Premises as determined by Landlord (but not including above-standard or
continuous cooling for excessive heat-generating machines, excess lighting or
equipment), janitorial services during the times and in the manner that such
services are, in Landlord's judgment, customarily furnished in comparable
office buildings in the immediate market area, and elevator service, which
shall mean service either by nonattended automatic elevators or elevators with
attendants, or both, at the option of Landlord. Tenant acknowledges that Tenant
has inspected and accepts the water, electricity, heat and air conditioning and
other utilities and services being supplied or furnished to the Premises as of
the date Tenant takes possession of the Premises, as being sufficient for use
of the Premises for reasonable and normal office use in their present condition,
"as is," and suitable for the Permitted Use, and for Tenant's intended
operations in the Premises. Landlord shall have no obligation to provide
additional or after-hours electricity, heating or air conditioning, but if
Landlord elects to provide such services at Tenant's request, Tenant shall pay
to Landlord's reasonable charge for such services as determined by Landlord.
Tenant agrees to keep and cause to be kept closed all window covering when
necessary because of the sun's position, and Tenant also agrees at all times to
cooperate fully with Landlord and to abide by all of the regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of electrical, heating, ventilating and air conditioning systems.
Wherever heat-generating machines, excess lighting or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation and the cost of operation and maintenance thereof, shall be paid
by Tenant to Landlord upon demand by Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines,
using excess lighting or using electric current, water, or any other resource
in excess of or which will in any way increase the amount of electricity,
water, or any other resource being furnished or supplied for the use of the
Premises for reasonable and normal office use, in each case as of the date
Tenant takes possession of the Premises as determined by Landlord, or which
will require additions or alterations to or interfere with the Building power
distribution systems; nor connect with electric current, except through
existing electrical outlets in the Premises or water pipes, any apparatus,
equipment or device for the purpose of using electrical current, water, or any
other resource. If Tenant shall require water or electric current or any other
resource in excess of that being furnished or supplied for the use of the
Premises as of the date Tenant takes possession of the Premises as determined by
Landlord, Tenant shall first procure the written consent of Landlord which
Landlord may refuse, to the use thereof, and Landlord may cause a special meter
to be installed in the Premises so as to measure the amount of water, electric
current or other resource consumed for any such other use. Tenant shall pay
directly to Landlord as an addition to and separate from payment of Operating
Expenses the cost of all such additional resources, energy, utility service and
meters (and of installation, maintenance and repair thereof and of any
additional circuits or other equipment necessary to furnish such additional
resources, energy, utility or service). Landlord may add to the separate or
metered charge a recovery of additional expense incurred in keeping account of
the excess water, electric current or other resource so consumed. Landlord
shall not be liable for any damages directly or indirectly resulting from nor
shall the Rent or any monies owed Landlord under this Lease herein reserved be
abated by reason of: (a) the installation, use or interruption of use of any
equipment used in connection with the furnishing of any such utilities or
services, or any change in the character or means of supplying or providing any
such utilities or services or any supplier thereof; (b) the failure to furnish
or delay in furnishing any such utilities or services when such failure or
delay is caused by acts of God or the elements, labor disturbances of any
character, or any other accidents or other conditions beyond the reasonable
control of Landlord or because of any interruption of service due to Tenant's
use of water, electric current or other resource in excess of that being
supplied or furnished for the use of the Premises as of the date Tenant takes
possession of the Premises; (c) the inadequacy, limitation, curtailment,
rationing or restriction on use of water, electricity, gas or any other form of
energy or any other service or utility whatsoever serving the Premises or
Project, whether by Regulation or otherwise; or (d) the partial or total
unavailability of any such utilities or services to the Premises or the
Building, whether by Regulation or otherwise; nor shall any such occurrence
constitute an actual or constructive eviction of Tenant. Landlord shall further
have no obligation to protect or preserve any apparatus, equipment or device
installed by Tenant in the Premises, including without limitation by providing
additional or after-hours heating or air conditioning. Landlord shall be
entitled to cooperate voluntarily and in a reasonable manner with the efforts
of national, state or local governmental agencies or utility suppliers in
reducing energy or other resource consumption. The obligation to make services
available hereunder shall be subject to the limitations of any such voluntary,
reasonable program. In addition, Landlord reserves the right to change the
supplier or provider of any such utility or service from time to time. Tenant
shall have no right to contract with or otherwise obtain any electrical or
other such service for or with respect to the Premises or Tenant's operations
therein from any supplier or provider of any such service. Tenant shall
cooperate with Landlord and any supplier or provider of such services
designated by Landlord from time to time to facilitate the delivery of such
services to Tenant at the Premises and to the Building and Project, including
without limitation allowing Landlord and Landlord's suppliers or providers, and
their respective agents and contractors, reasonable access to the Premises for
the purpose of installing, maintaining, repairing, replacing or upgrading such
service or any equipment or machinery associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the
Premises, or if not separately billed to or metered to Tenant, Tenant's
Proportionate Share of all charges jointly serving the Project in accordance
with Paragraph 7. All sums payable under this Paragraph 15 shall constitute
Additional Rent hereunder.
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16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within ten (10) days after request by Landlord, Tenant shall
execute and deliver any additional documents evidencing Tenant's attornment or
the subordination of this Lease with respect to any such ground leases or
underlying leases or any such mortgage or deed of trust, in the form reasonably
requested by Landlord or by any ground landlord, mortgage, or beneficiary under
a deed of trust, subject to such nondisturbance requirement. If requested in
writing by Tenant, Landlord shall use commercially reasonable efforts to obtain
a subordination, nondisturbance and attornment agreement for the benefit of
Tenant reflecting the foregoing from any ground Landlord, mortgagee or
beneficiary, at Tenant's expense, subject to such other terms and conditions as
the ground landlord, mortgage or beneficiary may reasonably require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord
Tenant's and any guarantor's current financial statements or other information
discussing financial worth of Tenant and any guarantor, which Landlord shall
keep confidential and use solely for purposes of this Lease and in connection
with the ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of Landlord,
to deliver to Landlord, or Landlord's designee, an estoppel certificate stating
that this Lease is in full force and effect, that this Lease has not been
modified (or stating all modifications, written or oral, to this Lease), the
date to which Rent has been paid, the unexpired portion of this Lease, that
there are no current defaults by Landlord or Tenant under this Lease (or
specifying any such defaults), that the leasehold estate granted by this Lease
is the sole interest of Tenant in the Premises and/or the land at which the
Premises are situated, and such other matters pertaining to this Lease as may be
reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or Project or any interest therein.
Failure by Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant that the statements
included are true and correct without exception. Tenant agrees that if Tenant
fails to execute and deliver such certificate within such ten (10) day period,
Landlord may execute and deliver such certificate on Tenant's behalf and that
such certificate shall be binding on Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
Project or any interest therein. The parties agree that Tenant's obligation to
furnish such estoppel certificate in a timely fashion is a material inducement
for Landlord's execution of this Lease, and shall be an event of default
(without any cure period that might be provided under Paragraph 26.A(3) of this
Lease) if Tenant fails to fully comply or makes any material misstatement in any
such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a security
deposit as stated in the Basic Lease information (the "SECURITY DEPOSIT"), which
sum shall be held and owned by Landlord, without obligation to pay interest, as
security for the performance of Tenant's covenants and obligations under this
Lease. The Security Deposit is not an advance rental deposit or a measure of
damages incurred by Landlord in case of Tenant's default. Upon the occurrence of
any event of default by Tenant, Landlord may from time to time, without
prejudice to any other remedy provided herein or by law, use such fund as a
credit to the extent necessary to credit against any arrears of rent or other
payments due to Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default, and Tenant shall pay to Landlord, on
demand, the amount so applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled, reduced by such amounts as may
be required by Landlord to remedy defaults on the part of Tenant in the payment
of Rent or other obligations of Tenant under this Lease, to repair damage to the
Premises, Building or Project caused by Tenant or any Tenant's Parties and to
close the Premises. Landlord may use and commingle the Security Deposit with
other funds of Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease are not personal obligations of Landlord or of the
individual or other partners of Landlord or its or their partners, directors,
officers, or shareholders, and Tenant agrees to look solely to Landlord's
interest in the Project for the recovery of any amount from Landlord, and shall
not look to other assets of Landlord nor seek recourse against the assets of the
individual or other partners of Landlord or its or their partners, directors,
officers or shareholders. Any lien obtained to enforce any such judgment and any
levy of execution thereon shall be subject and subordinate to any liens,
mortgage or deed of trust on the Project. Under no circumstances shall Tenant
have the right to offset against or recoup Rent or other payments due and to
become due to Landlord hereunder except as expressly provided in Paragraph 23.B.
below, which Rent and other payments shall be absolutely due and payable
hereunder in accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as
an accommodation to Tenant. Accordingly, this Lease is personal to Tenant
and Tenant's rights granted hereunder do not include the right to assign
this Lease or sublease the Premises, or to receive any excess, either in
installments or lump sum, over the Rent which is expressly reserved by
Landlord as hereinafter provided, except as otherwise expressly hereinafter
provided. Tenant shall not assign or pledge this Lease or sublet the
Premises or any part thereof, whether voluntarily or by operation of law,
or permit the use or occupancy of the Premises or any part thereof by
anyone other than Tenant, or suffer or permit any such assignment, pledge,
subleasing or occupancy, without Landlord's prior written consent except as
provided herein. If Tenant desires to assign this Lease or sublet any or
all of the Premises, Tenant shall give Landlord written notice (the
"TRANSFER NOTICE") at least thirty (30) days prior to the anticipated
effective date of the proposed assignment or sublease, which shall contain
all of the information reasonably requested by Landlord to address
Landlord's decision criteria specified hereinafter. Landlord shall then
have a period of fifteen (15) days following receipt of the Transfer Notice
to notify Tenant in writing that Landlord elects either: (i) to terminate
this Lease as to the space so affected as of the date so requested by
Tenant; or (ii) to consent to the proposed assignment or sublease, subject,
however, to Landlord's prior written consent of the proposed assignee or
subtenant and of any related documents or agreements associated with the
assignment or sublease. If Landlord should fail to notify Tenant in writing
of such election
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within said period, Landlord shall be deemed to have waived option (1)
above, but written consent by ???????? assignee or subtenant shall still be
required. If Landlord does not exercise option (1) above, Landlord's
consent to a proposed assignment or sublease shall not be unreasonably
withheld. Consent to any assignment or subletting shall not constitute
consent to any subsequent transaction to which this Paragraph 21 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances in
which it may be reasonable for Landlord to withhold Landlord's consent to
an assignment or subletting, Landlord and Tenant acknowledge that it shall
be reasonable for Landlord to withhold Landlord's consent in the following
instances: if the proposed assignee does not agree to be bound by and
assume the obligations of Tenant under this Lease in form and substance
satisfactory to Landlord; the use of the Premises by such proposed assignee
or subtenant would not be a Permitted Use or would violate any exclusivity
or other arrangement which Landlord has with any other tenant or occupant
or any Regulation or would increase the Occupancy Density or Parking
Density of the Building or Project, or would otherwise result in an
undesirable tenant mix for the Project as determined by Landlord; the
proposed assignee or subtenant is not of sound financial condition as
determined by Landlord in Landlord's sole discretion; the proposed assignee
or subtenant is a governmental agency; the proposed assignee or subtenant
does not have a good reputation as a tenant of property or a good business
reputation; the proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Project or is a present
tenant of the Project; the assignment or subletting would entail any
Alterations which would lessen the value of the leasehold improvements in
the Premises or use of any Hazardous Materials or other noxious use or use
which may disturb other tenants of the Project; or Tenant is in default of
any obligation of Tenant under this Lease, or Tenant has defaulted under
this Lease on three (3) or more occasions during any twelve (12) months
preceding the date that Tenant shall request consent. Failure by or refusal
of Landlord to consent to a proposed assignee or subtenant shall not cause
a termination of this Lease. Upon a termination under Paragraph 21.1(1)(i),
Landlord may lease the Premises to any party, including parties with whom
Tenant has negotiated an assignment or sublease, without incurring any
liability to Tenant. At the option of Landlord, a surrender and termination
of this Lease shall operate as an assignment to Landlord of some or all
subleases or subtenancies. Landlord shall exercise this option by giving
notice of that assignment to such subtenants on or before the effective
date of the surrender and termination. In connection with each request for
assignment or subletting, Tenant shall pay to Landlord Landlord's standard
fee for approving such requests, as well as all costs incurred by Landlord
or any mortgagee or ground lessor in approving each such request and
effecting any such transfer, including, without limitation, reasonable
attorneys' fees.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under any
such sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission incurred by Tenant, shall
be divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to
Landlord. In any subletting or assignment undertaken by Tenant, Tenant
shall diligently seek to obtain the maximum rental amount available in the
marketplace for comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other
disposition (including such a transfer to or by a receiver or trustee in
federal or state bankruptcy, insolvency or other proceedings) resulting in
a change in the present control of such corporation or any of its parent
corporations, not including any public offering of shares by the person or
persons owning a majority of said corporate shares, shall constitute an
assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business
form, a transfer of the interest of persons, firms or entities responsible
for managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial
interests of said entity and/or a change in the identity of the persons
responsible for the general credit obligations of said entity shall
constitute an assignment for all purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the
primary liability of the Tenant named herein for the payment of Rent or for
the performance of any other obligations to be performed by Tenant,
including obligations contained in Paragraph 25 with respect to any
assignee or subtenant. Landlord may collect rent or other amounts or any
portion thereof from any assignee, subtenant, or other occupant of the
Premises, permitted or otherwise, and apply the net rent collected to the
Rent payable hereunder, but no such collection shall be deemed to be a
waiver of this Paragraph 21, or the acceptance of the assignee, subtenant
or occupant as tenant, or a release of Tenant from the further performance
by Tenant of the obligations of Tenant under this Lease. Any assignment or
subletting which conflicts with the provisions hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter
into this Lease and to perform all of Landlord's obligations hereunder and that
all persons signing this Lease on its behalf are authorized to do. Tenant and
the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial
party of the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Building or Project is taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, Landlord may terminate this
Lease at its option. In either of such events, the Rent shall be abated during
the unexpired portion of this Lease, effective when the physical taking of said
Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of
which the Premises are a part should be taken or condemned for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with the
Permitted Use of the Premises, and this Lease is not terminated as provided in
Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion
of this Lease shall be reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and reasonable under all of
the circumstances, but only after giving Landlord credit for all sums received
or to be received by Tenant by the condemning authority. Notwithstanding
anything to the contrary contained in this Paragraph, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under power
of eminent domain during the Term, this Lease shall be and remain unaffected by
such taking or appropriation and Tenant shall continue to pay in full all Rent
payable hereunder by Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and
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Landlord shall be entitled to receive that portion of any award which represents
the cost of restoration of the Premises and the use and occupancy of the
Premises.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord)
any and all payment, income, rent, award or any interest therein whatsoever
which may be paid or made in connection with such taking or conveyance and
Tenant shall have no claim against Landlord or otherwise for any sums paid by
virtue of such proceedings, whether or not attributable to the value of any
unexpired portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
D. WAIVER OF CCP SECTION 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by
fire, tornado, or other casualty (collectively, "Casualty"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's reasonable estimation material restoration of the Premises can
reasonably be made within one hundred eighty (180) days from the date of such
notice and receipt of required permits for such restoration. Landlord's
reasonable determination shall be binding on Tenant.
B. WITHIN 180 DAYS. If the Premises or Building should be damaged by Casualty
to such extent that material restoration can in Landlord's estimation be
reasonably completed within one hundred eighty (180) days after the date of such
notice and receipt of required permits for such restoration, this Lease shall
not terminate. Provided that insurance proceeds are received by Landlord to
fully repair the damage, Landlord shall proceed to rebuild and repair the
Premises in the manner determined by Landlord, except that Landlord shall not be
required to rebuild, repair or replace any part of the Alterations which may
have been placed on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be abated
proportionately, but only to the extent of rental abatement insurance proceeds
received by Landlord during the time and to the extent the Premises are unfit
for occupancy.
C. GREATER THAN 180 DAYS. If the Premises or building should be damaged by
Casualty to such extent that rebuilding or repairs cannot in Landlord's
estimation be reasonably completed within one hundred eighty (180) days after
the date of such notice and receipt of required permits for such rebuilding or
repair, then Landlord shall have the option of either: (1) terminating this
Lease effective upon the date of the occurrence of such damage, in which event
the Rent shall be abated during the unexpired portion of this Lease; or (2)
electing to rebuild or repair the Premises diligently and in the manner
determined by Landlord. Landlord shall notify Tenant of its election within
thirty (30) days after Landlord's receipt of notice of the damage or
destruction. Notwithstanding the above, Landlord shall not be required to
rebuild, repair or replace any part of any Alterations which may have been
placed, on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but only
to the extent of rental abatement insurance proceeds received by Landlord during
the time and to the extent the Premises are unfit for occupancy.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the
Premises or Building are damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case Landlord
shall have the right to terminate this Lease by delivering written notice of
termination to tenant within thirty (30) days after the date of notice to
Landlord that said damage or destruction is not fully covered by insurance or
such requirement is made by any such holder, as the case may be, whereupon this
Lease shall terminate.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in
the event of damage or destruction to the Premises or the Building. As a
material inducement to Landlord entering into this Lease. Tenant hereby waives
any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil
Code of California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs, or under any similar law, statute or
ordinance now or hereafter in effect.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of
the Premises or the Building, under no circumstances shall Landlord be required
to repair any injury or damage to, or make any repairs to or replacements of,
Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant
shall be unlawfully and illegally in possession of the Premises, whether or not
Landlord accepts any rent from Tenant or any other person while Tenant remains
in possession of the Premises without Landlord's written consent. If Tenant
shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
double the amount of daily rental as of the last month prior to the date of
expiration or earlier termination. Tenant shall also indemnify, defend, protect
and hold Landlord harmless from any loss, liability or cost, including
consequential and incidental damages and reasonable attorneys' fees, incurred by
Landlord resulting from delay by Tenant in surrendering the Premises, including
without limitation, any claims made by the succeeding tenant founded on such
delay. Acceptance of Rent by Landlord following expiration or earlier
termination of this Lease, or following demand by Landlord for presentation of
the Premises, shall not constitute a renewal of this Lease, and nothing
contained in this Paragraph 25 shall waive Landlord's right of reentry or any
other right. Additionally, if upon expiration or earlier termination of this
Lease, or following demand by Landlord for possession of the Premises, Tenant
has not fulfilled its obligation with respect to repairs and cleanup of the
Premises or any other Tenant obligations as set forth in this Lease, then
Landlord shall have the right to perform any such obligations as it deems
necessary at Tenant's sole cost and expense, and any time required by Landlord
to complete such obligations shall be considered a period of holding over and
the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25
shall survive any expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an event of default on the part of Tenant:
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(1) ABANDONMENT. Abandonment or vacation of the Premises for a continuous
period in excess of five (5) days. Tenant waives any right to notice Tenant
may have under Section 1951.3 of the Civil Code of California, the terms of
this Paragraph 26.A. being deemed such notice to Tenant as required by said
Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay ay installment of Rent or any
other amount due and payable hereunder within three (3) days after the
date when said payment is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing
for fifteen (15) days after written notice of such failure, as to which
time is of the essence.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit of
creditors.
(5) BANKRUPTCY. The filing of any voluntary position in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petitions remains undischarged for a period of thirty
(30) days. If under applicable law, the trustee in bankruptcy or Tenant has
the right to affirm this Lease and continue to perform the obligations of
Tenant hereunder, such trustee or Tenant shall, in such time period as may
be permitted by the bankruptcy court having jurisdiction, cure all defaults
of Tenant hereunder outstanding as of the date of the affirmance of this
Lease and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's obligations
under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the Premises,
if such attachment remains undismissed or undischarged for a period of
fifteen (15) days after the levy thereof.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of fifteen (15) days after the levy thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of default,
Landlord shall have the right to give a written termination notice to
Tenant, and on the date specified in such notice, Tenant's right to
possession shall terminate, and this Lease shall terminate unless on or
before such date all Rent in arrears and all costs and expenses incurred by
or on behalf of Landlord hereunder shall have been paid by Tenant and all
other events of default of this Lease by Tenant at the time existing shall
have been fully remedied to the satisfaction of Landlord. At any time after
such termination, Landlord may recover possession of the Premises or any
part thereof and expel and remove therefrom Tenant and any other person
occupying the same, including any subtenant or subtenants notwithstanding
Landlord's consent to any sublease, by any lawful means, and again
repossess and enjoy the Premises without prejudice to any of the remedies
that Landlord may have under this Lease, or at law or equity by any reason
of Tenant's default or of such termination. Landlord hereby reserves the
right, but shall not have the obligation, to recognize the continued
possession of any subtenant. The delivery or surrender to Landlord by or on
behalf of Tenant of keys, entry codes, or other means to bypass security
at the Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may have
occurred, this Lease shall continue in effect for so long as Landlord does
not terminate Tenant's right to possession under Paragraph 26.B.(1) hereof,
and Landlord may enforce all of Landlord's rights and remedies under this
Lease and at law or in equity, including without limitation, the right to
recover Rent as it becomes due, and Landlord, without terminating this
Lease, may exercise all of the rights and remedies of a landlord under
Section 1951.4 of the Civil Code of the State of California or any
successor code section. Acts of maintenance, preservation or efforts to
lease the Premises or the appointment of a receiver under application of
Landlord to protect Landlord's interest under this Lease or other entry by
Landlord upon the Premises shall not constitute an election to terminate
Tenant's right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for five (5) days after
such occurrence or such default occurs more than three times in any twelve
(12) month period, Landlord may require that Tenant increase the Security
Deposit to the amount of three times the current month's Rent at the time
of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonable avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent concession would have been payable.
D. LATE CHARGES. In addition to its other remedies, Landlord shall have the
right without notice or demand to add to the amount of any payment required to
be made by Tenant hereunder, and which is not paid and received by Landlord on
or before the first day of each calendar month, an amount equal to ten percent
(10%) of the delinquency for each month or portion thereof that the delinquency
remains outstanding to compensate Landlord for the loss of the use of the amount
not paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compare and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the name shall not constitute a waiver of other late
charges or any other remedies available to Landlord.
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E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
the lesser of eighteen percent (18%) per annum or the maximum interest rate
allowed by law ("Applicable Interest Rate") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of
the parties are cumulative and not alternative, to the extent permitted by law
and except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or supplies
furnished or obligations incurred by or on behalf of Tenant or in connection
with work made, suffered or done by or on behalf of Tenant in or on the Premises
or Project. If Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as Landlord shall deem proper, including payment
of the claim giving rise to such lien. All sums paid by Landlord on behalf of
Tenant and all expenses incurred by Landlord in connection therefor shall be
payable to Landlord by Tenant on demand with interest at the Applicable
Interest Rate as Additional Rent. Landlord shall have the right at all times to
post and keep posted on the Premises any notices permitted or required by law,
or which Landlord shall deem proper, for the protection of Landlord, the
Premises, the Project and any other party having an interest therein, from
mechanics' and materialmen's liens, and Tenant shall give landlord not less
than ten (10) business days prior written notice of the commencement of any
work in the Premises or Project which could lawfully give rise to a claim for
mechanics' or materialmen's liens to permit Landlord to post and record a
timely notice of non-responsibility, as Landlord may elect to proceed or as the
law may from time to time provide, for which purpose, if Landlord shall so
determine, Landlord may enter the Premises. Tenant shall not remove any such
notice posted by Landlord without Landlord's consent, and in any event not
before completion of the work which could lawfully give rise to a claim for
mechanics' or materialmen's liens.
28. SUBSTITUTION
A. At any time after execution of this Lease, Landlord may substitute for the
Premises other premises in the Project or owned by Landlord in the vicinity of
the Project (the "New Premises") upon not less than sixty (60) days prior
written notice, in which event the New Premises shall be deemed to be the
Premises for all purposes hereunder and this Lease shall be deemed modified
accordingly to reflect the new location and shall remain in full force and
effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function for
Tenant's purposes; and
(2) If Tenant is occupying the Premises at the time of such substitution,
Landlord shall pay the expense of physically moving Tenant, Tenant's
property and equipment to the New Premises and shall, at Landlord's sole
cost, improve the New Premises with improvements substantially similar to
those the Landlord has committed to provide or has provided in the
Premises.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express
or implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to
Tenant with respect to the failure to perform any of the obligations of
"Landlord," to the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms
of this Lease shall be performed by Tenant at Tenant's sole cost and expense
and without any abatement of Rent. If Tenant shall fail to pay any sum of
money, other than Base Rent, required to be paid by Tenant hereunder or shall
fail to perform any other act on Tenant's part to be performed hereunder,
including Tenant's obligations under Paragraph 11 hereof, and such failure
shall continue for fifteen (15) days after notice thereof by Landlord, in
addition to the other rights and remedies of Landlord, Landlord may make any
such payment and perform any such act on Tenant's part. In the case of an
emergency, no prior notification by Landlord shall be required. Landlord may
take such actions without any obligation and without releasing Tenant from any
of Tenant's obligations. All sums so paid by Landlord and all incidental costs
incurred by Landlord and interest thereon at the Applicable Interest Rate, from
the date of payment by Landlord, shall be paid to Landlord on demand as
Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. RENT. All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at Landlord's Remittance
Address set forth in the Basic Lease Information, or at such other address as
Landlord may specify from time to time by written notice delivered in
accordance herewith. Tenant's obligation to pay Rent and any other amounts to
Landlord under the terms of this Lease shall not be deemed satisfied until such
Rent and other amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in writing
and either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage
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prepaid or sent by facsimile with confirmed receipt (and with an original sent
by commercial overnight courier), and in each case addressed to the party to be
notified at the Notice Address for such party as specified in the Basic Lease
Information or to such other place as the party to be notified may from time to
time designate by at least fifteen (15) days notice to the notifying party.
Notices shall be deemed served upon receipt or refusal to accept delivery.
Tenant appoints as its agent to receive the service of all default notices and
notice of commencement of unlawful detainer proceedings the person in charge of
or apparently in charge of occupying the Premises at the time, and, if there is
no such person, then such service may be made by attaching the same on the main
entrance of the Premises.
C. Required Notices. Tenant shall immediately notify Landlord in writing of
any notice of a violation or a potential or alleged violation of any Regulation
that relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other actin that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Tenant brings to enforce its respective rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by any
prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts
of God, inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or other
casualty, or other causes beyond the reasonable control of the party obligated
to perform, performance by that party for a period equal to the period of that
prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender the
Premises to Landlord in the same condition, reasonable wear and tear and
casualty excepted, as excepted, as existed on the date Tenant originally took
possession thereof, including, but not limited to, all interior walls cleaned,
all interior painted surfaces repainted in the original color, all holes in
walls repaired, all carpets shampooed and cleaned, and all floors cleaned, all
to the reasonable satisfaction of Landlord. Tenant shall remove all of its
debris from the Project. At or before the time of surrender, Tenant shall comply
with the terms of Paragraph 12.A. hereof with respect to Alterations to the
Premises and all other matters addressed in such Paragraph. If the Premises are
not so surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating, but nothing
contained herein shall be construed as an extension of the Term or as a consent
by Landlord to any holding over by Tenant. In the event of Tenant's failure to
give such notice or participate in such joint inspection, Landlord's inspection
at or after Tenant's vacating the Premises shall conclusively be deemed correct
for purposes of determining Tenant's responsibility for repairs and restoration.
Any delay caused by Tenant's failure to carry out its obligations under this
Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal
possession of Premises under paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties
shall have the right to use up to the number of parking spaces, if any,
specified in the Basic Lease Information on an unreserved, nonexclusive, first
come, first served basis, for passenger-size automobiles, in the parking areas
in the Project designated from time to time by Landlord for use in common by
tenants of the Building.
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces available
for use by Tenant, such spaces shall be provided on a month-to-month unreserved
and nonexclusive basis (unless otherwise agreed in writing by Landlord), and
subject to such parking charges as Landlord shall determine, and shall otherwise
be subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties and
visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system, and
hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items
located in the parking areas of the Project, nor for any personal injuries or
death arising out of the use of parking areas in the Project by Tenant or any
Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the
parking areas to be operated by an independent contractor not affiliated with
Landlord, Tenant acknowledges that Landlord shall have no liability for claims
arising through acts or omissions of such independent contractor. In all events,
Tenant agrees to look first to its insurance carrier and to require that
Tenant's Parties look first to their respective insurance carriers for payment
of any loses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to park
in any such assigned or reserved spaces. Tenant may validate visitor parking by
such method as Landlord may approve, at the validation rate from time to time
generally applicable to visitor parking. Landlord also reserves the right to
alter, modify, relocate or close all or any portion of the parking areas in
order to make repairs or perform maintenance service, or to restripe or renovate
the parking areas, or if required by casualty, condemnation, act of God,
Regulations or for any other reason deemed reasonable by Landlord.
Landlord reserves the right to impose a charge for parking at a future
time.
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38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its
provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
E. MODIFICATIONS. This Lease may not be modified except by a written
instrument signed by the parties hereto. Tenant accepts the area of the
Premises as specified in the Basic Lease Information as the approximate area of
the Premises for all purposes under this Lease, and acknowledges and agrees
that no other definition of the area (rentable, usable or otherwise) of the
Premises shall apply. Tenant shall in no event be entitled to a recalculation
of the square footage of the Premises, rentable usable or otherwise, and no
recalculation, if made, irrespective of its purpose. shall reduce Tenant's
obligations under this Lease in any manner, including without limitation the
amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the
Building and of the Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective
otherwise until execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any
check or payment of Rent shall be deemed an accord and satisfaction of full
payment of Rent, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of such Rent or to pursue other
remedies. All offers by or on behalf of Tenant of accord and satisfaction are
hereby rejected in advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect
to any consent, determination or estimation of Landlord required or allowed in
this Lease or requested of Landlord, Landlord's consent, determination or
estimation shall be given or made solely by Landlord in Landlord's good faith
opinion, whether or not objectively reasonable. If Landlord fails to respond to
any request for its consent within the time period, if any, specified in this
Lease, Landlord shall be deemed to have disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference
and made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light,
air or view by any structure which may be erected on lands adjacent to or in
the vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and
Tenant and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the
observance and performance of all of the other covenants, terms and conditions
on Tenant's part to be observed and performed, Tenant shall peaceably and
quietly hold and enjoy the Premises for the term hereby demised without
hindrance or interruption by Landlord or any other person or persons lawfully or
equitably claiming by, through or under Landlord, subject, nevertheless, to all
of the other terms and conditions of this Lease. Landlord shall not be liable
for any hindrance, interruption, interference or disturbance by other tenants or
third persons, nor shall Tenant be released from any obligations under this
Lease because of such hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant
hereunder for any fractional month shall be prorated based on a month of 30
days. As used herein, the term "fiscal year" shall mean the calendar year or
such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
A. PARAGRAPH 6 - RENT. Rent for the Premises is as follows:
$8,447.00 per month plus operating expenses per Paragraph 7
of this Lease Agreement. Operating expenses through December
1999 are estimated to be $2,155.00 per month. Direct
operating expenses are estimated a year in advance and
collected on a monthly basis. Any increases or decreases
necessary will be made at the end of the operating year.
Months 13-24: $8,864.00 per month plus operating expenses per Paragraph 7
of this Lease Agreement.
16
<PAGE> 17
Months 25 - 37: $9,316.00 per month plus operating expenses per
Paragraph 7 of this Lease Agreement.
B. CONTINGENCY: This Lease is contingent upon Landlord's successful
termination of the existing Tenant's current Lease for the
Premises.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY
JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH
THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE
COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE
PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ JOHN W. PETERSEN
------------------------
John W. Petersen
Its: Vice President
Date: 12-30-92
TENANT
BackWeb Technologies, Inc.,
a Delaware corporation
By: /s/ ELI BARKAT
----------------------------
Eli Barkat
Its: CEO
Date: 12/29/98
17
<PAGE> 18
EXHIBIT A
RULES AND REGULATIONS
1. Driveways, sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by tenants or used by
tenants for any purpose other than for ingress to and egress from their
respective premises. The driveways, sidewalks, halls, passages, exits,
entrances, elevators and stairways are not for the use of the general
public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence, in the judgment of
Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Building, the Project and its tenants, provided that
nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of such
tenant's business unless such persons are engaged in illegal activities. No
tenant, and no employees or invitees of any tenant, shall go upon the roof
of any Building, except as authorized by Landlord. No tenant, and no
employees or invitees of any tenant shall move any common area furniture
without Landlord's consent.
2. No sign, placard, banner, picture, name, advertisement or notice, visible
from the exterior of the Premises or the Building or the common areas of
the Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole
and absolute discretion. Landlord shall have the right to remove any such
sign, placard, banner, picture, name, advertisement, or notice without
notice to and at the expense of Tenant, which were installed or displayed
in violation of this rule. If Landlord shall have given such consent to
Tenant at any time, whether before or after the execution of Tenant's
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof or of the Lease, and shall be deemed to relate
only to the particular sign, placard, banner, picture, name, advertisement,
or notice so consented to by Landlord and shall not be construed as
dispensing with the necessity of obtaining the specific written consent of
Landlord with respect to any other such sign, placard, banner, picture,
name, advertisement, or notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person or
vendor approved by Landlord and shall be removed by Tenant at the time of
vacancy at Tenant's expense.
3. The directory of the Building or Project will be provided exclusively for
the display of the name and location of tenants only and Landlord reserves
the right to charge for the use thereof and to exclude any other names
therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices
or spaces along the perimeter of the Building must be fluorescent or of a
quality, type, design, and bulb color approved by Landlord. No articles
shall be placed or kept on the window sills so as to be visible from the
exterior of the Building. No articles shall be placed against glass
partitions or doors which Landlord considers unsightly from outside
Tenant's Premises.
5. Landlord reserves the right to exclude from the Building and the Project,
between the hours of 6 p.m. and 8 a.m. and at all hours on Saturdays,
Sundays and legal holidays, all persons who are not tenants or their
accompanied guests in the Building. Each tenant shall be responsible for
all persons for whom it allows to enter the Building or the Project and
shall be liable to Landlord for all acts of such persons.
Landlord and its agents shall not be liable for damages for any error
concerning the admission to, or exclusion from, the Building or the Project
of any person.
During the continuance of any invasion, mob, riot, public excitement or
other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access
to the Building and the Project during the continuance of that event by any
means it considers appropriate for the safety of tenants and protection of
the Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Except with the written
consent of Landlord, no person or persons other than those approved by
Landlord shall be permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by reason
of Tenant's carelessness or indifference in the preservation of good order
and cleanliness of its Premises. Landlord shall in no way be responsible to
Tenant for any loss of property on the Premises, however occurring, or for
any damage done to Tenant's property by the janitor or any other employee
or any other person.
7. Tenant shall see that all doors of its Premises are closed and securely
locked and must observe strict care and caution that all water faucets or
water apparatus, coffee pots or other heat-generating devices are entirely
shut off before Tenant or its employees leave the Premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or Project or by Landlord for
noncompliance with this rule. On multiple-tenancy floors, all tenants shall
keep the door or doors to the Building corridors closed at all times except
for ingress and egress.
8. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord. As more specifically provided in Tenant's lease
of the Premises, Tenant shall not waste electricity, water or
air-conditioning and agrees to cooperate fully with Landlord to assure the
most effective operation of the Building's heating and air-conditioning,
and shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to each door in
the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys. Tenant shall
not alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior
written consent of Landlord. If Landlord shall give its consent, Tenant
shall in each case furnish Landlord with a key for any such lock. Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys
for all doors which have been furnished to Tenant, and in the event of
loss of any keys so furnished, shall pay Landlord therefor.
Exhibit A - Page 1
<PAGE> 19
10. The restrooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown into them. The
expense of any breakage, stoppage, or damage resulting from violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the leakage, stoppage, or damage.
11. Tenant shall not use or keep in or on the Premises, the Building or the
Project any kerosene, gasoline, or inflammable or combustible fluid or
material.
12. Tenant shall not use, keep or permit to be used or kept in its Premises
any foul or noxious gas or substance. Tenant shall not allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord
or other occupants of the Building by reason of noise, odors and/or
vibrations or interfere in any way with other tenants or those having
business therein, nor shall any animals or birds be brought or kept in or
about the Premises, the Building, or the Project.
13. No cooking shall be done or permitted by any tenant on the Premises, except
that use by the tenant of Underwriters' Laboratory (UL) approved equipment,
refrigerators and microwave ovens may be used in the Premises for the
preparation of coffee, tea, hot chocolate and similar beverages, storing
and heating food for tenants and their employees shall be permitted. All
uses must be in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations and the Lease.
14. Except with the prior written consent of Landlord, Tenant shall not sell,
or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises,
nor shall Tenant carry on, or permit or allow any employee or other person
to carry on, the business of stenography, typewriting or any similar
business in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises be
used for the storage of merchandise or for manufacturing of any kind, or
the business of a public barber shop, beauty parlor, nor shall the Premises
be used for any illegal, improper, immoral or objectional purpose, or any
business or activity other than that specifically provided for in such
Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine,
nail, massage or similar services in the Premises or common areas except as
authorized by Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications, data
processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's instructions in their installation. The cost of
purchasing, installation and maintenance of such services shall be borne
solely by Tenant.
16. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the prior
written approval of Landlord.
17. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenant shall not interfere with
radio or television broadcasting or reception from or in the Building, the
Project or elsewhere.
18. Tenant shall not mark, or drive nails, screws or drill into the
partitions, woodwork or drywall or in any way deface the Premises or any
part thereof without Landlord's consent. Tenant may install nails and
screws in areas of the Premises that have been identified for those
purposes to Landlord by Tenant at the time those walls or partitions were
installed in the Premises. Tenant shall not lay linoleum, tile, carpet or
any other floor covering so that the same shall be affixed to the floor of
its Premises in any manner except as approved in writing by Landlord. The
expense of repairing any damage resulting from a violation of this rule or
the removal of any floor covering shall be borne by the tenant by whom, or
by whose contractors, employees or invitees, the damage shall have been
caused.
19. No furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators
as shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which exceeds
the load per square foot which such floor was designed to carry or which
is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all safes, furniture or other heavy equipment brought
into the Building. Safes or other heavy objects shall, if considered
necessary by Landlord, stand on wood strips of such thickness as
determined by Landlord to be necessary to properly distribute the weight
thereof. Landlord will not be responsible for loss of or damage to any
such safe, equipment or property from any cause, and all damage done to
the Building by moving or maintaining any such safe, equipment or other
property shall be repaired at the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable
to Landlord or to any tenants in the Building shall be placed and
maintained by Tenant, at Tenant's expense, on vibration eliminators or
other devices sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building must be
acceptable to Landlord.
20. Tenant shall not install, maintain or operate upon its Premises any
vending machine without the written consent of Landlord.
21. There shall not be used in any space, or in the public areas of the
Project either by Tenant or others, any hand trucks except those equipped
with rubber tires and side guards or such other material handling
equipment as Landlord may approve. Tenants using hand trucks shall be
required to use the freight elevator, or such elevator as Landlord shall
designate. No other vehicles of any kind shall be brought by Tenant into or
kept in or about its Premises.
22. Each tenant shall store all its trash and garbage within the interior of
the Premises. Tenant shall not place in the trash boxes or receptacles any
personal trash or any material that may not or cannot be disposed of in
the ordinary and customary manner of removing and disposing of trash and
garbage in the city, without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entry-ways and elevators provided for such purposes and at such
times as Landlord shall designate. If the Building has implemented a
building-wide recycling program for tenants, Tenant shall use good faith
efforts to participate in said program.
Exhibit A - Page 2
<PAGE> 20
23. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make
room-to-room solicitation of business from other tenants in the Building or
the Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building
and the Project.
25. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is under the influence of alcohol or drugs or
who commits any act in violation of any of these Rules and Regulations.
26. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building or the Project or any photograph or other likeness of
the Building or the Project in connection with, or in promoting or
advertising Tenant's business except that Tenant may include the
Building's or Project's name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon appropriate
application at the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord, and
no employees of Landlord will admit any person (tenant or otherwise) to
any office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking spaces on
the Project. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking spaces with one car.
Parking spaces shall be for passenger vehicles only; no boats, trucks,
trailers, recreational vehicles or other types of vehicles may be parked
in the parking areas (except that trucks may be loaded and unloaded in
designated loading areas). Vehicles in violation of the above shall be
subject to tow-away, at vehicle owner's expense. Vehicles parked on the
Project overnight without prior written consent of the Landlord shall be
deemed abandoned and shall be subject to tow-away at vehicle owner's
expense. No tenant of the Building shall park in visitor or reserved
parking areas. Any tenant found parking in such designated visitor or
reserved parking areas or unauthorized areas shall be subject to tow-away
at vehicle owner's expense. The parking areas shall not be used to provide
car wash, oil changes, detailing, automotive repair or other services
unless otherwise approved or furnished by Landlord. Tenant will from time
to time, upon the request of Landlord, supply Landlord with a list of
license numbers of vehicles owned or operated by its employees or agents.
31. No smoking of any kind shall be permitted anywhere within the Building,
including, without limitation, the Premises and those areas immediately
adjacent to the entrances and exits to the Building, or any other area as
Landlord elects. Smoking in the Project is only permitted in smoking areas
identified by Landlord, which may be relocated from time to time.
32. If the Building furnishes common area conference rooms for tenant usage,
Landlord shall have the right to control each tenant's usage of the
conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area
amenities or facilities shall be provided from time to time at Landlord's
direction.
33. Tenant shall not swap or exchange building keys or cardkeys with other
employees or tenants in the Building or the Project.
34. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.
35. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Project.
36. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in
favor of any other tenant or tenants, nor prevent Landlord from thereafter
enforcing any such Rules and Regulations against any or all tenants of the
Building.
37. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and the Project and
for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
Exhibit A - Page 3
<PAGE> 21
[MAP]
PROPERTY DESCRIPTION
That certain property situated in the City of San Jose, County of Santa Clara,
State of California, described as follows:
ALL OF PARCELS A and B, as shown upon that certain Parcel Map entitled "Being
all of Parcel 3 as shown on the Parcel Map recorded in Book 451 of Maps at
pages 17 and 18 and lying within the City of San Jose, California", which Map
was filed for record in the Office of the Recorder of the County of Santa
Clara, State of California on December 2, 1982 in Map Book 506 at pages 45 and
46, Santa Clara County Records.
EXHIBIT 'B'
<PAGE> 22
[BUILDING FLOOR PLAN]
EXHIBIT 'B.1.' CONT.
<PAGE> 23
EXHIBIT C
TENANT IMPROVEMENTS
1. In consideration of the mutual covenants contained in the Lease of
which this Exhibit C is a part, Landlord agrees to perform the following
initial tenant improvement work in the Premises ("TENANT IMPROVEMENTS");
- Paint interior walls, color to match existing color.
- Remove walls and door of storage area to provide an opening between
Suite 500 and Suite 510.
- Construct a new wall to separate Suite 550 from Suite 510.
- Fill in two doorways.
- Add new carpet insert between Suite 500 and Suite 510.
2. All the Tenant Improvements described above shall be performed by
Landlord at its cost and expense using Building Standard materials and in the
Building Standard manner. As used herein, "Building Standard" shall mean the
standards for a particular item selected from time to time by Landlord for the
Building or such other standards as may be mutually agreed upon between
Landlord and Tenant in writing.
3. Without limiting the "as-is" provisions of the Lease, Tenant accepts
the Premises in its "as-is" condition and acknowledges that Landlord has no
obligation to make any changes or improvements to the Premises or to pay any
costs expended or to be expended in connection with any such changes or
improvements, other than the Tenant Improvements specified in Paragraph 1 of
this EXHIBIT C.
4. Tenant shall not perform any work in the Premises (including, without
limitation, cabling, wiring, fixturization, painting, carpeting, replacements
or repairs) except in accordance with Paragraphs 12 and 27 of the Lease.
[SPACE 'A' FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.8
AGREEMENT
made and executed in Jerusalem on __________________, 1995
between: INTERAD (1995) LTD.
of 5 Kiryst Mada Street, Mar Notevim, Jerusalem
("INTERAD")
of the first part;
and: NIRBARKAT HOLDINGS LTD.
..............................
("Nir")
ELIBARKAT HOLDINGS LTD.
..............................
("Eli")
YUVAL 63 HOLDINGS (1995) LTD.
..............................
("Yuval")
(Nir, Eli and Yuval are collectively referred
to in this agreement as "BRB")
of the second part;
and Lier Nasa
..............................
("Lior")
of the third part;
and Iftah Sneh
..............................
("Iftah")
of the fourth part.
WHEREAS the parties to this Agreement wish to cooperate for the purpose of
carrying out projects, research and development relating to the field
of utilizing the Internet and similar media for broadcasting
information such as advertising to clients (the "Field"); and
WHEREAS the parties wish to carry out this cooperation through INTERAD, which
will conduct the research and development in the Field and will
<PAGE> 2
thereafter seek commercially to exploit the results of the projects;
and
WHEREAS the parties wish to formalize the terms and conditions with respect to
their investments in INTERAD, their duties and the relationship among
themselves concerning the management of INTERAD;
THE PARTIES THEREFORE AGREE, REPRESENT
AND COVENANT AS FOLLOWS:
1. Preamble and Exhibits
1.1 The preamble to this Agreement constitutes an integral part hereof
and forms part of its conditions.
1.2 All of the exhibits that are appended to this Agreement constitute an
integral part hereof.
2. Representatives and Covenants of Lior and Iftah
Each of Lior and Iftah represents, warrants and covenants as to himself as
follows:
2.1 He possesses know-how, experience, ability and expertise in the
Field, and he further possesses appropriate know-how and talent to
attain the objective of INTERAD, as specified in this Agreement.
2.2 The title to every intellectual property and other right held by him
in the Field will be fully conveyed to INTERAD, and no third party
has any claim or contention with respect to any such right.
2.3 To the best of his knowledge (i) there is no provision of law or
contract that prevents his from entering into this Agreement and
performing his obligations hereunder, and (ii) no third party has any
claim or contention against him with respect to his activities in the
Field.
2.4 He will dedicate all of his time and effort to fulfilling his
responsibilities with INTERAD,
2
<PAGE> 3
and he will not engage in any other work so long as he is employed by
INTERAD.
2.5 Any invention or development by him anywhere in the world, in the
Field, for so long as he is a shareholder or employee of INTERAD and
for a period of two years after he ceases to be a shareholder or
employee (whichever is the latter to occur), shall be the property of
INTERAD.
2.6 He shall not be entitled to any royalty or income for any of his
inventions or developments in the Field, which he invents or develops
during the period that he is a shareholder or employee of INTERAD and
for a period of two years after he ceases to be a shareholder or
employee (whichever is the latter to occur), and any royalty or
income to which he would otherwise be entitled shall be the property
of INTERAD.
3. Representations and Covenants of BRB
Each of Nir, Eli and Yuval represents, warrants and covenants, jointly and
severally, as follows:
3.1 The officers of BRB have know-how and talent with respect to the
development of software products and the formation of contacts with
suitable marketing entities, and consequently BRB has the ability to
perform its obligations under this Agreement.
3.2 To the best of its knowledge (i) there is no provision of law or
contract that prevents any member of BRB from entering into this
Agreement and performing its obligations hereunder, and (ii) no third
party has any claim or contention against any of them with respect to
their activities in the Field.
3.3 They will dedicate appropriate time, effort, talent and contacts to
advance the interests or INTERAD.
3.4 Any invention or development of any member of BRB anywhere in the
world, in the Field, shall be the property of INTERAD. This section
shall not include any prior inventions or
3
<PAGE> 4
developments used in connection with other products marketed or
owned by BRB, BRM Technologies Ltd. ("BRM") or any entity
affiliated with them.
4. Objective of INTERAD
The objective of INTERAD shall be to engage in research and
development projects in the Field and their commercial exploitation.
INTERAD shall also engage in any other activity approved at a general
assembly of shareholders by the vote of the holders of 75% of
INTERAD's shares.
5. Documents of Incorporation
In any case of conflict between the documents of incorporation of
INTERAD and the provisions of this Agreement, the provisions of this
Agreement shall govern.
7. Capitalization of INTERDAD
7.1 Immediately after the execution of this Agreement, the shares of
INTERAD will be allotted to the parties to this Agreement in the
following manner:
624,800 Preferred Shares of NIS 0.01 nominal value each
shall be allotted Nir against payment of their nominal
value.
624,800 Preferred Shares of NIS 0.01 nominal value each
shall be allotted Eli, against Payment of their nominal
value.
624,800 Preferred Shares of NIS 0.01 nominal value each
shall be allotted Yuval, against payment of their nominal
value.
192,00 Ordinary Shares of NIS 0.01 nominal value shall be
allotted to Lior, against payment of their nominal value.
192,000 Ordinary shares of NIS 0.01 nominal value each shall
be allotted to Iftah, against payment of their nominal
value.
4
<PAGE> 5
In addition, BRB will have the exclusive discretion to instruct
INTERAD to allot Ordinary Shares of INTERAD and options to
purchase Ordinary Shares of INTERAD to any person whatsoever.
Such allotments will not cumulatively exceed ____________
Ordinary Shares (including options to purchase Ordinary Shares).
7.2 Upon a resolution approved by the holders of at least 75% of
INTERAD's shares, a number of Ordinary Shares of NIS 0.01 nominal
value each accounting to no more than ___________, shall be
allotted to additional key employees of INTERAD, upon such
employees' agreeing to be bound by all of the terms of this
Agreement. The allotments described in the preceding sentence and
every allotment thereafter will dilute the parties' shareholdings
in INTERAD on a pro rata basis.
7.3 The rights, preferences, privileges, and restrictions granted to
and imposed on the Preferred and Ordinary Shares of INTERAD, are
as set forth in the Articles of Association of INTERAD.
7.4 The Shares to be allotted to Lior and Iftah pursuant to Section
7.1 shall be deposited in trust with ________ (the "Trustee")
together with stock transfer deeds, executed in blank by each of
Lior and Iftah with respect to the shares allotted to him. The
following vesting provisions shall apply to each of Lior and
Iftah (an "Eligible Employee") with respect to the shares
allotted to him:
7.4.1 If an Eligible Employee is employed by INTERAD on the
date that is six months following the commencement of
his employment with INTERAD, the Trustee shall deliver
to such Eligible Employee a number of Ordinary Shares
equal to 25% of the Ordinary Shares allotted to him
pursuant to Section 7.1 above. In the event that an
Eligible Employee is not still employed by INTERAD on
such date, than all of the shares that were allotted
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<PAGE> 6
to him pursuant to Section 7.1 above shall be converted into
deferred shares.
7.4.2 If an Eligible Employee is employed with INTERAD on or subsequent
to the first anniversary of his employment with INTERAD, the
Trustee shall deliver to such Eligible Employee an additional
number of Ordinary Shares equal to 25% of the Ordinary Shares
allotted to him pursuant to Section 7.1 above. In the event that
an Eligible Employee is employed by INTERAD on or subsequent to
the date that is six months following the commencement of his
employment with INTERAD but not on the first anniversary of his
employment with INTERAD, then:
(A) the Trustee shall deliver to him a number of Ordinary Shares
equal to (x) the number of whole months, if any, that he was
employed by INTERAD after the date that is six months
following the commencement of his employment with INTERAD,
multiplied by (y) 4.16% of the Ordinary Shares allotted to
him pursuant to Section 7.1 above; and
(B) the balance of the Ordinary Shares allotted to him pursuant
to Section 7.1 above but not previously delivered to him
shall be converted into deferred shares.
7.4.3 After the first anniversary of his employment, en Eligible
Employee shall have the right, at any time, to receive a number
of Ordinary Shares equal to (x) the number of whole months, if
any, that the Eligible Employee was employed by INTERAD after the
first anniversary of his employment with INTERAD, multiplied by
(y) 4.16% of the Ordinary Shares allotted to him pursuant to
Section 7.1 above subject to the service of a
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<PAGE> 7
written notice signed by him to this effect. The trustee shall
deliver the shares to the Eligible Employee within 14 days from
the date of receipt such notice.
Subject to subsection 7.4.4 below, if an Eligible Employee's
employment is terminated before the second anniversary of his
employment, the Eligible Employee will be entitled to shares
under subsection 7.4.3 above only, and any outstanding Shares
allocated to him pursuant to Section 7.1 above shall be converted
into deferred shares.
7.4.4 Notwithstanding the provisions of Sections 7.4.2 and 7.4.3 above,
if an Eligible Employee is terminated for cause (defined as a
material breach by the Eligible Employee of his obligations to
INTERAD; the failure or refusal of the Eligible Employee
satisfactorily to perform any of his duties to INTERAD; willful
selfessance or gross negligence by the Eligible Employee in the
performance of his duties to INTERAD; the commission by the
Eligible Employee of a felony; or the perpetration by the
Eligible Employee of a dishonest act against INTERAD or any
subsidiary or affiliated company of INTERAD), any of his Ordinary
Shares then held by the Trustee shall immediately be converted
into deferred shares and his entitlement to such shares shall
automatically cease.
Until the shares allotted to an Eligible Employee pursuant to
section 7.1 above are released from trust, an Eligible Employee
will have the right to instruct the Trustee to exercise the
rights annexed to such shares in his sole discretion.
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7.5 INTERAD shall not issue shares otherwise than with the consent of
the holders of at least 75% of the shares of INTERAD.
8. Transfer of Shares
8.1 For a period of three years following the execution of this Agreement
or until the full repayment of the BRB loan pursuant to Section 13
below, whichever is earlier, the parties shall not be entitled to
transfer their shares in INTERAD.
8.2 Subject to the provisions of Section 8.1, if a shareholder wishes to
sell or otherwise transfer any or all of his shares in INTERAD (the
"Selling Party") he shall be required to offer the shares that he
wishes to transfer (the "Offered Shares") to the other shareholders
of INTERAD, pro rata to their respective interests in INTERAD. The
Selling Party shall send the other shareholders a written offer in
which he shall specify the price and payment terms that he is
proposing (the "Offer").
8.3 Any of the other shareholders who wishes to purchase the Offered
Shares shall notify the Selling Party of his agreement to purchase
all of the Offered Shares contained in the Offer within 30 days of
receipt of the Offer.
8.4 If any of the other shareholders declines to purchase the Offered
Shares, declines to purchase the Offered Shares upon the terms
specified in the Offer or does not respond to the Offer within 30
days of receipt, the Selling Party shall so notify all of the other
shareholders and they shall be entitled to purchase any remaining
shares within 7 days in accordance with the Offer, pro rata to their
respective interests in INTERAD or otherwise as may be agreed among
them. If the Offer specifies that it is contingent upon the purchase
of all of the Offered Shares, the Selling Party shall be entitled to
refuse to transfer the shares pursuant to the Offer if there is only a
partial response to the Offer.
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8.5 If there remain any shares that have not been acquired by the shareholders
as specified above, the Selling Party may sell such shares to a third party
on the terms of the Offer or at a price that is higher than that specified
in the Offer and on payment terms that are no more favorable to the
purchaser, within 90 days of the expiration of the period specified in
Section 8.4 above.
8.6 If the shares are sold to a third party in such manner, INTERAD shall be
required to approve the transfer of the shares, provided that the transfer
is in accordance with the terms contained in the Offer, and further
provided that the transferee of the shares is not a competitor or
potential competitor with the business of INTERAD and shall execute this
Agreement as though it were one of the original parties hereto.
8.7 If any or all of the other shareholders agree to purchase the Offered
Shares on the terms specified in the Offer, the Offered Shares shall become
the property of such other shareholders who responded to the Offer, pro
rata to their respective interests in INTERAD, against payment of the
consideration as specified in the Offer.
8.8 The provisions of subsections 8.1 through 8.7 shall not apply to transfers
of shares between Lior and Iftah; between Lior or Iftah and a company that
is wholly controlled by Lior or Iftah; among Nir, Eli and Yuval; between
Nir, Eli or Yuval and a company that is wholly controlled by any or Nir,
Eli or Yuval; between Nir, Eli or Yuval and BRM (or any wholly-controlled
subsidiary or BRM); or between BRB and any of its professional advisors. In
addition, upon the death of Lior or Iftah, any shares that have been
distributed to him by the Trustee may be transferred to his legal heirs.
Any transfer described in this section shall be permitted, provided that
every new shareholder accepts the obligations of the transferor pursuant to
this Agreement.
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9. Board of Directors of INTERAD
9.1 The number of members of the Board of Directors of INTERAD shall be
determined by an ordinary resolution of the general assembly of the
shareholders of INTERAD.
9.2 The directors of INTERAD shall be appointed and not elected. The
holder or holders of each 10% of the Shares of INTERAD will have the
right to appoint one-tenth of the number of Directors of INTERAD (but
in any event at least one director), to dismiss him and to appoint a
replacement. The appointment or dismissal of a director shall be by
means of the delivery of a written notice to the registered office of
INTERAD.
9.3 A director appointed by BRB shall be appointed the Chairman of the
Board of Directors. The Chairman of the Board of Directors shall not
have an additional or casting vote on the Board.
9.4 The day to day management of INTERAD shall be the responsibility of
the General Manager of INTERAD, who shall be appointed to his
position for a term of one year. The appointment shall be made by the
Board of Directors of INTERAD. ___ shall be appointed as the first
General Manager of INTERAD.
The authority of the General Manager, his role, his responsibility
and the terms of his employment shall be determined by the Board of
Directors of INTERAD.
9.5 In each case of a tie vote on the Board of Directors of INTERAD, the
matter as to which no decision was reached shall be brought for
debate to a general assembly of the shareholders of INTERAD.
10. Registered Office
INTERAD's registered office and place of business shall be located in care
of BRM Technologies Ltd., Kiryst Mada, Mar Notavim, Jerusalem, unless and
until Lior, Iftah and the other employees hired
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<PAGE> 11
pursuant to Section 7.2 determine to move the location of INTERAD to the
Tel-Aviv area.
11. Signature Rights
The signature of an executive officer of INTERAD together with the
signature of any one of the individuals designated by BRB, and together
with the corporate stamp or next to the printed name of INTERAD, shall
bind INTERAD in all respects.
12. Expenses of the Registration of INTERAD
The expenses of the registration of INTERAD shall be deemed BRB loans to
INTERAD; BRB shall be entitled to the repayment of such loans on such
terms as they shall determine.
13. Financing and Investments
13.1 BRB undertakes that, after the incorporation of INTERAD, BRB shall
make available to INTERAD, by means of shareholder loans or any other
means chosen by BRB in its sole discretion, including by means of
providing security for loans to be taken by INTERAD, financing in New
Israeli Shekels that is equivalent to up to US$500,000 (not including
the amounts specified in Section 16.2), based on the representative
rate of exchange of the United States dollar as published by the Bank
of Israel at the time of each funding. The amount shall be paid
within one year of the execution of this Agreement, at such times as
shall be agreed between the parties.
13.2 The parties agree that beginning at such time as INTERAD shall have
cumulative revenues of $5 million, the BRB shareholder's loan shall
be repaid at the rate of 2.5% of each subsequent dollar of revenue
and any security that BRB may have provided shall be released at such
rate.
The repayment of the shareholder loans shall be made together with
the addition of linkage differentials based on the difference in the
consumer price index from the date of the making of the loan until
its repayment (based on the index known at the time of the making
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<PAGE> 12
of the loan or any portion thereof, as the case may be, and the
index at the time of repayment of the loan or any portion thereof,
as the case may be), without interest.
13.3 To the extent that INTERAD requires minimum capital for purposes of
Approved Enterprise status, an appropriate amount of the loan shall
be converted to equity capital.
13.4 BRB are hereby granted an option, exercisable in whole or in part
at any time within one year of the date of this Agreement, to invest
an additional amount in New Israeli Shekels that is equivalent to up
to US$500,000 pro rata to their respective holdings in INTERAD,
based on the representative rate of exchange of the United States
dollar as published by the Bank of Israel at the time of each
funding. The number of Preferred Shares to be issued to BRB upon the
exercise of such option shall be based upon a pre-money valuation of
INTERAD equal to US$2 million. In the event that BRB exercises such
option, each of Lior and Iftah shall have an option, exercisable for
a period of 45 days following the exercise of the BRB option, to
purchase Preferred Shares by allotment, in such number as shall
maintain his percentage holding in INTERAD and at the same per share
price paid by BRB.
14. Raising Equity Capital from the Public
The parties agree that in the event INTERAD determines in the future to
raise equity capital from the public by means of a public offering or by
means of a private placement, all of the provisions in this Agreement or
in INTERAD's Articles of Association shall be canceled to the extent that
they conflict with such intention. Similarly, any provision that restricts
the ability to perform any legal act with respect to a share shall be
canceled.
15. United States Operations
The parties expect that it will be necessary to establish a United States
headquarters operation to exploit the products to be developed by INTERAD.
The parties shall issue options to the key employees
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<PAGE> 13
of the United States operations, in such amounts and on such terms as the
Board of Directors of INTERAD may determine.
16. Reimbursement of Expenses and Wages
16.1 Each of Lior and Iftah will be employed by INTERAD on a full-time
basis in accordance with the respective employment agreements that
are appended hereto as Exhibit B. Lior's employment will commence on
November 26, 1995 and Iftah's employment will commence on January 1,
1996. Lior and Iftah will receive a gross salary of NIS 17,000 until
the repayment of the loan in accordance with Section 13 above or
until such other time as shall be agreed between the parties. In
addition, so long as Lior, Iftah and the other employees hired
pursuant to Section 7.1 work in Jerusalem, INTERAD will make one car
available for their use.
16.2 BRB shall provide INTERAD with professional services. In
consideration of the services to be provided by BRB to INTERAD,
INTERAD shall pay BRB a monthly amount of NIS 17,000 and INTERAD
shall bear the expenses incurred by BRB in providing the services.
Until INTERAD raises capital through a public offering or private
placement of securities to a party other than BRB, the payments to
BRB pursuant to this section will accrue and shall be deemed part of
BRB's shareholders loan under Section 13.1 above, to be repaid to
BRB as specified in Section 13.2 above; thereafter, such amounts
shall be paid on a current basis.
If, pursuant to a resolution of the Board of Directors of INTERAD,
any of the officers of BRB take an operative role in the day-to-day
business of INTERAD, his remuneration will be determined by a
special resolution of the shareholders of INTERAD.
16.3 BRB shall use its best efforts to cause BRM to provide
administrative and financial services, and to the extent feasible
research and development services, to INTERAD. INTERAD shall
reimburse BRM for such services on the basis of cost plus 15%.
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17. Non-competition; Confidentiality
The parties covenant not to engage in the Field otherwise than through
INTERAD, directly or indirectly, themselves or through others, whether
self-employed or as employees, including through a partnership or by
holding, themselves or through others, shares or rights to control any
legal entity. Moreover, the parties covenant not to disclose and shall not
in any way transfer to any person or entity any information in their
possession on or concerning the affairs of INTERAD - so long as they are
shareholders or employees of INTERAD and for a period of two years
thereafter.
18. Accountant
Kost Levary & Forar, certified public accountants, shall be appointed as
the accountants of INTERAD.
19. Assignment
BRB shall have the right at any time to assign this Agreement to a company
that is wholly controlled by BRB, to BRM or to any wholly-controlled
subsidiary of BRM, but in any such case BRB shall remain liable for the
obligations of the assignee under this Agreement.
20. Notices
A notice that is sent to the addresses of the parties specified in the
preamble to this Agreement shall be deemed to have reached the addressee
and to have been brought to his attention within 5 days from the date of
its mailing by registered mail or at the time of deliver if hand delivered.
IN WITNESS WHEREOF the parties have signed this Agreement at the place and time
noted above.
NIRBARKAT HOLDINGS LTD. LIOR HASS
[SIG] [SIG]
ELIBARKAT HOLDINGS LTD. IFTAH SNEH
[SIG] [SIG]
YUVAL 63 HOLDINGS (1995) LTD.
[SIG]
14
<PAGE> 1
EXHIBIT 10.9
T B C C
LOAN AND SECURITY AGREEMENT
Borrower: Backweb Technologies Inc.,
a Delaware Corporation
Address: 2077 Gateway Plaza, Suite 500
San Jose, California 95110
Date: December 24, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower(s) (jointly and severally, the "Borrower"), having its chief
executive office and principal place of business at the address shown above,
and TRANSAMERICA BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC")
having its principal office at 9399 West Higgins Road, Suite 600, Rosemont,
Illinois 60018 and having an office at 15260 Ventura Blvd., Suite 1240, Sherman
Oaks, CA 91403. The Schedule to this Agreement (the "Schedule") being signed
concurrently is an integral part of this Agreement. (Definitions of certain
terms used in this Agreement are set forth in Section 9 below.) The parties
agree as follows:
1. LOANS.
1.1. Loans. TBCC, subject to the terms and conditions of this Agreement,
agrees to make loans (the "Loans") to Borrower, from time to time during the
period from the date of this Agreement to the Maturity Date set forth in the
Schedule, at Borrower's request, in an aggregate principal amount at any one
time outstanding not to exceed the Credit Limit shown on the Schedule. If at
any time the total outstanding Loans and other monetary Obligations exceed said
limit, Borrower shall repay the excess immediately without demand. Borrower
shall use the proceeds of all Loans solely for lawful general business purposes.
1.2. Due Date. The Loans, all accrued interest and all other monetary
Obligations shall be payable in full on the Maturity Date. Borrower may borrow,
repay and reborrow Loans (other than any Term Loans), in whole or in part, in
accordance with the terms of this Agreement.
1.3. Loan Account. TBCC shall maintain an account on its books in the name
of Borrower (the "Loan Account"). All Loans and advances made by TBCC to
Borrower or for Borrower's account and all other monetary Obligations will be
charged to the Loan Account. All amounts received by TBCC from Borrower or for
Borrower's account will be credited to the Loan Account. TBCC will send
Borrower a monthly statement reflecting the activity in the Loan Account, and
each such monthly statement shall be an account stated between Borrower and
TBCC and shall be final conclusive and binding absent manifest error.
1.4. Collection of Receivables. Borrower shall remit to TBCC all
Collections including all checks, drafts and other documents and instruments
evidencing remittances in payment (collectively referred to as "Items of
Payment") within one Business Day after receipt, in the same form as received,
with any necessary indorsements. For purposes of calculating interest due to
TBCC, credit will be given for Collections and all other proceeds of Collateral
and other payments to TBCC three Business Days after receipt of cleared funds.
For all purposes of this Agreement any cleared funds received by TBCC later
than 10:00 a.m. (California time) on any Business Day shall be deemed to have
been received on the following Business Day and any applicable interest or fee
shall continue to accrue. Borrower's Loan Account will be credited only with
the net amounts actually received in payment of Receivables, and such payments
shall be credited to the Obligations in such order as TBCC shall determine in
its discretion. Pending delivery to TBCC, Borrower will not commingle any Items
of Payment with any of its other funds or property, but will segregate them
from the other assets of Borrower and will hold them in trust and for the
account and as the property of TBCC. Borrower hereby agrees to endorse any
Items of Payment upon the request of TBCC.
1.5. Reserves. TBCC may, from time to time, in its Good Faith business
Judgment: (i) establish and modify reserves against Eligible Receivables and
Eligible Inventory, (ii) modify advance rates with respect to Eligible
Receivables and Eligible Inventory, (iii) modify the standards of eligibility
set forth in the definitions of Eligible Receivables and Eligible Inventory,
and (iv) establish reserves against available Loans.
1.6. Term.
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<PAGE> 2
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
(a) The term of this Agreement shall be from the date of this Agreement to
the Maturity Date set forth in the Schedule, unless sooner terminated in
accordance with the terms of this Agreement, provided that the Maturity Date
shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless
one party gives written notice to the other, not less than sixty days prior to
the next Maturity Date, that such party elects to terminate this Agreement
effective on the next Maturity Date. On the Maturity Date or on any earlier
termination of this Agreement Borrower shall pay in full all Obligations, and
notwithstanding any termination of this Agreement all of TBCC's security
interests and all of TBCC's other rights and remedies shall continue in full
force and effect until payment and performance in full of all Obligations.
(b) This Agreement may be terminated prior to the Maturity Date as
follows: (i) by Borrower, effective three Business Days after written notice of
termination is given to TBCC; or (ii) by TBCC at any time after the occurrence
* of an Event of Default, without notice, effective immediately. If this
Agreement is terminated by Borrower or by TBCC under this Section 1.6(b).
Borrower shall pay to TBCC a termination fee (the "Termination Fee") in the
amount shown on the Schedule. The Termination Fee shall be due and payable on
the effective date of termination. Notwithstanding the foregoing, Borrower
shall have no right to terminate this Agreement at any time that any principal
of, or interest on any of the Loans or any other monetary Obligations are
outstanding, except upon prepayment of all Obligations and the satisfaction of
all other conditions set forth in the Loan documents.
* AND DURING THE CONTINUANCE
1.7. Payment Procedures. Borrower hereby authorizes TBCC to charge the
Loan Account with the amount of all interest, fees, expenses and other payments
to be made hereunder and under the other Loan Documents. TBCC may, but shall not
be obligated to, discharge Borrower's payment obligations hereunder by so
charging the Loan Account. Whenever any payment to be made hereunder is due on a
day that is not a Business Day, the payment may be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the amount of interest due.
1.8. Conditions to Initial Loan. The obligation to TBCC to make the
initial Loan is subject to the satisfaction of the following conditions prior
to or concurrent with such initial Loan, and Borrower shall cause all such
conditions to be satisfied by the Closing Deadline set forth in the Schedule:
(a) Except for the filing of termination statements under the Code by the
existing lender to Borrower whose loans are being repaid with the Loan
proceeds, no consent or authorization of, filing with or other act by or in
respect of any Governmental Authority or any other Person is required in
connection, with the execution, delivery, performance, validity or
enforceability of this Agreement, or the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or the
continuing operations of the Borrower following the consummation of such
transactions.
(b) TBCC and its counsel shall have performed (i) a review satisfactory to
TBCC of all of the Material Contracts and other assets of the Borrower, the
financial condition of the Borrower, including all of its tax, litigation,
environmental and other potential contingent liabilities, and the corporate and
capital structure of the Borrower and (ii) a pre-closing audit and collateral
review, in each case with results satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of the
initial Loan or as of an earlier date acceptable to TBCC, in form and substance
satisfactory to TBCC and its counsel; (i) a Depository Account Agreement (as
TBCC shall designate), duly executed by the Borrower and its bank on TBCC's
standard form; (ii) acknowledgement copies of Uniform Commercial Code financing
statements (naming TBCC as secured party and the Borrower as debtor), duly filed
in all jurisdictions that TBCC deems necessary or desirable to perfect and
protect the Lines created hereunder, and evidence that all other filings,
registrations and recordings have been made in the appropriate governmental
offices, and all other action has been taken, which shall be necessary to
create, in favor of TBCC, a perfected first priority Line on the Collateral;
(iii) the opinion of counsel for the Borrower covering such matters incident to
the transactions contemplated by this Agreement as TBCC may specify in its
discretion; (iv) * all policies of insurance required by this Agreement and the
other Loan Documents, together with loss payee endorsements for all such
policies naming TBCC as lender loss payee and an additional insured; (v) copies
of the Borrower's articles or certificate of incorporation, certified as true,
correct and complete by the secretary of state of Borrower's state of
incorporation within 45 days of the date hereof; (vi) copies of the bylaws of
the Borrower and a copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Agreement,
the other Loan Documents, and the transactions contemplated hereby and thereby,
attached to which is a certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) that such copies of the bylaws and resolutions are
true, complete and accurate copies thereof, have not been amended or modified
since the date of such certificate and are in full force and effect and (B) the
incumbency, names and true signatures of the officers of the Borrower**; (vii)
a good standing certificate from the Secretary of State of Borrower's state of
incorporation and each state in which the Borrower is qualified as a foreign
corporation, each dated within ten days of the date hereof; (viii) the
additional documents and agreements, if any, listed in the Schedule; and (ix)
such other agreements and instruments as TBCC deems necessary in its sole and
absolute discretion in connection with the transactions contemplated hereby.
* AN INSURANCE CERTIFICATE WITH RESPECT TO (AND, ON TBCC'S REQUEST, COPIES
OF)
** AUTHORIZED TO EXECUTE THE LOAN DOCUMENTS ON BEHALF OF THE BORROWER
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<PAGE> 3
TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
1.9. Conditions to Lending. The obligation of TBCC to make any Loan is
subject to the satisfaction of the following conditions precedent:
(a) There shall be no pending or, to the knowledge of Borrower
threatened litigation, proceeding, inquiry or other action relating to this
Agreement, or any other Loan Document, or which could be expected to have a
Material Adverse Effect in the judgment of TBCC;
(b) Borrower shall be in compliance with all Requirements of Law and
Material Contracts, other than such noncompliance that could not have a
Material Adverse Effect;
(c) The Liens in favor of TBCC shall have been duly perfected and
shall constitute first priority Liens, except for Permitted Liens;
(d) All representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Loan as if then made, other than representations and warranties that
expressly relate solely to an earlier date, in which case they shall have been
true and correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be
continuing or would result from the making of the requested Loan as of the date
of such requests; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
2.1. Interest. Borrower shall pay TBCC interest on all outstanding Loans
and other monetary Obligations, at the interest rate set forth in the Schedule.
Interest shall be payable monthly in arrears on the first Business Day of each
month, and on the Maturity Date. Following the occurrence and during the
continuance of any Event of Default, the interest rate applicable to all
Obligations shall be increased by two percent per month.
2.2. Fees. Borrower shall pay TBCC the fees set forth in the Schedule.
2.3. Calculations. All interest and fees under this Agreement shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period of which such interest or fees are payable.
2.4. Taxes. Any and all payments by Borrower under this Agreement or any
other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. SECURITY.
3.1. Grant of Security Interest. To secure the payment and performance
when due of all of the Obligations. Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables. Investment Property,
Inventory, Equipment, Other Property and other Collateral wherever located.*
* NOTWITHSTANDING THE FOREGOING, THE SECURITY INTEREST GRANTED HEREIN SHALL
NOT EXTEND TO AND THE TERM "COLLATERAL" SHALL NOT INCLUDE ANY LICENSES UNDER
WHICH BORROWER IS A LICENSEE, TO THE EXTENT THE GRANTING OF A SECURITY INTEREST
THEREIN IS PROHIBITED BY OR WOULD CONSTITUTE A DEFAULT UNDER SUCH LICENSE (BUT
ONLY TO THE EXTENT SUCH PROHIBITION IS ENFORCEABLE UNDER APPLICABLE LAW).
3.2. Other Liens; Location of Collateral. Borrower represents, warrants
and covenants that all of the Collateral is, and will at all times continue to
be, free and clear of all Liens, other than Permitted Liens and Liens in favor
of TBCC. All Collateral is and will continue to be maintained at the locations
shown on the Schedule*.
*OR ANY OTHER LOCATION WITHIN THE UNITED STATES PREVIOUSLY DISCLOSED TO
TBCC IN CONFORMITY WITH THE NOTICE REQUIREMENTS OF SECTION 5.8(c).
3.3. Receivables.
(a) Schedules and Other Actions. As often as requested by TBCC,
Borrower shall execute and deliver to TBCC written schedules of Receivables and
Eligible Receivables (but the failure to execute or deliver any schedule shall
not affect or limit TBCC's security interest in all Receivables). On TBCC's
request, Borrower shall also furnish to TBCC copies of invoices to customers
and shipping and delivery receipts. Borrower shall deliver to TBCC the
originals of all letters of credit, notes, and instruments in its favor and
such endorsements or assignments as TBCC may reasonably request and, upon the
request of TBCC, Borrower shall deliver to TBCC all certificated securities
with respect to any Investment Property; with all necessary indorsements, and
obtain such account control agreements with securities intermediaries and take
such other action with respect to any Investment Property, as TBCC shall
request, in form and substance satisfactory to TBCC. Upon request of TBCC
Borrower additionally shall obtain consents from any letter of credit issuers
with respect to the assignment of TBCC of any letter of credit proceeds.
(b) Records, Collections. Borrower shall report all customer credits
to TBCC, on the regular reports to TBCC in the form from time to time specified
by TBCC. Borrower shall notify TBCC of all returns and recoveries of
merchandise and of all claims asserted with respect to merchandise, on its
regular reports to TBCC. Borrower shall not settle or adjust any dispute or
claim, or grant any discount, credit or allowance or accept any return of
merchandise, except in the ordinary course of its business, without TBCC's prior
written consent.
(c) Representations. Borrower represents and warrants to TBCC that
each Receivable with respect to which Loans are requested by Borrower shall, on
the date each Loan is
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TBCC LOAN AND SECURITY AGREEMENT
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requested and made, represent an undisputed, bona fide, existing, unconditional
obligation of the account debtor created by the sale, delivery, and acceptance
of goods, the licensing of software or the rendition of services, in the
ordinary course of Borrower's business, and meet the Minimum Eligibility
Requirements set forth in Section 9.1(a) below.
3.4. Inventory. Borrower shall maintain full, accurate and complete
records respecting the Inventory describing the kind, type and quantity of the
Inventory and Borrower's cost therefor, withdrawals therefrom and additions
thereto, including a perpetual inventory for work in process and finished goods.
3.5. Equipment. Borrower shall at all times keep correct and accurate
records itemizing and describing the location, kind, type, age and condition of
the Equipment, Borrower's cost therefor and accumulated depreciation thereof and
retirements, sales, or other dispositions thereof. Borrower shall keep all of
its Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with industry standards, ordinary wear and tear
excepted. No Equipment shall be annexed or affixed to or become part of any
realty, unless the owner of the realty has executed and delivered a Landlord
Waiver in such form as TBCC shall specify. Where Borrower is permitted to
dispose of any Equipment under this Agreement or by any consent thereto
hereafter given by TBCC. Borrower shall do so at arm's length, in good faith and
by obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity or value of the remaining Equipment.
3.6. Investment Property. Borrower shall have the right to retain all
Investment Property payments and distributions, unless and until a Default or an
Event of Default has occurred. If a Default or an Event of Default exists,
Borrower shall hold all payments on, and process of, and distributions with
respect to, Investment Property in trust for TBCC, and Borrower shall deliver
all such payments, proceeds and distributions to TBCC, immediately upon receipt,
in their original form, duly endorsed, to be applied to the Obligations in such
order as TBCC shall determine. Upon the request of TBCC, any such distributions
and payments with respect to any Investment Property held in any securities
account shall be held and retained in such securities account as part of the
Collateral.
3.7. Further Assurances. Borrower will perform any and all steps that TBCC
may reasonably request to perfect TBCC's security interests in the Collateral,
including, without limitation, executing and filing financing and continuation
statements in form and substance satisfactory to TBCC. TBCC is hereby authorized
by Borrower to sign Borrower's name or file any financing statements or similar
documents or instruments covering the Collateral whether or not Borrower's
signature appear thereon. Borrower agrees, from time to time, at TBCC's request,
to file notices of Liens, financing statements, similar documents or
instruments, and amendments, renewals and continuations thereof, and cooperate
with TBCC, in connection with the continued perfection and protection of the
Collateral. If any Collateral is in the possession or control of any Person
other than a public warehouseman where the warehouse receipt is in the name of
or held by TBCC, Borrower shall notify such Person of TBCC's security interest
therein and upon request*, instruct such Person or Persons to hold all such
Collateral for the account of TBCC and subject to TBCC's instructions. If so
requested by TBCC, Borrower will deliver to TBCC warehouse receipts covering any
Collateral located in warehouses showing TBCC as the beneficiary thereof and
will also cause the warehouseman to execute and deliver such agreements as TBCC
may request relating to waivers of liens by such warehouseman and the release of
the Inventory to TBCC on its demand. Borrower shall defend the Collateral
against all claims and demands of all Persons.
*OF TBCC.
3.8. Power of Attorney. Borrower hereby appoints and constitutes TBCC as
Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of information concerning Receivables and the amount owing thereon,
(ii) upon the occurrence and during the continuance of an Event of Default, to
convey any item of Collateral to any purchaser thereof, (iii) to give or sign
Borrower's name to any notices or statements necessary or desirable to create or
continue the Lien on any Collateral granted hereunder, (iv) to execute and
delivery to any securities intermediary or other Person any entitlement order,
account control agreement or other notice, document or instrument with respect
to any Investment Property, and (v) to make any payment or take any act
necessary or desirable to protect or preserve any Collateral. TBCC's authority
hereunder shall include, without limitation, the authority to * execute and give
receipt for any certificate of ownership or any document, transfer title to any
item of Collateral. This power of attorney is coupled with an interest and is
irrevocable.
* TAKE ANY OTHER ACTIONS ARISING FROM OR INCIDENT TO THE POWERS GRANTED TO
TBCC UNDER THIS AGREEMENT, AND, UPON THE OCCURRENCE AND DURING THE CONTINUANCE
OF AN EVENT OF DEFAULT, THE AUTHORITY TO
4. Representations and Warranties of Borrower. Borrower represents and
warrants as follows:
4.1. Organization, Good Standing and Qualification. Borrower (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State set forth above, (ii) has the corporate power and authority to own
its properties and assets and to transact the businesses in which it is engaged
and (iii) is duly qualified, authorized to do business and in good standing in
each jurisdiction where it is engaged in business, except to the extent that the
failure to so qualify or be in good standing would not have a Material Adverse
Effect.
4.2. Locations of Offices, Records and Collateral. The address of the
principal place of business and chief executive
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<PAGE> 5
TBCC LOAN AND SECURITY AGREEMENT
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office of Borrower is, and the books and records of Borrower and all of its
chattel paper and records relating to Collateral are maintained exclusively in
the possession of Borrower at, the address of Borrower specified in the heading
of this Agreement. Borrower has places of business, and Collateral is located,
only at such address and at the addresses set forth in the Schedule and at any
additional locations reported to TBCC as provided in Section 5.8(c) as to which
TBCC has taken all necessary action to perfect and protect its security
interests in the Collateral at any such locations.
4.3. Authority. Borrower has the requisite corporate power and authority
to execute, deliver and perform its obligations under each of the Loan
documents. All corporate action necessary for the execution, delivery and
performance by Borrower of the Loan Documents has been taken.
4.4. Enforceability. This Agreement is, and, when executed and delivered,
each other Loan Document will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and general principles of equity.
4.5. No Conflict. The execution, delivery and performance of each Loan
Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law or (iii) any Material Contract and will
not result in the imposition of any Liens other than in favor of TBCC.
4.6. Consents and Filings. No consent, authorization or approval of, or
filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any
other Loan Document, the consummation of the transactions contemplated hereby or
thereby or the continuing operations of Borrower following such consummation,
except (i) those that have been obtained or made, (ii) the filing of financing
statements under the Uniform Commercial Code and (iii) any necessary filings
with the U.S. Copyright Office and the U.S. Patent and Trademark Office.
4.7. Solvency. Borrower is Solvent and will be Solvent upon the completion
of all transactions contemplated to occur on or before the date of this
Agreement (including, without limitation, the Loans to be made on the date of
this Agreement).
4.8. Financial Data. Borrower has provided to TBCC complete and accurate *
Financial Statements, which have been prepared in accordance with GAPP **
consistently applied throughout the periods involved and fairly present the
financial position and results of operations of Borrower for each of the
periods covered, subject, in the case of any quarterly financial statements, to
normal year-end adjustments and the absence of notes. Borrower has no
Contingent Obligation or liability for taxes, unrealized losses, unusual forward
or long-term commitments or long-term leases, which is not reflected in such
Financial Statements or the footnotes thereto. Since the last date covered by
such Financial Statements, there has been no sale, transfer or other
disposition by Borrower of any material part of its business or property and no
purchase or other acquisition of any business or property (including any
capital stock of any other Person) material in relation to the financial
condition of Borrower at said date. Since said date, (i) there has been no
change, occurrence, development or event which has had or could reasonably be
expected to have a Material Adverse Effect and (ii) none of the capital stock
of Borrower has been redeemed, retired, purchased or otherwise acquired for
value by Borrower.
* CONSOLIDATED
** (EXCEPT FOR THE ABSENCE OF FOOTNOTES AND SUBJECT TO NORMAL YEAR-END
ADJUSTMENTS WITH RESPECT TO UNAUDITED FINANCIAL STATEMENTS)
4.9. Accuracy and Completeness of Information. All data, reports and
information previously, now or hereafter furnished by or on behalf of Borrower
to TBCC or the Auditors are or will be true and accurate in all material
respects on the date as of which such data, reports and information are dated
or certified, and not incomplete by omitting to state any material fact
necessary to make such data, reports and information not materially misleading
at such time. There are no facts now known to Borrower which individually or in
the aggregate would reasonably be expected to have a Material Adverse Effect
and which have not been disclosed in writing to TBCC.
4.10. No Joint Ventures, Partnerships or Subsidiaries. Borrower is not
engaged in any joint venture or partnership with any other Person. Borrower has
no Subsidiaries.
4.11. Corporate and Trade Name. During the past five years, Borrower has
not been known by or used any other corporate, trade or fictitious name except
for its name as set forth on the signature page of this Agreement and the other
names specified in the Schedule.
4.12. No Actual or Pending Material Modification of Business. There exists
no actual or, to the best of Borrower's knowledge, threatened termination,
cancellation or limitation of, or any modification or change in the business
relationship of Borrower with any customer or group of customers whose
purchases individually or in the aggregate are material to the operation of
Borrower's business or with any material supplier.
4.13. No Broker's or Finder's Fees. No broker or finder brought about this
Agreement or the Loans. No broker's or finder's fees or commissions will be
payable by Borrower to any Person in connection with the transactions
contemplated by this Agreement.
4.14. Taxes and Tax Returns. Borrower has properly completed and timely
filed all income tax returns it is required to file. The information filed is
complete and accurate in all material respects. All deductions taken in such
income tax returns are appropriate and in accordance with applicable laws
and regulations, except deductions that may have been disallowed but are being
challenged in good faith
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TBCC LOAN AND SECURITY AGREEMENT
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and for which adequate reserves have been made in accordance with GAAP. All
taxes, assessments, fees and other governmental charges for periods beginning
prior to the date of this Agreement have been timely paid (or, if not yet due,
adequate reserves therefor have been established in accordance with GAAP)
and Borrower has no liability for taxes in excess of the amounts so paid or
reserves so established. No deficiencies for taxes have been claimed, proposed
or assessed by any taxing or other Governmental Authority against Borrower and
no notice of any tax Lien has been filed. There are no pending or threatened
audits, investigations or claims for or relating to any liability for taxes and
there are no matters under discussion with any Governmental Authority which
could result in an additional liability for taxes. No extension of a statute of
limitations relating to taxes, assessments, fees or other governmental charges
is in effect with respect to Borrower. Borrower is not a party to and does not
have any obligations under any written tax sharing agreement or agreement
regarding payments in lieu of taxes.
4.15. No Judgments or Litigation. Except as set forth in the Schedule, no
judgments, orders, writs or decrees are outstanding against Borrower, nor is
there now pending or, to the knowledge of Borrower, threatened litigation,
contested claim, investigation, arbitration, or governmental proceeding by or
against Borrower that (i) could individually or in the aggregate be likely in
the reasonable business judgment of TBCC to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of this
Agreement, any other Loan Document or the consummation of the transactions
contemplated hereby or thereby.
4.16. Investments; Contracts. Borrower (i) has not committed to make any
Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, by-law or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, assets or financial
condition; (iii) is not a party to any take or pay contract as to which it is
the purchaser; or (iv) has no material contingent or long-term liability,
including management contracts (excluding employment contracts of full-time
individual officers or employees), which could have a Material Adverse Effect.
4.17. No Defaults; Legal Compliance. Borrower is not in default under any
term of any Material Contract or in violation of any Requirement of Law *, nor
is Borrower subject to any investigation with respect to a claimed violation of
any Requirement of Law.
* , EXCEPT, IN EACH CASE, TO THE EXTENT THAT SUCH NON-COMPLIANCE COULD NOT
REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.
4.18. Rights in Collateral; Priority of Liens. All Collateral is owned or
leased by Borrower, free and clear of any and all Liens in favor of third
parties, other than Permitted Liens. The Liens granted to TBCC pursuant to the
Loan Documents constitute valid, enforceable and perfected first-priority Liens
on the Collateral, except for Permitted Liens.
4.19. Intellectual Property. Set forth in the written Representations and
Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered and unregistered), and all applications therefor and licenses
thereof, of Borrower. Borrower owns or licenses all material patents,
trademarks, service-marks, logos, tradenames, trade secrets, know-how,
copyrights, or licenses and other rights with respect to any of the foregoing,
which are necessary or advisable for the operation of its business as presently
conducted or proposed to be conducted. To the best of its knowledge, Borrower
has not infringed any patent, trademark, service-mark, tradename, copyright,
license or other right owned by any other Person by the sale or use of any
product, process, method, substance, part or other material presently
contemplated to be sold or used, where such sale or use would reasonably be
expected to have a Material Adverse Effect and no claim or litigation is
pending, or to the best of Borrower's knowledge, threatened against or
affecting Borrower that contests its right to sell or use any such product,
process, method, substance, part or other material.
4.20. Labor Matters. There are no existing or threatened strikes, lockouts
or other disputes relating to any collective bargaining or similar agreement to
which Borrower is a party which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
4.21. Licenses and Permits. Borrower has obtained and holds in full force
and effect, all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights and
approvals which are necessary or advisable for the operation of its business as
presently conducted and as proposed to be conducted, except where the failure
to possess any of the foregoing (individually or in the aggregate) would not
have a Material Adverse Effect.
4.22. Government Regulation. Borrower is not subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to incur indebtedness or its ability
to consummate the transactions contemplated by this Agreement and the other
Loan Documents.
4.23. Business and Properties. The business of Borrower is not affected by
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that could reasonably be
expected to have a Material Adverse Effect.
4.24. Affiliate Transactions. Borrower is not a party to or bound by any
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower and (ii) upon fair
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TBCC LOAN AND SECURITY AGREEMENT
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and reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person.
4.25. Survival of Representations. All representations made by
Borrower in this Agreement and in any other Loan Document executed and
delivered by it in connection herewith shall survive the execution and delivery
hereof and thereof and the closing of the transactions contemplated hereby and
thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER
Until termination of this Agreement and payment and satisfaction of all
Obligations:
5.1. Corporate Existence. Borrower shall (i) maintain its corporate
existence, (ii) maintain in full force and effect all material licenses, bonds,
franchises, leases, trademarks, qualifications and authorizations to do
business, and all material patents, contracts and other rights necessary or
advisable to the profitable conduct of its business, and (iii) continue in, and
limit its operations to, the same lines of business as presently conducted by
it.
5.2. Maintenance of Property. Borrower shall keep all property useful and
necessary to its business in good working order and condition (ordinary wear
and tear excepted) in accordance with its past operating practices.
5.3. Affiliate Transactions. Borrower shall conduct transactions with any
of its Affiliates on an arm's-length basis or other basis no less favorable to
Borrower and which are approved by the board of directors of Borrower.
5.4. Taxes. Borrower shall pay when due (i) all tax assessments, and other
governmental charges and levies imposed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax assessment, charge, levy or
claim has become a Lien on any of the property of Borrower, it need not be paid
if it is being contested in good faith, by appropriate proceedings diligently
conducted and an adequate reserve or other appropriate provision shall have
been made therefor as required in accordance with GAAP.
5.5. Requirements of Law. Borrower shall comply with all Requirements of
Law applicable to it, including, without limitation, all applicable Federal,
State, local or foreign laws and regulations, including, without limitation,
those relating to environmental matters, employee matters, the Employee
Retirement Income Security Act of 1974, and the collection, payment and deposit
of employees' income, unemployment and social security taxes, provided that
Borrower shall not be deemed in violation hereof if Borrower's failure to
comply with any of the foregoing would not require more than $50,000 to cure
the same.
5.6. Insurance. Borrower shall maintain public liability insurance,
business interruption insurance, third party property damage insurance and
replacement value insurance on its assets (including the Collateral) under such
policies of insurance, with such insurance companies, in such amounts and
covering such risks as are at all times satisfactory to TBCC in its
commercially reasonable judgment, all of which policies covering the Collateral
shall name TBCC as an additional insured and lender loss payee in case of loss,
and contain other provisions as TBCC may reasonably require to protect fully
TBCC's interest in the Collateral and any payments to be made under such
policies.
5.7. Books and Records; Inspections. Borrower shall (i) maintain books and
records (including computer records) pertaining to the Collateral in such
detail, form and scope as is consistent with good business practice and (ii)
provide TBCC and its agents access to the premises of Borrower at any time and
from time to time, during normal business hours and upon reasonable notice
under the circumstances, and at any time on and after the occurrence * of a
Event of Default, for the purposes of (A) inspecting and verifying the
Collateral, (B) inspecting and copying (at Borrower's expense) any and all
records pertaining thereto, and (C) discussing the affairs, finances and
business of Borrower with any officer, employee or director of Borrower or with
the Auditors**. Borrower shall reimburse TBCC for the reasonable travel and
related expenses of TBCC's employees or, at TBCC's option, of such outside
accountants or examiners as may be retained by TBCC to verify or inspect
Collateral, records or documents of Borrower on a regular basis or for a
special inspection if TBCC deems the same appropriate. If TBCC's own employees
are used, Borrower shall also pay therefor $600 per person per day (or such
other amount as shall represent TBCC's then current standard charge for the
same), or, if outside examiners or accountants are used, Borrower shall also
pay TBCC such sum as TBCC may be obligated to pay as fees therefor.
* AND DURING THE CONTINUANCE OF AN
** PROVIDED THAT SUCH ON-PREMISES INSPECTIONS SHALL BE LIMITED TO TWO IN
ANY CONSECUTIVE 12-MONTH PERIOD, EXCEPT THAT (i) SUCH LIMITATION SHALL NOT APPLY
IF ANY EVENT OF DEFAULT OR EVENT WHICH, WITH NOTICE OR PASSAGE OF TIME OR BOTH,
WOULD CONSTITUTE AS EVENT OF DEFAULT, HAS OCCURRED AND IS CONTINUING, AND (ii)
SUCH LIMIT SHALL NOT APPLY TO ON PREMISES INSPECTIONS BY TBCC AT ITS OWN
EXPENSE. TBCC WILL COMPLY WITH REASONABLE SECURITY REQUIREMENTS OF BORROWER,
BUT THE SAME SHALL NOT IN ANY MANNER RESTRICT THE SCOPE OF TBCC'S INSPECTIONS.
5.8. Notification Requirements. Borrower shall give TBCC the following
notices and other documents:
(a) Notice of Defaults. Borrower shall give TBCC written notice of
any Default or Event of Default within two Business Days after becoming aware
of the same.
(b) Proceedings or Adverse Changes. Borrower shall give TBCC written
notice of any of the following, promptly, and in any event within five Business
Days after Borrower becomes aware of any of the following: (i) any proceeding
being instituted or threatened by or against it in any federal, state, local or
foreign court on or before any com-
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TBCC LOAN AND SECURITY AGREEMENT
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mission or other regulatory body involving a sum, together with the sum
involved in all other similar proceedings, in excess of $50,000 in the
aggregate, (ii) any order, judgment or decree being entered against Borrower or
any of its properties or assets involving a sum, together with the sum of all
other orders, judgments or decrees, in excess of $50,000 in the aggregate, and
(iii) any actual or prospective change, development or event which has had or
could reasonably be expected to have a Material Adverse Effect.
(c) Change of Name or Chief Executive Office; Opening Additional
Places of Business. Borrower shall give TBCC at least 30 days prior written
notice of any change of Borrower's corporate name or its chief executive office
or of the opening of any additional place of business.
(d) Casualty Loss. Borrower shall (i) provide written notice to
TBCC, within ten Business Days, of any material damage to, the destruction of or
any other material loss to any asset or property owned or used by Borrower other
than any such asset or property owned or used by Borrower other than any such
asset or property with a net book value (individually or in the aggregate) less
than $10,000 or any condemnation, confiscation or other taking, in whole or in
part, or any event that otherwise diminishes so as to render impracticable or
unreasonable the use of such asset or property owned or used by Borrower
together with the amount of the damage, destruction, loss or diminution in value
and (ii) diligently file and prosecute its claim or claims for any award or
payment in connection with any of the foregoing.
(e) Intellectual Property. Borrower shall promptly give TBCC
written notice of any copyright registration made by it, any rights Borrower may
obtain to any copyrightable works, new trademarks or any new patentable
inventions, and of any renewal or extension of any trademark registration, or if
it shall otherwise become entitled to the benefit of any patent or patent
application or trademark or trademark application.
(f) Deposit Accounts and Security Accounts. Borrower shall
promptly give TBCC written notice of the opening of any new bank account or
other deposit account, and any new securities account.
5.9 Qualify to Transact Business. Borrower shall qualify to transact
business as a foreign corporation in each jurisdiction where the nature or
extent of its business or the ownership of its property requires it to be so
qualified or authorized and where failure to qualify or be authorized would
have a Material Adverse Effect.
5.10 Financial Reporting. Borrower shall timely deliver to TBCC the
following financial information: the information set forth in the Schedule,
and, when requested by TBCC in its good-faith judgment, any further information
respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate
directly with its officers, employees and Auditors and to examine and make
abstracts from its books and records. Borrower authorizes its Auditors to
disclose to TBCC any and all financial statements, work papers and other
information of any kind that they have with respect to Borrower and its
business and financial and other affairs. Borrower shall deliver a letter
addressed to the Auditors requesting them to comply with the provisions of this
paragraph when requested by TBCC.
5.11 Payment of Liabilities. Borrower shall pay and discharge, * in the
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of borrower in
accordance with GAAP.
* WHEN DUE
5.12 Patents, Trademarks, Etc. Borrower shall do and cause to be done
all things necessary to preserve, maintain and keep in full force and effect
all of its registrations of trademarks, service marks and other marks, trade
names and other trade rights, patents, copyrights and other intellectual
property in accordance with prudent business practices.
5.13 Proceeds of Collateral. Without limiting any of the other terms of
this Agreement, and without implying any consent to any sale or other transfer
of Collateral in violation of any provision of this Agreement, Borrower shall
deliver to TBCC all proceeds of any sale or other transfer or disposition of
any Collateral, immediately upon receipt of the same and in the same form as
received, with any necessary endorsements, and Borrower will not commingle any
such proceeds with any of its other funds or property, but will segregate them
from the other assets of Borrower and hold them in trust and for the account
and as the property of TBCC.
5.14 Solvency. Borrower shall be Solvent at all times.
6. NEGATIVE COVENANTS. Until termination of this Agreement and payment and
satisfaction of all Obligations:
6.1 Contingent Obligations. Borrower will not, directly or indirectly,
incur, assume, or suffer to exist any Contingent Obligation, excluding
indemnities given in connection with this Agreement or the other Loan Documents
in favor of TBCC or in connection with the sale of Inventory or other asset
dispositions permitted hereunder *.
* EXCEPT CONTINGENT OBLIGATIONS AND OTHER SIMILAR THIRD PARTY CREDIT
SUPPORT RELATING TO OBLIGATIONS OF VENDORS AND SUPPLIERS OF BORROWER IN RESPECT
OF TRANSACTIONS ENTERED INTO IN THE NORMAL COURSE OF BUSINESS PROVIDED THAT THE
AGGREGATE AMOUNT OF ANY SUCH GUARANTEES AND OTHER SIMILAR THIRD PARTY CREDIT
SUPPORT SHALL NOT EXCEED $100,000 AT ANY TIME OUTSTANDING, PROVIDED THAT NO
DEFAULT OR EVENT OF DEFAULT SHALL EXIST EITHER IMMEDIATELY PRIOR TO OR AFTER
GIVING EFFECT TO THE MAKING OF THE FOREGOING GUARANTEES OR THE ENTERING INTO
ANY THIRD PARTY CREDIT SUPPORT TRANSACTIONS.
6.2 Corporate Changes. *Borrower will not, directly or indirectly, merge
or consolidate with any Person, or liquidate or dissolve (or suffer any
liquidation or dissolution)**.
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* WITHOUT TBCC'S PRIOR WRITTEN CONSENT (WHICH SHALL NOT BE UNREASONABLY
WITHHELD),
** EXCEPT THAT A WHOLLY-OWNED SUBSIDIARY OF BORROWER MAY MERGE INTO
BORROWER OR ANOTHER WHOLLY-OWNED SUBSIDIARY OF BORROWER WITHOUT TBCC'S PRIOR
WRITTEN CONSENT (BUT BORROWER SHALL PROVIDE PRIOR WRITTEN NOTICE OF THE SAME
TO TBCC).
6.3. Change in Nature of Business. Borrower will not at any time make
any material change in the lines of its business as carried on at the date of
this Agreement or enter into any new line of business.
6.4. Sales of Assets. Borrower will not, directly or indirectly, in any
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than
(i) Equipment with an aggregate value of less than $25,000 the proceeds of
which shall be paid to TBCC and applied to the Obligations, (ii) sales of
Inventory in the ordinary course of business and (iii) licenses or sublicenses
on a non-exclusive basis of intellectual property in the ordinary course of
Borrower's business.
6.5. Cancellation of Debt. Borrower will not cancel any claim or debt
owed to it, except in the ordinary course of business.
6.6 Loans to Other Persons. Borrower will not at any time make loans or
advance any credit (except to trade debtors in the ordinary course of business)
to any Person in excess of $25,000 in the aggregate at any time for all such
loans.
6.7. Liens. Borrower will not, directly or indirectly, at any time
create, incur, assume or suffer to exist any Lien on or with respect to any of
the Collateral, other than: Liens created hereunder and by any other Loan
Document; and Permitted Liens.
6.8. Dividends, Stock Redemptions. Borrower will not, directly or
indirectly, pay any dividends or distributions on, purchase, redeem or retire
any shares of any class of its capital stock or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding
(Stock), or make any payment on account of or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of its Stock, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Borrower, except for dividends paid solely in stock of the
Borrower*.
* AND REPURCHASES OF STOCK OWNED BY EMPLOYEES, DIRECTORS AND CONSULTANTS
OF BORROWER PURSUANT TO TERMS OF EMPLOYMENT, CONSULTING OR OTHER STOCK
RESTRICTIONS AGREEMENTS AT SUCH TIME AS ANY SUCH EMPLOYEE, DIRECTOR OR
CONSULTANT TERMINATES HIS OR HER AFFILIATIONS WITH THE BORROWER, PROVIDED THAT
NO DEFAULT OR EVENT OF DEFAULT SHALL EXIST EITHER IMMEDIATELY PRIOR TO OR AFTER
GIVING EFFECT TO SUCH REPURCHASE, AND PROVIDED THAT THE TOTAL AMOUNT PAID IN
CONNECTION THEREWITH BY BORROWER SHALL NOT EXCEED $50,000 IN ANY CONSECUTIVE
12-MONTH PERIOD.
6.9. Investments in Other Persons. Borrower will not, directly or
indirectly, at any time make or hold any Investment in any Person (whether in
cash, securities or other property of any kind) other than Investments in Cash
Equivalents.
6.10. Partnerships; Subsidiaries; Joint Ventures; Management Contracts.
Borrower will not at any time create any direct or indirect Subsidiary, enter
into any joint venture or similar arrangement * or become a partner in any
general or limited partnership or enter into any management contract (other
than an employment contract for the employment of an officer or employee
entered into in the regular course of Borrower's business) permitted third party
management rights with respect to Borrower's business.
* (OTHER THAN JOINT VENTURES OR STRATEGIC PARTNERSHIPS CONSISTING OF
NON-EXCLUSIVE LICENSING OF TECHNOLOGY OR THE PROVIDING OF TECHNICAL SUPPORT)
6.11. Fiscal Year. Borrower will not change its fiscal year.
6.12. Accounting Changes. Borrower will not at any time make or permit
any change in accounting policies or reporting practices, except as required by
GAAP.
6.13. Broker's or Finder's Fees. Borrower will not pay or incur any
broker's or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14. Unusual Terms of Sale. Borrower will not sell goods or products on
extended terms, consignment terms, on a progress billing or bill and hold
basis, or on any other unusual terms*.
* EXCEPT IN THE ORDINARY COURSE OF BUSINESS IN CONNECTION WITH RESEARCH
AND DEVELOPMENT PROJECTS (AND IN THAT CASE RECEIVABLES RELATING THERETO WILL
NOT BE "ELIGIBLE RECEIVABLES")
6.15. Amendments of Material Contracts. Borrower will not amend, modify,
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination could have a Material Adverse Effect.
6.16. Sale and Leaseback Obligations. Borrower will not at any time
create, incur or assume any obligations as lessee for the rental of real or
personal property in connection with any sale and leaseback transaction.
6.17. Acquisition of Stock or Assets. Borrower will not acquire or commit
or agree to acquire all or any stock, securities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business.
7. EVENTS OF DEFAULT.
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TBCC LOAN AND SECURITY AGREEMENT
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7.1. Events of Default. The occurrence of any of the following events
shall constitute an Event of Default:
(a) Borrower shall fail to pay any principal, interest, fees, expenses or
other Obligations when payable, whether at stated maturity, by acceleration, or
otherwise; or
(b) Borrower shall default in the performance or observance of any
agreement, covenant, condition, provision or term contained in Section 1.1,
1.2, 1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this
Agreement, or Borrower shall fail to perform any non-monetary Obligation which
by its nature cannot be cured; or
(c) Borrower shall default in the performance or observance of any other
agreement, covenant, condition, provision or term of this Agreement (other than
those referred to in Section 7.1(a) above or Section 7.1(b) above) or any other
Loan Document, and such failure continues uncured for a period of five Business
Days after the date it occurs; or
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise cease
to conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an
Insolvency Event except as set forth in clause (e) of the definition of
Insolvency Event or (ii) an Insolvency Event as set forth in clause (e) of the
definition of Insolvency Event that is not dismissed within sixty days; or
(f) any representation or warranty made by or on behalf of Borrower or
any Guarantor to TBCC, under this Agreement or otherwise, shall be incorrect or
misleading in any material respect when made or deemed made; or
(g) A change in the ownership or control of more than 20% of the voting
stock of the Borrower compared to such ownership on the date of this Agreement;
(h) any judgment or order for the payment of money shall be rendered
against Borrower and shall not be stayed, vacated, bonded or discharged within
thirty days; or
(i) any defined "Event of Default" shall occur under any other Loan
Document; or Borrower or any Guarantor shall deny or disaffirm its obligations
under any of the Loan Documents or any Liens granted in connection therewith or
shall otherwise challenge any of its obligations under any of the Loan
Documents; or any Liens granted in any of the Collateral shall be determined to
be void, voidable or invalid, are subordinated * or are not given the priority
contemplated by this Agreement; or
*(OTHER THAN TO PERMITTED LIENS)
(j) any Loan Document shall for any reason cease to create a valid and
perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens); or
(k) the Auditors for Borrower shall deliver a Qualified opinion on any
financial Statement; or
(l) Borrower or any Guarantor (i) shall fail to pay any Indebtedness
owing to TBCC under any other agreement with TBCC or note or instrument in favor
of TBCC, when due (whether at scheduled maturity or by required prepayment,
acceleration, demand or otherwise)*, or (ii) shall otherwise be in breach of or
default in any of its obligations under any such agreement, note or instrument
with respect to any such Indebtedness*; or
*BUT TAKING INTO ACCOUNT ANY APPLICABLE CURE PERIOD OR WRITTEN WAIVER BY
TBCC
(m) Borrower or any Guarantor (i) shall fail to pay any Indebtedness in
excess of $50,000 owing to any Person other than TBCC or any interest or
premium thereon, when due (whether at scheduled maturity or by required
prepayment, acceleration, demand or otherwise)*, or (ii) shall otherwise be in
breach or default in any of its obligations under any agreement with respect to
any such Indebtedness, if the effect of such breach, default or failure to pay
is to cause such Indebtedness to become due or redeemed or permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to declare such Indebtedness due or require such Indebtedness to be
redeemed prior to its stated maturity**; or
*AND SUCH FAILURE TO PAY WHEN DUE HAS NOT BEEN CURED WITHIN ANY APPLICABLE
GRACE PERIOD UNLESS SUCH FAILURE TO PAY HAS BEEN WAIVED BY SUCH PERSON
**AND SUCH BREACH OR DEFAULT HAS NOT BEEN CURED WITHIN ANY APPLICABLE
GRACE PERIOD UNLESS SUCH BREACH OR DEFAULT HAS BEEN WAIVED BY SUCH PERSON
(n) the occurrence of any event or condition that, in TBCC's judgment,
could reasonably be expected to have a Material Adverse Effect.
TBCC may cease making any Loans hereunder during any of the above cure periods,
and thereafter if any Event of Default has occurred and is continuing.
7.2. Remedies. Upon the occurrence and during the continuance of an Event
of Default, TBCC shall have all rights and remedies under applicable law and
the Loan Documents, and TBCC may do any or all of the following:
(a) Declare all Obligations to be immediately due and payable (except with
respect to any Event of Default with respect to Borrower set froth in Section
7.1(e), in which case all Obligations shall automatically become immediately
due and payable) without presentment, demand, protest or any other action or
obligation of TBCC;
(b) Cease making any Loans or other extensions of credit to Borrower of
any kind;
(c) Take possession of all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables or
other Collateral and use (at the expense of Borrower) such supplies or space of
Borrower at Borrower's places of business necessary to administer and collect
the Receivables and other Collateral;
(d) Accelerate or extend the time of payment, compromise, issue credit, or
bring suit on the Receivables and
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TBCC LOAN AND SECURITY AGREEMENT
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other Collateral (in the name of Borrower or TBCC) and otherwise administer and
collect the Receivables and other Collateral;
(e) Collect, receive, dispose of and realize upon any Investment
Property, including withdrawal of any and all funds from any securities
accounts;
(f) Sell, assign and deliver the Receivables and other Collateral,
with or without advertisement, at public or private sale, for cash, on credit or
otherwise, subject to applicable law; and
(g) Foreclose on the security interests created pursuant to the Loan
Documents by any available procedure, take possession of any or all of the
Collateral, with or without judicial process and enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same.
(h) TBCC may bid or become a purchaser at any sale, free from any
right of redemption, which right is expressly waived by Borrower, if permitted
under applicable law. If notice of intended disposition of any Collateral is
required by law, it is agreed that ten days' notice shall constitute reasonable
notification. Borrower will assemble the Collateral and make it available at
such locations as TBCC may specify, whether at the premises of Borrower or
elsewhere, and will make available to TBCC the premises and facilities of
Borrower for the purpose of TBCC's taking possession of or removing the
Collateral or putting the Collateral in salable form.
(i) Borrower recognizes that TBCC may be unable to make a public sale
of any or all of the Investment Property, by reasons of prohibitions contained
in applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale.
7.3 Receivables. Upon the occurrence and during the continuance of an
Event of Default, or at any time that TBCC believes in good faith that fraud
has occurred or that Borrower has failed to deliver the proceeds of Receivables
or other Collateral to TBCC as required by this Agreement or any other Loan
Document, TBCC may (i) settle or adjust disputes or claims directly with
account debtors for amounts and upon terms which it considers advisable, and
(ii) notify account debtors on the Receivables and other Collateral that the
Receivables and Collateral have been assigned to TBCC, and that payments in
respect thereof shall be made directly to TBCC. If an Event of Default has
occurred and is continuing or TBCC reasonably believes in good faith that fraud
has occurred, or that Borrower has failed to deliver the proceeds of
Receivables or other Collateral to TBCC as required by this Agreement or any
other Loan Document, Borrower hereby irrevocably authorizes and appoints TBCC,
or any Person TBCC may designate, as its attorney-in-fact, at Borrower's sole
cost and expense, to exercise, all of the following powers, which are coupled
with an interest and are irrevocable, until all of the Obligations have been
indefeasibly paid and satisfied in full in cash: (A) to receive, take, endorse,
sign, assign and deliver, all in the name of TBCC or Borrower, any and all
checks, notes, drafts, and other documents or instruments relating to the
Collateral; (B) to receive, open and dispose of all mail addressed to Borrower
and to notify postal authorities to change the address for delivery thereof to
such address as TBCC may designate; and (C) to take or bring, in the name of
TBCC or Borrower, all steps, actions, suits or proceedings deemed by TBCC
necessary or desirable to enforce or effect collection of Receivables and other
Collateral or file and sign Borrower's name on a proof of claim to bankruptcy or
similar document against any obligor of Borrower.
7.4 Right of Setoff. In addition to all rights of offset that TBCC may
have under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any demand or the Obligations
of Borrower have matured, TBCC shall have the right to appropriate and apply to
the payment of the Obligations of Borrower all deposits and other obligations
then or thereafter owing by TBCC to or for the credit or the account of
Borrower. In the event that TBCC exercises any of its rights under this
Section, TBCC shall provide notice to Borrower of such exercise, provided that
the failure to give such notice shall not affect the validity of the exercise of
such rights.
7.5 License for Use of Software and Other Intellectual Property. After
the occurrence and during the continuance of an Event of Default, unless
expressly prohibited by any licensor thereof, TBCC is hereby granted a license
to use all computer software programs, data bases, processes, trademarks,
tradenames and materials used by Borrower in connection with its business or in
connection with the Collateral.
7.6 No Marshalling; Deficiencies; Remedies Cumulative. The net cash
proceeds resulting from TBCC's exercise of any of its rights with respect to
Collateral, including any and all Collections (after deducting all of TBCC's
reasonable expenses related thereto), shall be applied by TBCC to such of the
Obligations in such order as TBCC shall elect in its sole and absolute
discretion, whether due or to become due. Borrower shall remain liable to TBCC
for any deficiencies and TBCC shall remit to Borrower or its successor or
assign, any surplus resulting therefrom. The remedies specified in this
Agreement are cumulative, may be exercised in such order and with respect to
such Collateral as TBCC may deem desirable and are not intended to be exclusive,
and the full or partial exercise of any of them shall not preclude the full or
partial exercise of any other available remedy under this Agreement, under any
other Loan Document, at equity or at law.
7.7 Waivers. Borrower hereby waives any bonds, security or sureties
required by any statute, rule or any other law as an incident to any taking of
possession by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of TBCC's rights
under this Agreement or any other Loan Document including the taking of
possession of any
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TBCC Loan and Security Agreement
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Collateral or the giving of notice to any account debtor or the collection of
any Receivable or other Collateral (other than damages that are the result of
acts or omissions constituting gross negligence or willful misconduct of TBCC).
These waivers and all other waivers provided for in this Agreement and the
other Loan Documents have been negotiated by the parties and Borrower
acknowledges that it has been represented by counsel of its own choice and has
consulted such counsel with respect to its rights hereunder.
7.8 Right to Make Payments. In the event that Borrower shall fail to
purchase or maintain insurance required hereunder, or to pay any tax,
assessment, government charge or levy, except as the same may be otherwise
permitted hereunder, or in the event that any Lien prohibited hereby shall not
be paid in full or discharged, or in the event that Borrower shall fail to
perform or comply with any other covenant, promise or obligation to TBCC
hereunder or under any other Loan Document . TBCC may (but shall not be required
to) perform, pay, satisfy, discharge or bond the same for the account of
Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder
to Borrower and shall constitute part of the Obligations.
8. ASSIGNMENTS AND PARTICIPATIONS.
8.1. Assignments. Borrower shall not assign this Agreement or any right or
obligation hereunder without the prior written consent of TBCC. TBCC may assign
(without the consent of Borrower) to one or more Persons all or a portion of
its rights and obligations under this Agreement and the other Loan Documents*.
* (PROVIDED THAT SUCH PERSON SHALL NOT BE A DIRECT OR INDIRECT COMPETITOR
OF THE BORROWER)
8.2. Participations. TBCC may sell participations in or to all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of the Loans); provided, however, that TBCC's
obligations under this Agreement shall remain unchanged.
8.3. Disclosure. *TBCC may, in connection with any permitted assignment or
participation or proposed assignment or participation pursuant to this
Agreement, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower.
* SUBJECT TO SECTION 10.13A HEREOF,
9. DEFINITIONS.
9.1. General Definitions. As used herein, the following terms shall have the
meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined):
(a) Affiliate means as to any Person, any other Person who directly or
indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or
cause the direction of management or policies (whether through ownership of
voting securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly twenty percent (20%) or more of the securities having ordinary
voting power for the election of the members of the board of directors or other
governing body of a corporation or twenty percent (20%) or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corporation, partnership or other Person.
(b) Agreement means this Loan and Security Agreement, as amended,
supplemented or otherwise modified from time to time.
(c) Auditors means *a nationally recognized firm of independent public
accountants selected by Borrower and reasonably satisfactory to TBCC.
*ERNST AND YOUNG LLP OR ANOTHER
(d) Bankruptcy Code means Title 11 of the United States Code entitled
"Bankruptcy," as that title may be amended from time to time, or any successor
statute.
(e) Borrowing means a borrowing of Loans.
(f) Business Day means any day other than a Saturday, Sunday or any other
day on which commercial banks in Chicago, Illinois are required or permitted by
law to close.
(g) Cash Equivalents means (i) securities issued, guaranteed or insured by
the United States or any of its agencies with maturities of not more than one
year from the date acquired; (ii) certificates of deposit with maturities of
not more than one year from the date acquired, issued by any U.S. federal or
state chartered commercial bank of recognized standing which has capital and
unimpaired surplus in excess of $100,000,000; (iii) investments in money market
funds registered under the Investment Company Act of 1940; and (iv) other
instruments, commercial paper or investments acceptable to TBCC in its sole
discretion.
(h) Collateral means Receivables, Investment Property, Inventory, Equipment,
and Other Property, and all additions and accessions thereto and substitutions
and replacements therefor and improvements thereon, and all proceeds (whether
cash or other property) and products thereof, including, without limitation,
all proceeds of insurance covering the same and all tort claims in connection
therewith, and all records, files, computer programs and files, data and
writings relating to the foregoing, and all equipment containing the foregoing.
(i) Collections means all cash, funds, checks, notes, instruments, any other
form of remittance tendered by account debtors in respect of payment of
Receivables and any other payments received by Borrower with respect to any
other Collateral.
(j) Compliance Certificate means a certificate as to compliance with the
Obligations, on TBCC's standard form (in effect from time to time).
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TBCC LOAN AND SECURITY AGREEMENT
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(k) Contingent Obligation means any direct, indirect, contingent or
non-contingent guaranty or obligation for the Indebtedness of another Person,
except endorsements in the ordinary course of business.
(l) Default means any of the events specified in Section 7.1, whether or
not any of the requirements for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
(m) Eligible Inventory means Inventory of Borrower which TBCC in its sole
discretion deems eligible for borrowing, based on such considerations as TBCC in
its sole discretion may deem appropriate from time to time and less any such
reserves as TBCC, in its sole discretion, may require. Without limiting the fact
that the determination of which Inventory is eligible for borrowing is a matter
of TBCC's sole discretion, the following are the minimum requirements for
Inventory to be Eligible Inventory: (i) the Inventory must consist of finished
goods, in good, new and salable condition which is not perishable, not obsolete
or unmerchantable, and is not comprised of raw materials, work in process,
packaging materials or supplies; (ii) the Inventory must meet all applicable
governmental standards; (iii) the Inventory must have been manufactured in
compliance with the Fair Labor Standards Act; (iv) the Inventory must conform in
all respects to the warranties and representations set forth in this Agreement;
(v) the Inventory must at all times be subject to TBCC's duly perfected, first
priority security interests; and (vi) the Inventory must be in Borrower's
exclusive possession, separately identifiable from goods of others, and situated
at Borrower's chief executive office or at one of the other Borrower locations
set forth on the Schedule. The value of Eligible Inventory shall be computed at
the lower of cost (computed on a "first in, first out" basis) or wholesale
market value.
(n) Eligible Receivables means and includes only those Receivables which
TBCC in its sole discretion deems eligible for borrowing, based on such
considerations as TBCC in its sole discretion may deem appropriate from time to
time and less any such reserves as TBCC, in its sole discretion, may require.
Without limiting the fact that the determination of which Receivables are
eligible for borrowing is a matter of TBCC's sole discretion, the following (the
"Minimum Eligibility Requirements") are the minimum requirements for a
Receivable to be an Eligible Receivable; (i) the Receivable must not be
outstanding for more than 90 days from its invoice date, (ii) the Receivable
must not represent progress billings, or be due under a fulfillment or
requirements contract with the account debtor, (iii) the Receivable must not be
subject to any contingencies (including Receivables arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
account debtor may be conditional), (iv) the Receivable must not be owing from
an account debtor with whom the Borrower has any dispute (whether or not
relating to the particular Receivable)*, (v) the Receivable must not be owing
from an Affiliate of Borrower, (vi) the Receivable must not be owing from an
account debtor which is subject to any insolvency or bankruptcy proceeding, or
whose financial condition is not acceptable to TBCC, or which, fails or goes out
of a material portion of its business, (vii) the Receivable must not be owing
from the United States or any department, agency or instrumentality thereof
(unless there has been compliance, to TBCC's satisfaction, with the United
States Assignment of Claims Act **), (viii) the Receivable must not be owing
from an account debtor located outside the United States or Canada (unless
pre-approved by TBCC in its discretion in writing, or backed by a letter of
credit satisfactory to TBCC, or FCIA insured satisfactory to TBCC), (ix) the
Receivable must not be owing from an account debtor to whom Borrower is or may
be liable for goods purchased from such account debtor or otherwise ***, (x) the
Receivable must not violate any representation or warranty set forth in this
Agreement, and (xi) the Receivable must not be one in which TBCC does not have a
first-priority, valid, perfected Lien. Without limiting the generality of the
foregoing, Borrower must be in compliance with all requirements of the Loan
Documents regarding registration with the U.S. Copyright Office of any
copyrightable software in order for any Receivable arising from any licensing of
such software to constitute an Eligible Receivable hereunder. Receivables owing
from one account debtor will not be deemed Eligible Receivables to the extent
they exceed 75% of the total eligible Receivables outstanding. In addition, if
more than 50% of the Receivables owing from an account debtor are outstanding
more than 90 days from their invoice date (without regard to unapplied credits)
or are otherwise not eligible Receivables, then all Receivables owing from that
account debtor will be deemed ineligible for borrowing. TBCC may, from time to
time, in its sole discretion, revise the Minimum Eligibility Requirements, upon
written notice to the Borrower.
* TO THE EXTENT OF THE DISPUTE
** PROVIDED THAT TBCC MAY WAIVE SUCH COMPLIANCE IN ITS DISCRETION
*** BUT ONLY TO THE EXTENT OF THE PRICE OF THE PURCHASED GOODS
(o) Equipment means all machinery, equipment, furniture, fixtures,
conveyors, tools, materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including central
processing units, terminals, drives, memory units, printers, keyboards,
screens, peripherals and input or output devices, molds, dies, stamps,
vehicles, and other equipment of every kind and nature and wherever situated
now or hereafter owned by Borrower or in which Borrower may have any interest
as lessee or otherwise (to the extent of such interest), together with all
additions and accessions thereto, all replacements and all accessories and
parts therefor, all manuals, blueprints, know-how, warranties and records in
connection therewith, all rights against suppliers, warrantors, manufacturers,
sellers or others in connection therewith, and together with all substitutes
for any of the foregoing.
(p) Event of Default means the occurrence of any of the events specified
in Section 7.1.
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(q) Financial Statements means the balance sheets, profit and loss
statements, and statements of changes in intercompany accounts, if any, for the
period specified, prepared in accordance with GAAP and consistent with prior
practices.
(r) GAAP means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board that are applicable to the
circumstances as of the date of determination. Whenever any accounting term is
used herein which is not otherwise defined, it shall be interpreted in
accordance with GAAP.
(s) Good Faith means "good faith" as defined in the Uniform Commercial
Code, from time to time in effect in the State of Illinois.
(t) Governing Documents means the articles or certificate of incorporation
and by-laws of Borrower.
(u) Governmental Authority means any nation or government, any state or
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions thereof or
pertaining thereto.
(v) Guarantor means any present or future guarantor of any or all of the
Obligations.
(w) Indebtedness means, with respect to any Person, as of the date of
determination any indebtedness, liability or obligation of such Person
(including without limitation obligations under capital leases and Contingent
Obligations).
(x) Insolvency Event means, with respect to any Person, the occurrence of
any of the following: (a) such Person shall be adjudicated insolvent or
bankrupt, or shall generally fail to pay or admit in writing its inability to
pay its debts as they become due, (b) such Person shall seek dissolution or
reorganization or the appointment of a receiver, trustee, custodian or
liquidator for it or a substantial portion of its property, assets or business
or to effect a plan or other arrangement with its creditors, (c) such Person
shall make a general assignment for the benefit of its creditors or consent to
or acquiesce in the appointment of a receiver, trustee, custodian or liquidator
for a substantial portion of its property, assets or business, (d) such Person
shall file a voluntary petition under any bankruptcy, insolvency or similar law
or take any corporate or similar act in furtherance thereof, or (e) such
Person, or a substantial portion of its property, assets or business shall
become the subject of an involuntary proceeding or petition for its
dissolution, reorganization, and such proceeding is not dismissed or stayed
within sixty days, or the appointment of a receiver, trustee, custodian or
liquidator, and such receiver is not dismissed within sixty days.
(y) Inventory means all present and future goods intended for sale, lease
or other disposition by Borrower including, without limitation, all raw
materials, work in process, finished goods and other retail inventory, goods in
the possession of outside processors or other third parties, goods consigned to
Borrower to the extent of its interest therein as consignee, materials and
supplies of any kind, nature or description which are or might be used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of any such goods, and all documents of title or documents
representing the same.
(z) Investment in any Person means, as of the date of determination
thereof, any payment or contribution, or commitment to make a payment or
contribution, by any Person including, without limitation, property contributed
or committed to be contributed by any Person, on its account for or in
connection with its acquisition of any stock, bonds, notes, debentures,
partnership or other ownership interest or any other security of the Person in
whom such Investment is made or any evidence of indebtedness by reason of a
loan, advance, extension of credit, guaranty or other similar obligation for any
debt, liability or indebtedness of such Person in whom the Investment is made.
(aa) Investment Property means any and all investment property of
Borrower, including all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts and commodity
accounts, and all financial assets held in any securities account or otherwise,
wherever located, and whether now existing or hereafter acquired or arising.
(bb) Lien means any lien, claim, charge, pledge, security interest,
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other preferential arrangement having substantially the
same economic effect as any of the foregoing, whether voluntary or imposed by
law.
(cc) Loan Account has the meaning specified in Section 1.3.
(dd) Loan Documents means this Agreement and all present and future
documents and instruments delivered or to be delivered by Borrower or any of its
Affiliates or any Guarantor under, in connection with or relating to this
Agreement, as each of the same may be amended, supplemented or otherwise
modified from time to time.
(ee) Loans means the loans and financial accommodations made by TBCC
hereunder.
(ff) Material Adverse Effect means (i) a material adverse effect on the
business, operations, results of operations, assets, liabilities or * condition
of Borrower, (ii) the impairment of Borrower's ability to perform its
obligations under the Loan Documents to which it is a party or of TBCC to
enforce the Obligations or realize upon the Collateral or (iii) a material
adverse effect on the value of the Collateral or the amount which TBCC would be
likely to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of the Collateral.
* FINANCIAL
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TBCC LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
(gg) Material Contract means any contract or other arrangement to which
Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, cancellation or failure to renew could have a Material Adverse
Effect.
(hh) Obligations means and includes all loans (including the Loans),
advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, which may arise under, out
of, or in connection with, this Agreement, any other Loan Document or any other
agreement executed in connection herewith or therewith, whether or not for the
payment of money, whether arising by reason of an extension of credit, opening,
guaranteeing or confirming of a letter of credit, loan, guaranty,
indemnification or in any other manner, whether direct or indirect (including
those acquired by assignment, purchase, discount or otherwise), whether absolute
or contingent, due or to become due, now due or hereafter arising and however
acquired. The term includes, without limitation, all interest (including
interest accruing on or after an Insolvency Event, whether or not an allowed
claim), charges, expenses, commitment, facility, closing and collateral
management fees, letter of credit fees, reasonable attorneys' fees, and any
other sum properly chargeable to Borrower under this Agreement, the other Loan
Documents or any other agreement executed in connection herewith or therewith.
(ii) Other Property means all present and future: instruments, documents,
documents of title, securities, bonds, notes, promissory notes, drafts,
acceptances, letters of credit and rights to receive proceeds of letters of
credit, deposit accounts, chattel paper, certificates, insurance policies,
insurance proceeds, leases, computer tapes, causes of action, judgments, claims
against third parties, leasehold rights in any personal property, books,
ledgers, files and records, general intangibles (including without limitation,
all contract rights, tax refunds, rights to receive tax refunds, patents, patent
applications, copyrights (registered and unregistered), royalties, licenses,
permits, franchise rights, authorizations, customer lists, rights of
indemnification, contribution and subrogation, computer programs, discs and
software, trade secrets, computer service contracts, trademarks, trade names,
service marks and names, logos, goodwill, deposits, choses in action, designs,
blueprints, plans, know-how, telephone numbers and rights thereto, credits,
reserves, and all forms of obligations whatsoever now or hereafter owing to
Borrower), all property at any time in the possession or under the control of
TBCC, and all security given by Borrower to TBCC pursuant to any other Loan
Document or agreement.
(jj) Permitted Liens means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced and be continuing: (i) Liens for taxes, assessments and other
governmental charges or levies or the claims or demands of landlords, carriers,
wharehousemen, mechanics, laborers, materialmen and other like Persons arising
by operation of law in the ordinary course of business for sums which are not
yet due and payable, (ii) deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business (but nothing in this clause (ii) shall permit the
creation of Liens on Receivables, Investment Property, Inventory or Other
Property), (iii) zoning restrictions, easements, encroachments, licenses,
restrictions or covenants on the use of property which do not materially impair
either the use of the property in the operation of the business of Borrower or
the value of the property, (iv) rights of general application reserved to or
vested in any municipality or other governmental, statutory or public authority
to control or regulate property, or to use property in a manner which does not
materially impair the use of the property for the purposes for which it is held
by Borrower, (v) state and municipal Liens for personal property taxes which are
not yet due and payable, and (vi) Purchase Money Liens.
* EITHER NOT DELINQUENT OR BEING CONTESTED IN GOOD FAITH BY APPROPRIATE
PROCEEDINGS
** (vii) ANY JUDGMENT, ATTACHMENT OR SIMILAR LIEN, IF THE JUDGMENT IS FULLY
COVERED BY INSURANCE OR HAS BEEN DISCHARGED OR EXECUTION THEREOF EFFECTIVELY
STAYED AND BONDED AGAINST PENDING APPEAL WITHIN 30 DAYS OF THE ENTRY THEREOF,
PROVIDED THAT, IF THE JUDGMENT IS NOT FULLY COVERED BY INSURANCE OR EXECUTION
THEREOF HAS NOT BEEN SO STAYED OR BONDED, TBCC SHALL NOT BE REQUIRED TO MAKE ANY
LOANS OR OTHERWISE EXTEND CREDIT TO, OR FOR THE BENEFIT OF BORROWER, (viii)
LEASES OR SUBLEASES AND LICENSES OR SUBLICENSES GRANTED TO OTHERS NOT
INTERFERING IN ANY MATERIAL RESPECT WITH THE BUSINESS OF THE BORROWER, (ix)
LIENS INCURRED IN CONNECTION WITH THE EXTENSION, RENEWAL OR REFINANCING OF THE
INDEBTEDNESS SECURED BY LIENS OF THE TYPE DESCRIBED ABOVE IN CLAUSES (i), (iv),
(vii), and (viii) ABOVE, PROVIDED THAT ANY EXTENSION, RENEWAL OR REPLACEMENT
LIEN IS LIMITED TO THE PROPERTY ENCUMBERED BY THE EXISTING LIEN AND THE
PRINCIPAL AMOUNT OF THE INDEBTEDNESS BEING EXTENDED, RENEWED OR REFINANCED DOES
NOT INCREASE, AND (x) LIENS IN FAVOR OF CUSTOMS DUTIES IN CONNECTION WITH THE
IMPORTATION OF GOODS.
(kk) Person means any individual, sole proprietorship, partnership, joint
venture, limited liability company, trust, unincorporated organization, joint
stock company, association, corporation, institution, entity, party or
government (including any division, agency or department thereof) or any other
legal entity, whether acting in an individual, fiduciary or other capacity, and,
as applicable, the successors, heirs and assigns of each.
(ll) Plan means any employee benefit plan, program or arrangement
maintained or contributed to by Borrower or with respect to which it may incur
liability.
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<PAGE> 16
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
(mm) Purchase Money Lien means a Lien on any item of Equipment created
substantially simultaneously with the acquisition of such Equipment for the
purpose of financing such acquisition, provided that such Lien shall attach
only to the Equipment acquired.
(nn) Qualification or Qualified means, with respect to any report of
Auditors covering Financial Statements, a material qualification to such report
(i) resulting from a limitation on the scope of examination of such Financial
Statements or the underlying data, (ii) as to the capability of Borrower to
continue operations as a going concern or (iii) which could be eliminated by
changes in Financial Statements or notes thereto covered by such report (such
as by the creation of or increase in a reserve or a decrease in the carrying
value of assets) and which if so eliminated by the making of any such change
and after giving effect thereto would result in a Default or an Event of
Default.
(oo) Receivables means all present and future accounts and accounts
receivable, together with all security therefor and guarantees thereof and all
rights and remedies relating thereto, including any right of stoppage in
transit.
(pp) Requirement of Law means (a) the Governing Documents, (b) any
law, treaty, rule, regulation, order or determination of an arbitrator, court
or other Governmental Authority or (c) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval binding on Borrower or any of its property.
(qq) Schedule means the Schedule to this Agreement being signed
concurrently by Borrower and TBCC, as amended from time to time.
(rr) Solvent means when used with respect to any Person that as of the
date as to which such Person's solvency is to be measured: (a) the fair salable
value of its assets is in excess of the total amount of its liabilities
(including contingent liabilities as valued in accordance with applicable law)
as they become absolute and matured; (b) it has sufficient capital to conduct
its business; and (c) it is able to meet its debts as they mature.
(ss) Subsidiary means, as to any Person, a corporation or other entity
in which that Person directly or indirectly owns or controls shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
9.2 Accounting Terms and Determinations. Unless otherwise defined or
specified herein, all accounting terms used in this Agreement shall be
construed in accordance with GAAP, applied on a basis consistent in all material
respects with the Financial Statements delivered to TBCC on or before the date
of this Agreement. All accounting determinations for purposes of determining
compliance with this Agreement shall be made in accordance with GAAP as in
effect on the date of this Agreement and applied on a basis consistent in all
material respects with the audited Financial Statements delivered to TBCC on or
before the date of this Agreement. The Financial Statements required to be
delivered hereunder, and all financial records, shall be maintained in
accordance with GAAP. If GAAP shall change from the basis used in preparing the
audited Financial Statements delivered to TBCC on or before the date of this
Agreement, the Compliance Certificates required to be delivered pursuant to
this Agreement shall include calculations setting forth the adjustments
necessary to demonstrate how Borrower is in compliance with the Financial
Covenants (if any) based upon GAAP as in effect on the date of this Agreement.
9.3 Other Terms; Headings; Construction. Unless otherwise defined
herein, terms used herein that are defined in the Uniform Commercial Code, from
time to time in effect in the State of Illinois, shall have the meanings set
forth therein. Each of the words "hereof," "herein," and "hereunder" refer to
this Agreement as a whole. The term "including", whenever used in this
Agreement, shall mean "including (but not limited to)". An Event of Default
shall "continue" or be "continuing" unless and until such Event of Default has
been waived or cured within the grace period specified therefor under Section
7.1. References to Articles, Sections, Annexes, Schedules, and Exhibits are
internal references to this Agreement, and to its attachments, unless otherwise
specified. The headings and any Table of Contents are for convenience only and
shall not affect the meaning or construction of any provision of this
Agreement. This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against TBCC or Borrower under any rule
of construction or otherwise.
10. GENERAL PROVISIONS.
10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER
AND TBCC, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE
COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC
SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED
AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC
IN GOOD FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF TBCC.
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<PAGE> 17
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION SYSTEM, 1209 ORANGE STREET, WILMINGTON, DELAWARE 19801, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE
BORROWER, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL
TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.4. LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE
BORROWER (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED
BY THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON TBCC THAT THE
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS AGAINST
TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.5. Delays; Partial Exercise of Remedies. No delay or omission of TBCC
to exercise any right or remedy hereunder shall impair any such right or operate
as a waiver thereof. No single or partial exercise by TBCC of any right or
remedy shall preclude any other or further exercise thereof, or preclude any
other right or remedy.
10.6. Notices. Except as otherwise provided herein, all notices and
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, by overnight delivery service, with all charges
prepaid, or by telecopier followed by a hard copy sent by regular mail, to the
parties at their addresses set forth in the heading to this Agreement. All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, three Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by telecopier transmission, when receipt
of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers
for purpose of notice hereunder are set forth in the Schedule; each party's
number may be changed by written notice to the other party.
10.7. Indemnification; Reimbursement of Expenses of Collection. Borrower
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated, to
defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees, advisors,
shareholders, attorneys and Affiliates (each, an "Indemnified Party") from and
against any and all losses, claims, damages, liabilities, deficiencies,
obligations, fines, penalties, actions (whether threatened or existing),
judgments, suits (whether threatened or existing) or * expenses (including,
without limitation, reasonable fees and disbursements of counsel, experts,
consultants and other professionals) incurred by any of them (collectively,
"Claims") (except, in the case of each Indemnified Party, to the extent that any
Claim is determined in a final and non-appealable judgment by a court of
competent jurisdiction to have directly resulted from such Indemnified Party's
gross negligence or willful misconduct) arising out of or by reason of (i) any
litigation, investigation, claim or proceeding which arises out of or is related
to (A) Borrower, or this Agreement, any other Loan Document or the transactions
contemplated hereby or thereby, (B) any actual or proposed use by Borrower of
the proceeds of the Loans, or (C) TBCC's entering into this Agreement or any
other Loan Document or any other agreements and documents relating hereto,
including, without limitation, amounts paid in settlement, court costs and the
reasonable fees and disbursements of counsel incurred in connection with any
such litigation, investigation, claim or proceeding, (ii) any remedial or other
action taken by Borrower in connection with compliance by Borrower, or any of
its properties, with any federal, state or local environmental laws, rules or
regulations, and (iii) any pending, threatened or actual action, claim,
proceeding or suit by any shareholder or director of Borrower or any actual or
purported violation of Borrower's charter, by-laws or any other agreement or
instrument to which Borrower is a party or by which any of its properties is
bound. In addition and without limiting the generality of the foregoing,
Borrower shall, upon demand, pay to TBCC all reasonable costs and expenses
incurred by TBCC (including the reasonable fees and disbursements of counsel and
other professionals) in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents, and pay to
TBCC all reasonable costs and expenses (including the reasonable fees and
disbursements of counsel and other professionals) paid or incurred by TBCC in
order to enforce or defend any of its rights under or in
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<PAGE> 18
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
respect of this Agreement, any other Loan Document or any other document or
instrument now or hereafter executed and delivered in connection herewith,
collect the Obligations or otherwise administer this Agreement, foreclose or
otherwise realize upon the Collateral or any part thereof, prosecute actions
against, or defend actions by, account debtors; commence, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim: examine, audit, copy, and inspect any
of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce TBCC's security
interest in, the Collateral; and otherwise represent TBCC in any litigation
relating to Borrower. Without limiting the generality of the foregoing, Borrower
shall pay TBCC a fee with respect to each wire transfer in the amount of $15
plus all bank charges and a fee of $15 for all returned checks plus all bank
charges. If either TBCC or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its reasonable costs and attorneys' fees, including
(but not limited to) reasonable attorneys' fees and costs incurred in the
enforcement of, execution upon or defense of any order, decree, award or
judgment. If and to the extent that the Obligations of Borrower hereunder are
unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of the Obligations which is
permissible under applicable law. Borrower's obligations under Section 2.4 and
this Section shall survive any termination of this Agreement and the other Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of any of the other Obligations.
*reasonable
10.8. Amendments and Waivers. Any provision of this Agreement or any other
Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and signed by Borrower and TBCC and then any such
amendment or waiver shall be effective only to the extent set forth therein.
The failure of TBCC at any time or times to require Borrower to strictly comply
with any of the provisions of this Agreement or any other present or future
agreement between Borrower and TBCC shall not waive or diminish any right of
TBCC later to demand and receive strict compliance therewith. Any waiver of any
default shall not waive or affect any other default, whether prior or
subsequent, and whether or not similar. None of the provisions of this
Agreement or any other agreement now or in the future executed by Borrower and
delivered to TBCC shall be deemed to have been waived by any act or knowledge
of TBCC or its agents or employees, but only by a specific written waiver
signed by an authorized officer of TBCC and delivered to Borrower.
10.9. Counterparts: Telecopied Signatures. This Agreement and any waiver
or amendment hereto may be executed in counterparts and by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
10.10. Severability. In case any provision in or obligation under this
Agreement or any other Loan Document shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or obligation in any
other jurisdiction, shall not in any way be affected or impaired thereby.
10.11. Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12. Maximum Rate. Notwithstanding anything to the contrary contained
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or
detention of the money loaned to Borrower and evidenced hereby or thereby or for
the performance or payment of any covenant or obligation contained herein or
therein, exceed the maximum non-usurious interest rate, if any, that at any time
or from time to time may be contracted for, taken, reserved, charged or received
on the Obligations, under the laws of the State of Illinois (or the laws of any
other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Agreement and the other Loan Documents), or under
applicable federal laws which may presently or hereafter be in effect and which
allow a higher maximum non-usurious interest rate than under the laws of the
State of Illinois (or such other jurisdiction), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Agreement and the other Loan Documents executed
in connection herewith, and any available exemptions, exceptions and exclusions
(the "Highest Lawful Rate"). If due to any circumstance whatsoever, fulfillment
of any provisions of this Agreement or any of the other Loan Documents at the
time performance of such provision shall be due shall exceed the Highest Lawful
Rate, then, automatically, the obligation to be fulfilled shall be modified or
reduced to the extent necessary to limit such interest to the Highest Lawful
Rate, and if from any such circumstance TBCC should ever receive anything of
value deemed interest by applicable law which would exceed the Highest Lawful
Rate, such excessive interest shall be applied to the reduction of the principal
amount then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then
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<PAGE> 19
TBCC Loan and Security Agreement
- --------------------------------------------------------------------------------
outstanding Obligations, such excess shall be refunded to Borrower. All sums
paid or agreed to be paid to TBCC for the use, forbearance, or detention of the
Obligations and other indebtedness of Borrower to TBCC shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness, until payment in full thereof, so
that the actual rate of interest on account of all such indebtedness does not
exceed the Highest Lawful Rate throughout the entire term of such indebtedness.
The terms and provisions of this Section shall control every other provision of
this Agreement, the other Loan Documents and all other agreements between the
parties hereto.
10.13. Entire Agreement; Successors and Assigns. This Agreement and the
other Loan Documents constitute the entire agreement between the parties,
supersede any prior written and verbal agreements between them, and shall bind
and benefit the parties and their respective successors and permitted assigns.
There are no oral understandings, oral representations or oral agreements
between the parties which are not set forth in this Agreement or in other
written agreements signed by the parties in connection herewith. *
*10.13A Confidentiality. In handling any confidential information TBCC
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of TBCC in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a confidentiality
agreement with TBCC comparable to this Section, (iii) as required by law,
regulations, rule or order, subpoena, judicial order or similar order, (iv) as
may be required in connection with the examination, audit or similar
investigation of TBCC, and (v) as TBCC may deem appropriate in connection with
the exercise of any remedies hereunder. Confidential information hereunder shall
not include information that either: (a) is in the public domain or in the
knowledge or possession of TBCC when disclosed to TBCC, or becomes part of the
public domain after disclosure to TBCC through no fault of TBCC; or (b) is
disclosed to TBCC by a third party, provided TBCC does not have actual knowledge
that such third party is prohibited from disclosing such information.
10.14. MUTUAL WAIVER OF JURY TRIAL. TBCC AND BORROWER EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (iii) ANY CONDUCT,
ACTS OR OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR
BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
BORROWER:
BACKWEB TECHNOLOGIES INC.
By: /s/ [Signature Illegible]
--------------------------
Title: President
----------------------
TBCC:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ [Signature Illegible]
--------------------------
Title: SVP
--------------------
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<PAGE> 20
[TBCC LOGO]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: BACKWEB TECHNOLOGIES INC.
ADDRESS: 2077 GATEWAY PLAZA, SUITE 500
SAN JOSE, CALIFORNIA 95110
DATE: DECEMBER 24, 1998
This Schedule is an integral part of the Loan and Security Agreement between
TRANSAMERICA BUSINESS CREDIT CORPORATION (TBCC) and the above borrower
(Borrower) of even date.
1. CREDIT LIMIT. (Section 1.1):
An amount (the "Credit Limit") not to exceed the lesser of
$6,500,000 (the "Overall Dollar Limit") or the sum of (a), (b)
and (c) below:
(a) Loans (the "Formula Loans") in an amount not to exceed
the lesser of (i) $3,000,000 at any time outstanding,
or (ii) 85% of the amount of Borrower's Eligible
Receivables (as defined in Section 9.1(n) above); plus
(b) Loans (the "Non-Formula Loans") in a total unpaid
principal balance not to exceed $2,000,000 at any time
outstanding; plus
(c) Loans (the "Term Loans"), in an aggregate amount not
to exceed $1,500,000.
Term Loans. Term Loans shall be disbursed in disbursements
of no less than $250,000 each.
Each Term Loan shall be repaid by Borrower in 36 equal
monthly installments of principal and interest, beginning
on the first day of the first month following the
disbursement of such Term Loan, and continuing on the first
day of each succeeding month until paid in full. All unpaid
Term Loans and all sums due in connection therewith shall be
due in full on any termination of this Agreement for any
reason. The first disbursement of the Term Loan shall be in
the principal amount of $750,000, which shall be drawn by
the Borrower on or before JANUARY 31, 1999. No Term Loans
will be made after DECEMBER 31, 1999. The Term Loans, when
repaid, may not be reborrowed. Term Loans shall be subject
to the additional terms of the Equipment Loan Rider hereto.
2. INTEREST. (Section 2.1):
The interest rate in effect throughout each calendar month
during the term of this Agreement on the Formula Loans and
the Non-Formula Loans shall be the highest "Base Rate" in
effect during such month, plus:
<PAGE> 21
TBCC Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
(a) In the case of the Formula Loans, 2% per annum, and
(b) In the case of the Non-Formula Loans, 4% per annum;
Provided that (i) in either case, the interest rate in
effect in each month shall not be less than 8% per annum,
and (ii) the total interest charged with respect to the
Formula Loans and the Non-Formula Loans for the first full
twelve months of the term of this Agreement and each
twelve-month period thereafter shall be $84,000 for each
such twelve-month period (prorated for any period of less
than twelve months upon termination of this Agreement). If
the total interest paid during any such twelve-month period
with respect to the Formula Loans and the Non-Formula Loans
is less than $84,000 (prorated for any period of less than
twelve months upon termination of this Agreement), the
Borrower shall pay TBCC the difference at the end of such
period, and TBCC may charge the same to Borrower's Loan
Account."
Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. "Base Rate" shall
mean the higher of (a) the highest prime, base or equivalent
rate of interest announced from time to time by Citibank,
N.A., First National Bank of Chicago and Bank of America
National Trust and Savings Association (which may not be the
lowest rate of interest charged by such bank) and (b) the
published annualized rate for 90-day dealer commercial paper
which appears in the "Money Rates" section of The Wall
Street Journal.
3. FEES (Section 2.2): Loan Fee: $67,500, payable concurrently herewith.
Termination Fee: An amount equal to $8,000 multiplied by each
month (or portion thereof) from the effective date of termination
to the Maturity Date, which Termination Fee shall be payable on
the date of termination.
4. MATURITY DATE (Section 1.6): DECEMBER 31, 1999 (the "Maturity Date"),
subject to automatic renewal and early
termination as provided in Section 1.6
above.
5. REPORTING (Section 5.10): Borrower shall provide TBCC with the
following reports:
(a). Monthly Financial Statements. Monthly unaudited financial
statements of the Borrower (unconsolidated and without
eliminating entries), as soon as available, and in any event
within 30 days after the end of each month.
(b). Monthly Receivable Agings. Monthly Receivable agings, aged
by invoice date, within 10 days after the end of each month.
(c). Monthly Payable Agings. Monthly accounts payable agings,
aged by invoice date, and outstanding or held check
registers within 10 days after the end of each month.
-2-
<PAGE> 22
TBCC Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
(d). Monthly Compliance Certificates. As soon as available,
but not later than thirty days after the end of
each month, a Compliance Certificate, with an attached
schedule of calculations demonstrating compliance or
indicating non-compliance with any Financial Covenants.
(e). Quarterly Financial Statements. Quarterly unaudited
financial statements, as soon as available, and in any
event within 30 days after the end of each fiscal
quarter of Borrower.
(f). Annual Financial Statements. As soon as available, but
not later than 90 days after the end of the Borrower's
fiscal year, (A) Borrower's annual audited Financial
Statements; (B) a comparison in reasonable detail to
the prior year's audited Financial Statements; (C) the
Auditors' opinion without Qualification, a Management
Letter and a statement indicating that the Auditors
have not obtained knowledge of the existence on any
Default or Event of Default during their audit; (D) a
narrative discussion of Borrower's financial condition
and results of operations and the liquidity and capital
resources for such fiscal year.
The quarterly financial statements and annual financial
statements provided pursuant to Section (e) and (f) above
may be prepared on a consolidated basis with Borrower's
parent, BACKWEB TECHNOLOGIES, LIMITED, an Israeli
corporation.
6. BORROWER INFORMATION:
(a) Prior Names of Borrower (Section 4.11): Interad
(b) Prior Trade Names of Borrower (Section 4.11): None
(c) Existing Trade Names of Borrower (Section 4.1): None
(d) Other Places of Business and Locations of Collateral
(Section 4.2): None
7. FACSIMILE NUMBERS:
Borrower: (408) 933-1800
TBCC: (818) 995-9148
8. CLOSING DEADLINE (Section 1.8): JANUARY 8, 1999
9. ADDITIONAL PROVISIONS:
(a) Guaranty. Borrower shall concurrently cause BACKWEB
TECHNOLOGIES, LIMITED, an Israeli corporation, (the
"Parent") to execute and deliver to TBCC a Continuing
Guaranty with respect to all of the Obligations and security
documents granting TBCC a first-priority security interest
in all of the Parent's assets of every kind, including
without limitation all patents, copyrights and other
intellectual property. Said Guaranty and security documents
shall
-3-
<PAGE> 23
TBCC Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
be in such form as TBCC and its counsel shall specify.
Borrower shall cause said Guaranty and security
documents to continue in full force and effect
throughout the term of this Loan Agreement and so long
as any portion of the Obligations remains outstanding.
(b) Warrants. The Borrower shall provide TBCC Funding
Trust II, a Delaware business trust with five-year
warrants to purchase 385,000 shares of common stock of
the Parent, at $1.15 per share, on the terms and
conditions in the Warrant to Purchase Stock and
related documents being executed concurrently with
this Agreement.
(c) Sales Offices. Borrower's offices in the States of
Georgia, Illinois, Massachussetts, New York, Virginia
and Texas are only sales offices and the total value of
assets in each of said states does not exceed $10,000.
Before increasing the amount of assets in such states,
Borrower will provide twenty days advance written
notice thereof to TBCC and Borrower shall provide TBCC
with signed UCC-1 financing statements in appropriate
form for filing in such states.
Borrower: TBCC:
BACKWEB TECHNOLOGIES INC. TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ [Signature Illegible] By: /s/ [signature illegible]
--------------------------- ------------------------------
President or Vice President Title:
---------------------------
Senior Vice President/
General Manager
-4-
<PAGE> 24
TBCC
EQUIPMENT LOAN RIDER TO
LOAN AND SECURITY AGREEMENT
BORROWER: BACKWEB TECHNOLOGIES INC.
ADDRESS: 2077 GATEWAY PLAZA, SUITE 500
SAN JOSE, CALIFORNIA 95110
DATE: DECEMBER 24, 1998
This Equipment Loan Rider is an integral part of the Loan and Security
Agreement between TRANSAMERICA BUSINESS CREDIT CORPORATION (TBCC) and the above
borrower (Borrower) of even date (the Loan Agreement). Nothing herein limits any
of the other terms or provisions of the Loan Agreement.
1. TERM LOANS.
(a) Each Term Loan shall be in an amount not less than $200,000 and at
least $750,000 of Term Loans shall be borrowed by DECEMBER 31, 1998.
No Term Loans will be made after DECEMBER 31, 1999. Term Loans will be
made separately to each Borrower, based on the Specified Equipment (as
defined below) of each Borrower.
(b) Each Term Loan shall be repaid in 36 equal monthly installments of
principal and interest, commencing on the first day of the first month
following the date of disbursement of the Term Loan; provided that (i)
the first and last monthly installments on each Term Loan shall be due
and payable on the date of disbursement of the Term Loan, (ii) an
additional interim payment, in an amount equal to the daily equivalent
of the monthly installment for each day from the date of disbursement
of the Term Loan to the first day of the first monthly following the
date of disbursement of the Term Loan, shall be payable on the date of
disbursement of the Term Loan, and (iii) at the maturity of each Term
Loan Borrower shall pay TBCC an additional payment in an amount equal
to 10% of the original principal amount of the Term Loan. Each monthly
payment shall be in an amount equal to 3.1066% (the Monthly Payment
Percentage) of the original principal amount of each Term Loan.
(c) TBCC shall have the right to increase the Monthly Payment Percentage
applicable to a Term Loan, as of the date such Term Loan is made,
proportionally to any change in the weekly average of the interest
rates of like-term U.S. Treasury Securities (as published in the Wall
St. Journal) from the week ending September 25, 1998 to the week
preceding the date of disbursement of such Term Loan.
(d) Notwithstanding anything herein to the contrary, all unpaid Term Loans
and all sums due in connection therewith shall be due in full on any
termination of the Loan Agreement for any reason.
(e) Prior to each disbursement of a Term Loan, Borrower shall (i) execute
and deliver a Note on TBCC's standard form, evidencing such Term Loan,
and (ii) provide TBCC with a Schedule of the Equipment related to such
Term Loan (the "Specified Equipment"), in form and substance
satisfactory to TBCC and its counsel, and TBCC's security interests in
the Specified Equipment shall have been duly perfected and shall
constitute a first priority Lien, and (iii) execute and deliver
<PAGE> 25
TBCC Equipment Rider to Loan and Security Agreement
- --------------------------------------------------------------------------------
to TBCC a UCC-1 Financing Statement with respect to the Specified Equipment
in form suitable for filing in the appropriate governmental office.
2. REPRESENTATIONS. Borrower represents and warrants to TBCC that (i) each
Schedule of Equipment shall set forth the true and correct location, model
number and serial number of each item of Specified Equipment referred to
therein, (ii) the cost of each item of Specified Equipment does not exceed
the fair and usual price for such type of equipment purchased in like
quantity and reflects all discounts, rebates and allowances for the
Specified Equipment (including, without limitation, discounts for
advertising, prompt payment, testing, or other services) given to the
Borrower by the manufacturer, supplier or any other person.
3. USE OF EQUIPMENT; LICENSES; REPAIR. All Equipment shall be operated by
competent, qualified personnel in connection with the Borrower's business
purposes, for the purpose for which the Equipment was designed and in
accordance with applicable operating instructions, laws, and government
regulations, and the Borrower shall use every reasonable precaution to
prevent loss or damage to the Equipment and other Collateral from fire and
other hazards. The Borrower shall procure and maintain in effect all
orders, licenses, certificates, permits, approvals, and consents required
by federal, state, or local laws or by any governmental body, agency, or
authority in connection with the delivery, installation, use, and
operation of the Equipment and other Collateral. The Borrower shall keep
all of the Equipment in a satisfactory state of repair and satisfactory
operating condition in accordance with industry standards, and will make
all repairs and replacements when and where necessary and practical. The
Borrower will not waste or destroy any of the Equipment or other
Collateral, and will not be negligent in the care or use thereof.
4. NO DISPOSITION OF SPECIFIED EQUIPMENT. The Borrower will not in any way
hypothecate or create or permit to exist any Lien on or other interest in
any of the Specified Equipment, except for the security interest of TBCC
and Permitted Liens which are junior to the security interest of TBCC.
Notwithstanding the foregoing, none of the Specified Equipment shall be
subject to any Purchase Money Lien in favor of any Person other than TBCC.
The Borrower will not sell, transfer, assign, pledge, collaterally assign,
exchange, or otherwise dispose of any of the Specified Equipment.
Borrower: TBCC
BACKWEB TECHNOLOGIES INC. TRANSAMERICA BUSINESS CREDIT CORPORATION
By /s/ [Signature Illegible] By /s/ [Signature Illegible]
-------------------------- --------------------------------------
President or Vice President Title Senior Vice President/
General Manager
-2-
<PAGE> 1
Exhibit 10.10
VOTING AND EXCHANGE TRUST AGREEMENT
MEMORANDUM OF AGREEMENT (the "Agreement") made as of the 8th day of
August, 1997.
BETWEEN:
BACKWEB TECHNOLOGIES LTD., a corporation organized under the laws
of the Israel ("BackWeb")
- and -
BACKWEB CANADA INC., a corporation amalgamated under the laws of
the Province of Ontario (the "Corporation")
-and-
THE TRUST COMPANY OF BANK OF MONTREAL, a trust company
incorporated under the laws of Canada (the "Trustee")
WHEREAS pursuant to an Agreement and Plan of Acquisition dated as of July
1, 1997, by and among BackWeb, BackWeb Canada Inc. ("Old BackWeb Canada"),
Lanacom Inc. and Anthony Davis (the "Acquisition Agreement"), the parties
agreed that on the Closing Date (as such term is defined in the Acquisition
Agreement), BackWeb, the Corporation and a trust company would execute and
deliver a Voting Exchange Trust Agreement substantially in the form set forth
in Exhibit E 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 the amalgamation effected by articles of
amalgamation dated August 8, 1997 (the "Amalgamation") filed pursuant to the
Business Corporation Act (Ontario), Lanacom Inc. and Old BackWeb Canada
amalgamated to continue as the Corporation;
AND WHEREAS pursuant to the amalgamation the issued and outstanding common
shares of Lanacom Inc. were changed into Class A shares of the Corporation (in
the manner set out in the Acquisition Agreement) and each issued and
outstanding common share of Old BackWeb Canada was changed into one common
share of the Corporation;
AND WHEREAS pursuant to and immediately following the above-mentioned
Amalgamation, articles of amendment were filed pursuant to the Business
Corporation Act (Ontario) on August 8, 1997 pursuant to which each issued and
outstanding Class A shares of the
<PAGE> 2
-2-
Corporation was exchanged for one issued and outstanding exchangeable
non-voting share of the Corporation (collectively, the "Exchangeable Shares");
AND WHEREAS the above-mentioned articles of amendment set forth the
rights, privileges, restrictions and conditions (collectively, the
"Exchangeable Share Provisions") attaching to the Exchangeable Shares;
AND WHEREAS BackWeb is the registered and beneficial owner of all of the
issued and outstanding common shares of the Corporation;
AND WHEREAS pursuant to the Acquisition Agreement and the Exchangeable
Share Provisions, BackWeb is to provide voting rights in BackWeb to each holder
(other than BackWeb and its Affiliates) from time to time of Exchangeable
Shares, such voting rights per Exchangeable Share to be equivalent to the
voting rights per share of Ordinary Shares of BackWeb ("BackWeb Ordinary
Shares");
AND WHEREAS pursuant to the Acquisition Agreement and the terms and
conditions of the Exchangeable Shares, BackWeb is to grant to and in favour of
the holders (other than its Affiliates) from time to time of Exchangeable
Shares the right, in the circumstances set forth herein, to require BackWeb to
purchase from each such holder all or any part of the Exchangeable Shares held
by the holder;
AND WHEREAS the parties desire to make appropriate provision and to
establish a procedure whereby voting rights in BackWeb shall be exercisable by
holders (other than BackWeb and its Affiliates) from time to time of
Exchangeable Shares by and through the Trustee, which will hold legal title to
one share of BackWeb Series E Special Preferred Stock to which voting rights
attach for the benefit of such holders, and whereby the right to require BackWeb
to purchase Exchangeable Shares from the holders thereof (other than its
Affiliates) shall be exercisable by such holders from time to time of
Exchangeable Shares by and through the Trustee, which will hold legal title to
such right for the benefit of such holders;
AND WHEREAS these recitals and any statements of fact in this Agreement
are made by BackWeb and the Corporation and not by the Trustee;
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 DEFINITIONS. In this Agreement, the following terms shall have the
following meanings:
<PAGE> 3
-3-
"Affiliate" of any person means any other person directly or indirectly
controlled by, or under common control of, that person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control of"), as applied to any person, means
the possession by another person, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that first
mentioned person, whether through the ownership of voting securities, by
contract or otherwise.
"Amalgamation Agreement" means the amalgamation agreement dated as of August 8,
1997 providing for the Amalgamation.
"Applicable Laws" has the meaning given to such term in section 5.10 of this
Agreement.
"Automatic Exchange Rights" means the benefit of the obligation of BackWeb to
effect the automatic exchange of Exchangeable Shares for BackWeb Ordinary
Shares pursuant to section 5.12 of this Agreement.
"BackWeb Consent" has the meaning given to such term in section 4.2 of this
Agreement.
"BackWeb Meeting" has the meaning given to such term in section 4.2 of this
Agreement.
"BackWeb Successor" has the meaning given to such term in section 11.1(a) of
this Agreement.
"Beneficiaries" means the registered holders from time to time of Exchangeable
Shares, other than BackWeb and its Affiliates.
"Beneficiary Votes" has the meaning given to such term in section 4.2 of this
Agreement.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means a day other than a Saturday, Sunday or a day when banks
are not open for business in Toronto, Ontario.
"Canadian Dollar Equivalent" means in respect of an amount expressed in a
foreign currency (the "Foreign Currency Amount") as any date the product
obtained by multiplying (a) the Foreign Currency Amount by (b) the noon spot
exchange rate on such date for such foreign currency expressed in Canadian
dollars as reported by the Bank of Canada or, in the event such spot exchange
rate is not
<PAGE> 4
-4-
available, such exchange rate on such date for such foreign currency expressed
in Canadian dollars as may be deemed by the Board of Directors to be appropriate
for such purpose.
"Current Market Price" means, in respect of a BackWeb Ordinary Share on any
date: (a) if the BackWeb Ordinary Shares are listed or quoted on a stock
exchange or automated quotation system, the Canadian Dollar Equivalent of the
average of the closing prices of BackWeb Ordinary Shares on each of the 30
consecutive trading days ending not more than five trading days before such
date, or (b) if there is no public market for the BackWeb Ordinary Share, then
the Current Market Price of a BackWeb Ordinary Share on such date shall be
determined by the independent auditors of BackWeb, and any such determination
shall be conclusive and binding.
"Exchange Right" has the meaning given to such term in section 5.1 of this
Agreement.
"Indemnified Parties" has the meaning given to such term in section 9.1.
"Insolvency Event" means the institution by the Corporation of any proceeding
to be adjudicated a bankrupt or insolvent or to be dissolved or wound up, or
the consent of the Corporation to the institution of bankruptcy, insolvency,
dissolution or winding up proceedings against it, or the filing of a petition,
answer or consent seeking dissolution or winding up under any bankruptcy,
insolvency or analogous laws, including without limitation the Companies
Creditors' Arrangement Act (Canada) and the Bankruptcy and Insolvency Act
(Canada), and the failure by the Corporation to contest in good faith any such
proceedings commenced in respect of the Corporation within 15 days of becoming
aware of such proceedings, or the consent by the Corporation to the filing of
any such petition or to the appointment of a receiver, or the making by the
Corporation of a general assignment for the benefit of creditors, or the
admission in writing by the Corporation of its inability to pay its debts
generally as they become due, or the Corporation not being permitted, pursuant
to solvency requirements of applicable law, to redeem any Retracted Shares
pursuant to Section 6.6 of the Exchangeable Share Provisions.
"Liquidation Call Right" has the meaning given to such term in the Acquisition
Agreement.
"Liquidation Event" has the meaning given to such term in section 5.12(b) of
this Agreement.
<PAGE> 5
-5-
"Liquidation Event Effective Date" has the meaning given to such term in
section 5.12(c) of this Agreement.
"List" has the meaning given to such term in section 4.6 of this Agreement.
"Notice Event" has the meaning given to such term in section 7.17 of this
Agreement.
"Officer's Certificate" means, with respect to BackWeb or the Corporation,
as the case may be, a certificate signed by any one of the Chairman of the
Board, the Vice-Chairman of the Board, the President, any Vice-President or
any other senior officer of BackWeb or the Corporation, as the case may
be.
"person" includes an individual, partnership, corporation, company,
unincorporated syndicate or organization, trust, trustee, executor,
administrator and other legal representative.
"Redemption Call Right" has the meaning given to such term in the
Acquisition Agreement.
"Retracted Shares" has the meaning given to such term in section 5.7 of
this Agreement.
"Retraction Call Right" has the meaning given to such term in the
Exchangeable Share Provisions.
"Support Agreement" means the support agreement made as of the date hereof
between the Corporation and BackWeb.
"Trust" means the trust created by this Agreement.
"Trust Estate" means the Voting Share, the Exchange Right, the Automatic
Exchange Rights and any money other securities or other property which may
be held by the Trustee from time to time pursuant to this Agreement.
"Trustee" means The Trust Company of Bank of Montreal and, subject to the
provisions of Article 10 of this Agreement, includes any successor trustee.
"Voting Rights" means the voting rights attached to the Voting Shares.
"Voting Share" means the one share of BackWeb Series E Special Preferred
Stock with a par value of $.01, issued by BackWeb to and deposited with the
Trustee, which entitles the holder of record to a number of votes at
meetings of holders of
<PAGE> 6
-6-
BackWeb Ordinary Shares equal to that number of votes that holders of
the Exchangeable Shares outstanding from time to time (other than
Exchangeable Shares held by BackWeb and its Affiliates) would be
entitled to if such Exchangeable Shares were exchanged for BackWeb
Ordinary Shares.
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 Date of any Action. If any date on which any action is required to be taken
under this Agreement is not a Business Day, such action shall be required
to be taken on the next succeeding Business Day.
ARTICLE 2
PURPOSE OF AGREEMENT
2.1 Establishment of Trust. The Trust is hereby created and constituted for the
benefit of the Beneficiaries, as provided in this Agreement. The Trustee
will hold the Voting Share in order to enable the Trustee to exercise the
Voting Rights and will hold the Exchange Right and the Automatic Exchange
Rights in order to enable the Trustee to exercise such rights, in each case
as trustee for and on behalf of the Beneficiaries as provided in this
Agreement.
ARTICLE 3
VOTING SHARE
3.1 Issue and Ownership of the Voting Share. BackWeb hereby issues to and
deposits with the Trustee a certificate representing the Voting Share to be
held by the Trustee as trustee for and on behalf of, and for the use and
benefit of, the Beneficiaries and in accordance with the provisions of this
Agreement. BackWeb hereby acknowledges receipt from the Trustee as trustee
for and on behalf of the Beneficiaries of good and valuable consideration
(and the adequacy thereof) for the issuance of the Voting Share by BackWeb
to the Trustee. During the term of the Trust and subject to the terms and
conditions of this Agreement, the Trustee shall possess and be vested with
full legal ownership of the Voting Share and shall be entitled to exercise
all of the rights and powers of an owner with respect to the Voting Share,
provided that the Trustee shall:
(a) hold the Voting Share and the legal title thereto as trustee
solely for the use and benefit of the Beneficiaries in
accordance with the provisions of this Agreement; and
(b) except as specifically authorized by this Agreement, have no
power or authority to sell, transfer, vote or otherwise deal
in or with the Voting
<PAGE> 7
-7-
Share and Voting Share shall not be used or disposed of by the
Trustee for any purpose other than the purposes for which this Trust
is created pursuant to this Agreement.
3.2 Legended Share Certificates. The Corporation will cause each certificate
representing Exchangeable Shares to bear an appropriate legend notifying
the Beneficiaries of their right to instruct the trustee with respect to
the exercise of the Beneficiary Votes.
3.3 Safekeeping of Certificate. The certificate representing the Voting Share
shall at all times be held in safekeeping by the Trustee or its agent,
which may be an Affiliate of the Trustee.
ARTICLE 4
EXERCISE OF VOTING RIGHTS
4.1 Voting Rights. The Trustee, as the holder of record of the Voting Share,
shall be entitled to all of the Voting Rights, including the right to
consent to or to vote in person or by proxy the Voting Share, on any
matter, question or proposition whatsoever that may properly come before
the shareholders of BackWeb at a BackWeb Meeting or in connection with a
BackWeb Consent (in each case, as defined in section 4.2 of this
Agreement). The Voting Rights shall be and remain vested in and exercised
by the Trustee. Subject to section 7.15 of this Agreement, the Trustee
shall exercise the Voting Rights only on the basis of instructions
received pursuant to this Article 4 from Beneficiaries entitled to
instruct the Trustee as to the voting thereof at the time at which the
BackWeb Consent is sought or the BackWeb Meeting is held. To the extent
that no instructions are received from a Beneficiary with respect to the
Voting Rights to which such Beneficiary is entitled, the Trustee shall
exercise such Voting Rights pro rata in accordance with the instructions
received by the Trustee from the other Beneficiaries.
4.2 Number of Votes. With respect to all meetings of shareholders of BackWeb
at which holders of BackWeb Ordinary Shares are entitled to vote (a
"BackWeb Meeting") and with respect to all written consents sought by
BackWeb from its shareholders including the holders of BackWeb Ordinary
Shares (a "BackWeb Consent"), each Beneficiary shall be entitled to
instruct the Trustee to cast and exercise one of the votes comprised in
the Voting Rights for each Exchangeable Share owned of record by such
Beneficiary on the record date established by BackWeb or by applicable law
for such BackWeb Meeting or BackWeb Consent, as the case may be (the
"Beneficiary Votes") in respect of each matter, question or proposition to
be voted on at such BackWeb Meeting or to be consented to in connection
with such BackWeb Consent.
4.3 Mailings to Shareholders. With respect to each BackWeb Meeting and BackWeb
Consent, the Trustee will mail or cause to be mailed (or otherwise
communicate in the same manner as BackWeb utilizes in communications to
holders of BackWeb Ordinary
<PAGE> 8
-8-
Shares) to each of the Beneficiaries named in the List on the same day as
the initial mailing of notice (or other communication) with respect to
such BackWeb Meeting or BackWeb Consent is given by BackWeb to its
shareholders:
(a) a copy of such notice, together with any related materials to
be provided to shareholders of BackWeb;
(b) a statement that such Beneficiary is entitled to instruct the
Trustee as to the exercise of the Beneficiary Votes with
respect to such BackWeb Meeting or BackWeb Consent, as the
case may be, or, pursuant to section 4.7 of this Agreement, to
attend such BackWeb Meeting and to exercise personally the
Beneficiary Votes at such meeting;
(c) a statement as to the manner in which such instructions may be
given to the Trustee, including an express indication that
instructions may be given to the Trustee to give:
(i) a proxy to such Beneficiary or such Beneficiary's
designee to exercise personally the Beneficiary Votes;
or
(ii) a proxy to a designated agent or other representative of
the management of BackWeb to exercise such Beneficiary
Votes;
(d) a statement that if no such instructions are received from the
Beneficiary, the Beneficiary Votes to which such Beneficiary
is entitled will be exercised pro rata in accordance with the
instructions the Trustee receives from all other
Beneficiaries;
(e) a form of direction whereby the Beneficiary may so direct and
instruct the Trustee as contemplated herein; and
(f) a statement of the time and date by which such instructions
must be received by the Trustee in order to be binding upon
it, which in the case of a BackWeb Meeting shall not be
earlier than the close of business on the second Business Day
prior to such meeting, and of the method for revoking or
amending such instructions.
For the purpose of determining the Beneficiary Votes to which a
Beneficiary is entitled in respect of any such BackWeb Meeting or BackWeb
Consent, the number of Exchangeable Shares owned of record by the
Beneficiary shall be determined by the Corporation at the close of
business on the record date established by BackWeb or by applicable law
for purposes of determining shareholders entitled to vote at such BackWeb
Meeting or to give written consent in connection with such BackWeb
Consent. BackWeb
<PAGE> 9
-9-
will notify the Trustee of any decision of the Board of Directors of
BackWeb with respect to the calling of any such BackWeb Meeting or the
seeking of any such BackWeb Consent and shall provide all necessary
information and materials to the Trustee in each case promptly and in any
event in sufficient time to enable the Trustee to perform its obligations
contemplated by this section 4.3.
4.4 Copies of Shareholder Information. BackWeb will deliver to the Trustee
copies of all proxy materials, (including notices of BackWeb Meetings but
excluding proxies to vote BackWeb Ordinary Shares), information
statements, reports (including without limitation all interim and annual
financial statements) and other written communications that are to be
distributed from time to time to holders of BackWeb Ordinary Shares in
sufficient quantities and in sufficient time so as to enable the Trustee
to send or cause to be sent those materials to each Beneficiary at the
same time as such materials are first sent to holders of BackWeb Ordinary
Shares (but in any event, no later than 3 Business Days before the day on
which materials are first sent to holders of BackWeb Ordinary Shares). The
Trustee will mail or cause to be mailed or otherwise send or cause to be
sent to each Beneficiary,at the expense of BackWeb, copies of all such
materials (and all materials specifically directed to the Beneficiaries or
to the Trustee for the benefit of the Beneficiaries by BackWeb) received
by the Trustee from BackWeb at the same time as such materials are first
sent to holders of BackWeb Ordinary Shares. The Trustee will also make
available for inspection by any Beneficiary at the Trustee's principal
corporate trust office in the city of Toronto all proxy materials,
information statements, reports and other written communications that are:
(a) received by the Trustee as the registered holder of the Voting
Share and made available by BackWeb to the holders of BackWeb
Ordinary Shares; or
(b) specifically directed to the Beneficiaries or to the Trustee
for the benefit of the Beneficiaries by BackWeb.
4.5 Other Materials. Immediately after receipt by BackWeb or any shareholder
of BackWeb of any material sent or given to the holders of BackWeb
Ordinary Shares by or on behalf of a third party, including without
limitation dissident proxy and information circulars (and related
information and material) and tender and exchange offer circulars (and
related information and material), BackWeb shall use its best efforts to
obtain and deliver to the Trustee copies thereof in sufficient quantities
so as to enable the Trustee to forward such material (unless the same has
been provided directly to Beneficiaries by such third party) to each
Beneficiary as soon as possible thereafter. As soon as practicable after
receipt of such material, the Trustee will mail or cause to be mailed or
otherwise send or cause to be sent to each Beneficiary, at the expense of
BackWeb, copies of all such materials received by the Trustee from
BackWeb. The Trustee will also make available for inspection by any
Beneficiary at the Trustee's principal corporate trust office in the city
<PAGE> 10
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of Toronto copies of all such materials. It shall be a condition precedent
to the Trustee's obligations under this Agreement including, in
particular, under sections 4.3, 4.4, 4.9, 5.9 and 5.12, that the
Corporation or BackWeb, as the case may be, prepare the applicable
material, List and mailing labels and to provide the Trustee with a
sufficient quantity thereof in a timely fashion.
4.6 List of Persons Entitled to Vote. The Corporation shall, (a) prior to each
annual, general and special BackWeb Meeting or the seeking of any BackWeb
Consent and (b) forthwith upon each request made at any time by the
Trustee in writing, prepare or cause to be prepared through the registrar
and transfer agent a list (a "List") of the names and addresses of the
Beneficiaries arranged in alphabetical order and showing the number of
Exchangeable Shares held of record by each such Beneficiary, in each case
at the close of business on the date specified by the Trustee in such
request or, in the case of a List prepared in connection with a BackWeb
Meeting or a BackWeb Consent, at the close of business on the record date
established by BackWeb or pursuant to applicable law for determining the
holders of BackWeb Ordinary Shares entitled to receive notice of and/or to
vote at such BackWeb Meeting or to give consent in connection with such
BackWeb Consent. Each such List shall be delivered to the Trustee promptly
after receipt by the Corporation of such request or the record date for
such meeting or seeking of consent, as the case may be, and in any event
within sufficient time as to enable the Trustee to perform its obligations
under this Agreement. BackWeb agrees to give the Corporation notice (with
a copy to the Trustee) of the calling of any BackWeb Meeting or the
seeking of any BackWeb Consent, together with the record dates therefor,
sufficiently prior to the date of the calling of such meeting or seeking
of such consent so as to enable the Corporation to perform its obligations
under this section 4.6.
4.7 Entitlement to Direct Votes. Any Beneficiary named in a List prepared in
connection with any BackWeb Meeting or any BackWeb Consent will be
entitled (a) to instruct the Trustee in the manner described in section
4.3 of this Agreement with respect to the exercise of the Beneficiary
Votes to which such Beneficiary is entitled or (b) to attend such meeting
and to personally exercise (or to exercise with respect to any written
consent), as the proxy of the Trustee, the Beneficiary Votes to which such
Beneficiary is entitled except, in each case, to the extent that such
Beneficiary has transferred the ownership of any Exchangeable Shares in
respect of which such Beneficiary is entitled to Beneficiary Votes after
the close of business on the record date for such meeting or seeking of
consent.
4.8 Voting Rights delivered by Proxy at Meeting.
(a) In connection with each BackWeb Meeting and BackWeb Consent,
the Trustee shall exercise in accordance with the instructions
received from a Beneficiary pursuant to section 4.3 of this
Agreement, the Beneficiary Votes as to which such Beneficiary
is entitled to direct the vote (or any lesser number thereof
as may be set forth in the instructions); provided,
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however, that such written instructions are received by the
Trustee from the Beneficiary prior to the time and date fixed by
it for receipt of such instructions in the notice given by the
Trustee to the Beneficiary pursuant to section 4.3 of this
Agreement.
(b) For each BackWeb Meeting, the Trustee shall sign and deliver to
BackWeb proxies for Voting Rights to be exercised at such
meeting. At a Beneficiary's request, the Trustee shall sign and
deliver to such Beneficiary (or such person as it designates in
writing) a proxy to exercise personally (at such Beneficiary's
expense) the Beneficiary Votes as to which such Beneficiary is
otherwise entitled hereunder to direct the vote, if such
Beneficiary either (i) has not previously given the Trustee
instructions pursuant to section 4.3 of this Agreement in respect
of such meeting, or (ii) submits to the Trustee written
revocation of any such previous instructions. At such meeting,
the Beneficiary exercising such Beneficiary Votes shall have the
same rights as a shareholder of BackWeb Ordinary Shares to speak
at the meeting in respect of any matter, question or proposition,
to vote by way of ballot at the meeting in respect of any matter,
question or proposition and to vote at such meeting by way of a
show of hands in respect of any matter, question or proposition.
4.9 Distribution of Written Materials. Any written materials distributed by
the Trustee pursuant to this Agreement shall be delivered or sent by mail
to each Beneficiary at its address as shown on the books of the
Corporation. The Corporation shall provide or cause to be provided to the
Trustee for this purpose, on a timely basis and without charge or other
expense:
(a) current Lists of the Beneficiaries; and
(b) mailing labels to enable the Trustee to carry out its duties
under this Agreement.
4.10 Termination of Voting Rights. All of the rights of a Beneficiary with
respect to the Beneficiary Votes in respect of the Exchangeable Shares
held by such Beneficiary, including the right to instruct the Trustee as
to the voting of or to vote personally such Beneficiary Votes, shall be
deemed to be surrendered by the Beneficiary to BackWeb and such
Beneficiary Votes and the Voting Rights represented thereby shall cease
immediately upon the delivery by such holder to the Corporation (and the
Corporation shall forthwith notify the Trustee in writing of such
delivery) of the certificates representing such Exchangeable Shares in
connection with the exercise by the Beneficiary of the Exchange Right or
the occurrence of the automatic exchange of Exchangeable Shares for
BackWeb Ordinary Shares, as specified in Article 5 hereof (unless in
either case BackWeb shall not have delivered the requisite BackWeb
Ordinary Shares
<PAGE> 12
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issuable in exchange therefor, or any cash consideration payable in lieu
thereof shall not have been paid, to the Trustee for delivery to the
Beneficiaries), or upon the retraction; redemption or purchase for
cancellation of Exchangeable Shares pursuant to Article 6, Article 7 or
Article 8 of the Exchangeable Share Provisions, respectively, or upon the
effective date of the liquidation, dissolution or winding-up of the
Corporation pursuant to Article 5 of the Exchangeable Share Provisions, or
upon the purchase of Exchangeable Shares from the holder thereof by BackWeb
pursuant to the exercise by BackWeb of the Retraction Call Right, the
Redemption Call Right or the Liquidation Call Right.
ARTICLE 5
EXCHANGE RIGHT AND AUTOMATIC EXCHANGE
5.1 Grant and Ownership of the Exchange Right. BackWeb hereby grants to the
Trustee as trustee for and on behalf of, and for the use and benefit of,
the Beneficiaries the right (the "Exchange Right"), upon the occurrence and
during the continuance of an Insolvency Event, to require BackWeb (subject
to compliance with applicable securities laws) to purchase from each or any
Beneficiary all or any part of the Exchangeable Shares held by the
Beneficiary and the Automatic Exchange Rights, all in accordance with the
provisions of this Agreement. BackWeb hereby acknowledges receipt from the
Trustee, as trustee for and on behalf of the Beneficiaries, of good and
valuable consideration (and the adequacy thereof) for the issuance of the
Exchange Right to the Trustee. During the term of the Trust and subject to
the terms and conditions of this Agreement, the Trustee shall possess and
be vested with full legal ownership of the Exchange Right and the Automatic
Exchange Rights and shall be entitled to exercise all of the rights and
powers of an owner with respect to the Exchange Right and the Automatic
Exchange Rights, provided that the Trustee shall:
(a) hold the Exchange Rights and the Automatic Exchange Rights and
the legal title thereto as trustee solely for the use and benefit
of the Beneficiaries in accordance with the provisions of this
Agreement; and
(b) except as specifically authorized by this Agreement, have no
power or authority to exercise or otherwise deal in or with the
Exchange Right or the Automatic Exchange Rights, and the Trustee
shall not exercise any such rights for any purpose other than the
purposes for which this Trust is created pursuant to this
Agreement.
5.2 Legended Share Certificates. The Corporation will cause each certificate
representing Exchangeable Shares to bear an appropriate legend notifying
the Beneficiaries of:
(a) their right to instruct the Trustee with respect to the exercise
of the Exchange Right in respect of the Exchangeable Shares held
by a Beneficiary; and
<PAGE> 13
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(b) the Automatic Exchange Rights.
5.3 General Exercise of Exchange Right. the Exchange Rights shall be and
remain vested in and exercised by the Trustee. Subject to section 7.15 of
this Agreement, the Trustee shall exercise the Exchange Right only on the
basis of written instructions received pursuant to this Article 5 from
Beneficiaries entitled to instruct the Trustee as to the exercise thereof.
If requested by BackWeb, the Trustee shall provide a copy of such
instructions to BackWeb. To the extent that no instructions are received
from a Beneficiary with respect to the Exchange Right, the Trustee shall
not exercise or permit the exercise of the Exchange Right.
5.4 Purchase Price. The purchase price payable by BackWeb for each
Exchangeable Share to be purchased by BackWeb under the Exchange Right
shall be an amount per share equal to (a) the Current Market Price of a
BackWeb Ordinary Share on the last Business Day prior to the day of
closing of the purchase and sale of such Exchangeable Share under the
Exchange Right plus (b) an additional amount equivalent to the full amount
of all dividends declared and unpaid on each such Exchangeable Share and
all dividends declared on BackWeb Ordinary Shares which have not been
declared on such Exchangeable Shares in accordance with Section 3.1 of the
Exchangeable Share Provisions (provided that if the record date for any
such declared and unpaid dividends occurs on or after the day of closing
of such purchase and sale the purchase price shall not include such
additional amount equivalent to such declared and unpaid dividends). In
connection with each exercise of the Exchange Right, BackWeb will provide
to the Trustee an Officer's Certificate setting forth the calculation of
the purchase price for each Exchangeable Share. The purchase price for
each such Exchangeable Share so purchased may be satisfied only by BackWeb
delivering or causing to be delivered to the Trustee, on behalf of the
relevant Beneficiary, (subject to compliance with applicable securities
laws), one BackWeb Ordinary Share and a cheque for the amount of the
purchase price (less any part thereof satisfied by the issuance of a
BackWeb Ordinary Share) without interest. The Trustee shall be entitled to
rely and be fully protected in so relying and acting upon such Officer's
Certificate.
5.5 Exercise Instructions. Subject to the terms and conditions herein set
forth, a Beneficiary shall be entitled, upon the occurrence and during the
continuance of an Insolvency Event, to instruct the Trustee to exercise the
Exchange Right with respect to all or any part of the Exchangeable Shares
registered in the name of such Beneficiary on the books of the Corporation.
To cause the exercise of the Exchange Right by the Trustee, the Beneficiary
shall deliver to the Trustee, in person or by certified or registered mail,
at its principal corporate trust office in Toronto, Ontario or at such
other places in Canada as the Trustee may from time to time designate by
written notice to the Beneficiaries, the certificates representing the
Exchangeable Shares which such Beneficiary desires BackWeb to purchase,
duly endorsed in blank, and accompanied by such other documents and
instruments as may be required to effect a transfer of Exchangeable Shares
under the
<PAGE> 14
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Business Corporations Act (Ontario) and the by-laws of the Corporation and
such additional documents and instruments as the Trustee may reasonably
require together with (a) a duly completed form of notice of exercise of
the Exchange Right (in the form attached as Schedule "A" to this
Agreement), contained on the reverse of or attached to the Exchangeable
Share certificates, stating (i) that the Beneficiary thereby instructs the
Trustee to exercise the Exchange Right so as to require BackWeb to
purchase from the Beneficiary the number of Exchangeable Shares specified
therein, (ii) that such Beneficiary has good title to and owns all such
Exchangeable Shares to be acquired by BackWeb free and clear of all liens,
claims and encumbrances, (iii) the names in which the certificates
representing BackWeb Ordinary Shares deliverable in connection with the
exercise of the Exchange Right and cheques for the balance of the purchase
price, if any, are to be issued, and (iv) the names and addresses of the
persons to whom such new certificates and cheques for the balance of the
purchase price, if any, should be delivered and (b) payment (or evidence
satisfactory to the Trustee, the Corporation and BackWeb of payment) of
the taxes (if any) payable as contemplated by section 5.8 of this
Agreement. If only a part of the Exchangeable Shares represented by any
certificate or certificates delivered to the Trustee are to be purchased
by BackWeb under the Exchange Right, a new certificate for the balance of
such Exchangeable Shares shall be issued by the Corporation to the holder
at the expense of the Corporation.
5.6 DELIVERY OF BACKWEB ORDINARY SHARES; EFFECT OF EXERCISE.
(a) Promptly after receipt of the certificates representing the
Exchangeable Shares which the Beneficiary desires BackWeb to
purchase under the Exchange Right together with such documents and
instruments of transfer and a duly completed form of notice of
exercise of the Exchange Right (and payment of taxes, if any, or
evidence thereof), duly endorsed for transfer to BackWeb, the
Trustee shall provide notice (substantially in the form of Schedule
"B" to this Agreement) to BackWeb and the Corporation of its receipt
of the same, which notice to BackWeb and the Corporation shall
constitute exercise of the Exchange Right by the Trustee on behalf of
the holder of such Exchangeable Shares, and BackWeb shall immediately
thereafter deliver or cause to be delivered to the Trustee, for
delivery to the Beneficiary of such Exchangeable Shares (or to such
other persons, if any, properly designated by such Beneficiary),
(subject to compliance with applicable securities laws) the
certificates for the number of BackWeb Ordinary Shares deliverable in
connection with the exercise of the Exchange Right, which shares
shall be duly issued as fully paid and non-assessable and shall be
free and clear of any lien, claim or encumbrance, and cheques for the
total purchase price therefor (less any part thereof satisfied by the
issuance of BackWeb Ordinary Shares).
(b) Immediately upon the giving of notice by the Trustee to BackWeb and
the Corporation of the exercise of the Exchange Right, as provided in
this Section 5.6 but subject to section 5.13 of this Agreement
regarding withholding tax, the
<PAGE> 15
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closing of the transaction of purchase and sale contemplated by the
Exchange Right shall be deemed to have occurred, and the Beneficiary
of such Exchangeable Shares shall be deemed to have transferred to
BackWeb all of its right, title and interest in and to such
Exchangeable Shares and in the related interest in the Trust Estate
and shall cease to be a holder of such Exchangeable Shares and shall
not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive his proportionate part of the
total purchase price therefor, provided that if the requisite number
of BackWeb Ordinary Shares (together with a cheque for the total
purchase price therefor (less any part thereof satisfied by the
issuance of BackWeb Ordinary Shares)) is not allotted, issued an
delivered by BackWeb to the Trustee for delivery to such Beneficiary
(or to such other persons, if any, properly designated by such
Beneficiary), within five Business Days of the date of the giving of
such notice by the Trustee, the rights of the Beneficiary shall remain
unaffected until such BackWeb Ordinary Shares are so allotted, issued
and delivered by BackWeb and/or any such cheque is so delivered and
paid, as applicable. Concurrently with such Beneficiary ceasing to be
a holder of Exchangeable Shares, the Beneficiary shall be considered
and deemed for all purposes to be the holder of BackWeb Ordinary
Shares delivered to it pursuant to the Exchange Right.
5.7 Exercise of Exchange Right Subsequent to Retraction. In the event that a
Beneficiary has exercised its right under Article 6 of the Exchangeable
Share Provisions to require the Corporation to redeem any or all of the
Exchangeable Shares held by the Beneficiary (the "Retracted Shares") and is
notified by the Corporation pursuant to Section 6.6 of the Exchangeable
Shares Provisions that the Corporation will not be permitted as a result of
solvency requirements of applicable law to redeem all such Retracted
Shares, and provided that BackWeb shall not have exercised the Retraction
Call Right with respect to the Retracted Shares and that the Beneficiary
has not revoked the retraction request delivered by the Beneficiary to the
Corporation pursuant to Section 6.1 of the Exchangeable Share Provisions,
the retraction request will constitute and will be deemed to constitute
notice from the Beneficiary to the Trustee instructing the Trustee to
exercise the Exchange Right with respect to those Retracted Shares which
the Corporation is unable to redeem. In any such event, the Corporation
hereby agrees with the Trustee and in favour of the Beneficiary immediately
to notify the Trustee of such prohibition against the Corporation redeeming
all of the Retracted Shares and immediately to forward or cause to be
forwarded to the Trustee all relevant materials delivered by the
Beneficiary to the Corporation (including without limitation a copy of the
retraction request delivered pursuant to Section 6.1 of the Exchangeable
Share Provisions) in connection with such proposed redemption of the
Retracted Shares and the Trustee will thereupon exercise the Exchange Right
with respect to the Retracted Shares that the Corporation is not permitted
to redeem and will require BackWeb to purchase such shares in accordance
with the provisions of this Article 5.
<PAGE> 16
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5.8 Stamp or Other Transfer Taxes. Upon any sale of Exchangeable Shares to
BackWeb pursuant to the Exchange Rights or the Automatic Exchange Rights,
the share certificate or certificates representing BackWeb Ordinary Shares
to be delivered in connection with the payment of the total purchase price
therefor shall be issued in the name of the Beneficiary of the Exchangeable
Shares so sold or in such name as such Beneficiary may otherwise direct in
writing without charge to the holder of the Exchangeable Shares so sold;
provided, however, that such Beneficiary (a) shall pay (and neither
BackWeb, the Corporation nor the Trustee shall be required to pay) any
documentary, stamp, transfer or other taxes that may be payable in respect
of any transfer involved in the issuance or delivery of such shares to a
person other than such Beneficiary or (b) shall have established to the
satisfaction of the Trustee, BackWeb and the Corporation that such taxes,
if any, have been paid.
5.9 Notice of Insolvency Event. Immediately upon the occurrence of an
Insolvency Event or any event which with the giving of notice or the
passage of time or both would be an Insolvency Event, the Corporation and
BackWeb shall give written notice thereof to the Trustee. As soon as
practicable after receiving notice from the Corporation and BackWeb or
from any other person of the occurrence of an Insolvency Event, the
Trustee will mail or cause to be mailed to each Beneficiary, at the
expense of BackWeb, a notice of such Insolvency Event, which notice shall
contain a brief statement of the right of the Beneficiaries with respect
to the Exchange Right. It shall be a condition precedent to the Trustee's
obligation to mail a Beneficiary a notice of Insolvency Event that the
Corporation prepare such notice and provide the Trustee with a sufficient
quantity in a timely fashion.
5.10 Qualification of BackWeb Ordinary Shares. BackWeb represents and warrants
that it has taken all actions and done all things as are necessary or
desirable under any Canadian or Israeli federal, provincial or state law
or regulation or pursuant to the rules and regulations of any regulatory
or any other legal requirement (collectively, the "APPLICABLE LAWS") as
they exist on the date hereof and will in good faith expeditiously take
all such actions and do all such things as are necessary or desirable under
Applicable Laws as they may exist in the future to cause the BackWeb
Ordinary Shares to be issued and delivered pursuant to the Exchangeable
Share Provisions, the Exchange Right or the Automatic Exchange Rights
(other than compliance with Applicable Laws relating to the ability of
holders to freely trade the BackWeb Ordinary Shares, as to which no
representation is given. To the extent that holders of Exchangeable Shares
have exercised registration rights in respect of BackWeb Ordinary Shares
issuable in accordance with the Exchangeable Share Provisions, BackWeb
will in good faith expeditiously take all such actions and do all things
as are necessary or desirable to cause all BackWeb Ordinary Shares to be
delivered pursuant to the Exchangeable Share Provisions, the Exchange
Right or the Automatic Exchange Rights to be listed, quoted or posted for
trading on all stock exchanges and quotation systems, if any, on which
outstanding BackWeb Ordinary Shares are listed, quoted or posted for
trading at such time.
<PAGE> 17
5.11 Reservation of BackWeb Ordinary Shares. BackWeb 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 BackWeb
Ordinary Shares (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 Corporation and
BackWeb to meet their respective obligations hereunder, under the Support
Agreement, under the Exchangeable Share Provisions and under any other
security or commitment pursuant to which BackWeb may now or hereafter be
required to issue BackWeb Ordinary Shares.
5.12 Automatic Exchange on Liquidation of BackWeb.
(a) BackWeb will give the Trustee notice of each of the following
events at the time set forth below:
(i) in the event of any determination by the Board of Directors
of BackWeb to institute voluntary liquidation, dissolution
or winding up proceedings with respect to BackWeb or to
effect any other distribution of assets of BackWeb among
its shareholders for the purpose of winding up its affairs,
at least 60 days prior to the proposed effective date of
such liquidation, dissolution, winding up or other
distribution; and
(ii) immediately, upon the earlier of (A) receipt by BackWeb of
notice of and (B) BackWeb 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 BackWeb or to effect any other
distribution of assets of BackWeb among its shareholders
for the purpose of winding up its affairs.
(b) immediately following receipt by the Trustee from BackWeb of
notice of any event (a "Liquidation Event") contemplated by
section 5.12(a)(i) or 5.12(a)(ii) above, the Trustee will give
notice thereof to the Beneficiaries. Such notice shall include a
brief description of the automatic exchange of Exchangeable
Shares for BackWeb Ordinary Shares provided for in section
5.12(c).
(c) In order that the Beneficiaries will be able to participate on a
pro rata basis with the holders of BackWeb Ordinary Shares in
the distribution of assets of BackWeb in connection with a
Liquidation Event, on the fifth Business Day prior to the
effective date (the "Liquidation Event Effective Date")
<PAGE> 18
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of a Liquidation Event all of the then outstanding Exchangeable
Shares shall be automatically exchanged for BackWeb Ordinary
Shares. To effect such automatic exchange, BackWeb shall purchase
each Exchangeable Share outstanding on the fifth Business Day
prior to the Liquidation Event Effective Date and held by
Beneficiaries, and each Beneficiary shall sell the Exchangeable
Shares held by it at such time, for a purchase price per
Exchangeable Share equal to (a) the Current Market Price of a
BackWeb Ordinary Share on the fifth Business Day prior to the
Liquidation Event Effective Date, which shall be satisfied in
full by BackWeb delivering or causing to be delivered to the
Beneficiary one BackWeb Ordinary Share, plus (b) an additional
amount equivalent to the full amount of all dividends declared
and unpaid on each such Exchangeable Share and all dividends
declared on BackWeb Ordinary Shares which have not been declared
on such Exchangeable Shares in accordance with section 3.1 of the
Exchangeable Share Provisions (provided that if the record date
for any such declared and unpaid dividends occurs on or after the
day of closing of such purchase and sale the purchase price shall
not include such additional amount equivalent to such declared
and unpaid dividends). In connection with such automatic
exchange, BackWeb will provide to the Trustee an Officer's
Certificate setting forth the calculation of the purchase price
for each Exchangeable Share. The Trustee shall be entitled to
rely and be fully protected in so relying and acting upon such
Officer's Certificate.
(d) On the fifth Business Day prior to the Liquidation Event
Effective Date, the closing of the transaction of purchase and
sale contemplated by the automatic exchange of Exchangeable
Shares for BackWeb Ordinary Shares shall be deemed to have
occurred, and each Beneficiary shall be deemed to have
transferred to BackWeb all of the Beneficiary's right, title and
interest in and to its Exchangeable Shares and the related
interest in the Trust Estate and shall cease to be a holder of
such Exchangeable Shares and BackWeb shall deliver or cause to be
delivered to the Beneficiary BackWeb Ordinary Shares deliverable
upon the automatic exchange of Exchangeable Shares for BackWeb
Ordinary Shares and shall deliver to the Trustee for delivery to
the Beneficiary a cheque for the balance, if any, of the total
purchase price for such Exchangeable Shares. Concurrently with
such Beneficiary ceasing to be a holder of Exchangeable Shares,
the Beneficiary shall be considered and deemed for all purposes
to be the holder of BackWeb Ordinary Shares issued to it pursuant
to the automatic exchange of Exchangeable Shares for BackWeb
Ordinary Shares and the certificates held by the Beneficiary
previously representing the Exchangeable Shares exchanged by the
Beneficiary with BackWeb pursuant to such automatic exchange
shall thereafter be deemed to represent BackWeb Ordinary Shares
delivered to the Beneficiary by BackWeb pursuant to such
automatic
<PAGE> 19
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exchange. Upon the request of a Beneficiary and the surrender by
the Beneficiary of Exchangeable Share certificates deemed to
represent BackWeb Ordinary Shares, duly endorsed in blank and
accompanied by such instruments of transfer as BackWeb may
reasonably require, BackWeb shall deliver or cause to be
delivered to the Beneficiary certificates representing BackWeb
Ordinary Shares of which the Beneficiary is the holder.
5.13 Withholding Rights. BackWeb and the Trustee shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant
to this Agreement to any holder of Exchangeable Shares such amounts
as BackWeb or the Trustee is required or permitted to deduct and
withhold with respect to the making of such payment under the Income
Tax Act (Canada) or any provision of provincial tax law. To the
extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
holder of the 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 the
consideration otherwise payable to the holder, BackWeb or the trustee
is hereby authorized to sell or otherwise dispose of at fair market
value such portion of the consideration as is necessary to provide
sufficient funds to BackWeb or the Trustee, as the case may be, in
order to enable it to comply with such deduction or withholding
requirement and shall account to the relevant holder for any balance
of such sale proceeds.
If, upon the occurrence of an Insolvency Event, a non-Canadian
resident Beneficiary instructs the Trustee to exercise the Exchange
Right, BackWeb shall provide the Trustee, in cash, with sufficient
funds to satisfy any withholding taxes applicable in connection with
the sale of such Beneficiary's Exchangeable Shares to BackWeb
otherwise such exchange shall not have occurred or be deemed to have
occurred. The "fair market value" of the BackWeb Ordinary Shares at a
particular date shall, for the purposes of calculating any such
applicable withholding taxes, shall be the Current Market Price or
shall be determined by such other method of valuation which has been
recommended or suggested by Revenue Canada as providing a satisfactory
assessment of such fair market value. Prior to making any distribution
to holders of Exchangeable Shares, BackWeb or the Corporation, as the
case may be, shall ensure that the Trustee has access to sufficient
funds (by directly providing, if necessary, such funds to the Trustee)
to enable the Trustee to comply with any applicable withholding taxes
in connection with such distribution.
<PAGE> 20
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ARTICLE 6
RESTRICTIONS ON ISSUE OR AMENDMENT
OF BACKWEB SPECIAL VOTING STOCK
6.1 AMENDMENT/ISSUE OF ADDITIONAL SHARES. During the term of this Agreement,
BackWeb will not issue any shares of BackWeb Series E Special Preferred
Stock in addition to the Voting Share, and, for greater certainty will not
amend the terms of the BackWeb Series E Special Preferred Stock without
obtaining the prior written consent of the Trustee.
ARTICLE 7
CONCERNING THE TRUSTEE
7.1 POWERS AND DUTIES OF THE TRUSTEE. The rights, powers and authorities of
the Trustee under this Agreement, in its capacity as trustee of the Trust,
shall include:
(a) the receipt and holding of the Voting Share from BackWeb as
trustee for and on behalf of the Beneficiaries in accordance
with the provisions of this Agreement;
(b) granting proxies and distributing materials to Beneficiaries as
provided in this Agreement;
(c) voting the Beneficiary Votes in accordance with the provisions
of this Agreement;
(d) receiving the grant of the Exchange Right and the Automatic
Exchange Rights from BackWeb as trustee for and on behalf of the
Beneficiaries in accordance with the provisions of this
Agreement;
(e) exercising the Exchange Right and enforcing the benefit of the
Automatic Exchange Rights, in each case in accordance with the
provisions of this Agreement, and in connection therewith
receiving from Beneficiaries Exchangeable Shares and other
requisite documents and distributing to such Beneficiaries
BackWeb Ordinary Shares and cheques, if any, to which such
Beneficiaries are entitled upon the exercise of the Exchange
Right or pursuant to the Automatic Exchange Rights, as the case
may be;
(f) holding title to the Trust Estate;
(g) investing any moneys forming, from time to time, a part of the
Trust Estate as provided in section 7.11 of this Agreement;
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(h) taking action on its own initiative or at the direction of a
Beneficiary or Beneficiaries to enforce the obligations of
BackWeb under this Agreement; and
(i) taking such other actions and doing such other things as are
specifically provided in this Agreement.
In the exercise of such rights, powers and authorities, the Trustee shall
have (and is granted) such incidental and additional rights, powers and
authority not in conflict with any of the provisions of this Agreement as
may be necessary, appropriate or desirable to effect the purpose of the
Trust. Any exercise of such rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons affected thereby
including the parties to this Agreement and the Beneficiaries. For greater
certainty, the Trustee shall have no duties or liabilities except those
which are expressly set forth in this Agreement. In particular, the
Trustee will have no liability or responsibility arising under any
agreement or instrument, including the Acquisition Agreement, the
Exchangeable Share Provisions or any other agreement or instrument
referred to in this Agreement, to which the Trustee is not a party and
shall not be bound by any notice of a claim or demand with respect thereto.
The Trustee in exercising its rights, powers, duties and authorities
hereunder shall act honestly and in good faith with a view to the best
interests of the Beneficiaries and shall exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances.
7.2 NO CONFLICT OF INTEREST. The Trustee represents to the Corporation and
BackWeb that at the date of execution and delivery of this Agreement there
exists no material conflict of interest between its role as Trustee under
this Agreement and its role in any other capacity. The Trustee shall,
within 90 days after it becomes aware that such a material conflict of
interest exists, either eliminate such material conflict of interest or
resign in the manner and with the effect specified in Article 10 of this
Agreement. If, notwithstanding the foregoing provisions of this section
7.2, the Trustee has such a material conflict of interest, the validity
and enforceability of this Agreement shall not be affected in any manner
whatsoever by reason only of the existence of such material conflict of
interest. If the Trustee contravenes the foregoing provisions of this
section 7.2, any interested party may apply to the Ontario Court (General
Division) for an order that the Trustee be replaced as trustee under this
Agreement.
7.3 DEALING WITH TRANSFER AGENTS, REGISTRARS, ETC. The Corporation and BackWeb
irrevocably authorize the Trustee, from time to time, to:
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(a) consult, communicate and otherwise deal with the respective
registrars and transfer agents, and with any such subsequent
registrar or transfer agent, of the Exchangeable Shares and
BackWeb Ordinary Shares; and
(b) requisition, from time to time, (i) from any such registrar or
transfer agent any information readily available from the
records maintained by it which the Trustee may reasonably
require for the discharge of its duties and responsibilities
under this Agreement, and (ii) from the registrar or transfer
agent of BackWeb Ordinary Shares, and any subsequent registrar
or transfer agent of such shares, the share certificates
issuable upon the exercise from time to time of the Exchange
Right and pursuant to the Automatic Exchange Rights in the
manner specified in Article 5 of this Agreement.
The Corporation and BackWeb irrevocably authorize their respective
registrars and transfer agents to comply with all such requests. BackWeb
covenants that it will supply BackWeb's transfer agent with duly executed
share certificates for the purpose of completing the exercise from time to
time of the Exchange Right and the Automatic Exchange Rights, in each case
pursuant to Article 5 of this Agreement.
7.4 Books and Records. The Trustee shall keep available for inspection by
BackWeb and the Corporation, at the Trustee's principal corporate trust
office in Toronto, Ontario, correct and complete books and records of
account relating to the Trustee's actions under this Agreement, including
without limitation all information relating to mailings and instructions
to and from Beneficiaries and all transactions pursuant to the Exchange
Right and the Automatic Exchange Rights. On or before March 31, 1998, and
on or before March 31 in every year thereafter, so long as the Voting
Share is on deposit with the Trustee, the Trustee shall transmit to
BackWeb and the Corporation a brief report, dated as of the preceding
December 31, with respect to:
(a) the property and funds comprising the Trust Estate as of that
date;
(b) the number of exercises of the Exchange Right, if any, and the
aggregate number of Exchangeable Shares received by the
Trustee on behalf of the Beneficiaries in consideration of
the issue and delivery by BackWeb of BackWeb Ordinary Shares
in connection with the Exchange Right, during the calendar
year ended on such date; and
(c) all other actions taken by the Trustee in the performance of
its duties under this Agreement which it had not previously
reported.
7.5 Income Tax Returns and Reports. The Trustee shall, if required under the
Income Tax Act (Canada) or any provincial law or if advised by BackWeb or
the Corporation, prepare
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and file on behalf of the Trust the appropriate income tax returns and any
other returns or reports as may be required by applicable law or pursuant
to the rules and regulations of any securities exchange or other trading
system through which the Exchangeable Shares are traded and, in connection
therewith and, without limiting the generality of section 7.10 of this
Agreement, may obtain the advice and assistance of such experts as the
Trustee may consider necessary or advisable. If requested by the Trustee,
BackWeb shall retain such experts for purposes of providing such advice
and assistance.
7.6 Indemnification Prior to Certain Actions by Trustee. The Trustee shall
exercise any or all of the rights, duties, powers or authorities vested in
it by this Agreement at the request, order or direction of any Beneficiary
upon such Beneficiary furnishing to the Trustee reasonable funding,
security and indemnity against the costs, expenses and liabilities which
may be incurred by the Trustee, provided that no Beneficiary shall be
obligated to furnish to the Trustee any such funding, security or
indemnity in connection with the exercise by the Trustee of any of its
rights, duties, powers and authorities with respect to the Voting Share
pursuant to Article 4 of this Agreement, subject to section 7.15 of this
Agreement, and with respect to the Exchange Right pursuant to Article 5 of
this Agreement, subject to section 7.15 of this Agreement, and with
respect to the Automatic Exchange Rights pursuant to Article 5 of this
Agreement. None of the provisions contained in this Agreement shall
require the Trustee to expend or risk its own funds or otherwise incur
financial liability in the exercise of any of its rights, powers, duties
or authorities unless funded, given security and indemnified as provided
in this Agreement.
7.7 Actions by Beneficiaries. No Beneficiary shall have the right to institute
any action, suit or proceeding or to exercise any other remedy authorized
by this Agreement for the purpose of enforcing any of its rights or for
the execution of any trust or power hereunder unless the Beneficiary has
requested the Trustee to take or institute such action, suit or proceeding
and furnished the Trustee with the funding, security and indemnity
referred to in section 7.6 of this Agreement and the Trustee shall have
failed to act within a reasonable time thereafter. In such case, but not
otherwise, the Beneficiary shall be entitled to take proceedings in any
court of competent jurisdiction such as the Trustee might have taken; it
being understood and intended that no one or more Beneficiaries shall have
any right in any manner whatsoever to affect, disturb or prejudice the
rights hereby created by any such action, or to enforce any rights
hereunder or under the Voting Rights, the Exchange Right or the Automatic
Exchange Rights except subject to the conditions and in the manner
provided of this Agreement, and that all powers and trusts under this
Agreement shall be exercised and all proceedings at law shall be
instituted, had and maintained by the Trustee, except only as provided of
this Agreement, and in any event for the equal benefit of all
Beneficiaries.
7.8 Reliance upon Declarations. The Trustee shall not be considered to be in
contravention of any of its rights, powers, duties and authorities
hereunder if it acts and relies in good faith upon lists, mailing labels,
notices, statutory declarations, certificates, opinions,
<PAGE> 24
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reports or other papers or documents furnished pursuant to the provisions
hereof or required by the Trustees to be furnished to it in the exercise
of its rights, powers, duties and authorities hereunder.
7.9 EVIDENCE AND AUTHORITY TO TRUSTEE. To the extent the Corporation and/or
BackWeb are required to furnish to the Trustee evidence of compliance with
the conditions provided for in this Agreement relating to any action or
step required or permitted to be taken by the Corporation and/or BackWeb
or the Trustee under this Agreement or as a result of any obligation
imposed under this Agreement, including, without limitation, in respect of
the Voting Rights or the Exchange Right or the Automatic Exchange Rights,
and the taking of any other action to be taken by the Trustee at the
request of or on the application of the Corporation and/or BackWeb, such
evidence shall consist of an Officer's Certificate of the Corporation
and/or BackWeb, as the case may be, or a statutory declaration or a
certificate made by persons entitled to sign an Officer's Certificate
stating that any such condition has been complied with in accordance with
the terms of this Agreement.
Whenever such evidence relates to a matter other than the Voting Rights or
the Exchange Right or the Automatic Exchange Rights and except as
otherwise specifically provided herein, such evidence may consist of a
report or opinion of any solicitor, auditor, accountant, appraiser,
valuer, engineer or other expert or any other person whose qualifications
give authority to a statement made by him, provided that if such report or
opinion is furnished by a director, officer or employee of the Corporation
and/or BackWeb it shall be in the form of an Officer's Certificate or a
statutory declaration.
Each statutory declaration, certificate, opinion or report furnished to
the Trustee as evidence of compliance with a condition provided for in
this Agreement or as the Trustee may otherwise request shall include a
statement by the person giving the evidence:
(a) declaring that he has read and understands the provisions of this
Agreement relating to the condition in question;
(b) describing the nature and scope of the examination or
investigation upon which he based the statutory declaration,
certificate, statement or opinion; and
(c) declaring that he has made such examination or investigation as
he believes is necessary to enable him to make the statements or
give the opinions contained or expressed therein.
<PAGE> 25
7.10 Experts, Advisors and Agents. The Trustee may:
(a) in relation to these presents, act and rely on the opinion
or advice of or information obtained from any solicitor,
auditor, accountant, appraiser, valuer, engineer or other
expert, whether retained by the Trustee or by the
Corporation and/or BackWeb or otherwise, and may employ
such assistants as may be necessary to the proper discharge
of its powers and duties and determination of its rights
under this Agreement and may pay proper and reasonable
compensation for all such legal and other advice or
assistance; and
(b) employ such agents and other assistants as it may
reasonably require for the proper discharge of its powers
and duties under this Agreement, and may pay reasonable
remuneration for all services performed for it (and shall
be entitled to receive reasonable remuneration for all
services performed by it) and compensation for all
disbursements, costs and expenses made or incurred by it in
the discharge of its duties under this Agreement and in the
management of the Trust.
7.11 Investment of Moneys Held By Trustee. Unless otherwise provided in this
Agreement, any moneys held by or on behalf of the Trustee shall, unless
otherwise directed in writing by the Corporation, be deposited in an
interest bearing account at any chartered bank in Canada, including Bank
of Montreal. At the end of each calendar year during which the Trustee
shall have held monies in trust in accordance with this Section 7.11,
the Trustee shall file on behalf of the Trust or, if required by law,
shall issue to the Beneficiaries of the Trust, all appropriate forms
under the Income Tax Act (Canada) in respect of any interest earned on
such monies and to the extent such income is allocated to the
Beneficiaries, it shall be allocated in proportions equivalent to the
Beneficiaries' respective percentage ownership of the Exchangeable
Shares outstanding at the relevant allocation date. The Corporation
shall provide or cause to be provided such information as the Trustee
may require in respect of the Beneficiaries' ownership of Exchangeable
Shares.
7.12 Trustee Not Required to Give Security. The Trustee shall not be required
to give any bond or security in respect of the execution of the trusts,
rights, duties, powers and authorities of this Agreement or otherwise in
respect of the premises.
7.13 Trustee Not Bound to Act on Corporation's Request. Except as in this
Agreement otherwise specifically provided, the Trustee shall not be
bound to act in accordance with any direction or request of the
Corporation and/or BackWeb or of the directors thereof until a duly
authenticated copy of the instrument or resolution containing such
direction or request shall have been delivered to the Trustee, and the
Trustee shall be empowered to act and rely upon and be protected in so
acting and relying upon any such copy purporting to be authenticated and
believed by the Trustee to be genuine.
<PAGE> 26
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7.14 Authority to Carry on Business. The Trustee represents to the Corporation
and BackWeb that at the date of execution and delivery by it of this
Agreement it is authorized to carry on the business of a trust company in
the Province of Ontario but if, notwithstanding the provisions of this
section 7.14, it ceases to be so authorized to carry on business, the
validity and enforceability of this Agreement and the Voting Rights, the
Exchange Right and the Automatic Exchange Rights shall not be affected in
any manner whatsoever by reason only of such event but the Trustee shall,
within 90 days after ceasing to be authorized to carry on the business of
a trust company in the Province of Ontario, either become so authorized
or resign in the manner and with the effect specified in Article 10 of
this Agreement.
7.15 Conflicting Claims. If conflicting claims or demands are made or asserted
with respect to any interest of any Beneficiary in any Exchangeable
Shares, including any disagreement between the heirs, representatives,
successors or assigns succeeding to all or any part of the interest of
any Beneficiary in any Exchangeable Shares resulting in conflicting
claims or demands being made in connection with such interest, then the
Trustee shall be entitled, at its sole discretion, to refuse to recognize
or to comply with any such claim or demand. In so refusing, the Trustee
may elect not to exercise any Voting Rights, Exchange Right or Automatic
Exchange Rights subject to such conflicting claims or demands and, in so
doing, the Trustee shall not be or become liable to any person on account
of such election or its failure or refusal to comply with any such
conflicting claims or demands. The Trustee shall be entitled to continue
to refrain from acting and to refuse to act until:
(a) the rights of all adverse claimants with respect to the
Voting Rights, Exchange Right or Automatic Exchange Rights
subject to such conflicting claims or demands have been
adjudicated by a final judgment of a court of competent
jurisdiction; or
(b) all differences with respect to the Voting Rights, Exchange
Right or Automatic Exchange Rights subject to such
conflicting claims or demands have been conclusively settled
by a valid written agreement binding on all such adverse
claimants, and the Trustee shall have been furnished with an
executed copy of such agreement.
If the Trustee elects to recognize any claim or comply with any demand
made by any such adverse claimant, it may in its discretion require such
claimant to furnish such surety bond or other security satisfactory to the
Trustee as it shall deem appropriate fully to indemnify it as between all
conflicting claims or demands.
7.16 Acceptance of Trust. The Trustee hereby accepts the Trust created and
provided for by and in this Agreement and agrees to perform the same upon
the terms and conditions herein set forth and to hold all rights,
privileges and benefits conferred hereby and by law
<PAGE> 27
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in trust for the various persons who shall from time to time be
Beneficiaries, subject to all the terms and conditions set forth in this
Agreement.
7.17 Notice to Trustee. The Trustee shall not be bound to give any notice or
do or take any act, action or proceeding by virtue of the powers
conferred on it hereby unless and until it shall have been required so to
do under the terms of this Agreement; nor shall the Trustee be required
to take notice of, be deemed to have actual or constructive notice or
knowledge of any matter under this Agreement, or take any action in
connection with any notice of any BackWeb Meeting or the seeking of any
BackWeb Consent or any prohibition of the Corporation against redeeming
any Retracted Shares as set out in section 5.7 of this Agreement or of
any Insolvency Event or Liquidation Event as set out in sections 5.9 and
5.12 of this Agreement, respectively, (collectively, a "Notice Event"),
unless and until notified in writing of such Notice Event desired to be
brought to the attention of the Trustee and in the absence of any such
notice the Trustee may for all purposes of this Agreement conclusively
assume that no such Notice Event has occurred.
7.18 Merger or Consolidation of Trustee. Any corporation into or with which
the Trustee may be merged or consolidated or amalgamated, or any
corporation resulting therefrom to which the Trustee shall be a party, or
any corporation succeeding to the trust business of the Trustee shall be
the successor to the Trustee under this Agreement without any further act
on its part or any of the parties hereto, provided that such corporation
would be eligible for appointment as a successor trustee under the
provisions of this Agreement.
7.19 No Personal Liability. In the exercise of the powers, authorities or
discretion conferred upon the Trustee under this Agreement, the Trustee
is and shall be conclusively deemed to be acting as trustee of the Trust
and shall not be subject to any personal liability for any of the
liabilities, obligations, claims, demands, judgements, costs or expenses
against or with respect to the Trust.
7.20 Incumbency Certificate. Each of the Corporation and BackWeb shall file
with the Trustee a certificate of incumbency setting forth the names of
the individuals authorized to give instructions, directions or other
instruments to the Trustee ("Authorized Persons"), together with specimen
signatures of such persons, and the Trustee shall be entitled to rely on
the latest certificate of incumbency filed with it unless it receives
notice, in accordance with section 7.11, of a change in Authorized
Persons with updated specimen signature.
<PAGE> 28
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ARTICLE 8
COMPENSATION
8.1 Fees and Expenses of the Trustee. BackWeb and the Corporation jointly and
severally agree to pay to the Trustee reasonable compensation for all of
the services rendered by it under this Agreement and will reimburse the
Trustee for all reasonable expenses (including taxes and the fees paid or
to be paid by the Trustee pursuant to section 7.10) and disbursements,
including the cost and expense of any suit or litigation of any character
and any proceedings before any governmental agency reasonably incurred by
the Trustee in connection with its rights and duties under this Agreement;
provided that BackWeb and the Corporation shall have no obligation to
reimburse the Trustee for any expenses or disbursements paid, incurred or
suffered by the Trustee in any suit or litigation in which the Trustee is
determined to have acted fraudulently or with gross negligence or wilful
misconduct.
ARTICLE 9
INDEMNIFICATION AND LIMITATION OF LIABILITY
9.1 Indemnification of the Trustee. BackWeb and the Corporation jointly and
severally agree to indemnify and hold harmless the Trustee and each of its
directors, officers, employees and agents appointed and acting in
accordance with this Agreement (collectively, the "Indemnified Parties")
against all claims, losses, damages, costs, taxes, penalties, interest,
fines and reasonable expenses (including expenses of the Trustee's legal
counsel on a solicitor and its own client basis) which, without fraud,
gross negligence or wilful misconduct on the part of such Indemnified
Party, may be paid, incurred or suffered by the Indemnified Party by
reason of or as a result of the Trustee's acceptance or administration of
the Trust, any act, error or omission by the Trustee in carrying out its
duties and responsibilities set forth in this Agreement, the exercise of
any power, authority or discretion pertaining thereto, or any written or
oral instructions delivered to the Trustee by BackWeb or the Corporation
pursuant hereto including, for greater certainty, any obligations or
liability under applicable income tax legislation arising as a result of
the Trustee being the owner of the Voting Share, Exchange Right and
Automatic Exchange Right. In no case shall BackWeb or the Corporation be
liable under this indemnity for any claim against any of the Indemnified
Parties unless BackWeb and the Corporation shall be notified by the
Trustee of the written assertion of a claim or of any action commenced
against the Indemnified Parties, promptly after any of the Indemnified
Parties shall have received any such written assertion of a claim or shall
have been served with a summons or other first legal process giving
information as to the nature and basis of the claim. Subject to (ii),
below, BackWeb and the Corporation shall be entitled to participate at
their own expense in the defence and, if BackWeb or the Corporation so
elect at any time after receipt of such notice, either of them may assume
the defence of any suit brought to enforce any such claim. The Trustee
shall have the right to employ separate counsel in any such suit and
participate in the defence thereof but the fees and
<PAGE> 29
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expenses of such counsel shall be at the expense of the Trustee unless; (i)
the employment of such counsel has been authorized by BackWeb or the
Corporation; or (ii) the named parties to any such suit include both the
Trustee and BackWeb or the Corporation and the Trustee shall have been
advised by counsel acceptable to BackWeb or the Corporation that there may
be one or more legal defenses available to the Trustee which are different
from or in addition to those available to BackWeb or the Corporation (in
which case BackWeb and the Corporation shall not have the right to assume
the defense of such suit on behalf of the Trustee but shall be liable to
pay the reasonable fees and expenses of counsel for the Trustee). This
indemnity shall survive the termination of this Agreement or the
resignation or replacement of the Trustee.
9.2 Limitation of Liability. The Trustee shall not be held liable for any loss
which may occur by reason of depreciation of the value of any part of the
Trust Estate pursuant to this Agreement, except to the extent that such
loss is attributable to the fraud, gross negligence or wilful misconduct on
the part of the Trustee.
ARTICLE 10
CHANGE OF TRUSTEE
10.1 Resignation. The Trustee, or any trustee hereafter appointed, may at any
time resign by giving written notice of such resignation to BackWeb and the
Corporation specifying the date on which it desires to resign, provided
that such notice shall never be given less than 30 days before such desired
resignation date unless BackWeb and the Corporation otherwise agree and
provided further that such resignation shall not take effect until the date
of the appointment of a successor trustee and the acceptance of such
appointment by the successor trustee. Upon receiving such notice of
resignation, BackWeb and the Corporation shall promptly appoint a successor
trustee by written instrument in duplicate, one copy of which shall be
delivered to the resigning trustee and one copy to the successor trustee.
10.2 Removal. The Trustee, or any trustee hereafter appointed, may be removed at
any time on 30 days' prior notice by written instrument executed by BackWeb
and the Corporation, in duplicate, one copy of which shall be delivered to
the trustee so removed and one copy to the successor trustee.
In the event that a successor trustee has not been appointed at the time
the notice period for the Trustee's resignation or removal expires, the
Trustee, the Corporation, BackWeb or any Beneficiary may apply to a court
of competent jurisdiction for the appointment of a successor to the Trustee
and such appointment of a successor by such court shall not require the
approval of the Beneficiaries.
10.3 Successor Trustee. Any successor trustee appointed as provided under this
Agreement shall execute, acknowledge and deliver to BackWeb and the
Corporation and to its
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predecessor trustee an instrument accepting such appointment. Thereupon the
resignation or removal of the predecessor trustee shall become effective
and such successor trustee, without any further act, deed or conveyance,
shall become vested with all the rights, powers, duties and obligations of
its predecessor under this Agreement, with like effect as if originally
named as trustee in this Agreement. However, on the written request of
BackWeb and the Corporation or of the successor trustee, the trustee
ceasing to act shall, upon payment of any amounts then due it pursuant to
the provisions of this Agreement, execute and deliver an instrument
transferring to such successor trustee all the rights and powers of the
trustee ceasing to act. Upon the request of any such successor trustee,
BackWeb, the Corporation and such predecessor trustee shall execute any and
all instruments in writing for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers.
10.4 Notice of Successor Trustee. Upon acceptance of appointment by a successor
trustee as provided in this Agreement, BackWeb and the Corporation shall
cause to be mailed notice of the succession of such trustee under this
Agreement to each Beneficiary specified in the List. If BackWeb or the
Corporation shall fail to cause such notice to be mailed within 10 days
after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of BackWeb and
the Corporation.
ARTICLE 11
BACKWEB SUCCESSORS
11.1 Certain Requirements in Respect of Combination, etc. BackWeb shall not
enter into any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets
would become the property of any other person or, in the case of a merger,
of the continuing corporation resulting therefrom unless, but may-do so if:
(a) such other person or continuing corporation is a duly
incorporated corporation (a "BackWeb Successor");
(b) BackWeb Successor, by operation of law, becomes, without more,
bound by the terms and provisions of this Agreement or, if not so
bound, executes, prior to or contemporaneously with the
consummation of such transaction an Agreement supplemental to
this Agreement and such other instruments (if any) as are
satisfactory to the Trustee and in the opinion of legal counsel
to the Trustee are necessary or advisable to evidence the
assumption by BackWeb Successor of liability for all moneys
payable and property deliverable under this Agreement and the
covenant of such BackWeb Successor to pay and deliver or cause to
be delivered the same
<PAGE> 31
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and its agreement to observe and perform all the covenants and
obligations of BackWeb under this Agreement; and
(c) such transaction shall, to the satisfaction of the Trustee and
in the opinion of legal counsel to the Trustee, be upon such
terms as substantially to preserve and not to impair in any
material respect any of the rights, duties, powers and
authorities of the Trustee or of the Beneficiaries under this
Agreement.
11.2 Vesting of Powers in Successor. Whenever the conditions of section 11.1 of
this Agreement have been duly observed and performed, the Trustee, if
required, by section 11.1 of this Agreement, BackWeb Successor and the
Corporation shall execute and deliver the supplemental Agreement
provided for in Article 12 and thereupon BackWeb Successor shall possess
and from time to time may exercise each and every right and power of
BackWeb under this Agreement in the name of BackWeb or otherwise and
any act or proceeding by any provision of this Agreement required to be
done or performed by the board of directors of BackWeb or any officers
of BackWeb may be done and performed with like force and effect by the
directors or officers of such BackWeb Successor.
11.3 Wholly-Owned Subsidiaries. Nothing in this Agreement shall be construed
as preventing the amalgamation or merger of any wholly-owned subsidiary
of BackWeb with or into BackWeb or the winding-up, liquidation or
dissolution of any wholly-owned subsidiary of BackWeb provided that all
of the assets of such subsidiary are transferred to BackWeb or another
wholly-owned subsidiary of BackWeb and any such transactions are
expressly permitted by this Article 11.
ARTICLE 12
AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS
12.1 Amendments, Modifications, etc. This Agreement may not be amended or
modified except by an agreement in writing executed by the Corporation,
BackWeb and the Trustee and approved by the Beneficiaries in accordance
with section 10.2 of the Exchangeable Share Provisions.
12.2 Ministerial Amendments. Notwithstanding the provisions of section 12.1 of
this Agreement, the parties to this Agreement may in writing, at any time
and from time to time, without the approval of the Beneficiaries, amend
or modify this Agreement for the purposes of:
(a) adding to the covenants of the parties to this Agreement for the
protection of the Beneficiaries hereunder;
<PAGE> 32
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(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 BackWeb and Corporation and in the opinion of the Trustee
and its counsel, having in mind the best interests of the
Beneficiaries as a whole, it may be expedient to make, provided
that such boards of directors and the Trustee and its counsel shall
be of the opinion that such amendments and modifications will not
be prejudicial to the rights of the Trustee or interests of the
Beneficiaries as a whole; or
(c) making such changes or corrections which, on the advice of counsel
to the Corporation, BackWeb and the Trustee, 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 Trustee and its counsel and the Board of
Directors of each of the Corporation and BackWeb shall be of the
opinion that such changes or corrections will not be prejudicial to
the rights of the Trustee or interests of the Beneficiaries as a
whole.
12.3 Meeting to Consider Amendments. The Corporation, at the request of
BackWeb, shall call a meeting or meetings of the Beneficiaries for the
purpose of considering any proposed amendment or modification requiring
approval pursuant to this Agreement. Any such meeting or meetings shall be
called and held in accordance with the by-laws of the Corporation, the
Exchangeable Share Provisions and all applicable laws.
12.4 Changes in Capital of BackWeb and the Corporation. At all times after the
occurrence of any event, as a result of which either BackWeb Ordinary
Shares 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 BackWeb Ordinary Shares or the Exchangeable
Shares or both are so changed and the parties hereto shall execute and
deliver a supplemental Agreement giving effect to and evidencing such
necessary amendments and modifications.
12.5 Execution of Supplemental Trust Agreements. 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. From time to time the Corporation
(when authorized by a resolution of the Board of Directors), BackWeb (when
authorized by a resolution of its board of directors) and the Trustee may,
subject to the provisions of these presents, and they shall, when so
directed by these presents, execute and deliver by their proper officers,
Agreements or other instruments supplemental hereto, which thereafter
shall form part hereof, for any one or more of the following purposes:
<PAGE> 33
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(a) evidencing the succession of BackWeb Successors to BackWeb and
the covenants of and obligations assumed by each such BackWeb
Successor in accordance with the provisions of Article 11 and
the successor of any successor trustee in accordance with the
provisions of Article 10;
(b) making any additions to, deletions from or alterations of the
provisions of this Agreement or the Voting Rights, the
Exchange Right or the Automatic Exchange Rights which, in the
opinion of the Trustee and its counsel, will not be
prejudicial to the rights of the Trustee or interests of the
Beneficiaries as a whole or are in the opinion of counsel to
the Trustee necessary or advisable in order to incorporate,
reflect or comply with any legislation the provisions of which
apply to BackWeb, the Corporation, the Trustee or this
Agreement; and
(c) for any other purpose not inconsistent with the provisions of
this Agreement, including without limitation to make or
evidence any amendment or modification to this agreement as
contemplated hereby, provided that, in the opinion of the
Trustee and its counsel, the rights of the Trustee and the
Beneficiaries as a whole will not be prejudiced thereby.
ARTICLE 13
TERMINATION
13.1 Term. The Trust created by this Agreement shall continue until the
earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by a Beneficiary;
(b) each of the Corporation and BackWeb send the Trustee a notice
confirming that it elects in writing to terminate the Trust
and such termination has been approved by the Beneficiaries of
the Exchangeable Shares in accordance with section 10.2 of the
Exchangeable Share Provisions; and
(c) the agreement between The Trust Company of Bank of Montreal
and the Corporation in respect to registrar and transfer
agency services for the Corporation is terminated.
13.2 Survival of Agreement. The provisions of Articles 8 and 9 shall
survive any termination of this Agreement or the resignation or
removal of the Trustee.
ARTICLE 14
GENERAL
<PAGE> 34
-34-
14.1 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; provided, however, that
if the provision or provisions so held to be invalid, illegal or
unenforceable, in the reasonable judgment of the parties to this
Agreement, is or are so fundamental to the intent of the parties to this
Agreement and the operation of this Agreement that the enforcement of the
other provisions hereof, in the absence of such invalid, illegal or
unenforceable provision or provisions, would damage irreparably the intent
of the parties in entering into this Agreement, the parties hereto shall
agree (i) to terminate this Agreement, or (ii) to amend or otherwise
modify this Agreement so as to carry out the intent and purposes hereof
and the transactions contemplated hereby.
14.2 Enurement. This Agreement shall be binding upon and enure to the benefit
of the parties to this Agreement and their respective successors and
permitted assigns and to the benefit of the Beneficiaries.
14.3 Notices to Parties. All notices and other communications between the
parties hereunder shall be in writing and shall be deemed to have been
given if delivered personally or by confirmed telecopy to the parties at
the following addresses (or at such other address for such party as shall
be specified in like notice):
(a) if to BackWeb or the Corporation at:
BackWeb Technologies Ltd.
5 Kiryat Mada, Har Hotzvim
JERUSALEM ISRAEL
Attention: Nir Barkat, Chairman of the Board
Telephone: 972-2-587-0444
Telecopy: 972-2-587-0449
with copies to:
BackWeb Technologies Ltd.
c/o BackWeb Technologies Inc.
2077 Gateway Place, Suite 500
SAN JOSE CA 95110
Attention: Carolyn Aver
Telephone: 1-408-437-0214
Telecopy: 1-408-437-0200
<PAGE> 35
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(b) if to the Trustee at:
The Trust Company of Bank of Montreal
Corporate Trust Department
Suite 5104, 1 First Canadian Place
TORONTO ON M5X 1A1
Attention: Trust Officer
Telephone: 1-416-867-5713
Telecopy: 1-416-867-6264
Any notice or other communication given personally shall be deemed to have
been given and received upon delivery thereof (provided the day upon which
delivery is made is a Business Day, otherwise on the next Business Day)
and if given by telecopy shall be deemed to have been given and received
on the date of receipt thereof provided it is received by 3:00 p.m. (local
time in the jurisdiction of the recipient) on a Business Day, otherwise it
shall be deemed to have been given and received at 10:00 a.m. (local time
in the jurisdiction of the recipient) upon the immediately following
Business Day.
14.4 Notice of Beneficiaries. Any and all notices to be given and any documents
to be sent to any Beneficiaries may be given or sent to the address of
such Beneficiary shown on the register of holders of Exchangeable Shares
in any manner permitted by the by-laws of the Corporation from time to
time in force in respect of notices to shareholders and shall be deemed to
be received (if given or sent in such manner) at the time specified in
such by-laws, the provisions of which by-laws shall apply mutatis mutandis
to notices or documents sent to such holders.
14.5 Risk of Payments by Post. Whenever payments are to be made or documents
are to be sent to any Beneficiary by the Trustee or by the Corporation, or
by such Beneficiary to the Trustee or to BackWeb or the Corporation, the
making of such payment or sending of such document sent through the post
shall be at the risk of the Corporation, in the case of payments made or
documents sent by the Trustee or the Corporation, and the Beneficiary, in
the case of payments made or documents sent by the Beneficiary.
14.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
<PAGE> 36
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14.7 Jurisdiction. This Agreement shall be governed by and construed in
accordance with the laws of Ontario, Canada, and the laws of Canada
applicable in Ontario, regardless of the laws that might otherwise
govern under applicable conflicts of laws thereof.
14.8 Attornment. BackWeb agrees that any action or proceeding arising out
of or relating to this Agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to
the non-exclusive jurisdiction of the said courts in any such action
or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any
such judgment by the courts of any other jurisdiction and hereby
appoints the Corporation at its registered office in the Province of
Ontario as BackWeb's attorney for service of process.
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:
-----------------------------
By: /s/ [Signature Illegible]
-----------------------------
BACKWEB CANADA INC.
By:
-----------------------------
By:
-----------------------------
THE TRUST COMPANY OF BANK OF
MONTREAL
By:
-----------------------------
By:
-----------------------------
<PAGE> 37
-36-
14.7 Jurisdiction. This Agreement shall be governed by and construed in
accordance with the laws of Ontario, Canada, and the laws of Canada
applicable in Ontario, regardless of the laws that might otherwise
govern under applicable conflicts of laws thereof.
14.8 Attornment. BackWeb agrees that any action or proceeding arising out
of or relating to this Agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to
the non-exclusive jurisdiction of the said courts in any such action
or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any
such judgment by the courts of any other jurisdiction and hereby
appoints the Corporation at its registered office in the Province of
Ontario as BackWeb's attorney for service of process.
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:
-----------------------------
By:
-----------------------------
BACKWEB CANADA INC.
By:
-----------------------------
By:
-----------------------------
THE TRUST COMPANY OF BANK OF
MONTREAL
By: /s/ [Signature Illegible]
-----------------------------
By: /s/ [Signature Illegible]
-----------------------------
<PAGE> 38
-36-
14.7 Jurisdiction. This Agreement shall be governed by and construed in
accordance with the laws of Ontario, Canada, and the laws of Canada
applicable in Ontario, regardless of the laws that might otherwise
govern under applicable conflicts of laws thereof.
14.8 Attornment. BackWeb agrees that any action or proceeding arising out
of or relating to this Agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to
the non-exclusive jurisdiction of the said courts in any such action
or proceeding, agrees to be bound by any judgment of the said courts
and not to seek, and hereby waives, any review of the merits of any
such judgment by the courts of any other jurisdiction and hereby
appoints the Corporation at its registered office in the Province of
Ontario as BackWeb's attorney for service of process.
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:
-----------------------------
By:
-----------------------------
BACKWEB CANADA INC.
By: /s/ [Signature Illegible]
-----------------------------
By:
-----------------------------
THE TRUST COMPANY OF BANK OF
MONTREAL
By:
-----------------------------
By:
-----------------------------
<PAGE> 39
SCHEDULE A
NOTICE OF EXERCISE OF EXCHANGE RIGHT
TO: The Trust Company of Bank of Montreal
Corporate Trust Department
Suite 5104
1 First Canadian Place
TORONTO ON M5X 1A1
The undersigned holder of Exchangeable Shares instructs The Trust Company
of Bank of Montreal (the "Trustee") to exercise the Exchange Right so as to
require BackWeb Technologies Ltd. ("BackWeb") to purchase from the undersigned
[insert number here] Exchangeable Shares and to issue and deliver certificates
representing BackWeb Ordinary Shares as follows:
Name in full:
(Please state full name in which --------------------------------------------
certificates are to be issued)
Address in full:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Number of Exchangeable Shares:
--------------------------------------------
The undersigned hereby represents and warrants as follows:
(i) the undersigned has good title to and owns all such Exchangeable Shares to
be acquired by BackWeb free and clear of all liens, claims and
encumbrances.
(ii) the undersigned shall pay any documentary, stamp, transfer or other taxes
that may be payable in respect of any transfer involved in the issuance or
delivery of shares.
<PAGE> 40
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All capitalized terms not defined herein shall have the meanings ascribed to
them in the Voting and Exchange Trust Agreement.
DATED this _______________ day of _____________, 199
_______________________________________
Name
_______________________________________
Signature
<PAGE> 41
SCHEDULE B
NOTICE OF EXERCISE OF EXCHANGE RIGHT
TO: BackWeb Technologies Ltd. ("BackWeb"),
5 Kiryat Mada, Har Hotzvim, Jerusalem Israel
AND TO: BackWeb Canada, Inc.,
5 Kiryat Mada, Har Hotzvim, Jerusalem Israel
TAKE NOTICE that The Trust Company of Bank of Montreal (the "Trustee") hereby
exercises the Exchange Right on behalf of the holders of Exchangeable Shares
pursuant to Section 5.6 of the Voting and Exchange Trust Agreement entered into
between BackWeb, BackWeb Canada Inc. and the Trustee dated the [o] day of July,
1997.
The certificates for the BackWeb ordinary shares and cheques for the remainder
of the purchase price should be issued and delivered to, and registered in the
name of the person or persons indicated below.
- --------------------------------------------------------------------------------
Name of Proposed Address Number of Shares to be
Registered Shareholder held
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 42
-2-
All capitalized terms not defined herein shall have the meanings ascribed to
them in the Voting and Exchange Trust Agreement.
DATED this day of , 199
THE TRUST COMPANY OF BANK OF MONTREAL
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
<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
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<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.
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<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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<PAGE> 10
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.
-16-
<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
-17-
<PAGE> 18
(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
-18-
<PAGE> 19
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.
-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
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<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
-2-
<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
----
<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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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<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>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<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>
-iii-
<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>
-iv-
<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 _________ Class A Shares to be changed into
_________ 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 ______________________ by (z) the _____
_____________________.
(vi) Escrow Amount. The "Escrow Amount" shall consist of
an aggregate of _________ 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 _____________________________.
(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).
-3-
<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$(_______), 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$_______ by (z) the value of the BackWeb
Parent Ordinary Shares on the Closing Date, US$____ 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$_________ and is more negative than the Preliminary Net Asset Value, then the
Aggregate Share Number shall be reduced (reflecting the parties' agreement that
one-third of the risk of such event shall be borne by the shareholders of
Lanacom and two-thirds of the risk shall be borne by BackWeb Parent) by a number
of Exchangeable Shares equal to one-third of the quotient obtained by dividing
(y) the difference between the lesser of (i) US$_________ 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$____ 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$10,000 greater than the Final Net Asset Value reflected on
the Final Balance Sheet originally submitted pursuant to Section 1.7, or (b)
will be borne by BackWeb Parent with
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no deemed Loss under Article VII hereof, if the Final Net Asset Value finally
determined pursuant to this Section 1.7 is more than US$______ 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 _________ 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 _________
Lanacom Common Shares (the "Lanacom Special Warrants") are outstanding; Common
Share Warrants to purchase an aggregate of _______ Lanacom Common Shares (the
"Lanacom Common Warrants") are outstanding; Developer Warrants to purchase an
aggregate of _______ Lanacom Common Shares (the "Lanacom Developer Warrants")
are outstanding; Lanacom has reserved an aggregate of _______ Lanacom Common
Shares for issuance to employees pursuant to its stock option plans (the
"Lanacom Option Plans"), and options to purchase an aggregate of _______ Lanacom
Common Shares are outstanding pursuant to such Lanacom Option Plans (the
"Lanacom Employee Options"); and Broker Options to purchase an aggregate of
_______ 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 _________ 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 _____ Shares, of which _____ shares are issued and
outstanding, ___ of which are owned by Lanacom and ___ 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 _____ shares of Common Stock, par value US_____ per share, of which
_____ 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 _______ 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 _______ individually or _______ 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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<PAGE> 23
(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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<PAGE> 24
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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<PAGE> 25
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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<PAGE> 26
(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 _______;
(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 _______ 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 __________ Ordinary Shares, nominal value NIS 0.01 each (the
"BackWeb Parent Ordinary Shares"), of which _________ shares are issued and
outstanding and __________ Preferred Shares, nominal value NIS 0.01 each,
consisting of (a) ___________ Series A Preferred Shares (the "Series A
Preferred"), of which __________ shares are issued and outstanding, (b)
_________ Series B Preferred Shares (the "Series B Preferred"), of which
_________ shares are issued and outstanding, and (c) __________ Series C
Preferred Shares, of which __________ shares are Series C-1 Preferred Shares
(the "Series C-1 Preferred"), of which __________ shares are issued and
outstanding and of which _________ 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 _________
shares are issued and outstanding. BackWeb Parent has issued warrants (the
"BackWeb Parent Warrants")to purchase an aggregate of up to _________ 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 __________ 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 __________ 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 ___ shares have been issued pursuant to option exercises
and _________ 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 ______ shares of Common Stock, par value US$0.01 per share, of which
______ 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
_______) 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
_______ (in any one case) or _______ (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
5.11
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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_______ 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_____ 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_______.
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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$______ per share) equal to _________ of the amount of
such Losses (reflecting the parties' agreement that _________ 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$_________
deductible amount (or, to the extent the deductible has been previously applied,
less any remaining portion of such aggregate US$______ 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$_________
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.
<PAGE> 67
-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> 68
-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
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 10.13
<PAGE> 2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SOFTWARE LICENSE AND DISTRIBUTION AGREEMENT
FOR EMBEDDED PRODUCTS
This Software License and Distribution Agreement for Embedded Products
("Agreement") is made and entered into as of by and between BackWeb
Technologies, Ltd. ("Licensor") having principal offices at 34 Tuval St.,
Ramat-Gan 52136 Israel, and SAP AG "SAP"), having principal offices at
Neurottstrasse 16, 69190 Walldorf, Germany.
PREAMBLE
WHEREAS, SAP designs, develops, markets, licenses and sells worldwide the
SAP software products with integrated financial human resources logistics
and manufacturing standard application programs based on client-server
architecture;
WHEREAS, Licensor designs, develops, markets and licenses Software
Products for internet communication applications.
NOW THEREFORE, the parties agree as follows:
1.1 DEFINITIONS
1.1 "Applicable Entity/Entities" shall mean SAP's subsidiaries and/or
distributors or marketing partners or training partners authorized by SAP.
1.2 "Attachments" shall mean all attachments to this Agreement.
1.3 "Effective Date" shall mean the date of execution of this Agreement by
both parties.
1.4 "End User" shall mean any combination of the types of users licensed by
SAP or Applicable Entities under their standard form end-user license
agreements.
1.5 "Internal Use" shall mean as well development use of the Software Products
e.g. to embed Software Products into SAP Software and/or to adapt
applications of the embedded Software Products for its own internal
business utilization by SAP or Applicable Entities as the use of the
Software Products "stand-alone" and or embedded into SAP Software for
business utilization by SAP or its subsidiaries.
<PAGE> 3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1.6 "Mobile Named User" means that type of user licensed by SAP or Applicable
Entities under their standard form end-user license agreements who
directly utilizes Software Products functionalities. This user type may
change in future. Therefore the parties agree to negotiate any necessary
changes to this section 1.6 in good faith in case of any such changes.
1.7 "Not For Distribution Use" or "NDR" shall mean use of the Software
Products for SAP or Applicable Entities, internal training and testing,
and for demonstrations to prospects and internal personnel of such
entities.
1.8 "SAP Software" shall mean the SAP software product module currently known
as "mobile sales" and "mobile service", any successor product of the
mentioned product modules due to name change or nay other SAP product
which includes these products modules, e.g. CRM, as well as third party
products other than Software Products, marketed and licensed to End Users
by SAP or the Applicable Entities as a part or component of the above
mentioned SAP products.
1.9 "Software Products" shall mean the Licensor's products to be embedded
in SAP Software, and/or any combinations of Licensor's products, as listed
in Attachment A hereto, including all updates, upgrades, new versions and
releases and resulting Software Products and applicable End-User
documentation. Licensor shall have the right to modify the Software
Products. The Software Products for purposes of this Agreement, shall
include any software products (other than SAP Software) provided by third
parties and licensed with, or as part of, the Software Products. The
Software Products shall also include other third party software products
embedded in the Software Products licensed hereunder after the Effective
Date of this Agreement.
1.10 "Software Products Fee" shall mean the license fee payable by SAP to
Licensor for the Software Products licensed by SAP or the Applicable
Entities to End Users hereunder as stipulated in Attachments A.
1.11 "Software Products Royalty Report" shall mean a written report to be
produced by SAP, if SAP is required to do so in Attachment A, by the 15th
of each month in respect to the preceding month containing reasonably
detailed information on the numbers of Mobile Named Users licensed to End
Users by SAP and/or the Applicable Entities during that month and
specifications regarding the required commencement date for Support
Services.
1.12 "Support Services" shall mean the Licensor's support services as set forth
in Attachment B.
1.13 "Support Services Fee" shall mean the fee payable by SAP to Licensor for
the provisions of Support Services by Licensor as stipulated in Attachment
A.
1.14 "Territory" shall mean all countries of the world.
<PAGE> 4
2. SCOPE OF AGREEMENT
2.1 This Agreement, including any Attachments hereto, sets forth the terms
and conditions pursuant to which SAP will license Software Products from
Licensor and market these Software Products in connection with SAP
Software.
2.2 Deviating conditions, including, without limitation, those contained in
any of Licensor's standard terms and/or standard contracts shall not
apply even if referred to by Licensor and not expressly objected to by
SAP. Silence by SAP amounts to rejection of Licensor's standard terms or
contracts.
3. RIGHTS OF SAP
3.1 Licensor hereby grants to SAP and the Applicable Entities a
non-exclusive paid up license to use the Software Products on an NDR Use
basis. Licensor hereby grants to SAP and its subsidiaries a non
exclusive license to use the Software Products on an Internal Use basis
subject to Attachment A.
3.2 Licensor hereby grants to SAP the non-exclusive right to make copies of
the master media copies of the Software Products and sublicense and
distribute them to End Users within the Territory as a product embedded
into SAP Software. The Software Products will be distributed by SAP and
the Applicable Entities pursuant to the same license agreements by which
SAP and the Applicable Entities license SAP Software to End Users.
Licensor agrees that End-Users may purchase the Software Products
according to local law and SAP's and the Applicable Entities license
agreements. SAP and the Applicable Entities shall be entitled to
determine the Software Products license fees that SAP charges End Users
for the Software Products licensed by SAP to End Users independently of
Licensor.
SAP shall not market the Software Products separate from the SAP
Software and shall not adopt any pricing methodologies on its standard
price lists which will show a separate price for the Software Products.
3.3 Licensor further grants SAP the non-exclusive right to sublicense the
Software Products to the Applicable Entities by providing copies of the
Software Products and authorizing the Applicable Entities to make copies
thereof and sublicense and distribute them to End Users within the
Territory as a product embedded in SAP Software.
3.4 Licensor further grants SAP and/or the Applicable Entities the
non-exclusive paid-up license to sublicense the Software Products to
Partners of SAP and/or the Applicable Entities as a product embedded in
SAP Software for internal training and testing, and for demonstration to
prospects and internal personnel of such Partners.
<PAGE> 5
3.5 SAP has the right to develop software competitive to the Software Products,
to embed software of competitors of Licensor in SAP Software and to provide
interfaces to software competitive to the Software Products [*] and in case
SAP embeds software of competitors of Licensor, that is competitive to the
Software Products, in SAP Software within said period, SAP shall continue
to comply with its payment obligations under this Agreement [*]. Upon
receipt of such notice, Licensor shall no longer be obligated to fulfill
development activities under this Agreement and shall have the right to
terminate this Agreement upon sixty (60) days prior written notice.
Subject to the provisions of this section 3.5, in the event SAP decides to
develop a competitive product, SAP agrees to only disclose such decision
pursuant to appropriate confidentiality agreements [*].
3.6 SAP shall not use or duplicate the Software Product (including the
Documentation) for any purpose other than as specified in this Agreement or
make the Software Product available to unauthorized third parties. Unless
otherwise agreed in writing, SAP and the Applicable Entities shall not
carry out or permit the reverse engineering, disassembly, or decompilation
of the Software Product, except to the extent required to obtain
interoperability with other independently created software or as specified
by law.
4. LICENSOR'S OBLIGATIONS
4.1 Licensor agrees to ship within five (5) business days after the Effective
Date one (1) set of mastar media copies of the Software Products to the SAP
location identified by SAP. Licensor shall be responsible for all costs of
export and shipping of the master media copies of the Software Products.
4.2 Licensor shall provide to SAP master media copies, NDR Use copies and
Internal Use copies of the Software Products, including applicable user
documentation, updates and new releases on a preferred basis, but in all
events not later than its first shipment to its own customers, distributors
or development partners.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 6
4.3 Licensor shall provide Support Services to SAP as described in
Attachment B. Licensor may provide some Support Services from BackWeb
Technologies, Inc. According to Section 3.1 of Attachment B SAP's
support organization shall be solely responsible for receiving Cases
and providing initial problem evaluation to End-Users.
4.4 Licensor shall provide training to SAP with respect to the Software
Products for the number of employees and days as mutually agreed upon
by SAP and Licensor. Pricing and locations for such training shall be
as mutually agreed upon by the parties prior to such training taking
place. Licensor shall assign a Licensor trainer to be responsible for
the training on-site.
4.5 Licensor shall ensure that all Software Products are and continue
during the entire term of this Agreement to be compatible to SAP
Software including new versions or releases thereof.
4.6
(a) Licensor represents and warrants that the source code for the
Software Products, together with related documentation as it is or
becomes available (the "Deposited Material"), has been deposited in an
escrow account maintained at Source File, Oakland, California (the
"Escrow Agent"), pursuant to an agreement between the Escrow Agent and
Licensor (the "Escrow Agreement") which authorizes the Escrow Agent to
release Deposited Material, if so requested, directly to SAP upon the
occurrence of events as listed in Section 4.5(c).
(b) Licensor shall deposit into the escrow account copies of the source
code for each new release, version, and update of the Software
Products and related documentation immediately after they have been
made available to SAP.
(c) SAP may request the Escrow Agent to release a copy of the relevant
Deposited Material to SAP upon the occurrence of any of the following
events:
(i) Licensor has been ordered under a final court decision to
release the relevant Deposited Material to SAP;
(ii) Licensor has agreed in writing to release the relevant
Deposited Material to SAP;
(iii) Filing of a petition to commence bankruptcy or composition
proceedings regarding Licensor's assets which is not
dismissed in one (1) month and unless Licensor proves its
ability to comply with its obligations under this
Agreement;
(iv) Cancellation of the registration of Licensor in the
competent commercial register for reasons of lack of assets
which is not cured in one (1) month and unless Licensor
proves its ability to comply with its obligations under
this Agreement;
<PAGE> 7
(v) Registration of a winding-up order with regard to Licensor
in the competent commercial register which is not dismissed in
one (1) month and unless Licensor proves its ability to comply
with its obligations under this Agreement;
(vi) Licensor's material breach in carrying out the Support
Services imposed on it pursuant to this Agreement after an
extension of one (1) month has been granted to Licensor to
perform such obligations and Licensor has been ordered under a
preliminary injunction after an oral hearing to release the
relevant Deposited Material to SAP.
(d) Subject to the occurrence of an event listed in Section 4.6(c)
Licensor herewith grants SAP the irrevocable and non-exclusive right
to use the released source code of Deposited Materials to the extent
necessary to ensure continued maintenance of, and support for, the
relevant Software Products. This right includes the right to copy,
translate, modify or otherwise change the released source code to the
extent required by the aforementioned objectives.
SAP agrees to maintain the released source code in strict confidence
and to not disclose it to third parties and to use it solely for the
continued maintenance of and support for the relevant Software
Products and not for the development of any own software products.
5. SAP's OBLIGATIONS
5.1 SAP agrees to utilize the licensed copies of the Software Products
for NDR Use and Internal Use on such terms as set forth herein
including any Attachments hereto and as may be mutually agreed upon
by Licensor and SAP.
5.2 SAP shall enter into legally enforceable, written, license agreements
with each of its customers (Applicable Entities and End Users)
containing the terms and conditions under which the Software Products
are sublicensed in compliance with this Agreement.
5.3 By the 15th of each month, SAP shall submit a Software Products
Royalty Report to Licensor, if SAP is required to do so in Attachment
A. SAP shall keep accurate records regarding the number of Mobile
Named Users licensed to End Users by SAP and/or the Applicable
Entities. Upon Licensor's request and reasonable advance notice, SAP
will permit Licensor to have such records audited at its own costs by
a CPA of its choice once every calendar year during SAP's regular
business hours.
5.4 SAP shall make correct statements concerning the Software Products in
its marketing materials.
6. JOINT OBLIGATIONS OF LICENSOR AND SAP.
<PAGE> 8
6.1 Both parties realize the impact the changes to and new releases of their
respective software products may have on the other parties products. Each
party shall use reasonable efforts to give three (3) months written notice
to the other party of any changes to their respective software products
which might impact the other party's products hereunder and agrees
otherwise to consult with the other party on such prospective changes.
6.2 Neither Licensor nor SAP shall, during the term of the Agreement and for a
period of one (1) year following termination, actively solicit for
employment any of the other party's employees without the prior written
approval of the other party.
This Section shall not be deemed to prohibit either party from placing
general advertisements or solicitations for employment in journals,
publications, on the internet etc. and from hiring any persons responding
to such advertisements.
6.3 During the Term both parties intend to do the following marketing
activities:
(a) participate in one joint press releases approved in writing by both
parties prior to their being released promptly after the Effective Date;
(b) publish one fact sheet which mentions Licensor's name and brand;
(c) jointly publish one customer case study and one success story, both
related to SAP Software; and
(d) Licensor may use SAP's name in web-sites, presentations and sales
materials but only to the extent to point out that SAP is a Customer and a
Partner of Licensor.
(e) any other marketing and promotion activities mutually agreed to from
time to time.
7. FUTURE DEVELOPMENT/ENHANCEMENTS, DEVELOPMENT SERVICES
7.1 Licensor agrees to provide future development/enhancements according to
Attachment A.
7.2 Licensor agrees to provide development services to SAP to enable the
embedment of the Software Product in the SAP Software as may be mutually
agreed upon by the parties in cases where SAP cannot perform the
applicable development activities with its own resources.
8. PAYMENT TERMS
8.1 Following the end of each month, Licensor will invoice SAP for the
Software Product Fees for licenses granted to SAP and Applicable Entities
to End Users during that month with respect to the Mobile Named User as
reported to Licensor via Software Products Royalty Reports.
8.2 Licensor shall invoice SAP for Support Services Fees within one (1) month
after the respective Support Services commencement date specified in the
Software Products Royalty Reports for a period of twelve (12) months of
Support Services.
<PAGE> 9
8.3 Software Products Fees and Support Services Fees shall be invoiced in US
Dollars.
8.4 SAP shall remit the invoiced Software Products Fees and Support Services
Fees within one (1) month from receipt of the respective invoice.
8.5 All taxes or customs duties except income or corporation taxes will be
borne by SAP. If any such tax or duty has to be withheld or deducted from
any payment under this Agreement, SAP will increase payment under this
Agreement by such amount as shall ensure that after such withholding or
deduction Licensor shall have received an amount equal to the payment
otherwise required.
Income taxes will be borne by the Licensor. If SAP is required to withhold
income or corporation tax or a similar tax from any payment to the
Licensor under this Agreement SAP shall be entitled to withhold or deduct
such tax from the gross amount to be paid. However, SAP shall use all
endeavours to reduce any such withholding tax payable to the lowest
possible rate subject to compliance with all applicable laws and double
taxation treaties. Licensor will cooperate with SAP to the extent that is
necessary to apply for such reduction, especially by, but not limited to,
providing the necessary forms to SAP or the relevant tax authority.
Otherwise, SAP is entitled to withhold tax at standard rates according to
the relevant laws.
9. TERM AND TERMINATION
9.1 The initial term of this Agreement shall commence on the Effective Date
and shall continue in effect until three (3) years from the Effective
Date, subject to earlier termination as specified in this Agreement.
Thereafter, this Agreement shall automatically renew for one (1) year
periods until terminated for convenience by either party upon three (3)
months prior written notice with effect to the end of a calendar quarter.
9.2 Either party may terminate this Agreement for cause. This includes,
without limitation, situations where (a) the other party neglects or fails
to perform a material obligation hereunder, and such neglect or failure
continues unremedied for a period of one (1) month after written notice is
sent to the defaulting party by the first party; or (b) the other party
becomes insolvent; proposes any dissolution, liquidation, composition,
financial reorganization or similar proceedings with respect to its
property or business, and such continues unremedied for a period of one (1)
month after written notice is sent by the other party; (c) Licensor
becomes subject to a change in its ownership that is not reasonably
acceptable to SAP; public offerings and/or mergers or acquisitions related
to such public offerings are not considered as such changes in Licensor's
ownership unless a Competitor of SAP acquires interest in Licensor either
direct or indirect in a share that is not reasonably acceptable to SAP.
<PAGE> 10
9.3 Termination of this Agreement shall not affect any of the individual
sublicense agreements between SAP or the Applicable Entities and the End
Users. Except for cases of termination for cause by Licensor, SAP remains
entitled to make copies of the Software Products to the extent required in
order to fulfill all contracts with End Users and/or Applicable Entities
concluded in the ordinary course of business prior to the date on which
the termination becomes effective that cannot be reasonably terminated,
provided, however, that SAP or the Applicable Entities shall not enter
into new individual sublicense agreements as of the date the termination
becomes effective and SAP shall pay to Licensor the applicable Software
Product Fees related to such sublicensing provided that SAP is obligated
to pay such Software Product Fees.
9.4 Subject to Section 9.3, SAP, upon an event of termination, shall
immediately discontinue any copying and sublicensing of the Software
Products. Additionally, the parties hereto agree that communications to
End Users and any publications/press releases regarding such
termination shall be mutually agreed upon, in writing, prior to
distribution.
9.5 Any provisions of this Agreement which, by their nature, require
performance after termination, shall survive any termination of this
Agreement. In particular, Licensor's obligation with respect to the
minimum period for the continued supply of Support Services as stipulated
in Attachment B shall not be affected by termination subject to payment of
the applicable Support Service Fees provided that SAP is obligated to pay
such Support Service Fees.
9.6 Any payments owing or accrued as of the effective date of termination,
shall be promptly paid by the respective party to the other.
10 COPYRIGHT NOTICE, TRADEMARKS
10.1 SAP has the irrevocable right not to provide the Software Products
embedded in the SAP Software with a copyright notice of Licensor provided
that it includes its own copyright notice in SAP Software in which the
Software Products are embedded. Licensor waives any such right to be named
as author or creator of the Software Products. SAP may remove any
copyright notice on the Software Products delivered to SAP except a one
time only copyright notice to appear during implementation.
Notwithstanding any copyright notice by SAP to the contrary, subject to
the rights granted to SAP and the Applicable Entities in this Agreement
the copyright to the Software Products included in any such SAP Software
shall remain in Licensor.
10.2 SAP may use Licensor's branding and trademarks. If SAP includes Licensor's
trademarks in its marketing materials, SAP will comply with Licensor's
guidelines for the use of the trademarks which Licensor shall forward to
SAP by the Effective Date.
<PAGE> 11
11. PROPRIETARY RIGHTS; CONFIDENTIALITY
11.1 Title to and ownership of the Software Products shall remain with
Licensor and/or with the respective manufacturer or author of such
Software Products. All rights to patents, copyrights, trademarks and
trade secrets in the Software Products shall remain with Licensor and/or
with the respective manufacturer or author of such Software Products.
All intellectual property rights, confidentiality and proprietary
provisions, rights to patents, copyrights, trademarks and trade secrets
in SAP Software shall remain with SAP and/or with the respective
manufacturer or author of such SAP Software.
11.2 Licensor and SAP recognize that, in the course of marketing the Software
Products, Licensor, SAP and the Applicable Entitles may learn or be
exposed to confidential and/or proprietary information which is the
property of the other party. Such information will be marked or
otherwise identified in writing as confidential, or will be reasonably
identifiable as confidential.
In order to provide an unrestricted basis of communication for marketing
activities hereunder, Licensor and SAP agree that they will take all
reasonable efforts to prevent such confidential information from
becoming known to anyone except those of their and the Applicable
Entities' employees, agents or consultants with a need to know in order
to properly fulfill their duties under the respective employment or
agency or independent contractor agreements with either of the parties
or any Applicable Entity. The particular provisions of this Agreement
shall be deemed confidential in nature and neither party hereto shall
divulge any provisions as set forth herein to any third parties except
to their respective attorneys or accountants and except as may be
required by law.
11.3 Neither party's non-disclosure obligations hereunder shall extend to
any confidential or proprietary information or any portion thereof which:
(a) the disclosing party can establish was known to it without
restriction prior to disclosure by the other party or was
independently developed by the disclosing party; or
(b) is now or hereafter comes into the public domain through no
fault of the disclosing party; or
(c) is required by operation of law to be disclosed, provided,
however, that the other party is given reasonable advance notice
of the intended disclosure and reasonable opportunity to
challenge such legal requirement(s); or
(d) is disclosed to the disclosing party without restriction on
disclosure by a third party who has the lawful right to make
such disclosure.
11.4 Unless expressly agreed to in writing, and other than as specified
above, each party expressly prohibits any direct use or reference to its
name, trademarks or trade names.
<PAGE> 12
11.5 Subject to Section 3.5, Licensor recognizes that SAP has the right to
develop independently software that would compete with the Software
Products and with this only provide confidential information that is
necessary to fulfill its obligations under this Agreement.
12. THIRD PARTY RIGHTS
12.1 Licensor represents and warrants that it is the owner of the Software
Products, including all intellectual property rights thereunder,
copyright, patent, trademark, trade secret and other applicable law,
and that it has the right to authorize the use of the Software
Products and the licensing of the Software Products to End-Users by
SAP and the Applicable Entities.
12.2 Licensor represents and warrants that the execution of this Agreement
by Licensor does not conflict with any provision of any other
agreement, court decision or administrative order binding upon it.
12.3 Licensor represents and warrants that the Software Products do not
infringe any copyright, patent, trademark, trade secret, or other
intellectual property right of any third party.
12.4 Licensor shall fully indemnify, hold harmless and defend SAP and/or
the Applicable Entities against suits based on any claim that the
Software Products infringe any patent, copyright, trademark, trade
secrets, or other proprietary right, provided that the entity
concerned gives Licensor prompt written notice of such suits and
permits Licensor to control the defense and settlement thereof. In the
event that, as a result of any such claim of infringement, SAP and/or
the Applicable Entities are enjoined from using, marketing, or
licensing the Software Products, Licensor shall either procure at its
expense the right for SAP or the Applicable Entities to continue to
use, market, and license the Software Products, or replace or modify
at its expense the Software Products so as to make them
non-infringing, provided that the performance thereof is not adversely
affected. Should Licensor fail to do so, Section 9.2 shall apply.
Irrespective of the aforementioned remedies, Licensor remains liable
to fully compensate SAP and/or the Applicable Entities concerned for
any costs and reasonable expenses incurred in connection with such
third party intellectual property infringement claims up to the amount
of fees paid by SAP under this Agreement. Damages shall be compensated
in full. The limitation of liability in Section 14.1 shall not apply.
13. WARRANTY
13.1 Licensor warrants that the unmodified Software Products will conform
materially to the specifications and descriptions contained in
Licensor's then current and applicable documentation.
<PAGE> 13
13.2 The warranty period for all Software Products delivered hereunder shall
extend for 6 months from the time the respective End User has received the
Software Product(s) from SAP. In case of any timely notice of defects by
SAP, the warranty period will be extended for the period of time running
from the dispatch of the notice of defects until their elimination with
respect to the affected End Users, if such remedy is elected by SAP.
13.3 With respect to major defects of the master media copies of the Software
Products which SAP reports to Licensor prior to the expiration of the
warranty period, Licensor shall either (a) at its expense eliminate the
defect without undue delay; or (b) at its expense provide SAP with a non
defective replacement delivery. If Licensor fails to fulfill its
obligations as stated in (a) and (b) without undue delay and not later than
two (2) months after being informed of the defect SAP may terminate this
Agreement in whole or in part.
13.4 Licensor shall pay for all parts, labor, and travel expenses for Licensor's
service personnel required to fulfill its warranty obligations under this
Agreement.
13.5 Licensor guarantees, irrespective of fault that the Software Products are,
and in future releases will be, Year 2000 Compliant. As used in this
Agreement, "Year 2000 Compliant" shall mean the ability of the Software
Products to provide the following functions:
(a) consistently handle data information before, during, and after January
1, 2000, including but not limited to accepting date input, providing
date output, and performing calculations on dates or portions of
dates;
(b) function accurately in accordance with the relevant documentation and
without interruption before, during, and after January 1, 2000,
without any change in operations associated with the advent of the new
century and/or the occurrence of February 29, 2000 (leap day);
(c) respond to two-digit year-date input in a way that resolves the
ambiguity as to century in a disclosed, defined, and predetermined
manner; and
(d) store and provide output of date information in ways that are
unambiguous as to century.
13.6 In addition to the aforementioned warranty obligations Licensor must
indemnify and hold harmless SAP from all claims raised by End Users and/or
the Applicable Entities against SAP for rescission of contract, reduction
of license fees or damage compensation related to defects of the Software
Products or the pertinent documentation, but only to the extent that
liability of SAP for any such claim cannot validly be excluded or limited
in standard terms and conditions pursuant to mandatory law in the relevant
jurisdiction.
This shall not apply to the extent that such defects did not exist at the
time of receipt of the Software Products by the End User or the Applicable
Entities or in situations where the
<PAGE> 14
claims are based on the lack of expressly warranted feature unless the
subject of such warranty corresponds to a similar warranty given by
Licensor. The limitation of liability in Section 14.1 shall not apply. SAP
notifies Licensor of such claims as soon as they come to SAP's knowledge.
14. LIMITATION OF LIABILITY
14.1 In no event shall either party be liable for any indirect, incidental,
special or consequential damages, or damages for loss of profits, revenue,
data or use, incurred by either party, whether in an action in contract or
tort, even if the other party has been advised of the possibility of such
damages. The parties liability for direct damages hereunder shall not
exceed the amount of fees paid by SAP under this Agreement.
14.2 The limitation of liability provided in section 14.1 shall not apply to any
direct, indirect, incidental, special or consequential damages or damages
for loss of profits, revenue, data or use arising from any act which, even
in the absence of this Agreement, would amount to infringement of a
copyright or patent or misappropriation of a trade secret of the other
party.
14.3 Either party's liability is not limited in those cases in which:
It acted with intent or gross negligence.
14.4 Licensor's liability is not limited in those cases in which SAP seeks
Indemnification under Section 12.4 and 13.6.
15. GENERAL
15.1 Notices. All notices shall be in writing and delivered personally, by mail
or via facsimile. All notices shall be addressed to the addresses appearing
below and shall be deemed delivered upon receipt. Each party may change its
address by written notice in accordance with this section.
If to SAP: SAP Aktiengesellschaft
Head of Basis Development
Neurottstrasse 16
D-69190 Walldorf
Germany
plus a copy to the following if the matter is a legal matter:
SAP Aktiengesellschaft
<PAGE> 15
Legal Department
Neurottstrasse 16
D-69190 Walldorf
Germany
If to Licensor: BackWeb Technologies Ltd.
P.O. Box 3581
34 Tuval St.
Ramat-Gan
52136 Israel
Attn: Finance Controller
plus a copy to the following:
BackWeb Technologies, Inc.
2077 Gateway Place, Suite 500
San Jose, CA 95110
Attn: Director of Finance
15.2 Modification. This Agreement may only be modified in writing by SAP and
Licensor. This also applies to any waiver of this written form requirement.
15.3 Nonwaiver of Rights. The failure of either party to this Agreement to
object to any conduct of the other party that is in violation of the terms
of this Agreement shall not be construed as a waiver thereof, or as waiver
of any future breach or subsequent wrongful conduct.
15.4 Entire Agreement. This Agreement, including attachment, shall represent the
entire understanding between the parties hereto relating to the Software
Products and supersede any and all prior proposals or agreements, whether
written or oral, that may exist between the parties. No oral side
agreements exist.
15.5 Export. SAP agrees to comply fully with all relevant export laws and
regulations, in particular German, European and US ("Export Laws") to
assure that neither the Software Products nor any direct product thereof
are (1) exported, directly or indirectly, in violation of Export Laws; or
(2) are intended to be used for any purposes prohibited by the Export Laws,
including, without limitation, nuclear, chemical or biological weapons
proliferation.
15.6 Governing Law and Venue. This Agreement shall be governed by and construed
in accordance with the laws of Germany without reference to the conflicts
of law principles. This Agreement shall not be governed by the United
Nations Convention of Contracts for the International Sale of Goods, the
application of which is hereby expressly excluded. Exclusive
<PAGE> 16
venue for all claims arising out of or in connection with this
Agreement shall be Munich, Regional Court of Munich 1. SAP shall
remain entitled to commence action or initiate other court proceedings
at the registered seat of Licensor.
15.7 Severability. If a court finds any provision of this Agreement
invalid or unenforceable, this will not affect any other provision of
this Agreement.
15.8 Independent Contractors. Both parties represent that they are
independent contractors in performing all obligations hereunder, and
nothing contained herein shall be deemed or construed to create any
employer/employee relationship or any partnership or joint venture
between the parties or their respective directors, officers,
employees, or independent contractors.
15.9 Assignments: Unless otherwise provided for in this Agreement,
neither party shall transfer, assign or sublicense its rights or
obligations under this Agreement to any other third party, in whole or
in part, without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Assignment in whole by
either party to its respective parent organization is permitted
without written consent of the other party.
16. ATTACHMENTS
The following documents are incorporated as an integral part of this
Agreement.
Attachment A - Software Products, Software Products Fees and
Support Services Fees
Attachment B - Licensor's Support Services
Licensor SAP
By: /s/ GWEN SPERTELL BY: /s/ HEINZ HESS
--------------------------------- --------------------------------
Typed: Gwen Spertell Typed: Heinz Hess
------------------------------ -----------------------------
Title: Senior Vice President Title: Member of the Extended
------------------------------ Executive Board
-----------------------------
Date: March 16, 1999 Date: March 17, 1999
------------------------------- ------------------------------
<PAGE> 17
EXHIBIT 10.13
ATTACHMENT A
1: PRODUCT FUNCTIONALITY SPECIFICATION
1.1 BackWeb Integrated Client Interface for SAP Mobile Sales
Chant interface showing structured and unstructured data in a single
interface, across three html screens to ensure all relevant
information is "on hand" [*].
These information views, whether sourced from the WWW or from
internal sources, are displayed as channels and can be subscribed to
on an individual basis in the client interplace, or subscription to
selected channels can be initiated from the saver.
[*] months
1.2 Attention Management - Flash alerting (Automated Marketing
Encyclopedia)
Active alert mechanism to actively alert clients to new MES
Documents, even when not in the applications: [*]
[*] months
1.3 Multiple display Options (Client Options)
In addition to the client interface, options include wallpaper,
tickers, "News Title" and Screensavers.
1.4 Support of all electronic formats for publishing (Automated Marketing
Encyclopedia)
Allow the automated publishing of all file formats. Including , but
not restricted to, PPT, PDF, AVI, DOC, XLS, etc. to MES. In addition,
software delivery etc. which may not be required to go through the
MES, are also supported.
[*] months
1.5 Preview before MES subscription (Automated Marketing Encyclopedia)
Ability to view document title/summary info before subscription.
[*] months
1.6 Graphical Publishing Tool (BackWeb Foundation)
Allowing the administrator to very easily assign content to
respective target groups based on the user administration.
[*] months
1.7 Client Side API
BackWeb will provide a client side API that allows the SAP
application access to the BackWeb client functionality. [*] (note:
these interactions will not be included in the server reporting and
tracking)
API in [*] months
Starting date to be [*]
1.8 Hook for the SAP Middleware server; API for the integration of
corporate data systems, WWW, newsfeeds, etc.
Create a productized "hook" which enables the collection of data from
defined fields in the database and deliver via flash for notification
purposes. SAP or SAP Consultants can, on their own, use this API as
an interface with other corporate information systems, WWW, external
news sources. These will have to be custom created by the consultants
in the particular customer site and do not constitute "standard
products".
API in [*] months
For Hook, date to be [*]
1.9 Integration of User's/ groups for targeting (BackWeb Foundation)
Allow profiles, access rights, controls and targeting from the SAP
Mobile Series/Service user database. Single group/user identification
for personalization.
Date to be [*]
1.10 Reporting on downloads and interactions (BackWeb Foundation)
Reports on aggregate downloads and interactions with flashes. (This
feature is available through the BackWeb administration console, not
through the client UI)
[*] months
1.11 "Polite communication" (BackWeb Foundation)
Allow the delivery of large, multimedia files, software updates,
etc. to the client, without affecting their connection, extending the
Middleware synch process or interfering with end user connectivity
[*] months
1.12 News Delivery Capability (Marketing Intelligence Manager)
Agents that can automatically gather information from the WWW or
intranet and deliver this information to the user "Neva" interface.
[*] months
1.13 Co-Develop Flexible Administration Tool
Allow the system administrator to handle BackWeb server control and
content management under the Mobile Sales Administration console.
This feature needs to be co-developed with SAP, a functional
specification and development roadmap will need to be defined.
Date to be [*]
1.14 Languages - supported
[*]
Available
1.15 Languages - Planned
[*]
[*] months
1.16 Languages - double byte
[*]
Longer than [*] months, date to be jointly agreed
1.17 Platform - O/S
[*] not committed
Available
1.18 Platform - RDMS
[*] Support
SQL Server - available Oracle in [*] months.
- --------------
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE> 18
ATTACHMENT A CONTINUED
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2
<PAGE> 19
ATTACHMENT A CONTINUED
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3
<PAGE> 20
2. SOFTWARE PRODUCTS
including up-date, new versions and releases and resulting Software Products.
BackWeb product modules including but not limited to the Product Functionality
Specification in Section 1 of this Attachment A:
[*]
3. LIMITATION
The Parties hereto acknowledge and agree that the Software Products include
only the modules identified in Section 2, of this Attachment A. In the event
that BackWeb produces additional modules or functionality for its other
software products. BackWeb shall have no obligation to provide such modules or
functionality to SAP under this Agreement unless mutually agreed by the parties
in writing. Such additional modules or functionality may be subject to separate
charges.
4. LANGUAGE SUPPORT:
[*]
5. FUTURE DEVELOPMENT/ENHANCEMENTS
As defined in Joint Obligations of Licensor and SAP, Section 6.1 of the
Agreement, parties shall use reasonable efforts to notify each other of any
changes or enhancements to SAP Software, respectively Software Product. In the
event that changes and/or enhancements to the SAP Software necessitate major
and unavoidable changes and/or enhancements to the Software Product, BackWeb
shall, on SAP's request and at SAP's expense, perform such changes and/or
enhancements subject to availability of resources and on a mutually agreed upon
schedule. SAP will provide licensor reasonable support for such activities.
Such development may be subject to separate charges, which will be negotiated
in good faith.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
---
4
<PAGE> 21
6. PRICING AND TERMS
i) PREPAYMENT:
Within 30 days of the Effective Date, SAP shall pay to Licensor the amount of
USD [*] prepaid license fees and within 30 days after general availability of
the mobile sales application of the SAP Products but not later than 30 days
after December, 31, 1999, SAP shall pay to Licensor the amount of USD [*]
additional prepaid license fees ("Prepaid Fees"). Such payment shall be
understandable and such payment obligation shall be deemed non-cancelable.
During the term of this Agreement, SAP shall apply any Software Product Fees due
and payable to Licensor against the Prepaid Fees until the Prepaid Fees are
exhausted.
ii) SOFTWARE PRODUCT FEE:
For each Mobile Named User SAP agrees to pay to Licensor a Software Product Fee
of [*]
Licensor will consider First Customer Shipment (FCS) as trial software without
any payment obligation for SAP with respect to Software Products licensed by
SAP or the Applicable Entities to End-Users or partners of SAP and/or the
Applicable Entities during the FCS Phases. The term of FCS Agreements will not
be longer than nine (9) month.
In case of general license agreements between SAP and an End-User the parties
agree to decide on the Software Product Fee on a case by case basis and as
mutually agreed upon by the parties.
Pricing for other users than Mobile Named Users, which are to be defined when
the product modules mentioned in section 1.8 of the Agreement are included in
any other SAP products, shall be reduced in proportion to the degree of use of
the Software Products by other users of SAP Software in comparison to the Mobile
Named User in accordance with this Agreement. With the first release of any
other SAP product which becomes general available and which includes the product
modules mentioned in section 1.8 of the Agreement, parties agree to take the
first [*] customers to define an appropriate pricing model, not to exceed a
price per user of USD [*].
iii) PAYMENT TERMS:
Net 30 days upon receipt of invoice.
iv) SUPPORT SERVICES FEES:
5
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 22
Licensor shall invoice SAP the Support Service Fee in the amount of [*] of the
Software Products Fee licensed to End-Users. Such Support Service Fee shall
cover twelve (12) months of Support Services.
v) INTERNAL USE
Within 30 days of the Effective date SAP shall pay to Licensor the amount of
USD _______ or Internal Use of the Software products by SAP's presales, sales
and service personnel and its subsidiaries.
vi) SOFTWARE PRODUCTS ROYALTY REPORT
A written report is to be produced by SAP by the 15th of each month in respect
to the preceding month containing point of sales and reasonably detailed
information on the number of Named Users during that month.
vi) TRAINING:
The parties agree to the following additional terms and conditions:
1. Initial training courses to be performed by Licensor for SAP personnel
shall be subject to mutual agreement of the parties and shall be [*]
Licensor will provide respectively on initial one-week training course per
region (Europe, America, Asia). If additional training is required, it
will be charged at standard rates.
2. SAP will provide one initial technical support training on SAP Software to
Licensors technical support contacts at a SAP location to be mutually
agreed upon by the parties.
6
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 23
ATTACHMENT B
SUPPORT SERVICES
This Attachment sets forth the terms and conditions pursuant to which SAP and
Licensor will cooperate in providing support services for Software Products to
End Users.
1. DEFINITIONS
For the purposes of this Attachment, the following expressions shall have
the meaning as set forth below. Expressions not specifically defined in
this Attachment shall have the meaning as set forth in Section 1 of this
Agreement.
1.1 "Case" shall mean the support incident starting with the complete failure
or the functional impairment of a Software Products or with the reasonable
probability that a defect is caused by a Software Product. As soon as
either party's support organization is formed, the incident becomes a Case.
1.2 "Case Remedy" shall mean the remedy for a Case taking the form of
eliminating the defect, providing a new program version, or demonstrating
how to avoid the effects of the defect with reasonable effort. Case Remedy
corresponds with error corrections, patches, bug fixes, workarounds,
replacement deliveries or any other type of software or documentation
corrections or modification.
1.3 "Common Case Priorities" shall mean the priorities as referenced in Exhibit
C hereto.
1.4 "End User" shall mean any End User as defined in Section 1.4 of this
Agreement and who has a valid support contract with SAP.
1.5 "Licensor Support Terminology" shall mean the structure of Licensor's
support organization and the internal assignment of tasks as described in
Exhibit A hereto.
1.6 "SAP Support Terminology" shall mean the structure of SAP's support
organization and the internal assignment of tasks as described in Exhibit B
hereto.
1.7 "Support Site" shall mean the location out of which either of the parties
provide support services for analysis and remedy of Cases. The Support
Sites act as interfaces between either Support Partner's technical support
organization. The
<PAGE> 24
Support Sites correspond with the locations of either party's technical
support departments as referenced in Exhibit H hereto.
2. GEOGRAPHIC SCOPE
The geographic scope of this Attachment extends to all countries to which
SAP licenses Software Products under this Agreement.
3. SUPPORT SERVICES
The parties agree on the following principles for providing support
services for Software Products to End Users.
3.1 SAP's support organization shall be solely responsible for receiving Cases
and providing initial problem evaluation to End Users.
3.2 The parties agree to the Common Case Priorities as the basis for the
classification of and adequate response to cases.
3.3 Licensor agrees to provide Case Remedy to SAP in accordance to the
requirements set forth by the Common Case Priorities and in Section 5 of
this Attachment. Both parties will use reasonable efforts to assist the
other party in resolving the End User Cases in a prompt manner. In
particular Licensor agrees to provide End Users directly with a Case Remedy
when necessary to resolve the End User Cases in a prompt manner.
3.4 The parties agree that at least one technical support contract (Section 4.1
of this Attachment) is available locally or remotely to assist the other
party when needed. Based on the hours of support listed in Exhibit A
(Regular Hours) and Exhibit H.
3.5 The parties agree that escalation contacts (Section 4.1 of this Attachment)
will be available on a 24 hours, 7 days a week basis to handle emergency
situations. (see escalation contact/pager contact in Exhibit 1).
3.6 With respect to different priority categories pursuant to the Common Case
Priorities, Licensor agrees that priority 1 problems are handled 24x7 as of
Q1, 2000, and all other priorities (2,3, and 4) during normal business
hours.
3.7 Both parties agree on a problem transfer and escalation procedure worldwide
for End User problems. Details are given in the Support Process Description
in
<PAGE> 25
Exhibit D hereto. The procedure might be changed at any time on
mutual agreement in accordance to the business plan (Section 4.3 of
this Attachment) and business needs.
3.8 On SAP's reasonable request, licensor will send engineers to end-users
site to resolve escalated end user cases. The engineers are highly
skilled in Software Products and have a profound product knowledge in
the integrated Software.
3.9 Licensor shall establish on-site resources in accordance to Section 6
of this Attachment dependent on the business plan (Section 4.3 of this
Attachment) and business requirements as mutually agreed, for best
performance Case Remedy and Case Remedy of non-specific (gray zone)
Cases. Establishing on-site resources requires to adapt the Support
Process Description (Exhibit D hereto) accordingly.
3.10 Either party's support organization will ensure that the support
personnel are trained on the other party's products in accordance to
Section 7 of this Attachment.
3.11 Either party's support organization will use reasonable efforts in
tracking any Case down to the level of investigation specified in
Exhibit F before transferring the Case to the other party's support
organization.
4. OBLIGATION OF BOTH PARTIES
4.1 Each party will designate in Exhibit H hereto the names and contact
information of the technical support departments and in Exhibit I the
names and contact information of individuals within its respective
support organization that will be providing technical support
(technical support contacts) and escalation support (escalation
contacts) to the other party. The contact information includes,
without limitation, direct dial telephone/fax number, electronic
access (Internet/WWW. user, password). The designated contacts may be
changed at any time by verbal notice to the other party confirmed in
writing at least 10 business days prior to such changes.
4.2 Each party will designate in Exhibit I the names and contact
information of the primary individuals responsible for facilitating
communications between the parties. Each party may change such
information at any time by written notice to the other party.
<PAGE> 26
4.3 The parties will set up a business plan which should include expected
case load, breakdown of current issues, mean time to repair (mttr),
mean time between failure (mtbf), engineering change policy and
procedures, software release strategy, overall support strategy and
locations of offices, subsidiaries and number of on-site engineers.
The parties will review the business plan with special emphasize on
numbers, quality of the dedicated personnel and resources, on a
quarterly basis and will mutually agree on additional commitments as
business circumstances require.
5. SUPPORT LEVELS
5.1 The Common Case Priorities apply to the support of the Software
Products.
5.2 In order to ensure SAP's support of Software Products toward End Users
in compliance with the Common Case Priorities, Licensor agrees to
respond to SAP in accordance with the times as shown in the table
below. These are the times Licensor gives SAP feedback about the case
acceptance (initial response time) and status of the solution process
(update period). Start time is the date and time of the case receipt
by Licensor. If the case could not be solved in the time passed
(update period), SAP will escalate the case within Licensor.
Thereafter Licensor will use its best reasonable efforts to solve the
case within the last period (response goal).
<TABLE>
<CAPTION>
Priority Severity Initial Response Update period Response goal
-------- --------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
1 very high 60 minutes 4 hours 2 days
2 high 4 hours 1 day 4 days
3 normal 8 hours 2 days 8 days
4 Low 16 hours 4 days 16 days
</TABLE>
Priority 1,2,3,4,: hours and days are in support hours
As of Q1, 2000, Priority 1 will be handled 24x7
6. ON-SITE RESOURCE
If found to be necessary, BackWeb will comply with Sections 3.8 and
4.3 of this Attachment. Licensor will hire, train and send the agreed
upon number of support engineer(s) to the designated SAP technical
support department(s). Licensor's support engineer(s) is/are high
skilled in the Software Products, with a support point of view, and
have profound product knowledge in SAP's Software. The support
engineer(s) will work at the SAP technical support department to
<PAGE> 27
resolve End User Cases. The support engineer(s) will provide support
in direct communication to End Users. SAP will provide the support
engineer(s) with an office and all needed infrastructure, including
network connection to Licensor's support organization. Licensor's
support engineer(s) will get access to and may use SAP's support
organization on SAP's discretion. On-Site resources will be funded by
SAP and Licensor on a [*] basis of the cost based rate. This will be
mutually agreed, as required.
7. TECHNICAL TRAINING
7.1 SAP and Licensor will train an adequate number of personnel of its
technical support contacts in the other parties software product as
needed due to the business plan, to handle the problem load and to
fulfill the level of Case investigation specified in Exhibit F hereto.
7.2 Training sessions shall be provided by the technical support or
education organizations of each party in the training facilities in
which it generally provides such training or at such other location as
the parties may mutually agree. The content and scheduling of the
training sessions shall be determined by the party providing the
training and shall be substantially similar to the standard training
session it provides to its own employees.
7.3 The recommended basic training courses for the SAP and Licensor
technical support contacts both companies have mutually agreed on are
specified in Exhibit G hereto. Basic training will be charged at
standard rates for Licensor and SAP unless otherwise agreed. Licensor
will provide initial basic training courses to at least two SAP
technical support contacts at each SAP Support Center free of charge.
7.4 Each party (the "Training Party") agrees to allow certain technical
support contacts of the other party (the "Trained Party") to
participate in "On the Job Training" (OJT), for the Training Party's
software products and at the Training Party's Support Site to be
mutually agreed by the parties. Prior to the OJT the designated
technical support personnel has successfully attended the recommended
basic training (Section 7.3 of this Attachment) of has comparable
skills. The Training Party will provide OJT by means of its support
engineers that perform the function in the Support Site or such other
location as the parties mutually agree. The content and scheduling of
OJT will be determined by the Training Party.
8. TECHNICAL/SUPPORT INFORMATION DATABASES
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 28
18.1 Licensor posts technical information to its technical information
database.
8.2 SAP posts the support knowledge in its support information database
in the form of notes and Hot News.
8.3 Each party shall provide the other party free of charge the right to
(a) access those portions of its technical/support information
database that the other party determined, in its sole discretion, are
reasonably necessary for the purpose of facilitating the resolution
of specific End User Cases; and to (b) use such portions of the
technical/support information database for the foregoing purpose.
8.4 Neither party may license, transfer, sell, lease, loan, distribute or
otherwise provide the other party's technical/support information
database, or any portion thereof, to any third party, unless expressly
agreed to in writing in advance by the parties.
9. TECHNOLOGY AND INFORMATION EXCHANGE
Both parties will cooperate in providing automatic case transmission
between either party's call management system. This includes the
provision of interface specifications and implementation/test support.
This statement does not constitute any commitment as to the
responsibility for implementation costs of automatic case
transmission.
10. REVIEW MEETINGS
10.1 The parties will meet quarterly at a mutually agreed upon time and
location to review and discuss the worldwide support performance
pursuant to this Attachment.
10.2 On executive level both parties will meet during the SAP partner
congress (special event, once a year) to discuss the strategic view of
the support cooperation.
11. COSTS, FEES AND EXPENSES
Costs, fees and expenses are due as stipulated specifically in this
Attachment B or generally in Attachment A. Otherwise, support services
are free of charge to the other party.
<PAGE> 29
Exhibit A:
Licensor Support Terminology
SUPPORT ORGANIZATION AND ASSIGNMENT OF TASKS
o Only available during technical support hours (Section 5.2 and Exhibit H)
o Product specific skills
o Primary tasks
o Respond to Cases where SAP was unable to find resolution
o Analyze dumps and configurations
o Reproduce problems
o Provide circumvention
o Secondary tasks
o Works closely with the development and quality assurance teams
o Provide code fixes to customers
Write notes describing customer fix
<PAGE> 30
EXHIBIT B:
SAP Support Terminology
SUPPORT ORGANIZATION AND ASSIGNMENT OF TASKS
o LOCAL SUPPORT
-- Country specific support
-- Only available during business hours (prime shift)
-- Generalist skills
o Primary Tasks
-- Translation from customer native language to English
-- Assign problem record to specific product component
o Secondary Tasks
-- Search technical support database for known defects (i.e. notes or old
cases)
-- Check functionality of customers remote connection
o REGIONAL SUPPORT
-- Located in the following regions:
-- USA (Philadelphia): North- and South America
-- Europe (Walldorf and Ireland); Europe, South Africa, Middle East
-- Singapore: Southwest Asia and Pacific (Australia, New Zealand)
-- Japan: Northeast Asia, Japan
-- Worldwide coverage (Follow the Sun principal, covered by USA, Europe
and Singapore)
-- Product specific skills
o Primary Tasks
-- Search technical support database for known defects (i.e. note or old
cases)
o Secondary Tasks
-- Check customizing
-- Analyze dumps, write traces or traps, reproduce problems
-- Provide circumvention
-- Write notes describing customer fix
o DEVELOPMENT SUPPORT
-- Located in Walldorf (Germany) and Palo Alto (USA)
-- Available during business hours, callout on exception basis
-- In depth product specific skills
-- Provides code fixes to customers (Hot Packages)
-- Works closely with, or may be a part of the development team
<PAGE> 31
Identical problem situations in test systems will normally justify a
priority that is one level lower than the equivalent priority in a
production system.
<PAGE> 32
EXHIBIT C:
Common Case Priorities
The End User himself defines the case priority/severity in accordance to the
following general rules.
o Priority 1; Very high:
A message with priority "very high" is justified when extremely serious
interruptions in normal operations occur. Tasks that brook no delay
whatsoever cannot be executed. This is caused by a complete crash of or by
interruptions in main functions of the respective software product.
The message requires immediate processing, as the breakdown can result in
significant losses.
o Priority 2; High:
A message with priority "high" is justified when serious interruptions
in normal operations occur. Important tasks cannot be performed. This is
caused by a malfunctioning or unavailable function in the respective
software product that is urgently required to deal with the current
situation.
The message requires quick processing, as a lasting malfunction could
cause serious interruptions to all work in the production system.
o Priority 3; Medium:
A message with priority "medium" is justified when interruptions in normal
operations occur. This is caused by a malfunctioning or unavailable
function in the respective software product.
o Priority 4; Low:
A message with priority "low" is justified when only minor interruptions in
normal operations occur. This is caused by a malfunctioning or unavailable
function in the respective software product that is not required on a
daily basis or not used regularly.
o Classification of Test Systems:
<PAGE> 33
Identical problem situations in test systems will normally justify a
priority that is one level lower than the equivalent priority in a
production system.
<PAGE> 34
EXHIBIT D:
SUPPORT PROCESS DESCRIPTION
1. PROCESS DESCRIPTION
1.1 SAP's support organization shall be solely responsible for receiving Cases
and providing Initial problem evaluation to End Users. Before transferring
the case to Licensor, SAP will make reasonable efforts to track any case
down to the level of investigation specified in Exhibit F. If SAP is
unable to resolve the problem in a timely manner, SAP will initially
contact the designated technical support department(s), and, if needed,
the technical support contact(s) of Licensor.
1.2 SAP will supply the technical support department/contact with the required
End User information specified in Exhibit E. Licensor's technical support
department/contact will then use reasonable efforts to provide SAP with a
Case Remedy that is satisfactory to the End User in accordance with the
applicable priority category of the Common Case Priorities. Licensor agrees
to provide End Users directly with a Case Remedy when necessary to resolve
the End User Cases in a prompt manner.
1.3 Each party shall respond to and use reasonable efforts to resolve End User
Cases in a prompt manner. The solving party will inform the other of the
final resolution to achieve a Case closure. The decision on whether and
when a Case is successfully resolved and can therefore be closed is done
by the End User. Each party acknowledges that, despite a party's
reasonable efforts, not all problems may be solvable.
2. ESCALATION OF END-USER PROBLEMS
2.1 The escalation procedure ("escalation") will be followed if either party
believes a Case requires additional attention by the other party to
resolve the problem. The escalation process is mainly in progress when a
technical problem situation arises, however, solution of this problem
requires non technical support for solving it. Escalation is triggered by
high levels of End User anxiety when either case occurs:
<PAGE> 35
(a) A case remedy leads to a not satisfactory End User solution by either party
involved:
(b) SAP concerns about the solution given by Licensor (or v.v.);
(c) the End User who reported the original case is dissatisfied with a given
solution and comes back to SAP.
2.2 For direct escalation, either party's escalation contact or support
engineer may call the other party's escalation contact or support engineer
to start a case escalation. Once a party requests escalation a mutual
action plan will be developed which defines steps, to resolve End User
problem. The steps are at minium:
(a) address resources or increase them if already addressed, and
(b) define responsibilities for each action, and
(c) expected completion date and time of each action, and
(d) contingency/next steps if desired results are not achieved.
2.3 This action plan will be modified by mutual agreement among the designated
contacts whenever the situation requires.
2.4 When the End User states the problem is resolved or the situation no longer
requires escalation, the escalation is closed. Each party will exchange
with the other party the final reports summarizing the actions taken and
results of these actions, likelihood of problem recurrence and recommended
future actions.
2.5 A review of the case will be provided for the End User at the End User's
request or upon the request of SAP.
<PAGE> 36
EXHIBIT E:
REQUIRED END USER INFORMATION
SAP REQUIRED END USER INFORMATION
o End User Name
o Company Name/Address
o End User Telephone Number
o SAP Contract Number (i.e. customer number, installation number)
o R/3 Release, Database Type and Release, Operating-System-type
o System type (Production, Test system)
o Description of Problem
o Name and local Phone Number of Respective Licensor
o Technical Contact Transferring the Call
o Case number of End Users Incident in Licensor call tracking system
LICENSOR REQUIRED END USER INFORMATION:
o End User Name
o Company Name/Address
o End User Telephone Number
o Description of Problem
o System type (Production, Test system)
o SFA Release, Database Type and Release, Operating-System-type, BackWeb
configuration details and version number
o Name and Local Phone Number of Respective SAP Technical Contact Transferring
the Call
o Case number in SAP's call tracking system
<PAGE> 37
EXHIBIT F
Level of investigation
SAP will provide the initial problem evaluation through SAP Support. The SAP
Support will make a determination of whether a Case is due to a problem with the
integration or the Software Products. If the Case appears to be due to incorrect
installation of the Software Products, due to a defect in the Software Products'
modules of integration, due to use of Software Products, or due to a defect in
Software Products, the SAP Support will refer the Case to Licensor.
If available the SAP Support will include specific identification of the cause
of the problem where possible and providing test cases of same, to the extent
practicable in the circumstances.
<PAGE> 38
EXHIBIT G:
RECOMMENDED BASIC TRAINING
SAP Training Requirement
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
BackWeb Overview Feature/Functionality Call Center - General
understanding
- --------------------------------------------------------------------------------
BackWeb Server set up and Technical Support
Administration administration; problem
resolution - scripting;
integration exp.
- --------------------------------------------------------------------------------
</TABLE>
BackWeb Training Requirement
o SAP Mobile Sales product overview
o SAP Mobile Sales product technical training - installation details,
configurations, communication, database, etc.
o Integration details - how BackWeb and SAP Mobile sales have been
integrated
<PAGE> 39
EXHIBIT H:
DEPARTMENTS
<TABLE>
- -------------------------------------------------------------------------------------------------------------
SAP
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Europe Mo-So: 8:00- +49 180/5343431
Neurottstrasse
Europe 18:00 CET +49 180/5343436 Prio 1 69190 Walldorf, Germany
Middle- +49 180/5343430 (FAX) Tel. +49-6227-747474
East, Africa
- -------------------------------------------------------------------------------------------------------------
USA Mo-Fr: 14:00- +1 800 677 7271
Americas 24:00 CET: (only inside USA) 3999 West Chester Pike
Sa-So: 18:00- +1 610 355-5821 Newton Square, PA 19073
02:00 CET +1 610 355-3106 (FAX)
- -------------------------------------------------------------------------------------------------------------
Singapore Mo-So: 1:00- +65 2491-700 750A Chai Chee Road
Asia 8:00- CET +65 2491-718 (FAX) 7th Floor Chai Chee Industrial
Pacific Park
Australia Singapore
not Japan
- -------------------------------------------------------------------------------------------------------------
Japan Mo-Fr: 8:00- +51 ###-##-#### Time24
Japan 18:00 Japan +51 ###-##-#### (FAX) 45 Aomi, 2-chrome, Koto-Ku
Korea J-Tokyo 135-73, Japan
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
BACKWEB
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
USA 7:00 a.m.-6:00 p.m. 408-533-1702 2077 Gateway Place 2nd tier support
Worldwide Monday-Friday Suite 500
support (excluding San Jose, CA
scheduled BackWeb 95110
holidays)
- -------------------------------------------------------------------------------------------------------------
EUROPE 7:00 a.m.-5:00 p.m. TBA, Q2, 99 TBA 2nd tier support
Worldwide Monday-Friday
support (excluding
scheduled BackWeb
holidays)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 40
EXHIBIT I:
CONTACTS
<TABLE>
- -------------------------------------------------------------------------------------------------------------
SAP
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Americas Escalation Mark Moeller +1 610 355 3350 mark-moeller@sap-
Contact Pager: 800-370- ag.de
- -------------------------------------------------------------------------------------------------------------
Europe Escalation Hirsch, Karola +49-6227-7- karola-hirsch@sap-
Contact 43393 ag.de
- -------------------------------------------------------------------------------------------------------------
Europe Manager Juergen Viehl +49-6227-7- juergen.viehl@sap-
MM Support 45435 ag.de
- -------------------------------------------------------------------------------------------------------------
Corporate Support Schneider, +49-6227-7- hans- Primary
Cooperation Haris-Ludwig 44638 ludwig-schneider Communication
Manager @sap-ag.de Contact
- -------------------------------------------------------------------------------------------------------------
Corporate Central Walner, +49-8227-7- friedrich-walner Escalation
Customer Friedrich 45123 @sap-ag.de Management
Escalation Team
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
BACKWEB
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Coporate Service Kathy Neri +1 409-933-1702 [email protected] Primary
Contact +1 408-933-1755 communication
Pager: 1-877-855- contact
7243
- -------------------------------------------------------------------------------------------------------------
Europe Service TBA - Q2,99 TBA Primary
Contact communication
contact
- -------------------------------------------------------------------------------------------------------------
Corporate Escalation Marg +1 408-833-1722 [email protected] Escalation
Vallaricourt management
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.14
SOFTWARE DEVELOPMENT AND OEM LICENSE AGREEMENT
This SOFTWARE DEVELOPMENT AND OEM LICENSE AGREEMENT (this "Agreement") is
entered into on this 30th day of December, 1998 (the "Effective Date") by and
between Baan Development B.V., a Dutch corporation, with a principal place of
business at Baron van Nagellstraat 89, P.O. Box 143, 3770 AC Barneveld, The
Netherlands and its Affiliates, as defined below, (collectively "Baan"), and
BackWeb Technologies Ltd., an Israeli corporation, whose address is P.O. Box
3581, Ramat-Gan 52136 Israel ("Vendor"). Each Party shall be deemed to include
its Affiliates and each reference to a Party in this Agreement shall include
its Affiliates.
RECITALS
WHEREAS, Baan develops and markets proprietary enterprise software
applications; and
WHEREAS, Vendor designs, develops and markets proprietary software
applications and is willing to develop for and license to Baan certain software
for use on a "private label" basis; and
WHEREAS, the Parties desire to set forth the terms and conditions under
which such development and licensing shall take place.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
AGREEMENT
DEFINITIONS
As used throughout this Agreement, the following terms shall have the
meanings set forth below unless otherwise indicated:
1.1 "Affiliate" of a named Party means a corporation, partnership, joint
venture or other entity controlling, controlled by or under common control with
such Party. As used in this definition, "control" (and its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of more than fifty percent (50%) of the
voting shares of such entity or the power to direct or cause the direction of
management or policies (whether through beneficial ownership of securities or
other ownership interests, by contract or otherwise).
<PAGE> 2
1.2 "Agreement" means the terms and conditions contained herein, in all
attached Exhibits, Statements of Work and any other documents made a part of
this Agreement or incorporated by reference, including any written amendments
hereto signed by the Parties.
1.3 "Baan Software" means Baan's enterprise software application product
offerings, as may be modified by Baan from time to time.
1.4 "Baan Technology" shall mean Technology owned by or licensed to Baan and
provided to Vendor hereunder, but in any event excluding Vendor Technology.
1.5 "Bankruptcy Event" means any of the following events or circumstances with
respect to a Party: (i) such Party ceases conducting its business in the normal
course; (ii) becomes insolvent or becomes unable to meet its obligations as
they become due; (iii) makes a general assignment for the benefit of its
creditors; (iv) petitions, applies for, or suffers or permits with or without
its consent the appointment of a custodian, receiver, trustee in bankruptcy or
similar officer for all or any substantial part of its business or assets; or
(v) avails itself or becomes subject to any proceeding under the U.S.
Bankruptcy Code or any similar state, federal or foreign statute relating to
bankruptcy, insolvency, reorganization, receivership, arrangement, adjustment
of debts, dissolution or liquidation, which proceeding is not dismissed within
sixty (60) days of commencement thereof.
1.6 "Change of Control" means with respect to a Party: (A) the direct or
indirect acquisition of either (i) the majority of the voting stock of such
party or (ii) all or substantially all of the assets of such Party, by another
entity in a single transaction or series of related transactions; or (B) such
Party is merged with, or into, another entity.
1.7 "Confidential Information" means information, including without limitation
Technology, that is transmitted or otherwise provided by or on behalf of either
Party to the other Party in connection with this Agreement and the activities
hereunder, and that should reasonably have been understood by the receiving
Party because of legends or other markings, the circumstances of disclosure or
the nature of the information itself, to be proprietary and confidential to the
disclosing Party, an Affiliate of the disclosing Party or to a third party.
Confidential Information may be disclosed in written or other tangible form
(including on magnetic media) or by oral, visual or other means.
1.8 "Deliverable" means any tangible or intangible material, work or thing
delivered by one Party to the other Party hereunder pursuant to this Agreement
or a Statement of Work, including the physical media on which any Source Code
or Object Code is stored and any associated Documentation.
1.9 "Derivative Work" has the meaning ascribed to it under the United States
Copyright Law, Title 17 U.S.C. Sec. 101 et. seq.
1.10 "Development Schedule" means the schedule for the completion of
identified Deliverables as set forth in this Agreement or a Statement of Work.
2
<PAGE> 3
11.1 "Documentation" means all or any portion of the materials, in written or
other tangible form (including on magnetic media), generated by Vendor in the
performance of development hereunder or generally made available by Vendor for
use in connection with the Vendor Software, including without limitation any
Software summaries, Software design, architectures, program logic, flow charts,
program listings, functional or technical specifications, logical models, user
guides, operator guides, installation and operation guides and any other
supporting or programming materials. Documentation shall not include Source
Code for the Vendor Software.
1.12 "Enhancement" means any improvement, upgrade, new version of, enhancement
to, fix, extension which is compatible or interoperable with, or any Derivative
Work of, any Technology, including any Software generally made available by
Vendor to its supported customers.
1.13 "Vendor Personnel" means Vendor employees, agents, and subcontractors and
the employees and agents of any such subcontractors, directly or indirectly
supplied or otherwise utilized hereunder by Vendor to perform work for Baan.
1.14 "Vendor Software" means the Vendor client and server software product
known as "BackWeb Sales Accelerator," which includes the BackWeb Foundation and
Strategic Publishing Manager, Automatic Marketing Encyclopedia, BackWeb Active
X Controls and Marketing Intelligence Module, plus Enhancements and Interfaces
developed by or on behalf of Vendor to be bundled and marketed in connection
with Baan Software or on a stand alone basis, and marketed under the Baan name,
as well as all Enhancements thereto.
1.15 "Vendor Technology" shall mean Technology owned by or licensed to Vendor
and provided to Baan hereunder, but in any event excluding Baan Technology.
1.16 "Interface" means Software to be developed hereunder that will provide for
the joint and proper functioning of Baan Software and the Vendor Software, as
further described in Exhibit A.
1.17 "Intellectual Property Rights" means all rights of a Person in, to, or
arising out of: (i) any U.S., international or foreign patent or any
application therefor and any and all reissues, divisions, continuations,
renewals, extensions and continuations-in-part thereof; (ii) inventions
(whether patentable or not in any country), invention disclosures,
improvements, trade secrets, proprietary information, know-how, technology and
technical data; (iii) copyrights, copyright registrations, mask works, mask
work registrations, and applications therefor in the U.S. or any foreign
country, and all other rights corresponding thereto throughout the world; and
(iv) any other proprietary rights in Technology anywhere in the world.
1.18 "Object Code" means Software in binary, executable form.
1.19 "Party" in its singular or plural form, refers to either Baan or Vendor or
both, as dictated by the use.
3
<PAGE> 4
1.20 "Person" means any legal person or entity, including any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated association, limited liability corporation, governmental
entity, or other person or entity of similar nature.
1.21 "Software" means any and all computer object code software code including
associated data files, data (including image and sound data), design tools,
user interfaces, templates, menus, buttons and icons, together with all
related Documentation.
1.22 "Specification" means the specifications as set forth in this Agreement or
a Statement of Work for Deliverables and any amendments or changes to such
specifications in accordance with this Agreement.
1.23 "Statement of Work" means a written document that is mutually agreed upon
by the Parties setting forth the requirements for the development of
Enhancements to the Vendor Software. Each Statement of Work shall be designated
by a number (e.g. SOW-1) and, once agreed upon and executed by the Parties, a
Statement of Work shall be deemed incorporated into this Agreement.
1.24 "Term" shall have the meaning set forth in Section 9.1.
1.25 "Technology" means all technology, including all know-how, show-how,
techniques, design rules, trade secrets, inventions (whether or not patented or
patentable), algorithms, routines, Software and associated Documentation,
files, data-bases, works of authorship, processes, devices and hardware.
1.26 "User" means a single computer running a copy of the Vendor Software or a
Vendor-licensed source, with an address registered to a single server.
DEVELOPMENT OBLIGATIONS
2.1 Development.
2.1.1 Development of Interfaces. The Parties shall develop the Interface
as mutually agreed and in accordance with Exhibit A. The first phase of
development of the Interfaces is described in Exhibit A. Except as expressly
provided in this Agreement, each party shall perform all such development work
at its own expense. Baan shall pay for Vendor's Interface development services
against Vendor's monthly invoice on net thirty (30) day terms at the rate of
$[*] US/hour for Vendor's professional services and all reasonable Vendor travel
expenses incurred in connection with the Interface development and specifically
authorized in advance by Baan.
2.1.2 Ownership of Intellectual Property Rights in the Interfaces. Unless
otherwise agreed to in a Statement of Work, the parties hereby agree that the
following shall govern the ownership of Intellectual Property Rights in the
Interfaces:
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
4
<PAGE> 5
(a) To the extent that the Interfaces include any Baan Technology,
Baan shall retain ownership of all Intellectual Property Rights
contained in such Baan Technology.
(b) To the extent that the Interfaces include any Vendor Technology,
Vendor shall retain ownership of all Intellectual Property
Rights contained in such Vendor Technology.
(c) Unless otherwise agreed to in a Statement of Work, ownership of
the Interface shall be as follows: (i) if the Interface is a
Derivative Work of Vendor Technology, vendor shall own the
Intellectual Property Rights in the Interface; (ii) if the
Interface is a Derivative Work of Baan Technology, Baan shall
own the Intellectual Property Rights in the Interface.
In the event Baan determines in its own judgment that personnel of Vendor
performing development of the Interfaces are not performing in a satisfactory
manner, Baan will notify Vendor within three (3) weeks of the commencement of
services by any such individual. Vendor shall replace the personnel so
identified by Baan at no charge and not charge Baan for those services deemed
non-performing up to a maximum of three (3) weeks of work performed per
engineer.
2.1.3 Enhancements to Vendor Software. Vendor shall provide Baan with
all Enhancements to the Vendor Software that it makes generally available to
Vendor's supported customers under its support and maintenance agreement in
exchange for the support fees set forth in Exhibit B. In addition, during the
Term, Baan may request that Vendor develop reasonable Enhancements to the
Vendor Software. Vendor shall within thirty (30) days of such request indicate
whether it is willing to perform such development. In the event that Vendor
agrees to perform such development, the terms and conditions of such
development shall be set forth in a Statement of Work executed by the Parties.
Such Statement of Work shall include, without limitation, a Development
Schedule and Specifications. In the event that Vendor does not agree to perform
Enhancements to the Vendor Software requested by Baan within such thirty (30)
day period, Baan shall have, and Vendor hereby irrevocably grants to Baan, the
right to develop or have developed such Enhancements. Notwithstanding anything
to the contrary herein, the Parties agree that Vendor shall have no obligation
to provide any maintenance and support services under Section 3.7 hereof for
any Enhancements to Vendor Software not provided by Vendor.
2.1.4 Steering Committee. The Parties shall appoint a Steering
Committee ("Steering Committee") consisting of at least two (2) employees each
which shall meet either in person or by conference call on an as needed basis
to discuss development activities, pricing conditions and other matters
relating to the parties obligations under this Agreement. Initially, the
Parties anticipate meeting on a quarterly basis but such schedule may be
adjusted as the needs are addressed. The Parties hereby each appoint the
following two individuals as their respective initial members of the Steering
Committee:
For Vendor: Roni Or and Gilad Japhet
5
<PAGE> 6
For Baan: John Roberts and Jeff Galea
2.2 Changes to Specifications. Baan may, by written change order, request
any reasonable changes to, including, but not limited to, additions to or
deletions from Specifications. If any such change results in a material
reduction or increase in the time of performance an appropriate adjustment to
the applicable Development Schedule shall be negotiated by the Parties and the
Joint Development and Release Plan A or the applicable Statement of Work shall
be modified in writing accordingly.
2.3 Subcontracting. Vendor may subcontract the performance of any portion
of the development to be performed under this Agreement to any third party upon
prior written notice to Baan. Vendor shall provide Baan with the names of any
third parties to whom Vendor subcontracts the performance of any portion of the
development under this Agreement along with proof of receipt of written
assurances regarding protection of Intellectual Property Rights and
confidentiality by such third party contractors. Notwithstanding any such
subcontracting, unless otherwise agreed by the Parties in writing, Vendor shall
in any event and at all times remain liable for performance of this Agreement.
2.4 Acceptance Procedure. Vendor will notify Baan when it believes it has
completed a Deliverable and will, together with such notification, provide Baan
with such Deliverable in support of its proposed completion. Baan will evaluate
the Deliverable submitted by Vendor as evidence of completion of the same. Baan
agrees that when it has made a finding as to whether Vendor has completed a
Deliverable in accordance with the applicable Specifications, it will promptly
provide a written acceptance or rejection (an "Evaluation") of the Deliverable
to Vendor. Baan shall be deemed to have accepted any Deliverable for which Baan
fails to provide Vendor an Evaluation within sixty (60) days following Baan's
receipt thereof. Any notice of rejection shall set forth in reasonable detail
the basis for Baan's rejection. Upon receipt of a written notice of rejection,
Vendor shall promptly correct the identified deviations from the
Specifications, and each such item shall again be subject to the foregoing
acceptance procedure.
Baan expressly acknowledges that the provisions of this Section are hereby
waived for the items described in Exhibit A.
2.5 Default in Development. In the event Vendor fails to deliver
Deliverables in accordance with applicable Specifications as required under
Section 2.1 within the time provided in the Development Schedule, or shall have
failed to correct a material deviation from the Specifications within thirty
(30) days after Baan's initial notice thereof under Section 2.4 (or sixty (60)
days if the deviation is non-material), or within such extended period for
performance as may have become applicable pursuant to clause (a) below, then
Baan, at its sole option, and without prejudice to such other legal rights as it
may have hereunder or otherwise, may:
(a) extend the time for Vendor' performance; or
(b) terminate the applicable Statement of Work and undertake
completion of the deficient item itself or with the services of any third
party (subject to adequate protection of Vendor's Intellectual Property
Rights), with the right to use in connection
6
<PAGE> 7
therewith any Deliverables previously delivered or due to Baan pursuant to
this Agreement.
2.6 No Limitation of Other Rights. Acceptance by Baan of any Deliverable
pursuant to this Section 2 shall not limit in any manner Baan's rights pursuant
to any other provision of this Agreement, including without limitation any
warranty granted hereunder.
2.7 Delivery of the Vendor Software.
2.7.1 Object Code Version. Vendor shall deliver to Baan the Vendor
Software in Object Code format on media acceptable to the Parties within ten
(10) days of the Effective Date. Vendor shall deliver to Baan any Enhancements
to the Vendor Software created by Vendor, other than pursuant to Section 2.1.2,
above no later than the date upon which Vendor makes the same generally
available to its supported customers.
2.7.2 Customizations. In addition, the license grant in Section 4.4.2
shall include a license to Vendor's customization tools in order for Baan,
either through itself, its Affiliates or its Authorized Customized Provider
program, to perform customization services for end users of Vendor
Software.
2.8 Translations. Vendor represents and warrants that as of the Effective
Date the Vendor Software as specified in Exhibit E and the associated
Documentation as specified in Exhibit E will be available in the languages
specified in Section 1 of Exhibit E according to the schedule set forth therein.
Vendor shall deliver to Baan versions of the Vendor Software and the associated
Documentation in the languages specified in Section 2 of Exhibit E in accordance
with the provisions therein. Within a reasonable period after the Effective Date
of this Agreement, Vendor shall provide Baan with a roadmap for translations. If
Baan establishes to Vendor's satisfaction that a profitable market exists for a
given language, Vendor shall translate the Vendor Software for such language at
Vendor's cost. If Baan fails to establish to Vendor's satisfaction that a
profitable market exists for a given language, Vendor shall translate the Vendor
Software for such language at Baan's cost. The projected date of availability
shall be approximately 6 months from the date of such request and shall be no
later than 12 months from the date such request is made to Vendor, unless
otherwise agreed by the parties. In the event that Vendor believes that a
substantial revenue stream has not been established for such translation, Vendor
shall provide written notice to Baan of its intention to discontinue further
translation of the particular affected language. Until Vendor provides Baan with
such notice of its intention to discontinue, Vendor shall provide further
translations in the applicable language for future versions of the Vendor
Software at its expense.
2.9 Ports. Vendor represents and warrants that the Vendor Software will
be available in versions that are ported to the operating systems and platforms
specified in Section 2 of Exhibit E according to the schedule set forth
therein. Vendor shall deliver to Baan versions of the Vendor Software in the
operating systems and platforms specified in Section 2 of Exhibit E in
accordance with the provisions therein. Within a reasonable period after the
Effective Date of this Agreement, Vendor shall provide Baan with a roadmap for
ports. If Baan establishes to Vendor's satisfaction that a profitable market
exists for a given database platform, Vendor shall
7
<PAGE> 8
port the Vendor Software for such platform at Vendor's cost. If Baan fails to
establish to Vendor's satisfaction that a profitable market exists for a given
port, Vendor shall port the Vendor Software for such platform at Baan's cost.
The projected date of availability shall be approximately 6 months from the
date of such request and shall be no later than 12 months from the date such
request is made to Vendor, unless otherwise agreed by the parties. In the event
that Vendor believes that a substantial revenue stream has not been established
for such platform, Vendor shall provide written notice to Baan of its intention
to discontinue further porting of the particular affected database platform.
Until Vendor provides Baan with such notice of its intention to discontinue,
Vendor shall provide further ports to the platform for future versions of the
Vendor Software at its expense.
ADDITIONAL OBLIGATIONS OF THE PARTIES
3.1 Training, Development and Professional Services. Vendor agrees to
provide the Training Services to Baan at rates and under terms and conditions
of the delivery of such services which shall be mutually agreed to in writing
by the Parties prior to the performance of such services.
3.2 Independent Contractor. The relationship of the Parties hereunder
shall be that of independent contractors. Accordingly, and without modification
of any obligation of Vendor under this Agreement, Vendor will provide day to
day management and supervision of the development tasks for which it is
responsible, including without limitation determining the time, scheduling,
manner, method and place of performance. Vendor represents and warrants that
pursuant to the Internal Revenue Code of 1986, the regulations promulgated
thereunder and applicable provisions of the common law, all Vendor Personnel
will be independent contractors in relation to Baan. Accordingly, Vendor will
file all required forms and necessary payments appropriate to the status of
Vendor Personnel as independent contractors in relation to Baan. In the event
such independent contractor status is denied or changed and any Vendor personnel
are declared to have "employee" status with respect to Baan, Vendor agrees to
hold Baan harmless from and against all costs, including any interest,
penalties and legal fees, which Baan may incur as a result of such change in
status.
3.3 Compliance With Security Regulations. When on the premises of the
other Party, each Party agrees that all its personnel will at all times comply
with all reasonable security regulations in effect at such premises and
communicated to them in writing.
3.4 No Conflicts. Except as may be otherwise agreed in this Agreement
or in Section 3.12, each Party reserves the right to contract with other firms
or individuals during the Term for services or the provision of products
similar to the services being performed or products being provided under this
Agreement or any Statement of Work.
3.5 Personnel Taxes and Benefits. The Parties shall be responsible for
all employee-related benefits applicable to their respective personnel
performing development under this Agreement. Neither Party shall be obligated
to provide the other Party's personnel with
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employee benefits of any type unless otherwise required by law. Each Party is
responsible for withholding its portion of Federal Insurance Contributions Act
("FICA") taxes, and for withholding income taxes for federal and state income
tax purposes in the manner required by law. Each Party will, in a timely
manner, pay over all amounts withheld to the Internal Revenue Service or to the
appropriate state or foreign government authorities as the case may be, and
will timely pay its share of all FICA and Federal Unemployment Tax Act ("FUTA")
taxes for all of its personnel performing work under this Agreement. Each Party
shall be indemnified and held harmless by the other Party from any liability,
cost or expense, including any interest, penalties and legal fees, that may be
assessed against or incurred by the other Party's failure to make any such
payment.
3.6 Nonsolicitation. During the Term and for a period of twelve (12)
months thereafter, neither Party will directly or indirectly solicit for
employment employees of the other Party; provided, however, that this Section
3.6 shall not be construed as precluding either Party from hiring any Person
that seeks employment or responds to a general advertisement.
3.7 Maintenance and Support Services. Vendor agrees to provide
maintenance and support services for the Vendor Software in accordance with
Exhibit B. As consideration for such maintenance and support services, Baan
shall pay to Vendor the fees set forth in Exhibit B.
3.8 Consulting and Implementation Services. Within 60 days of the
Effective Date, the parties shall enter into an agreement respecting the
provision by Vendor of consulting and implementation services to end users
obtaining the Vendor Software from Baan; provided, however that the Parties
understand and agree that Vendor shall be directly involved in such services
for Baan's customers as may be mutually agreed to by the Parties from time to
time.
3.9 Marketing Activities. During the Term Baan shall use its
commercially reasonable efforts to do the following:
(a) promote, distribute, solicit and obtain orders for and
otherwise market the Vendor Software;
(b) demonstrate the Vendor Software for distributors, resellers,
customers and potential customers;
(c) electronically publish information about the Vendor Software;
(d) demonstrate the Vendor Software for industry analysts;
(e) include the Vendor Software in trade shows, conferences and
other marketing events and provide booth space to Vendor;
(f) invite Vendor to all of Baan's major global and regional sales
and marketing events mutually agreed upon by the parties and related to
Vendor's product, both as a participant and, where mutually agreeable, as
a speaker;
(g) participate in joint press releases approved in writing by
both Parties prior to their being released;
(h) include Vendor in direct mail campaigns to Baan customers and
prospects;
(i) provide training to members of its sales force on Vendor
Software;
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(j) include Vendor's name in the copyright tagline of Baan
collateral dealing with KnowledgeManager;
(k) jointly publish customer case studies and success stories; and
(l) include presentations of Vendor Software to Baan user groups.
3.10 Marketing Support. Vendor agrees to provide to Baan during the Term
at no additional charge the market support activities set forth in this Section
3.10. Vendor represents and warrants that all of its personnel providing such
marketing support activities to Baan will have at least the same knowledge of
the Vendor Software as its personnel providing similar services to its
resellers and/or customers.
(a) Marketing Events. Vendor agrees to participate in trade shows,
executive conferences and such other marketing events as the Parties agree
upon at mutually acceptable times and locations.
(b) Global and Regional Sales and Marketing Events. Baan will
receive invitations to all of Vendor's major global and regional sales and
marketing events, both as a participant and, where mutually agreeable, as
a speaker. As mutually agreed, Vendor will accept invitations to and
attend and support Baan's global and regional marketing events.
(c) Joint Marketing Program. Baan shall be offered the opportunity
to participate in joint marketing programs, events and press releases with
Vendor's marketing department.
3.11 Other Support Obligations.
(a) Telephone Support. Vendor agrees that during normal business
hours from the support locations specified below it will provide to Baan
telephone consulting services for pre-sales support and to address
technical questions related to the demonstration, marketing, installation,
operation and use of the Vendor Software in accordance with Vendor's
Standard Support and Maintenance terms set forth in Exhibit B. Support
fees are payable in accordance with Exhibit C.
Support Locations: Either 1 location -- East Coast -- U.S. or 2
locations (1 on the West Coast -- U.S. and the other in Europe.)
(b) Pre-sales Support. Vendor agrees to provide to Baan pre-sales
technical support services and demonstration assistance for the Vendor
Software to potential Baan customers on dates and at locations that are
mutually agreeable. Vendor also agrees to make field-based engineers,
consultants and executives available for proposal assistance, knowledge
transfer, development expertise and sales process assistance. Baan and
Vendor agree to share equally the reasonable travel expenses incurred by
Vendor in connection with this Section 3.11(b);
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(c) On-line Services. Baan may choose to market Vendor Software via an
on-line service provider. In such event, vendor agrees, if requested by Baan,
to obtain a userID (at Baan's expense) from such on-line service provider for
purposes of participating in interactive areas wherein actual or potential Baan
customers may seek to exchange information and ask questions relative to Vendor
Software.
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3.12 Competing Products.
(a) Subject to Section 3.12(b) below, nothing contained herein shall be
construed as precluding Baan from developing, promoting, marketing, distributing
and licensing other products, whether Baan products or third party products,
that compete directly or indirectly with the Vendor Software; provided that Baan
shall in no event infringe Vendor's Intellectual Property Rights and shall
comply with the confidentiality provisions of Section 6.
[*] except in the case where Vendor is acquired by a competitor of Baan or
where Vendor is in material breach of the Agreement. Nothing herein shall be
construed as restricting or prohibiting Baan from offering third-party
competitive products as a front-office application product at any time during
the term of this Agreement. [*] Upon receipt of either of such notices, Vendor
shall no longer be obligated to fulfill any of its existing obligations under
Sections 2.1.1, 2.8 or 2.9. However, Vendor shall be obligated to honor support
agreements with end users then in effect and entered into by Baan pursuant to
Exhibit B while the Agreement remains in effect. In the event such a decision is
taken by Baan. Baan agrees to only disclose such decision pursuant to an
appropriate confidentiality agreement. [*]
(c) In addition, Baan agrees to share with Vendor its development plans
for its Knowledge Manager products on an annual basis and to disclose any plans
it may have to develop a competitive product as contemplated by this Section
3.12. Such disclosures shall be Confidential Information as defined in Section 6
and shall be for information purposes only, meaning such plans are not binding
on Baan and are subject to change at any time.
(d) Nothing contained herein shall be construed as precluding Vendor from
developing, promoting, marketing, distributing and licensing other products that
compete directly with the Baan Software, provided that vendor shall in no event
infringe Baan's Intellectual Property Rights and shall comply with the
confidentiality provisions of Section 6.
3.13 Communication; Pipeline Report. Baan and Vendor will from time to
time communicate with each other as appropriate on issues related to the
marketing and distribution of the Vendor Software. Baan agrees to use
reasonable efforts to ensure that all actions and statements made by its
employees about Vendor Software do not adversely affect Vendor's goodwill,
reputation or Software.
3.14 Payment. Baan shall pay Vendor the amounts set forth in Exhibit C
according to the terms, conditions and schedule set forth therein.
LICENSES AND PROPRIETARY RIGHTS
4.1 Development Licenses.
1.1.1. License to Baan. Subject to the terms and conditions
hereof, Vendor hereby grants to Baan a non-transferable, non-exclusive,
royalty-free limited license, without the right to sublicense, to use
internally and reproduce Vendor Technology provided by Vendor to Baan
hereunder, solely for the purpose of performing development under this
Agreement.
1.1.2. License to Vendor. Subject to the terms and conditions
hereof, Baan hereby grants to Vendor a non-transferable, non-exclusive,
royalty-free limited license, without the right to sublicense, to use
internally and reproduce Baan Technology provided to Vendor hereunder, solely
for the purpose of performing development under this Agreement.
4.2 Vendor Technology. Vendor shall own all right title and interest in
and to all Vendor Technology and any Derivative Works thereof, including all
Intellectual Property Rights therein and thereto.
4.3 Baan Technology. Baan shall own all right title and interest in and
to all Baan Technology and any Derivative Works thereof, including all
Intellectual Property Rights therein and thereto.
4.4 License to Vendor Software
4.4.1 Object Code License. Vendor hereby grants to Baan, under
all of Vendor' Intellectual Property Rights in and to the Vendor Software, a
non-exclusive, worldwide, fee-bearing right and license, including the right to
grant and authorize sublicenses to use and reproduce the Vendor Software, and
to market, distribute and sublicense the Vendor Software to end users in Object
Code format provided that the Vendor Software may only be marketed, distributed
and sublicensed as part of Baan's Knowledge Manager product as described in
Exhibit A. Baan shall distribute and sublicense the client and server portions
of the Vendor Software to end users on terms and conditions no less favorable
than those contained in Baan's standard software license and support agreement
then in effect, a current copy of which is attached hereto as Exhibit D. Baan
may distribute the server portion of the Vendor Software with an unlimited use
license key such that end users need not register the server portion with
Vendor. Vendor understands and agrees that the Vendor Software distributed by
Baan will be
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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marketed under the Baan brand pursuant to Baan's then current end user license
agreement. No part of the client portion of the Vendor Software shall prohibit
Baan branding (including but not limited to splash screens, icons, title bars
and help text); however the server portion of the Vendor Software shall contain
Vendor branding and Vendor's copyright notices may appear in both the client
and server portions of the Vendor Software. As consideration for the license
granted in this Section 4.4, Baan agrees to pay to Vendor license fees in
accordance with the provisions of Exhibit C hereto.
4.4.2 Except as may otherwise be provided in this Agreement, during the
term of this Agreement, Baan shall not: (i) modify, adapt, translate, localize,
distribute or create Derivative Works of the Vendor Software except with the
prior written consent of Vendor; (ii) decompile, disassemble, reverse engineer
or otherwise reduce the Vendor Software to human perceptible form, except if
such work takes place within the European Union and then limited decompilation
is permitted in strict adherence to the EC Software Directive 1991, and then
only if: (A) Vendor has failed to provide Baan with information on the
interoperability of the Vendor Software after Baan has given Vendor reasonable
notice of its need for such information and (B) Baan gives Vendor thirty (30)
days written notice of such intent to decompile and Vendor is permitted to be
present for same; (iii) remove or allow to be removed any Vendor copyright,
trademark, trade secret or other proprietary rights notice from any unit of
Vendor Software; (iv) transfer, assign, reuse or sublicense the Vendor Software
licensed to Baan or an end user to a third party without the prior written
consent of Vendor; and (v) make copies of the Vendor Software or related
documentation except for back copies as needed for Baan to fulfill its
obligations under this Agreement.
4.5 Disclosure of Third Party Materials. Vendor shall promptly disclose
to Baan the extent to which any Deliverable, or any portion thereof, uses,
incorporates or is dependent upon Technology owned by or licensed from third
parties, and shall obtain for Baan, at no cost to Baan, any license rights to
any Intellectual Property Rights embodied in any Deliverable necessary or
appropriate to Baan's right to use such Deliverable.
4.6 Trademark License. Vendor authorizes Baan to use its current and
future trademarks, service marks and trade names ("Trademarks") solely in
connection with the marketing and distribution of products pursuant to this
Agreement. Baan shall use the Trademarks of Vendor solely in accordance with
the instructions from Vendor and agrees that Vendor may, from time to time,
revise these instructions for the purpose of protecting the standards of
quality established for Vendor's goods and services sold under the Trademarks
and protecting Vendor's rights in the Trademarks.
4.7 No Other Licenses. Except as explicitly set forth herein, nothing
contained in this Agreement shall be construed as granting or conferring, by
implication, estoppel or otherwise, any license or right under any Intellectual
Property Rights, whether now existing or hereafter obtained, and no such
license or other right shall arise from this Agreement or from any acts or
omissions in connection with the execution of this Agreement or the performance
of the obligations of the Parties hereunder.
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4.8 Tangible Property. Unless otherwise agreed to in writing, any
tangible property, including but not limited to Documentation and equipment or
material of every description furnished by one Party to another hereunder, is
and shall remain the property of the furnishing Party. The Parties shall not
use such property, except in performing this Agreement. All such property shall
be returned to furnishing Party upon the earlier of either the furnishing
Party's request, completion or termination of the relevant services or
expiration or termination of this Agreement.
REPRESENTATIONS AND WARRANTIES
5.1 Vendor Representations and Warranties. As an inducement to Baan
entering into this Agreement, Vendor represents and warrants on an ongoing
basis as follows:
1.1.3. Organization Representations; Enforceability. Vendor is duly
organized, validly existing and in good standing in the jurisdiction in which
it is incorporated. The execution and delivery of this Agreement by Vendor and
the transactions contemplated hereunder have been duly and validly authorized
by all necessary action on the part of Vendor. This Agreement constitutes a
valid and binding obligation of Vendor enforceable in accordance with its terms.
1.1.4. No Conflict. The entering into and performance of this
Agreement by Vendor does not and will not violate, conflict with or result in a
material default under any other contract, agreement, indenture, decree,
judgment, undertaking, conveyance, lien or encumbrance to which Vendor or any
of its employees is a party or by which it or any of its property is or may
become subject or bound. Vendor will not grant any rights under any future
agreement, not will it permit or suffer any lien, obligation or encumbrances
that will conflict with the full enjoyment by Baan of its rights under this
Agreement.
1.1.5. Right to Make Full Grant. Vendor has and shall have all
requisite ownership, rights and licenses to perform its obligations under this
Agreement fully as contemplated hereby and to grant Baan all rights with
respect to the Deliverables and the Vendor Software and Intellectual Property
Rights purported to be granted hereunder, free and clear of any and all
agreements, liens, adverse claims, encumbrances and interests of any Person,
including, without limitation, Vendor's employees, agents, artists and
contractors and such contractors' employees, agents and artists, who have
provided, are providing or shall provide services with respect to the
development of the Deliverables.
1.1.6. Noninfringement. Nothing contained in the Vendor Software or
required in the process of incorporating the same into Baan products or
products to be marketed by Baan will infringe, violate or misappropriate any
Intellectual Property Right of any third party and no characteristic of the
Vendor Software does or will cause manufacturing, using, maintaining or selling
Baan products or other products incorporating such the Vendor Software to
infringe, violate or misappropriate any Intellectual Property Right of any
third party.
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1.1.7 No Harmful Code or Viruses. To the best of its knowledge, the
Vendor Software as delivered by Vendor to Baan contain and will contain no
matter which is injurious to end-users or their property, booby traps, time
bombs or other programming designed to interfere with the normal functioning of
the Vendor Software or Baan's or the end-user's equipment, programs or data. To
the best of Vendor's knowledge, the Vendor Software and the media upon which it
is delivered to Baan is free from computer viruses.
1.1.8 Year 2000. The Vendor Software and all Deliverables as updated
by Vendor under the support terms of this Agreement will recognize and process
all accurately inputted 4-digit annual date values, including without limitation
the Year 2000 and will recognize the Year 2000 as a leap year, and that upon
request, Vendor will provide sufficient evidence through adequate testing or
otherwise to demonstrate compliance with this warranty.
1.1.9 Performance. Vendor represents and warrants to Baan and its
customers that the Vendor Software will substantially perform in accordance
with the specifications therefore.
1.1.10 Indemnity. Vendor shall be responsible for, indemnify and hold
Baan harmless from any damages, costs, liabilities, and/or expenses (including
without limitation reasonable attorneys' fees), arising out of the breach of
the foregoing subsections 5.1.1-5.1.7.
5.2 Baan's Representations and Warranties. As an inducement to Vendor
entering into this Agreement, Baan represents and warrants on an ongoing basis
as follows:
5.2.1 Organization Representations; Enforceability. Baan is a duly
organized, validly existing corporation in good standing in The Netherlands.
The execution and delivery of this Agreement by Baan and the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of Baan. This Agreement constitutes a valid and binding
obligation of Baan enforceable in accordance with its terms.
5.2.2 No Conflict. The entering into and performance of this
Agreement by Baan does not and will not violate, conflict with or result in a
material default under any other contract, agreement, indenture, decree,
judgment, undertaking, conveyance, lien or encumbrance to which Baan is a
party. Baan will not grant any rights under any future agreement, nor will it
permit or suffer any lien, obligation or encumbrances that will conflict with
the full enjoyment by Vendor of its rights under this Agreement.
5.2.3 Right to Make Full Grant. Baan has and shall have all
requisite ownership, rights and licenses to perform its obligations under this
Agreement fully as contemplated hereby and to grant to Vendor all rights with
respect to the Baan Technology and Intellectual Property Rights purported to be
granted hereunder, free and clear of any and all agreements, liens, adverse
claims, encumbrances and interests of any Person, including, without
limitation, Baan's employees, agents, artists and contractors and such
contractors' employees, agents and artists, who have provided, are providing or
shall provide services with respect to the development of the Deliverables.
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5.2.4 Noninfringement. Nothing contained in the Baan Software or Baan
Technology required in the process of incorporating Vendor Software into the
Baan Software will infringe, violate or misappropriate any Intellectual Property
Right of any third party and no characteristic of the Baan Software or Baan
Technology does or will cause manufacturing, using, maintaining or selling the
Vendor Software to infringe, violate or misappropriate any Intellectual Property
Right of any third party.
5.2.5 Indemnity. Baan shall be responsible for, indemnify and hold
Vendor harmless from any damages, costs, liabilities, and/or expenses
(including without limitation reasonable attorneys' fees), arising out of the
breach of the foregoing subsections 5.2.1-5.2.4.
Warranty Disclaimer. EXCEPT AS SET FORTH ABOVE AND IN AN APPLICABLE STATEMENT OF
WORK, NEITHER PARTY MAKES ANY WARRANTIES, WHETHER EXPRESS, IMPLIED, OR
STATUTORY REGARDING OR RELATING TO THE SUBJECT MATTER HEREOF. EACH PARTY
SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT TO THE SUBJECT MATTER HEREOF.
6. CONFIDENTIAL INFORMATION
6.1 Terms of Agreement. The terms of this Agreement are the Confidential
Information of both Parties and shall not be disclosed by either Party in any
manner (including but not limited to news releases, articles, brochures,
advertisements, speeches or other information releases) without the prior
written consent of the other Party not to be unreasonably withheld.
6.2 Limitations on Use and Disclosure. Each Party receiving Confidential
Information (the "Recipient") agrees as to any such Confidential Information
that may be disclosed to it by the other Party hereunder (the "Discloser"):
(a) to protect such Confidential Information from disclosure to
others, using the same degree of care used to protect its own confidential
or proprietary information of like importance, but in any case using no
less than a reasonable degree of care. Recipient may disclose Confidential
Information received hereunder to (x) its Affiliates who agree, in
advance, in writing, to be bound by this Agreement, and (y) to its
employees and subcontractors, and its Affiliates' employees and
subcontractors, who have a need to know, for the purpose of this
Agreement, and who are bound to protect the received Confidential
Information from unauthorized use and disclosure under the terms of a
written agreement. Confidential Information shall not otherwise be
disclosed to any third party without the prior written consent of the
Person owning such Confidential Information;
(b) to use such Confidential Information only for the purposes of
this Agreement;
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(c) not to make copies of any such Confidential Information or any
part thereof except for the purposes of this Agreement; and
(d) to reproduce and maintain on any copies of any Confidential
Information such proprietary legends or notices as are contained in or on
the original or as the owner may otherwise reasonably request.
6.3 Technology. The Parties agree that the Baan Technology or the Vendor
Technology, as applicable, and Deliverables embodying the same, shall be deemed
the Confidential Information of the Party owning such Technology under the terms
hereof.
6.4 Exceptions. The restrictions of this Section 6 on use and disclosure
of Confidential Information shall not apply to information that (a) was publicly
known at the time of Discloser's communication thereof to Recipient; (b) becomes
publicly known through no fault of Recipient subsequent to the time of
Discloser's communication thereof to Recipient; (c) was in Recipient's
possession free of any obligation of confidence at the time of Discloser's
communication thereof to Recipient; (d) is developed by Recipient independently
of and without reference to any of Discloser's Confidential Information or other
information that Discloser disclosed in confidence to any third party; (e) is
rightfully obtained by Recipient from third parties authorized to make such
disclosure without restriction; or (f) is identified by Discloser as no longer
proprietary or confidential. In addition to the foregoing, it is understood and
agreed that nothing contained in this Section 6 is intended to, nor shall,
restrict the use by either Party of general ideas, concepts, approaches,
techniques or know-how learned or developed by such Party as a result of access
to the Discloser's Confidential Information; provided, however, that such ideas,
concepts, approaches, techniques or know-how are not embodied or specifically
described in written information, software code or other tangible form furnished
by the Discloser to such Party hereunder.
6.5 Disclosure Pursuant to Legal Requirement. In the event Recipient is
required by law, regulation or court order to disclose any of Discloser's
Confidential Information, Recipient will promptly notify Discloser in writing
prior to making any such disclosure in order to facilitate Discloser seeking a
protective order or other appropriate remedy from the proper authority.
Recipient agrees to cooperate with Discloser in seeking such order or other
remedy. Recipient further agrees that if Discloser is not successful in
precluding the requesting legal body from requiring the disclosure of the
Confidential Information, it will furnish only that portion of the Confidential
Information which is legally required and will exercise all reasonable efforts
to obtain reliable assurances that confidential treatment will be accorded the
Confidential Information.
6.6 Return of Confidential Information. All Confidential Information
disclosed under this Agreement (including information in computer software or
held in electronic storage media) shall be and remain the property of
Discloser. All such information in any computer memory or data storage
apparatus shall be erased or destroyed and all such information in tangible form
shall be returned to Discloser, promptly upon the earlier of: (i) the written
request of the Discloser, (ii) completion or termination of the applicable
Statement of Work, or (iii) termination
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or expiration of this Agreement, and shall not thereafter be retained in any
form by Recipient. In the event that Discloser requests the return of
Confidential Information pursuant to subsection (i) above, then Recipient shall
comply with such request; provided, however, that if returning such
Confidential Information prevents Recipient from exercising a license granted
hereunder, such request shall constitute a material breach of this Agreement.
In addition to the foregoing, in the event that either Party has received the
other Party's Source Code in furtherance of the purposes of the Agreement, the
Party receiving such Source Code shall return or destroy all copies thereof as
soon as reasonably practical after no longer having a need for such Source Code.
6.7 Equitable Relief. The Parties acknowledge that their respective
Confidential Information are unique and valuable, and that breach by either
Party of the obligations of this Agreement regarding such Confidential
Information and intellectual property rights will result in irreparable injury
to the affected Party for which monetary damages alone would not be adequate
remedy. Therefore, the Parties agree that in the event of a breach or
threatened breach of such provisions, the affected Party shall be entitled to
specific performance and injunctive or other equitable relief as a remedy for
any such breach or anticipated breach without the necessity of posting a bond.
Any such relief shall be in addition to and not in lieu of any appropriate
relief in the way of monetary damages.
7. LIMITATIONS OF LIABILITY
EXCEPT (A) AS TO THE OBLIGATIONS OF THE PARTIES UNDER SECTIONS 8, (B) FOR
LIABILITY ARISING OUT OF BREACHES OF SECTION 6 AND (C) ANY MISUSE OR
MISAPPROPRIATION OF A PARTY'S INTELLECTUAL PROPERTY RIGHTS BY THE OTHER PARTY
HERETO, TO THE MAXIMUM EXTENT ALLOWED BY APPLICABLE LAW, UNDER NO CIRCUMSTANCES
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL,
INDIRECT, STATUTORY OR CONSEQUENTIAL DAMAGES (INCLUDING LOST REVENUE OR
PROFITS) RESULTING FROM, ARISING OUT OF, OR RELATED TO ITS PERFORMANCE OR
FAILURE TO PERFORM ANY OF ITS OBLIGATIONS UNDER, OR BREACH OF, THIS AGREEMENT,
WHETHER OR NOT THE OTHER PARTY HAS BEEN ADVISED, KNEW, OR SHOULD HAVE KNOWN, OF
THE POSSIBILITY OF SUCH DAMAGES. EXCEPT (A) AS TO THE OBLIGATIONS OF THE
PARTIES UNDER SECTIONS 8, (B) FOR LIABILITY ARISING OUT OF BREACHES OF SECTION
6 AND (C) ANY MISUSE OR MISAPPROPRIATION OF A PARTY'S INTELLECTUAL PROPERTY
RIGHTS BY THE OTHER PARTY HERETO, EACH PARTY'S LIABILITY FOR DAMAGES SHALL BE
LIMITED TO THE AMOUNT OF FEES DUE AND PAYABLE TO VENDOR UNDER THIS AGREEMENT.
8. INDEMNITY
Each Party (as applicable, an "Indemnifying Party") will defend at its
expense and indemnify and hold harmless the other Party and their respective
directors, officers, employees,
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agents, advisers and customers (each, an "Indemnitee") from and against any
action, suit, or other proceeding, or settlement thereof, to the extent that
such action, suit or proceeding arises out of or results from (a) damage to
tangible personal property and personal injury or death arising from any
occurrence caused by any act or omission of the Indemnifying Party related to
the performance of this Agreement; or (b) any claim, allegation or finding that
any exploitation of any Technology of the Indemnifying Party or portion thereof
infringes the Intellectual Property Rights of any third party. The Indemnifying
Party shall pay those losses, damages, expenses and costs, including without
limitation interest, penalties, and fees of attorneys and accountants, awarded
against, or incurred by, any Indemnitee in, or as a result of, any such suit,
action or other proceeding, or any settlement thereof, provided that (i) the
Indemnitee reasonably promptly notifies the Indemnifying Party in writing of any
such claim, (ii) the Indemnifying Party is accorded control of the defense and
of all negotiations for settlement or compromise of such claim, and (iii)
Indemnitee cooperates with the Indemnifying Party, at the Indemnifying Party's
expense, in the defense and settlement of such claim, including providing to the
Indemnifying Party, at the Indemnifying Party's expense, such information and
assistance as the Indemnifying Party may reasonably request. The Indemnitee may,
at its own expense, be represented in such defence.
9. TERM AND TERMINATION
9.1 Term. Unless earlier terminated in accordance with its terms, this
Agreement shall commence as of the Effective Date and shall remain in full
force and effect for three (3) years from such Effective Date (the "Term").
Unless earlier terminated by either of the Parties as otherwise provided in
this Agreement, this Agreement shall automatically renew for successive one (1)
year periods unless either Party gives the other Party at least one hundred and
twenty (120) days written notice prior to the expiry of the period then in
effect.
9.2 Termination for Breach. Either Party may terminate this Agreement if
the other Party is in material breach of any term, condition or provision of
this Agreement, which breach, if capable of being cured, is not cured within
thirty (30) days after the non-breaching Party gives the breaching Party
written notice of such breach.
9.3 Termination for Bankruptcy; Change of Control. Baan may terminate this
Agreement and all rights and licenses granted hereunder effective immediately
upon notice if a Bankruptcy Event or Change of Control occurs with respect to
Vendor.
9.4 Effect of Termination. In the event all or part of this Agreement is
terminated hereunder:
(a) the Parties shall continue performance of any portion of this
Agreement or any Statement of Work not terminated;
(b) Vendor shall immediately document in detail the status of a
Statement of Work, if any, that has been terminated and deliver to Baan
all copies of the Deliverables
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that are in its or any third party's possession, whether or not such
Deliverable has been completed or is still in progress. Such Deliverable
shall, for all purposes of this Agreement, be deemed delivered to Baan,
with respect to which Baan shall have all applicable ownership and license
rights; and
(c) the Parties shall immediately cease work as of the effective
date of termination as to any terminated Statement of Work.
9.5 Available Remedies. Termination of all or any portion of this
Agreement in accordance with this Section 9 shall not limit the terminating
Party from pursuing any other remedies otherwise available to it at law or in
equity, including injunctive relief.
10. GENERAL
10.1 Vendor Bankruptcy. If a Bankruptcy Event occurs with respect to
Vendor, Baan shall forthwith be entitled to a complete duplicate of (or
complete access to, as appropriate) any Technology licensed hereunder and all
embodiments of such Technology including the Source Code thereof, and the same,
if not already in Baan's possession, shall be promptly delivered to Baan upon
Baan's written request (i) upon any such Bankruptcy Event, unless Vendor elects
to continue to perform all of its obligations under this Agreement; or (ii) if
not delivered under (i) above, upon rejection of this Agreement by or on behalf
of Vendor. Baan shall have the sublicensable right to fully exploit in any
manner all such Intellectual Property Rights and to perform any and all of
Vendor's obligations hereunder.
In furtherance of the foregoing, upon execution of this Agreement, Vendor
agrees to place into its existing escrow account with Source File, Oakland,
California a copy of the Source Code for the Vendor Software and the related
Documentation, including all updates, Enhancements and new versions
(collectively, the "Source Materials"); provided however that Vendor shall not
be obligated to make deposits into the escrow account more frequently than
twice per year. Baan shall have the right at any time to contact the escrow
agent for the purpose of confirming that the Source Materials in the escrow
account have been updated and verifying the instructions to the escrow agent to
release the Source Materials under the circumstances provided below. Vendor
shall bear all fees, expenses and other charges to maintain such escrow account.
Vendor's agreement with the escrow agent shall provide that a copy of the
Source Materials will be delivered to Baan by the escrow agent in the event
that: (a) a Bankruptcy Event occurs with respect to Vendor that is not resolved
within sixty (60) days; or (b) Vendor discontinues or is in material breach of
its support obligations for the Vendor Software. In such event, Vendor hereby
grants to Baan a nontransferable, nonexclusive license to use the Source
Materials to support and maintain the Vendor Software, provided however that
such Source Materials may not be used by Baan to create Enhancements to the
Vendor Software. However, Baan shall have the right to use the Source Code to
create Enhancements if the Bankruptcy Event consists of the event specified in
Section 1.5(i) and Vendor has permanently ceased to operate as
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an ongoing business and if Baan and the successor in interest to Vendor's
rights have mutually agreed in writing to royalties with respect to the
distribution of such Enhancements.
10.2 Waiver. The failure of either Party to insist on the strict
performance of any terms, covenants and conditions of this Agreement at any
time, or in any one or more instances, or its failure to take advantage of any
of its rights hereunder, or any course of conduct or dealing, shall not be
construed as a waiver or relinquishment of any such rights or conditions at any
future time and shall in no way affect the continuance in full force and effect
of all the provisions of this Agreement.
10.3 Headings. Headings used in this Agreement are for convenience of
reference only and shall not be construed as altering the meaning of this
Agreement or any of its parts.
10.4 Applicable Law and Arbitration. This Agreement shall be governed by
the law of the State of California, without reference to rules of conflict of
law. Except with respect to any dispute involving a party's Intellectual
Property Rights, any dispute or claim arising out of or related to this
Agreement, or the interpretation, making, performance, breach or termination
thereof, shall be finally settled by binding arbitration under the American
Arbitration Association International Arbitration Rules by three (3) arbitrators
appointed in accordance with said Rules. The location of such arbitration shall
be at a place in the United States designated by the Party not requesting
arbitration. Judgment on the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. The arbitrators shall apply California
law to the merits of any dispute or claim, without reference to rules of
conflict of law. At the request of either Party, the arbitrators will enter an
appropriate protective order to maintain the confidentiality of information
produced or exchanged in the course of the arbitration proceedings. The costs of
the arbitration, including administrative and arbitrator's fees, shall be shared
equally by the Parties. Each Party shall bear the costs of its own attorneys'
fees and expert witness fees. Notwithstanding the foregoing, neither Party shall
be precluded from seeking an injunction or other equitable relief in any court
of competent jurisdiction applying the local law of such court to remedy or
prevent violation of any provision of this Agreement relating to Confidential
Information or their respective Intellectual Property Rights.
10.5 Survival. The Parties agree that the provisions of Sections 2.6,
3.2, 3.5, 3.6, 3.7, 4.2, 4.3, 4.4, 4.7, and 5 - 10 shall survive the expiration
or any earlier termination of this Agreement. In addition, (i) any licenses to
the Vendor Software granted by Baan to end users, (ii) any rights Baan needs to
provide support to end users of the Vendor Software and (iii) Vendor's
obligation to provide maintenance and support in accordance with Exhibit B,
shall survive the termination or expiration of this Agreement for any reason.
10.6 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable, the remaining terms shall not be affected.
The Agreement shall be interpreted as if the illegal, invalid or unenforceable
provision had not been included in it, and the invalid or unenforceable
provision shall be replaced by a mutually acceptable provision which, being
valid and enforceable, comes closest to the intention of the Parties underlying
the invalid or unenforceable provision.
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10.7 Notices. All notices, requests, demands, or communications required
or permitted hereunder shall be in writing, delivered personally or by
electronic mail, facsimile, overnight delivery service at the respective
addresses set forth below (or at such other addresses as shall be given in
writing by either Party to the other). All notices, requests, demands or
communications shall be deemed effective upon receipt for personal delivery, or
on the second business day following the date of sending by electronic mail,
facsimile or overnight delivery service.
BAAN: Chief Technology Counsel
Baan Development B.V.
Baron van Nagellstraat 89
3770 AC Barneveld
The Netherlands
Fax: 31 342 42 8200
VENDOR: BackWeb Technologies, Inc.
Attn: Gwen Spertell
2077 Gateway Place, Suite 500
San Jose, California 95110
Fax: (408) 933-1800
10.8 Assignment. The respective rights and obligations provided in this
Agreement shall bind and inure to the benefit of the Parties, their legal
representatives, successors and permitted assigns. Neither Party shall assign
this Agreement in whole or in part, without the prior written consent of the
other Party, which consent may be withheld for any reason. Notwithstanding the
foregoing, neither Vendor nor Baan shall be required to obtain the other Party's
consent to assign this Agreement in connection with a merger or sale of all or
substantially all of such Party's assets, provided that such merger or sale
does not involve a company the other Party reasonably deems to be a direct
competitor. Any assignment by either party in violation of this Section 10.8
shall be null and void.
10.9 Press Releases; Public Announcements. Neither party may make any
press release or public announcement about this Agreement, its existence or its
contents without the prior written consent of the other party, except that Baan
may issue general press releases about this Agreement in order to fulfill its
marketing commitments contained in Section 3.9 hereof with prior written notice
to Vendor. Notwithstanding the foregoing, Vendor shall not be required to
obtain Baan's consent for including Baan's name on its customer/partner list or
on its website.
10.10 Relationship of Parties. Nothing contained in this Agreement shall
be deemed or construed as creating a joint venture or partnership between
Vendor and Baan. Neither Party is by virtue of this Agreement authorized as an
agent, employee or legal representative of the other.
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Except as specifically set forth herein, neither Party shall have power to
control the activities and operations of the other. Neither Party shall have
any power or authority to bind or commit the other.
10.11 Order of Precedence. In the event of any ambiguity and/or
inconsistency among the terms and conditions of this Agreement and any
Statement of Work, the terms and conditions of this Agreement shall control
unless such Statement of Work by its terms overrides a specific Section or
Sections of this Agreement.
10.12 Force Majeure. Neither Party shall be liable in case of force
majeure. The Parties to this Agreement agree that force majeure shall include
(but shall not be limited to): material breakdown of equipment, labor disputes
of whatever nature or cause, and any other circumstances reasonably beyond the
control of one of the Parties. The occurrence of a force majeure event shall
not relieve Baan of its payment obligations under this Agreement unless such
event has an impact on Baan's ability to fulfill such obligations.
10.13 Entire Agreement. This Agreement constitutes the entire
understanding of the Parties, and supersedes all prior or contemporaneous
written and oral agreements, representations or negotiations with respect to
the subject matter hereof. This Agreement may not be modified or amended except
in writing signed by both Parties.
IN WITNESS WHEREOF, this Agreement is executed by the duly authorized
representatives of the Parties as of the date first set forth above.
BACKWEB TECHNOLOGIES LTD. BAAN DEVELOPMENT B.V.
/s/ RONI OV SIGALIT ROZENBLUM /s/ GORDON P. KUSHNER
- --------------------------------- --------------------------
Signature Signature
Roni Ov Sigalit Rozenblum Gordon P. Kushner
- --------------------------------- --------------------------
Name Name
VP Product Development Controller Chief Technology Counsel
- --------------------------------- ---------------------------
Title Title
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EXHIBIT A
DEVELOPMENT OF INTERFACES
Baan's Knowledge Manager product is an add-on product to BaanFrontOffice. The
Knowledge Manager, built in conjunction with BackWeb, is comprised of both
client and server components. [*] These pages are being developed by Vendor for
Baan; however, they are calling COM interfaces designed and built by Baan to
retrieve BaanFrontOffice application context. The pages will be integrated into
the BaanFrontOffice navigation system by Baan. There is also an installation
program for the client. The installation program, written by Baan under
Vendor's guidance, call's Vendor's client installer and then installs the
aforementioned pages.
[*]
The final piece of the Knowledge Manager product is Vendor Software that has
been installed at Baan's external Internet Service Provider site. The native
Vendor server is running on Baan's hardware and is configured as the default
home server for all Knowledge Manager clients deployed by Baan. This server
inherits its channel directory from the standard Vendor master server
For the avoidance of doubt, Vendor owns Intellectual Property Rights to all the
Vendor ActiveX controls that are used in the Baan Knowledge Manager product.
Baan owns the Intellectual Property Rights to the web pages that embed the
Vendor ActiveX controls. Baan may use the Vendor ActiveX controls in a new web
page, provided, however, that such use shall be disclosed by Baan at meetings
of the Steering Committee and such use shall be limited to the Baan Knowledge
Manager Product. Vendor is not prohibited in any way to use the controls and
web concepts developed with Baan in future Vendor development initiatives
independent of Baan. Vendor shall be responsible for the maintenance, support
and localization of the Vendor ActiveX controls. Baan agrees to be responsible
for the maintenance, support and localization of the Baan KnowledgeManager web
pages.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT B
MAINTENANCE AND SUPPORT
1. MAINTENANCE AND SUPPORT OBLIGATIONS OF THE PARTIES
Baan shall, pursuant to Baan's standard software license and support
agreement ("SLSA"), enter into an agreement with end users for the provision to
end users of maintenance and support for the Vendor Software (as further
described below, "Maintenance and Support"). The Maintenance and Support terms
herein shall also apply to the internal use license of the Vendor Software
granted to Baan under Exhibit C. Maintenance and Support shall consist of Tier
One Support, Tier Two Support and Tier Three Support.
"Tier One Support" means the provision, during Baan's standard hours
of service, of assistance via telephone, fax or through Baan's World
Wide Web Site with respect to the Vendor Software. Such assistance
shall include: (i) being the first point of contact for all support
issues relating to Products; (ii) characterizing and analyzing support
issues; (iii) clarification of functions and features of the Products;
(iv) clarification of the end user documentation for the Products; (v)
guidance in the operation of the Products, and (vi) error
verification, analysis and correction to the extent possible by Baan
by telephone, fax or through Baan's World Wide Web Site.
"Tier Two Support" means the support required to resolve any and all
support issues and problems relating to the Vendor Software that are
not resolved by Tier One Support.
"Tier Three Support" means the provisions of corrections for defects
in the Vendor Software that cause the software to fail to conform to
the specifications therefore. This shall also include Vendor Software
Enhancements, new releases, new interfaces as they are generally
developed and made available.
As between Baan and Vendor, Baan shall provider Tier One Support to
end users and Vendor shall provide Tier Two and Tier Three Support to
Baan; provided however, that in all events, Baan shall use its best
efforts to provide Tier One, Tier
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Two and Tier Three Support to end users; however, in the event Baan is
unable to address the support request from an end user following its
best efforts, Vendor shall address such support request directly from
the end user.
Vendor shall provide Baan, at no cost to Baan, all necessary
information, including without limitation one copy of the Vendor
Software and appropriate Documentation for each of Baan's support
centers, required by Baan to enable Baan to provide Tier One Support
for the Vendor Software. Vendor shall once per calendar year provide
training [*] of Baan's primary support center locations; reasonable
travel and out-of-pocket expenses for Vendors personnel shall be
reimbursed by Baan. For all additional locations, Baan will pay Vendor
for the cost of training services at [*] US/hour and all reasonable
travel-related expenses. Vendor shall assist Baan in the installation
of the Vendor Software at such Baan support centers. Baan agrees that
a minimum of [*] Vendor specialists will be designate who will attend
the training.
Vendor shall use its commercially reasonable efforts to resolve all
reproducible errors in the Vendor Software. Additionally, in the event
that an error in the Vendor Software either causes a total system
standstill or causes serious disruption of a major business function,
Vendor shall use its best efforts to resolve the error and shall work
diligently until such error is resolved.
Vendor shall provide the support called for in this Exhibit for the
then-current release or version of the Vendor Software for a period of
at least [*] following such release or version's general availability.
2. PRICING AND PAYMENT
Each year in which an end user is valid and effective on an annual
maintenance and support agreement with Baan, Baan shall pay to Vendor [*]
of the Royalties due to Vendor under Exhibit C for such maintenance and
support ("Maintenance and Support Fees"). The Parties agree to revisit and
renegotiate the Maintenance and Support Fees on an annual basis.
Within thirty (30) days of the end of each month, Baan shall provide to
Vendor a report setting forth the names of end users from which Maintenance
and Support Fees were
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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received during such month. Baan shall, contemporaneously with the sending
of such report, wire to a bank and an account named by Vendor the aggregate
amount of Maintenance and Support Fees due Vendor hereunder for such month.
Baan shall make and maintain until the expiration of three (3) years after
the last payment under this Agreement is due, complete books, records and
accounts regarding its receipt of Maintenance and Support Fees in order to
calculate and confirm its payment related thereto. Upon reasonable prior
notice, Vendor shall have the right, exercisable not more than once every
twelve (12) months, to appoint an independent auditor which auditor shall
be permitted by Baan to examine such books, records and accounts during
such Baan's normal business hours to verify reports and payments provided
pursuant to this Exhibit B. If any such examination discloses a shortfall
in payment of Royalties, such amounts shall immediately be paid.
Each Party is responsible for complying with the collection, payment and
reporting of all taxes imposed by any governmental authority applicable to
its activities in connection with maintenance and support under this
Agreement. Neither Party is responsible for the taxes that may be imposed
on the other Party.
3. PRIORITIES, RESPONSE TIME AND RESOLUTION OBJECTIVES.
Vendor shall comply with the following schedule for addressing support requests
from Baan internal requests, technical support and any other support provided
under the Agreement:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Priority Response Time Resolution Objective Description
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10 <1 Hour <8 Hours CRITICAL: Production database down or
severely impaired with not reasonable
workaround
- ------------------------------------------------------------------------------------------------
20 2 Hours <2 Days URGENT: Important feature not available,
with no reasonable workaround
- ------------------------------------------------------------------------------------------------
30 12 Hours <1 Week STANDARD: Question, important feature
unavailable, but there is a reasonable
- ------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
workaround or a less significant feature is
unavailable with no reasonable workaround
- ------------------------------------------------------------------------------------------------
40 24 Hours <3 Weeks LOW: Enhancement or minor problem that
doesn't cause a disruption of work.
- ------------------------------------------------------------------------------------------------
</TABLE>
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EXHIBIT C
ROYALTIES
1. Royalties.
(a) Baan agrees to pay Vendor a royalty advance in the amount of $ [*] USD
(the "Royalty Advance") payable as follows:
the amount of $ [*] USD shall be payable by January 31, 1999 by wire transfer
according to instructions to be provided by Vendor and the remaining $ [*]
shall be payable in four equal quarterly installments in 1999 of $ [*] each on
March 15, July 15, September 15 and December 15, without requirement of
additional invoice, all by wire transfer
(b) Subject to Sections 2.8 and 2.9, Baan shall pay to Vendor royalties
("Royalties") equal to [*] of Net Sales of the Vendor Software by Baan,
subject to a minimum royalty of $ [*] US per seat for end user transactions of
[*] seats or less and a minimum royalty of $ [*] US per seat for end user
transactions of [*] seats or more. These minimum royalties are paid based on an
assumed list price of $ [*] for Vendor Software. If market conditions require
that the list price for Vendor Software be decreased, the minimum royalty
amounts shall be decreased on an equal percentage basis upon Vendor's prior
written consent, such consent to not be unreasonably withheld. The parties may
mutually agree in writing to different minimum pricing or percentage royalty
rates on a case by case basis and in addition the Steering Committee shall
address issues of proposed pricing adjustments, including the per seat minimums
to the extent market conditions justify. For purposes of this Exhibit C, "Net
Sales" means the gross revenue due and payable to Baan from the sale or license
of the Vendor Software, less the following items but only insofar as they are
included in such gross revenue and are separately stated on the invoice: (i)
import, export, value added, excise and sales taxes, tariffs, and custom
duties; (ii) credit for returns, damaged goods, allowances, or trades; (iii)
charges for packaging, shipping and insurance; and (iv) customary rebates, cash
and trade discounts, actually taken. Baan will provide Vendor with thirty (30)
days advance notice of its intention to change the list price of the Vendor
Software. For the purposes of Royalty calculations under this Agreement, Baan's
discount to the end user will be evenly allocated across all of the products in
a particular order.
2. Reports and Payment of Royalties. Within thirty (30) days after the end
of each month Baan shall report to Vendor (i) the names of end users licensing
the Vendor Software, (ii) the number of Users at each end user; (iii) the Net
Sales derived from the end user during such month and (iv) the aggregate
Royalties, including the calculation thereof, owing thereon. Baan shall,
contemporaneously with the sending of such report, wire to Vendor's account as
described in this Exhibit C the Royalties due Vendor, provided that Baan shall
not be required to pay to or
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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otherwise transfer to Vendor any Royalties until it has recouped the royalty
advance described in Section 1(a) of this Exhibit C. All amounts due Vendor
upon recoupment of the Royalty Advance by Baan shall be payable within thirty
(30) days of the last day of the applicable month.
3. Audit Rights. Baan shall make and maintain until the expiration of three
(3) years after the last payment under this Agreement is due, complete books,
records and accounts regarding its distribution activities of the relevant
products in order to calculate and confirm its Royalty obligations hereunder.
Upon reasonable prior notice, Vendor shall have the right, exercisable not more
than once every twelve (12) months, to appoint an independent auditor which
auditor shall be permitted by Baan to examine such books, records and accounts
during such Baan's normal business hours to verify reports and payments
provided pursuant to Section 4.5 hereof. If any such examination discloses a
shortfall in payment of Royalties, such amounts shall immediately be paid.
4. Taxes. Royalties are exclusive of sales and/or use taxes that are imposed
on a purchaser of goods and services by law, which Baan agrees are its
responsibility. In the alternative, Baan shall provide Vendor with a
certificate evidencing Baan's exemption from payment of or liability for such
taxes and Vendor agrees to honor such exemption certificate.
5. Vendor Services. Baan shall pay Vendor for development services rendered
by Vendor engineers pursuant to Section 2.1.1 above at the rate of $ [*]
US/hour. Baan shall pay Vendor for professional services rendered in connection
with training Baan staff at the rate of $ [*] US/hour.
6. Internal Use Licenses. In further consideration of executing this
Agreement, Baan shall have the right to use the Baan Knowledge Manager, which
includes the Vendor Software, at [*] for use by Baan Sales and Baan
Professional Services organization for use for its own internal data processing
operations. The parties anticipate that the total number of Named Users for
such license shall be approximately [*]. Baan shall have the right to acquire
initial year technical support services for such Named Users at a technical
support services fee of $ [*]/Named User. Vendor agrees that annual increases
for technical support for the licenses granted under this Section 6 shall not
increase by more than [*] per year during the term of this Agreement.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
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EXHIBIT D
BAAN END USER LICENSE AGREEMENT
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<PAGE> 32
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This SOFTWARE LICENSE AND SUPPORT AGREEMENT ("Agreement") dated
_________________ ("Effective Date") is entered into by and between
______________ of ________________________ ("Customer") and Baan U.S.A., Inc.
("Baan"), and describes the terms and conditions pursuant to which Baan shall
license to Customer and support certain Software (as defined below)
In consideration of the mutual promises and upon the terms and conditions set
forth below, the parties agree as follows:
1. Definitions
1.1 "Confidential Information" means this Agreement and all its Schedules, any
addenda hereto signed by both parties, all Software listings,
Documentation, information, data drawings, benchmark tests, specifications,
trade secrets, object code and machine-readable copies of the Software,
source code relating to the Software, and any other proprietary information
supplied to Customer by Baan, or by Customer to Baan and clearly marked as
"confidential information", including all items defined as "confidential
information" in any other agreement between Customer and Baan whether
executed prior to or after the date of this Agreement.
1.2 "Concurrent Users" means the total number of log-ons into the Software at
any one time.
1.3 "Documentation" means all on-line help files or written instruction manuals
regarding the Use of the Software.
1.4 "Heavy Users" means the total number of users who have full use of the
Software including but not limited to the ability to add, change and delete
data.
1.5 "Light Users" means the total number of users whose use of the Software is
limited to inquiry and reporting capabilities.
1.6 "Named Users" means the total number of individuals permitted to access and
Use the Software.
1.7 "Software" means the computer program(s) specified in Schedule A as
supplied by Baan and excludes Third Party Software.
1.8 "Third Party software" means the computer program(s) (if any), listed in
Schedule A, to which the terms and conditions of the applicable Third Party
Software Exhibit and/or Third Party Software License Agreement, attached
hereto, shall apply.
1.9 "Use" means the loading, utilization, storage or display of the Software by
the number of authorized users set forth in Schedule A to process
Customer's information and serve Customer's internal business purposes
only.
2 Grant of License
2.1 For so long as this Agreement is in force, Baan grants to Customer a
perpetual, non-exclusive and non-transferable license to (a) Use the
Software, (b) use the Documentation in connection with Use of the Software,
(c) modify the Software pursuant to the authorized use of software tools
provided by Baan and (d) copy the Software for backup or archival purposes
provided that all titles, trademark symbols, copyright symbols and legends,
and other proprietary markings are reproduced. Except as explicitly
expressed in this Section 2.1, nothing contained in this Agreement
transfers to Customer any license or right in any intellectual property.
2.2 Baan shall deliver to Customer, as soon as practicable, one
machine-readable copy of the Software, along with one machine-readable copy
of the Documentation. Customer may reproduce the Documentation by printing
the online files for its own internal use provided that all titles,
trademark symbols, copyright symbols and legends, and other proprietary
markings are reproduced.
2.3 Customer agrees to give Baan access and assistance as may be necessary for
Baan to audit Customer operations whereever situated to confirm the number
of Concurrent Users, Heavy Users, Light Users and Name Users.
3 License Restrictions
Customer agrees that it will not itself, or through any parent, subsidiary,
affiliate, agent or other third party:
a) sell, lease, license, sublicense, encumber or otherwise deal with any
portion of the Software or Documentation:
b) decomplite, disassemble, or reverse engineer any portion of the Software,
unless and to the extent required under applicable national law;
c) other than as provided in Section 2.1 (c), write or develop any derivative
software or any other software program based on the Confidential
Information provided by Baan;
d) use the Software to provide processing services to third parties,
commercial timesharing, rental or sharing arrangements, or on a "service
bureau" basis;
e) provide, disclose, divulge or make available to, or permit use of the
Software by persons other than Customer's employees without Baan's prior
written consent, provided however that Customer may allow its customers,
dealers, distributors and Baan authorized parties to Use the Software
solely for the purpose of conducting business with Customer within the
scope of their customer relationship, dealership or distributorship with
Customer or for the purpose of implementing the Software in accordance with
this Agreement; or
f) exceed the number of users specified for each type of user in Schedule A.
4 License Fee
4.1 In consideration of the rights granted herein, Customer shall pay Baan the
non-refundable, non-cancelable license fee specified in Schedule A on the
Effective Date. Baan's pricing reflects the allocation of risks and
limitation of liability.
4.2 Customer shall reimburse Baan for all sales, use or other taxes, fees or
duties not based on income, arising out of this Agreement.
5 Support
Upon payment to Baan of the appropriate fee, Customer shall be entitled to
receive support in accordance with Baan's then current support policy.
Baan's current support policy appears in Schedule B.
6 Warranty and Limitation of Liability
6.1 Baan warrants to the Customer that the Software: (a) will perform in
substantial accordance with the Documentation for a period of one (1) year
from the Effective Date; and (b) will recognize and process all accurately
inputted four-digit annual date values, including without limitation the
Year 2000, and will recognize the Year 2000 as a leap year. If the Software
does not perform as warranted, Baan shall undertake to correct the
Software, or if correction of the Software is reasonably not possible,
replace such Software free of charge with conforming software. If neither
of the foregoing is commercially practicable, Baan shall terminate this
Agreement with respect to the non-conforming software program and refund
the monies
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provided by Baan. Customer shall furnish Baan with a certificate signed by an
executive officer of Customer verifying that the same has been done.
10. Non-assignment/Binding Agreement
Neither this Agreement nor any rights under this Agreement may be assigned
or otherwise transferred by Customer, in whole or in part, whether
voluntary or by operation of law, including by way of sale of assets,
merger or consolidation, without the prior written consent of Baan, which
consent will not be unreasonably withheld. Subject to the foregoing, this
Agreement will be binding upon and will inure to the benefit of the parties
and their respective successors and assigns.
11. Notices
Any notice required or permitted under the terms of this Agreement or
required by law must be in writing and must be (a) delivered in person, (b)
sent by registered mail return receipt requested, (c) sent by overnight air
courier, or (d) by facsimile, in each case forwarded to the appropriate
address set forth herein. Either party may change its address for notice by
written notice to the other party. Notices will be considered to have been
given at the time of actual delivery in person, three (3) business days
after posting or one (1) day after (i) delivery to an overnight air courier
service or (ii) the moment of transmission by facsimile.
12 Miscellaneous
12.1 Force Majeure. Neither party will incur any liability to the other party on
account of any loss or damage resulting from any delay or failure to
perform all or any part of this Agreement if such delay or failure is
caused, in whole or in part, by events, occurrences, or causes beyond the
control and without negligence of the parties. Such events, occurrences or
causes will include, without limitation, acts of God, strikes, lockouts,
riots, acts of war, earthquakes, fire and explosions, but the inability to
meet financial obligations is expressly excluded.
12.2 Waiver. Any waiver of the provisions of this Agreement or of a party's
rights or remedies under this Agreement must be in writing to be effective.
Failure, neglect or delay by a party to enforce the provisions of this
Agreement or its rights or remedies at any time, will not be construed or
be deemed to be a waiver of such party's rights under this Agreement and
will not in any way affect the validity of the whole or any part of this
Agreement or prejudice such party's right to make subsequent action.
12.3 Severability. If any term, condition, or provision in this Agreement is
found to be invalid, unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will
preserve, as far as possible, the intentions expressed in this Agreement.
If the parties fail to agree on such an amendment, such invalid term,
condition or provision will be severed from the remaining terms,
conditions, and provisions, which will continue to be valid and enforceable
to the fullest extent permitted by law.
12.4 Entire Agreement. This Agreement (including the Schedules and any addenda
hereto signed by both parties) contains the entire agreement of the parties
with respect to the subject matter of this Agreement and supersedes all
previous communications, representations, understandings and agreements,
either oral or written, between the parties with respect to said subject
matter, except as provided in Section 1.1 with respect to the definition of
"Confidential Information".
12.5 Standard terms of Customer. No terms, provisions, or conditions of any
purchase order, acknowledgement or other business from that Customer may
use in connection with the acquisition or licensing of the Software will
have any effect on the rights, duties or obligations of the parties under,
or otherwise modify, this Agreement, regardless of any failure of Baan to
object to such terms, provisions or conditions.
12.6 Public Announcements. Customer agrees that Baan may use its name in press
releases, product brochures and financial reports indicating that Customer
is a customer of Baan.
12.7 Counterparts. This Agreement may be executed in counterparts, each of which
so executed will be deemed to be an original and such counterparts together
will constitute one and the same agreement.
12.8 Applicable Law. All disputes arising out of this Agreement shall be subject
to the exclusive jurisdiction of any federal or state court or courts
sitting in San Jose, California which courts are empowered to try the
dispute, and the parties hereby agree to submit to the personal and
exclusive jurisdiction and venue of these courts.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
written above.
BAAN U.S.A. INC.
- ---------------------------- --------------------------
By: /s/ Roni Or By:
------------------------- -----------------------
RONI OR
- ---------------------------- --------------------------
Print Name Print Name
- ---------------------------- --------------------------
Address Address
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SCHEDULE A
[PLEASE ATTACH PRINTOUT FROM CONFIGURATOR]
- --------------------------------------------------------------------------------
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SCHEDULE B
BAANS' TECHNICAL SUPPORT POLICY
Schedule B details Baan's current technical support policy regarding the
Software. Customer shall access Baan's Global Support Web-site for updates to
Baan's technical Support policies.
Third Party Software is specifically excluded from the terms set forth in this
Schedule (with exception of the software interfaces and port-sets developed by
Baan that enable the link between the Software and the Third Party Software).
Baan encourages Customer to contract the appropriate support services for the
licensed Third Party Software with the applicable Third Party Software vendor.
1 Definitions
Terms used herein with the initial letter capitalized which are not
otherwise defined herein, shall have the meaning given to the said terms
in Section 1 of the Agreement.
1.1 "Baan's Global Support Web-site" means the World Wide Web site found at
http://www.support.baan.com.
1.2 "Current Program" means the Major Releases, Minor Releases and
Maintenance Releases of the Software supported by Baan in accordance with
Section 2.2 below.
1.3 "Expired Program Support" means the provision of support for Expired
Programs on Baan's Global Support Web-site in accordance with Section 2.3
below.
1.4 "Expired Program" means Software that is not a Current Program.
1.5 "Knowledge Related Call" means a Support Call which a) relates to the Use
or implementation of the Software; b) is a request for clarification or
guidance concerning either the Software or the Documentation; where such
request could have been answered by a trained Customer staff.
1.6 "Maintenance Release" means a set of the Software containing bug-fixes.
1.7 "Major Release" means a set of the Software in which new software
functionality and major software restructuring has been included.
1.8 "Minor Release" means a set of the Software in which new Software
functionality and bug-fixes have been included.
1.9 "Quality Related Call" means a Support Call related to a perceived or
identified error in the Software attributable to Baan and not previously
identified or described on Baan's Global Support Web-site. Errors
attributable to Baan shall be those that are reproducible on an
unmodified Major Release of the Software.
1.10 "Response Time" means the elapsed time between the receipt of a Support
Call and the target time within which Baan begins Support as verified by
a verbal or written confirmation to the Customer.
1.11 "Service Hours" means Baan's usual office hours (from 8:30 a.m. to 5:00
p.m. - unless otherwise stated in Schedule B1) from Monday through
Friday, Customer's local time, excluding holidays as observed by Baan.
1.12 "Support" means (a) the provision, when and if available, during Service
Hours of Maintenance Releases, Minor Releases and Major Releases and the
on-line Documentation related to the licensed Software, and b) assistance
by telephone or internet or otherwise with respect to the Software,
including (i) clarification of functions and features of the Software;
(ii) clarification of the Documentation; (iii) guidance in the operation
of the Software; and (iv) error verification, analysis and correction by
telephone and/or internet.
1.13 "Support Call" means Support Call Category 10, 20, 30 or 40 jointly or
separately.
1.14 "Support Call Category 10" means that Customer's live system is at a halt
and unable to process data through the Software as a result of a
catastrophic event in the system database or Software, or a major
application failure in a critical processing period.
1.15 "Support Call Category 20" means a problem in the Software which causes
serious disruption of a major business function and which cannot be
(temporarily) solved by a workaround.
1.16 "Support Call Category 30" means any of the following: i) a non-critical
problem in the Software where the Customer is able to continue to run the
system and/or application or a workaround is available; ii) a reported
problem in the Software that does not qualify as a priority 10 or 20.
1.17 "Support Call Category 40" means all questions and requests for
information on the Use or implementation of Software.
1.18 "Support Term" means a twelve (12) month period contracted by Customer
for the delivery of Support.
2 Support Services
For so long as Customer is current in the payment of the appropriate
Support fees, Customer will be entitled to Support as specified in this
Section.
2.1 Term and Termination. Baan's provision of Support to Customer will
commence on the Effective Date and will continue for the initial Support
Term. Support will automatically renew at the end of the initial Support
Term and any subsequent Support Term unless Customer has provided Baan
with a written termination notice of its intention not to renew Support
at least thirty (30) days prior to the expiration of the then current
Support Term. Termination of Support or failure to renew will not affect
the license of the Software. If Customer allows Support to lapse, and
does not receive Support for a period of time, Baan may thereafter renew
Support. In the event of renewal, Customer shall pay the then current
Support fee plus an amount equal to the half of the aggregate Support
fees that would have been payable during the period of lapse.
2.2 Support for Current Programs. Support for Current Programs is available
according to the following schedule: (a) a Major Release will be
supported for three (3) years after the commercial release of the next
Major Release, provided always that Customer makes use of the last Minor
Release and Maintenance Release of the first mentioned Major Release; (b)
a Minor Release will be supported for one year after the commercial
release of the next Minor Release, provided always that Customer makes
use of the last Maintenance Release of the related Minor Release; and (c)
an Maintenance Release will be supported for six
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(6) months after the commercial release of the next Maintenance Release.
2.3 Expired Program Support. Baan shall provide Expired Program Support for
the Expired Programs according to the following terms:
2.3.1 Customer may receive error verification, analysis and correction by
telephone and/or Internet for Expired Programs for Support Calls
Categories 10 and 20 only. Such services shall be provided by Baan if
Customer is using the Software on a software/hardware/database platform
supported by Baan at the time Customer licensed the Software, or
otherwise approved by Baan. Expired Program Support shall not include
services related to incidents caused by system configuration changes,
hardware or system software upgrades or backporting of functionality in
either standard or modified software code, which services may be
contracted by Customer and Baan under a separate agreement. Expired
Programs will not be updated.
2.3.2 The Support fee payable by Customer for Expired Program Support shall be
determined per Minor release, based on support costs as influenced by
number of customers with expired programs being supported under this
program. All annual rates will be published in advance on the Baan
Global Support Website.
2.4 Response Times. Support for Current Programs is available during Service
Hours with the following Response Times: (i) Support Call Category 10:
one (1) hour, (ii) Support Call Category 20: two (2) hours; (iii)
Support Call Category 30: four (4) hours; and (iv) Support Call Category
40: eight (8) hours.
2.5 On-site Support. Support may be provided at the Customer site in
accordance with Schedule B.3.
2.6 Causes which are not attributable to Baan. The Support fee does not
include services requested as a result of, or with respect to causes,
which are not attributable to Baan. These services will be billed to
Customer at Baan's then-current rates. Causes which are not attributable
to Baan include but are not limited to:
(a) accident; unusual physical, electrical or electromagnetic stress;
neglect; misuse; failure or fluctuation of electric power, air
conditioning or humidity control; failure of rotation media not
furnished by Baan; excessive heating; fire and smoke damage; operation
of the Software with other media and hardware, software or
telecommunication interfaces not meeting or not maintained in accordance
with the manufacturer's specifications; or causes other than ordinary
use;
(b) improper installation by Customer or use of the Software that deviates
from any operating procedures established by Baan in the applicable
documentation;
(c) modification, customization, alteration or addition or attempted
modification, customization, alteration or addition of the Software
undertaken by any party;
(d) software programs made by Customer or other parties.
2.7 Responsibilities of Customer. Baan's provision of Support to Customer is
subject to the following:
(a) Customer shall provide Baan with necessary access to Customer's
personnel and its equipment during Service Hours. This access includes
the ability to dial-in to the equipment on which the Software is
operating and may also include the ability to obtain the same access to
the equipment as those of Customer's employees having the highest
privilege or clearance level. Baan shall at all times be bound by the
Confidentiality provisions of the Agreement, and will only disclose
information within Baan to those individuals who need to know in order
to assist in solving Customer's problem. Baan will inform via the Baan
Global Support Web-site about the specifications of the modern equipment
and associated software needed, and Customer will be responsible for the
costs and use of said equipment.
(b) Customer shall provide supervision, control and management of the Use of
the Software. In addition, Customer shall implement procedures for the
protection of information and the implementation of backup facilities in
the event of errors or malfunction of the Software or equipment;
(c) Customer shall document and promptly report all detected errors or
malfunctions of the Software to Baan. Customer shall take all steps
necessary to carry our procedures for the rectification of errors or
malfunctions within a reasonable time after such procedures have been
received from Baan;
(d) Customer shall maintain a current backup copy of all programs and data;
(e) Customer shall promptly train its personnel in the Use and application
of the Software; and
(f) Customer shall obtain access, to the World Wide Web at its expense, in
order to access Baan's Global Support Web-site.
2.8 Support Fee. The Support fee for the initial Support Term is indicated
in Schedule A. The Support fee for the first Support Term is due and
payable in full in advance within thirty (30) days after the Effective
Date. For any subsequent Support Term, the Support fee will be due and
payable thirty (30) days before the commencement of such subsequent
Support Term. Any amounts not paid within thirty (30) days will be
subject to interest of one percent (1%) per month, which interest will
be immediately due and payable.
2.9 Modified Support Fee. Baan may modify the Support fee for any Support
Term. However, for a period of four (4) years from the Effective Date
the Support fee for Current Programs for each subsequent Support Term
shall not be more than five percent (5%) plus the Consumer Price Index
for the applicable time period. In the event of a modification of the
Support fee, Customer may discontinue Support.
2.10 Incentive Program. Where a Customer has become more competent in using
the Software and in providing internal support to its organization, the
Support fee payable by Customer for a subsequent Support Term shall be
discounted by twenty five percent (25%) provided that all of the
following conditions are satisfied:
(a) the total number of Knowledge Related Support Calls made by Customer
during the immediately preceding Support Term is no more than twenty
percent (20%) with respect of the total of Quality Related Support Calls
received during such Support Term. For the purposes of this Section,
Baan's determination of whether a Support Call relates to knowledge or
quality is final and conclusive and may not be challenged in any way by
Customer other than during the first thirty (30) days after Baan updates
Customer with the nature of the Support Calls received from Customer.
(b) Customer has paid the standard support fee;
(c) Customer has one hundred (100) or more user licenses of the Software;
(d) Baan's Support Center receives all of Customer's Support Calls directly;
(e) Customer notifies Baan either within seven (7) days of the commencement
of the initial Support Term or within thirty (30) days of prior to the
commencement of any subsequent Support Term, as the case may be, that
Customer intends to avail itself of the provisions of this Section; and
Customer is using Current Programs.
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SCHEDULE B-2
CRITICAL INCIDENT SUPPORT
1. "Critical Incident Support" means the provision of support, Monday through
Saturday (Customers' local time), twenty-four (24) hours a day, in the
English language only for Support Calls Category 10 and 20 for the
countries specified in this Schedule.
2. The support fee for Critical Incident Support is published on the Baan
Global Support Web-site.
3. Customers provide Baan with necessary access to Customer's personnel and
its equipment after Service Hours for the purpose of providing Critical
Incident Support.
4. Critical Incident Support: at the Effective Date, Critical Incident Support
is being provided for the following countries: Austria, Belgium, Canada,
Denmark, France, Finland, Germany, Great Britain, Italy(*), Hong Kong,
Malaysia, Norway, Portugal(*), Singapore, South Africa(*), Spain (*),
Switzerland, Sweden, The Netherlands and United States of America. Please
refer to the Baan's Global Support Web-site for updates regarding the
addition of new countries to this list.
(*) Critical Incident Support is not available to address issues
regarding the localization and/or translation of the Software for the
applicable country. Assistance with calls regarding the localization
or translation of the Software is only available during Service Hours.
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EXHIBIT E
TRANSLATION AND PORTS
1. LANGUAGES AVAILABLE
(a) Spanish -- June 30, 1999
(b) Italian -- June 30, 1999
(c) French -- April 30, 1999
(d) Portuguese -- June 30, 1999
(e) Dutch -- April 30, 1999
(f) Japanese --August 31, 1999
(g) German -- April 30, 1999
(h) English/US -- currently available
(i) English/UK -- June 30, 1999
Vendor translations in the above languages will include dynamic
localization of the Backweb Sales Accelerator, Tray icon menu, and
associated Documentation for such products. Baan agrees to translate
installers and the help screens that are written by Baan. Both parties
agree that Infocenter will not be translated but will be removed from the
menu and the Server Console will not be translated.
2. PLATFORMS, DATABASES AND OPERATING SYSTEMS AVAILABLE
(a) SQL Server 6.5 and 7.0 (Q199)
(b) Oracle 7.3 and 8.0
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EXHIBIT 21.1
Subsidiaries of the Registrant
Name of Subsidiary Jurisdiction
------------------ ------------
BackWeb Technologies, Inc. Delaware
BackWeb Canada Inc. Canada
BackWeb Technologies B.V. Netherlands
BackWeb K.K. Japan
BackWeb Technologies SARL France
BackWeb Technologies GmbH Germany
BackWeb Technologies AB Sweden
BackWeb Technologies (U.K.) Ltd. United Kingdom
<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 , 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.
Palo Alto, California
, 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon completion of the
ordinary share split described in Note 11 to the consolidated financial
statements.
/s/ ERNST & YOUNG, LLP
Palo Alto, California
June 3, 1999
