<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
ART TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 04-3141918
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199
(617) 859-1212
(Address, including zip code, telephone number, including area code, of
registrant's principal executive offices)
JEET SINGH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ART TECHNOLOGY GROUP, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199
(617) 859-1212
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID A. WESTENBERG, ESQ. MARK L. JOHNSON, ESQ.
RICHARD N. KIMBALL, ESQ. RICHARD G. COSTELLO, ESQ.
HALE AND DORR LLP FOLEY, HOAG & ELIOT LLP
60 State Street One Post Office Square
Boston, Massachusetts 02109 Boston, Massachusetts 02109
Telephone: (617) 526-6000 Telephone: (617) 832-1000
Telecopy: (617) 526-5000 Telecopy: (617) 832-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
------------------------------
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,
check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value per share...................... $80,500,000 $22,380
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
------------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 12, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Art Technology Group,
Inc. We are selling shares of common stock. We estimate that the
initial public offering price will be between $ and $
per share.
--------------
Prior to this offering, there has been no public market for our common
stock. We have applied to have the shares of common stock approved for quotation
on the Nasdaq National Market under the symbol ARTG.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ---------
<S> <C> <C>
Initial public offering price.............................................. $ $
Underwriting discounts.....................................................
Proceeds to Art Technology Group, before expenses..........................
</TABLE>
We and certain of our stockholders have granted the underwriters an option
for a period of 30 days to purchase up to additional shares of
common stock.
--------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
THOMAS WEISEL PARTNERS LLC
, 1999.
<PAGE>
The inside cover diagram folds out.
The outside page shows our name and the Dynamo product logo: a large capital
letter D. The page folds out to a diagram entitled "Dynamo Architecture for
Internet Customer Relationship Management." The diagram depicts the relationship
of our products to other products and interfaces such as enterprise systems,
including content management, sales management, transaction fulfillment and
customer service, depicted at the bottom of the diagram. Arrows show how data
gets from these systems to front end systems such as marketing, sales,
transactions and support, depicted at the top of the diagram.
The middle of the diagram shows our products in layers.
To the left of the diagram, business needs are listed: "Develop effective
e-commerce Web sites that provide end-users with a unified customer experience."
Arrows point from this sentence to the front end systems and our Dynamo
products. "Allow business managers to target content to selected groups of users
or market segments." An arrow points from this sentence to our Dynamo
Personalization Server. "Build new applications and functionality on an
extensible application server-based platform. Integrate with enterprise systems
including content management, sales, transactions and customer support." Arrows
point from these sentences to the Dynamo Application Server and adapters.
The right side of the diagram describes our partners: "Web Developers &
System Integrators provide end-customers with services including e-commerce
strategy, design, branding and custom application development based on the
Dynamo application suite." Arrows point from this sentence to the front end
systems and our Dynamo products. "System Integrators and Technology Partners
provide end-customers with services to help them integrate enterprise systems
and third-party technologies with the Dynamo application suite." Arrows point
from this sentence to Dynamo products and open adapters. "Technology Partners &
OEMS co-market, resell, or OEM Dynamo applications to their customer base." An
arrow points from this sentence to the enterprise systems.
The bottom of each page has three customer Web site screen shots.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................................................... 1
Risk Factors................................................................. 4
Use of Proceeds.............................................................. 13
Dividend Policy.............................................................. 13
Capitalization............................................................... 14
Dilution..................................................................... 15
Selected Financial Data...................................................... 16
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 17
Business..................................................................... 27
Management................................................................... 45
Transactions with Related Parties............................................ 51
Principal Stockholders....................................................... 53
Description of Capital Stock................................................. 55
Shares Eligible for Future Sale.............................................. 58
Underwriting................................................................. 60
Legal Matters................................................................ 62
Experts...................................................................... 62
Where You Can Find More Information.......................................... 62
Index to Financial Statements................................................ F-1
</TABLE>
--------------
DYNAMO is our registered trademark. JAVA is a registered trademark of Sun
Microsystems. This prospectus also contains trademarks and tradenames of other
companies.
--------------
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors." Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of such statements. We are under no duty to
update any of the forward-looking statements after the date of this prospectus.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS
AND RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION.
ART TECHNOLOGY GROUP
We offer an integrated suite of Internet customer relationship management
and electronic commerce software applications, as well as related application
development, integration and support services. Our solution enables businesses
to understand, manage and build online customer relationships and to more
effectively market, sell and support products and services over the Internet.
Our Dynamo product suite includes an extensible Web page generation engine and
general purpose application server, and e-commerce and customer management
applications. Our solution is designed to provide businesses with the core
platform and software tools required to develop and deploy personalized,
scalable and reliable e-commerce Web sites.
As the growth and acceptance of online marketing and e-commerce have
increased, the World Wide Web has become a highly competitive business
environment, resulting in increased investment in Internet commerce applications
such as:
- online marketing and selling systems to target, attract and retain
customers
- transaction and distribution management systems to reduce the costs of
delivering products and services to customers and distribution partners
- customer support and relationship management systems to better understand
and serve the needs of customers
International Data Corporation estimates that the market for Internet commerce
software applications was $444 million in 1998 and projects that the market will
grow to $1.7 billion in 1999 and reach $13.1 billion in 2003.
Our solution provides a comprehensive application suite and complementary
professional services capabilities. Our Dynamo application suite includes:
- Dynamo Application Server--offers businesses an open, scalable and
extensible Web site platform for customer relationship management and
e-commerce
- Dynamo Personalization Server--enables businesses to develop, deploy and
manage unified, rules-based personalization functionality across multiple
business applications on their Web sites
- Dynamo Commerce--enables the creation of personalized e-commerce
storefronts that can be customized and integrated with enterprise systems
- Dynamo Ad Station--allows businesses to serve targeted advertisements to
Web site visitors and to manage their online advertising inventory more
effectively
We have licensed products to over 100 customers. Our customers include 3M,
BabyCenter, BellSouth, BMG Direct, Eastman Kodak, Informix, John Hancock Funds,
Inc., Network Solutions, Newbridge Networks, Scudder Kemper Investments, Sun
Microsystems and TheStreet.com. We target Fortune 1000 enterprises as well as
new businesses using the Internet as their primary business channel. We sell our
products directly through our sales force and indirectly through arrangements
with systems integrators, original equipment manufacturers and other technology
partners.
Our principal executive office is located at 101 Huntington Avenue, Boston,
Massachusetts 02199, and our telephone number is (617) 859-1212. Our Internet
Web site is located at WWW.ATG.COM. The information contained in our Internet
Web site is not a part of this prospectus. We were incorporated in Massachusetts
in December 1991 and reincorporated in Delaware in October 1997.
1
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Art Technology Group.............. shares
Common stock to be outstanding after this offering........ shares
Use of proceeds........................................... Repayment of indebtedness,
working capital and other
general corporate purposes,
including possible acquisitions.
Proposed Nasdaq National Market symbol.................... ARTG
</TABLE>
The number of shares of our common stock that will be outstanding after this
offering is based on the number outstanding on March 31, 1999. It excludes
2,971,169 shares subject to outstanding options at a weighted-average exercise
price of $0.80 per share and 3,328,831 additional shares available for issuance
under our stock plans. It also excludes warrants to purchase 171,483 shares of
common stock at a weighted-average exercise price of $0.44 per share which will
be outstanding upon completion of this offering.
------------------------
Unless otherwise indicated, all information in this prospectus:
- assumes that the underwriters do not exercise their option to purchase
additional shares in this offering
- gives effect to a 3-for-2 stock split to be implemented prior to
completion of this offering
- gives effect to the conversion of all outstanding preferred stock into
common stock upon completion of this offering
------------------------
2
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following tables summarize the financial data of our business. The pro
forma basic and diluted net loss per share is described in note 1(e) of the
notes to financial statements included elsewhere in this prospectus. The pro
forma balance sheet data gives effect to the automatic conversion of all
outstanding shares of preferred stock into common stock upon the closing of this
offering. The pro forma as adjusted column reflects the sale of shares
of common stock offered by us at an assumed initial public offering price of
$ after deducting the estimated underwriting discounts and offering expenses
and the repayment of bank debt and capital lease obligations of approximately
$610,000.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 753 $ 798 $ 3,902 $ 6,457 $ 12,137 $ 1,901 $ 4,420
Gross profit..................... 235 204 1,917 3,261 7,087 835 2,607
Loss from operations............. (209) (430) (1,412) (4,105) (2,740) (908) (903)
Net loss......................... (234) (467) (1,442) (4,228) (2,850) (949) (877)
Net loss available for common
stockholders................... (234) (469) (1,648) (4,442) (4,444) (986) (1,121)
Basic and diluted net loss per
share.......................... $ (0.03) $ (0.06) $ (0.19) $ (0.50) $ (0.50) $ (0.11) $ (0.12)
Basic and diluted weighted
average common shares
outstanding.................... 7,763,013 8,131,028 8,848,866 8,872,202 8,967,066 8,913,092 9,404,757
Pro forma basic and diluted net
loss per share................. $ (0.16) $ (0.04)
Pro forma basic and diluted
weighted average common shares
outstanding.................... 18,246,484 23,479,379
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............................. $ 7,635 $ 7,635 $
Working capital.............................................................. 2,876 2,876
Total assets................................................................. 12,368 12,368
Long-term obligations, less current portion.................................. 231 231
Redeemable convertible preferred stock....................................... 8,556 --
Stockholders' equity (deficit)............................................... (4,771) 3,785
</TABLE>
3
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD MATERIALLY HARM OUR BUSINESS AND COULD RESULT IN A
COMPLETE LOSS OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE EXPECT OUR LOSSES TO CONTINUE AND WE DO NOT BELIEVE WE WILL BE ABLE TO
SUSTAIN OUR CURRENT REVENUE GROWTH RATE
Since inception, we have not been profitable in any fiscal period. We have
incurred substantial costs to develop and enhance our technology and products,
to recruit and train a marketing and sales group, and to establish an
administrative organization. As of March 31, 1999, we had an accumulated deficit
of $12.5 million. We anticipate that our operating expenses will increase
substantially in the foreseeable future as we continue to develop our
technology, increase our sales and marketing activities, create and expand our
distribution channels, expand our services capabilities and improve our
operational and financial systems. Accordingly, we expect to incur additional
losses. Although our revenues have grown significantly in recent quarters, they
have grown from a relatively small base and, as a result, we do not believe that
we will be able to sustain the growth rates we have achieved in recent quarters.
Because we have a limited operating history, particularly as a company that
sells software products, the prediction of future operating results is difficult
and we cannot be certain that our revenues will grow at a rate that will allow
us to achieve profitability. In addition, if we do achieve profitability, we
cannot be certain that we will be able to sustain or increase profitability on a
quarterly or annual basis.
WE EXPECT OUR QUARTERLY RESULTS TO FLUCTUATE
Our revenues and operating results are likely to vary significantly from
quarter to quarter. If our quarterly results fall below the expectations of
securities analysts, the price of our common stock could fall. A number of
factors are likely to cause variations in our operating results, including:
- demand for our products and services
- the timing of sales of our products and services
- the timing of customer orders and product implementations
- unexpected delays in introducing new products and services
- increased expenses, whether related to sales and marketing, product
development or administration
- changes in the rapidly evolving market for Internet customer relationship
management solutions
- the mix of revenues derived from products and services
- timing of hiring and utilization of services personnel
- cost overruns related to fixed price services projects
- the mix of domestic and international sales
- costs related to possible acquisitions of technologies or businesses
Accordingly, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful. You should not rely on the results of
one quarter as an indication of our future performance.
4
<PAGE>
We plan to increase our operating expenses to expand our sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support and improve our
operational and financial systems. If our revenues do not increase as quickly as
these expenses, our operating results may suffer and our stock price may
decline.
OUR QUARTERLY RESULTS OFTEN DEPEND ON A SMALL NUMBER OF LARGE, NONRECURRING
ORDERS
We derive a significant portion of our revenues in each quarter from a small
number of relatively large, nonrecurring orders. Our operating results could
suffer if we were unable to complete one or more substantial sales in any future
period. Our three largest customers accounted for 80% of our total revenues in
1996, 56% of our total revenues in 1997, 37% of our total revenues in 1998 and
45% of our total revenues in the three months ended March 31, 1999. The
customers which provide the greatest revenues typically change from year to
year. We derive only a small percentage of our revenues from repeat business,
and must always search for new sales opportunities.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS
We have a long sales cycle because we generally need to educate potential
customers regarding the use and benefits of our solution. These potential
customers frequently need to obtain approvals from multiple decision makers
prior to making purchase decisions. Our long sales cycle makes it difficult to
predict the quarter in which sales may occur. Delays in sales could cause
significant variability in our revenues and operating results for any particular
period.
THE MARKET FOR INTERNET CUSTOMER RELATIONSHIP MANAGEMENT SOLUTIONS IS NEW,
RAPIDLY EVOLVING AND INTENSELY COMPETITIVE
The market for Internet customer relationship management solutions is new
and rapidly evolving. We expect that we will continue to need intensive
marketing and sales efforts to educate prospective customers and partners about
the uses and benefits of our products and services. Accordingly, we cannot be
certain that a viable market for our products will emerge or be sustainable.
Enterprises that have already invested substantial resources in other methods of
conducting business may be reluctant or slow to adopt a new approach that may
replace, limit or compete with their existing systems. Similarly, individuals
have established patterns of purchasing goods and services and may be reluctant
to make purchases online. These factors could inhibit the growth of electronic
commerce generally and the market's acceptance of our products and services in
particular.
Our customers' requirements and the technology available to satisfy those
requirements continually change. We expect competition to persist and intensify
in the future. Our primary competition comes from in-house development efforts
by potential customers or partners, as well as from other vendors of Web-based
application software. We currently encounter competition from Internet
applications software vendors such as BroadVision, InterWorld, Open Market and
Vignette. We also compete with platform application server products and vendors
such as BEA Systems, IBM's Websphere products, Microsoft, Netscape, and Sun
Microsystems' NetDynamics products, among others. In addition, we resell our
products through agreements with original equipment manufacturers, such as
Informix. We compete directly with our reseller partners in certain markets
which may limit our ability to sell our products and services. In addition,
competition with our reseller partners could jeopardize or result in the
termination of these relationships.
Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do, and may
be able to respond more quickly to new or changing opportunities, technologies
and customer requirements. Also, many current and potential competitors have
greater name recognition and more extensive customer bases they can leverage to
gain market share. These competitors may be able to undertake more extensive
promotional activities,
5
<PAGE>
adopt more aggressive pricing policies and offer more attractive terms to
purchasers than we can. Moreover, certain of our current and potential
competitors, such as Microsoft, Netscape and Oracle may bundle their products in
a manner that may discourage users from purchasing our products. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their products
and expand their markets. Accordingly, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. This level
of competition could reduce our revenues and result in increased losses or
reduced profits.
This prospectus contains various data and projections related to revenues
generated by electronic commerce and the size of the worldwide Internet commerce
application software market. These data and projections have been included in
studies prepared by International Data Corporation, an independent market
research firm, and the projections are based on a number of significant
assumptions. If the assumptions turn out to be incorrect, actual results or
circumstances may be materially different from the projections. This could
reduce our revenues and harm our operating results. These data and projections
are inherently imprecise and investors are cautioned not to place undue reliance
on them.
OUR BUSINESS MAY BE HARMED IF WE LOSE THE SERVICES OF EITHER JEET SINGH OR
JOSEPH CHUNG, OUR CO-FOUNDERS, OR IF WE ARE UNABLE TO ATTRACT AND RETAIN OTHER
KEY PERSONNEL
Our success depends largely on the skills, experience and performance of
some key members of our management, particularly our co-founders Jeet Singh and
Joseph Chung. If we lose one or more of our key employees, our business could be
harmed. In addition, our future success will depend in large part on our ability
to continue attracting and retaining highly skilled personnel. Like other
software companies, we face intense competition for qualified personnel. We
cannot be certain that we will be successful in attracting, assimilating and
retaining qualified personnel in the future.
WE NEED TO EXPAND OUR SALES AND DISTRIBUTION CAPABILITIES IN ORDER TO INCREASE
MARKET AWARENESS OF OUR PRODUCTS AND INCREASE OUR REVENUES
We must expand our direct and indirect sales operations to increase market
awareness of our products and generate increased revenues. We cannot be certain
that we will be successful in these efforts. We have recently expanded our
direct sales force and plan to hire additional sales personnel. Our products and
services require a sophisticated sales effort targeted at the senior management
of our prospective customers. Newly-hired employees will require training and it
will take time for them to achieve full productivity. We cannot be certain that
we will be able to hire enough qualified individuals in the future or that
newly-hired employees will achieve necessary levels of productivity.
WE DEPEND ON OUR RELATIONSHIPS WITH SYSTEMS INTEGRATORS
Since our potential customers often rely on third-party systems integrators
to develop, deploy and manage electronic commerce, or e-commerce, Web sites, we
cultivate relationships with systems integrators in order to encourage them to
support our products. If we do not adequately train a sufficient number of
systems integrators or if systems integrators were to devote their efforts to
integrating or co-selling different products, our revenues could be reduced and
our operating results could be harmed.
WE WILL NEED TO IMPLEMENT AND IMPROVE OUR OPERATIONAL SYSTEMS AND HIRE
ADDITIONAL SERVICE PROFESSIONALS ON A TIMELY BASIS IN ORDER TO MANAGE GROWTH
We have expanded our operations rapidly in recent years. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities and to support our growing
6
<PAGE>
customer base. Rapid growth would place a significant demand on our management
and operational resources. In order to manage growth effectively, we must
implement and improve our operational systems, procedures and controls on a
timely basis. We also plan to expand our professional services capabilities to
support increased product license sales. However, we cannot be certain that we
will be able to attract a sufficient number of highly qualified service
personnel. In addition, new service personnel will require training and it will
take time for them to become productive. If we fail to improve our operational
systems or to expand our professional service capabilities in a timely manner,
we could experience customer dissatisfaction, cost inefficiencies and lost
revenue opportunities, which could harm our operating results. In addition, we
plan to move to a new headquarters facility in August 1999, which could be
disruptive, time-consuming and expensive.
WE COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL PROPERTY FROM
INFRINGEMENT OR A CLAIM OF INFRINGEMENT
Our Innovation Solutions service offering often involves the development of
custom software applications for specific customers. In some cases, customers
retain ownership or impose restrictions on our ability to use the technologies
developed from these projects. Issues relating to the ownership of software can
be complicated, and disputes could arise that affect our ability to resell or
reuse applications we develop for customers.
We seek to protect the source code for our proprietary software both as a
trade secret and as a copyrighted work. However, because we make the source code
available to some customers, third parties may be more likely to misappropriate
it. Our policy is to enter into confidentiality agreements with our employees,
consultants, vendors and customers and to control access to our software,
documentation and other proprietary information. Despite these precautions, it
may be possible for someone to copy our software or other proprietary
information without authorization or to develop similar software independently.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We could incur
substantial costs to prosecute or defend any intellectual property litigation.
If we litigated to enforce our rights, it would be expensive, would divert
management resources and may not be adequate to prevent the use of our
intellectual property by third parties.
In addition, we are obligated to indemnify customers against claims that we
infringe the intellectual property rights of third parties. The results of any
intellectual property litigation to which we might become a party may force us
to do one or more of the following:
- cease selling or using products or services that incorporate the
challenged intellectual property
- obtain a license, which may not be available on reasonable terms, to sell
or use the relevant technology
- redesign those products or services to avoid infringement
BROADVISION HAS CLAIMED THAT WE INFRINGE ITS INTELLECTUAL PROPERTY
On December 11, 1998, BroadVision, one of our competitors, filed a complaint
against us in the United States District Court for the Northern District of
California, alleging infringement by us of a patent held by BroadVision (U.S.
Patent No. 5,710,887). BroadVision alleges that our infringement relates to
methods for conducting e-commerce. BroadVision is seeking a permanent injunction
of the sale of our Dynamo products in their current forms as well as unspecified
damages. On February 4, 1999, we filed our answer denying BroadVision's
complaint and a counterclaim against BroadVision seeking a judgment that we are
not infringing BroadVision's patent and that its patent is unenforceable and
invalid.
7
<PAGE>
Litigation is subject to inherent uncertainties. In addition, cases like
this generally involve issues of law that are evolving, presenting further
uncertainty. Our defense of this litigation, regardless of the merits of the
complaint, has been, and will likely continue to be, time-consuming and a
diversion for our personnel. A failure to prevail in this litigation could
result in:
- our paying monetary damages
- the issuance of a preliminary or permanent injunction requiring us to stop
selling our Dynamo products in their current form
- our having to redesign Dynamo, which could be costly and time-consuming
and could substantially delay Dynamo shipments, assuming that a redesign
is feasible
- our having to reimburse BroadVision for some or all of its attorneys' fees
- our having to obtain from BroadVision a license to its patent, which
license might not be made available to us on reasonable terms,
particularly because BroadVision is a competitor
- our having to reimburse our customers for any expenses and losses they
incur due to the alleged infringement
Any of these results would seriously harm our business, financial condition
and operating results. Furthermore, we expect to continue to incur substantial
costs in defending against this litigation and these costs could increase
significantly if our dispute goes to trial. It is possible that these costs
could substantially exceed our expectations in future periods.
IF WE FAIL TO ADAPT TO RAPID CHANGES IN THE INTERNET CUSTOMER RELATIONSHIP
MANAGEMENT SOFTWARE MARKET, OUR EXISTING PRODUCTS COULD BECOME OBSOLETE
The market for our products is marked by rapid technological change,
frequent new product introductions and Internet-related technology enhancements,
uncertain product life cycles, changes in customer demands and evolving industry
standards. We cannot be certain that we will successfully develop and market new
products or product enhancements that comply with present or emerging Internet
technology standards. New products based on new technologies or new industry
standards could render our existing products obsolete and unmarketable. To
succeed, we will need to enhance our current products and develop new products
on a timely basis to keep pace with developments related to Internet technology
and to satisfy the increasingly sophisticated requirements of customers.
E-commerce technology is complex and new products and product enhancements can
require long development and testing periods. Any delays in developing and
releasing enhanced or new products could cause us to lose revenue opportunities
and customers.
WE RELY ON JAVA AS THE PROGRAMMING LANGUAGE IN WHICH WE DEVELOP OUR PRODUCTS
AND OUR BUSINESS COULD BE HARMED IF JAVA LOSES MARKET ACCEPTANCE
Our software is written in the Java computer programming language developed
by Sun Microsystems. While a number of companies have introduced Web
applications based on Java, Java could fall out of favor and support by Sun
Microsystems or other companies could decline. If Java support decreased or we
could not continue to use Java, we might have to rewrite the source code for our
entire product line to enable our products to run on other computer platforms.
Also, changes to Java could require us to change our products. If we were unable
to develop or implement appropriate modifications to our products on a timely
basis to incorporate changes in Java, we could lose revenue opportunities and
our business could be harmed.
8
<PAGE>
OUR SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, DELAYED OR LIMITED MARKET ACCEPTANCE, OR PRODUCT LIABILITY CLAIMS
WITH SUBSTANTIAL LITIGATION COSTS
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by customers, our current and
future products may contain serious defects, including Year 2000 errors. Serious
defects or errors could result in lost revenues or a delay in market acceptance.
Since our customers use our products for critical business applications such
as e-commerce, errors, defects or other performance problems could result in
financial or other damages to our customers. They could seek significant
compensation for losses from us. Although our license agreements typically
contain provisions designed to limit our exposure to product liability claims,
existing or future laws or unfavorable judicial decisions could negate these
limitations. Even if not successful, a product liability claim brought against
us would likely be time-consuming and costly.
WE MAY BE ADVERSELY IMPACTED BY THE YEAR 2000 ISSUE AND OTHER INFORMATION
TECHNOLOGY ISSUES
The "Year 2000 Issue" refers generally to the problems that software may
have in determining the correct century for the year. For example, software with
date-sensitive functions that are not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results. We are subject to potential Year 2000 problems
affecting our products, our internal systems and the systems of our suppliers
and customers, any of which could disrupt our business and hurt our operating
results.
We have tested the current versions of our commercially available products,
and we are working with our customers who have purchased customized software to
test their product installations. The commercially available products we have
tested are Year 2000 compliant, either alone or after installation of software
patches that we offer on our Web site when configured and used in accordance
with the related documentation, so long as the underlying operating system of
the host machine and any other software used with or in the host machine or our
products are also Year 2000 compliant. However, we have not tested our products
on all platforms or all versions of operating systems that we currently support,
nor have we tested earlier versions of our commercially available products.
These earlier versions, which represent approximately 83% of our installed
Dynamo product base, may not be Year 2000 compliant. We intend to complete
testing of the versions of our commercial products first released in December
1997 and all subsequent maintenance releases, which represent approximately 50%
of our installed base, by the end of June 1999, and we plan to offer software
patches to customers as needed. If we fail to provide patches necessary to make
earlier versions of Dynamo products Year 2000 compliant, we may be subject to
claims against us. To the extent that unidentified Year 2000 problems exist in
versions of our products introduced prior to December 1997, we may be subject to
claims against us from customers still using those products. Claims against us
by customers alleging that our products are not Year 2000 compliant could harm
our business, financial condition and operating results.
We are also in the process of contacting the vendors of software and
hardware that are either included in our products or that are critical to the
operation of our internal systems to evaluate their Year 2000 compliance. Some
of the third-party products that we use, or that are included in our products,
are not Year 2000 compliant, and could cause our internal systems or our
products to experience Year 2000 problems. To address these issues, we plan to
upgrade or replace some third-party products before the end of 1999.
Despite testing by us and by customers, and assurances from developers of
products incorporated into our products, current versions of our products may
contain undetected errors or defects associated with Year 2000 date functions.
Known or unknown errors or defects in our products could result in delay or loss
of revenues, diversion of development resources, damage to our reputation or
increased
9
<PAGE>
service and warranty costs, any of which could disrupt our business and hurt our
financial condition and operating results.
Although we are not currently aware of any material operational issues or
costs associated with preparing our internal systems for the Year 2000, we may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal systems. This could harm our
business, financial condition and operating results.
OUR EXISTING STOCKHOLDERS WILL EXERCISE CONTROL
On completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately % of our outstanding
common stock. As a result, these stockholders will be able to exercise control
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This could delay
or prevent someone from acquiring or merging with us.
OUR MANAGEMENT WILL HAVE DISCRETION OVER USING THE NET UNALLOCATED PROCEEDS OF
THIS OFFERING
Our board of directors and management will have significant flexibility in
applying the unallocated net proceeds of this offering. Our primary purposes of
this offering are to increase our equity capital and to create a public market
for our common stock. As of the date of this prospectus, we do not have plans
for use of most of the proceeds from this offering other than for working
capital and general corporate purposes. However, we could use some of our
proceeds to acquire or invest in businesses that we believe offer products,
services or technologies that complement ours.
RISKS RELATED TO THE INTERNET INDUSTRY
OUR PERFORMANCE WILL DEPEND ON THE GROWTH OF E-COMMERCE
Our future success depends heavily on the acceptance and wide use of the
Internet for e-commerce. If e-commerce does not continue to grow or grows more
slowly than expected, demand for our products and services will be reduced.
Consumers and businesses may reject the Internet as a viable commercial medium
for a number of reasons, including potentially inadequate network
infrastructure, slow development of enabling technologies, insufficient
commercial support or privacy concerns. The Internet's infrastructure may not be
able to support the demands placed on it by increased usage. In addition, delays
in the development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased government regulation, could
cause the Internet to lose its viability as a commercial medium. Even if the
required infrastructure, standards, protocols and complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
FUTURE REGULATIONS COULD BE ENACTED THAT EITHER DIRECTLY RESTRICT OUR BUSINESS
OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE GROWTH OF E-COMMERCE
As e-commerce evolves, federal, state and foreign agencies could adopt
regulations covering issues such as user privacy, content and taxation of
products and services. If enacted, government regulations could limit the market
for our products and services. Although many regulations might not apply to our
business directly, we expect that laws regulating the solicitation, collection
or processing of personal and consumer information could indirectly affect our
business. The Telecommunications Act of 1996 prohibits certain types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a violation are currently
unsettled. In addition, although substantial portions of the Communications
Decency Act were held to be unconstitutional, we cannot be certain that similar
legislation will not be enacted and upheld in the future. It is possible that
legislation could expose companies involved in e-commerce to liability, which
could limit the growth of
10
<PAGE>
e-commerce generally. Legislation like the Telecommunications Act and the
Communications Decency Act could dampen the growth in Web usage and decrease its
acceptance as a medium of communications and commerce.
THE INTERNET IS GENERATING PRIVACY CONCERNS WHICH COULD RESULT IN LEGISLATION
OR MARKET PERCEPTIONS WHICH COULD HARM OUR BUSINESS OR RESULT IN REDUCED SALES
OF OUR PRODUCTS, OR BOTH
Businesses use our Dynamo Personalization Server product to develop and
maintain profiles to tailor the content to be provided to Web site visitors.
When a visitor first arrives at a Web site, our software creates a profile for
that visitor. If the visitor registers or logs in, the visitor's identity is
added to the profile, preserving any profile information that was gathered up to
that point. Dynamo Personalization Server tracks both explicit user profile data
supplied by the user as well as implicit profile attributes derived from the
user's behavior on the Web site. Privacy concerns may cause visitors to resist
providing the personal data or avoid Web sites tracking the Web behavioral
information necessary to support this profiling capability. More importantly,
even the perception of security and privacy concerns, whether or not valid, may
indirectly inhibit market acceptance of our products. In addition, legislative
or regulatory requirements may heighten these concerns if businesses must notify
Web site users that the data captured after visiting Web sites may be used to
direct product promotion and advertising to that user. Other countries and
political entities, such as the European Economic Community, have adopted such
legislation or regulatory requirements. The United States may adopt similar
legislation or regulatory requirements. If privacy legislation is enacted or
consumer privacy concerns are not adequately addressed, our business, financial
condition and operating results could be harmed.
Our Dynamo products use "cookies" to track demographic information and user
preferences. A "cookie" is information keyed to a specific server, file pathway
or directory location that is stored on a computer's hard drive, typically
without the user's knowledge. Cookies are generally removable by the user,
although removal could affect the content available on a particular site.
Germany has imposed laws limiting the use of cookies, and a number of Internet
commentators and governmental bodies in the United States and other countries
have urged passage of laws limiting or abolishing the use of cookies. If such
laws are passed or if users begin to delete or refuse cookies as a common
practice, demand for our personalization products could be reduced.
RISKS RELATED TO THE SECURITIES MARKETS
OUR STOCK PRICE MAY BE VOLATILE
Prior to this offering, investors could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. We negotiated the initial public offering price
with the representatives of the underwriters based on several factors. This
price may vary from the market price of the common stock after this offering.
Fluctuations in market price and volume are particularly common among securities
of Internet and software companies. The market price of our common stock may
fluctuate significantly in response to the following factors, some of which are
beyond our control:
- variations in quarterly operating results
- changes in market valuations of Internet and software companies
- our announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments
- failure to complete significant sales
- additions or departures of key personnel
- future sales of common stock
- changes in financial estimates by securities analysts
11
<PAGE>
WE MAY INCUR SIGNIFICANT COSTS FROM CLASS ACTION LITIGATION
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
stock. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of the common stock. On completion of
this offering, we will have shares of common stock outstanding, or
shares if the underwriters' over-allotment option is exercised in
full, and 3,142,652 shares subject to outstanding options and warrants. The
shares sold in this offering, or shares if the underwriters'
over-allotment option is exercised in full, will be freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our "affiliates" as that term is defined in Rule 144. The remaining
25,407,008 shares of common stock outstanding on completion of the offering will
be "restricted securities" as that term is defined in Rule 144.
Our directors, executive officers and other stockholders have executed
lock-up agreements that limit their ability to sell common stock. These
stockholders have agreed not to sell or otherwise dispose of any shares of
common stock for a period of 180 days after the date of this prospectus without
the prior written approval of Hambrecht & Quist LLC. When the lock-up agreements
expire, these shares will become eligible for sale.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY
Certain provisions of our certificate of incorporation and by-laws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable, which could reduce the market price of our common stock.
Such provisions include:
- authorizing the issuance of "blank check" preferred stock
- providing for a classified board of directors with staggered, three-year
terms
- providing that directors may only be removed for cause by a two-thirds
vote of stockholders
- limiting the persons who may call special meetings of stockholders
- prohibiting stockholder action by written consent
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings
Delaware law may also discourage, delay or prevent someone from acquiring or
merging with us.
INVESTORS WILL EXPERIENCE IMMEDIATE DILUTION
The initial public offering price is expected to be substantially higher
than the book value per share of the outstanding common stock immediately after
this offering. Accordingly, if you purchase common stock in the offering, you
will incur immediate dilution of approximately $ in the book value per
share of the common stock from the price you pay for the common stock.
12
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of shares of
common stock, after deducting estimated underwriting discounts and offering
expenses, will be approximately $ . Our estimated net proceeds will be
$ if the underwriters exercise their option to purchase additional
shares in this offering. These estimates assume an initial public offering price
of $ per share.
The principal purposes of this offering are:
- to increase our equity capital
- to create a public market for our common stock and to facilitate our
future access to public equity markets
- to provide increased visibility and credibility in the marketplace
- to provide liquidity to our existing stockholders
- to enhance our ability to use our common stock as a means of attracting
and retaining key employees
- to enhance our ability to use our common stock as consideration for
acquisitions
We intend to use approximately $610,000 of the net proceeds of this offering
for repayment of bank debt and capital lease obligations. For a description of
the terms of the bank debt and capital lease obligations, see note 3 to our
financial statements. We will use our remaining net proceeds for working capital
and other general corporate purposes, including possible acquisitions of
businesses, products and technologies. From time to time we engage in
discussions with potential acquisition candidates. However, we have no current
plans, commitments or agreements with respect to any acquisitions, and we may
not make any acquisitions.
We have not identified any specific uses for the net proceeds of this
offering, and we will have discretion over their use and investment. Pending use
of the net proceeds, we intend to invest these proceeds in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
We currently intend to retain future earnings, if any, to finance our
growth. We do not anticipate paying cash dividends on our common stock in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs, restrictions in financing agreements and plans for expansion. The
terms of our revolving credit agreement prohibit us from paying cash dividends
without the consent of the lender.
13
<PAGE>
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 automatic conversion of all
outstanding shares of preferred stock into 15,830,889 shares of common
stock upon the closing of this offering
- on a pro forma as adjusted basis to reflect our receipt and application of
estimated net proceeds from the sale of shares of common stock in
this offering at an assumed initial public offering price of $ per
share after deducting the estimated underwriting discounts and offering
expenses and the repayment of bank debt and capital lease obligations of
approximately $610,000 at March 31, 1999
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term obligations............................ $ 343 $ 343 $ --
----------- ----------- -------------
----------- ----------- -------------
Long-term obligations, less current portion......................... $ 231 $ 231 $ --
Series B and D redeemable convertible preferred stock............... 8,556 -- --
Stockholders' equity (deficit):
Series A and C convertible preferred stock, $0.01 par value;
3,300,000 shares authorized, 2,756,789 shares issued and
outstanding, actual: no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted................ 2,861 -- --
Preferred stock, $0.01 par value, no shares authorized, issued or
outstanding; 10,000,000 shares authorized and none issued or
outstanding pro forma and pro forma as adjusted................. -- -- --
Common stock, $0.01 par value; 25,000,000 shares authorized,
9,576,119 shares issued and outstanding, actual; 100,000,000
shares authorized, 25,407,008 shares issued and outstanding, pro
forma: 100,000,000 shares authorized, shares issued and
outstanding, pro forma as adjusted.............................. 96 254 --
Additional paid-in capital........................................ 8,695 21,772 --
Deferred compensation............................................. (3,968) (3,968) --
Accumulated deficit............................................... (12,455) (14,273) --
----------- ----------- -------------
Total stockholders' equity (deficit)............................ (4,771) 3,785 --
----------- ----------- -------------
Total capitalization............................................ $ 4,016 $ 4,016 $ --
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The number of shares of our common stock that will be outstanding after this
offering is based on the number outstanding on March 31, 1999. It excludes
2,971,169 shares subject to outstanding options at a weighted-average exercise
price of $0.80 per share and 3,328,831 additional shares available for issuance
under our stock plans. It also excludes warrants to purchase 171,483 shares of
common stock at a weighted-average exercise price of $0.44 per share which will
be outstanding upon completion of this offering.
See "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes included in this prospectus.
14
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999 was $3,784,480, or $0.15 per share, after giving effect to the automatic
conversion of all outstanding shares of preferred stock into 15,830,889 shares
of common stock upon the closing of this offering. After giving effect to the
sale of common stock pursuant to this offering at an assumed initial public
offering price of $ per share, assuming the underwriters' option to purchase
additional shares in this offering is not exercised, and after deducting
estimated underwriting discounts and offering expenses, the adjusted pro forma
net tangible book value at March 31, 1999 would have been $ , or $ per
share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding as of March 31, 1999. This offering will result in an increase in
pro forma net tangible book value per share of $ to existing stockholders and
dilution in pro forma net tangible book value per share of $ to new investors
who purchase shares in this offering. Dilution is determined by subtracting pro
forma net tangible book value per share from the assumed initial public offering
price of $ per share. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $
Pro forma net tangible book value per share at March 31, 1999....... $ 0.15
Increase attributable to sale of common stock in this offering......
---------
Pro forma net tangible book value per share after this offering.........
---------
Dilution of net tangible book value per share to new investors who
purchase shares in this offering...................................... $
---------
---------
</TABLE>
If the underwriters exercise their option to purchase additional shares in
this offering, the pro forma net tangible book value per share after the
offering would be $ per share, the increase in net tangible book value per
share to existing stockholders would be $ per share and the dilution to
persons who purchase shares in the offering would be $ per share.
The following table summarizes, on a pro forma basis as of March 31, 1999,
the differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based upon an assumed
initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Shares purchased in this offering............. $ $
Shares owned by existing stockholders......... 25,407,008 13,614,000 0.54
------------- ---------- ------------- ----------
Total................................... 100% $ 100%
------------- ---------- ------------- ----------
------------- ---------- ------------- ----------
</TABLE>
These tables assume no exercise of stock options or warrants outstanding as
of March 31, 1999. At March 31, 1999, there were 2,971,169 shares of common
stock issuable upon exercise of outstanding stock options at a weighted average
exercise price of $.80 per share. Upon completion of this offering, there will
be outstanding warrants to purchase 171,483 shares of common stock at a
weighted-average exercise price of $0.44 per share. To the extent that
outstanding options or warrants are exercised in the future, there will be
further dilution to new investors.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1997 and 1998
and for each of the years ended December 31, 1996, 1997 and 1998 are derived
from financial statements audited by Arthur Andersen LLP, independent public
accountants, which are included in this prospectus. The selected financial data
as of December 31, 1995 and 1996 and the year ended December 31, 1995 are
derived from audited financial statements not included in this prospectus. The
selected financial data as of December 31, 1994 and for the year ended December
31, 1994 are derived from unaudited financial statements not included in this
prospectus. The selected financial data as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are derived from unaudited financial
statements which are included in this prospectus and which include, in our
opinion, all adjustments, consisting of only normal recurring adjustments, that
are necessary for a fair presentation of our financial position and 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 fiscal year ending December 31, 1999. The pro forma basic and diluted net
loss per share is described in note 1(e) of the notes to financial statements
included elsewhere in this prospectus. The pro forma balance sheet data as of
March 31, 1999 reflects the automatic conversion of all the outstanding shares
of preferred stock into 15,830,889 shares of common stock upon the closing of
this offering. The data should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Services.......................................... $ 753 $ 798 $ 3,849 $ 4,591 $ 8,078 $ 1,692 $ 2,614
Product license................................... -- -- 53 1,866 4,059 209 1,806
--------- --------- --------- --------- --------- --------- ----------
Total revenues................................ 753 798 3,902 6,457 12,137 1,901 4,420
Cost of revenues.................................... 518 594 1,985 3,196 5,050 1,066 1,813
--------- --------- --------- --------- --------- --------- ----------
Gross profit........................................ 235 204 1,917 3,261 7,087 835 2,607
--------- --------- --------- --------- --------- --------- ----------
Operating expenses:
Research and development.......................... 11 217 1,117 3,661 3,355 627 1,131
Sales and marketing............................... 76 133 1,152 2,287 4,074 680 1,420
General and administrative........................ 357 284 1,060 1,418 2,291 436 743
Amortization of deferred compensation............. -- -- -- -- 107 -- 216
--------- --------- --------- --------- --------- --------- ----------
Total operating expenses...................... 444 634 3,329 7,366 9,827 1,743 3,510
--------- --------- --------- --------- --------- --------- ----------
Loss from operations................................ (209) (430) (1,412) (4,105) (2,740) (908) (903)
Interest income..................................... -- -- -- 6 54 -- 50
Interest expense.................................... (25) (37) (30) (129) (164) (41) (24)
--------- --------- --------- --------- --------- --------- ----------
Net loss............................................ (234) (467) (1,442) (4,228) (2,850) (949) (877)
Accretion of discount, dividends and offering costs
on preferred stock................................ -- (2) (206) (214) (1,594) (37) (244)
--------- --------- --------- --------- --------- --------- ----------
Net loss available for common stockholders.......... $ (234) $ (469) $ (1,648) $ (4,442) $ (4,444) $ (986) $ (1,121)
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
Basic and diluted net loss per share................ $ (0.03) $ (0.06) $ (0.19) $ (0.50) $ (0.50) $ (0.11) $ (0.12)
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
Basic and diluted weighted average common shares
outstanding....................................... 7,763,013 8,131,028 8,848,866 8,872,202 8,967,066 8,913,092 9,404,757
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
Pro forma basic and diluted net loss per share...... $ (0.16) $ (0.04)
--------- ----------
--------- ----------
Pro forma basic and diluted weighted average common
shares outstanding................................ 18,246,484 23,479,379
--------- ----------
--------- ----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1999
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 ACTUAL
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities......... $ -- $ 6 $ 2,358 $ 187 $ 4,093 $ 7,635
Working capital (deficit)................................ (349) (341) 902 (1,328) 3,649 2,876
Total assets............................................. 144 137 3,038 1,672 7,766 12,368
Long-term obligations, less current portion.............. -- -- 24 122 322 231
Redeemable convertible preferred stock................... -- -- 3,000 3,153 8,313 8,556
Stockholders' equity (deficit)........................... (240) (211) (1,648) (4,060) (4,034) (4,771)
<CAPTION>
<S> <C>
PRO FORMA
-----------
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities......... $ 7,635
Working capital (deficit)................................ 2,876
Total assets............................................. 12,368
Long-term obligations, less current portion.............. 231
Redeemable convertible preferred stock................... --
Stockholders' equity (deficit)........................... 3,785
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN THE
FORWARD-LOOKING STATEMENTS.
OVERVIEW
We were founded in December 1991. From 1991 through 1995, we devoted our
efforts principally to building, marketing and selling our professional services
capabilities and to research and development activities related to our software
products. Beginning in 1996, we began to focus on selling our software products.
To date, we have enhanced and released several versions of our Dynamo
Application Server product, and have completed development of our current
product suite. We market and sell our products worldwide through our direct
sales force, systems integrators, technology partners and original equipment
manufacturers.
We derive our revenues from the sale of software product licenses and
related services. Product license revenues are derived from the sale of
term-based and perpetual software licenses of our Dynamo products. Our software
licenses are priced based on either the size of the customer implementation or
site license terms. Services revenues are derived from fees for professional
services, training, and software maintenance and support. Professional services
include software installation, custom application development and project and
technical consulting. We bill professional services fees either on a time and
materials basis or on a fixed-price schedule. Software maintenance and support
arrangements are priced based on the level of services provided. In general,
customers are entitled to receive software updates, maintenance releases and
technical support for an annual maintenance fee of 20% to 30% of the list price
of the licensed product. Customers that purchase maintenance and support
generally receive all product updates and upgrades of software modules purchased
as well as Web-based and telephone technical support. Training is billed when
services are provided.
We recognize revenues in accordance with Statement of Position (SOP) 97-2,
SOFTWARE REVENUE RECOGNITION and SOP 98-4, DEFERRAL OF THE EFFECTIVE DATE OF A
PROVISION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION. Revenues from software
product licenses are recognized upon execution of a license agreement and
delivery of the software, provided that the fee is fixed and determinable and
deemed by management to be collectible. If conditions for acceptance are
required subsequent to delivery, revenues are recognized upon customer
acceptance if such acceptance is not deemed to be perfunctory. Revenues under
reseller arrangements are generally recognized as earned which is generally
ratably over the life of the reseller agreement for guaranteed minimum royalties
or based upon unit sales by the resellers. Revenues for professional services
are recognized on either a time and materials or percentage of completion basis
as the services are performed, provided that amounts due from customers are
fixed and determined and deemed collectible by management. Revenues for software
maintenance and support are recognized ratably over the term of the maintenance
period, which is typically one year. We record cash receipts from customers and
billed amounts due from customers in excess of revenues recognized as deferred
revenues. We record revenues recognized on a contract prior to billing as
unbilled services. The timing and amount of cash receipts from customers can
vary significantly depending on specific contract terms and can therefore have a
significant impact on the amount of deferred revenues and unbilled services in
any given period.
Services revenues have increased each quarter during our history primarily
due to the expansion of our service capabilities by hiring additional service
personnel and to the increase in the number of customers using our Dynamo
products. Sales of Dynamo products often lead to sales of consulting services
and software maintenance and support. We believe that growth in our product
license sales depends on our ability to provide customers with support,
training, consulting and implementation
17
<PAGE>
services and to educate systems integrators and resellers on how to use and
install our products. We have significantly invested, and expect to continue to
invest, to expand our services organization.
Until 1996, we were focused primarily on our professional services business.
Since 1996, sales of software licenses and related software and maintenance
services have represented an increasing percentage of our total revenues. We
anticipate that software product licenses and software maintenance revenues will
continue to increase as a percentage of total revenues. As software product
licenses have nearly no costs associated with them, this trend may contribute to
higher gross margins. Gross margins will also be affected by the mix of services
provided and the utilization of our services personnel. As a result, our gross
margins could vary significantly from quarter to quarter.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit, hire and train personnel for our
engineering, sales and marketing and professional services departments, and to
establish an administrative organization. These costs have exceeded the revenues
generated by our products and services. As a result, we have incurred net losses
in each year since inception and for the first quarter of 1999 and, as of March
31, 1999, we had an accumulated deficit of $12.5 million. We anticipate that our
operating expenses will increase substantially in future quarters as we increase
sales and marketing operations, develop new distribution channels, fund greater
levels of research and development, broaden professional services and support,
and improve operational and financial systems. Accordingly, we expect to incur
additional losses for the foreseeable future. In addition, our limited operating
history makes it difficult for us to predict future operating results and,
therefore, there can be no assurance that we will achieve or sustain revenue
growth or profitability.
We had 165 full-time employees at March 31, 1999, up from 144 at December
31, 1998, 98 at December 31, 1997 and 87 at December 31, 1996. This rapid growth
places a significant demand on our management and operational resources. In
order to manage growth effectively, we must implement and improve our
operational systems, procedures and controls on a timely basis. We expect that
future expansion will continue to challenge our ability to hire, train, motivate
and manage our employees. Competition is intense for highly qualified technical,
sales and marketing and management personnel.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as percentages
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH
31,
------------------------------------- -----------
<S> <C> <C> <C> <C>
1996 1997 1998 1998
----- ----- ----- -----
Revenues:
Services............................................................... 99% 71% 67% 89%
Product license........................................................ 1 29 33 11
--- --- --- ---
Total revenues..................................................... 100 100 100 100
Cost of revenues......................................................... 51 49 42 56
--- --- --- ---
Gross profit........................................................... 49 51 58 44
--- --- --- ---
Operating expenses:
Research and development............................................... 29 57 27 33
Sales and marketing.................................................... 29 35 34 36
General and administrative............................................. 27 22 19 23
Amortization of deferred compensation.................................. -- -- 1 --
--- --- --- ---
Total operating expenses........................................... 85 114 81 92
--- --- --- ---
Loss from operations..................................................... (36) (63) (23) (48)
Interest income.......................................................... -- -- -- --
Interest expense......................................................... (1) (2) (1) (2)
--- --- --- ---
Net loss................................................................. (37)% (65)% (24)% (50)%
--- --- --- ---
--- --- --- ---
<CAPTION>
<S> <C>
1999
-----
Revenues:
Services............................................................... 59%
Product license........................................................ 41
---
Total revenues..................................................... 100
Cost of revenues......................................................... 41
---
Gross profit........................................................... 59
---
Operating expenses:
Research and development............................................... 25
Sales and marketing.................................................... 32
General and administrative............................................. 17
Amortization of deferred compensation.................................. 5
---
Total operating expenses........................................... 79
---
Loss from operations..................................................... (20)
Interest income.......................................................... 1
Interest expense......................................................... (1)
---
Net loss................................................................. (20)%
---
---
</TABLE>
18
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES. Total revenues increased 133% from $1.9 million for the three
months ended March 31, 1998 to $4.4 million for the three months ended March 31,
1999. This increase was primarily attributable to the expansion of our sales
force, the introduction of a new release of Dynamo in December 1998 and price
increases implemented in the second quarter of 1998. Three customers accounted
for 45% of total revenues during the three months ended March 31, 1999 and three
customers accounted for 48% of total revenues during the three months ended
March 31, 1998. The following customers accounted for more than 10% of our total
revenues in the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
CUSTOMER 1998 1999
- ---------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Sun Microsystems............................................................ 14% 22%
Disney/ABC.................................................................. 19% --
MediaOne.................................................................... 15% --
Informix.................................................................... -- 12%
Sony Online Entertainment................................................... -- 11%
</TABLE>
SERVICES REVENUES. Services revenues increased 55% from $1.7 million for
the three months ended March 31, 1998 to $2.6 million for the three months ended
March 31, 1999. Services revenues from professional services consulting fees
increased from $1.6 million for the three months ended March 31, 1998 to $2.2
million for the three months ended March 31, 1999. Services revenues from
software maintenance and support agreements increased from $50,000 for the three
months ended March 31, 1998 to $418,000 for the three months ended March 31,
1999. The increase in services revenues was primarily due to an increase in the
number of customers and sales of product licenses.
PRODUCT LICENSE REVENUES. Product license revenues increased from $209,000
for the three months ended March 31, 1998 to $1.8 million for the three months
ended March 31, 1999. This increase was primarily due to growing market
acceptance of our Dynamo product suite following the release of Dynamo 4.0 in
December 1998. In addition, we entered into an original equipment manufacturer
agreement with Informix in December 1998 under which we received $5.0 million of
prepaid royalties, of which $530,000 was recognized as revenues in the three
months ended March 31, 1999.
Product license revenues increased as a percentage of total revenues from
11% for the three months ended March 31, 1998 to 41% for the three months ended
March 31, 1999. This increase was a result of our ongoing strategy to obtain a
more balanced combination of product license and services revenues.
COST OF REVENUES. Cost of revenues includes salary and other related costs
for our professional services and support staff, as well as third-party
contractor expenses. Cost of revenues also includes product license costs which
include royalties to third parties for software embedded in our Dynamo product
suite, as well as documentation and other informational media associated with
our products. To date, these product license costs have not been significant.
Cost of revenues increased 70% from $1.1 million for the three months ended
March 31, 1998 to $1.8 million for the three months ended March 31, 1999. The
increase was primarily due to the expansion of our services organization.
Cost of revenues as a percentage of services revenues increased from 63% for
the three months ended March 31, 1998 to 69% for the three months ended March
31, 1999. This increase reflects the significant increase in the number of
employees in our professional services group in the first quarter of 1999. We
incur recruiting and training expenses when we hire additional employees but
experience low utilization of newly-hired services personnel.
Cost of revenues, in absolute dollars and as a percentage of services
revenues, will vary significantly depending on the level of professional
services staffing, their effective utilization rates and
19
<PAGE>
the mix of services performed, including product license support services, and
whether these services are performed by us or by third-party contractors. In
addition, cost of revenues will increase if any product license related cost of
revenues materialize. Cost of revenues as a percentage of total revenues may
vary significantly depending on the mix of revenues between product licenses and
services.
GROSS PROFIT. Gross profit increased 212% from $835,000 for the three
months ended March 31, 1998 to $2.6 million for the three months ended March 31,
1999. The increase in gross profit was primarily due to the increase in product
license revenues as a percentage of total revenues. The gross margin increased
from 44% for the three months ended March 31, 1998 to 59% for the three months
ended March 31, 1999. The gross margin increase was primarily due to the
significant increase in product license revenues, which have no significant cost
of revenues, as a percentage of total revenues in the three months ended March
31, 1999.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salary and related costs to support product development.
Research and development expenses increased 80% from $627,000 for the three
months ended March 31, 1998 to $1.1 million for the three months ended March 31,
1999. The increase was primarily due to increases in the number of engineering
personnel and related recruiting and facilities costs.
Research and development expenses as a percentage of total revenues were 33%
for the three months ended March 31, 1998 and 25% for the three months ended
March 31, 1999. We believe that continued investment in research and development
is critical to attaining our strategic objectives, and, as a result, we expect
research and development expenses to increase significantly in absolute dollars
in future periods. To date, all software development costs have been expensed in
the period incurred.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries, commissions and other related costs for sales and
marketing personnel, travel, public relations and marketing materials and
events. Sales and marketing expenses increased 109% from $680,000 for the three
months ended March 31, 1998 to $1.4 million for the three months ended March 31,
1999. The increase was primarily due to a significant increase in the number of
sales and marketing personnel and related expenses, in addition to new and
increased marketing program expenditures.
Sales and marketing expenses as a percentage of total revenues were 36% for
the three months ended March 31, 1998 and 32% for the three months ended March
31, 1999. We believe that sales and marketing expenses, in absolute dollars and
as a percentage of total revenues, will increase in immediate future periods as
we expect to continue to expand our sales and marketing efforts. In particular,
we expect to hire and train new sales personnel, increase marketing and
promotional spending and open additional sales offices both in the United States
and abroad. We also anticipate that sales and marketing expenses may fluctuate
as a percentage of total revenues from period to period depending on the level
and timing of such expenditures and the rate at which newly-hired sales
personnel become productive.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and other related costs for operations and finance
employees, legal and accounting fees and facilities-related expenses. General
and administrative expenses increased 70% from $436,000 for the three months
ended March 31, 1998 to $743,000 for the three months ended March 31, 1999. The
increase was primarily due to an increase in personnel and related costs as we
increased our general and administrative personnel to manage the growth of the
company as well as increases in legal and professional fees.
General and administrative expenses as a percentage of total revenues were
23% for the three months ended March 31, 1998 and 17% for the three months ended
March 31, 1999. We believe general and administrative expenses will increase in
absolute dollars as we expect to hire additional personnel and incur additional
costs to grow our business and assume the responsibilities of a public
20
<PAGE>
company. We also expect to incur increased legal expenses for the duration of
the BroadVision litigation, as well as increased facilities costs as we expand
our employee base.
INTEREST INCOME (EXPENSE). Interest income totaled $50,000 for the three
months ended March 31, 1999. We did not have interest income during the three
months ended March 31, 1998. The interest income for the three months ended
March 31, 1999 was generated from cash and cash equivalents available for
investment from the proceeds of the sale of Series D preferred stock during
August 1998. Interest expense decreased from $41,000 for the three months ended
March 31, 1998 to $24,000 for the three months ended March 31, 1999. The
decrease was primarily due to our repayment of outstanding amounts under our
revolving line of credit during the third quarter of 1998.
PROVISION FOR INCOME TAXES. We incurred losses for the three months ended
March 31, 1998 and 1999. Accordingly, there were no provisions for income taxes.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES. Total revenues increased 65% from $3.9 million in 1996 to $6.5
million in 1997 and 88% to $12.1 million in 1998. The increase was primarily due
to the commencement of product license sales in 1996, a new release of Dynamo in
December 1997 and the implementation of price increases in the second quarter of
1998, leading to increased product sales to new and existing customers. We also
experienced substantial growth in services revenues from our expanded customer
base. Three customers accounted for 80%, 56%, and 37% of total revenues in 1996,
1997 and 1998, respectively. The following customers accounted for more than 10%
of our total revenues in the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
CUSTOMER 1996 1997 1998
- ------------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Harvard Business School.................................................. 35% -- --
Sony Online Entertainment................................................ 31% 29% --
Sun Microsystems......................................................... -- -- 17%
BMG Direct............................................................... -- 16% --
Stream International..................................................... 14% -- --
R.R. Donnelley........................................................... -- 11% --
Universal Learning Technology............................................ -- -- 10%
John Hancock Funds....................................................... -- -- 10%
</TABLE>
SERVICES REVENUES. Services revenues increased 19% from $3.8 million in
1996 to $4.6 million in 1997 and 76% to $8.1 million in 1998. Services revenues
from professional consulting service fees increased 18% from $3.8 million in
1996 to $4.5 million in 1997 and 71% to $7.7 million in 1998. Services revenues
from maintenance and support agreements increased from $44,000 in 1997 to
$372,000 in 1998. Revenues from maintenance and support agreements were
immaterial in 1996. The increase in services revenues was primarily due to an
increase in the number of customers, increased sales of product licenses and
increased billing rates.
PRODUCT LICENSE REVENUES. Product license revenues increased from $53,000
in 1996 to $1.9 million in 1997 and 118% to $4.1 million in 1998. The increase
in product license revenues was primarily due to the commencement of product
shipments in December 1996 and from growing market acceptance of our Dynamo
product suite following the release of Dynamo 3.0 in December 1997 and Dynamo
4.0 in December 1998.
COST OF REVENUES. Cost of revenues increased 61% from $2.0 million in 1996
to $3.2 million in 1997 and 58% to $5.1 million in 1998. The increase was
primarily due to the expansion of our professional service organization and
consisted primarily of payroll and related costs. Additionally, the increase in
the number of software product license customers required increased investment
in support and management personnel. Service costs related to maintenance and
support agreements increased
21
<PAGE>
from an immaterial amount in 1996 to $133,000 in 1997 and to $206,000 in 1998.
Product license costs were immaterial in all three years.
Cost of revenues as a percentage of services revenues increased from 52% in
1996 to 70% in 1997 and decreased to 63% in 1998. The increase in 1997 reflected
the significant increase in the number of employees in our professional services
group. The decrease in 1998 resulted from improved utilization of service
personnel.
GROSS PROFIT. Gross profit increased 70% from $1.9 million in 1996 to $3.3
million in 1997 and by 117% to $7.1 million in 1998. The increase in gross
profit was primarily due to the increase in total revenues. The gross margin
increased from 49% in 1996 to 51% in 1997 and to 58% in 1998. The gross margin
increase was primarily due to the significant increase in product license
revenues, which have no significant cost of revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 228% from $1.1 million in 1996 to $3.7 million in 1997 and decreased
8% to $3.4 million in 1998. The increase in 1997 was primarily due to an
increase in the number of engineering personnel, recruiting fees and overhead
costs associated with product development. The decrease in 1998 was primarily
due to the temporary reallocation of research and development personnel to
support the professional services department.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 99%
from $1.2 million in 1996 to $2.3 million in 1997 and 78% to $4.1 million in
1998. The increase was primarily due to an increase in the number of sales and
marketing personnel and related expenses, an increase in our marketing program
expenditures, and increases in commissions associated with our higher revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 34% from $1.1 million in 1996 to $1.4 million in 1997 and increased
62% to $2.3 million in 1998. The increase was primarily due to the hiring of
additional personnel and facility expenses necessary to support our expanding
operations.
INTEREST INCOME (EXPENSE). Interest income increased from $6,000 in 1997 to
$54,000 in 1998. We did not have interest income in 1996. The increases reflect
interest earned on higher balances of cash and cash equivalents resulting from
the proceeds from the private sale of equity securities. Interest expense
increased from $30,000 in 1996 to $129,000 in 1997 and to $164,000 in 1998. The
increase reflected additional borrowings under various financing arrangements
entered into during 1997 and 1998, as well as a non-cash interest expense
related to warrants issued in connection with our credit facility in 1998.
PROVISION FOR INCOME TAXES. We incurred losses for the years ended December
31, 1996, 1997 and 1998. Accordingly, there were no provisions for income taxes
in these periods.
QUARTERLY RESULTS
The following tables set forth certain unaudited statement of operations
data for each quarter of 1998 and the first quarter of 1999. This information
has been presented on the same basis as the audited financial statements
appearing elsewhere in this prospectus and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary to present fairly the unaudited quarterly results. This
information should be read in conjunction with our audited financial statements
and related notes appearing elsewhere in this prospectus. The operating results
for any quarter are not necessarily indicative of results for any future period.
See "Risk Factors--We expect our quarterly results to fluctuate."
22
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999
----------- --------- --------- --------- -----------
Revenues:
Services................................................ $ 1,692 $ 1,944 $ 2,213 $ 2,229 $ 2,614
Product license......................................... 209 1,003 1,239 1,608 1,806
----------- --------- --------- --------- -----------
Total revenues............................................ 1,901 2,947 3,452 3,837 4,420
Cost of revenues.......................................... 1,066 1,234 1,175 1,575 1,813
----------- --------- --------- --------- -----------
Gross profit.............................................. 835 1,713 2,277 2,262 2,607
----------- --------- --------- --------- -----------
Operating expenses:
Research and development................................ 627 685 994 1,049 1,131
Sales and marketing..................................... 680 923 1,027 1,444 1,420
General and administrative.............................. 436 450 657 748 743
Amortization of deferred stock compensation............. -- -- -- 107 216
----------- --------- --------- --------- -----------
Total operating expenses................................ 1,743 2,058 2,678 3,348 3,510
----------- --------- --------- --------- -----------
Loss from operations...................................... (908) (345) (401) (1,086) (903)
Interest income........................................... -- -- 8 46 50
Interest expense.......................................... (41) (43) (48) (32) (24)
----------- --------- --------- --------- -----------
Net loss.................................................. $ (949) $ (388) $ (441) $ (1,072) $ (877)
----------- --------- --------- --------- -----------
----------- --------- --------- --------- -----------
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Services................................................ 89% 66% 64% 58% 59%
Product license......................................... 11 34 36 42 41
----------- --------- --------- --------- -----------
Total revenues............................................ 100 100 100 100 100
Cost of revenues.......................................... 56 42 34 41 41
----------- --------- --------- --------- -----------
Gross profit.............................................. 44 58 66 59 59
----------- --------- --------- --------- -----------
Operating expenses:
Research and development................................ 33 23 29 27 25
Sales and marketing..................................... 36 31 30 38 32
General and administrative.............................. 23 16 19 19 17
Amortization of deferred stock compensation............. -- -- -- 3 5
----------- --------- --------- --------- -----------
Total operating expenses................................ 92 70 78 87 79
----------- --------- --------- --------- -----------
Loss from operations...................................... (48) (12) (12) (28) (20)
Interest income........................................... -- -- -- 1 1
Interest expense.......................................... (2) (1) (1) (1) (1)
----------- --------- --------- --------- -----------
Net loss.................................................. (50)% (13)% (13)% (28)% (20 )%
----------- --------- --------- --------- -----------
----------- --------- --------- --------- -----------
</TABLE>
The increase in product license revenues from the three months ended March
31, 1998 to the three months ended June 30, 1998 was primarily due to the
growing market acceptance of our product suite following the release of Dynamo
Application Server 3.0 in December 1997. The decline in gross margins for the
three months ended December 31, 1998 and March 31, 1999 from the three months
ended September 30, 1998 was primarily due to the expansion of our services
organization. Sales and marketing expenses increased each quarter, primarily due
to increases in sales personnel and the achievement of sales quotas resulting in
increased commissions. In particular, sales and marketing expenses increased
significantly during the quarter ended December 31, 1998 due to increases in the
number of sales personnel and the related cost of recruitment.
23
<PAGE>
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Most of our expenses are fixed in the
short term, and we may not be able to quickly reduce spending if revenues are
lower than we project. Our ability to forecast accurately our quarterly revenues
is limited due to the long sales cycle of our software products, which makes it
difficult to predict the quarter in which product license revenues will occur,
and the variability of customer demand for professional services. Our operating
results will be materially adversely affected if revenues do not meet
projections.
DEFERRED COMPENSATION
In the fourth quarter of 1998, the first quarter of 1999 and in April and
May 1999, we recorded total deferred stock compensation of $4.8 million in
connection with stock option grants. This amount represents the difference
between the exercise price of certain stock option grants and the deemed fair
value for accounting purposes of our common stock at the time of such grants. We
are amortizing this amount over the vesting periods of the stock options, which
will result in amortization expense of $1.1 million in 1999 ($216,000 in the
three months ended March 31, 1999), $1.2 million in 2000, $1.2 million in 2001,
$1.2 million in 2002 and $100,000 in 2003.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
As of December 31, 1998, we had net operating loss carryforwards of $8.9
million and research and development tax credit carryforwards of $235,000. The
net operating loss and tax credit carryforwards will expire at various dates,
beginning 2011, if not utilized. The Tax Reform Act of 1986 imposes substantial
restrictions on the utilization of net operating loss and tax credit
carryforwards in the event of an "ownership change" of a corporation. Our
ability to utilize net operating loss and tax credit carryforwards on an annual
basis would be limited as a result of an "ownership change" as defined by
Section 382 of the Internal Revenue Code. We have completed several financings
since inception and believe that we have incurred ownership changes. We do not
believe the ownership changes will have a material impact on our ability to
utilize our net operating loss and tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations and met our capital
expenditure requirements through the private sale of equity securities,
resulting in net proceeds of $12.9 million through March 30, 1999, as well as
commercial credit facilities and capital leases totaling $600,000 through March
31, 1999. Cash used in operating activities was $412,000, $3.9 million and $2.9
million in 1996, 1997 and 1998, respectively. In the three months ended March
31, 1999, we generated $3.8 million in cash from operating activities. The $2.9
million of cash used in operating activities for the year ended December 31,
1998 represents a cash operating loss of $2.4 million and changes in working
capital items consisting primarily of increases in accounts receivable,
partially offset by increases in accounts payable and accrued expenses. The $3.8
million of cash generated from operating activities in the three months ended
March 31, 1999 represents a cash operating loss of $563,000 offset primarily by
the $5.0 million we received from Informix under a reseller agreement, of which
$4.5 million was included in deferred revenues.
To date, our investing activities have consisted primarily of capital
expenditures totaling $498,000, $190,000, $623,000 and $285,000 in 1996, 1997,
and 1998 and the three months ended March 31, 1999, respectively. Assets
acquired consisted primarily of computer hardware and software and furniture and
fixtures for our growing employee base. We expect that our capital expenditures
will increase as our employee base grows. At March 31, 1999, we expect capital
expenditures for the following twelve months to be approximately $2.0 million,
which includes $1.0 million of leasehold improvements for our new facility and
$1.0 million for computer equipment, software and furniture and fixtures.
24
<PAGE>
Net cash provided by financing activities in 1996, 1997, 1998 and the three
months ended March 31, 1999 was $3.3 million, $1.9 million, $7.5 million and
$68,000, respectively. The primary source of cash from financing activities was
the sale of preferred stock with net proceeds of $2.8 million, $1.9 million and
$7.8 million in the years ended December 31, 1996, 1997 and 1998, respectively.
We have a revolving line of credit which provides for borrowings of up to
$5.0 million or 80% of eligible accounts receivable, a $500,000 term loan and a
$200,000 equipment line of credit with Silicon Valley Bank that bear interest at
the bank's prime rate plus 0.25%, 1.0% and 1.25%, respectively. At March 31,
1999, we had $1.9 million available under the line of credit based upon our
borrowing base, $278,000 outstanding under the term loan and $180,000
outstanding under the equipment line of credit. These lines of credit are
secured by all of our tangible and intangible intellectual and personal property
and are subject to certain financial covenants and restrictions. We are
currently in compliance with all related financial covenants and restrictions.
At March 31, 1999, we had $7.6 million in cash, cash equivalents and
marketable securities and $2.9 million in working capital. We believe that the
net proceeds of this offering, together with our existing financial resources
and commercial credit facilities, will be sufficient to meet our cash
requirements for at least the twelve months following this offering. Thereafter,
we may require additional funds and may seek to raise additional funds through
public or private equity financings or from other sources. There can be no
assurance that additional financing will be available at all or that, if
available, will be obtainable on terms favorable to us. Additional financing
could also be dilutive.
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000. This could result in failures or
the creation of erroneous results.
We have defined "Year 2000 compliant" as the ability to:
(a) correctly handle date information needed for the December 31, 1999
to January 1, 2000 date change;
(b) function according to the product documentation provided for this
date change, without changes in operation, assuming correct configuration;
(c) where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined and
predetermined manner;
(d) if the date elements in interfaces and data storage specify the
century, store and provide output of date information in ways that are
unambiguous as to century; and
(e) recognize year 2000 as a leap year.
We have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes assessment and
implementation, which includes remediation, upgrading and replacement of certain
product versions, as well as validation testing and contingency planning. We
continue to respond to customer questions about prior versions of our products
on a case-by-case basis.
We have largely completed all phases of our plan, except for contingency
planning, with respect to the current versions of our commercially available
products. The current versions of each of these products are Year 2000 compliant
when configured and used in accordance with the related documentation, so long
as the underlying operating system of the host machine and any other software
used with or in the host machine or our products are also Year 2000 compliant.
However, the current versions of some of our commercial products may require
patches in order to function optimally after December 31, 1999. We require all
users of these affected products to install these patches.
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We have not tested our commercial products on all platforms or all versions
of operating systems that we currently support nor have we tested earlier
versions of our commercially available products. These earlier versions, which
represent approximately 83% of our installed Dynamo product base, may not be
Year 2000 compliant. We intend to complete testing of the versions of our
commercial products first released in December 1997 and all subsequent
maintenance releases, which represent approximately 50% of our installed base,
by the end of June 1999, and we plan to offer software patches to customers as
needed.
We have not separately tested software obtained from third parties (licensed
software, shareware and freeware) that is incorporated into our products. While
we are seeking assurances from our vendors that licensed software is Year 2000
Compliant, we know that some of the licensed software is not Year 2000
Compliant. To address known problems, we plan to upgrade or replace the impacted
systems by year-end. Despite testing by us and by customers, and assurances from
developers of products incorporated into our products, our products may contain
undetected errors or defects associated with Year 2000 date functions. Known or
unknown errors or defects in our products could result in delay or loss of
revenues, diversion of development resources, damage to our reputation or
increased service and warranty costs, any of which could materially adversely
affect our business, operating results or financial condition. Some commentators
have predicted significant litigation regarding Year 2000 compliance issues, and
we are aware of Year 2000 lawsuits against other software vendors. Because of
the unprecedented nature of Year 2000 litigation, it is uncertain whether or to
what extent we may be affected by it.
Our internal systems include both our information technology, or IT, and
non-IT systems. We have initiated an assessment of our material internal IT
systems, including both software tools we have developed and third-party
software and hardware technology, as well as an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. To the extent
that our internal systems are not Year 2000 Compliant, we plan to upgrade or
replace these systems. Related costs have been immaterial to date and we expect
total future costs to remain below $100,000. To the extent that we are not able
to test the technology provided by third-party vendors, we are seeking
assurances from them that their systems are Year 2000 Compliant. Although we are
not currently aware of any material operational issues or costs associated with
preparing our internal IT and non-IT systems for the Year 2000, we may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal IT and non-IT systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current and potential customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce or
eliminate budgets that current or potential customers could otherwise have for
purchases of our products and services. As a result, our business, results of
operations or financial condition could be harmed.
We have funded our Year 2000 plan from available cash and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
personnel to manage the project, outside contractor assistance, technical
support for our products, product engineering and customer satisfaction. We are
already aware that some of our internal systems are not Year 2000 compliant and
require upgrading before the end of the year. We may experience material
problems and costs with Year 2000 compliance that could adversely affect our
business, results of operations and financial condition.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing a contingency plan may
itself be material. Finally, we are also subject to external forces that might
generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.
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BUSINESS
OVERVIEW
We offer an integrated suite of Internet customer relationship management
and e-commerce software applications, as well as related application
development, integration and support services. Our solution enables businesses
to understand, manage and build online customer relationships and to more
effectively market, sell and support products and services over the Internet.
Our Dynamo product suite includes an extensible Web page generation engine and
general purpose application server, and e-commerce and customer management
applications. Our solution is designed to provide businesses with the core
platform and software tools required to develop and deploy personalized,
scalable and reliable e-commerce Web sites.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The emergence of the Internet as a global medium for interactive
communications and commerce is fundamentally changing the way business is
conducted. The Internet is enabling businesses to attract, retain and conduct
e-commerce, with customers as well as to communicate with employees, suppliers
and strategic partners. The Internet is providing the opportunity for businesses
to establish new revenue streams, create a new distribution channel, reduce
costs and increase customer retention. This opportunity has driven the growth in
online marketing and e-commerce initiatives. International Data Corporation
estimates that revenues generated from Internet commerce will increase from $32
billion in 1998 to over $400 billion by 2002.
As the growth and acceptance of online marketing and e-commerce have
increased, the World Wide Web has become a highly competitive business
environment where customers have a large number of easily accessible choices.
For a company to succeed in this environment, its Web site must present content
and provide an overall visitor experience that captures the visitor's interest
and satisfies their informational and transactional needs. To accomplish this,
companies are investing in Internet-based customer relationship management and
e-commerce solutions, such as:
- online marketing and selling systems to target, attract and retain
customers
- transaction and distribution management systems to reduce the costs of
delivering products and services to customers and distribution partners
- customer support and relationship management systems to better understand
and serve the ongoing needs of their customers
International Data Corporation estimates that the worldwide Internet commerce
application software market was $444 million in 1998 and projects that the
market will grow to $1.7 billion in 1999 and reach $13.1 billion in 2003.
EMERGING E-COMMERCE REQUIREMENTS
Many commercial Web sites present only a static collection of
non-interactive content. These sites present basic content, such as corporate
information, product literature and banner advertisements, which are passively
viewed by Web visitors. While this information is useful, many Web visitors
prefer dynamic content, which is continually updated and enhanced, as well as
interactive content, which responds and changes based on the user's input. Many
Web visitors also prefer Web sites that personalize their experience and present
more relevant content based on their existing relationship with the business,
stated or implied preferences and needs, Web navigation behavior and other
factors. To attract, serve and retain customers online, businesses must engage
visitors with dynamic, relevant and targeted experiences, which often lead to
transactional opportunities.
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Businesses are seeking Web-based systems that can be dynamically updated and
integrated, sharing data among Web applications and across their entire
enterprise in order to present users with a personalized, consistent and unified
customer experience. The desired result is a customer-driven Web site that takes
into account the particular customer's profile, Web behavior and relationship
with the company. Customer-driven Web sites can provide businesses with an
efficient means to manage and maximize customer relationships online. In order
to accomplish this, businesses require solutions that incorporate a number of
features:
- EFFECTIVE CONTROL OF E-COMMERCE SYSTEMS AND STRATEGIES. Business managers
responsible for Internet customer relationship management need easy-to-use
tools to give them direct control over their e-commerce systems and
strategies without requiring the time-consuming intervention of
information technology specialists. With the appropriate tools, business
managers can better manage their Internet customer relationships through
improved customer segmentation and delivery of targeted content,
promotions and advertising campaigns, and personalized pricing and account
information.
- INTEGRATION WITH EXISTING ENTERPRISE SYSTEMS. In order to present the
customer with a unified and personalized e-commerce experience, companies
must address the difficult challenge of integrating Web applications with
their existing content management, customer database, transaction and
customer support systems.
- COMMON PLATFORM UPON WHICH TO BUILD FUTURE APPLICATIONS. Businesses
implementing sophisticated Web-based applications desire an extensible Web
platform to enable them to build new applications and add third-party
functionality to their e-commerce initiatives on a rapid and ongoing
basis.
- SCALABILITY, PERFORMANCE AND RELIABILITY. The increasing significance of
Web-based commerce requires that e-commerce systems be highly scalable in
order to accommodate rapid user growth and increased Web site complexity,
content and functionality. Further, companies need high performance and
highly reliable systems because if online systems fail or cause
unsatisfactory delays, even for a short period of time, businesses could
miss revenue opportunities and lose customers.
CURRENT SOLUTIONS
In response to these emerging business requirements, various applications
have been developed that address discrete aspects of the enterprise e-commerce
infrastructure. A number of providers offer "point" solutions for dynamic
content serving, advertising management, transaction processing, e-commerce
storefront development, personalization and recommendation engines, and
application development tools. By implementing a collection of these point
solutions, companies can attempt to deliver dynamic, personalized content to Web
site visitors and manage their e-commerce efforts. However, these point
solutions may not provide a satisfactory solution for many businesses:
- LACK OF INTEGRATED FUNCTIONALITY. Disparate point applications generally
do not easily integrate and communicate with each other, lack a common
user interface and lack a common platform for enterprise system
integration. As a result, a collection of point applications often does
not present the Web visitor with a unified customer experience and may
sacrifice functionality and performance.
- HIGH COST. It is frequently difficult and expensive for companies to
implement a solution consisting of a collection of disparate point
solutions from multiple vendors, and these implementations frequently fail
to meet requirements. In addition, businesses often incur higher costs of
ownership over time as it is difficult for them to manage the
uncoordinated product upgrade cycles and new application development
efforts of multiple vendors.
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Today, businesses increasingly seek an integrated package of applications,
platforms and tools that addresses all aspects of their enterprise e-commerce
infrastructure, rather than just point solutions. Some software providers have
developed more comprehensive solutions incorporating a number of e-commerce
functions. However, these solutions may be inadequate for a number of reasons:
- LIMITED FUNCTIONALITY. The functionality may be insufficient to serve all
of a company's e-commerce requirements, resulting in the need to buy,
build or adapt additional applications.
- LACK OF A MODULAR, APPLICATION SERVER-BASED ARCHITECTURE. These solutions
are typically not based on a modular technology architecture and lack the
extensibility that an application server-based platform provides. This
limits the ability of businesses to customize their implementations,
integrate their solutions with existing enterprise applications and extend
their e-commerce initiatives by building future applications or
incorporating third-party technology.
- POOR SCALABILITY AND RELIABILITY. Most are unable to scale to meet the
growing performance demands of large-scale, e-commerce Web sites.
Solutions that do not scale well can be unreliable and subject to system
failures, which may result in frustrated customers, lost revenue
opportunities and potential financial losses.
To address the limitations of most commercially available solutions, some
companies have built custom Internet customer relationship management solutions
with application development tools. While these solutions can provide the
required functionality and integration, they typically require lengthy
implementation periods and are expensive to build and maintain. In addition,
they require a comprehensive understanding of market segmentation, content
targeting and advertising, as well as extensive technical expertise in Web
application development and enterprise systems integration. Most companies, and
many third-party systems integrators and application developers, do not have the
expertise and experience to address all of these requirements.
As a result, businesses are increasingly seeking Web application software
providers offering products and professional services that enable them to
rapidly deploy comprehensive, effective Internet customer relationship
management solutions. Businesses prefer solutions that are modular and flexible
with an open, application server-based architecture. They desire solutions that
are easy to integrate with existing enterprise systems and third-party
applications and that enable them to extend their Web infrastructures with new
applications and functionality to meet their continually evolving e-commerce
needs. In the competitive Web environment, businesses also need to leverage
their existing business systems, strategies and expertise to manage their
customer relationships effectively. Finally, businesses are seeking solutions
that meet the demanding scalability, reliability and performance requirements of
large-scale e-commerce Web sites.
OUR SOLUTION
We offer a suite of Web-based Internet customer relationship management and
e-commerce software applications, as well as related application development,
integration and support services. Our solution enables businesses to understand,
manage and build their online customer relationships more effectively and to
market, sell and support their products and services over the Internet. Our
product suite includes Dynamo Application Server, a dynamic Web page generation
engine and general purpose application server. Dynamo Application Server is
designed to provide businesses with the core platform and software tools
required to develop and deploy personalized, effective e-commerce Web sites.
Our product suite also includes Dynamo Personalization Server, Dynamo
Commerce and Dynamo Ad Station. Dynamo Personalization Server is an extensible
personalization platform that enables companies to target specific content and
data to particular customers or visitors on the Web. Dynamo Commerce manages and
delivers catalog content and user-targeted promotional programs and provides
transaction processing capabilities for large-scale e-commerce storefronts.
Dynamo Ad Station is an
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online banner advertising delivery application designed to help businesses more
effectively manage advertising inventories on large-scale Web sites and
distributed advertising networks.
Our solution incorporates the following distinguishing characteristics:
AN INTEGRATED AND MODULAR PRODUCT SUITE BASED ON A COMMON PLATFORM. Our
product suite includes a comprehensive range of functionality that allows
businesses to quickly develop and deploy personalized Web-based e-commerce
applications. Our application server-based platform enables our Dynamo
applications to share data and work together more efficiently than would a
collection of discrete Web applications from different vendors using various
technologies. An integrated product suite based on a common platform also
ensures that new products and releases will be compatible with each other as
well as with other applications built on Dynamo Application Server. The
modularity of our product suite allows customers to purchase applications that
fit their particular needs and allows them to quickly expand their
implementations as required.
RULES-BASED PERSONALIZATION IMPLEMENTED BY BUSINESS MANAGERS. Our products
allow business managers to apply new and pre-existing business rules to profile
and segment users and dynamically deliver personalized content and data to
online visitors. For example, businesses can present different prices, products
and promotional offers to different visitors or they can deliver
customer-specific information such as account detail and purchase history.
Business managers can review the behavior of visitors and quickly adjust their
business rules to manage their online marketing communications and e-commerce
strategies.
HIGH SCALABILITY, RELIABILITY AND PERFORMANCE. Our Dynamo Application
Server employs a Java-based architecture that is highly scalable. It has a
dynamic load management system which allows applications to be distributed
across multiple server computers. This means that as a Web site becomes more
heavily utilized, additional computing resources can be added to handle the
additional load. The load management system provides redundant fail-over so that
users on a failed server can be transferred to another server without
interruption. Dynamo Application Server has been designed to meet the
performance requirements of high-capacity, highly personalized e-commerce Web
sites.
EXTENSIBLE APPLICATION SERVER ARCHITECTURE. Our Dynamo Application Server
provides customers with an extensible platform that allows them to rapidly
integrate our products with their enterprise systems and to deploy new
applications, both internally developed and from third parties. The ability to
integrate multiple applications and enterprise systems with our common platform
enables businesses to incorporate enterprise-wide customer data and support
systems to provide a unified customer experience. In addition, our open,
application server-based platform and the modularity of our product suite enable
systems integrators and technology partners to develop their own proprietary
applications on Dynamo for reuse or resale.
PROFESSIONAL SERVICES CAPABILITIES. We have been designing and deploying
network based applications for over seven years and Web sites for over four
years. We have two primary service offerings, Innovation Solutions and Express
Services. Our Innovation Solutions team provides customized application design,
development and integration services to clients who desire advanced solutions
that are not commercially available. We provide Innovation Solutions services
for a limited number of projects that we believe will provide us with an
understanding of emerging technical and business needs for our future products.
Our Express Services team provides strategic consulting and integration support
services to customers and systems integrators to facilitate the deployment of
our products. Express Services provides system architecture design, project
management, Web design and technical training and support.
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Our solution provides our customers with:
EFFECTIVE, HIGH-PERFORMANCE E-COMMERCE WEB SITES THAT ARE:
- dynamically generated and personalized on a real-time basis
- highly functional with comprehensive e-commerce features
- able to personalize content based on easily modifiable business rules
to increase customer satisfaction and retention
- able to present a unified, customer-centric experience by integrating
various sources of customer data and content and leveraging enterprise
systems
THE ABILITY TO ACHIEVE RAPID TIME TO MARKET BY:
- deploying our comprehensive suite of integrated applications
- enabling rapid integration with enterprise systems
- taking advantage of our intuitive user interfaces for business managers
and application developers
- utilizing our experienced consulting services professionals
THE ABILITY TO ACHIEVE A COMPETITIVE ADVANTAGE AND A HIGHER RETURN ON
INVESTMENT BY:
- increasing e-commerce and advertising revenues
- improving marketing effectiveness
- reducing marketing, transaction and customer support costs
- increasing customer satisfaction and retention
STRATEGY
Our objective is to be a leading provider of Internet customer relationship
management solutions. To achieve this objective, we have adopted the following
strategies:
MAINTAIN AND EXTEND PRODUCT AND TECHNOLOGY LEADERSHIP. We believe we are a
technology leader in providing Internet customer relationship management
solutions. We offer a comprehensive suite of software applications that we
believe are based on an advanced technology architecture. We were one of the
first companies to market a high-performance dynamic Web page generation engine
and shipped our first Java-based Web application server shortly after Sun
Microsystem's first commercial shipment of Java 1.0. We intend to extend our
product and technology leadership by:
- extending Dynamo's personalization capabilities and building new
Internet customer relationship management applications
- continuing to increase the scalability, reliability and performance of
our Dynamo applications
- continuing to develop new adaptor and connector modules to allow our
products to easily integrate with third-party Internet customer
relationship management products, databases and enterprise systems
- providing Dynamo Application Server support for emerging industry
standards, such as Enterprise JavaBeans, for developing business
applications in Java, and XML, for formatting data and other
information
- using our Innovation Solutions services to identify emerging market
needs
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GROW AND LEVERAGE PROFESSIONAL SERVICE CAPABILITIES. We have extensive
experience in Web application development and integration services. Through our
Express Services, we provide enabling services to train our systems integrators
and technology partners in the use of our products as well as consulting
services to assist with customer implementations. We plan to create additional
opportunities to increase revenues from product sales by expanding our base of
partners trained in the implementation and application of Dynamo. We intend to
hire additional professional services personnel to increase our services
revenues and to enable and support product license sales through systems
integrators.
CONTINUE TO BUILD DIRECT SALES CAPABILITIES AND LEVERAGE CO-SELLING EFFORTS
WITH SYSTEMS INTEGRATORS. We sell our products directly to end-users and through
co-selling efforts with systems integrators. Our objective is to establish close
relationships directly with our customers and to motivate systems integrators to
implement the Dynamo technology and product suite on Internet and Web-based
projects for their customers. We intend to expand our sales by hiring additional
direct sales personnel, domestically and internationally, both to sell directly
to end-users and to expand our co-selling efforts. We plan to leverage our
current relationships and develop additional co-selling relationships with
leading systems integrators. In addition, many of our systems integrators are
global enterprises, which we believe provides us with an opportunity to expand
our international business.
ESTABLISH ORIGINAL EQUIPMENT MANUFACTURER AND TECHNOLOGY PARTNER
RELATIONSHIPS AS A DISTRIBUTION CHANNEL. Our Dynamo product suite is based on a
general purpose application server. This provides us with opportunities to
market and sell Dynamo products in conjunction with products sold by other
application software suppliers. Many of our current and potential technology
partners, including suppliers of database, content management, enterprise
resource planning, customer support and other systems, are looking to extend
their current offerings to include Web-enablement, personalization and
e-commerce features. We believe that licensing our products to original
equipment manufacturers will provide us the opportunity to establish our
platform in additional markets.
EXPAND MARKET PRESENCE. Historically we have not spent significant
resources on marketing and awareness programs. We intend to increase our market
presence through a variety of marketing and sales programs designed to generate
market awareness, penetrate target markets and help establish us as the leading
provider of Internet customer relationship management solutions. We plan to
increase spending on advertising, trade shows, seminars, industry events and
direct marketing efforts. We also plan to devote marketing resources to
expanding our channel relationships with systems integrators and technology
partners. We intend to develop and promote the Dynamo brand alongside our
partners' brands in all co-marketing relationships.
PRODUCTS
We offer an integrated suite of Internet customer relationship management
applications. Our core product is Dynamo Application Server, a dynamic Web page
generation engine and general purpose application server that provides
businesses with the platform and software tools to develop and deploy
personalized, effective e-commerce Web sites. Our product suite also includes
Dynamo Personalization Server, Dynamo Commerce and Dynamo Ad Station. We also
sell software tools to enable rapid application development, as well as adaptor
modules to integrate Dynamo products with content management systems. Our
product suite is designed to meet the performance and scalability requirements
of large-scale e-commerce Web sites. All of our products are based on Java and
run on Sun Solaris, Windows NT and IBM AIX operating system platforms.
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The diagram below illustrates the overall architecture of our product suite
as well as the various applications, software tools and integration modules that
are included in our product suite.
The diagram below illustrates the Dynamo Relationship Commerce Suite with
horizontal, layered bars depicting Dynamo Application Server at the foundation;
Dynamo Personalization Station, with open content adaptors and open profile
adaptors as the second layer; Dynamo Commerce Application with open fulfillment
adaptors as the third layer; and custom applications as the top layer. The left
side of the bars shows the tools that work with our product suite: system
console, Developer Workbench, Personalization Control Center and retail
administration. The right side of the bars depicts enterprise systems including
customer databases and content management and transaction fulfillment systems.
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The following table briefly describes our products, list prices and system
requirements.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION LIST PRICE AND REQUIREMENTS
<S> <C> <C>
APPLICATION SUITE
Dynamo Application Server Offers businesses an open, $10,000 per CPU
scalable and extensible Web
site platform for
personalized marketing,
selling and customer
relationship management
Dynamo Personalization Server Enables businesses to $20,000 per CPU; requires
develop, deploy and manage Dynamo Application Server
unified personalization
functionality across multiple
business applications on
their Web sites
Dynamo Commerce Enables the creation of $20,000 per CPU; requires
personalized e-commerce Dynamo Application Server and
storefronts that can be Dynamo Personalization Server
customized and integrated
with transaction processing
systems
Dynamo Ad Station Allows businesses to serve $15,000 per server; requires
targeted advertisements to Dynamo Application Server and
Web site visitors and to Dynamo Personalization Server
manage their online
advertising inventory more
effectively
TOOLS & INTEGRATION MODULES
Dynamo Developer's Workbench Allows developers and Web $1,000 per seat
designers to quickly assemble
pre-built Java components
through an intuitive
graphical user interface
Dynamo Personalization Allows business managers to $1,000 per seat
Control Center define and modify
personalization business
rules through an intuitive
graphical user interface
Dynamo Targeted E-mail Enhances customer $4,000 per CPU; requires
relationships through Dynamo Personalization Server
rules-driven targeted e-mail
messaging functionality,
coordinated with Web site
personalization
Open Content Adaptors Provides direct integration $10,000 per CPU; requires
with leading content Dynamo Personalization Server
management systems
</TABLE>
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DYNAMO APPLICATION SERVER. The Dynamo Application Server is designed to
provide businesses with the core platform and software tools required to develop
and deploy personalized, effective e-commerce Web sites. The Dynamo Application
Server provides a common application platform for:
- dynamically generating Web pages and managing user sessions
- supplying a framework of shared application services to connect and
integrate each of the applications in our product suite
- managing system resources, dynamically balancing system load and providing
redundant fail-over functionality
- efficiently connecting to enterprise systems and third-party applications
Dynamo Application Server connects to Dynamo Developer's Workbench, a Web
application development tool that allows developers and Web designers to build
new applications and integrate third-party technologies.
DYNAMO PERSONALIZATION SERVER. Dynamo Personalization Server coordinates,
manages and centralizes the personalization functions of the Dynamo product
suite. Dynamo Personalization Server enables business managers to segment users
and target content based on new and pre-existing business rules. It adjusts and
personalizes Web content on a real-time basis by combining explicit user data
from existing customer management and marketing databases with implicit
information gathered on Web navigation behavior.
Dynamo Personalization Server performs the following functions:
- PROFILE GATHERING. When a visitor first arrives at a Web site, a profile
is created automatically for that visitor. If the visitor registers or
logs in, the visitor's identity is added to the profile, preserving any
profile information that was gathered up to that point. Dynamo
Personalization Server tracks both explicit user profile data supplied by
the user as well as implicit profile attributes derived from the user's
behavior on the Web site. This information is combined with any existing
information about the visitor from the company's internal databases.
- SEGMENTATION AND CONTENT TARGETING. Dynamo Personalization Server enables
business managers to segment visitors based on their profile data. Using
business rules, content can be personalized and targeted to these groups
of users. These business rules are created using the Personalization
Control Center.
- CONTENT MANAGEMENT AND INTEGRATION. In addition to using Dynamo
Personalization Server to target content residing on internal file
systems, customers may purchase Open Content Adaptors to integrate Dynamo
with leading content management systems. The Open Content Adapters provide
direct integration to leading content management systems such as those
from Documentum, NovaSoft and OpenText.
- PERSONALIZED MESSAGING. Dynamo Targeted E-mail can be used with the Dynamo
Personalization Server to send personalized messages to selected groups
and individual Web site users.
DYNAMO COMMERCE. Dynamo Commerce is a flexible solution enabling businesses
to deploy and manage large-scale, personalized, e-commerce storefronts. Dynamo
Commerce delivers product catalog content and user-targeted promotional programs
to manage the online shopping experience. It is designed to integrate with
existing customer database, inventory, order processing, payment and fulfillment
systems operated by many large organizations. In addition, Dynamo Commerce
provides administration features that allow e-commerce storefronts to be
operated independently by various managers throughout an organization. Dynamo
Commerce features include:
- COMPLETE E-COMMERCE STOREFRONT SOLUTION. Dynamo Commerce provides a
comprehensive set of e-commerce storefront functions including catalog,
shopping cart, order processing, built-in
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search capabilities and user registration. Business managers can customize
the layout, look and feel, navigation and functionality of their
storefronts through point and click interfaces and through customized Web
page templates. Dynamo Commerce supports both business-to-business and
business-to-consumer e-commerce.
- ENVIRONMENT FOR PERSONALIZED SELLING. Web sites built on Dynamo Commerce
can be designed to deliver targeted promotions based on user profiles
gathered through Dynamo Personalization Server. Since Dynamo Commerce uses
both implicit and explicit profiles, content can be targeted to both
anonymous and recognized visitors. Reporting functionality allows
marketing personnel to gather real-time feedback on the effectiveness of
various targeting and merchandising strategies.
- FLEXIBLE ORDER PROCESSING. Dynamo Commerce provides core order processing
functionality that can be integrated with a wide variety of transaction
models and existing business processes. Through the use of our integration
modules, customers can incorporate business systems into the order
processing flow at a number of stages as products are browsed, selected
and purchased.
- CUSTOMIZATION, MAINTAINABILITY AND DAY-TO-DAY MANAGEMENT. Dynamo Commerce
allows business managers, designers and programmers to independently
maintain and manage the various aspects of the Web site relating to their
particular expertise. Dynamo Commerce has an administrative interface so
business managers can control product presentation, pricing and
promotions. Designers can directly customize Web site templates upon which
the site is built. The open, modular architecture makes it easy for
programmers to extend and modify functionality. This separation simplifies
deployment and ongoing maintenance.
DYNAMO AD STATION. Dynamo Ad Station allows businesses to increase
advertising revenues by delivering targeted ads to visitors and by more
effectively managing advertising inventory. The data gathered by Dynamo Ad
Station helps the business determine how to target campaigns to maximize
effectiveness. Automated inventory management features allow an administrator to
adjust the delivery of advertisements to help meet advertising goals. Dynamo Ad
Station's comprehensive data collection and reporting features facilitate the
monitoring of ad campaign effectiveness.
SERVICES
We provide an extensive range of consulting, design, application
development, integration and training and support services in conjunction with
our products through our Innovation Solutions and Express Services offerings.
INNOVATION SOLUTIONS. Innovation Solutions services consist of customized
application design, development and integration services and are ordinarily
provided on a fixed-price basis. We have extensive experience in developing,
designing and deploying large-scale Web applications. Our Innovation Solutions
services are provided to clients with complex requirements that seek advanced
solutions that are not commercially available to extend the capabilities and
features of their systems. As well as being a core component of our business,
Innovation Solutions projects provide us with an understanding of emerging
customer requirements and insights for new product developments. We typically
select projects that we believe may provide the technical and functional
foundation for our future products and services.
EXPRESS SERVICES. Express Services consist of high level consulting and
enabling support services such as system architectural design, project
management, Web site design, and technical training and support. Express
Services are ordinarily provided on a time and materials basis. Our Express
Services are provided to assist systems integrators, development partners and
customers to rapidly develop and deploy Dynamo-based applications and systems.
Our objective is to deploy our Express Services quickly and efficiently to
reduce the time and effort required by our partners and customers to
successfully deploy Dynamo applications. Our Express Services are priced on a
per day basis.
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CUSTOMER SUPPORT AND MAINTENANCE. We offer four levels of customer support
ranging from our free support program, which is available for 60 days after a
product has been purchased, to our Premier Support Program, which includes
telephone support 24 hours a day, seven days per week, for customers deploying
mission critical applications. Initial product license fees include one year of
product software maintenance and support. Thereafter, customers are entitled to
receive software updates, maintenance releases and technical support for an
annual maintenance fee of 20% to 30% of the then current list price of the
licensed product.
TRAINING. We provide a broad selection of training for customers and
partners, including programming classes covering all of the components of our
product suite. Training is priced on a per day basis. Fees vary for standard
public training classes and on-site private training classes.
CUSTOMERS
Our principal target markets are Fortune 1000 enterprises and new businesses
that plan to use the Internet as their primary business channel. Our customers
are characterized by their strong commitment to Internet customer relationship
management and they represent a broad spectrum of enterprises within diverse
sectors. The following is a partial list of customers that have purchased
licenses and/or professional services from us:
TECHNOLOGY
Informix
Newbridge Networks
Sun Microsystems
MANUFACTURING
3M
Eastman Kodak Company
FINANCIAL SERVICES
John Hancock Funds, Inc.
KeyBank
Scudder Kemper Investments
MEDIA AND ENTERTAINMENT
Icon MediaLab
MTV/Nickelodeon
Sony Online Ventures
INTERNET
BabyCenter
GoTo.com
Network Solutions
TheStreet.com
Unicast Communications
TELECOMMUNICATIONS
BellSouth
MediaOne
CONSUMER RETAIL
BMG Direct
BMG Entertainment
CareSoft
living.com
EDUCATION
Harvard Business School
Universal Learning Technology
CASE STUDIES
The following case studies illustrate the issues faced by three
representative customers in deploying Web site applications, and the benefits
derived from utilizing Dynamo applications.
BMG DIRECT
www.bmgmusicservice.com
BMG Direct is the North American music club operated by Bertelsmann AG, the
Germany-based global media enterprise. With over eight million members, BMG
Direct is one of the largest direct marketers in the United States. BMG Direct
has traditionally sold to its music club members via direct mail. In
establishing its online strategy, BMG Direct faced the challenge of building a
state-of-the-art Web site for e-commerce that would leverage its existing
business practices, including a complicated pricing structure, multiple customer
segments and detailed customer information. They wanted to
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<PAGE>
transfer their customer-interaction functions to the Internet to reduce costs
and enhance customer interactions. BMG Direct also wanted a system that could
scale as the popularity of its site grew. Key requirements for the BMG Direct
site included integration with multiple existing systems for customer
information, ordering and fulfillment. The Web site needed to provide an
enjoyable and simple process for enrolling in the club and it needed to provide
members with all of the benefits of the paper-based club, such as the ability to
order CDs, cassettes and other merchandise, respond to featured promotions and
access editorial content.
BMG Direct selected Dynamo as its e-commerce, personalization and
application server platform. BMG Direct worked with us and third-party systems
integrators to develop its Web site, which it launched in January 1998. The BMG
Direct Web site provides club members with access to selections from the entire
BMG Direct music club catalog of over 14,000 titles, significantly more than the
400-600 titles available in their catalog-based mailings. Club members also have
access to editorial content from the various BMG music clubs, such as Jazz, Rock
and Classical. Based on their member profiles, users receive personalized
content, highlights, promotional offers, pricing and custom navigation, all
consistent with the rules that govern BMG Direct's traditional business.
BMG Direct has experienced rapid adoption of its online offerings by its
existing paper-based customers and an increase in new memberships. Customer
transaction costs have been reduced, and cross-selling has increased. In
addition, the establishment of an extensible personalization and e-commerce
platform allows BMG Direct to create new clubs, present additional personalized
e-commerce offerings and editorial content without requiring major
re-engineering of the system.
NEWBRIDGE NETWORKS
www.newbridge.com
Newbridge Networks is a leading provider of networking products and systems,
with a global network of resellers, distributors and affiliates. In developing
its Web presence to serve these distribution channels as well as current and
potential customers, partners, investors and employees, Newbridge's multiple Web
sites made it difficult to provide a consistent and seamless user experience. In
designing a new Web site, Newbridge's goals were to deliver its online offerings
through a single point of entry, consolidate content into a single physical
repository and provide a consistent "look-and-feel" for visitors. To serve
Newbridge's varied audiences from a single point of entry, content needed to be
targeted dynamically to specific groups of users based on their interests.
We worked with Newbridge to create a multi-tier access model for managing
user profiles that govern entitlement to content and enterprise systems, user
preferences and subscriptions. Newbridge's internal development staff, supported
by our Express Services group, developed the end-user application based on the
Dynamo product suite. Newbridge launched its new Web site in January 1999.
Today, visitors to the Web site can easily acquire information specific to their
areas of interest. Visitors also can register and create a user identity to
browse or be notified via e-mail of detailed information tailored to their needs
or interests. Dynamo's personalization capabilities enable Newbridge to gather
information about its customers and their preferences, analyze this information
and deliver targeted information on a real-time basis.
Newbridge's current platform has enabled it to adapt its Web site to manage
the delivery of information based on easily modifiable business rules, without
the overhead required to support multiple sites. The various services that have
resulted from this include an extranet for Newbridge's channel partners, as well
as an online support area that provides customers with access to product
information libraries and software updates. Users can also search for
information about product compatibility, manufacturing changes and discontinued
products. Newbridge continues to implement additional transactional, support and
customer management features on its Web site, incorporating personalization as a
means to reinforce and enhance relationships with distribution channels, and
customers.
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BABYCENTER, INC.
www.babycenter.com
BabyCenter is a leading Internet publisher and retailer for new and
expectant parents, providing original editorial content, community and online
commerce features. Its Web site currently generates over 15 million page views
and approximately 750,000 visits per month. The BabyCenter e-commerce storefront
offers over 3,000 products. In developing its Web site, BabyCenter faced the
challenge of building and supporting a full-featured and scalable
consumer-oriented Web site that could provide information, advice, products and
community features appropriate to parents at various stages of parenting.
BabyCenter selected the Dynamo suite of products in March 1998 as the
foundation of the internal development of its Web site. Since the launch of its
Web site in May 1998, BabyCenter has extended the site's functionality with
additional areas and features, including the redesigned BabyCenter store
launched in April 1999. Driven by Dynamo, the Web site provides personalized
editorial content, product guides, product recommendations, user ratings and
feedback, bulletin boards and chat rooms, as well as e-commerce transaction
capabilities.
BabyCenter has been able to establish a flexible and scalable Web
application based on Dynamo that delivers personalized content, manages the
electronic storefront and provides the platform for the editorial publishing
system that drives BabyCenter's positioning and strategy. BabyCenter now
generates revenues from e-commerce transactions to augment revenues from
sponsorships and other partnerships. Recently, BabyCenter announced it had
signed a merger agreement with eToys, Inc., a leading online retailer of
children's products.
TECHNOLOGY
We believe our technology enables our customers to create, deploy and
maintain large-scale, personalized e-commerce Web applications in less time and
at a lower cost than existing alternatives. We believe that our products have
the following technological advantages:
JAVA FOUNDATION
Our products are written entirely in Java and support Java programming for
customization and extension, except for a few integration and installation
modules that can be implemented only in conventional programming languages.
We believe that our Java implementation results in the following benefits:
- STRONG COMPONENT MODEL. Java provides a component standard known as
"JavaBeans," which enables developers to segment their code into discrete,
well-defined units which can be assembled in a "building block" fashion to
create new applications. JavaBeans' modularity makes it easier to create
reusable software as well as maintain existing systems.
- PLATFORM NEUTRALITY. Java's portability allows our applications to be run
on virtually any major computer system without modification. This
portability eliminates porting costs normally required to support multiple
platforms or to change platforms, while allowing us to release products on
major platforms simultaneously.
- ENTERPRISE INTEGRATION. We believe that Java's portability and direct
support for distributed applications is helping Java to become the de
facto standard language for enterprise system integration.
- FEWER PROGRAMMING ERRORS. Java's automatic memory management reduces
memory corruption errors, which typically represent the most costly and
difficult software "bugs" in conventional compiled languages such as C or
C++.
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- ACCELERATED DEVELOPMENT. We believe that the above features, combined with
the broad availability of high-quality Java development tools, result in
faster development time.
MODULAR, STANDARDS-BASED COMPONENT ARCHITECTURE
One of the key features of our product architecture is its high degree of
modularity, achieved by building additional functionality on top of the
JavaBeans component technology. Customizations and extensions built by our
customers or partners using industry standard JavaBean components can be managed
by Dynamo Application Server. Dynamo Application Server enhances the naming,
configuration and lifecycle of each component, allowing components to be added,
extended, duplicated or replaced without recompilation of the rest of the
system. The modularity of our component technology allows our products to be
adapted to meet future business needs. In contrast, producers of non-modular
products must try to anticipate and develop additional functionality at the time
that they market their products.
One of the most powerful uses of our component technology is to integrate
our software with external enterprise systems. We provide reference
implementations of integration components while enabling our customers and
partners to easily replace our reference components with new components that
provide the same function but integrate with their existing systems. We adhere
to industry standards to enable our products to leverage technologies produced
by third parties and to protect the development investments of our partners and
customers.
PERFORMANCE, SCALABILITY AND RELIABILITY
Our products have a layered architecture. Dynamo Personalization Server is
built on top of Dynamo Application Server, and Dynamo Commerce and Ad Station
are built on top of Dynamo Personalization Server. We believe that the
integration of Dynamo Application Server with our other products yields
significant benefits, particularly in performance, scalability and reliability.
Dynamo Application Server uses page compilation technology to enhance the
performance of Web page generation. In most dynamic page generation servers, a
Web page is generated from an HTML template, a Web page that is mostly standard
HTML content with special embedded instructions to generate the dynamic portions
of the page. We utilize this basic page template model, but unlike most other
servers, Dynamo Application Server converts the HTML template into Java source
code and compiles it into executable binary classes. This page compilation
technology improves the speed at which Dynamo Application Server can generate
and serve dynamic Web pages.
Scalability is a term used to describe the ability of an application to
handle greater load when additional hardware is added to a system. Scalability
is particularly important for e-commerce applications where demand can grow
dramatically and unpredictably. Dynamo handles scalability across computers
through a dynamic session-based load management system in which multiple copies
of the application are run on different computers. This load distribution scheme
has the advantage of accommodating additional users by adding more computers.
Our load management technology also enables our applications to handle computer
hardware failures automatically and without interrupting the user's experience.
If a computer fails, users are automatically reassigned to another running
computer.
RESEARCH AND DEVELOPMENT
Our research and development group is responsible for product management,
core technology, product architecture, product development, quality assurance,
documentation and third-party software integration. This group also assists with
pre-sale and customer support activities referred from the Express Services
group and certain quality assurance tasks supporting the Innovation Solutions
group.
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Since we began focusing on selling software products in 1996, the majority
of our research and development activities have been directed towards creating
new versions of our products which extend and enhance competitive product
features, particularly in the areas of integrating our products with external
enterprise systems, supporting emerging industry standards and creating more
powerful user interfaces to our products.
SALES AND MARKETING
Our principal target markets are Fortune 1000 enterprises and new businesses
that plan to use the Internet as their primary business channel. Our customers
are characterized by their strong commitment to Internet customer relationship
management. We target these potential customers directly through our sales force
and indirectly through arrangements with systems integrators, original equipment
manufacturers and other technology partners.
We employ one group of sales professionals who are compensated based on
product and service sales made directly to end-users and a second group who are
compensated based on sales made through co-selling efforts with our systems
integrator partners. We train and assist systems integrators in promoting,
selling, deploying, extending and supporting our products. The objective of this
strategy is to establish close product relationships directly with our customers
and to motivate systems integrators to adopt the Dynamo technology and suite of
products on Internet and Web-based projects for their clients.
In addition, we recently initiated a strategy to co-market our products with
technology partners, such as Documentum and NovaSoft, and to sell our products
through original equipment manufacturers such as Informix, with which we entered
into an agreement in December 1998. We intend to increase sales of our products
by entering into similar relationships with additional technology partners and
original equipment manufacturers.
We currently sell our products primarily in the United States. However, we
are expanding our international sales organization. Currently, we are focusing
our international sales efforts primarily in the United Kingdom and Japan. Many
of our systems integrators and technology partners are global enterprises. We
believe this provides us with an opportunity to expand our international
business.
COMPETITION
The market for Internet customer relationship management solutions is
intensely competitive, subject to rapid technological change and significantly
affected by new product introductions and other market activities of industry
participants. We believe the primary factors upon which we compete are the
functionality and extensibility of our products, the extent to which our
products integrate with other systems, our prices and our ability to provide
quality services to assist our customers and partners.
We expect competition to persist and intensify in the future. We have three
primary sources of competition:
- in-house development efforts by potential customers or partners
- Internet applications software vendors, such as BroadVision, InterWorld,
Open Market and Vignette
- platform application server products and vendors, such as BEA Systems,
IBM's Websphere products, Microsoft, Netscape, and Sun Microsystems'
NetDynamics products, among others.
Competition could materially and adversely affect our ability to obtain
revenues from license fees from new or existing customers and professional
services revenues from existing customers. Further, competitive pressures could
require us to reduce the price of our software products. In either case, our
business, operating results and financial condition would be materially and
adversely affected.
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PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete depend on our ability to develop and
protect the proprietary aspects of our technology and to operate without
infringing on the proprietary rights of others. We rely on a combination of
trademark, trade secret and copyright law and contractual restrictions to
protect our proprietary technology. These legal protections afford only limited
protection for our technology. We seek to protect our source code for our
software, documentation and other written materials under trade secret and
copyright laws. We license our software pursuant to signed license, "click
through" or "shrink wrap" agreements, which impose certain restrictions on the
licensee's ability to use the software. We also seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements and by restricting
access to our source code. Due to rapid technological change, we believe that
factors such as the technological and creative skills of our personnel, new
product developments and enhancements to existing products are more important
than legal protections to establish and maintain a technology leadership
position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of our
software exists, software piracy can be expected to be a persistent problem.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. However, the laws of many countries do not protect proprietary
rights to as great an extent as the laws of the United States. Any such
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business, operating
results and financial condition. There can be no assurance that our means of
protecting our proprietary rights will be adequate or that our competitors will
not independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.
EMPLOYEES
As of March 31, 1999, we had a total of 165 employees. Of our employees, 49
were in research and development, 25 in sales and marketing, 72 in professional
services and 19 in finance and administration. Our future success will depend in
part on our ability to attract, retain and motivate highly qualified technical
and management personnel, for whom competition is intense. From time to time, we
also employ independent contractors to support our professional services,
product development, sales, marketing and business development organizations.
Our employees are not represented by any collective bargaining unit, and we have
never experienced a work stoppage. We believe our relations with our employees
are good.
PROPERTIES
Our headquarters are currently located in a leased facility in Boston,
Massachusetts, consisting of approximately 30,000 square feet. In March 1999 we
signed a new lease for approximately 60,000 square feet in Cambridge,
Massachusetts. We expect to relocate to this facility in August 1999. The
Cambridge facility is expected to meet our needs through the end of 1999, at
which time we intend to expand our facilities by entering into one or more
additional leases. We have also leased offices for sales and support personnel
in San Francisco, California and London, England. See note 7 to our financial
statements.
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LEGAL PROCEEDINGS
A patent infringement claim was filed by BroadVision, one of our
competitors, against us on December 11, 1998. The case was filed in the U.S.
District Court for the Northern District of California. BroadVision alleges that
we are infringing their patent (U.S. Patent No. 5,710,887) for a method of
conducting e-commerce. BroadVision is seeking a permanent injunction of the sale
of our Dynamo products in their current forms as well as unspecified damages. We
intend to vigorously oppose BroadVision's allegations and on February 4, 1999 we
filed our answer denying BroadVision's complaint and filed a counterclaim
against BroadVision seeking a judgment that we are not infringing their patent
and that the patent in question is in fact unenforceable and invalid. See "Risk
Factors-- BroadVision has claimed that we infringe its intellectual property."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors, and their respective ages and
positions as of March 31, 1999, are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Jeet Singh........................................... 35 President, Chief Executive Officer and Director
Joseph T. Chung...................................... 34 Chief Technology Officer, Treasurer and Chairman of
the Board
Ann C. Brady......................................... 35 Vice President, Finance and Chief Financial Officer
William Wittenberg................................... 40 Senior Vice President, Product Development
Patricia J. Morton................................... 42 Vice President, Services
Lauren J. Kelley..................................... 39 Vice President, Sales
Christopher K. Edwards............................... 35 Vice President, Design
Brenda Sullivan...................................... 33 Vice President, Organizational Development
Robert P. Forlenza(1)................................ 43 Director
Scott A. Jones(2).................................... 38 Director
Charles R. Lax(2).................................... 39 Director
Thomas N. Matlack(1)................................. 34 Director
Jeffrey T. Newton.................................... 41 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
JEET SINGH co-founded the company with Joseph Chung in 1991 and is our
President and Chief Executive Officer and a member of our board of directors.
Previously, Mr. Singh held marketing positions with Boston Technology, Inc., a
manufacturer of advanced voice processing computers, Team Technologies, a
Washington, D.C.-based consulting firm specializing in workgroup productivity,
and Groupe Bull/Bull Corporation of America.
JOSEPH T. CHUNG co-founded the company with Mr. Singh in 1991 and is our
Chief Technology Officer, Treasurer and Chairman of our board of directors.
Previously, Mr. Chung was the technical director and chief technology designer
of the hyperinstrument group at the MIT Media Lab and held engineering positions
at Apple Computer and Digital Equipment Corporation.
ANN C. BRADY has been Chief Financial Officer since April 1999 and Vice
President, Finance since January 1998. From May 1997 to January 1998, she was
Director of Finance. From 1992 to May 1997, Ms. Brady was head of Finance and
Accounting for HPR, Inc., a software and consulting services company,
subsequently acquired by McKesson/HBOC.
WILLIAM WITTENBERG has been Senior Vice President, Product Development since
March 1998. From April 1996 to March 1998, he was Vice President, Engineering.
From 1991 to January 1995, Mr. Wittenberg was Director of Product Management and
User Interface Design for Lotus Development Corporation.
PATRICIA J. MORTON has been Vice President, Services since August 1998. From
June 1997 to July 1998, Ms. Morton was a Vice President with Syrinx Corporation,
a software and consulting firm. From April 1997 to June 1997, she was Vice
President, Engineering for SourceCraft, an internet software company. From 1990
to March 1997, Ms. Morton was Vice President of Development for CenterLine
Software, Inc., a software development company.
LAUREN J. KELLEY has been Vice President, Sales since December 1996. From
September 1996 to December 1996, she worked as a consultant to the company on
the European market. From July 1995
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to December 1996 Ms. Kelly was a sales and marketing consultant with TechConnect
Strategies, Inc., an international business development firm. From January 1994
to July 1995, Ms. Kelley was General Manager at Borland International in Paris,
France.
CHRISTOPHER K. EDWARDS has been Vice President, Design since April 1999.
From February 1998 to April 1999, he was Senior Design Director and from
February 1995 to February 1998, he was Lead Designer. Prior to joining us, Mr.
Edwards was a graduate student at the Institute of Design, ITT.
BRENDA SULLIVAN has been Vice President, Organizational Development since
March 1998. From March 1997 to March 1998, she was Director of Internal Affairs,
from June 1996 to March 1997, she was Director of Operations; from September
1994 to June 1996, she was Operations Manager; and from September 1993 to
October 1994, she was Office Manager.
ROBERT P. FORLENZA has been a member of our board of directors since August
1998. Since January 1995, he has been Managing Director of Tudor Investment
Corporation. From 1989 to December 1994, he was a Vice President at Carlisle
Capital Corporation. He also serves on the board of PRT Group, Inc., a software
engineering services company.
SCOTT A. JONES has been a member of our board of directors since November
1997. Since co-founding Escient, Inc., a company focusing on Internet
applications related to entertainment in the home, in July 1996, Mr. Jones has
served as its Chief Executive Officer and Chairman. After co-founding Boston
Technology, Inc. in 1986, Mr. Jones served as its Chairman and Chief Scientist
until 1992. Since 1994, he has also been a principal of Threshold Technologies,
Inc., a consulting firm, and King Air Charters, Inc., an air charter company.
Mr. Jones also serves on the board of HIE, Inc., a software integration services
company.
CHARLES R. LAX has been a member of our board of directors since December
1997. Since November 1997, Mr. Lax has been General Partner of SOFTBANK
Technology Ventures. From March 1996 to November 1997, he was Vice President at
SOFTBANK Holdings Inc. Mr. Lax also serves on the board of Interliant, Inc., an
Internet hosting service company.
THOMAS N. MATLACK has been a member of our board of directors since November
1997. Since August 1998, he has been a Managing Partner at Megunticook
Management LLC, a private investment fund. From 1992 to February 1997, he held
various positions with the Providence Journal Company, including Chief Financial
Officer from April 1996 to February 1997, Vice President, Finance from September
1995 to April 1996, and Director, Financial Planning and Analysis from 1992 to
September 1995.
JEFFREY T. NEWTON has been a member of our board of directors since
September 1998. Since June 1997, Mr. Newton has been Managing Director of Gemini
Investors LLC. Since 1992, he has also been President of Concord Partners, LTD,
a business consulting firm.
Our board of directors is divided into three classes, with the members of
each class serving for a staggered three-year term. Our board currently consists
of Class I directors, Class II directors and Class III directors. At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring. The term of the Class I directors expire upon the election and
qualification of successor directors at the annual meeting of stockholders to be
held in 2000. The term of the Class II directors expires upon the election and
qualification of a successor director at the annual meeting of stockholders to
be held in 2001. The term of the Class III directors expires upon the election
and qualification of a successor director at the annual meeting of stockholders
to be held in 2002.
Each officer serves at the discretion of our board of directors and holds
office until his successor is elected and qualified or until his or her earlier
resignation or removal.
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COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has a compensation committee, composed of Messrs.
Jones and Lax, which makes recommendations concerning salaries and incentive
compensation for our employees and consultants and administers and grants awards
pursuant to our stock benefit plans, and an audit committee, composed of Messrs.
Forlenza and Matlack, which reviews the results and scope of the audit and other
services provided by our independent public accountants.
DIRECTOR COMPENSATION
All of our directors are reimbursed for expenses incurred to attend board of
directors and committee meetings. In addition, our non-employee directors are
eligible to receive stock options under our 1999 Outside Director Stock Option
Plan. See "--Benefit Plans--1999 Outside Director Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1998 to the following (collectively, the "Named
Executive Officers"):
- our chief executive officer
- our four other executive officers who were serving as executive officers
at December 31, 1998 and whose total salary and bonus for such year
exceeded $100,000
- one former executive officer
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SHARES
---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- ---------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Jeet Singh............................................................ $ 150,000 --
President and Chief Executive Officer
Joseph T. Chung....................................................... 150,000 --
Chief Technology Officer, Treasurer and Chairman of the Board
Ann C. Brady.......................................................... 125,000 -- 62,250
Vice President, Finance and Chief Financial Officer
William Wittenberg.................................................... 138,846 -- 90,930
Senior Vice President, Product Development
Lauren J. Kelley...................................................... 120,000 $ 149,610(1) 35,400
Vice President, Sales
Paul Shorthose (2).................................................... 88,846 60,000(3) --
</TABLE>
- ------------------------
(1) Includes commission of $46,247 paid in 1999 but earned in 1998.
(2) Mr. Shorthose resigned as our Vice President, Services in August 1998.
(3) Excludes bonus of $20,000 earned in 1997 and paid in 1998.
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OPTION GRANTS AND EXERCISES DURING 1998
The following table contains information concerning the grant of options to
purchase shares of our common stock to each of the Named Executive Officers
during the fiscal year ended December 31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM (1)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED YEAR ($/SH)(1) DATE 5% ($) 10% ($)
- ------------------------------------------------- ----------- --------------- ------------- ------------ --------- ---------
Jeet Singh....................................... -- -- -- -- -- --
Joseph T. Chung.................................. -- -- -- -- -- --
Ann C. Brady..................................... 42,000 2.6% $ 0.50 3/16/2008 $ 13,207 $ 33,468
7,500 0.5 0.50 8/26/2008 2,358 5,977
12,000 0.7 0.50 8/26/2008 3,778 9,562
750 0.0 0.50 8/26/2008 237 598
William Wittenberg............................... 30,000 1.8 0.50 3/16/2008 9,433 23,906
30,180 1.8 0.50 8/26/2008 9,490 24,050
750 0.0 0.50 8/26/2008 237 598
30,000 1.8 0.50 12/18/2008 9,433 23,906
Lauren J. Kelley................................. 33,000 2.0 0.50 8/26/2008 10,377 26,297
1,650 0.1 0.50 8/26/2008 519 1,315
750 0.0 0.50 8/26/2008 237 598
Paul Shorthose................................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect our
estimate of future stock price growth. Actual gains, if any, on stock
options exercises and common stock are dependent on the timing of such
exercise and the future performance of the common stock.
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FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each of the Named Executive
Officers with respect to the value of options outstanding as of December 31,
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END ($) (1)
EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeet Singh................................ -- -- -- -- -- --
Joseph T. Chung........................... -- -- -- -- -- --
Ann C. Brady.............................. 12,750 -- 28,406 91,595 -- --
William Wittenberg........................ -- -- 186,345 176,385 $ 92,813 $ 55,688
Lauren J. Kelley.......................... -- -- 10,350 41,550 -- --
Paul Shorthose............................ -- -- -- -- -- --
</TABLE>
- ------------------------
(1) There was no public trading market for our common stock as of December 31,
1998, the fiscal year-end and the date of exercise by Ms. Brady.
Accordingly, as permitted by the rules of the Securities and Exchange
Commission, these values have been calculated on the basis of the fair
market value of our common stock as of December 31, 1998, or $0.50 per
share, as determined by the board of directors, less the aggregate exercise
price.
BENEFIT PLANS
1996 STOCK OPTION PLAN. Our 1996 Stock Option Plan was adopted by our board
of directors in April 1996 and approved by our stockholders in May 1996. The
1996 plan authorizes the issuance of up to 6,300,000 shares of our common stock.
As of March 31, 1999, options to purchase an aggregate of 2,971,169 shares of
common stock at a weighted average exercise price of $0.80 per share were
outstanding under the 1996 plan.
The 1996 plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Internal Revenue Code and nonstatutory stock
options.
Our officers, employees, directors, consultants and advisors are eligible to
receive awards under the 1996 plan. Under present law, however, incentive stock
options may only be granted to employees. No employee may receive any award for
more than 500,000 shares in any calendar year.
Optionees receive the right to purchase a specified number of shares of
common stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. We may grant
options at an exercise price less than, equal to or greater than the fair market
value of our common stock on the date of grant. Under present law, incentive
stock options and options intended to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code may not be granted at an
exercise price less than the fair market value of the common stock on the date
of grant or less than 110% of the fair market value in the case of incentive
stock options granted to optionees holding more than 10% of the voting power of
the company. The 1996 plan permits our board of directors to determine how
optionees may pay the exercise price of their options, including by cash, check
or in connection with a "cashless exercise" through a broker, by surrender to us
of shares of common stock, by delivery to us of a promissory note, or by any
combination of the permitted forms of payment.
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<PAGE>
As of March 31, 1999, approximately 150 persons were eligible to receive
awards under the 1996 plan, including eight executive officers and five
non-employee directors.
Our board of directors administers the 1996 plan. Our board of directors has
the authority to adopt, amend and repeal the administrative rules, guidelines
and practices relating to the plan and to interpret its provisions. It may
delegate authority under the 1996 plan to one or more committees of the board of
directors. Our board of directors has authorized the compensation committee to
administer the 1996 plan, including the granting of options to our executive
officers. Subject to any applicable limitations contained in the 1996 plan, our
board of directors, our compensation committee or any other committee to whom
our board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:
- the number of shares of common stock covered by options and the dates upon
which such options become exercisable
- the exercise price of options
- the duration of options
In the event of a merger, liquidation or other acquisition event, our board
of directors is authorized to take one or more of the following actions:
- provide that outstanding options be assumed or substituted for by the
acquiror
- provide that all unexercised options terminate immediately prior to the
event unless exercised within a time period specified in written notice to
the option holder
- in the event of a merger in which the holders of common stock would
receive a cash payment for each share surrendered, provide for a cash
payment to each option holder equal to the amount by which the amount paid
to common stock holders exceeds the option's exercise price, multiplied by
the total number of shares for which the option is then exercisable: in
exchange for this payment, the options would be terminated
- provide that any or all outstanding options become fully exercisable
immediately prior to the event
No award may be granted under the 1996 plan after April 2006, but the
vesting and effectiveness of awards previously granted may extend beyond that
date. Our board of directors may at any time amend, suspend or terminate the
1996 plan, except that no award granted after an amendment of the 1996 plan and
for which stockholder approval is required under Section 422 of the Internal
Revenue Code shall become exercisable, realizable or vested, to the extent such
amendment was required to grant such award, unless and until such amendment is
approved by our stockholders.
1999 OUTSIDE DIRECTOR STOCK OPTION PLAN. Our 1999 Outside Director Stock
Option Plan was adopted by our board of directors and approved by our
stockholders in May 1999. Under the terms of the director plan, directors who
are not employees of the company or any subsidiary of the company receive
nonstatutory options to purchase shares of our common stock. A total of
shares of our common stock may be issued upon exercise of options
granted under the plan.
Under the terms of the director plan, each non-employee director continuing
as a director following this offering will receive an option to purchase
shares of our common stock on the effective date of this offering at a price per
share equivalent to the initial public offering price. In addition, each such
non-employee director will receive an option to purchase shares of our
common stock on the date of each annual meeting of stockholders commencing with
the 2000 annual meeting of stockholders, at an exercise price per share equal to
the closing price of our common stock on the date of grant. In addition,
individuals who become directors after this offering and are not our employees
will receive an option to purchase shares of our common stock on the date
of his or her initial election to our board of directors and an option to
purchase shares of our common
49
<PAGE>
stock on the date of each annual meeting of stockholders after his or her
election. The exercise price per share of such options will be the closing price
per share of our common stock on the date of grant. All options granted under
the director plan will be fully vested upon grant.
1999 EMPLOYEE STOCK PURCHASE PLAN. Our 1999 Employee Stock Purchase Plan
was adopted by our board of directors and approved by our stockholders in May
1999. The purchase plan authorizes the issuance of up to a total of 500,000
shares of our common stock to participating employees.
All of our employees, including our directors who are employees, and all
employees of any participating subsidiaries, whose customary employment is more
than 20 hours per week and for more than five months in any calendar year, are
eligible to participate in the purchase plan. Employees who would immediately
after the grant own 5% or more of the total combined voting power or value of
our stock or any subsidiary are not eligible to participate. As of March 31,
1999, approximately 150 of our employees would have been eligible to participate
in the purchase plan.
During each designated payroll deduction period, or offering period, each
eligible employee may authorize us to deduct between 1% to 10%, in increments of
1%, of his or her base pay, including sales commissions. We will hold the
deducted money in a non-interest bearing account for each participating
employee. On the last business day of the offering period we will use the amount
in his or her account to buy shares of our common stock for each participating
employee at the following purchase price. The purchase price will be 85% of the
closing market price of our common stock on either (i) the first business day of
the offering period or (ii) the last business day of the offering period,
whichever is lower. No employee is allowed to buy shares of common stock worth
more than $25,000, based on the fair market value of the common stock on the
first day of the offering period, in any calendar year under the plan. Each
offering period will last for six months. The first offering will begin on the
day on which trading of our common stock begins on the Nasdaq National Market,
and the closing price of the common stock on the first business day of the first
offering period will equal the initial public offering price.
An employee must be a participant on the last day of an offering period in
order to purchase stock under the plan. An employee's participation in an
offering terminates upon:
- the employee's withdrawl of the balance accumulated in his or her account
- termination of employment
- retirement
- death
- transfer to a subsidiary of the company which does not participate in the
plan
- the subsidiary for which the employee works no longer being a subsidiary
of the company
In the event of the employee's death, the balance in the employee's account will
be refunded to the employee's beneficiary or the executor or administrator of
the employee's estate.
Because participation in the purchase plan is voluntary, we cannot now
determine the number of shares of our common stock to be purchased by any of our
current executive officers, by all of our current executive officers as a group
or by our non-executive employees as a group.
401(K) PLAN. We have adopted an employee savings and retirement plan
qualified under Section 401 of the Internal Revenue Code and covering all of our
employees. Employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) plan. We may make matching or additional contributions
to the 401(k) plan in amounts to be determined annually by our board of
directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the compensation committee of our board of directors
are Messrs. Jones and Lax. No executive officer has served as a director or
member of the compensation committee, or other committee serving an equivalent
function, of any other entity whose executive officers served as a director or
member of the compensation committee of our board of directors.
50
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
The following describes certain transactions between us and our officers,
directors and stockholders who prior to this offering owned at least 5% of our
outstanding capital stock.
In July 1995, we sold 1,300,000 shares of series A preferred stock, 650,000
shares to each of Messrs. Madanjeet Singh and B.U. Chung for $0.385 per share.
Upon the closing of this offering, the outstanding shares of series A preferred
stock will convert into 1,950,000 shares of common stock. Mr. Singh is the
father of Jeet Singh, our President and Chief Executive Officer and one of our
directors. Mr. Chung is the father of Joseph T. Chung, our Chief Technology
Officer, Treasurer and Chairman of the Board.
In December 1996, we sold 425,532 shares of series B preferred stock to
SOFTBANK Ventures Inc. for $7.05 per share and issued a warrant to SOFTBANK to
purchase 425,532 shares of series B preferred stock at an exercise price of
$7.05 per share. In August 1998 the exercise price under the warrant was reduced
to $1.385 per share. Upon the closing of this offering, the outstanding shares
of series B preferred stock will convert into 1,642,953 shares of common stock,
and SOFTBANK's warrant will be cancelled. SOFTBANK owns 6.5% of our capital
stock. Charles R. Lax, a member of our board of directors, is a General Partner
of SOFTBANK Technology Ventures, an affiliate of SOFTBANK Ventures Inc.
In November and December 1997 and April 1998, we sold to private investors
1,456,789 shares of series C preferred stock for $1.62 per share. Scott A.
Jones, a member of our board of directors, purchased 401,235 shares, and Thomas
N. Matlack, another member of our board of directors, purchased 30,864 shares.
Mr. Matlack is also a limited partner of Wyndcrest Partners, Ltd., which
purchased 376,545 shares of series C preferred stock. Mr. Matlack had
approximately a 4% limited partnership interest in the shares purchased by
Wyndcrest. Upon the closing of this offering, the outstanding shares of series C
preferred stock will convert into 4,437,567 shares of common stock.
In August, September and October 1998, we sold to private investors
2,343,750 shares of series D preferred stock for $3.20 per share and warrants to
purchase 2,146,325 shares of common stock at an exercise price of $0.16 per
share. Tudor Private Equity Fund L.P. purchased 1,394,531 shares of series D
preferred stock and warrants to purchase 1,277,064 shares of common stock. The
Raptor Global Fund L.P. and The Raptor Global Fund Ltd. purchased 246,094 shares
of series D preferred stock and warrants to purchase 430,962 shares of common
stock. These related entities own 21.5% of our capital stock. Robert P.
Forlenza, a member of our board of directors, is a Managing Director of Tudor
Investment Corporation, the investment advisor of the Tudor and Raptor entities.
GMN Investors II, L.P. purchased 625,000 shares of series D preferred stock and
a warrant to purchase 1,094,511 shares of common stock. GMN Investors II, L.P.
owns 8.2% of our capital stock. Jeffrey T. Newton, a member of our board of
directors, is Managing Director of Gemini Investors LLC, which controls GMN
Investors II, L.P. Upon the closing of this offering, the outstanding shares of
series D preferred stock will convert into 7,800,369 shares of common stock, and
the warrants issued to the holders of series D preferred stock will be
cancelled.
In 1995, 1996 and 1998 we loaned Jeet Singh a total of $60,755 on an
interest-free basis. This loan was repaid in full in April 1999 with a bonus we
paid him.
Pursuant to a stockholders agreement dated August 18, 1998, Mr. Singh, Mr.
Chung and the holders of our preferred stock agreed to vote their shares to fix
the number of directors at seven. Pursuant to this agreement, the board was to
consist of two directors elected by the holders of series D preferred stock; one
director elected by the holders of series C preferred stock; one director
elected by the holders of series B preferred stock; and two directors elected by
the holders of our common stock. This agreement terminates upon completion of
this offering.
51
<PAGE>
In November 1997, we entered into a consulting agreement with Mr. Matlack.
Mr. Matlack provided consulting services in the areas of strategic planning and
financial advice and planning. In exchange for these services, we issued Mr.
Matlack a non-statutory option to purchase a total of 195,000 shares of our
common stock at an exercise price of $0.50 per share. This consulting agreement
terminated in November 1998.
In June 1998 we borrowed $300,000 from Mr. Jones. This loan did not bear
interest and was repaid in full in July 1998.
All future transactions between us and our officers, directors, principal
stockholders and their affiliates will be approved by a majority of the board of
directors, including a majority of the disinterested directors, and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of the shares of common stock in this offering, by: (a) each person we
know to own beneficially more than 5% of our common stock; (b) each of our
directors; (c) each of the Named Executive Officers; and (d) all directors and
executive officers as a group. Unless otherwise indicated, each person named in
the table has sole voting power and investment power, or shares such power with
his or her spouse, with respect to all shares of capital stock listed as owned
by such person. The address of each of our executive officers and directors is
c/o Art Technology Group, Inc., 101 Huntington Avenue, Boston, Massachusetts
02199.
The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission. The
information is not necessarily indicative of beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and any
shares as to which the individual has the right to acquire beneficial ownership
within 60 days after March 31, 1999 through the exercise of any stock option or
other right. The inclusion herein of such shares, however, does not constitute
an admission that the named stockholder is a direct or indirect beneficial owner
of such shares. Percentage of beneficial ownership is based on 25,407,008 shares
of common stock and common stock equivalents outstanding as of March 31, 1999
and shares of common stock outstanding after completion of this
offering. Any shares to be sold by selling stockholders will only be sold
pursuant to the underwriters' over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED
OFFERING AFTER OFFERING
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Tudor Private Equity Fund L.P. (1)..................... 4,641,219 18.3% %
40 Rowes Wharf
Boston, MA 02110
Jeet Singh (2)......................................... 3,750,000 14.7%
Joseph T. Chung (3).................................... 3,750,000 14.7%
GMN Investors II, L.P.(4).............................. 2,080,098 8.2%
20 William Street
Wellesley, MA 02481
SOFTBANK Ventures Inc. (5)............................. 1,642,953 6.5%
24-1 Nihonbashi--Hakozakicho
Chu-ku, Tokyo 103
Japan
Robert P. Forlenza (6)................................. 5,460,258 21.5%
Jeffrey T. Newton (7).................................. 2,080,098 8.2%
Charles R. Lax (8)..................................... 1,642,953 6.5%
Scott A. Jones......................................... 1,222,216 4.8%
Thomas N. Matlack...................................... 337,917 1.3%
William Wittenberg..................................... 257,685 *
Ann C. Brady........................................... 59,343 *
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED
OFFERING AFTER OFFERING
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Lauren J. Kelley....................................... 21,863 *
Paul Shorthose......................................... -- --
All directors and executive officers as a group (13
persons)............................................. 18,777,924 73%
</TABLE>
- ------------------------
* Less than 1%
(1) Robert P. Forlenza, a member of the board of directors, is Managing Director
of Tudor Investment Corporation, the investment advisor of Tudor Private
Equity Fund L.P.
(2) Excludes 975,000 shares owned by Mr. Madanjeet Singh, Mr. Singh's father.
After March 31, 1999, Jeet Singh's shares were transferred to trusts of
which he is the sole trustee with sole voting and dispositive power.
(3) Excludes 975,000 shares owned by Mr. B.U. Chung, Mr. Chung's father. After
March 31, 1999, Joseph Chung's shares were transferred to trusts of which he
has sole voting and dispositive power.
(4) Jeffrey T. Newton, a member of the board of directors, is Managing Director
of Gemini Investors LLC, which controls GMN Investors II, L.P.
(5) Charles R. Lax, a member of the board of directors, is General Partner of
SOFTBANK Technology Ventures, an affiliate of SOFTBANK Ventures Inc.
(6) Mr. Forlenza is a Managing Director of Tudor Investment Corporation, the
investment advisor of Tudor Private Equity Fund L.P., The Raptor Global Fund
Ltd. and The Raptor Global Fund, L.P. Mr. Forlenza may be deemed to have
beneficial ownership of 4,641,219 shares owned by Tudor Private Equity Fund,
L.P., 614,278 shares owned by The Raptor Global Fund, Ltd., and 204,761
shares owned by The Raptor Global Fund, L.P. Mr. Forlenza disclaims such
beneficial ownership.
(7) Mr. Newton is Managing Director of Gemini Investors LLC and may be deemed to
have beneficial ownership of 2,080,098 shares owned by GMN Investors II,
L.P.
(8) Mr. Lax is a Managing Director of SOFTBANK Technology Ventures and may be
deemed to have beneficial ownership of 1,642,953 shares owned by SOFTBANK
Ventures Inc.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, we will be authorized to issue 100,000,000
shares of common stock, $.01 par value per share, and 10,000,000 shares of
preferred stock, $.01 par value per share. As of March 31, 1999, we had
outstanding:
- 9,576,119 shares of common stock held by 68 stockholders of record
- 5,526,068 shares of preferred stock held by 25 stockholders of record
- options to purchase 2,971,169 shares of common stock
- warrants to purchase 2,146,325 shares of common stock
- warrants to purchase 56,296 shares of series C preferred stock
- warrants to purchase 425,532 shares of series B preferred stock
Upon the closing of this offering, all outstanding shares of preferred stock
will convert into 15,830,889 shares of common stock, the warrants to purchase
common stock and series B preferred stock will be cancelled and the warrants to
purchase series C preferred stock will become warrants to purchase 171,483
shares of common stock. The options will remain outstanding.
The following summary of certain provisions of our common stock, preferred
stock, certificate of incorporation and by-laws is not intended to be complete.
It is qualified by reference to the provisions of applicable law and to our
certificate of incorporation and by-laws included as exhibits to the
registration statement of which this prospectus is a part. See "Where You Can
Find More Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of directors,
subject to any preferential dividend rights of outstanding preferred stock. Upon
our liquidation, dissolution or winding up, the holders of common stock are
entitled to receive proportionately our net assets available after the payment
of all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.
PREFERRED STOCK
Under the terms of our certificate of incorporation, our board of directors
is authorized to issue shares of preferred stock in one or more series without
stockholder approval. Our board of directors has the discretion to determine the
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to
55
<PAGE>
acquire, or could discourage a third party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation's voting stock.
Our certificate of incorporation divides our board of directors into three
classes with staggered three-year terms. In addition, our certificate of
incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of our shares of capital stock
entitled to vote. Under our certificate of incorporation, any vacancy on our
board of directors, including a vacancy resulting from an enlargement of our
board of directors, may only be filled by vote of a majority of our directors
then in office. The classification of our board of directors and the limitations
on the removal of directors and filling of vacancies could make it more
difficult for a third party to acquire, or discourage a third party from
acquiring, control of the company.
Our certificate of incorporation also provides that any action required or
permitted to be taken by our stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before such
meeting and may not be taken by written action in lieu of a meeting. Our
certificate of incorporation further provides that special meetings of the
stockholders may only be called by our Chairman of the Board, President or board
of directors. Under our by-laws, in order for any matter to be considered
"properly brought" before a meeting, a stockholder must comply with certain
advance notice requirements. These provisions could have the effect of delaying
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of our outstanding voting securities. These provisions
may also discourage a third party from making a tender offer for our common
stock, because even if it acquired a majority of our outstanding voting
securities, the third party would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our certificate of incorporation and by-laws
require the affirmative vote of the holders of at least 75% of the shares of our
capital stock issued and outstanding and entitled to vote to amend or repeal any
of the provisions described in the prior two paragraphs.
Our certificate of incorporation contains certain provisions permitted under
the General Corporation Law of Delaware relating to the liability of directors.
The provisions eliminate a director's liability for monetary damages for a
breach of fiduciary duty, except in certain circumstances involving wrongful
acts, such as the breach of a director's duty of loyalty or acts or omissions
that involve intentional misconduct or a knowing violation of law. Further, our
certificate of incorporation contains provisions to indemnify our directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. We believe that these provisions will assist us in attracting and
retaining qualified individuals to serve as directors.
56
<PAGE>
REGISTRATION RIGHTS
After this offering, the holders of approximately 13,596,000 shares of
common stock will be entitled to certain rights with respect to the registration
of such shares under the Securities Act. Under the terms of the agreement
between us and the holders of such registrable securities, if we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, such holders are entitled to notice of such registration and are
entitled to include shares of such common stock therein. Additionally, such
holders are also entitled to certain demand registration rights pursuant to
which they may require us on up to six occasions to file a registration
statement under the Securities Act at our expense with respect to our shares of
common stock, and we are required to use our best efforts to effect such
registration. Further, holders may require us to file an unlimited number of
additional registration statements on Form S-3 at our expense. All of these
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration and our right not to effect a requested
registration within twelve months following an offering of our securities,
including the offering made hereby. In addition, the holders of registration
rights have agreed not to exercise such rights for at least 180 days after the
offering without the prior written consent of Hambrecht & Quist LLC. We have
also agreed to indemnify the registration rights holders against, and provide
contribution with respect to, certain liabilities relating to any registration
in which any shares of such holders are sold under the Securities Act.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Boston EquiServe
Limited Partnership.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
After we complete this offering, based upon the number of shares outstanding at
March 31, 1999, there will be shares of our common stock outstanding
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options to purchase common stock. Of these outstanding shares,
the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, except
that any shares purchased by our "affiliates", as that term is defined in Rule
144 under the Securities Act, may generally only be sold in compliance with the
limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
All of the shares offered under this prospectus will be freely tradable in
the open market. The remaining 25,407,008 shares of common stock that will be
outstanding after this offering are considered "restricted securities" under
Rule 144 of the Securities Act. Generally, restricted securities that have been
owned for a period of at least two years may be sold immediately after the
completion of this offering and restricted securities that have been owned for
at least one year may be sold 90 days after the completion of this offering.
Certain of the restricted securities are subject to lock-up agreements with the
underwriters. Persons subject to lock-up agreements have agreed not to sell
shares of common stock without the prior permission of the underwriters for a
period of 180 days after the completion of this offering. The underwriters
currently do not intend to release anyone from the lock-up agreement. The table
below sets forth information regarding potential sales of restricted securities.
- shares may be sold immediately after completion of this
offering; and
- additional shares may be sold upon the expiration of the lock-up
agreements.
In general, under Rule 144, stockholders, including our affiliates, who have
beneficially owned restricted securities for at least one year are entitled to
sell, within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of our common stock, or approximately shares
immediately after this offering, or the average weekly trading volume in our
common stock during the four calendar weeks preceding the date on which notice
of such sale was filed under Rule 144, provided certain requirements concerning
availability of public information, manner of sale and notice of sale are
satisfied. In addition, a stockholder that is not one of our affiliates at any
time during the three months preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell the shares
immediately under Rule 144(k) without compliance with the above described
requirements under Rule 144.
Securities issued in reliance on Rule 701, such as shares of our common
stock acquired pursuant to the exercise of certain options granted under our
stock plans, are also restricted securities and, beginning 90 days after the
date of this prospectus, may be sold by stockholders other than our affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year holding period requirement.
STOCK OPTIONS
Shares of common stock may also be issued and sold upon the exercise of
options. Approximately 90 days after this offering, we intend to register an
aggregate of 5,498,552 shares of common stock, which may be issued under our
1996 Stock Option Plan. Shares issued upon the exercise of stock options after
the effective date of the Form S-8 registration statements will be eligible for
resale in the public market without restrictions, subject to Rule 144
limitations applicable to affiliates and the
58
<PAGE>
lock-up agreements noted above, if applicable. Upon the expiration of the
lock-up agreements, 1,586,883 additional shares may be sold as a result of the
exercise of vested options.
In addition, we intend to register an aggregate of shares of
common stock reserved for issuance under our 1999 Employee Stock Purchase Plan
and 1999 Outside Directors Stock Option Plan.
WARRANTS
Upon the expiration of the lock-up agreements, 171,485 shares of common
stock may be sold in the public market as a result of the exercise of
outstanding warrants.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for our common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares for sale will have on
the market price of our common stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of our common stock in the public market
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
U.S. Bancorp Piper Jaffray Inc. and Thomas Weisel Partners LLC, have severally
agreed to purchase from us the following respective number of shares of common
stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC............................................................
U.S. Bancorp Piper Jaffray Inc...................................................
Thomas Weisel Partners LLC.......................................................
----------
Total..........................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and the receipt of certain certificates,
opinions and letters from us, our counsel and the independent auditors. The
nature of the underwriters' obligation is such that they are committed to
purchase all shares of common stock offered hereby if any of the shares are
purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the underwriters.
We and the selling stockholders have granted to the underwriters an option,
exercisable no later than 30 days after the date of this prospectus, to purchase
up to additional shares of common stock at the initial public offering
price, less the underwriting discount set forth on the cover page of this
prospectus. To the extent that the underwriters exercise this option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of common stock to be purchased by
it shown in the above table bears to the total number of shares offered hereby.
We and the selling stockholders will be obligated, pursuant to the option, to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of common stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payments the underwriters may be required to make in respect
thereof.
The selling stockholders and certain of our other stockholders, including
executive officers and directors, who will own in the aggregate shares
of common stock after the offering have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of common stock, options or warrants to acquire shares of common
stock or securities exchangeable for or convertible into shares of common stock
owned by them during the 180-day period following the date of this prospectus.
We have agreed that we will not, without the
60
<PAGE>
prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose
of any shares of common stock, options or warrants to acquire shares of common
stock or securities exchangeable for or convertible into shares of common stock
during the 180-day period following the date of this prospectus, except that we
may issue shares upon the exercise of options granted prior to the date hereof,
and may grant additional options under our stock option plan, provided that,
without the prior written consent of Hambrecht & Quist LLC, such additional
options shall not be exercisable during such period.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price for the common stock was determined by
negotiations among ourselves, the selling stockholders and the representatives.
Among the factors considered in determining the initial public offering price
were prevailing market and economic conditions, our revenues and earnings,
market valuations of other companies engaged in activities similar to ours,
estimates of our business potential and prospects, the present state of our
business operations, our management and other factors deemed relevant.
Thomas Weisel Partners LLC, one of the representatives, was organized and
registered as a broker-dealer in December 1998. Since December 1998, Thomas
Weisel Partners LLC has been named as a lead or co-manager on 20 filed public
offerings of equity securities, of which six have been completed, and has acted
as a syndicate manager in an additional eight public offerings of equity
securities. Thomas Weisel Partners LLC does not have any material relationship
with us or any of our officers, directors or other controlling persons, except
with respect to its contractual relationship with us pursuant to the
underwriting agreement entered into in connection with this offering.
61
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by us hereby will be
passed upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal
matters will be passed upon for the underwriters by Foley, Hoag & Eliot LLP,
Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus and the registration statement relating to this prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the
stock we are offering by this prospectus. This prospectus does not include all
of the information contained in the registration statement. You should refer to
the registration statement and its exhibits for additional information. Whenever
we make reference in this prospectus to any of our contracts, agreements or
other documents, the references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract, agreement or other document. When we complete this offering, we
will also be required to file annual, quarterly and special reports, proxy
statements and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's Web site at HTTP://WWW.SEC.GOV. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market, you should call (212) 656-5060.
62
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................. F-2
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (Unaudited)........................... F-3
Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998 and the Three Months Ended
March 31, 1998 and 1999 (Unaudited).................................................................... F-4
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996, 1997 and 1998 and the
Three Months Ended March 31, 1999 (Unaudited).......................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and the Three Months Ended
March 31, 1998 and 1999 (Unaudited).................................................................... F-6
Notes to Financial Statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
After the three-for-two stock split discussed in Note 6(a) to Art Technology
Group, Inc.'s financial statements is effected, we expect to be in a position to
render the following audit report.
/s/ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 12/13, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Art Technology Group, Inc.:
We have audited the accompanying balance sheets of Art Technology Group,
Inc. (a Delaware corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Art Technology Group, Inc.
as of December 31, 1997 and 1998, and the 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.
Boston, Massachusetts
March 4, 1999 (except with respect
to the matter discussed in Note 6(a),
as to which the date is July ,1999
------------------------
F-2
<PAGE>
ART TECHNOLOGY GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999
DECEMBER 31, ------------------------
---------------------- PRO FORMA
1997 1998 ACTUAL (NOTE 1(C))
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 186,829 $4,092,790 $ 6,628,605 $ 6,628,605
Marketable securities............................................ -- -- 1,006,634 1,006,634
Accounts receivable, net of reserves of approximately $21,000,
$250,000 and $260,000 at December 31, 1997 and 1998 and March
31, 1999, respectively......................................... 742,875 2,317,672 2,477,060 2,477,060
Unbilled services................................................ 198,049 290,585 536,911 536,911
Prepaid expenses and other current assets........................ 1,000 113,423 579,977 579,977
---------- ---------- ----------- -----------
Total current assets......................................... 1,128,753 6,814,470 11,229,187 11,229,187
Property and equipment, less accumulated depreciation and
amortization....................................................... 478,049 842,010 1,033,740 1,033,740
Receivable from officer/stockholder................................ 56,957 -- -- --
Other assets....................................................... 8,230 109,391 105,434 105,434
---------- ---------- ----------- -----------
$1,671,989 $7,765,871 $12,368,361 $12,368,361
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit................................................... $ 304,000 $ -- $ -- $ --
Current maturities of long-term obligations...................... 548,373 347,096 343,419 343,419
Accounts payable................................................. 847,826 720,180 597,916 597,916
Accrued expenses................................................. 393,284 1,220,101 1,777,982 1,777,982
Deferred revenue................................................. 363,440 878,341 5,633,387 5,633,387
---------- ---------- ----------- -----------
Total current liabilities.................................... 2,456,923 3,165,718 8,352,704 8,352,704
---------- ---------- ----------- -----------
Long-term obligations, less current maturities..................... 122,175 322,069 231,177 231,177
---------- ---------- ----------- -----------
Commitments and contingencies (Note 7)
Redeemable convertible preferred stock............................. 3,153,288 8,312,554 8,555,948 --
---------- ---------- ----------- -----------
Stockholders' equity (deficit):
Preferred stock, $.01 par value--
Authorized--10,000,000 shares at December 31, 1997 and 1998 and
March 31, 1999, no shares pro forma
Series A Convertible Preferred Stock--
Designated--1,300,000 shares
Issued and outstanding--1,300,000 shares at December 31, 1997
and 1998 and March 31, 1999 and no shares pro forma
(preference in liquidation of $500,500 at March 31,
1999)...................................................... 500,500 500,500 500,500 --
Series C Convertible Preferred Stock--
Designated--2,000,000 shares
Issued and outstanding--1,209,875, 1,456,789 and 1,456,789
shares at December 31, 1997 and 1998 and March 31, 1999,
respectively and no shares pro forma (preference in
liquidation of $2,512,553 at March 31, 1999)............... 1,960,000 2,360,000 2,360,000 --
Common stock, $.01 par value--
Authorized--25,000,000 shares at December 31, 1997 and 1998 and
March 31, 1999 and 100,000,000 shares pro forma
Issued and outstanding--8,906,700, 9,128,055 and 9,576,119
shares at December 31, 1997 and 1998 and March 31, 1999,
respectively and 25,407,008 shares pro forma................. 89,067 91,281 95,762 254,070
Additional paid-in capital....................................... 279,685 6,040,234 8,694,960 21,771,853
Deferred compensation............................................ -- (1,692,301) (3,967,755) (3,967,755)
Accumulated deficit.............................................. (6,889,649) (11,334,184) (12,454,935) (14,273,688)
---------- ---------- ----------- -----------
Total stockholders' equity (deficit)....................... (4,060,397) (4,034,470) (4,771,468) 3,784,480
---------- ---------- ----------- -----------
$1,671,989 $7,765,871 $12,368,361 $12,368,361
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ART TECHNOLOGY GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Services............................ $ 3,849,095 $ 4,591,660 $ 8,078,327 $ 1,691,586 $ 2,614,069
Product license..................... 53,000 1,865,884 4,059,064 209,124 1,805,550
------------- ------------- ------------- ------------- -------------
Total revenues.................. 3,902,095 6,457,544 12,137,391 1,900,710 4,419,619
COST OF REVENUES...................... 1,985,495 3,196,289 5,050,274 1,065,487 1,812,452
------------- ------------- ------------- ------------- -------------
Gross profit.................... 1,916,600 3,261,255 7,087,117 835,223 2,607,167
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Research and development............ 1,117,376 3,661,083 3,355,155 626,865 1,131,429
Sales and marketing................. 1,151,839 2,287,408 4,074,465 680,228 1,420,243
General and administrative.......... 1,059,581 1,418,037 2,291,080 436,348 742,778
Amortization of deferred
compensation...................... -- -- 106,542 -- 215,846
------------- ------------- ------------- ------------- -------------
Total operating expenses........ 3,328,796 7,366,528 9,827,242 1,743,441 3,510,296
------------- ------------- ------------- ------------- -------------
LOSS FROM OPERATIONS.................. (1,412,196) (4,105,273) (2,740,125) (908,218) (903,129)
INTEREST INCOME....................... -- 6,044 53,919 -- 49,830
INTEREST EXPENSE...................... (30,271) (128,770) (164,359) (40,671) (24,058)
------------- ------------- ------------- ------------- -------------
Net loss........................ (1,442,467) (4,227,999) (2,850,565) (948,889) (877,357)
ACCRETION OF DIVIDENDS, DISCOUNT AND
OFFERING COSTS ON PREFERRED STOCK... (205,633) (213,933) (1,593,970) (37,500) (243,394)
------------- ------------- ------------- ------------- -------------
Net loss available for common
stockholders.................. $ (1,648,100) $ (4,441,932) $ (4,444,535) $ (986,389) $ (1,120,751)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
NET LOSS PER SHARE (NOTE 1(e)):
Basic and diluted................... $ (0.19) $ (0.50) $ (0.50) $ (0.11) $ (0.12)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Basic and diluted weighted average
common shares outstanding......... 8,848,866 8,872,202 8,967,066 8,913,092 9,404,757
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PRO FORMA NET LOSS PER SHARE (NOTE
1(e)):
Pro forma basic and diluted......... $ (0.16) $ (0.04)
------------- -------------
------------- -------------
Pro forma basic and diluted weighted
average shares outstanding........ 18,246,484 23,479,379
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ART TECHNOLOGY GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES C
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------- ------------------------ ----------------------
NUMBER OF CARRYING NUMBER OF CARRYING NUMBER OF $.01 PAR
SHARES VALUE SHARES VALUE SHARES VALUE
----------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................... 1,300,000 $ 500,500 -- $ -- 8,745,000 $ 87,450
Issuance costs related to sale of Series B
redeemable convertible preferred stock.... -- -- -- -- -- --
Issuance of common stock.................... -- -- -- -- 105,000 1,050
Exercise of stock options................... -- -- -- -- 750 8
Grant of options to consultants (Note
6(b))..................................... -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
----------- --------- ----------- ----------- ----------- ---------
Balance, December 31, 1996.................... 1,300,000 500,500 -- -- 8,850,750 88,508
Sale of Series C convertible preferred
stock, net of issuance costs of $60,645... -- -- 1,209,875 1,960,000 -- --
Accretion of Series B redeemable convertible
preferred stock to redemption value....... -- -- -- -- -- --
Exercise of stock options................... -- -- -- -- 55,950 559
Grant of options to consultants (Note
6(b))..................................... -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
----------- --------- ----------- ----------- ----------- ---------
Balance, December 31, 1997.................... 1,300,000 500,500 1,209,875 1,960,000 8,906,700 89,067
Sale of Series C convertible preferred
stock..................................... -- -- 246,914 400,000 -- --
Issuance costs related to sale of Series D
redeemable convertible preferred stock.... -- -- -- -- -- --
Accretion of Series B and Series D
redeemable convertible preferred stock to
redemption value.......................... -- -- -- -- -- --
Exercise of stock options................... -- -- -- -- 221,355 2,214
Deferred compensation related to stock
option grants............................. -- -- -- -- -- --
Amortization of deferred compensation....... -- -- -- -- -- --
Warrants issued in connection with the sale
of Series D redeemable convertible
preferred stock........................... -- -- -- -- -- --
Issuance of Series B redeemable convertible
preferred stock warrants.................. -- -- -- -- -- --
Grants of options to consultants (Note
6(b))..................................... -- -- -- -- -- --
Issuance of warrants (Note 3(b))............ -- -- -- -- -- --
Net loss.................................... -- -- -- -- -- --
----------- --------- ----------- ----------- ----------- ---------
Balance, December 31, 1998.................... 1,300,000 500,500 1,456,789 2,360,000 9,128,055 91,281
Deferred compensation related to stock
option grants (unaudited)................. -- -- -- -- -- --
Amortization of deferred compensation
(unaudited)............................... -- -- -- -- -- --
Accretion of Series B and Series D
redeemable convertible preferred stock to
redemption value (unaudited).............. -- -- -- -- -- --
Exercise of stock options (unaudited)....... -- -- -- -- 448,064 4,481
Net loss (unaudited)........................ -- -- -- -- -- --
----------- --------- ----------- ----------- ----------- ---------
Balance, March 31, 1999 (unaudited)........... 1,300,000 500,500 1,456,789 2,360,000 9,576,119 95,762
Conversion of preferred stock into common
stock (unaudited)......................... (1,300,000) (500,500) (1,456,789) (2,360,000) 15,709,639 157,096
Common stock issued to the holders of Series
C convertible preferred stock and Series D
redeemable convertible preferred stock in
lieu of special payments (Note 5)
(unaudited)............................... -- -- -- -- 121,250 1,212
----------- --------- ----------- ----------- ----------- ---------
Pro forma balance, March 31, 1999
(unaudited)................................. -- $ -- -- $ -- 25,407,008 $ 254,070
----------- --------- ----------- ----------- ----------- ---------
----------- --------- ----------- ----------- ----------- ---------
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
PAID-IN DEFERRED ACCUMULATED EQUITY
CAPITAL COMPENSATION DEFICIT (DEFICIT)
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995.................... $ -- $ -- $ (798,707) $ (210,757)
Issuance costs related to sale of Series B
redeemable convertible preferred stock.... -- -- (205,633) (205,633)
Issuance of common stock.................... -- -- (910) 140
Exercise of stock options................... 92 -- -- 100
Grant of options to consultants (Note
6(b))..................................... 210,200 -- -- 210,200
Net loss.................................... -- -- (1,442,467) (1,442,467)
------------ -------------- ------------- -------------
Balance, December 31, 1996.................... 210,292 -- (2,447,717) (1,648,417)
Sale of Series C convertible preferred
stock, net of issuance costs of $60,645... -- -- (60,645) 1,899,355
Accretion of Series B redeemable convertible
preferred stock to redemption value....... -- -- (153,288) (153,288)
Exercise of stock options................... 9,393 -- -- 9,952
Grant of options to consultants (Note
6(b))..................................... 60,000 -- -- 60,000
Net loss.................................... -- -- (4,227,999) (4,227,999)
------------ -------------- ------------- -------------
Balance, December 31, 1997.................... 279,685 -- (6,889,649) (4,060,397)
Sale of Series C convertible preferred
stock..................................... -- -- -- 400,000
Issuance costs related to sale of Series D
redeemable convertible preferred stock.... -- -- (106,459) (106,459)
Accretion of Series B and Series D
redeemable convertible preferred stock to
redemption value.......................... -- -- (434,266) (434,266)
Exercise of stock options................... 71,002 -- -- 73,216
Deferred compensation related to stock
option grants............................. 1,798,843 (1,798,843) -- --
Amortization of deferred compensation....... -- 106,542 -- 106,542
Warrants issued in connection with the sale
of Series D redeemable convertible
preferred stock........................... 2,775,000 -- -- 2,775,000
Issuance of Series B redeemable convertible
preferred stock warrants.................. 1,053,245 -- (1,053,245) --
Grants of options to consultants (Note
6(b))..................................... 4,210 -- -- 4,210
Issuance of warrants (Note 3(b))............ 58,249 -- -- 58,249
Net loss.................................... -- -- (2,850,565) (2,850,565)
------------ -------------- ------------- -------------
Balance, December 31, 1998.................... 6,040,234 (1,692,301) (11,334,184) (4,034,470)
Deferred compensation related to stock
option grants (unaudited)................. 2,491,300 (2,491,300) -- --
Amortization of deferred compensation
(unaudited)............................... -- 215,846 -- 215,846
Accretion of Series B and Series D
redeemable convertible preferred stock to
redemption value (unaudited).............. -- -- (243,394) (243,394)
Exercise of stock options (unaudited)....... 163,426 -- -- 167,907
Net loss (unaudited)........................ -- -- (877,357) (877,357)
------------ -------------- ------------- -------------
Balance, March 31, 1999 (unaudited)........... 8,694,960 (3,967,755) (12,454,935) (4,771,468)
Conversion of preferred stock into common
stock (unaudited)......................... 11,259,352 -- -- 8,555,948
Common stock issued to the holders of Series
C convertible preferred stock and Series D
redeemable convertible preferred stock in
lieu of special payments (Note 5)
(unaudited)............................... 1,817,541 -- (1,818,753) --
------------ -------------- ------------- -------------
Pro forma balance, March 31, 1999
(unaudited)................................. $ 21,771,853 $ (3,967,755) $(14,273,688) $ 3,784,480
------------ -------------- ------------- -------------
------------ -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ART TECHNOLOGY GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(1,442,467) $(4,227,999) $(2,850,565) $(948,889) $ (877,357)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities--
Amortization of deferred compensation................... -- -- 106,542 -- 215,846
Noncash interest expense related to issuance of
warrants.............................................. -- -- 18,060 3,415 4,882
Compensation expense related to issuance of nonqualified
stock options......................................... 210,200 60,000 4,210 -- --
Depreciation and amortization........................... 227,653 318,288 346,680 76,990 93,500
Changes in current assets and liabilities--
Accounts receivable, net.............................. (204,781) (537,271) (1,574,797) (399,808) (159,388)
Unbilled services..................................... -- (198,049) (92,536) 109,724 (246,326)
Prepaid expenses and other current assets............. (1,000) -- (112,423) (22,532) (466,554)
Accounts payable...................................... 442,271 346,005 (127,646) 47,590 (122,264)
Accrued expenses...................................... 310,432 44,404 826,817 358,784 557,881
Deferred revenue...................................... 46,000 317,440 514,901 309,993 4,755,046
---------- ---------- ---------- --------- ----------
Net cash (used in) provided by operating
activities........................................ (411,692) (3,877,182) (2,940,757) (464,733) 3,755,266
---------- ---------- ---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities........................ -- -- -- -- (1,006,654)
Purchases of property and equipment....................... (497,512) (189,549) (623,398) -- (285,230)
Proceeds from sale of property and equipment.............. -- -- -- 3,720 --
Decrease (increase) in receivable from
officer/stockholder..................................... (11,973) 206 56,957 56,957 --
Decrease (increase) in other assets....................... -- (8,230) (101,161) (1,494) 3,957
---------- ---------- ---------- --------- ----------
Net cash (used in) provided by investing
activities........................................ (509,485) (197,573) (667,602) 59,183 (1,287,907)
---------- ---------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of Series B redeemable convertible
preferred stock......................................... 2,794,367 -- -- -- --
Net proceeds from sale of Series C convertible preferred
stock................................................... -- 1,899,355 400,000 100,000 --
Net proceeds from sale of Series D redeemable convertible
preferred stock......................................... -- -- 7,393,541 -- --
Proceeds from issuance of common stock.................... 140 -- -- -- --
Proceeds from exercise of stock options................... 100 9,952 73,216 5,134 167,907
Proceeds from line of credit.............................. 500,000 304,000 1,496,000 596,000 --
Payments on line of credit................................ -- (500,000) (1,800,000) (400,000) --
Proceeds from term loan to a bank......................... 250,000 486,111 -- -- --
Payments on term loan to a bank........................... -- (250,000) (166,667) (41,666) (41,667)
Proceeds from equipment line of credit.................... -- -- 199,915 -- --
Payments on equipment line of credit...................... -- -- -- -- (19,991)
Payments on capital lease obligations..................... (21,709) (45,847) (81,685) (15,932) (37,793)
Payments on note payable to a bank........................ (250,000) -- -- -- --
---------- ---------- ---------- --------- ----------
Net cash provided by financing activities........... 3,272,898 1,903,571 7,514,320 243,536 68,456
---------- ---------- ---------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 2,351,721 (2,171,184) 3,905,961 (162,014) 2,535,815
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 6,292 2,358,013 186,829 186,829 4,092,790
---------- ---------- ---------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $2,358,013 $ 186,829 $4,092,790 $ 24,815 $6,628,605
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 41,291 $ 128,770 $ 143,299 $ 37,256 $ 19,176
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Accretion of dividend and discount on Series B and Series
D redeemable convertible preferred stock................ $ -- $ 153,288 $ 434,266 $ 37,500 $ 243,394
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
Value ascribed to Series B redeemable convertible
preferred stock warrants................................ $ -- $ -- $1,053,245 $ -- $ --
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
Equipment acquired under capital leases................... $ 61,411 $ 190,582 $ 87,243 $ 32,004 $ --
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
Original issue discount related to warrants issued to a
bank.................................................... $ -- $ -- $ 58,249 $ 58,249 $ --
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Art Technology Group, Inc. (ATG or the Company) is a Delaware Company which
was incorporated on December 31, 1991. ATG offers an integrated suite of
Internet customer relationship management and electronic commerce software
applications, as well as related application development, integration and
support services.
The accompanying financial statements reflect the application of certain
significant accounting policies as described below and elsewhere in the
accompanying notes to financial statements.
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of March 31, 1999, and the statements of
operations and cash flows for the three months ended March 31, 1998 and 1999 and
the statement of stockholders' equity (deficit) for the three months ended March
31, 1999 are unaudited, but in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of results for these interim periods. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although ATG believes that the disclosures included are adequate to make the
information presented not misleading. The results of operations for the three
months ended March 31, 1999, are not necessarily indicative of the results to be
expected for the entire fiscal year.
(C) UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma balance sheet as of March 31, 1999 reflects the
automatic conversion of all outstanding shares of redeemable convertible
preferred stock and convertible preferred stock into an aggregate of 15,830,889
shares of common stock, which will occur upon the closing of ATG's proposed
initial public offering. This reflects the cancellation of the special payments
to the Series C and D preferred stockholders, the cancellation of the warrant to
purchase 425,532 shares of Series B Preferred Stock, the cancellation of the
warrants to purchase Series D Preferred Stock and the changes to the conversion
ratio of Series B, C and D Preferred Stock all of which will occur upon closing
of the Company's proposed initial public offering (see Note 5).
(D) REVENUE RECOGNITION
ATG recognizes product license revenue from licensing the rights to use its
software to end-users. ATG also generates service revenues from integrating its
software with its customers' operating environments, the sale of maintenance
services and the sale of certain other consulting and development services.
F-7
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ATG recognizes revenue in accordance with Statement of Position (SOP) 97-2,
SOFTWARE REVENUE RECOGNITION and SOP 98-4, DEFERRAL OF THE EFFECTIVE DATE OF A
PROVISION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION. Revenues from software
product license agreements are recognized upon execution of a license agreement
and delivery of the software, provided that the fee is fixed or determinable and
deemed collectible by management. If conditions for acceptance are required
subsequent to delivery, revenues are recognized upon customer acceptance if such
acceptance is not deemed to be perfunctory. Revenues from software maintenance
agreements are recognized ratably over the term of the maintenance period, which
is typically one year. ATG enters into reseller arrangements that typically
provide for sublicense fees payable to ATG based upon a percentage of ATG's list
price. Revenues are recognized under reseller agreements as earned which is
generally ratably over the life of the reseller agreement for guaranteed minimum
royalties or based upon unit sales by the resellers. Revenues from professional
service arrangements are recognized on either a time and materials or
percentage-of-completion basis as the services are performed, provided that
amounts due from customers are fixed or determinable and deemed collectible by
management. Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue. Unbilled services
represent service revenues that have been earned by ATG in advance of billings.
(E) NET LOSS PER SHARE
Basic and diluted net loss per common share was determined by dividing net
loss available for common stockholders by the weighted average common shares
outstanding during the period. Basic and diluted net loss per share are the
same, as outstanding common stock options and warrants have been excluded as
they are considered antidilutive as ATG has recorded a net loss for all periods
presented. Options and warrants to purchase a total of 1,155,632, 1,898,616,
3,872,299, 2,115,415 and 3,893,460 common shares have been excluded from the
computation of diluted weighted average shares outstanding for the years ended
December 31, 1996, 1997 and 1998 and the three months ended March 31, 1998 and
1999, respectively. Shares of common stock issuable upon the conversion of
outstanding convertible preferred stock have also been excluded for all periods
presented. In accordance with the SEC Staff Accounting Bulletin No. 98, EARNINGS
PER SHARE IN AN INITIAL PUBLIC OFFERING, the Company determined that there were
no nominal issuances of the Company's common stock prior to the Company's
planned initial public offering.
ATG's historical capital structure is not indicative of its prospective
structure upon the closing of its proposed initial public offering due to the
automatic conversion of all shares of convertible preferred stock and redeemable
convertible preferred stock into common stock concurrent with the closing of
ATG's anticipated initial public offering. Accordingly, pro forma loss per share
is presented for the year ended December 31, 1998 and the three months ended
March 31, 1999 assuming (i) the net loss without the effect of accretion of
preferred stock dividends, discount and offering costs and (ii) the conversion
of all outstanding shares of convertible preferred stock and redeemable
convertible preferred stock into common stock upon ATG's initial public offering
using the as-converted method from their respective dates of issuance.
F-8
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
ATG accounts for investments under Statement of Financial Accounting
Standards (SFAS) No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES. Under SFAS No. 115, investments for which ATG has the positive
intent and the ability to hold to maturity, consisting of cash equivalents and
marketable securities, are reported at amortized cost, which approximates fair
market value. Cash equivalents are highly liquid investments with original
maturities of less than ninety days. Marketable securities are investment-grade
securities with original maturities of greater than ninety days but less than
one-year. The average maturity of ATG's marketable securities is approximately
four months at March 31, 1999. To date, ATG has not recorded any realized gains
or losses.
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents--
Cash................................................ $ 186,829 $ 592,790 $ 693,249
Money market accounts............................... -- 3,500,000 5,935,356
---------- ------------ ------------
Total cash and cash equivalents................. $ 186,829 $ 4,092,790 $ 6,628,605
---------- ------------ ------------
---------- ------------ ------------
Marketable securities--
Corporate securities................................ -- -- 1,006,634
---------- ------------ ------------
Total marketable securities..................... $ -- $ -- $ 1,006,634
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
(G) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. ATG provides for depreciation and amortization using
accelerated methods and charges to operations amounts estimated to allocate the
cost of the assets over their estimated useful lives.
Property and equipment at December 31, 1997 and 1998 and March 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED -------------------------- MARCH 31,
ASSET CLASSIFICATION USEFUL LIFE 1997 1998 1999
- ----------------------------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computer equipment................. 3 years $ 513,202 $ 637,683 $ 833,873
Equipment under capital leases..... Life of lease 269,794 556,952 542,117
Computer software.................. 3 years 74,967 284,629 346,068
Furniture and fixtures............. 7 years 212,579 295,924 330,000
Leasehold improvements............. Life of lease 18,800 24,795 33,155
------------ ------------ ------------
1,089,342 1,799,983 2,085,213
Less--Accumulated depreciation and
amortization..................... 611,293 957,973 1,051,473
------------ ------------ ------------
$ 478,049 $ 842,010 $ 1,033,740
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-9
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) RESEARCH AND DEVELOPMENT EXPENSES FOR SOFTWARE PRODUCTS
ATG has evaluated the establishment of technological feasibility of its
products in accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED. ATG sells products in a
market that is subject to rapid technological change, new product development
and changing customer needs; accordingly, ATG has concluded that technological
feasibility is not established until the development stage of the product is
nearly complete. ATG defines technological feasibility as the completion of a
working model. The time period during which costs could be capitalized, from the
point of reaching technological feasibility until the time of general product
release, is very short, and consequently, the amounts that could be capitalized
are not material to ATG's financial position or results of operations.
Therefore, ATG has charged all such costs to research and development in the
period incurred.
(I) INCOME TAXES
ATG accounts for income taxes in accordance with the provisions of SFAS No.
109, ACCOUNTING FOR INCOME TAXES. This statement requires ATG to recognize a
current tax asset or liability for current taxes payable or refundable and to
record a deferred tax asset or liability for the estimated future tax effects of
temporary differences and carryforwards to the extent they are realizable. A
deferred tax provision or benefit results from the net change in deferred tax
assets and liabilities during the year. A deferred tax valuation allowance is
required if it is more likely than not that all or a portion of the recorded
deferred tax assets will not be realized (see Note 4).
(J) STOCK-BASED COMPENSATION
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
measurement of the fair value of stock options or warrants to be included in the
statement of operations or disclosed in the notes to financial statements. ATG
has determined that it will continue to account for stock-based compensation for
employees under the Accounting Principles Board Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and elect the disclosure-only alternative under SFAS
No. 123 (see Note 6(b)).
(K) COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. ATG does not have any components of
comprehensive income (loss) besides its reported net loss.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist mainly of cash and cash equivalents, accounts
receivable, receivable from officer/stockholder, accounts payable, long-term
obligations, redeemable convertible preferred stock and convertible preferred
stock. The carrying amounts of these instruments approximate their fair value.
F-10
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) CONCENTRATIONS OF CREDIT RISK
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. ATG has no significant off-balance-sheet concentrations such as
foreign exchange contracts, option contracts or other foreign hedging
arrangements. ATG's accounts receivable credit risk is concentrated domestically
and write-offs have historically been minimal.
The following table summarizes the number of customers that individually
comprise greater than 10% of total revenue and their aggregate percentage of
ATG's total revenues which are derived substantially from customers in the
United States:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
SIGNIFICANT --------------------------------------------------------------------------------------
CUSTOMERS A B C D E F G H
----------------- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended--
December 31, 1996..... 3 -- 31% -- -- -- -- -- 35%
December 31, 1997..... 3 -- 29% -- -- -- 11% 16% --
December 31, 1998..... 3 17% -- -- 10% 10% -- -- --
Three months ended--
March 31, 1998........ 3 14% -- 19% -- -- -- -- --
March 31, 1999........ 3 22% 11% -- -- -- -- -- --
<CAPTION>
I J K
--- --- ---
<S> <C> <C> <C>
Year Ended--
December 31, 1996..... 14% -- --
December 31, 1997..... -- -- --
December 31, 1998..... -- -- --
Three months ended--
March 31, 1998........ -- 15% --
March 31, 1999........ -- -- 12%
</TABLE>
The following table summarizes the number of customers that individually
comprise greater than 10% of total accounts receivable and their aggregate
percentage of ATG's total accounts receivable:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL ACCOUNTS RECEIVABLES
SIGNIFICANT ----------------------------------------------------------------
RECEIVABLES A B C L M N
----------------- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
As of--
December 31, 1997..................... 4 13% 26% 18% -- 14% --
December 31, 1998..................... 2 19% -- -- 12% -- --
March 31, 1999........................ 5 17% 12% -- -- -- 12%
<CAPTION>
O P
--- ---
<S> <C> <C>
As of--
December 31, 1997..................... -- --
December 31, 1998..................... -- --
March 31, 1999........................ 11% 13%
</TABLE>
(2) RECEIVABLE FROM OFFICER/STOCKHOLDER
ATG had advanced certain amounts to its President and Chief Executive
Officer, which were due upon demand. These amounts were repaid in 1998.
F-11
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) LONG-TERM OBLIGATIONS
(A) LINE-OF-CREDIT WITH A BANK
On November 26, 1997, ATG entered into a working capital line-of-credit
agreement with a bank which was amended in April 1999. Under the working capital
line-of-credit, as amended, ATG may borrow up to the lesser of $5,000,000 or 80%
of eligible accounts receivable, as defined. Borrowings bear interest at the
bank's prime rate (7.75% at December 31, 1998) plus 0.25%. The working capital
line-of-credit is collateralized by substantially all assets of ATG. The
agreement contains certain covenants, including defined levels of profitability
and certain financial ratios. As of December 31, 1998 and March 31, 1999, ATG
was in compliance with all covenants. As of March 31, 1999, there were no
amounts outstanding under the working capital line-of-credit and approximately
$1,900,000 available for borrowing based upon the borrowing base calculation as
of March 31, 1999. In addition, at December 31, 1998 and March 31, 1999, ATG had
letters of credit outstanding in the amount of $102,500, respectively.
(B) TERM NOTE PAYABLE TO A BANK
On November 26, 1997, ATG entered into a term note payable with a bank.
Under the term loan agreement, as amended, ATG may borrow $500,000 based upon
certain conditions, as defined. Borrowings bear interest at the bank's prime
rate (7.75% at December 31, 1998) plus 1%. Principal and accrued interest are
payable in 36 monthly installments beginning in December 1997. The term loan is
collateralized by substantially all assets of ATG. The agreement contains
certain covenants, including defined levels of profitability and certain
financial ratios, as defined. As of December 31, 1998 and March 31, 1999, ATG
was in compliance with all covenants. As of December 31, 1998, $319,444 was
outstanding under the term note. In connection with the term note payable, ATG
issued warrants to purchase Series C convertible preferred stock to the bank.
ATG valued the warrants at $58,249, using the Black-Scholes option pricing
model. The warrants were recorded as a debt discount and are being amortized as
interest expense over the life of the loan. For the year ended December 31, 1998
and the three months ended March 31, 1998 and 1999, ATG amortized $18,060,
$3,415 and $4,882, respectively.
(C) EQUIPMENT LINE-OF-CREDIT
On July 2, 1998, ATG entered into an equipment line-of-credit with a bank.
Under the equipment line of credit, ATG may borrow up to $200,000 for capital
expenditures. During 1998, ATG borrowed $199,915, all of which was outstanding
as of December 31, 1998. Borrowings bear interest at the bank's prime rate
(7.75% at December 31, 1998) plus 1.25%. Principal and interest are payable in
30 monthly installments beginning in January 1999. Under the agreement, ATG is
required to comply with certain covenants, including defined levels of
profitability and certain financial ratios, as defined. As of December 31, 1998
and March 31, 1999, ATG was in compliance with all covenants.
In April 1999, ATG entered into an additional equipment line-of-credit with
the same bank. Under the equipment line of credit, ATG may borrow up to $200,000
for capital expenditure purchases. Borrowings bear interest at the bank's prime
rate (7.75% at December 31, 1998) plus 0.75%. Interest accrues and is payable
monthly. Principal is due in 30 monthly installments following a six month
interest only period.
F-12
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) LONG-TERM OBLIGATIONS (CONTINUED)
(D) FUTURE PAYMENTS
ATG has capital lease commitments for certain equipment which expire through
2002. The maturities under ATG's long-term obligations and capital lease
obligations as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL LEASE
OBLIGATIONS OBLIGATIONS TOTAL
----------- ------------- ----------
<S> <C> <C> <C>
1999.................................................. $ 246,634 $ 123,383 $ 370,017
2000.................................................. 232,742 69,638 302,380
2001.................................................. 39,983 29,773 69,756
2002.................................................. -- 2,052 2,052
----------- ------------- ----------
Total future minimum payments................... 519,359 224,846 744,205
Less--amount representing interest and discount....... 40,189 34,851 75,040
----------- ------------- ----------
Present value of future minimum payments........ 479,170 189,995 669,165
Less--current portion................................. 246,634 100,462 347,096
----------- ------------- ----------
$ 232,536 $ 89,533 $ 322,069
----------- ------------- ----------
----------- ------------- ----------
</TABLE>
(4) INCOME TAXES
No provision for federal or state income taxes has been recorded, as ATG
incurred net operating losses for all periods presented. As of December 31,
1998, ATG had net operating loss carryforwards of approximately $8,870,000
available to reduce future federal and state income taxes, if any. ATG also has
available federal tax credit carryforwards of approximately $235,000. If not
utilized, these carryforwards expire at various dates beginning 2011, if not
utilized. If substantial changes in ATG's ownership should occur, as defined by
Section 382 of the Internal Revenue Code (the Code), there could be annual
limitations on the amount of carryforwards which can be realized in future
periods. ATG has completed several financings since its inception and has
incurred ownership changes as defined under the Code. ATG does not believe that
these changes in ownership will have a material impact on its ability to use its
net operating loss and tax credit carryforwards.
Net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1997 1998
------------- -------------
Net operating loss carryforwards................................ $ 2,082,000 $ 3,548,000
Nondeductible expenses and reserves............................. 808,000 1,647,000
Tax credits..................................................... 154,000 235,000
------------- -------------
3,044,000 5,430,000
Valuation allowance............................................. (3,044,000) (5,430,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
F-13
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) INCOME TAXES (CONTINUED)
Due to ATG's history of operating losses, there is uncertainty surrounding
ATG's ability to utilize its net operating loss and tax credit carryforwards.
Accordingly, ATG has provided a full valuation allowance against its otherwise
recognizable deferred tax asset as of December 31, 1997 and 1998 and March 31,
1999.
(5) PREFERRED STOCK
ATG's Board of Directors has authorized 10,000,000 shares of preferred stock
and has designated 1,300,000, 851,064, 2,000,000 and 2,343,750 shares as Series
A convertible preferred stock (Series A Preferred Stock), Series B redeemable
convertible preferred stock (Series B Preferred Stock), Series C convertible
preferred stock (Series C Preferred Stock) and Series D redeemable convertible
preferred stock (Series D Preferred Stock), respectively. ATG's Series A, Series
B, Series C and Series D Preferred Stock were issued as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER COMMON STOCK
DESCRIPTION DATE SHARES SHARE GROSS PROCEEDS EQUIVALENTS
- ----------------------- -------------------------------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Series A Preferred
Stock July 1995 1,300,000 $ 0.385 $ 500,500 1,950,000
Series B Preferred
Stock December 1996 425,532 7.05 3,000,000 1,642,953
Series C Preferred November and December 1997,
Stock April 1998 1,456,789 1.62 2,360,000 4,437,568
Series D Preferred August, September and October
Stock 1998 2,343,750 3.20 7,500,000 7,800,368
</TABLE>
The rights, preferences and privileges of Series A, Series B, Series C and
Series D Preferred Stock are as follows:
REDEMPTION
The Series B Preferred Stock is subject to mandatory redemption provisions
that require ATG to redeem 25%, on December 31, 2001 increasing by 25% annually
thereafter, at $7.05 per share (subject to certain dilutive effects, as
defined), plus any dividends accrued but unpaid thereon. Such redemption is
subject to available funds, net income and certain other restrictions. In
addition, so long as there are any shares of Series D Preferred Stock
outstanding and not redeemed, the holders of Series B Preferred Stock shall not
be entitled to redemption.
The holders of shares of Series D Preferred Stock may individually request
redemption of all, but not less than all, of the shares of Series D Preferred
Stock held at any time after August 18, 2003. The redemption value of the Series
D Preferred Stock shall be the greater of (1) the liquidation value of the
Series D Preferred Stock plus any accrued and unpaid dividends or (2) the then
current fair market value per share.
DIVIDENDS AND SPECIAL PAYMENTS
The holders of the Series A, Series B and Series C Preferred Stock are
entitled to receive dividends of $0.1925, $0.3525 and $0.08 per share per annum
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
payable when and as declared by the Board of Directors. Series B Preferred Stock
and
F-14
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
Series C Preferred Stock dividends shall accrue and shall be cumulative from the
date of issuance of each share, whether or not declared. As of December 31,
1998, ATG has not declared any dividends. Cumulative undeclared dividends on
Series B Preferred Stock are approximately $303,000 and $340,500, respectively,
at December 31, 1998 and March 31, 1999, respectively. Cumulative undeclared
dividends on Series C Preferred Stock are approximately $123,417 and $152,553 at
December 31, 1999 and March 31, 1999, respectively. The right to receive
dividends on Series A Preferred Stock shall be noncumulative. ATG shall not
declare or pay any distributions on shares of common stock until the holders of
the Preferred Stock have received a distribution at the rate specified above.
The holders of the Series D Preferred Stock, generally are not entitled to
receive a dividend, except under certain events, including the payment of
dividends on another series of preferred stock, as defined.
In the event of a public offering of ATG's common stock, as defined, a
consolidation or a merger of ATG with or into any other persons or entities
(unless ATG is the surviving entity), sale of all or substantially all of the
assets of ATG, or a sale or other disposition of more than 50% of the voting
capital of ATG or other similar transaction, the holders of the Series D
Preferred Stock shall be entitled to receive in cash, their pro rata share,
based on the number of shares outstanding of Series D Preferred Stock held by
each, of an amount equal to $2,411,000 multiplied by 1.33 multiplied by the
percentage aggregate ownership expressed as a decimal of the holders of Series D
Preferred Stock of ATG's capital stock on a fully-diluted and as converted basis
at the time of the relevant event (Series D Special Payment). If there are not
enough funds to satisfy the entire dividend, then the holders of Series D
Preferred Stock shall share ratably in the remaining funds. The Series D Special
Payment only takes place, however, if the warrants issued in connection with the
issuance of Series B Preferred Stock have been exercised.
If there are funds left over after the Series D Special Payment, the holders
of the Series C Preferred Stock shall be entitled to receive in cash, their pro
rata share, based on the number of shares outstanding of Series C Preferred
Stock held by each, of an amount equal to $2,411,000 plus the Series D Special
Payment multiplied by 1.33 multiplied by the percentage aggregate ownership
expressed as a decimal of the holders of Series D Preferred Stock of the
Company's capital stock on a fully diluted and as converted basis at the time of
the relevant event. If there are not enough funds to satisfy the entire
dividend, then the holders of Series C Preferred Stock shall share ratably in
the remaining funds (Series C Special Payment). The Series C Special Payment
only takes place, however, if the warrants issued in connection with the
issuance of Series B Preferred Stock have been exercised and the Series D
Special Payment has been made in full.
If there are funds left over after the payment of the initial Series D and
Series C Special Payments, the holders of the Series D Preferred Stock shall be
entitled to receive in cash, their pro rata share, based on the number of shares
outstanding of Series D Preferred Stock held by each, an amount equal to the
Series C Special Payment multiplied by 1.33 multiplied by the percentage
aggregate ownership expressed as a decimal of the holders of Series D Preferred
Stock of ATG's capital stock on a fully-diluted and as converted basis at the
time of the relevant event (Second Series D Special Payment). If there are not
enough funds to satisfy the Second Series D Special Payment, then the holders of
Series D Preferred Stock shall share ratably in the remaining funds. The Second
Series D
F-15
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
Special Payment only takes place, however, if the warrants issued in connection
with the Series B Preferred Stock have been exercised and the Series D and
Series C Special Payments have occurred.
In conjunction with the Company's proposed initial public offering, the
Series D Special Payment, the Series C Special Payment and the Second Series D
Special Payment will be canceled and the number of shares of common stock
issuable upon conversion of the Series C and D Preferred Stock will be increased
to reflect the amount of the required payments based upon the proposed initial
public offering share price.
LIQUIDATION PREFERENCE
In certain events, including liquidation, dissolution or winding up of ATG,
the holders of Series A, Series B, Series C and Series D Preferred Stock have a
preference in liquidation of $0.3852, $7.05, $1.62 and $3.20 per share (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends accrued but unpaid thereon.
After such funds are paid on the Series D Preferred Stock, the holders
Series D Preferred Stock shall be entitled to receive the Series D Special
Payment, as defined. This payment shall be followed by the Series C Special
Payment, as defined, which is then followed by the Second Series D Special
Payment, as defined. If after these payments, there are any excess funds of the
Company, the holders of Series A, Series B and Series C Preferred Stock shall be
paid in accordance with their agreements. Then, if any further funds left over,
the common stockholders and holders of Series D Preferred Stock shall share in
these funds on a pro rata basis.
VOTING RIGHTS
Each holder of outstanding shares of Series A, Series B, Series C and Series
D Preferred Stock shall be entitled to the number of votes equal to the number
of whole shares of common stock, into which the shares of Series A, Series B,
Series C and Series D Preferred Stock held by such holder are then convertible.
CONVERSION
Each share of Series A, Series B, Series C and Series D Preferred Stock is
convertible at any time at the option of the holder into 1.5 shares, 1.98
shares, 3 shares and 1.5 shares of common stock, respectively, adjustable for
diluting events, as defined. In addition, if ATG fails to meet certain criteria,
as defined, then the conversion ratio shall increase for the holders of Series D
Preferred Stock. The holders of Series A, Series B, Series C and Series D
Preferred Stock are required to convert all of their shares into common stock at
the then effective conversion rate upon the closing of a public offering of
ATG's common stock at a price of at least $8 per share, respectively, and which
will result in gross proceeds of at least $20,000,000, for the holders of
Preferred Stock, respectively.
The conversion ratio for the Series B, Series C and Series D Preferred Stock
will be adjusted in conjunction with the Company's proposed initial public
offering to reflect (1) the cancellation of the Series C and D special payments,
(2) the cancellation of the warrants to purchase Series B Preferred Stock and
common stock discussed below and (3) the impact of the Company not meeting the
criteria
F-16
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
specified in the Series D Preferred Stock agreement. The conversion ratio to be
effected at the time of the Company's proposed initial public offering is 3.86,
3.05 and 3.33 shares of common stock for each share of Series B, C and D
Preferred Stock, respectively.
WARRANTS
In conjunction with the issuance of the Series B Redeemable Preferred Stock
in December 1996, ATG issued to a holder of Series B Preferred Stock a warrant
to purchase up to 425,532 shares of Series B Preferred Stock at $7.05 per share.
The fair value of the warrant at the time of issuance was not material. On
August 18, 1998, in connection with the issuance of Series D Redeemable
Preferred Stock, this warrant was cancelled. In consideration for the
cancellation of the warrant, ATG granted to the same holder of Series B
Preferred Stock a warrant to purchase 425,532 shares of ATG's Series B Preferred
Stock at a purchase price of $1.385 per share which is immediately exercisable.
The warrant expires on the earlier of (1) the closing of a public offering of
ATG's common stock, as defined, at a price of at least $10 per share resulting
in gross proceeds to ATG of at least $10 million, (2) the closing of a
liquidation, merger, sale of all or substantially all assets of ATG or other
similar event, as defined, or (3) August 18, 2003. If a public offering occurs
prior to August 18, 2003, the warrant can be exercised coincident with the
public offering, in which case the warrant shares shall consist of shares of
common stock of ATG based on the rate at which the Series B Preferred Stock is
converted into common stock. ATG has valued this warrant at $1,053,245, using
the Black-Sholes option pricing model and has recorded the warrant in the
accompanying statement of stockholders' equity (deficit) and as a component of
dividends on preferred stock in computing net loss per share.
In addition, in connection with the issuance of the Series D Preferred
Stock, ATG issued to the holders of Series D Preferred Stock, warrants to
purchase up to 2,146,325 shares of ATG's common stock at $0.11 per share,
adjusted for certain dilutive events, as defined. The warrants vest 5% per
quarter beginning on September 30, 1998 and expire August 18, 2003. The warrants
cannot be exercised for a period of five years, except under certain events, as
defined. In addition, the number of shares exercisable upon exercise can be
adjusted for certain events, as defined. ATG has valued the warrants at
$2,775,000 using the Black-Scholes option pricing model. These warrants were
recorded as a discount to the Series D Preferred Stock and are being amortized
over the redemption period in computing net loss per share. For the year ended
December 31, 1998 and the three months ended March 31, 1999, ATG amortized
$284,266 and $205,894, respectively.
In conjunction with the Company's proposed initial public offering, the
warrants to purchase Series B Preferred Stock and common stock will be canceled
and the number of shares of common stock issuable upon conversion of the Series
B and D Preferred Stock will be increased to reflect the shares which would have
been received upon exercise of the warrants based upon the proposed initial
public offering price.
F-17
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
The following is a rollforward of the Series B and Series D Preferred Stock:
<TABLE>
<CAPTION>
SERIES B REDEEMABLE SERIES D REDEEMABLE
------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
------------------------- ------------------------ TOTAL
NUMBER OF REDEMPTION NUMBER OF REDEMPTION REDEMPTION
SHARES VALUE SHARES VALUE VALUE
----------- ------------ ---------- ------------ -------------
Balance, December 31, 1995................... -- $ -- $ $
Issuance of Series B Preferred Stock....... 425,532 3,000,000 -- -- 3,000,000
----------- ------------ ---------- ------------ -------------
Balance, December 31, 1996................... 425,532 3,000,000 -- -- 3,000,000
Accretion of Series B Preferred Stock to
redemption value......................... -- 153,288 -- -- 153,288
----------- ------------ ---------- ------------ -------------
Balance, December 31, 1997................... 425,532 3,153,288 -- -- 3,153,288
Issuance of Series D Preferred Stock....... -- -- 2,343,750 4,725,000 4,725,000
Accretion of Series B and Series D
Preferred Stock to redemption value...... -- 150,000 -- 284,266 434,266
----------- ------------ ---------- ------------ -------------
Balance, December 31, 1998................... 425,532 3,303,288 2,343,750 5,009,266 8,312,554
Accretion of Series B and Series D
Preferred Stock to redemption value...... -- 37,500 -- 205,894 243,394
----------- ------------ ---------- ------------ -------------
Balance, March 31, 1999...................... 425,532 $ 3,340,788 2,343,750 $ 5,215,560 $ 8,555,948
----------- ------------ ---------- ------------ -------------
----------- ------------ ---------- ------------ -------------
</TABLE>
(6) STOCKHOLDER'S EQUITY (DEFICIT)
(A) RECAPITALIZATION
On May 10, 1999, ATG's Board of Directors approved a 3-for-2 stock split of
ATG's common stock. The stock split will be effective prior to the consummation
of the proposed initial public offering of common stock. All share and per share
amounts of common stock for all periods have been retroactively adjusted to
reflect the stock split. Upon the closing of ATG's proposed initial public
offering, its certificate of incorporation will be amended and restated to,
among other things, change its authorized capital stock to 100,000,000 shares of
$0.01 par value common stock and 10,000,000 shares of $0.01 par value preferred
stock.
(B) STOCK PLANS
1996 STOCK OPTION PLAN
In April 1996, the 1996 Stock Option Plan (the 1996 Plan) was approved by
ATG's Board of Directors and stockholders. The purpose of the 1996 Plan is to
reward employees, officers and directors, and consultants and advisors to ATG
who are expected to contribute to the growth and
F-18
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCKHOLDER'S EQUITY (DEFICIT) (CONTINUED)
success of ATG. The 1996 Plan provides for the award of options to purchase
shares of ATG's common stock. Stock options granted under the 1996 Plan may be
either incentive stock options or nonqualified stock options.
The 1996 Plan is administered by the Board of Directors, which has the
authority to designate participants, determine the number and type of options to
be granted, the time at which options are exercisable, the method of payment and
any other terms or conditions of the options. Options generally vest annually
over a two- to four-year period and expire 10 years from the date of grant.
While the Board determines the prices at which options may be exercised
under the 1996 Plan, the exercise price of an incentive stock option shall be at
least 100% (110% for incentive stock options granted to a 10% stockholder) of
the fair market value of ATG's common stock on the date of grant. A total of
6,300,000 shares of common stock have been reserved for options to be granted
under the 1996 Plan. As of December 31, 1998 and March 31, 1999, there are
3,360,543 and 3,328,831 shares, respectively, available for future grant.
1999 OUTSIDE DIRECTOR STOCK OPTION PLAN
The 1999 Outside Director Stock Option Plan (Director Plan) was adopted by
ATG's Board of Directors and approved by stockholders in May 1999. Under the
terms of the Director Plan, directors who are not employees of ATG receive
nonqualified options to purchase shares of common stock. A total of [ ] shares
of common stock have been reserved under the Director Plan.
Under the terms of the Director Plan, each currently active non-employee
director will receive an option to purchase [ ] shares of common stock on the
effective date of the proposed initial public offering at the initial public
offering price. Individuals who become directors after this offering and are not
employees of ATG will receive an option to purchase [ ] shares of our common
stock on the date of initial election to ATG's Board of Directors. In addition,
each non-employee director will receive an option to purchase [ ] shares of
common stock on the date of each annual meeting of stockholders commencing in
the year 2000 at an exercise price per share equal to the closing price of ATG's
common stock on the date of grant. All options granted under the Director Plan
will be fully vested upon grant. Options granted to directors will be accounted
for in accordance with SFAS No. 123 based upon the guidance provided in the
exposure draft dated March 31, 1999 for the proposed interpretation, Accounting
for Certain Stock Transactions Involving Stock Compensation, of APB No. 25. The
fair value of directors' grants will be measured and included in the
accompanying statements of operations.
1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 Employee Stock Purchase Plan (the Stock Purchase Plan) was adopted
by ATG's Board of Directors and approved by stockholders in May 1999. The Stock
Purchase Plan authorizes the issuance of up to a total of 500,000 shares of
ATG's common stock to participating employees. All ATG's employees, including
directors who are employees, are eligible to participate in the Stock Purchase
Plan. Employees who would immediately after the grant own 5% or more of the
total combined voting power or value of our stock are not eligible to
participate. During each designated semiannual offering period, each eligible
employee may deduct between 1% to 10% of base pay to
F-19
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCKHOLDER'S EQUITY (DEFICIT) (CONTINUED)
purchase common stock of ATG. The purchase price will be 85% of the closing
market price of ATG's common stock on either (1) the first business day of the
offering period or (2) the last business day of the offering period, whichever
is lower.
ATG will account for the Stock Purchase Plan in accordance with APB No. 25
and accordingly, no compensation cost will be recognized under the Stock
Purchase Plan. ATG will elect the "disclosure only" alternative under SFAS No.
123.
The following table summarizes option activity under the 1996 Plan:
<TABLE>
<CAPTION>
NUMBER EXERCISE WEIGHTED AVERAGE
OF SHARES PRICE EXERCISE PRICE
----------- ------------- -----------------
<S> <C> <C> <C>
Outstanding, December 31, 1995........................... -- $ -- $ --
Granted................................................ 1,101,150 .13- .50 .23
Exercised.............................................. (750) .13 .13
Canceled............................................... (5,250) .13 .13
----------- ------------- -----
Outstanding, December 31, 1996........................... 1,095,150 .13- .50 .17
Granted................................................ 1,261,500 .50 .50
Exercised.............................................. (55,950) .13- .50 .19
Canceled............................................... (160,518) .13- .50 .23
----------- ------------- -----
Outstanding, December 31, 1997........................... 2,140,182 .13- .50 .36
Granted................................................ 1,636,154 .50 .50
Exercised.............................................. (221,355) .13- .50 .33
Canceled............................................... (615,524) .13- .50 .44
----------- ------------- -----
Outstanding, December 31, 1998........................... 2,939,457 .13- .50 .43
Granted................................................ 515,925 2.00- 4.00 2.58
Exercised.............................................. (448,063) .13- .50 .37
Canceled............................................... (36,150) .50- 2.67 1.39
----------- ------------- -----
Outstanding, March 31, 1999.............................. 2,971,169 $ .13-$4.00 $ .80
----------- ------------- -----
----------- ------------- -----
Exercisable, March 31, 1999.............................. 1,025,613 $ .13-$2.00 $ .43
----------- ------------- -----
----------- ------------- -----
</TABLE>
In April 1999 and May 1999, the Company granted options for the purchase of
260,100 and 48,375 shares of common stock at exercise prices of $8.00 and $10.00
per share, respectively.
F-20
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCKHOLDER'S EQUITY (DEFICIT) (CONTINUED)
The following table summarizes information relating to currently outstanding
and exercisable options as of March 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------------------
WEIGHTED AVERAGE EXERCISABLE
REMAINING -----------------------------
CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES NUMBER SHARES (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------------ -------------- ------------------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
$ .13-$ .17................... 429,341 7.1 $ .15 316,175 $ .15
.50....................... 2,040,903 8.4 .50 686,938 .50
2.00- 2.67................... 399,150 9.9 2.33 22,500 2.00
3.33- 4.00................... 101,775 10.0 3.52 -- --
-------------- ----------
2,971,169 1,025,613
-------------- ----------
-------------- ----------
</TABLE>
In the years ended December 31, 1996, 1997 and 1998, ATG granted 142,500,
228,000 and 15,000 nonqualified stock options exercisable at $0.13, $0.50 and
$0.50 per share, respectively, which are fully vested, to consultants as payment
for services performed. ATG recorded expense for the years ended December 31,
1996, 1997 and 1998 related to these grants of $210,200, $60,000 and $4,210,
respectively, which represents the estimated fair value of the options granted.
The options expire ten years from the date of grant.
In connection with certain stock option grants during the year ended
December 31, 1998 and the three months ended March 31, 1999, ATG recorded
deferred compensation of $1,798,843 and $2,491,300, respectively, which
represents the aggregate difference between the exercise price and the fair
market value of the common stock as determined for accounting purposes. The
deferred compensation will be recognized as an expense over the vesting period
of the underlying stock options. ATG recorded compensation expense of $106,542
and $215,846 in the year ended December 31, 1998 and the three months ended
March 31, 1999, respectively, related to these options. In addition, the Company
will record additional deferred compensation of approximately $569,000 related
to the options granted in April and May 1999 which will be recognized as an
expense over the vesting period of the options.
ATG has computed the pro forma disclosures required under SFAS No. 123 for
options granted during the years ended December 31, 1996, 1997 and 1998 and
during the three months ended
F-21
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCKHOLDER'S EQUITY (DEFICIT) (CONTINUED)
March 31, 1998 and 1999 using the Black-Scholes option pricing model prescribed
by SFAS No. 123, using the following assumptions:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Risk-free interest rate........................... 7.00% 7.00% 5.00% % %
Expected dividend yield........................... -- -- -- -- --
Expected lives.................................... 4 years 4 years 4 years 4 years 4 years
Expected volatility............................... 70% 70% 70% 70% 70%
Weighted average fair value of options granted.... $ .13 $ .18 $ .14 $ .42 $ 2.18
Weighted average remaining contractual life of
options outstanding............................. 9.54 years 9.21 years 8.4 years 6.9 years 8.5 years
</TABLE>
Had compensation expense for ATG's stock option plan been determined
consistent with SFAS No. 123, the pro forma net loss available for common
stockholders and pro forma net loss per share would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net loss available for common
stockholders--
As reported......................... $ (1,648,100) $ (4,441,932) $ (4,444,535) $ (986,389) $ (1,120,751)
Pro forma........................... (1,684,305) (4,578,226) (4,745,661) (1,038,728) (1,281,227)
Basic and diluted net loss per share--
As reported......................... $ (0.19) $ (0.50) $ (0.50) $ (0.11) $ (0.12)
Pro forma........................... (0.19) (0.52) (0.53) (0.12) (0.14)
</TABLE>
(7) COMMITMENTS AND CONTINGENCIES
(A) LEASES
In March 1999, ATG entered into a new facility lease for its corporate
headquarters which expires in February 2006. Upon occupancy of the new facility,
ATG is required to issue the lessor a letter of credit in the amount of
$2,500,000 as a security deposit. The approximate future minimum payments
F-22
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
under this new facility lease, existing facility leases and certain equipment
operating leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, OPERATING LEASES
- --------------------------------------------------------------------- -----------------------
<S> <C>
1999........................................................... $ 1,833,000
2000........................................................... 2,913,000
2001........................................................... 2,208,000
2002........................................................... 2,251,000
2003........................................................... 2,250,000
Thereafter..................................................... 5,935,000
------------
Total future minimum lease payments.......................... $ 17,390,000
------------
------------
</TABLE>
Rent expense included in the accompanying statements of operations was
approximately $265,000, $781,000 and $810,000 for the years ended December 31,
1996, 1997 and 1998 and $178,000 and $294,000 for three months ended March 31,
1998 and 1999, respectively.
(B) LITIGATION
LEGAL PROCEEDINGS
A patent infringement claim was filed by BroadVision, one of ATG's
competitors, against ATG on December 11, 1998. The case was filed in the U.S.
District Court for the Northern District of California. BroadVision alleges that
ATG is infringing on their patent for a method of conducting e-commerce.
BroadVision is seeking a permanent injunction of the sale of ATG's Dynamo
products in their current forms as well as unspecified damages. ATG intends to
vigorously oppose BroadVision's allegations and has filed a counterclaim against
BroadVision on February 4, 1999 seeking a judgment that ATG is not infringing
their patent and that the patent in question is in fact unenforceable and
invalid.
(8) EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, ATG adopted the Art Technology Group 401(k) Plan
(the 401(k) Plan). All employees, as defined, are eligible to participate in the
401(k) Plan. The 401(k) Plan allows eligible employees to make salary-deferred
contributions of up to 15% of their annual compensation, as defined, subject to
certain Internal Revenue Service limitations. ATG may contribute to the 401(k)
Plan at its discretion. No discretionary employer contributions were made to the
Plan for the years ended December 31, 1997 and 1998 or the three months ended
March 31, 1998 and 1999.
F-23
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(9) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 and March 31, 1999 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Payroll and related costs............................. $ 212,959 $ 600,467 $ 788,858
Accrued accounts payable.............................. 124,849 292,540 501,064
Other................................................. 55,476 327,094 488,060
---------- ------------ ------------
$ 393,284 $ 1,220,101 $ 1,777,982
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
(10) VALUATION AND QUALIFYING ACCOUNTS
The following is a rollforward of ATG's allowance for doubtful accounts:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
PERIOD ADDITIONS DEDUCTIONS PERIOD
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1996........................ $ -- $ -- $ -- $ --
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
Year Ended
December 31, 1997........................ $ -- $ 21,305 $ -- $ 21,305
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
Year Ended
December 31, 1998........................ $ 21,305 $ 265,287 $ (36,592) $ 250,000
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
Three months ended
March 31, 1999........................... $ 250,000 $ 10,000 $ -- $ 260,000
------------ ---------- ----------- ----------
------------ ---------- ----------- ----------
</TABLE>
F-24
<PAGE>
The inside back cover shows a diagram of our product distribution
channels. Arrows from the Dynamo suite of products point to system
integrators and Web developers, OEM and technology partners and direct sales
force. Arrows from these channels point down to customers. Arrows depicting
our services point back up from these channels to the Dynamo suite of
products. Text to the right of the diagram reads: ""ATG uses its Innovation
and Express Services to provide market and technology insight to drive new
product development. ATG has three primary distribution channels: direct
sales, systems integrators and Web Developers and sales associated with OEMs
and technology partners.
The bottom of this page has three customer Web site screen shots.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
-------------
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
THOMAS WEISEL PARTNERS LLC
--------------
, 1999
--------------
YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 22,380
NASD filing fee................................................ 8,550
Nasdaq National Market listing fee............................. *
Blue Sky fees and expenses..................................... 15,000
Transfer Agent and Registrar fees.............................. *
Accounting fees and expenses................................... *
Legal fees and expenses........................................ *
Printing and mailing expenses.................................. *
Miscellaneous.................................................. *
----------
Total...................................................... $ *
----------
----------
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of the Registrant's Amended and Restated Certificate of
Incorporation provides that no director of the Registrant shall be personally
liable for any monetary damages for any breach of fiduciary duty as a director,
except to the extent that the Delaware General Corporation Law prohibits the
elimination or limitation of liability of directors for breach of fiduciary
duty.
Article Ninth of the Registrant's Amended and Restated Certificate of
Incorporation provides that a director or officer of the Registrant (a) shall be
indemnified by the Registrant against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with any
litigation or other legal proceeding (other than an action by or in the right of
the Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
II-1
<PAGE>
Indemnification is required to be made unless the Registrant determines that
the applicable standard of conduct required for indemnification has not been
met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article Ninth of the Registrant's Amended and Restated Certificate of
Incorporation further provides that the indemnification provided therein is not
exclusive, and provides that in the event that the Delaware General Corporation
Law is amended to expand the indemnification permitted to directors or officers
the Registrant must indemnify those persons to the fullest extent permitted by
such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 7 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three fiscal years preceding the filing of this registration
statement, the company has issued the following securities that were not
registered under the Securities Act:
(a) Issuances of Capital Stock
In December 1996, we issued 425,532 shares of Series B Preferred Stock to
SOFTBANK Ventures Inc. for an aggregate purchase price of $3,000,000 and a
warrant to purchase 425,532 shares of Series B Preferred Stock at a purchase
price of $1.385 per share.
In November 1997, we issued a warrant to Silicon Valley Bank to acquire
46,296 shares of Series C Preferred Stock at an exercise price of $1.62 per
share. In March 1998, we issued another warrant to Silicon Valley Bank to
acquire 10,000 shares of Series C Preferred Stock at an exercise price of $0.01
per share.
In November and December 1997 and April 1998, we issued an aggregate of
1,456,789 shares of Series C Preferred Stock to fourteen private investors for
$1.62 per share.
In August, September and October 1998, we issued an aggregate of 2,343,750
shares of Series D Preferred Stock to six private investors for $3.20 per share.
II-2
<PAGE>
In connection with the sale of Series D Preferred Stock, the investors were
also issued warrants which vest over five years to purchase shares of common
stock at an exercise price of $0.16 per share.
(b) Grants and Exercises of Stock Options
As of March 31, 1999, there were outstanding options to purchase an
aggregate of 2,971,169 shares of common stock under the 1996 Stock Option Plan,
at a weighted average exercise price of $0.80 per share. From April 1996 to
March 31, 1999, the registrant issued 726,119 shares of common stock for an
aggregate purchase price of $251,175 pursuant to exercise of options.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All foregoing securities are deemed restricted securities
for the purpose of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as currently in effect.
3.2* Certificate of Amendment to Certificate of Incorporation of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed on or immediately
subsequent to the date of the closing of the Offering contemplated by this Registration Statement.
3.4 By-Laws of the Registrant, as amended to date.
3.5* Form of Amended and Restated By-Laws of the Registrant to be effective on or immediately subsequent to
the date of the closing of the Offering contemplated by this Registration Statement.
4* Specimen certificate for shares of Common Stock, $.01 par value per share, of the Registrant.
5* Opinion of Hale and Dorr LLP.
10.1 1996 Stock Option Plan, as amended.
10.2* 1999 Outside Director Stock Option Plan.
10.3* 1999 Employee Stock Purchase Plan.
10.4 Lease between the Registrant and DVPT Limited Partnership, dated March 11, 1999.
10.5 Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated November 26, 1997, as
amended on March 31, 1998 and July 2, 1998.
10.6 Intellectual Property Security Agreement between the Registrant and Silcon Valley Bank, dated November
26, 1997.
10.7*+ OEM Agreement between the Registrant and Informix Software, Inc., dated December 31, 1998.
10.8*+ Software License Agreement between the Registrant and Sun Microsystems, Inc., dated March 27, 1998.
10.9 Series A Preferred Stock Purchase Agreement, dated July 1995.
10.10 Series B Preferred Stock Purchase Agreement, dated December 23, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.11 Series C Preferred Stock Purchase Agreement, dated November 12, 1997.
10.12 Series C Preferred Stock Purchase Agreement, dated December 8, 1997.
10.13 Series C Preferred Stock Purchase Agreement, dated April 16, 1998.
10.14 Series D Senior Participating Convertible Redeemable Preferred Stock Purchase Agreement, dated August 18,
1998 (Exhibit C thereto is included in Exhibit 10.17, Exhibit E thereto is included in Exhibit 10.18,
Exhibit F thereto is included in Exhibit 10.19 and Exhibit G thereto is included in Exhibit 10.15).
10.15 Form of Supplemental Agreement to Series D Senior Participating Convertible Redeemable Preferred Stock
Purchase Agreement, signed by (i) Tudor Private Equity Fund, L.P., The Raptor Global Fund, L.P., and
Raptor Global Fund, Ltd., dated September 10, 1998; (ii) GMN Investors II, L.P., dated September 10,
1998; (iii) Richard A. Berenson Family trust 1972, dated October 16, 1998; and (iv) New Media Investors,
L.L.C., dated October 16, 1998.
10.16 Amended and Restated Warrant, dated August 18, 1998, issued to SOFTBANK Ventures, Inc.
10.17 Form of Common Stock Purchase Warrant (Vesting) issued to certain parties to the Series D Senior
Participating Convertible Redeemable Preferred Stock Purchase Agreement, dated August 18, 1998, September
10, 1998 and October 16, 1998.
10.18 Stockholders' Agreement, dated August 18, 1998, as amended by the First Amendment to Stockholders'
Agreement, dated September 10, 1998.
10.19 Registration Rights Agreement, dated August 18, 1998.
10.20 Non-Compete Agreement between the Registrant and Jeet Singh, dated August 18, 1998.
10.21 Non-Compete Agreement between the Registrant and Joseph Chung, dated August 18, 1998.
10.22 Consulting Agreement between the Registrant and Thomas N. Matlack, dated November 12, 1997.
10.23 Warrant issued to Silicon Valley Bank, dated November 26, 1997
10.24 Warrant issued to Silicon Valley Bank, dated March 31, 1998.
23.1 Independent Auditor's Consent.
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-6).
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment to be requested.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Boston, Massachusetts,
on this day of May 1999.
ART TECHNOLOGY GROUP, INC.
BY: /S/ JEET SINGH
-----------------------------------------
Jeet Singh
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Art Technology Group, Inc.,
hereby severally constitute and appoint Jeet Singh, Ann C. Brady and David A.
Westenberg, and each of them singly, our true and lawful attorneys with full
power to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable Art Technology Group, Inc. to comply with the provisions of
the Securities Act of 1933, as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto or to any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief May 10, 1999
/s/ JEET SINGH Executive Officer
- ------------------------------ (Principal Executive
Jeet Singh Officer)
/s/ JOSEPH T. CHUNG Chief Technology Officer May 10, 1999
- ------------------------------ and Chairman of the Board
Joseph T. Chung
Vice President, Finance and May 10, 1999
/s/ ANN C. BRADY Chief Financial Officer
- ------------------------------ (Principal Financial and
Ann C. Brady Accounting Officer)
/s/ ROBERT P. FORLENZA Director May 10, 1999
- ------------------------------
Robert P. Forlenza
/s/ SCOTT A. JONES Director May 10, 1999
- ------------------------------
Scott A. Jones
/s/ CHARLES R. LAX Director May 10, 1999
- ------------------------------
Charles R. Lax
/s/ JEFFREY T. NEWTON Director May 10, 1999
- ------------------------------
Jeffrey T. Newton
/s/ THOMAS N. MATLACK Director May 10, 1999
- ------------------------------
Thomas N. Matlack
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as currently in effect.
3.2* Certificate of Amendment to Certificate of Incorporation of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed on or immediately
subsequent to the date of the closing of the Offering contemplated by this Registration Statement.
3.4 By-Laws of the Registrant, as amended to date.
3.5* Form of Amended and Restated By-Laws of the Registrant to be effective on or immediately subsequent to
the date of the closing of the Offering contemplated by this Registration Statement.
4* Specimen certificate for shares of Common Stock, $.01 par value per share, of the Registrant.
5* Opinion of Hale and Dorr LLP.
10.1 1996 Stock Option Plan, as amended.
10.2* 1999 Outside Director Stock Option Plan.
10.3* 1999 Employee Stock Purchase Plan.
10.4 Lease between the Registrant and DVPT Limited Partnership, dated March 11, 1999.
10.5 Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated November 26, 1997, as
amended on March 31, 1998 and July 2, 1998.
10.6 Intellectual Property Security Agreement between the Registrant and Silcon Valley Bank, dated November
26, 1997.
10.7*+ OEM Agreement between the Registrant and Informix Software, Inc., dated December 31, 1998.
10.8*+ Software License Agreement between the Registrant and Sun Microsystems, Inc., dated March 27, 1998.
10.9 Series A Preferred Stock Purchase Agreement, dated July 1995.
10.10 Series B Preferred Stock Purchase Agreement, dated December 23, 1996.
10.11 Series C Preferred Stock Purchase Agreement, dated November 12, 1997.
10.12 Series C Preferred Stock Purchase Agreement, dated December 8, 1997.
10.13 Series C Preferred Stock Purchase Agreement, dated April 16, 1998.
10.14 Series D Senior Participating Convertible Redeemable Preferred Stock Purchase Agreement, dated August 18,
1998 (Exhibit C thereto is included in Exhibit 10.17, Exhibit E thereto is included in Exhibit 10.18,
Exhibit F thereto is included in Exhibit 10.19 and Exhibit G thereto is included in Exhibit 10.15).
10.15 Form of Supplemental Agreement to Series D Senior Participating Convertible Redeemable Preferred Stock
Purchase Agreement, signed by (i) Tudor Private Equity Fund, L.P., The Raptor Global Fund, L.P., and
Raptor Global Fund, Ltd., dated September 10, 1998; (ii) GMN Investors II, L.P., dated September 10,
1998; (iii) Richard A. Berenson Family trust 1972, dated October 16, 1998; and (iv) New Media Investors,
L.L.C., dated October 16, 1998.
10.16 Amended and Restated Warrant, dated August 18, 1998, issued to SOFTBANK Ventures, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.17 Form of Common Stock Purchase Warrant (Vesting) issued to certain parties to the Series D Senior
Participating Convertible Redeemable Preferred Stock Purchase Agreement, dated August 18, 1998, September
10, 1998 and October 16, 1998.
10.18 Stockholders' Agreement, dated August 18, 1998, as amended by the First Amendment to Stockholders'
Agreement, dated September 10, 1998.
10.19 Registration Rights Agreement, dated August 18, 1998.
10.20 Non-Compete Agreement between the Registrant and Jeet Singh, dated August 18, 1998.
10.21 Non-Compete Agreement between the Registrant and Joseph Chung, dated August 18, 1998.
10.22 Consulting Agreement between the Registrant and Thomas N. Matlack, dated November 12, 1997.
10.23 Warrant issued to Silicon Valley Bank, dated November 26, 1997
10.24 Warrant issued to Silicon Valley Bank, dated March 31, 1998.
23.1 Independent Auditor's Consent.
23.2* Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-6).
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment to be requested.
<PAGE>
Exhibit 3.1
CERTIFICATE OF CORRECTION
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ART TECHNOLOGY GROUP, INC.
Pursuant to Section 103(f)
of the General Corporation Law
of the State of Delaware
Art Technology Group, Inc. (the "Corporation"), a corporation existing
under and by virtue of the General Corporation Law of the State of Delaware,
hereby certifies that (a) on August 18, 1998, the Corporation caused to be filed
with the Secretary of State of the State of Delaware an Amended and Restated
Certificate of Incorporation, the first paragraph of Part F of Article FOURTH of
which incorrectly stated the number of shares of Preferred Stock designated as
Series D Senior Participating Convertible Redeemable Preferred Stock pursuant to
the corporate action therein referred to, and (b) the corrected form of the
first paragraph of Part F of Article FOURTH thereof is as follows:
Two Million Three Hundred Forty-Three Thousand Seven Hundred Fifty
(2,343,750) shares of the authorized and unissued Preferred Stock of the
Corporation are hereby designated "Series D Senior Participating Convertible
Redeemable Preferred Stock" (the "Series D Preferred Stock") with the following
rights, preferences, powers, privileges and restrictions, qualifications and
limitations.
EXECUTED at Boston, Massachusetts, on September 9, 1998
/s/ Jeet Singh
--------------------------
Jeet Singh
President
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ART TECHNOLOGY GROUP, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law
of the State of Delaware
Art Technology Group, Inc. (the "Corporation"), a corporation
originally incorporated by the filing of a Certificate of Incorporation with the
Secretary of State of the State of Delaware on October 22, 1997, and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"General Corporation Law"), hereby certifies that (a) at a meeting of the Board
of Directors of the Corporation, the Board of Directors duly adopted a
resolution pursuant to Sections 242 and 245 of the General Corporation Law
proposing an amendment to and restatement of the Certificate of Incorporation of
the Corporation and declaring said amendment and restatement to be advisable;
(b) the stockholders of the Corporation duly approved said proposed amendment
and restatement by written consent in accordance with Sections 228 and 242 of
the General Corporation Law, and written notice of such consent is being
promptly given to all stockholders who have not consented in writing to said
amendment and restatement; and (c) the Amended and Restated Certificate of
Incorporation of the Corporation is as follows:
FIRST. The name of the Corporation is: Art Technology Group, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH. The total number and classes of shares of capital stock that
the Corporation shall have authority to issue is as follows: (i) 25,000,000
shares of Common Stock, par value $.01 per share ("Common Stock") and (ii)
10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock").
2
<PAGE>
The following is a statement of the designation and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided herein or by law. Different series
of Preferred Stock shall not be construed to constitute different classes of
shares for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, special voting rights, conversion rights,
redemption privileges and liquidation preferences, as shall be stated and
expressed in such resolutions, all to the full extent now or hereafter permitted
by the General Corporation Law of the State of Delaware. Without limiting the
generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred
3
<PAGE>
Stock of any other series to the extent permitted by law. Except as otherwise
specifically provided in this Amended and Restated Certificate of Incorporation,
no vote of the holders of the Preferred Stock or Common Stock shall be a
prerequisite to the issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Amended and Restated
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the Corporation.
C. SERIES A CONVERTIBLE PREFERRED STOCK
One Million Three Hundred Thousand (1,300,000) shares of the authorized
and unissued Preferred Stock of the Corporation are hereby designated "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock") with the following
rights, preferences, powers, privileges and restrictions, qualifications and
limitations.
1. DIVIDENDS
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $0.01925 per share per annum (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), payable
when and as declared by the Board of Directors of the Corporation. The right to
receive dividends on Series A Preferred Stock shall be non-cumulative, and no
right to dividends shall accrue by reason of the fact that no dividend has been
declared on the Series A Preferred Stock in any prior year.
(b) The Corporation shall not declare or pay any distributions
(as defined below) on shares of Common Stock until the holders of the Series A
Preferred Stock then outstanding shall have first received a distribution at the
rate specified in paragraph (a) of this Section 1.
(c) For purposes of this Section 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the
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Corporation available for distribution to its stockholders, after and subject to
the payment in full of all amounts required to be distributed to the holders of
any other class or series of stock of the Corporation ranking on liquidation
prior and in preference to the Series A Preferred Stock (collectively referred
to in this Part C as "Senior Preferred Stock"), but before any payment shall be
made to the holders of Common Stock or any other class or series of stock
ranking on liquidation junior to the Series A Preferred Stock (such Common Stock
and other stock being collectively referred to as "Junior Stock") by reason of
their ownership thereof, an amount equal to $0.385 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid thereon. If upon any such liquidation, dissolution
or winding up of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of shares of Series A Preferred Stock, after the payment in full of all
amounts to which the holders of Senior Preferred Stock are entitled, the full
amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series A Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the Series A Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Common Stock and Series
D Preferred Stock then outstanding (assuming conversion of all Series D
Preferred Stock into Common Stock as of the date of such liquidation,
dissolution or winding up of the Corporation) shall be entitled to receive PRO
RATA the remaining assets and funds of the Corporation available for
distribution to its stockholders.
(c) A consolidation or merger of the Corporation with or into
another corporation or entity, or a sale of all or substantially all of the
assets of the Corporation, shall not be regarded as a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 2.
3. VOTING
(a) Each holder of outstanding shares of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock held by
such holder are then convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by
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the provisions of Subsection 3(b) below or by the provisions establishing any
other series of Preferred Stock, holders of Series A Preferred Stock shall vote
together with the holders of Common Stock and all other series of Preferred
Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock, and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series A Preferred Stock.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $0.385 by the Conversion Price (as defined below)
in effect at the time of conversion. The "Conversion Price" shall initially be
$0.385. Such initial Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION
(i) In order for a holder of Series A Preferred Stock
to convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together
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with written notice that such holder elects to convert all or any number of the
shares of the Series A Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of Series A Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share.
(ii) The Corporation shall at all times when the
Series A Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
dividends declared but unpaid thereon. Any shares of Series A Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series A Preferred Stock pursuant
to
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this Section 4. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall, at any time or from time to time after the date on which a
share of Series D Preferred Stock was first issued (the "Original Issue Date"),
effect a subdivision of the outstanding Common Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such
dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
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have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Original Issue
Date for the Series A Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION.
If the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(h) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of
any consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation, each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the
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Board of Directors) shall be made in the application of the provisions in this
Section 4 set forth with respect to the rights and interest thereafter of the
holders of the Series A Preferred Stock, to the end that the provisions set
forth in this Section 4 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A Preferred
Stock.
(i) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.
(k) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities
of the Corporation;
(ii) that the Corporation subdivides or combines
its outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision
or combination of its outstanding shares of
Common Stock or a stock dividend or stock
distribution thereon), or of any
consolidation or merger of the Corporation
into or with another corporation, or of the
sale of all or substantially all of the
assets of the Corporation; or
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(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and
the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION
(a) Upon the closing of the sale of shares of Common Stock, at
a price of at least $0.385 per share (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $7,500,000 of gross proceeds to the Corporation (the "Mandatory
Conversion Date"), (i) all outstanding shares of Series A Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
conversion rate and (ii) the number of authorized shares of Preferred Stock
shall be automatically reduced by the number of shares of Preferred Stock that
had been designated as Series A Preferred Stock, and all provisions included
under the caption "Series A Convertible Preferred Stock", and all references to
the Series A Preferred Stock, shall be deleted and shall be of no further force
or effect.
(b) All holders of record of shares of Series A Preferred
Stock shall be given written notice of the Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series A
Preferred Stock pursuant to this Section 5. Such notice need not be given in
advance of the occurrence of the Mandatory Conversion Date. Such notice shall be
sent by first class or registered mail, postage prepaid, to each record holder
of Series A Preferred Stock at such holder's address last shown on the records
of the transfer agent for the Series A
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Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent). Upon receipt of such notice, each holder of shares of Series A
Preferred Stock shall surrender his or its certificate or certificates for all
such shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 5. On the Mandatory
Conversion Date, all rights with respect to the Series A Preferred Stock so
converted, including the rights, if any, to receive notices and vote (other than
as a holder of Common Stock) will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series A Preferred Stock has been converted, and payment of any declared but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series A Preferred Stock, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
D. SERIES B CONVERTIBLE PREFERRED STOCK
Eight Hundred Fifty-One Thousand Sixty-Four (851,064) shares of the
authorized and unissued Preferred Stock of the Corporation be and hereby are
hereby designated "Series B Convertible Preferred Stock" (the "Series B
Preferred Stock"), having the rights, preferences, powers, privileges and
restrictions, qualifications and limitations set forth below.
1. DIVIDENDS
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends of
$0.3525 per share per annum (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares), payable
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when and as declared by the Board of Directors of the Corporation. Such
dividends shall accrue and shall be cumulative from the date of issuance of each
share of Series B Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any distributions
(as defined below) on shares of Common Stock, or any other class or series of
stock ranking on liquidation junior to the Series B Preferred Stock, until
the holders of the Series B Preferred Stock then outstanding shall have first
received a distribution at the rate specified in paragraph (a) of this
Section 1.
(c) For purposes of this Section 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series B Preferred Stock
(collectively referred to in this Part D as the "Senior Preferred Stock"), but
before any payment shall be made to the holders of Common Stock or Series A
Preferred Stock, or any other class or series of stock ranking on liquidation
junior to the Series B Preferred Stock, by reason of their ownership thereof, an
amount equal to the greater of (i) $7.05 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any accrued but unpaid
dividends thereon, or (ii) such amount per share as would have been payable had
each such share been converted into Common Stock pursuant to Section 4
immediately prior to such liquidation, dissolution or winding up. If upon any
such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series B Preferred Stock, after
the payment in full of all amounts to which the holders of Senior Preferred
Stock are entitled, the full amount to which they shall be entitled, the holders
of shares of Series B Preferred Stock, Series C Preferred Stock and any other
class or series of stock ranking on liquidation
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on a parity with the Series B Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Series B Preferred Stock and any other class or series
of stock of the Corporation ranking on liquidation on a parity with the Series B
Preferred Stock, upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Common Stock and Series D Preferred Stock
then outstanding (assuming conversion of all Series D Preferred Stock into
Common Stock as of the date of such liquidation, dissolution or winding up of
the Corporation) shall be entitled to receive PRO RATA the remaining assets and
funds of the Corporation available for distribution to its stockholders.
3. VOTING
(a) Each holder of outstanding shares of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series B Preferred Stock held by
such holder are then convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or by the provisions establishing any other series of preferred stock,
holders of Series B Preferred Stock shall vote together with the holders of
Common Stock and all other series of Preferred Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series B Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority senior to the Series B
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series B Preferred Stock, and the
authorization of any shares of capital stock junior to or on parity with the
Series B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall not be deemed to affect adversely the Series B Preferred Stock.
4. OPTIONAL CONVERSION. The holders of the Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
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(a) RIGHT TO CONVERT. Each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $7.05 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" for the Series B
Preferred Stock shall initially be $5.35, which reflects all adjustments thereto
based on events on or prior to August 17, 1998. Such initial Conversion Price,
and the rate at which shares of Series B Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below. In the
event of a liquidation of the Corporation, the Conversion Rights shall terminate
at the close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the holders of Series B
Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series B Preferred Stock
to convert shares of Series B Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
B Preferred Stock, at the office of the transfer agent for the Series B
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series B
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series B
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the
Series B Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series B Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series B
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Preferred Stock. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of the Series B Preferred Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued but unpaid dividends on the
Series B Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series B Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
dividends accrued but unpaid thereon. Any shares of Series B Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series B
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series B Preferred Stock pursuant
to this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series B Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES. In
addition to and notwithstanding any provision of this Section 4 to the contrary,
the Conversion Price of the Series B Preferred Stock shall not be adjusted in
connection with (i) the issuance of any shares of Series D Preferred Stock, or
any warrants therefor, pursuant to the Series D Purchase Agreement (as defined
in Part F, Section 6(e) hereof), (ii) the issuance of any shares of Common Stock
upon the exercise of any warrants issued pursuant to the Series D Purchase
Agreement, (iii) the issuance of any shares of Common Stock upon conversion of
the shares of Series D Preferred Stock described in (i) above, or (iv) any
adjustment whatsoever of the Conversion Price of the Series D Preferred Stock
provided for in this Amended and Restated Certificate of Incorporation.
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<PAGE>
(i) SPECIAL DEFINITIONS. For purposes of this
Subsection 4(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options described in Subsection 4(d)(i)(D)(IV)
below.
(B) "Original Issue Date" shall mean the
date on which a share of Series D Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Subsection
4(d)(iii) below, deemed to be issued) by the Corporation after the Original
Issue Date, other than:
(I) shares of Common Stock issued or
issuable upon conversion of any
Convertible Securities
outstanding on the Original
Issue Date, or upon exercise of
any Options outstanding on the
Original Issue Date;
(II) shares of Common Stock issued as
a dividend or distribution on
the Series B Preferred Stock;
(III) shares of Common Stock issued by
reason of a dividend, stock
split, split-up or other
distribution on shares of Common
Stock that is covered by
Subsection 4(e) or 4(f) below;
(IV) shares of Common Stock, and
options and warrants therefor,
issued or issuable to employees,
directors, consultants,
strategic partners or commercial
lenders of or to the
Corporation, in each case, as
approved by a majority of the
Board of Directors; or
(V) shares of Series B Preferred
Stock issued upon exercise of
the Performance Warrant (and the
shares of Common Stock issued
upon conversion of such shares)
to the original holder of the
Series B Preferred Stock.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment
in the number of shares of Common Stock into which the Series B Preferred Stock
is convertible shall be made, by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4(d)(v)) for
17
<PAGE>
an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Conversion Price in effect on the date
of, and immediately prior to, the issue of such Additional Shares of Common
Stock, or (b) if prior to such issuance, the Corporation receives written notice
from the holders of at least 50% of the then outstanding shares of Series B
Preferred Stock as to which such adjustment would apply agreeing that no such
adjustment shall be made as the result of the issuance of Additional Shares of
Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL
SHARES OF COMMON STOCK. If the Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities, then
the maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) No further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase
becoming effective, be recomputed to reflect such increase insofar as it affects
such Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of
any unexercised Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price;
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<PAGE>
(D) In the event of any change in the number
of shares of Common Stock issuable upon the exercise, conversion or exchange of
any Option or Convertible Security, other than a change resulting from the
anti-dilution provisions thereof (including without limitation any adjustment
whatsoever of the Conversion Price of the Series D Preferred Stock), the
Conversion Price then in effect shall forthwith be readjusted to such Conversion
Price as would have obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or converted prior to such
change been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B)
or (D) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall at any
time after the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event such Conversion Price
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price by a fraction, (A)
the numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares of
Common Stock which the aggregate consideration received or to be received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price; and (B) the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued;
PROVIDED THAT, (i) for the purpose of this Subsection 4(d)(iv), all shares of
Common Stock issuable upon exercise or conversion of Options or Convertible
Securities outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) the number of shares of Common Stock deemed issuable upon
exercise or conversion of such outstanding Options and Convertible Securities
shall not give effect to any
19
<PAGE>
adjustments to the conversion price or conversion rate of such Options or
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of
this Subsection 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration
shall:
(I) insofar as it consists of
cash, be computed at the aggregate of cash
received by the Corporation, excluding
amounts paid or payable for accrued
interest;
(II) insofar as it consists of
property other than cash, be computed at the
fair market value thereof at the time of
such issue, as determined in good faith by
the Board of Directors; and
(III) in the event Additional
Shares of Common Stock are issued together
with other shares or securities or other
assets of the Corporation for consideration
which covers both, be the proportion of such
consideration so received, computed as
provided in clauses (I) and (II) above, as
determined in good faith by the Board of
Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of
20
<PAGE>
shares of the same series or class, and such issuance dates occur within a
period of no more than 120 days, then the Conversion Price shall be adjusted
only once on account of such issuances, with such adjustment to occur upon the
final such issuance and to give effect to all such issuances as if they occurred
on the date of the final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series B Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series B Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series B Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series B Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series B Preferred Stock had been
converted into Common Stock on the date of such event.
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<PAGE>
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time or from time to time after the Original Issue Date for
the Series B Preferred Stock shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series B Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series B Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series B Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series B Preferred Stock had been converted into Common
Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series B Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series B Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series B Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation, each share of Series B Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series B Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series B Preferred
Stock, to the
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<PAGE>
end that the provisions set forth in this Section 4 (including provisions with
respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series B Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred Stock subject to such adjustment a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred Stock, furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series B Preferred
Stock.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in
Common Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination
of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or
substantially all of the assets of the Corporation;
or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series B Preferred Stock, and shall cause to
be mailed to the
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<PAGE>
holders of the Series B Preferred Stock at their last addresses as shown on the
records of the Corporation or such transfer agent, at least ten days prior to
the date specified in (A) below or twenty days before the date specified in (B)
below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination,
or, if a record is not to be taken, the date
as of which the holders of Common Stock of
record to be entitled to such dividend,
distribution, subdivision or combination are
to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to
become effective, and the date as of which
it is expected that holders of Common Stock
of record shall be entitled to exchange
their shares of Common Stock for securities
or other property deliverable upon such
reclassification, consolidation, merger,
sale, dissolution or winding up.
5. MANDATORY CONVERSION
(a) (1) Upon the closing of the sale of shares of Common
Stock, at a price of at least $8.00 per share (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least $10,000,000 of gross proceeds to the Corporation, (i) all
outstanding shares of Series B Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective Conversion Price, and (ii)
the number of authorized shares of Preferred Stock of the Company shall be
automatically reduced by the number of shares of Series B Preferred Stock, and
all provisions included under the caption "Series B Preferred Stock", and all
references to the Series B Preferred Stock shall be deleted and shall be of no
further force or effect.
(2) Upon the affirmative vote of the holders of a majority of
the Series B Preferred Stock, (i) all outstanding shares of Series B Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective Conversion Price, and (ii) the number of authorized shares of Series B
Preferred Stock of the Company shall be automatically reduced by the number of
shares of Series B Preferred Stock so converted, and all references to the
Series B Preferred Stock, shall be deleted and shall be of no further force or
effect.
(3) The date of conversion specified in paragraphs (1) and (2)
above shall be termed the "Mandatory Conversion Date".
(b) All holders of record of shares of Series B Preferred Stock to be
converted pursuant to this Section 5 shall be given written notice of the
Mandatory Conversion Date and the place designated for mandatory conversion of
all such
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<PAGE>
shares of Series B Preferred Stock pursuant to this Section 5. Such notice need
not be given in advance of the occurrence of the Mandatory Conversion Date. Such
notice shall be sent by first class or registered mail, postage prepaid, to each
record holder of such Series B Preferred Stock at such holder's address last
shown on the records of the transfer agent for the Series B Preferred Stock (or
the records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series B Preferred Stock so
converted shall surrender his or its certificate or certificates for all such
shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 5. On the Mandatory
Conversion Date, all rights with respect to the Series B Preferred Stock so
converted, including the rights, if any, to receive notices and vote (other than
as a holder of Common Stock) will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series B Preferred Stock has been converted, and payment of any accrued but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series B Preferred Stock, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series B Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and canceled and the shares of Series B Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series B Preferred Stock accordingly.
6. MANDATORY REDEMPTION
(a) So long as there are any shares of Series D Preferred
Stock outstanding and not redeemed, and notwithstanding anything to the contrary
contained herein, (i) the holders of Series B Preferred Stock shall not be
entitled to any of the rights or benefits of this Section 6, and (ii) the
Corporation shall have no obligation to the holders of Series B Preferred Stock
under this Section 6. Subject to the foregoing, and provided that the
Corporation receives notice from the holders of not less than 25% of the
then-outstanding Series B Preferred Stock no later than sixty
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<PAGE>
(60) days prior to one of the Mandatory Redemption Dates listed below, the
Corporation will, subject to the conditions set forth in Subsection 6(b) below,
redeem from each holder of shares of Series B Preferred Stock giving such
notice, at a price equal to $7.05 per share, plus any dividends accrued but
unpaid thereon, subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares (the "Mandatory Redemption Price"), the following respective
portions of the number of shares of Series B Preferred Stock held by such holder
(or such lesser percentage specified by such holder) on the applicable Mandatory
Redemption Date:
Portion of Shares of
Series B Preferred Stock
<TABLE>
<CAPTION>
Mandatory Redemption Date That May be Redeemed
------------------------- --------------------
<S> <C>
August 17, 2003 25%
August 17, 2004 50%
August 17, 2005 75%
August 17, 2006 and each
August 17 thereafter 100%
</TABLE>
(b) The Corporation shall not, on any Mandatory Redemption
Date, be required to pay more than 10% of its consolidated net income, before
taxes, for the immediately preceding fiscal year to redeem shares of the Series
B Preferred Stock pursuant to Subsection 6(a) above. If the Corporation cannot
by application of this Subsection 6(b) redeem all of the shares subject to
mandatory redemption on a particular Mandatory Redemption Date, it shall redeem
the maximum possible number of whole shares of Series B Preferred Stock ratably
on the basis of the number of shares of Series B Preferred Stock which would be
redeemed on such date if the Corporation were not prevented by this Subsection
(b) from redeeming any shares.
(c) If the funds of the Corporation legally available for
redemption of Series B Preferred Stock on any Mandatory Redemption Date are
insufficient to redeem the number of shares of Series B Preferred Stock required
under this Section 6 to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares of
Series B Preferred Stock ratably on the basis of the number of shares of Series
B Preferred Stock which would be redeemed on such date if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
of Series B Preferred Stock required to be redeemed on such date. At any time
thereafter when additional funds of the Corporation become legally available for
the redemption of Series B Preferred Stock, such funds will be used, at the end
of the next succeeding fiscal quarter, to
26
<PAGE>
redeem the balance of the shares which the Corporation was theretofore obligated
to redeem, ratably on the basis set forth in the preceding sentence.
(d) The Corporation shall be entitled, at its option, to
credit against the number of shares of Series B Preferred Stock required to be
redeemed from any holder on any Mandatory Redemption Date, (i) any shares of
Series B Preferred Stock previously redeemed from such holder pursuant to
Section 6 and not previously so credited, and (ii) any shares of Series B
Preferred Stock previously converted by such holder into Common Stock pursuant
to Section 4 and not previously so credited.
(e) The Corporation shall provide notice of any redemption of
Series B Preferred Stock pursuant to this Section 6 specifying the time and
place of redemption and the Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series B Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not more than 60 nor less than 30 days prior to the date on
which such redemption is to be made. If less than all Series B Preferred Stock
owned by such holder is then to be redeemed, the notice will also specify the
number of shares which are to be redeemed. Upon mailing any such notice of
redemption, the Corporation will become obligated to redeem at the time of
redemption specified therein all Series B Preferred Stock specified therein
(other than such shares of Series B Preferred Stock as are duly converted
pursuant to Section 4 prior to the close of business on the fifth full day
preceding the Mandatory Redemption Date). In case less than all Series B
Preferred Stock represented by any certificate is redeemed in any redemption
pursuant to this Section 6, a new certificate will be issued representing the
unredeemed Series B Preferred Stock without cost to the holder thereof.
(f) Unless there shall have been a default in payment of the
Mandatory Redemption Price, no share of Series B Preferred Stock shall be
entitled to any dividends declared after its Mandatory Redemption Date, and on
such Mandatory Redemption Date all rights of the holder of such share as a
stockholder of the Corporation by reason of the ownership of such share will
cease, except the right to receive the Mandatory Redemption Price of such share,
without interest, upon presentation and surrender of the certificate
representing such share, and such share will not from and after such Mandatory
Redemption Date be deemed to be outstanding.
(g) Any Series B Preferred Stock redeemed pursuant to this
Section 6 will be canceled and will not under any circumstances be reissued,
sold or transferred and the Corporation may from time to time take such
appropriate action as may be necessary to reduce the authorized Series B
Preferred Stock accordingly.
E. SERIES C CONVERTIBLE PREFERRED STOCK
Two Million (2,000,000) shares of the authorized and unissued Preferred
Stock of the Corporation be and hereby are hereby designated "Series C
Convertible
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Preferred Stock" (the "Series C Preferred Stock"), having the rights,
preferences, powers, privileges and restrictions, qualifications and limitations
set forth below.
1. DIVIDENDS
(a) The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends of $0.08
per share per annum (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), payable when and as declared by the Board of Directors of the
Corporation. Such dividends shall accrue and shall be cumulative from the date
of issuance of each share of Series C Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any distributions
(as defined below) on shares of Common Stock, Series A Preferred Stock or any
other class or series of stock ranking on liquidation junior to the Series C
Preferred Stock, until the holders of the Series C Preferred Stock then
outstanding shall have first received a distribution at the rate specified in
paragraph (a) of this Section 1. In the event that the Corporation declares any
cash dividends on Series B Preferred Stock or other series of preferred stock
ranking in liquidation on parity with the Series C Preferred Stock, the
Corporation shall also declare a cash dividend on the Series C Preferred Stock
in an amount equal to the common equivalent per share dividend declared on the
Series B Preferred Stock or such other series of parity preferred stock.
(c) For purposes of this Section 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series C Preferred Stock
(collectively referred to in this Part E as the "Senior Preferred Stock"), but
before any payment shall be made to the holders of Common Stock or Series A
Preferred Stock, or any other class or series of stock ranking on liquidation
junior to the Series C Preferred Stock, by reason of their ownership
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thereof, an amount equal to the greater of (i) $1.62 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
accrued but unpaid dividends thereon, or (ii) such amount per share as would
have been payable had each such share been converted into Common Stock pursuant
to Section 4 immediately prior to such liquidation, dissolution or winding up.
If upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series C
Preferred Stock, after the payment of all amounts to which the holders of Senior
Preferred Stock are entitled, the full amount to which they shall be entitled,
the holders of shares of Series C Preferred Stock, Series B Preferred Stock and
any other class or series of stock ranking on liquidation on a parity with the
Series C Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full. A consolidation or merger of the Corporation with or into
another corporation or entity, or a sale of all or substantially all of the
assets of the Corporation, shall not be regarded as a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 2.
(b) Notwithstanding, and in addition to, the foregoing, the
holders of Series C Preferred Stock shall be entitled to receive the Series C
Special Payment, if any, as defined in, subject to and in otherwise in
accordance with Section 6(e) of Part F hereof.
3. VOTING
(a) Each holder of outstanding shares of Series C Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series C Preferred Stock held by
such holder are then convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or by the provisions establishing any other series of preferred stock,
holders of Series C Preferred Stock shall vote together with the holders of
Common Stock and all other series of Preferred Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series C Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority
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senior to the Series C Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall be deemed to affect adversely the Series C Preferred
Stock, and the authorization of any shares of capital stock junior to or on
parity with the Series C Preferred Stock as to the right to receive either
dividends or amounts distributable upon liquidation, dissolution or winding up
of the Corporation shall not be deemed to affect adversely the Series C
Preferred Stock.
4. OPTIONAL CONVERSION. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series C Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.62 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" for the Series C
Preferred Stock shall initially be $.81, which reflects all adjustments thereto
based on events on or prior to August 17, 1998. Such initial Conversion Price,
and the rate at which shares of Series C Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below. In the
event of a liquidation of the Corporation, the Conversion Rights shall terminate
at the close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the holders of Series C
Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series C Preferred Stock
to convert shares of Series C Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
C Preferred Stock, at the office of the transfer agent for the Series C
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series C
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation
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shall, as soon as practicable after the Conversion Date, issue and deliver at
such office to such holder of Series C Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the
Series C Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series C Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series C Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued but unpaid dividends on the
Series C Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series C Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
dividends accrued but unpaid thereon. Any shares of Series C Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series C
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series C Preferred Stock pursuant
to this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series C Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES. In
addition to and notwithstanding any provision of this Section 4 to the contrary,
the Conversion Price of the Series C Preferred Stock shall not be adjusted in
connection with (i) the
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issuance of any shares of Series D Preferred Stock, or any warrants therefor,
pursuant to the Series D Purchase Agreement (as defined in Part F, Section 6(e)
hereof), (ii) the issuance of any shares of Common Stock upon the exercise of
any warrants issued pursuant to the Series D Purchase Agreement, (iii) the
issuance of any shares of Common Stock upon conversion of the shares of Series D
Preferred Stock described in (i) above, or (iv) any adjustment whatsoever of the
Conversion Price of the Series D Preferred Stock provided for in this Amended
and Restated Certificate of Incorporation.
(i) SPECIAL DEFINITIONS. For purposes of this
Subsection 4(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options described in Subsection 4(d)(i)(D)(IV)
below.
(B) "Original Issue Date" shall mean the
date on which a share of Series D Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Subsection
4(d)(iii) below, deemed to be issued) by the Corporation after the Original
Issue Date, other than:
(I) shares of Common Stock issued or
issuable upon conversion of any
Convertible Securities
outstanding on the Original
Issue Date, or upon exercise of
any Options outstanding on the
Original Issue Date;
(II) shares of Common Stock issued as
a dividend or distribution on
the Series C Preferred Stock;
(III) shares of Common Stock issued by
reason of a dividend, stock
split, split-up or other
distribution on shares of Common
Stock that is covered by
Subsection 4(e) or 4(f) below;
or
(IV) shares of Common Stock, and
options and warrants therefor,
issued or issuable to employees,
directors, consultants,
strategic partners or commercial
lenders of or to the
Corporation, in each case, as
approved by a majority of the
Board of Directors; or
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(V) shares of Series B Preferred
Stock issued upon exercise of
the Performance Warrant (and the
shares of Common Stock issued
upon conversion of such shares)
to the original holder of the
Series B Preferred Stock.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment
in the number of shares of Common Stock into which the Series C Preferred Stock
is convertible shall be made, by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares of Common Stock, or (b) if prior to such issuance, the Corporation
receives written notice from the holders of at least 50% of the then outstanding
shares of Series C Preferred Stock as to which such adjustment would apply
agreeing that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL
SHARES OF COMMON STOCK. If the Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities, then
the maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) No further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments
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based thereon, shall, upon any such increase becoming effective, be recomputed
to reflect such increase insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) Upon the expiration or termination of
any unexercised Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price;
(D) In the event of any change in the number
of shares of Common Stock issuable upon the exercise, conversion or exchange of
any Option or Convertible Security, other than a change resulting from the
anti-dilution provisions thereof (including without limitation any adjustment
whatsoever of the Conversion Price of the Series D Preferred Stock), the
Conversion Price then in effect shall forthwith be readjusted to such Conversion
Price as would have obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or converted prior to such
change been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B)
or (D) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall, between
the Original Issue Date and the second anniversary of the Original Issue Date,
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Subsection 4(d)(iii), but excluding shares
issued as a dividend or distribution as provided in Subsection 4(f) or upon a
stock split or combination as provided in Subsection 4(e)), without
consideration or for a consideration per share less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to the consideration per share received by the Corporation for
the issue of the Additional Shares of Common Stock (determined pursuant to
Subsection 4(d)(v)).
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(v) DETERMINATION OF CONSIDERATION. For purposes of
this Subsection 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration
shall:
(I) insofar as it consists of
cash, be computed at the aggregate of cash
received by the Corporation, excluding
amounts paid or payable for accrued
interest;
(II) insofar as it consists of
property other than cash, be computed at the
fair market value thereof at the time of
such issue, as determined in good faith by
the Board of Directors; and
(III) in the event Additional
Shares of Common Stock are issued together
with other shares or securities or other
assets of the Corporation for consideration
which covers both, be the proportion of such
consideration so received, computed as
provided in clauses (I) and (II) above, as
determined in good faith by the Board of
Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class, and such issuance dates occur
within a period of no more than 120 days, then the Conversion Price shall be
adjusted only once on account of such issuances, with such adjustment to occur
upon the final such
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issuance and to give effect to all such issuances as if they occurred on the
date of the final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series C Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series C Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series C Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series C Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series C Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time or from time to time after the Original Issue Date for
the
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Series C Preferred Stock shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series C Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series C Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series C Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series C Preferred Stock had been converted into Common
Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series C Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series C Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series C Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation, each share of Series C Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series C Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series C Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall
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thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series C Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series C Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C Preferred Stock subject to such adjustment a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series C Preferred Stock, furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series C Preferred
Stock.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable in
Common Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination
of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or
with another corporation, or of the sale of all or
substantially all of the assets of the Corporation;
or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C Preferred Stock, and shall cause to
be mailed to the holders of the Series C Preferred Stock at their last addresses
as shown on the records
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of the Corporation or such transfer agent, at least ten days prior to the date
specified in (A) below or twenty days before the date specified in (B) below, a
notice stating
(A) the record date of such dividend,
distribution, subdivision or combination,
or, if a record is not to be taken, the date
as of which the holders of Common Stock of
record to be entitled to such dividend,
distribution, subdivision or combination are
to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to
become effective, and the date as of which
it is expected that holders of Common Stock
of record shall be entitled to exchange
their shares of Common Stock for securities
or other property deliverable upon such
reclassification, consolidation, merger,
sale, dissolution or winding up.
5. MANDATORY CONVERSION
(a) (1) Upon the closing of the sale of shares of Common
Stock, at a price of at least $3.24 per share (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least $10,000,000 of gross proceeds to the Corporation, (i) all
outstanding shares of Series C Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective Conversion Price, and (ii)
the number of authorized shares of Preferred Stock of the Company shall be
automatically reduced by the number of shares of Series C Preferred Stock, and
all provisions included under the caption "Series C Preferred Stock", and all
references to the Series C Preferred Stock shall be deleted and shall be of no
further force or effect.
(2) Upon the affirmative vote of the holders of a majority of
the Series C Preferred Stock, (i) all outstanding shares of Series C Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective Conversion Price, and (ii) the number of authorized shares of Series C
Preferred Stock of the Company shall be automatically reduced by the number of
shares of Series C Preferred Stock so converted, and all references to the
Series C Preferred Stock, shall be deleted and shall be of no further force or
effect.
(3) The date of conversion specified in paragraphs (1) and (2)
above shall be termed the "Mandatory Conversion Date".
(b) All holders of record of shares of Series C Preferred Stock to be
converted pursuant to this Section 5 shall be given written notice of the
Mandatory Conversion Date and the place designated for mandatory conversion of
all such shares of Series C Preferred Stock pursuant to this Section 5. Such
notice need not be
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given in advance of the occurrence of the Mandatory Conversion Date. Such notice
shall be sent by first class or registered mail, postage prepaid, to each record
holder of such Series C Preferred Stock at such holder's address last shown on
the records of the transfer agent for the Series C Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series C Preferred Stock so
converted shall surrender his or its certificate or certificates for all such
shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 5. On the Mandatory
Conversion Date, all rights with respect to the Series C Preferred Stock so
converted, including the rights, if any, to receive notices and vote (other than
as a holder of Common Stock) will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series C Preferred Stock has been converted, and payment of any accrued but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series C Preferred Stock, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series C Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and canceled and the shares of Series C Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series C Preferred Stock accordingly.
F. SERIES D SENIOR PARTICIPATING CONVERTIBLE REDEEMABLE
PREFERRED STOCK
Two Million One Hundred Eighty-Seven Thousand Five Hundred (2,187,500)
shares of the authorized and unissued Preferred Stock of the Corporation are
hereby designated "Series D Senior Participating Convertible Redeemable
Preferred Stock" (the "Series D Preferred Stock") with the following rights,
preferences, powers, privileges and restrictions, qualifications and
limitations.
SECTION 1. DIVIDENDS
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(A) GENERALLY. The Corporation shall not be required to declare or pay
a dividend on the Series D Preferred Stock, except as set forth below. No
dividend of cash or other property or other distribution (other than a stock
dividend giving rise to an adjustment under Section 4(e) in this Part F and made
in accordance with the provisions of Section 6 in this Part F) shall be paid, or
declared and set apart for payment, on any share of any other class or series of
capital stock, including without limitation the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, any other class of Preferred Stock
and any Common Stock, unless a pro rata dividend or other distribution is paid,
or declared and set apart for payment, with respect to all shares of Series D
Preferred Stock. In the event of the conversion of any shares of Series D
Preferred Stock pursuant to Section 4 in this Part F, all accrued and unpaid
dividends on such shares of Series D Preferred Stock shall be paid in cash
unless any holder thereof, by written notice to the Corporation, requests that
such dividends be converted into Common Stock, the amount of such accrued but
unpaid dividends on such shares of Series D Preferred Stock to be taken into
account in determining the number of shares of Common Stock into which such
shares of Series D Preferred Stock are convertible, as provided in Section 4(c)
in this Part F.
(B) DIVIDENDS FOR FAILURE TO REDEEM. In the event that the Corporation
fails to redeem shares for which redemption is requested pursuant to Sections
5(a) or 5(b) in this Part F for any reason, then during the period from the
applicable Redemption Date (as defined below) for such shares through the date
on which such shares are redeemed, the holders of shares of Series D Preferred
Stock shall be entitled to receive quarterly dividends equal to $0.144 per share
per quarter (so that such dividend shall be equal to four and one-half percent
(4.5%) of the per share purchase price of the shares of Series D Preferred Stock
issued pursuant to the Series D Purchase Agreement (as defined in Section 6
below)), subject to proportionate adjustment for any stock dividend, stock
split, combination of shares, reorganization, recapitalization, reclassification
or other similar event affecting the Series D Preferred Stock after the date of
filing of this Amended and Restated Certificate of Incorporation, payable in
cash. Such dividends shall accrue and be paid quarterly in arrears on the last
business day of each March, June, September and December, and upon the
liquidation, dissolution or winding-up of the Corporation or the redemption of
such shares of Series D Preferred Stock or upon the closing of a Qualified
Public Offering (as defined below), whether or not declared, and shall be
cumulative so that if at any time the entire amount of such dividends on the
Series D Preferred Stock has not been paid, or declared and set apart for
payment, the deficiency shall be fully paid or declared and set apart for
payment before any dividend shall be paid on or declared or set apart for
payment on any other class or series of stock, including without limitation the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
any other class of Preferred Stock and any Common Stock.
(C) RATABLE ALLOCATION OF DIVIDENDS. If at any time the Corporation
pays less than the total amount of dividends then accrued and payable with
respect to all shares of Series D Preferred Stock for which dividends are
required to be declared
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and paid pursuant to Section 1(a) or 1(b), if any, such payment will be
distributed ratably among the holders of such shares of Series D Preferred Stock
PRO RATA in proportion to the aggregate accrued but unpaid dividends on the
shares of Series D Preferred Stock held by each such holder.
SECTION 2. LIQUIDATION, DISSOLUTION, OR WINDING-UP.
(A) DISTRIBUTIONS TO HOLDERS OF SERIES D PREFERRED STOCK. In the event
of any liquidation, dissolution, or winding-up of the Corporation, whether
voluntary or involuntary, the holders of outstanding shares of Series D
Preferred Stock shall be entitled to be paid out of the assets of the
Corporation available for distribution to stockholders, before any payment shall
be made to or set aside for the holders of any other class or series of capital
stock, including without limitation the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, any other class of Preferred Stock
and Common Stock, an amount (the "LIQUIDATION VALUE") equal to $3.20 per share
of Series D Preferred Stock, subject to proportionate adjustment for any stock
dividend, stock split, combination of shares, reorganization, recapitalization,
reclassification or other similar event occurring after the date of filing of
this Amended and Restated Certificate of Incorporation affecting the Series D
Preferred Stock, plus all accrued and unpaid dividends thereon, if any, through
the date of such liquidation, dissolution, or winding-up. After such payment
shall have been made in full to such holders of Series D Preferred Stock, or
funds necessary for such payment shall have been set aside by the Corporation in
trust for the exclusive benefit of such holders so as to be available for such
payment, and after payment of the Series D Special Payment, the Series C Special
Payment and the Second Series D Special Payment pursuant to Section 2(e) below,
any assets remaining available for distribution shall be distributed to the
holders of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock of the Corporation in accordance with the provisions of
this Amended and Restated Certificate of Incorporation. After such payments
shall have been made in full to such holders of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, or funds necessary
for such payment shall have been set aside by the Corporation in trust for the
exclusive benefit of such holders so as to be available for such payment, any
assets remaining available for distribution shall be distributed to the holders
of shares of Common Stock and Series D Preferred Stock PRO RATA, based on the
number of shares of Common Stock held by each (assuming conversion of all Series
D Preferred Stock into Common Stock as of the date of such liquidation,
dissolution or winding up of the Corporation pursuant to Section 4(a) in this
Part F). If upon any liquidation, dissolution, or winding-up of the Corporation,
the assets lawfully available to be distributed to the holders of Series D
Preferred Stock under the first sentence of this Section 2(a) are insufficient
to permit payment to such stockholders of their full respective Liquidation
Value per share plus all accrued and unpaid dividends thereon, then all of the
assets of the Corporation lawfully available for distribution shall be
distributed ratably among the holders of shares of Series D Preferred Stock.
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(B) DEEMED LIQUIDATIONS. Upon the written election of the holders of at
least a majority of the outstanding shares of Series D Preferred Stock, a
consolidation or merger of the Corporation with or into any other person(s) or
entity(ies) (other than a consolidation or merger in which the Corporation is
the surviving corporation and upon consummation of which the holders of voting
securities of the Corporation immediately prior to such transaction continue to
own directly or indirectly not less than a majority of the voting securities of
the Corporation, as the surviving corporation, immediately following such
transaction), sale of all or substantially all of the assets of the Corporation,
or a sale or other disposition of more than 50% of the voting capital stock of
the Corporation (whether issued and outstanding, newly issued or from treasury,
or any combination thereof) or other similar transaction, shall be regarded as a
liquidation, dissolution, or winding-up of the affairs of the Corporation within
the meaning of this Section 2. Notwithstanding the foregoing, each holder of
Series D Preferred Stock shall have the right to elect the benefits of the
provisions of Section 4(a) in this Part F in lieu of receiving payment in
liquidation, dissolution, or winding-up of the Corporation pursuant to this
Section 2; and if the holders of at least a majority of the outstanding shares
of Series D Preferred Stock shall elect to avail themselves of, or to forgo, the
benefits of Section 4(a), such holders may require that all other holders of
shares of Series D Preferred Stock shall be bound by the same election. For
purposes of this Section 2 and of Sections 4 and 6 in this Part F, a sale
(whether in a single transaction or a series of related transactions) of
substantially all of the assets of the Corporation shall mean the sale or other
disposition other than in the ordinary course of business of more than 50% of
such assets, as determined by reference to the fair market value of the
Corporation.
(C) NON-CASH DISTRIBUTIONS. In the event of a liquidation, dissolution,
or winding-up of the Corporation resulting in the availability of assets other
than cash for distribution to the holders of shares of Series D Preferred Stock,
the holders of Series D Preferred Stock shall be entitled to a distribution of
cash and/or other assets equal in value to the liquidation preference and other
distribution rights stated in Section 2(a). In the event that such distribution
to the holders of shares of Series D Preferred Stock shall include any assets
other than cash, the Board of Directors shall first determine in good faith and
with due care the value of such assets for such purpose, and shall notify all
holders of shares of Series D Preferred Stock of such determination. The value
of such assets for purposes of the distribution under this Section 2(c) shall be
the value as so determined by the Board of Directors, unless the holders of at
least a majority of the outstanding shares of Series D Preferred Stock shall
object thereto in writing within 15 days after the date of such notice.
(D) DISPUTE RESOLUTION PROCEDURES. In the event of such objection, the
valuation of such assets for purposes of such distribution shall be determined
by an arbitrator mutually agreed upon and selected by the objecting stockholders
and the Board of Directors, or in the event a single arbitrator cannot be agreed
upon within 10 days after the written objection sent by the objecting
stockholders in accordance with the previous paragraph, the valuation of such
assets shall be determined by an
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arbitration in which (i) the objecting stockholders shall name in their notice
of objection one arbitrator, (ii) the Board of Directors shall name a second
arbitrator within 15 days from the receipt of such notice, (iii) the two
arbitrators thus selected shall select a third arbitrator within 15 days
thereafter, and (iv) the three arbitrators thus selected shall determine by
majority vote the valuation of such assets within 15 days thereafter for
purposes of such distribution. In the event the third arbitrator is not selected
as provided herein, then such arbitrator shall be selected by the President of
the American Arbitration Association ("AAA"). The costs of such arbitration
shall be borne by the Corporation or by the holders of Series D Preferred Stock
(on a PRO RATA basis out of the assets otherwise distributable to them) as
follows: (i) if the valuation as determined by the arbitrators is greater than
90% of the valuation as determined by the Board of Directors, the holders of
Series D Preferred Stock shall pay the costs of the arbitration, and (ii)
otherwise, the Corporation shall bear the costs of the arbitration. The
arbitration shall be held in Boston, Massachusetts in accordance with the rules
of the AAA. The award made by the arbitrators shall be binding upon the parties
hereto, no appeal may be taken from such award, and judgment thereon may be
entered in any court of competent jurisdiction.
(E) SPECIAL PAYMENT(S) TO HOLDERS OF SERIES D PREFERRED STOCK AND
HOLDERS OF SERIES C PREFERRED STOCK. In addition to the rights set forth in this
Section 2 of this Part F, in the event of an initial public offering of shares
of Common Stock of the Corporation, a consolidation or merger of the Corporation
with or into any other person(s) or entity(ies) (other than a consolidation or
merger in which the Corporation is the surviving corporation and upon
consummation of which the holders of voting securities of the Corporation
immediately prior to such transaction continue to own directly or indirectly not
less than a majority of the voting securities of the Corporation, as the
surviving corporation, immediately following such transaction), sale of all or
substantially all of the assets of the Corporation, or a sale or other
disposition of more than 50% of the voting capital stock of the Corporation
(whether issued and outstanding, newly issued or from treasury, or any
combination thereof) or other similar transaction, the holders of shares of
Series D Preferred Stock outstanding immediately prior to the relevant event
described in this Section 2(e) (and irrespective of whether such event would
give rise to a mandatory conversion of the Series D Preferred Stock into Common
Stock) shall be entitled to receive in cash (unless the Corporation shall give
written notice that such payment is to be made in capital stock of a third
party, in which case all of the special payments under this Section 2(e) shall
be made in capital stock of such third party), their PRO RATA share, based on
the number of shares of Series D Preferred Stock held by each, of an amount
equal to $2,411,000 multiplied by 1.33 multiplied by the percentage aggregate
ownership expressed as a decimal of the holders of Series D Preferred Stock of
the Corporation's capital stock (on a fully-diluted and as-converted basis) at
the time of the relevant event described in this Section 2(e) (the "SERIES D
SPECIAL PAYMENT"), which payment shall be made upon the closing of the relevant
event described in this Section 2(e) and, in terms of order of priority if the
Series D Special Payment is being
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made in connection with a liquidation or deemed liquidation under Sections 2(a)
or (b) above, after payment of the liquidation preference to be paid to the
holders of Series D Preferred Stock pursuant to Section 2(a) and prior to the
payment of the Series C Special Payment (defined below), the Second Series D
Special Payment (defined below) and any liquidation preference to be paid to the
holders of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock pursuant to Section 2 of each of Parts C, D and E hereof or any
other class of capital stock authorized herein or preferred upon liquidation;
PROVIDED, that the Series D Special Payment need not be made in the event that
the SOFTBANK Warrant (as defined in Section 4(f)(i)) has not been exercised. If
the Series D Special Payment cannot be made in full due to insufficient cash,
stock or other assets, then such Series D Special Payment shall be made to the
fullest extent possible and PRO RATA to the holders of Series D Preferred Stock
based on the number of shares of Series D Preferred Stock held by each holder as
of the date of the relevant event described in this Section 2(e).
After payment of the Series D Special Payment, the holders of shares of
Series C Preferred Stock outstanding immediately prior to the relevant event
described in this Section 2(e) (and irrespective of whether such event would
give rise to a mandatory conversion of the Series C Preferred Stock into Common
Stock) shall be entitled to receive in cash (unless the Corporation shall have
given written notice that the special payments under this Section 2(e) shall be
made in capital stock of a third party), their PRO RATA share, based on the
number of shares of Series C Preferred Stock held by each, of an amount equal to
$2,411,000 plus the Series D Special Payment multiplied by 1.33 multiplied by
the percentage aggregate ownership expressed as a decimal of the holders of
Series C Preferred Stock of the Corporation's capital stock (on a fully-diluted
and as-converted basis) at the time of the relevant event described in this
Section 2(e) (the "SERIES C SPECIAL PAYMENT"), which payment shall be made upon
the closing of the relevant event described in this Section 2(e) and, in terms
of order of priority if the Series D Special Payment is being made in connection
with a liquidation or deemed liquidation under Sections 2(a) or (b) above, after
payment of the Series D Special Payment and prior to the payment of the Second
Series D Special Payment (defined below) and any liquidation preference to be
paid to the holders of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock pursuant to Section 2 of each of Parts C, D and E
hereof or any other class of capital stock authorized herein or preferred upon
liquidation; PROVIDED, that the Series C Special Payment need not be made in the
event that the SOFTBANK Warrant (as defined in Section 4(f)(i)) has not been
exercised and shall not be made if the Series D Special Payment has not been
made IN FULL. If the Series C Special Payment cannot be made in full due to
insufficient cash, stock or other assets, then such Series C Special Payment
shall be made to the fullest extent possible and PRO RATA to the holders of
Series C Preferred Stock based on the number of shares of Series C Preferred
Stock held by each holder as of the date of the relevant event described in this
Section 2(e).
After payment of the Series C Special Payment, the holders of shares of
Series D Preferred Stock outstanding immediately prior to the relevant event
described in
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this Section 2(e) (and irrespective of whether such event would give rise to a
mandatory conversion of the Series D Preferred Stock into Common Stock) shall be
entitled to receive in cash (unless the Corporation shall have given written
notice that the special payments under this Section 2(e) shall be made in
capital stock of a third party), their PRO RATA share, based on the number of
shares of Series D Preferred Stock held by each, of an amount equal to the
Series C Special Payment multiplied by 1.33 multiplied by the percentage
aggregate ownership expressed as a decimal of the holders of Series D Preferred
Stock of the Corporation's capital stock (on a fully-diluted and as-converted
basis) at the time of the relevant event described in this Section 2(e) (the
"SECOND SERIES D SPECIAL PAYMENT"), which payment shall be made upon the closing
of the relevant event described in this Section 2(e) and, in terms of order of
priority if the Series D Special Payment is being made in connection with a
liquidation or deemed liquidation under Sections 2(a) or (b) above, after
payment of the Series C Special Payment and prior to any liquidation preference
to be paid to the holders of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock pursuant to Section 2 of each of Parts C, D and E
hereof or any other class of capital stock authorized herein or preferred upon
liquidation; PROVIDED, that the Second Series D Special Payment need not be made
in the event that the SOFTBANK Warrant (as defined in Section 4(f)(i)) has not
been exercised and shall not be made if the Series D Special Payment and the
Series C Special Payment have not been made IN FULL. If the Second Series D
Special Payment cannot be made in full due to insufficient cash, stock or other
assets, then such Second Series D Special Payment shall be made to the fullest
extent possible and PRO RATA to the holders of Series D Preferred Stock based on
the number of shares of Series D Preferred Stock held by each holder as of the
date of the relevant event described in this Section 2(e).
SECTION 3. VOTING RIGHTS.
(A) GENERAL. Except as otherwise expressly provided herein or as
required by applicable law, the holder of each share of Series D Preferred Stock
shall be entitled to vote on all matters on which holders of Common Stock are
entitled to vote, including without limitation, the election of directors (in
addition to those rights set forth in Section 3(b) in this Part F). Each share
of Series D Preferred Stock shall entitle the holder thereof to such number of
votes per share as shall equal the number of shares of Common Stock into which
such share of Series D Preferred Stock is convertible pursuant to Section 4(a)
in this Part F as of the record date for the determination of stockholders
entitled to vote on such matter, or if no record date is established, at the
date such vote is taken or any written consent of stockholders is solicited.
Except as otherwise provided herein (including Section 3(b) and Section 6), in
the provisions establishing any other series of Preferred Stock, in the
Stockholders Agreement (as defined in the Series D Purchase Agreement (as
defined in Section 6(3) in this Part F)), or as required by applicable law, the
holders of shares of Series D Preferred Stock shall vote together with the
holders of Common Stock and all other series of Preferred Stock as a single
class on all matters submitted to a vote or consent of stockholders.
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(B) BOARD OF DIRECTORS. Unless otherwise voted by the holders of at
least a majority of the outstanding shares of Series D Preferred Stock, the
number of directors shall be fixed at seven (7). The holders of Series D
Preferred Stock shall be entitled to vote as a class separately from all other
classes and series of capital stock of the Corporation in any election of
directors of the Corporation, and shall be entitled to elect by such class vote
two (2) directors. Notwithstanding the foregoing, if the Corporation (i) fails
to comply with any obligation to the holders of the Series D Preferred Stock as
set forth in Sections 6(a), 6(b), 6(e) and 6(i) in this Part F, or (ii) breaches
any covenant set forth in Sections 2 or 5 in this Part F, (A) any director who
is also an employee of the Corporation shall automatically be removed from the
Board of Directors of the Corporation and replaced with a director designated by
the holders of a majority of the shares of Series D Preferred Stock outstanding
at such time, (B) the holders of a majority of the shares of Series D Preferred
Stock shall be entitled to designate and elect by class vote the smallest number
of directors to the Board of Directors of the Corporation that shall constitute
a majority of the authorized number of directors on the Board of Directors of
the Corporation, and (C) the size of the Board of Directors shall be increased
as necessary, solely to effectuate the provisions of the preceding clause (B).
(C) REMOVAL OF DIRECTORS; VACANCIES. Any director of the Corporation
elected pursuant to Section 3(b) in this Part F may be removed before the
expiration of his term of office, with or without cause, and any vacancy caused
by the death, incapacity, resignation, removal, or other termination of service
of any director, may be filled, by (and only by) the affirmative vote of the
holders of at least a majority of the shares of the class(es) and series of
capital stock by which such director was elected, voting as a class separately
from all other classes and series of capital stock, or, in the case of a
director elected by vote of the directors elected by the separate class vote of
the holders of Series D Preferred Stock, by such directors or their successors
as such.
SECTION 4. CONVERSION. Shares of Series D Preferred Stock shall be
subject to conversion into shares of Common Stock or other securities,
properties, or rights, as set forth in this Section 4.
(A) HOLDERS' OPTION TO CONVERT. Subject to and in compliance with the
provisions of this Section 4, any shares of Series D Preferred Stock (including,
without limitation, those shares for which a Redemption Notice has been
delivered to the Corporation but which shares have not yet been redeemed) may,
at any time or from time to time at the option of the holder, be converted into
fully paid and non-assessable shares of Common Stock.
(i) The number of shares of Common Stock to which a holder of
Series D Preferred Stock shall be entitled upon such conversion shall be equal
to the product obtained by MULTIPLYING (y) the number of shares of Series D
Preferred Stock being converted BY (z) the Applicable Conversion Rate
(determined as provided in Section 4(c) in this Part F).
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(ii) Notwithstanding the foregoing, if the Corporation fails
to employ a Chief Operating Officer, with the intent to promote such Chief
Operating Officer to Chief Executive Officer, or a Chief Executive Officer, each
of whom meet the employment requirements as set forth in the Series D Purchase
Agreement (as defined in Section 6(e) below), prior to one (1) year after the
date of filing of this Amended and Restated Certificate of Incorporation, then
the number of shares of Common Stock to which a holder of Series D Preferred
Stock shall otherwise be entitled upon such conversion shall be equal to the
product obtained by MULTIPLYING (x) the number of shares of Series D Preferred
Stock being converted BY (y) the Applicable Conversion Rate (determined as
provided in Section 4(c) in this Part F) BY (z) 1.25.
(iii) To exercise conversion rights under this Section 4(a), a
holder of Series D Preferred Stock to be so converted shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of Series
D Preferred Stock surrendered for conversion shall be accompanied by evidence of
proper assignment thereof to the Corporation. The date when such written notice
is received by the Corporation together with the certificate or certificates
representing the shares of Series D Preferred Stock being converted, shall be
the "CONVERSION DATE." As promptly as practicable after the Conversion Date, the
Corporation shall issue and shall deliver to the holder of the shares of Series
D Preferred Stock being converted, a certificate or certificates in such
denominations as such holder may request in writing for the number of full
shares of Common Stock issuable upon the conversion of such shares of Series D
Preferred Stock in accordance with the provisions of this Section 4, plus cash
as provided in Section 4(k) below in respect of any fraction of a share of
Common Stock issuable upon such conversion. Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date, and at such time the rights of the holder as holder of the converted
shares of Series D Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of shares of Common Stock represented thereby.
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(B) AUTOMATIC CONVERSION.
(i) QUALIFIED PUBLIC OFFERING. Each share of Series D
Preferred Stock outstanding (including, without limitation, those shares for
which a Redemption Notice has been delivered to the Corporation but which shares
have not yet been redeemed) shall be converted into the number of fully paid and
non-assessable shares of Common Stock into which such share is then convertible
pursuant to Section 4(a) in this Part F, automatically and without further
action, immediately upon the closing of a Qualified Public Offering. A
"QUALIFIED PUBLIC OFFERING" shall mean a public offering of shares of the
Corporation's Common Stock pursuant to an effective registration statement on
Form S-1, or successor form, of the Securities and Exchange Commission (the
"SEC"), pursuant to which the per share price to the public is not less than
$8.00 (such amount to be subject to proportionate adjustment in the event of any
stock dividend, stock split, combination of shares, reorganization,
recapitalization, reclassifications or other similar event occurring after the
date of filing of this Amended and Restated Certificate of Incorporation) and
the gross proceeds to the Corporation are not less than $20,000,000.
(ii) CLASS VOTE OF SERIES D PREFERRED STOCK. Each share of
Series D Preferred Stock outstanding (including, without limitation, those
shares for which a Redemption Notice has been delivered to the Corporation but
which shares have not yet been redeemed) shall be converted into the number of
fully paid and non-assessable shares of Common Stock into which such share is
then convertible pursuant to Section 4(a) in this Part F, automatically and
without further action, immediately upon the vote of holders of at least a
majority of the outstanding shares of Series D Preferred Stock voting separately
as a class to cause such conversion.
(iii) MECHANICS OF AUTOMATIC CONVERSION. Upon any automatic
conversion of shares of Series D Preferred Stock into shares of Common Stock
pursuant to this Section 4(b), the holders of such converted shares shall
surrender the certificates formerly representing such shares at the office of
the Corporation or of any transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to each such holder, promptly at such office and
in his name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into which
such shares of Series D Preferred Stock were so converted and cash as provided
in Section 4(k) below in respect of any fraction of a share of Common Stock
issuable upon such conversion. The Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless and until certificates formerly evidencing the converted shares of Series
D Preferred Stock are either delivered to the Corporation or its transfer agent,
as hereinafter provided, or the holder thereof notifies the Corporation or such
transfer agent that such certificates have been lost, stolen, or destroyed and
executes and delivers an agreement to indemnify the Corporation from any loss
incurred by it in connection therewith.
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<PAGE>
(C) APPLICABLE CONVERSION RATE. The conversion rate in effect at any
time (the "APPLICABLE CONVERSION RATE") shall equal the quotient obtained by
DIVIDING (i) the sum of (A) $3.20 (subject to proportionate adjustment for any
stock dividend, stock split, combination of shares, reorganization,
recapitalization, reclassification or other similar event affecting the Series D
Preferred Stock occurring after the date of filing of this Amended and Restated
Certificate of Incorporation), PLUS (B) an amount equal to all accrued but
unpaid dividends on a share of Series D Preferred Stock (assuming the holder of
such shares being converted has elected to have such dividends converted to
shares of Common Stock rather than receiving cash therefor), if any, BY (ii) the
Applicable Conversion Value then in effect, calculated as hereinafter provided.
(D) APPLICABLE CONVERSION VALUE. The Applicable Conversion Value in
effect initially, and until first adjusted in accordance with Sections 4(e),
4(f) and/or 4(g) in this Part F, shall be $3.20.
(E) ADJUSTMENTS FOR EXTRAORDINARY COMMON STOCK EVENTS. Upon the
happening of an Extraordinary Common Stock Event (as defined in Section 4(n) in
this Part F), automatically and without further action, and simultaneously with
the happening of such Extraordinary Common Stock Event, the Applicable
Conversion Value in effect immediately prior to such Extraordinary Common Stock
Event shall be adjusted by multiplying such then effective Applicable Conversion
Value by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding (excluding treasury stock) immediately before such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding (excluding treasury stock)
immediately after such Extraordinary Common Stock Event, and the product so
obtained shall thereafter be the Applicable Conversion Value. The Applicable
Conversion Value, as so adjusted, shall be readjusted in the same manner upon
the happening of each successive Extraordinary Common Stock Event or Events.
(F) ADJUSTMENTS FOR DILUTIVE ISSUES.
(i) Except as otherwise provided below in this Section
4(f)(i), and except with respect to an Extraordinary Common Stock Event,
adjustments in respect of which are provided for in Section 4(e), if at any time
while there are any shares of Series D Preferred Stock outstanding, the Company
issues or is deemed to issue any additional shares of Common Stock at a Net
Consideration Per Share (as hereinafter defined) less than the Applicable
Conversion Value in respect of the Series D Preferred Stock in effect
immediately prior to such issuance or deemed issuance, then and in each such
case, such Applicable Conversion Value for the Series D Preferred Stock shall
automatically and without further action be adjusted as follows:
(A) If such issuance and/or deemed issuance occurs on
or before the second anniversary of the date of filing of this Amended and
Restated Certificate of Incorporation, then the Applicable Conversion Value for
the Series D
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<PAGE>
Preferred Stock will be adjusted to equal the Net Consideration Per Share (as
hereinafter defined) at which such additional shares of Common Stock were issued
and/or deemed issued.
(B) If such issuance and/or deemed issuance occurs
after the second anniversary of the date of filing of this Amended and Restated
Certificate of Incorporation, then the Applicable Conversion Value for the
Series D Preferred Stock will be adjusted to equal the result of the following
formula:
New Applicable Conversion (P1 x Q1) + (P2 x Q2)
Value = ---------------------
(Q1 + Q2)
where:
P1 = the Applicable Conversion Value in effect immediately prior to such
issuance or deemed issuance of additional shares of Common Stock;
Q1 = the aggregate number of shares of Common Stock outstanding (including
shares of Common Stock issuable upon conversion of all outstanding shares of
Series D Preferred Stock and the conversion, exchange and/or exercise of all
outstanding warrants, options and other convertible securities, each to the
extent then convertible, exchangeable and/or exercisable) immediately prior to
such issuance or deemed issuance of additional shares of Common Stock;
P2 = the Net Consideration Per Share (as hereinafter defined) received by the
Corporation for the shares of Common Stock issued and/or deemed issued in
respect of such issuance of additional shares of Common Stock; and
Q2 = the number of shares of Common Stock issued and/or deemed issued in respect
of such issuance of additional shares of Common Stock.
The following shall not be deemed issuances of additional shares of
Common Stock for the purposes of this Section 4(f): the Corporation's (A)
issuance of shares of Common Stock upon conversion of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, (B) granting of stock options to directors, officers,
employees, or consultants of the Corporation pursuant to the Corporation's 1996
Stock Option Plan or pursuant to any other employee benefit plan approved by the
Board of Directors of the Corporation, and the issuance of shares of Common
Stock upon exercise of any of the foregoing options, (c) issuance of Common
Stock upon the exercise of the Warrants (as defined in the Series D Purchase
Agreement (as defined in Section 6(e) in this Part F)), (d) issuance of up to
56,296 shares of Series C Preferred Stock upon the exercise of warrants issued
to Silicon Valley Bank, (e) issuance of up to 425,532 shares of Series B
Preferred Stock upon the exercise of the Amended and Restated Warrant, dated as
of August 17, 1998, issued to SOFTBANK Ventures, Inc. (the "SOFTBANK WARRANT"),
and (f) warrants to purchase Common Stock issued to commercial institutional
senior lenders solely in connection with the establishment of a working capital
line of credit
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<PAGE>
(and the issuance of Common Stock upon exercise thereof) in an amount not to
exceed 200,000 shares.
For purposes of this Section 4(f), if a part or all of the
consideration received by the Corporation in connection with the issuance or
deemed issuance of shares of Common Stock or the issuance or deemed issuance of
any of the securities described below in paragraph (ii) of this Section 4(f)
consists of property other than cash, such consideration shall be deemed to have
the same value as is recorded on the books of the Corporation with respect to
receipt of such property so long as such recorded value was determined
reasonably and in good faith and with due care by the Board of Directors of the
Corporation, and shall otherwise be deemed to have a value equal to its fair
market value.
(ii) For purposes of this Section 4(f), the issuance of any
Derivative Securities (as defined in Section 4(o)) shall be deemed an issuance
of shares of Common Stock with respect to Section 4(f)(i)(A) and with respect to
Section 4(f)(i)(B) if the Net Consideration Per Share (as defined in Section
4(f)(ii)(A) and 4(f)(ii)(B) in this Part F) that may be received by the
Corporation for such Common Stock is less than the Applicable Conversion Value
in effect immediately prior to the time of such issuance, and except as
hereinafter provided, an adjustment in the Applicable Conversion Value shall be
made upon each such issuance of Derivative Securities in the manner provided in
Section 4(f)(i)(A) and 4(f)(i)(B), as appropriate, as if such deemed Common
Stock were issued for such Net Consideration Per Share. No adjustment of the
Applicable Conversion Value shall be made under this Section 4(f) upon the
issuance of any additional shares of Common Stock that are issued upon the
exercise, conversion, or exchange of any Derivative Securities if any such
adjustment was previously made upon the issuance of such Derivative Securities.
Any adjustment of the Applicable Conversion Value with respect to this Section
4(f)(ii) shall be disregarded if, as, and to the extent that the Derivative
Securities that gave rise to such adjustment expire or are canceled without
having been exercised, so that the Applicable Conversion Value effective
immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value that otherwise would have been in effect immediately
prior to the time of the issuance of the expired or canceled Derivative
Securities, with such additional adjustments as subsequently would have been
made to that Applicable Conversion Value had the expired or canceled Derivative
Securities not been issued. In the event that the terms of any Derivative
Securities previously issued by the Corporation are changed (whether by their
terms or for any other reason, including without limitation, as a result of the
effects of any anti-dilution adjustments contained therein) so as to lower the
Net Consideration Per Share payable with respect thereto (whether or not the
issuance of such Derivative Securities originally gave rise to an adjustment of
the Applicable Conversion Value), the Applicable Conversion Value shall be
recomputed as of the date of such change, so that the Applicable Conversion
Value effective immediately upon such change shall be equal to the Applicable
Conversion Value in effect at the time of the issuance of the Derivative
Securities subject to such change,
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<PAGE>
adjusted for the issuance thereof in accordance with the terms thereof after
giving effect to such change, and with such additional adjustments as
subsequently would have been made to that Applicable Conversion Value had the
Derivative Securities been issued on such changed terms. For purposes of this
Section 4(f)(ii), the Net Consideration Per Share that may be received by the
Corporation shall be determined as follows:
(A) "NET CONSIDERATION PER SHARE" shall mean the
amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Derivative Securities, plus
the minimum amount of additional consideration, if any, payable to the
Corporation upon exercise, conversion, and/or exchange thereof for
shares of Common Stock, divided by the maximum number of shares of
Common Stock that would be issued if all such Derivative Securities
were exercised or converted at such Net Consideration Per Share.
(B) The Net Consideration Per Share that may be
received by the Corporation shall be determined in each instance as of
the date of issuance of Derivative Securities without giving effect to
any possible future price adjustments or rate adjustments that may be
applicable with respect to such Derivative Securities and which are
contingent upon future events; PROVIDED, that in the case of an
adjustment to be made as a result of a change in terms of such
Derivative Securities, including such changes as may result from the
effects of any anti-dilution adjustments contained therein, the Net
Consideration Per Share shall be determined as of the date of such
change.
(g) ADJUSTMENTS FOR PERFORMANCE MILESTONES.
(i) END OF SEVEN FISCAL QUARTERS. If, on or as of the end of
the seven (7) fiscal quarters of the Corporation ending December 31, 1999, the
Corporation's (a) total cumulative revenues ("TOTAL REVENUES") are less than
$54,000,000 and/or (b) total cumulative product revenues (which, for this
purpose, shall be deemed to mean only those revenues derived from sales by the
Corporation of non-customized products (as distinct from services) as to which
the Corporation is not a reseller and which the buyer has not purchased for
inventory) ("TOTAL PRODUCT REVENUES") are less than $20,500,000 and/or (c) total
cumulative EBIT (as defined below) is less than $4,500,000, then the Applicable
Conversion Value that would otherwise be in effect with respect to the Series D
Preferred Stock shall automatically and without further action be adjusted to a
per share amount that shall be equal to the quotient obtained by DIVIDING (i)
the applicable Assumed Corporation Value (as determined below) BY (ii)
14,085,848 (i.e., the total number of shares of Common Stock outstanding (on a
fully-diluted basis) as of the date of issuance of the Series D Preferred Stock
pursuant to the Series D Purchase Agreement immediately prior to the issuance of
the shares of Series D Preferred Stock (it being understood that if the quotient
obtained pursuant to the preceding formula is greater than the Applicable
Conversion Value in
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<PAGE>
effect immediately prior to such adjustment, then no such adjustment shall be
made pursuant to this paragraph 4(g)), which number shall automatically and
without further action be reduced to 13,525,100 upon the termination or
expiration of the SOFTBANK Warrant by its terms and provided that the holder
thereof has not exercised any portion of such SOFTBANK Warrant.
The "ASSUMED CORPORATION VALUE" shall be equal to the weighted
average of the Pre-Money Values set forth in the far left-hand column of the
table below that correspond to each of the Total Revenues, Total Product
Revenues and EBIT as set forth on the table below, with the Pre-Money Value that
corresponds to Total Revenues being weighted at 50% and the Pre-Money Values
that correspond to each of Total Product Revenues and EBIT being weighted each
at 25%. Notwithstanding the foregoing or anything to the contrary contained
herein, the Assumed Corporation Value shall be not less than $17,000,000 and not
greater than $43,000,000.
Each of the values in the table below are deemed to be further
subdivided into increments as follows (in order to determine the corresponding
figures in the table below), such that: (a) each incremental one dollar ($1) of
Total Revenues shall equal an incremental one dollar ($1) of Pre-Money Value,
(b) each incremental one dollar ($1) of Total Product Revenues shall equal an
incremental two dollars ($2) of Pre-Money Value, and (c) each incremental one
dollar ($1) of EBIT shall equal an incremental ten dollars ($10) of Pre-Money
Value. For examples, (1) $41,347,628 in Total Revenues shall correspond to a
$30,347,628 Pre-Money Value, (2) $11,928,413 Total Product Revenues shall
correspond to a $25,856,826 Pre-Money Value and (3) $3,869,470 in EBIT shall
correspond to a $36,694,700 Pre-Money Value.
In comparing the Corporation's actual Total Revenues, actual
Total Product Revenues and actual EBIT to the figures in the table below, a
simple-rounding method to the nearest dollar shall be used in order to determine
the Total Revenues, Total Product Revenues and EBIT.
TABLE TO DETERMINE
ASSUMED CORPORATION VALUE
($ IN 000'S AND SUBJECT TO
FURTHER SUB-DIVISION AS DESCRIBED ABOVE)
<TABLE>
<CAPTION>
PRE-MONEY VALUE TOTAL REVENUES TOTAL PRODUCT REVENUES EBIT
(shown in $1,000,000 (shown in $1,000,000 (shown in $100,000 (shown in $100,000
increments only) increments only) increments only) increments only)
<S> <C> <C> <C>
-less than -less than -less than
$17,000 or equal to- $28,000 or equal to- $7,500 or equal to- $1,900
$18,000 $29,000 $8,000 $2,000
$19,000 $30,000 $8,500 $2,100
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PRE-MONEY VALUE TOTAL REVENUES TOTAL PRODUCT REVENUES EBIT
(shown in $1,000,000 (shown in $1,000,000 (shown in $100,000 (shown in $100,000
increments only) increments only) increments only) increments only)
<S> <C> <C> <C>
$20,000 $31,000 $ 9,000 $2,200
$21,000 $32,000 $ 9,500 $2,300
$22,000 $33,000 $10,000 $2,400
$23,000 $34,000 $10,500 $2,500
$24,000 $35,000 $11,000 $2,600
$25,000 $36,000 $11,500 $2,700
$26,000 $37,000 $12,000 $2,800
$27,000 $38,000 $12,500 $2,900
$28,000 $39,000 $13,000 $3,000
$29,000 $40,000 $13,500 $3,100
$30,000 $41,000 $14,000 $3,200
$31,000 $42,000 $14,500 $3,300
$32,000 $43,000 $15,000 $3,400
$33,000 $44,000 $15,500 $3,500
$34,000 $45,000 $16,000 $3,600
$35,000 $46,000 $16,500 $3,700
$36,000 $47,000 $17,000 $3,800
$37,000 $48,000 $17,500 $3,900
$38,000 $49,000 $18,000 $4,000
$39,000 $50,000 $18,500 $4,100
$40,000 $51,000 $19,000 $4,200
$41,000 $52,000 $19,500 $4,300
$42,000 $53,000 $20,000 $4,400
$43,000 -greater than -greater than -greater than
or equal to- $54,000 or equal to- $20,500 or equal to- $4,500
</TABLE>
Thus, for example, if as of December 31, 1999, the Corporation has
$47,894,322.38 in actual Total Revenues, $14,025,417.85 in actual Total Product
Revenues and $3,198,439.23 in actual EBIT, then (using simple rounding to the
nearest dollar) the corresponding figures from the table above are $47,894,322
in Total
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<PAGE>
Revenues, $14,025,418 in Total Product Revenues and $3,198,439 in EBIT. The
calculation for the Assumed Corporation Value would be as follows:
EXAMPLE OF CALCULATION OF
ASSUMED CORPORATION VALUE
<TABLE>
<CAPTION>
ACTUAL CORRESPONDING ASSUMED
ROUNDED PRE-MONEY CORPORATION
RESULTS VALUE WEIGHT VALUE
<S> <C> <C> <C> <C>
TOTAL REVENUES $47,894,322 $36,894,322 50% $18,447,161
TOTAL PRODUCT REVENUES $14,025,418 $30,050,836 25% $ 7,512,709
EBIT $ 3,198,439 $29,984,390 25% $ 7,496,098
TOTAL ASSUMED CORPORATION VALUE $33,455,968
</TABLE>
(ii) PRIOR TO END OF SEVEN FISCAL QUARTERS. In the event of
any public or private offering or other issuance of the Corporation's Common
Stock or Derivative Securities, the sale of the Corporation (whether by merger,
consolidation, sale of all or substantially all of the Corporation's assets or
sale of a majority of the outstanding voting capital stock, whether newly
issued, from treasury or issued and outstanding, or any combination thereof) or
a liquidation, dissolution or winding-up of the affairs of the Corporation at
any time prior to December 31, 1999, then the Applicable Conversion Value that
would otherwise be in effect with respect to the Series D Preferred Stock shall
be adjusted to a per share amount that shall be equal to the quotient obtained
by dividing (i) the applicable Assumed Adjusted Corporation Value (as determined
below) by (ii) 14,085,848, which number shall automatically and without further
action be reduced to 13,525,100 upon the termination or expiration of the
SOFTBANK Warrant by its terms and provided that the holder thereof has not
exercised any portion of such SOFTBANK Warrant.
The "ASSUMED ADJUSTED CORPORATION VALUE" shall be determined
as follows: (i) first, the Corporation's actual Total Revenues, actual Total
Product Revenues and actual EBIT for the fiscal quarters completed prior to such
offering or other issuance, sale or liquidation, dissolution or winding-up,
shall be compared against the applicable cumulative quarterly projections for
Total Revenues, Total Product Revenues and EBIT set forth in the table below and
expressed as a percentage (e.g., if on December 1, 1998 the Corporation is sold
and, at that time, actual Total Revenues equal $8,000,000, then $8,000,000
compared against $6,400,000 (the applicable cumulative quarterly projection)
expressed as a percentage equals 125%); (ii) second, the percentage as
determined pursuant to the foregoing clause (i) for each of Total Revenues,
Total Product Revenues and EBIT shall be applied to the "baseline" valuation as
set forth in the second table below (e.g., with respect to Total Revenues, 125%
of $41,000,000 (the "baseline" for Total Revenue) equals $51,250,000
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<PAGE>
(each, an "ADJUSTED BASELINE RESULT")); and (iii) third, the Adjusted Baseline
Results for each of Total Revenues, Total Product Revenues and EBIT shall be
used to calculate the Assumed Adjusted Corporation Value in accordance with the
second, third and fourth paragraphs and table of Section 4(g)(i)above.
TABLE OF
CUMULATIVE QUARTERLY PROJECTIONS
<TABLE>
<CAPTION>
Fiscal Year 1998 ($) Fiscal Year 1999 ($)
Q2 Q3 Q4 Q1 Q2 Q3 Q4
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues 2,454,000 6,400,000 11,361,000 17,371,000 24,041,000 32,151,000 41,361,000
Product Revenues 658,000 1,823,000 3,168,000 5,678,000 8,448,000 12,058,000 15,968,000
EBIT (1,181,800) (2,166,750) (2,125,850) (1,135,850) 89,150 1,634,150 3,554,150
R&D Expense 508,000 1,197,000 2,089,200 3,141,200 4,275,200 5,647,200 7,189,200
</TABLE>
"BASELINE" COMPARISON
TABLE
<TABLE>
<CAPTION>
TOTAL PRODUCT
PRE-MONEY VALUE TOTAL REVENUE REVENUE EBIT
<S> <C> <C> <C>
$30,000,000 $41,000,000 $14,000,000 $3,200,000
</TABLE>
Notwithstanding anything contained herein to the contrary, in
no event shall the Assumed Adjusted Corporation Value be greater than
$30,000,000 unless, and only to the extent that, after any adjustment required
by this Section 4(g)(ii), (A) in the event of a sale of the Corporation, the
proceeds actually received (net of any escrows or other holdbacks) by the
holders of the Series D Preferred Stock in respect of shares of Series D
Preferred Stock in connection with such sale or liquidation, dissolution or
winding-up equals or exceeds three (3) times the original purchase price per
share of Series D Preferred Stock (subject to adjustment for stock splits, stock
dividends, stock combinations, capital reorganizations, reclassifications and
other similar events), or (B) in the event of a public or private offering or
other issuance, the price per share to the purchasers in such offering in
connection with such offering equals or exceeds three (3) times the original
purchase price per share of Series D Preferred Stock (subject to adjustment for
stock splits, stock dividends, stock combinations, capital reorganizations,
reclassifications and other similar events).
(iii) "EBIT" shall mean, for the relevant period, the net
income (or loss) of the Corporation, after excluding all extraordinary items of
income or loss from the calculation thereof plus, to the extent deducted in the
computation thereof, the sum of (i) interest expense AND (ii) taxes for such
period, LESS amounts budgeted for research and development as set forth in the
Table of Cumulative Quarterly
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<PAGE>
Projections above that have not been expensed in research and development during
the seven fiscal quarters ending December 31, 1999, PLUS the amounts paid to
Bain & Company for consulting services rendered to the Corporation, if any, up
to $100,000.
(H) ADJUSTMENTS FOR RECLASSIFICATIONS. If the Common Stock issuable
upon the conversion of Series D Preferred Stock shall be changed into the same
or a different number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an Extraordinary Common Stock Event or
a reorganization, merger, consolidation, or sale of assets provided for
elsewhere in this Section 4), then and in each such event the holder of each
share of Series D Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, or other change by holders of
the number of shares of Common Stock into which such shares of Series D
Preferred Stock would have been convertible immediately prior to such
reclassification, or change, all subject to further adjustment as provided
herein.
(I) ADJUSTMENTS FOR REORGANIZATIONS. Except as provided in the
following paragraph, in the event that there shall be a capital reorganization
of Common Stock (other than a subdivision, combination of shares,
reclassification, or exchange of shares provided for elsewhere in this Section
4) or a merger or consolidation of the Corporation with or into another company,
or the sale of all or substantially all of the Corporation's assets or sale of
more than 50% of the voting capital stock of the Corporation (whether issued and
outstanding, newly issued or from treasury, or any combination thereof) to any
other person, then, as a part of and as a condition to the effectiveness of such
reorganization, merger, consolidation, or sale, lawful and adequate provision
shall be made so that if the Corporation is not in economic effect the surviving
company, each share of Series D Preferred Stock shall be converted into a share
of capital stock of the surviving company having equivalent preferences, rights,
and privileges, except that in lieu of being able to convert into shares of
Common Stock of the Corporation or the successor company, the holders of shares
of Series D Preferred Stock (including any such capital stock issued upon
conversion of Series D Preferred Stock) shall thereafter be entitled to receive
upon conversion of such Series D Preferred Stock (including any such capital
stock issued upon conversion of Series D Preferred Stock) the number of shares
of stock or other securities or property of the Corporation or of the successor
company resulting from such merger or consolidation or sale, to which a holder
of the number of shares of Common Stock deliverable upon conversion of such
share of Series D Preferred Stock immediately prior to the capital
reorganization, merger, consolidation, or sale would have been entitled on such
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate provisions shall be made with respect to the rights of the holders
of Series D Preferred Stock (including any such capital stock issued upon
conversion of Series D Preferred Stock) after the reorganization, merger,
consolidation, or sale to the end that the provisions of this Section 4
(including without limitation provisions for adjustment of the Applicable
Conversion Value and
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<PAGE>
the number of shares issuable upon conversion of Series D Preferred Stock or
such capital stock) shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities, or assets to be deliverable
thereafter upon the conversion of such Series D Preferred Stock or such capital
stock.
Upon the occurrence of a capital reorganization, merger, or
consolidation of the Corporation or the sale of all or substantially all its
assets or sale or other disposition of more than 50% of the voting capital stock
of the Corporation (whether issued and outstanding, newly issued or from
treasury, or any combination thereof), as such events are more fully set forth
in the first paragraph of this Section 4(i), holders of a majority of the
outstanding shares of Series D Preferred Stock may elect treatment of their
shares of Series D Preferred Stock under Section 2(b) in this Part F, notice of
which election shall be submitted in writing to the Corporation at its principal
offices no later than 10 days before the effective date of such event, PROVIDED,
that any such notice shall be effective if given not later than 15 days after
the date of the Corporation's notice, pursuant to Section 8, with respect to
such event, and if the holders of the majority of the outstanding shares of
Series D Preferred Stock shall elect treatment of their shares of Series D
Preferred Stock under Section 2(b) in this Part F, then all holders of Series D
Preferred Stock shall be bound by such election. If a majority of the holders of
Series D Preferred Stock do not elect treatment of their shares under Section
2(b), then all holders of Series D Preferred Stock shall be deemed to have
elected treatment under this Section 4(i) in lieu of treatment under Section
2(b).
(J) CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment or
readjustment of the Applicable Conversion Rate, the Corporation will promptly
furnish each holder of Series D Preferred Stock with a certificate, prepared by
the chief financial officer of the Corporation, showing such adjustment or
readjustment, and stating in detail the facts upon which such adjustment or
readjustment is based.
(K) FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares shall be issued upon conversion of shares of
Series D Preferred Stock. Instead of any fractional shares of Common Stock that
would otherwise be issuable upon conversion of shares of Series D Preferred
Stock, the Corporation shall pay to the holder of the shares of Series D
Preferred Stock that were converted a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the market price per share
of Common Stock (as determined in a manner reasonably prescribed by the Board of
Directors) at the close of business on the Conversion Date.
(L) PARTIAL CONVERSION. In the event some but not all of the shares of
Series D Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series D Preferred Stock that
were not converted.
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(M) RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of shares of Series D
Preferred Stock and exercise of the Warrants (as defined in the Series D
Purchase Agreement (as defined in Section 6(e)), such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series D Preferred Stock and the exercise of all the
Warrants, and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series D Preferred Stock and the exercise of all the
Warrants, then subject to the provisions of Section 6(a) in this Part F, the
Corporation shall take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(N) EXTRAORDINARY COMMON STOCK EVENT. As used herein, "EXTRAORDINARY
COMMON STOCK EVENT" means (i) the issuance of additional shares of Common Stock
or any Derivative Security as a dividend or other distribution on outstanding
Common Stock or any Derivative Security, (ii) the subdivision of outstanding
shares of Common Stock or any Derivative Security into a greater number of
shares of Common Stock or any Derivative Security, or (iii) the combination of
outstanding shares of Common Stock or any Derivative Security into a smaller
number of shares of Common Stock or any Derivative Security.
(O) DERIVATIVE SECURITIES. As used herein, "DERIVATIVE SECURITIES"
means (i) all shares of stock and other securities that are convertible into or
exchangeable for shares of Common Stock and (ii) all options, warrants, and
other rights to acquire shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock.
(P) FURTHER ADJUSTMENT PROVISIONS. In the event that, at any time as a
result of an adjustment made pursuant to this Section 4, the holder of any
shares of Series D Preferred Stock upon thereafter surrendering such shares for
conversion shall become entitled to receive any shares or other securities of
the Corporation other than shares of Common Stock, the Applicable Conversion
Rate in respect of such other shares or securities so receivable upon conversion
of shares of Series D Preferred Stock shall thereafter be adjusted, and shall be
subject to further adjustment from time to time, in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Series D
Preferred Stock contained in this Section 4, and the remaining provisions in
this Part F with respect to Series D Preferred Stock shall apply on like or
similar terms to any such other shares or securities.
SECTION 5. REDEMPTION.
(A) REDEMPTION REQUEST. At any time after the fifth anniversary of
closing of the purchase and sale of shares of Series D Preferred pursuant to the
Series D Purchase Agreement, any holder of shares of Series D Preferred Stock
may
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individually request redemption of all, but not less than all, of the shares of
Series D Preferred Stock held by such holder and any affiliate of such holder by
giving not less than sixty (60) days prior written notice (a "REDEMPTION
NOTICE") to the Corporation specifying the number of shares to be redeemed from
such holder. (The date upon which such notice is provided to the Corporation is
referred to herein as a "REDEMPTION NOTICE DATE.") Upon receipt of a Redemption
Notice, the Corporation shall send a copy of the Redemption Notice to each other
holder of shares of Series D Preferred Stock, and each such other holder, by
written notice to the Corporation given not later than 20 days after such
holder's receipt thereof, may request redemption of all, but not less than all,
of the shares of Series D Preferred Stock held by such holder. The Corporation
shall redeem at the Redemption Price (as provided for in Section 5(c) below) all
shares of Series D Preferred Stock that all such holders may have requested to
be redeemed in three installments as follows: (i) one-third of all such shares
shall be redeemed on the date fixed for redemption as set forth in the
Redemption Notice, (ii) one-half of the balance of all such shares shall be
redeemed twelve (12) months after the date fixed for redemption as set forth in
the Redemption Notice and (iii) all the remaining shares shall be redeemed
twenty-four (24) months after the Redemption Notice Date, (each of the
foregoing, the applicable "REDEMPTION DATE"). Each holder of shares of Series D
Preferred Stock who has given a Redemption Notice shall be bound to redeem such
shares as described in this Section 5(a) and such Redemption Notice (except as
otherwise set forth in the terms of the Series D Preferred Stock) and the
Corporation shall also be bound to redeem such shares as described herein and
therein. If at any time, any holders of any other series of Preferred Stock of
the Corporation have elected to have any of their shares redeemed at the same
time as any holder of shares of Series D Preferred Stock shall be entitled to
redemption hereunder, the Corporation shall pay the applicable Redemption Price
(as provided for in Section 5(c)) on the shares of Series D Preferred Stock
being redeemed prior to any other payment on the Corporation's other classes of
capital stock, including any other series of the Corporation's Preferred Stock
or Common Stock.
(B) CLASS VOTE OF SERIES D PREFERRED STOCK. In the case of any
voluntary or involuntary bankruptcy of the Corporation, receivership, assignment
for the benefit of creditors, liquidation, acceleration of any third party
obligations, any payment default continuing for at least 120 days under the
terms of any funded debt, or the use of proceeds of the issuance of the Series D
Preferred Stock in a manner other than as described in the Series D Purchase
Agreement (as defined in Section 6 below), the holders of not less than a
majority of the outstanding shares of Series D Preferred Stock voting separately
as a class may elect early redemption of all of the outstanding shares of Series
D Preferred Stock by giving written notice thereof to the Corporation of such
election. The Corporation shall redeem all outstanding shares of Series D
Preferred Stock within sixty (60) days of such written notice to the Corporation
at the Redemption Price set forth in Section 5(c).
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(C) REDEMPTION PRICE. (i) The redemption price per share of Series D
Preferred Stock (the "REDEMPTION PRICE") shall be equal to the greater of (i)
the Liquidation Value thereof plus any accrued and unpaid dividends thereon and
(ii) the then current fair market value per share, based on a valuation of the
Company as finally determined in accordance with Sections 5(c)(ii)-(iv) below as
of the applicable Redemption Date, plus all accrued and unpaid dividends thereon
plus, on a per share basis, the amount of the Series D Special Payment and the
Second Series D Special Payment.
(ii) Promptly upon receipt of a Redemption Notice, the
Corporation and the holders of a majority of the shares of Series D Preferred
Stock to be redeemed shall mutually agree on the valuation of the Corporation.
In the event such an agreement cannot be reached within fifteen (15) days after
delivery of a Redemption Notice, the Corporation shall retain a nationally
recognized, reputable investment banking firm reasonably acceptable to the
holders of at least a majority of the shares of Series D Preferred Stock to be
redeemed on the Redemption Date, the cost of which shall be split evenly between
the Corporation and the holders (PRO RATA in proportion to the relative numbers
of shares to be redeemed from each of them). As promptly as is practicable, such
investment banking firm shall deliver to the Corporation a written report as to
the fair market value of the Corporation as a whole, on a going-concern basis,
using customary and appropriate valuation methods, as of the date of the most
recent audited financial statements of the Corporation (and not taking into
account any discount for minority ownership or restrictions on transfer of the
capital stock of the Corporation); PROVIDED, that if such date is more than six
months prior to the Redemption Notice Date, then another audit as of the most
recent practicable date shall be conducted and used for such purpose, and the
out-of-pocket expenses of such audit shall be payable by the Corporation. Upon
receipt of such report, the Corporation shall promptly send a copy thereof to
each of the redeeming stockholders.
(iii) The valuation set forth in such report (the "FIRST
VALUATION") shall be conclusive and binding on the Corporation and the redeeming
stockholders unless within 14 days after receipt of such report, the holders of
at least a majority of the shares to be redeemed on the Redemption Date notify
the Corporation in writing that they disagree with such valuation. If such
stockholders do so notify the Corporation, they shall promptly engage another
nationally recognized, reputable investment banking firm, at the expense of the
redeeming stockholders PRO RATA in proportion to the relative numbers of shares
to be redeemed from each of them, to render another written report as to the
fair market value of the Corporation (but without regard to any discount for
minority ownership or restrictions on transfer of the capital stock of the
Corporation) as of the appropriate valuation date, a copy of which shall be
promptly delivered to the Corporation.
(iv) If the Corporation does not agree with the valuation of
the Corporation set forth in the second investment banking firm's report (the
"SECOND VALUATION"), then either (i) the Corporation and the holders of at least
a majority of
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the shares of Series D Preferred Stock to be redeemed shall agree on the fair
market value or (ii) in the absence of such agreement, the redemption price
shall be the arithmetic average of the First Valuation and the Second Valuation,
UNLESS, the difference between the First Valuation and Second Valuation is
greater than an amount equal to 5% of the higher of the two valuations, in which
case a third investment banking firm shall be appointed to render a written
report as to fair market value (but without regard to any discount for minority
ownership or restrictions on transfer of the capital stock of the Corporation),
the cost of which shall be split between the Company and such holder equally,
and the fair market value shall be equal to the average of the two (2) closest
valuations, unless the third valuation is the arithmetic average of the First
Valuation and the Second Valuation, in which case the fair market value shall be
equal to the third valuation (but without regard to any discount for minority
ownership or restrictions on transfer or the capital stock of the Corporation).
(D) INSUFFICIENT FUNDS. If the Corporation on any Redemption Date does
not have sufficient funds legally available to redeem the required installment
of shares of Series D Preferred Stock for which redemption has been requested
pursuant to Section 5(a) or 5(b) in this Part F, then it shall, prior to
redeeming any other series or class of the Company's Preferred Stock or Common
Stock, to the maximum lawful extent redeem such shares of Series D Preferred
Stock on a PRO RATA basis among the redeeming stockholders in proportion to the
number of shares requested by each of them to be redeemed, and shall redeem the
remaining shares to be redeemed as soon as sufficient funds are legally
available.
(E) MECHANICS OF REDEMPTION. Each holder of shares of Series D
Preferred Stock to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation at the Corporation's principal
executive office, and thereupon the Corporation shall pay the portion of the
Redemption Price for such shares to be paid as described in Section 5(a) or 5(b)
in this Part F in immediately available funds, by wire transfer to an account
designated by the holder of such shares or by certified or bank check payable to
the order of such holder. Each stock certificate surrendered for redemption
shall be canceled and retired. If the number of shares represented by any
certificate surrendered in respect of any such redemption exceeds the number of
shares to be redeemed from the holder thereof, the Corporation shall issue and
deliver to the surrendering holder a new certificate representing the unredeemed
balance of such shares.
(F) RANKING. At no time shall the Corporation redeem shares of any
other series of Preferred Stock of the Corporation or pay the applicable
redemption price for or make any other payment on shares of any other series of
Preferred Stock of the Corporation to holders of such other series of Preferred
Stock so long as any shares of Series D Preferred Stock are outstanding and have
not been redeemed.
SECTION 6. NEGATIVE COVENANTS. So long as any shares of Series D
Preferred Stock are outstanding, the Corporation shall not do nor shall it cause
any of its
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subsidiaries, if any, to do any of the following nor alter, amend, modify or
terminate any provision of this Section 6 without the affirmative vote or
written consent of the holders of at least a majority of the then outstanding
shares of Series D Preferred Stock, in addition to the right of any other class
or classes of capital stock to vote on such matters and any other vote required
by law, and any attempt to do so will be wholly void:
(a) Create or authorize the creation of, or authorize the issuance of,
any additional class(es) or series or shares of capital stock, or any shares of
any existing class(es) or series of capital stock, senior to, or on parity with,
the Series D Preferred Stock as to any one or more of liquidation, dividends,
redemption or registration rights ("SENIOR SHARES"), or junior to the Series D
Preferred Stock, other than in connection with a Qualified Public Offering,
create or authorize any obligation or security convertible into Senior Shares,
or issue, grant or sell any options, warrants or other rights to acquire any
shares of capital stock of the Corporation, other than (i) options granted under
the Corporation's 1996 Stock Option Plan and options granted under any employee
benefit plan approved by the Board of Directors of the Corporation, (ii)
warrants to purchase up to 56,296 shares of Series C Preferred Stock of the
Corporation issued to Silicon Valley Bank, (iii) the SOFTBANK Warrant and (iv)
warrants to purchase Common Stock issued to commercial institutional senior
lenders solely in connection with the establishment of a working capital line of
credit up to an aggregate of 200,000 shares.
(b) Amend the Corporation's Amended and Restated Certificate of
Incorporation or the by-laws of the Corporation so as to adversely affect the
rights and preferences of the Series D Preferred Stock (it being understood that
the authorization and/or issuance of any shares of any series of stock or
securities of the Corporation with preference or priority senior to the Series D
Preferred Stock as to dividends, redemption or the distribution of assets on
liquidation, dissolution or winding-up of the Corporation (as provided in
Sections 1, 2 or 5 of the terms of the Series D Preferred Stock) shall be deemed
to affect adversely the rights and preferences of the Series D Preferred Stock).
(c) Make any substantial change in the character of its business,
excluding changes in the Corporation's business plan with respect to the
division between the Corporation's products and services.
(d) Notwithstanding the borrowings of any amount under a working
capital line of credit from a commercial lender, incur or become liable for
indebtedness for borrowed money other than (i) purchase money indebtedness in an
amount not in excess of $500,000 per single transaction or $1,000,000 in the
aggregate during periods of losses, and two times trailing four quarters EBIT
during periods of positive earnings (but no less than the amounts above for
periods of losses in any calendar year) or (ii) any renewal, extension or
refinancing of any indebtedness, in an amount not in excess of the amount of the
indebtedness being renewed, extended or
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refinanced and on terms no less favorable to the Corporation than those of the
indebtedness being renewed, extended or refinanced.
(e) Become subject to any agreement that would restrict the
Corporation's performance of its obligations under the terms of this Amended and
Restated Certificate of Incorporation, the terms of the Series D Preferred
Stock, its by-laws, the Series D Preferred Stock Purchase Agreement as entered
into by the Purchasers of Series D Preferred Stock and the Corporation (the
"SERIES D PURCHASE AGREEMENT") and the documents, instruments and agreements
executed and delivered in connection therewith, including without limitation,
the Warrants, the Stockholders Agreement and the Registration Rights Agreement
(each as defined in the Series D Purchase Agreement).
(f) Own, purchase or acquire any stock, obligations or securities of,
or any interest in, or make any contribution to, any other person, entity or
business, or own, purchase or acquire any property not used in the ordinary
course of business, except that the Corporation and its subsidiaries, if any,
may invest in certain investment grade securities as are specified in the Series
D Purchase Agreement.
(g) Declare or pay any dividends or make any distributions upon any of
its shares of capital stock, or purchase, redeem or otherwise acquire any shares
of the Corporation's capital stock or any securities convertible into the
Corporation's Common Stock other than (i) in connection with the termination of
any director, officer, employee, agent or consultant of the Corporation, the
terms of which termination are approved by the Board of Directors of the
Corporation, (ii) as permitted by an employee benefit plan approved by the Board
of Directors of the Corporation, or (iii) as permitted or required by the terms
of the Series D Preferred Stock described in this Amended and Restated
Certificate of Incorporation.
(h) Enter into any transaction in excess of $50,000 with any
non-employee affiliates, except in the ordinary course of business and pursuant
to the reasonable requirements of the Corporation's business and upon
commercially reasonable terms at least as fair to the Corporation as could have
been obtained on an arm's-length basis.
(i) Merge or consolidate with any other corporation or sell all or
substantially all of its assets or more than 50% of the voting capital stock of
the Corporation or authorize or effect any reorganization, dissolution,
liquidation or winding-up of the Corporation, unless (i) the consideration paid
in connection with such transaction is either cash or non-restricted freely
tradeable registered stock on either of the NASDAQ or NYSE and (ii) during the
18 months after Closing (as defined in the Series D Purchase Agreement), the
consideration actually received (net of any escrows or other holdbacks) by the
holders of the Series D Preferred Stock as a result of such transaction is at
least equal to or in excess of three (3) times the purchase price of the Series
D Preferred Stock (subject to adjustment in the event of any stock dividend,
stock split, combination or division of shares, recapitalization,
reclassification, merger, consolidation, reorganization, or the like), and,
thereafter, the
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consideration actually received (net of any escrows or other holdbacks) by the
holders of the Series D Preferred Stock as a result of such transaction is equal
to or in excess of four (4) times the purchase price of the Series D Preferred
Stock (subject to adjustment in the event of any stock dividend, stock split,
combination or division of shares, recapitalization, reclassification, merger,
consolidation, reorganization, or the like). For mergers or acquisitions with
consideration paid in stock, the consideration will be valued at the lower of
(i) the trailing 30 day average price for such stock and (ii) the six month
average price of the stock of the acquiring company.
(j) Authorize or effect any reclassification of the Corporation's
capital stock or any filing of any voluntary plan of reorganization under any
bankruptcy, insolvency, or other laws affecting creditors' rights.
(k) Obligate itself to do any of the foregoing.
In addition, so long as any shares of Series D Preferred Stock are
outstanding, the Corporation shall not do nor shall it cause any of its
subsidiaries, if any, to do any of the following without the affirmative vote or
written consent of the Board of Directors and any attempt to do so will be
wholly void:
(l) make any loan or advance except (x) for ordinary travel,
entertainment and similar expenses, (y) pursuant to any
employee stock option plan or stock purchase agreement or (z)
advances to any employees not in excess of $50,000 in the
aggregate or guaranty any indebtedness except for trade
accounts of the Corporation or any subsidiary acting in the
ordinary course of its business; or
(m) amend, modify or waive any provision relating to
non-competition or confidential or proprietary information
contained in any agreement, document or instrument with or
relating to any of its employees, officers, directors or other
related parties, or fail to enforce any such provision or fail
to avail itself of all rights and remedies thereunder.
SECTION 7. NO REISSUANCE OF SHARES OF SERIES D PREFERRED STOCK. No
share or shares of Series D Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion, or otherwise shall be reissued, and
all such shares shall be canceled, retired, and eliminated from the shares that
the Corporation is authorized to issue. The Corporation shall from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of Series D Preferred Stock accordingly.
SECTION 8. NOTICES OF RECORD DATES, ETC. In the event (i) the
Corporation establishes a record date to determine the holders of any class of
securities who are entitled to receive any dividend or other distribution, or
(ii) there occurs any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any proposed initial public offering of the Common Stock of the Corporation, any
merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation or more than 50% of the
voting
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capital stock of the Corporation (whether issued and outstanding, newly issued
or from treasury or any combination thereof) to any other company, or any other
entity or person, or any voluntary or involuntary dissolution, liquidation, or
winding-up of the Corporation, the Corporation shall deliver to each holder of
Series D Preferred Stock, in accordance with Section 11(a) in this Part F, at
least 20 days prior to such record date or the proposed effective date of the
transaction specified therein, as the case may be, a notice specifying (a) the
date of such record date for the purpose of such dividend or distribution and a
description of such dividend or distribution, (b) the date on which any such
reorganization, reclassification, recapitalization, initial public offering,
transfer, consolidation, merger, dissolution, liquidation, or winding-up is
expected to become effective, and (c) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for or
elect to receive cash, securities, and/or other property deliverable upon such
reorganization, reclassification, recapitalization, initial public offering,
transfer, consolidation, merger, dissolution, liquidation, or winding-up.
SECTION 9. OTHER RIGHTS. Except as otherwise provided in this Amended
and Restated Certificate of Incorporation, the Series D Purchase Agreement, the
Stockholder Agreement or the Registration Rights Agreement (as each of the
latter two terms is defined in the Series D Purchase Agreement), shares of
Series D Preferred Stock and shares of Common Stock shall be identical in all
respects (each share of Series D Preferred Stock having equivalent rights to the
number of shares of Common Stock into which it is then convertible pursuant to
Section 4(a) in this Part F), shall have the same powers, preferences, and
rights, without preference of any such class or share over any other such class
or share, and shall be treated as a single class of stock for all purposes.
SECTION 10. RANKING. Series D Preferred Stock shall rank senior to all
other series of Preferred Stock, including the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock, and all Common Stock
as to dividends, redemption and the distribution of assets on liquidation,
dissolution, or winding-up of the Corporation (as provided in Section 2 in this
Part F).
SECTION 11. DEFINITION OF COMMON STOCK. For purposes of Section 4 in
this Part F only, the term "Common Stock" shall mean and include the
Corporation's authorized Common Stock, par value $.01 per share, as constituted
on the date of filing of this Amended and Restated Certificate of Incorporation,
and shall also include any capital stock of any class of the Corporation
thereafter authorized which shall neither be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends or any distributions of earnings or assets of the
Corporation, whether or not such capital stock is entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Series D Preferred Stock shall
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include only shares designated as Common Stock of the Corporation on the date of
filing of this Amended and Restated Certificate of Incorporation, or in case of
any reorganization or reclassification of the outstanding shares thereof, the
stock, securities or assets provided for in Sections 4(h) or (i) in this Part F.
SECTION 12. MISCELLANEOUS.
(a) NOTICES. All notices, requests, payments, instructions or other
documents to be given hereunder shall be delivered in accordance with Section
10.2 of the Series D Purchase Agreement.
(b) TRANSFER TAXES, ETC. The Corporation shall pay any and all stock
transfer, documentary stamp taxes, and the like that may be payable in respect
of any issuance or delivery of shares of Series D Preferred Stock or shares of
Common Stock or other securities issued in respect of shares of Series D
Preferred Stock pursuant hereto or certificates representing such shares or
securities. The Corporation shall not, however, be required to pay any such tax
that may be payable in respect of any transfer involved in the issuance or
delivery of shares of Series D Preferred Stock or Common Stock or other
securities in a name other than that in which such shares were registered, or in
respect of any payment to any person other than the registered holder thereof
with respect to any such shares, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery, or payment has paid to the Corporation the amount of
any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid or is not payable.
(C) TRANSFER AGENTS. The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series D Preferred Stock. Upon
any such appointment or discharge of a transfer agent, the Corporation shall
send written notice thereof to each holder of record of Series D Preferred
Stock.
FIFTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
SIXTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
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SEVENTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION. The Corporation shall indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts
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paid in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the
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conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of counsel for the Indemnitee shall be at the
expense of the Corporation, except as otherwise expressly provided by this
Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
PROVIDED, HOWEVER, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
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7. REMEDIES. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however,
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for the total amount thereof, the Corporation shall nevertheless indemnify the
Indemnitee for the portion of such expenses (including attorneys' fees),
judgments, fines or amounts paid in settlement to which the Indemnitee is
entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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EIGHTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation.
EXECUTED at Boston, Massachusetts, on August 18, 1998
/s/ Jeet Singh
----------------------------------------
Jeet Singh
President
<PAGE>
Exhibit 3.4
BY-LAWS
OF
ART TECHNOLOGY GROUP, INC.
(A DELAWARE CORPORATION)
<PAGE>
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 - Stockholders..........................................................................................1
1.1 Place of Meetings......................................................................1
1.2 Annual Meeting.........................................................................1
1.3 Special Meetings.......................................................................1
1.4 Notice of Meetings.....................................................................1
1.5 Voting List............................................................................1
1.6 Quorum.................................................................................2
1.7 Adjournments...........................................................................2
1.8 Voting and Proxies.....................................................................2
1.9 Action at Meeting......................................................................2
1.10 Action without Meeting.................................................................2
ARTICLE 2 - Directors............................................................................................3
2.1 General Powers.........................................................................3
2.2 Number; Election and Qualification.....................................................3
2.3 Enlargement of the Board...............................................................3
2.4 Tenure.................................................................................3
2.5 Vacancies..............................................................................3
2.6 Resignation............................................................................3
2.7 Regular Meetings.......................................................................4
2.8 Special Meetings.......................................................................4
2.9 Notice of Special Meetings.............................................................4
2.10 Meetings by Telephone Conference Calls.................................................4
2.11 Quorum.................................................................................4
2.12 Action at Meeting......................................................................4
2.13 Action by Consent......................................................................5
2.14 Removal................................................................................5
2.15 Committees.............................................................................5
2.16 Compensation of Directors..............................................................5
ARTICLE 3 - Officers..............................................................................................5
3.1 Enumeration............................................................................5
3.2 Election...............................................................................6
3.3 Qualification..........................................................................6
3.4 Tenure.................................................................................6
3.5 Resignation and Removal................................................................6
3.6 Vacancies..............................................................................6
3.7 Chairman of the Board and Vice-Chairman of the Board...................................6
3.8 President..............................................................................7
3.9 Vice Presidents........................................................................7
3.10 Secretary and Assistant Secretaries....................................................7
3.11 Treasurer and Assistant Treasurers.....................................................7
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</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
3.12 Salaries...............................................................................8
ARTICLE 4 - Capital Stock.........................................................................................8
4.1 Issuance of Stock......................................................................8
4.2 Certificates of Stock..................................................................8
4.3 Transfers..............................................................................9
4.4 Lost, Stolen or Destroyed Certificate..................................................9
4.5 Record Date............................................................................9
ARTICLE 5 - General Provisions..........................................................................10
5.1 Fiscal Year...........................................................................10
5.2 Corporate Seal........................................................................10
5.3 Waiver of Notice......................................................................10
5.4 Voting of Securities..................................................................10
5.5 Evidence of Authority.................................................................10
5.6 Certificate of Incorporation..........................................................10
5.7 Transactions with Interested Parties..................................................10
5.8 Severability..........................................................................11
5.9 Pronouns..............................................................................11
ARTICLE 6 - Right of First Refusal...............................................................................11
ARTICLE 7 - Amendments...........................................................................................15
7.1 By the Board of Directors.............................................................15
7.2 By the Stockholders...................................................................15
</TABLE>
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<PAGE>
BY-LAWS
OF
ART TECHNOLOGY GROUP, INC.
(a Delaware Corporation)
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the
<PAGE>
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least 10 days prior to the meeting, at a
place within the city where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time of
the meeting, and may be inspected by any stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting,
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without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote on such
action were present and voted. Prompt notice of the taking of corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 TENURE. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 VACANCIES. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall
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<PAGE>
be effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some other event.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
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2.13 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 REMOVAL. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-laws for the Board of Directors.
2.16 COMPENSATION OF DIRECTORS. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one
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<PAGE>
or more Vice Presidents, Assistant Treasurers, and Assistant Secretaries. The
Board of Directors may appoint such other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and
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possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such
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powers as are incident to the office of treasurer, including without limitation
the duty and power to keep and be responsible for all funds and securities of
the corporation, to deposit funds of the corporation in depositories selected in
accordance with these By-laws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In he event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
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summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the
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first written consent is properly delivered to the corporation. The record date
for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - GENERAL PROVISIONS
5.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or
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voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 SEVERABILITY. Any determination that any provision of these By-laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.9 PRONOUNS. All pronouns used in these By-laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - RIGHT OF FIRST REFUSAL
No stockholder of the corporation shall sell, assign, pledge or
otherwise transfer (collectively, "transfer") any of the shares of stock of the
corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
following requirements:
(a) If any stockholder (the "Selling Stockholder") proposes to transfer
any shares of stock of the corporation (the "Offered Shares"), then the Selling
Stockholder shall first give written notice of the proposed transfer (the
"Transfer Notice") to the corporation. The Transfer Notice shall name the
proposed transferee and state the number of Offered Shares, the price per share
and all other material terms and conditions of the transfer.
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(b) For 15 days following its receipt of such Transfer Notice, the
corporation shall have the option to purchase all or any lesser part of the
Offered Shares at the price and upon the terms set forth in the Transfer Notice.
In the event the corporation elects to purchase all of the Offered Shares, it
shall give written notice of its election to the Selling Stockholder within such
15-day period and the settlement of the sale of such Offered Shares shall be
made as provided below in Subsection (c).
(c) If the corporation elects to acquire all, but not less than all, of
the Offered Shares, the corporation shall so notify the Selling Stockholder and
settlement shall be made at the principal office of the corporation in cash
within 30 days after the corporation receives the Transfer Notice; provided that
if the terms of payment set forth in the Transfer Notice were other than cash
against delivery, the corporation shall pay for the Offered Shares on the same
terms and conditions set forth in the Transfer Notice.
(d) If the corporation does not elect to acquire all of the Offered
Shares, the Selling Stockholder may, within the 90-day period following the
expiration of the option rights granted to the corporation, transfer the Offered
Shares to the proposed transferee or any other purchaser, provided that this
sale shall not be on terms and conditions more favorable to the purchaser than
those contained in the Transfer Notice. Notwithstanding any of the above, all
Offered Shares transferred pursuant to this Section shall be subject to the
provisions of this Section in the same manner and to the same extent as before
the transfer.
(e) The following transactions shall be exempt from the provisions of
this Section:
(1) A stockholder's transfer of any or all of his shares either
during his lifetime or on death by will or intestacy to his immediate family or
to a trust the beneficiaries of which are exclusively one or more of the
stockholder and a member or members of the stockholder's immediate family.
"Immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the stockholder making the transfer;
(2) A stockholder's bona fide pledge or mortgage of his shares with
a commercial lending institution;
(3) A corporate stockholder's transfer of any or all of its shares
pursuant to and in accordance with the terms of any merger, consolidation,
reclassification of shares or capital reorganization of the corporate
stockholder, or pursuant to a sale of substantially all of the stock or assets
of a corporate stockholder;
(4) A corporate stockholder's transfer of any or all of its shares
to any or all of its stockholders;
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(5) A transfer by a stockholder which is a partnership to any or
all of its partners or retired partners, or to the estate of any partner or
retired partner;
(6) A transfer pursuant to an agreement among the stockholder and
other Stockholder(s) of the corporation providing for "take-me-along" or
"co-sale" rights or any stock restriction agreement between the stockholder and
the corporation;
(7) A transfer to a person who is already a stockholder of the
corporation;
(8) A transfer to the guardian or conservator of the stockholder;
(9) Any transfer pursuant to an effective registration statement
filed by the corporation with the Securities and Exchange Commission;
provided, however, that in any such case, except as otherwise provided in
Subsection (i) below, the transferee, assignee, pledgee, mortgagee or other
recipient shall receive and hold such stock subject to the provisions of this
Section and there shall be no further transfer of such stock except in
accordance with this Section.
(f) A stockholder of the corporation shall be deemed to have given a
Transfer Notice to the corporation and to have offered to sell all of the shares
of stock of the corporation then held by such stockholder:
(1) if such stockholder dies and as a result any transfer of stock
is to be made other than as permitted by Subsection (e)(l) above;
(2) if such stockholder applies for or consents to the appointment
of a custodian, receiver, trustees or liquidator of any of his properties;
(3) if such stockholder admits in writing his inability to pay his
debts as they mature;
(4) if there is a dissolution, termination of existence,
liquidation, insolvency or business failure of the stockholder;
(5) if there is a composition or an assignment or trust mortgage
for the benefit of creditors by the stockholder;
(6) upon the commencement by or against the stockholder of any
proceeding under the United States Bankruptcy Code or any other federal or state
bankruptcy, reorganization, receivership, insolvency or other similar law
affecting the rights of creditors generally; or
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(7) if that stockholder's shares are subject to (i) attachment or
execution of a judgment or (ii) any other transfer by court order, operation of
law, by gift or otherwise without consideration (other than pursuant to
Subsection (e)).
If any offer is deemed to have been made under this Subsection (f), the
corporation may elect to purchase all or any portion of such Offered Shares, and
the price to be paid by the corporation for the Offered Shares so deemed to be
offered shall be (a) if such stock is traded on a securities exchange, the last
reported sale price, regular way, on the principal exchange on which such stock
is traded on the last trading day preceding the date of purchase; (b) otherwise,
if such stock is traded over the counter and is the subject of regular
quotations by a recognized market maker, the average of the closing bid and
asked prices quoted for such stock by the principal market maker for the ten
trading days preceding the date of purchase; or (c) otherwise, if the Board of
Directors shall in good faith have established at any time within the 13 months
preceding the date of purchase a fair market value for such stock (including
without limitation a valuation established as the purchase or exercise price
under an employee stock purchase or stock option plan which requires that the
purchase or exercise price be at fair market value, a valuation established by
an arm's-length sale of such stock by the corporation, or a valuation
established specifically for purposes of this Section), the most recent
valuation for such stock established by the Board of Directors. If the parties
do not agree with the price set by the Board of Directors, then the price shall
be the fair market value of such shares as determined by an appraiser mutually
satisfactory to the corporation and the Selling Stockholder deemed to be making
such offer or his successors-in-interest, or, if they cannot agree on a single
appraiser, by an appraiser appointed by the corporation, a second appraiser
appointed by such Selling Stockholder or his successors-in-interest and a third
appraiser appointed by the other two appraisers. Each party shall bear the cost
of his or its own appraiser, and the cost of the third appraiser shall be shared
equally by the parties. If the shares are not purchased by the corporation but
are transferred to other parties, the transferee shall hold such stock subject
to the provisions of this Section and there shall be no further transfer of such
stock except in accordance with this Section.
(g) The corporation may assign its rights to purchase stock in any
particular transaction under this Section to one or more persons or entities.
(h) Any sale or transfer, or purported sale or transfer, of securities
of the corporation shall be null and void unless the terms, conditions and
provisions of this Section are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate upon either of
the following dates, whichever shall first occur:
(1) On November 1, 2001; or
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(2) Upon the closing of the first public offering of securities of
the corporation which is effected pursuant to a registration statement filed
with, and declared effective by, the Securities and Exchange Commission under
the Securities Act of 1933, as amended (other than an offering registered on
Form S-4, Form S-8 or any successor forms); or
(3) Upon the sale of all or substantially all of the shares or
business of the corporation, by merger, consolidation, sale of assets or
otherwise.
(j) The certificates representing shares of stock of the corporation
shall bear a legend substantially in the following form (in addition to, or in
combination with, any legend required by applicable federal and state securities
laws and agreements relating to the transfer of the corporation's securities):
"The shares represented by this certificate are subject to a right
of first refusal in favor of the corporation and its other
stockholders, as provided in the By-Laws of the corporation.
(k) Any notice hereunder shall be in writing and shall be deemed to
have been duly given when mailed by first class mail, or delivered by hand, (i)
if to the corporation, to its principal executive office, attention: President;
and (ii) if to a stockholder, to the address of the stockholder listed in the
stock transfer books of the corporation.
ARTICLE 7 - AMENDMENTS
7.1 BY THE BOARD OF DIRECTORS. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 BY THE STOCKHOLDERS. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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AMENDMENT NO. 1
to the By-Laws of
ART TECHNOLOGY GROUP, INC.
Amendment No. 1 to the By-Laws was adopted on August 13, 1998 by Written Action
of Stockholders to delete Article 6 thereof in its entirety.
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Exhibit 10.1
ART TECHNOLOGY GROUP, INC.
1996 STOCK OPTION PLAN
April 25, 1996
1. PURPOSE.
The purpose of this plan (the "Plan") is to secure for ART TECHNOLOGY
GROUP, INC. (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors of, and consultants
or advisors to, the Company and its parent and subsidiary corporations who are
expected to contribute to the Company's future growth and success. Except where
the context otherwise requires, the term "Company" shall include the parent and
all present and future subsidiaries of the Company as defined in Sections 424(e)
and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from
time to time (the "Code"). Those provisions of the Plan which make express
reference to Section 422 shall apply only to Incentive Stock Options (as that
term is defined in the Plan).
2. TYPE OF OPTIONS AND ADMINISTRATION.
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan may be
either incentive stock options ("Incentive Stock Options") meeting the
requirements of Section 422 of the Code or Non-Statutory Options which are not
intended to meet the requirements of Section 422 of the Code ("Non-Statutory
Options").
(b) ADMINISTRATION.
(i) The Plan will be administered by the Board of Directors of
the Company, whose construction and interpretation of the terms and provisions
of the Plan shall be final and conclusive. The Board of Directors may in its
sole discretion grant options to purchase shares of the Company's Common Stock
("Common Stock") and issue shares upon exercise of such options as provided in
the Plan. The Board shall have authority, subject to the express provisions of
the Plan, to construe the respective option agreements and the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective option agreements, which
need not be identical, and to make all other determinations which are, in the
judgment of the Board of Directors, necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect,
supply any omission or
<PAGE>
reconcile any inconsistency in the Plan or in any option agreement in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. No director or person
acting pursuant to authority delegated by the Board of Directors shall be liable
for any action or determination under the Plan made in good faith.
(ii) The Board of Directors may, to the full extent permitted
by or consistent with applicable laws or regulations and Section 3(b) of this
Plan delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee.
(c) APPLICABILITY OF RULE 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3"), or which
are required in order for certain option transactions to qualify for exemption
under Rule 16b-3, shall apply only to such persons as are required to file
reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. ELIGIBILITY.
(a) GENERAL. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company; PROVIDED, that the class of employees to whom Incentive Stock Options
may be granted shall be limited to all employees of the Company. A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine. Subject to
adjustment as provided in Section 15 below, the maximum number of shares with
respect to which options may be granted to any employee under the Plan shall not
exceed 500,000 shares of Common Stock during any calendar year. For the purpose
of calculating such maximum number, (a) an option shall continue to be treated
as outstanding notwithstanding its repricing, cancellation or expiration and (b)
the repricing of an outstanding option or the issuance of a new option in
substitution for a cancelled option shall be deemed to constitute the grant of a
new additional option separate from the original grant of the option that is
repriced or cancelled.
(b) GRANT OF OPTIONS TO DIRECTORS AND OFFICERS. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as
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the terms "director" and "officer" are defined for purposes of Rule 16b-3) as a
recipient of an option, the timing of the option grant, the exercise price of
the option and the number of shares subject to the option shall be determined
either (i) by the Board of Directors, of which all members shall be
"disinterested persons" (as hereinafter defined), or (ii) by two or more
directors having full authority to act in the matter, each of whom shall be a
"disinterested person." For the purposes of the Plan, a director shall be deemed
to be a "disinterested person" only if such person qualifies as a "disinterested
person" within the meaning of Rule 16b-3, as such term is interpreted from time
to time.
4. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided in Section 15 below, the maximum
number of shares of Common Stock which may be issued and sold under the Plan is
2,000,000 shares. If an option granted under the Plan shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject to such option shall again be available for subsequent option grants
under the Plan. If shares issued upon exercise of an option under the Plan are
tendered to the Company in payment of the exercise price of an option granted
under the Plan, such tendered shares shall again be available for subsequent
option grants under the Plan; provided, that in no event shall such shares be
made available for issuance to Reporting Persons or pursuant to exercise of
Incentive Stock Options.
5. FORMS OF OPTION AGREEMENTS.
As a condition to the grant of an option under the Plan, each recipient
of an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors. Such option
agreements may differ among recipients.
6. PURCHASE PRICE.
(a) GENERAL. Subject to Section 3(b), the purchase price per share of
stock deliverable upon the exercise of an option shall be determined by the
Board of Directors, PROVIDED, HOWEVER, that in the case of an Incentive Stock
Option, the exercise price shall not be less than 100% of the fair market value
of such stock, as determined by the Board of Directors, at the time of grant of
such option, or less than 110% of such fair market value in the case of options
described in Section 11(b).
(b) PAYMENT OF PURCHASE PRICE. Options granted under the
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Plan may provide for the payment of the exercise price by delivery of cash or a
check to the order of the Company in an amount equal to the exercise price of
such options, or, to the extent provided in the applicable option agreement, (i)
by delivery to the Company of shares of Common Stock of the Company already
owned by the optionee having a fair market value equal in amount to the exercise
price of the options being exercised or (ii) by any other means (including,
without limitation, by delivery of a promissory note of the optionee payable on
such terms as are specified by the Board of Directors) which the Board of
Directors determines are consistent with the purpose of the Plan and with
applicable laws and regulations (including, without limitation, the provisions
of Regulation T promulgated by the Federal Reserve Board). The fair market value
of any shares of the Company's Common Stock or other non-cash consideration
which may be delivered upon exercise of an option shall be determined by the
Board of Directors.
7. OPTION PERIOD.
Each option and all rights thereunder shall expire on such date as
shall be set forth in the applicable option agreement, except that, in the case
of an Incentive Stock Option, such date shall not be later than ten years after
the date on which the option is granted and, in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. EXERCISE OF OPTIONS.
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. NONTRANSFERABILITY OF OPTIONS.
Options shall not be assignable or transferable by the person to whom
they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution, and, during the life of the optionee,
shall be exercisable only by the optionee; provided, however, that Non-
Statutory Options may be transferred pursuant to a qualified domestic relations
order (as defined in Rule 16b-3).
10. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time
4
<PAGE>
during which an optionee may exercise an option following (i) the termination of
the optionee's employment or other relationship with the Company or (ii) the
death or disability of the optionee. Such periods shall be set forth in the
agreement evidencing such option.
11. INCENTIVE STOCK OPTIONS.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option
is to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the fair
market value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years
from the date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
5
<PAGE>
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), PROVIDED, that the
agreement with respect to such option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable option agreement);
and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. ADDITIONAL PROVISIONS.
(a) ADDITIONAL OPTION PROVISIONS. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors; PROVIDED THAT such additional provisions shall not be inconsistent
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
6
<PAGE>
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised.
13. GENERAL RESTRICTIONS.
(a) INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with, the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
14. RIGHTS AS A SHAREHOLDER.
The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
7
<PAGE>
15. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED
TRANSACTIONS.
(a) GENERAL. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding options under the
Plan, and (z) the price for each share subject to any then outstanding options
under the Plan, without changing the aggregate purchase price as to which such
options remain exercisable. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15 if such adjustment would cause the Plan to
fail to comply with Section 422 of the Code.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. MERGER, CONSOLIDATION, ASSET SALE, LIQUIDATION, ETC.
(a) GENERAL. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (i)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), PROVIDED that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee
8
<PAGE>
within a specified period following the date of such notice, (iii) in the event
of a merger under the terms of which holders of the Common Stock of the Company
will receive upon consummation thereof a cash payment for each share surrendered
in the merger (the "Merger Price"), make or provide for a cash payment to the
optionees equal to the difference between (A) the Merger Price times the number
of shares of Common Stock subject to such outstanding options (to the extent
then exercisable at prices not in excess of the Merger Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the
termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event.
(b) SUBSTITUTE OPTIONS. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. OTHER EMPLOYEE BENEFITS.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. AMENDMENT OF THE PLAN.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if
9
<PAGE>
at any time the approval of the shareholders of the Company is required under
Section 422 of the Code or any successor provision with respect to Incentive
Stock Options, or under Rule 16b-3, the Board of Directors may not effect such
modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. WITHHOLDING.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a fair
market value equal to such withholding obligation. The fair market value of the
shares used to satisfy such withholding obligation shall be determined by the
Company as of the date that the amount of tax to be withheld is to be
determined. An optionee who has made an election pursuant to this Section 20(a)
may only satisfy his or her withholding obligation with shares of Common Stock
which are not subject to any repurchase, forfeiture, unfulfilled vesting or
other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3 (unless it is
10
<PAGE>
intended that the transaction not qualify for exemption under
Rule 16b-3).
21. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. EFFECTIVE DATE AND DURATION OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no option granted under the Plan shall become
exercisable unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve months
after the date of the Board's adoption of the Plan, options previously granted
under the Plan shall not vest and shall terminate and no options shall be
granted thereafter. Amendments to the Plan not requiring shareholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring shareholder approval (as provided in Section 19) shall become
effective when adopted by the Board of Directors, but no option granted after
the date of such amendment shall become exercisable (to the extent that such
amendment to the Plan was required to enable the Company to grant such option to
a particular person) unless and until such amendment shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any options granted on
or after the date of such amendment shall terminate to the extent that such
amendment was required to enable the Company to grant such option to a
particular optionee. Subject to this limitation, options may be granted under
the Plan at any time after the effective date and before the date fixed for
termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section
16, the Plan shall terminate upon the close of business on the day next
preceding the tenth anniversary of the date of its adoption by the Board of
Directors. Options
11
<PAGE>
outstanding on such date shall continue to have force and effect in accordance
with the provisions of the instruments evidencing such options.
23. PROVISION FOR FOREIGN PARTICIPANTS.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
Adopted by the Board of
Directors on April 25,
1996.
Approved by the Stockholders
May, 1996
12
<PAGE>
AMENDMENT NO. 1
to the 1996 Stock Option Plan of
ART TECHNOLOGY GROUP, INC.
Pursuant to Section 19 of the 1996 Stock Option Plan (the "Plan") of
Art Technology Group, Inc. (the "Company"), the Plan is hereby amended as
follows:
1. Resolved: Section 4 of the Plan be and hereby is amended by
decreasing the maximum number of shares of Common Stock of the
Company which may be issued and sold under the Plan to
1,000,000.
Approved by the Board of Directors
December 23, 1996
13
<PAGE>
AMENDMENT NO. 2
to the 1996 Stock Option Plan of
ART TECHNOLOGY GROUP, INC.
Pursuant to Section 19 of the 1996 Stock Option Plan (the "Plan") of
Art Technology Group, Inc. (the "Company"), the Plan is hereby amended as
follows:
1. Resolved: Section 4 of the Plan be and hereby is amended by
increasing the maximum number of shares of Common Stock of the
Company which may be issued and sold under the Plan to
2,000,000.
Approved by the Board of Directors
September 12, 1997
14
<PAGE>
AMENDMENT NO. 3
to the 1996 Stock Option Plan of
ART TECHNOLOGY GROUP, INC.
Pursuant to Section 19 of the 1996 Stock Option Plan (the "Plan") of
Art Technology Group, Inc. (the "Company"), the Plan is hereby amended as
follows:
1. Resolved: Section 4 of the Plan be and hereby is amended by
increasing the maximum number of shares of Common Stock of the
Company which may be issued and sold under the Plan to
2,696,253.
Approved by the Board of Directors
July 15, 1998
Approved by the Shareholders
July, 1998
15
<PAGE>
AMENDMENT NO. 4
to the 1996 Stock Option Plan of
ART TECHNOLOGY GROUP, INC.
Pursuant to Section 19 of the 1996 Stock Option Plan (the "Plan") of
Art Technology Group, Inc. (the "Company"), the Plan is hereby amended as
follows:
1. Resolved: Section 4 of the Plan be and hereby is amended by
increasing the maximum number of shares of Common Stock of the
Company which may be issued and sold under the Plan to
4,200,000.
Approved by the Board of Directors
April 22, 1999
16
<PAGE>
Exhibit 10.4
LEASE AGREEMENT BETWEEN
DVPT LIMITED PARTNERSHIP,
AS LANDLORD, AND
ART TECHNOLOGY GROUP, INC., AS TENANT
DATED MARCH 11, 1999
<PAGE>
BASIC LEASE INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Lease Date: March 11, 1999
Tenant: ART TECHNOLOGY, INC. GROUP, a Delaware corporation
Landlord: DVPT LIMITED PARTNERSHIP, a Delaware limited
partnership
Premises: 60,471 rentable square feet on the second (2nd) floor in the office
building known as building #'s 1-14 of The Davenport Building
(the "BUILDING"), and whose street address is 25 First Street,
Cambridge, Massachusetts. The Premises are outlined on the plan
attached to the Lease as EXHIBIT A. The land on which the
Building is located (the "LAND") is described on EXHIBIT B. The
term "Building" includes the related land, driveways, parking
facilities, and similar improvements.
Right of
First Offer: See Exhibit J.
Term: Subject to the provisions of Section 3 of this Lease, approximately
eighty-four (84) months, commencing on the earlier of (i) the date
which is one hundred twenty (120) days after the date upon which
Landlord delivers the Premises to Tenant, or (ii) the date upon
which Tenant occupies the Premises for the Permitted Use (the
"COMMENCEMENT DATE") and ending at 5:00 p.m. on the last day
of the eighty-fourth (84th) full calendar month following the
Commencement Date, subject to adjustment and earlier termination
as provided in the Lease.
Renewal Option: See Exhibit H.
Basic Rent: Basic Rent shall be the following amounts for the following
periods of time:
</TABLE>
<TABLE>
<CAPTION>
LEASE MONTH MONTHLY BASIC
RENT
<S> <C> <C>
1-24 $181,413.00
25-60 $187,712.00
61-84 $192,751.00
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
As used herein, the term "LEASE MONTH" shall
mean each calendar month during the Term
(and if the Commencement Date does not occur
on the first day of a calendar month, the
period from the Commencement Date to the
first day of the next calendar month shall
be included in the first Lease Month for
purposes of determining the duration of the
Term and the monthly Basic Rent rate
applicable for such partial month).
Security Deposit: Subject to the provisions of Section 6 of this Lease, $1,500,000.00.
Rent: Basic Rent, Tenant's Proportionate Share of Taxes, Tenant's share
of Additional Rent, and all other sums that Tenant may owe to
Landlord or otherwise be required to pay under the Lease.
Permitted Use: General office use and training classrooms.
Tenant's
Proportionate Share: 27.39%, which is the percentage
obtained by dividing the 60,471 rentable
square feet in the Premises by the 220,750
rentable square feet in the Building.
Landlord and Tenant stipulate that the
number of rentable square feet in the
Premises and in the Building set forth above
shall be binding upon them.
Expense Stop: Operating Costs for calendar year 1999.
Base Year for Taxes: Fiscal Year 2000.
Initial Liability
Insurance Amount: $3,000,000.
Maximum Construction
Allowance: $18.00 per rentable square foot.
</TABLE>
<TABLE>
<CAPTION>
Tenant's Address: PRIOR TO COMMENCEMENT DATE: FOLLOWING COMMENCEMENT DATE:
<S> <C> <C>
101 Huntington Avenue, The Davenport Building
22nd Floor 25 First Street
Boston, MA 02199 Cambridge, MA 02141
WITH A COPY TO:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Attn: Jeffrey A. Hermanson,
Esq.
Landlord's Address: FOR ALL NOTICES: WITH A COPY TO:
Archon Group, L.P. Choate, Hall & Stewart
1275 K Street NW, Suite 900 Exchange Place
Washington, DC 20005 53 State Street
Boston, MA 02109-2891
Attn: Anne Rickard Jackowitz, Esq.
</TABLE>
The foregoing Basic Lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.
LANDLORD:
DVPT LIMITED PARTNERSHIP, a Delaware
limited partnership
By: New DVPT Corp., a Delaware corporation,
its general partner
By: /s/ Brian Ainsworth
----------------------------------------
Name: Brian Ainsworth
-------------------------------------
Title: Vice President
-----------------------------------
TENANT:
ART TECHNOLOGY GROUP, INC., a Delaware
corporation
By: /S/ Mahendrajeet Singh
----------------------------------------
Name: Mahendrajeet Singh
-------------------------------------
Title: President/CEO
-----------------------------------
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions and Basic Provisions............................................................................1
2. Lease Grant.................................................................................................1
3. Term........................................................................................................1
4. Rent........................................................................................................2
(a) Payment............................................................................................2
(b) Operating Costs; Taxes.............................................................................2
(c) Billing for Electricity............................................................................5
5. Delinquent Payment; Handling Charges........................................................................5
6. Security Deposit............................................................................................5
7. Landlord's Obligations......................................................................................7
(a) Services...........................................................................................7
(b) Excess Utility Use.................................................................................8
(c) Restoration of Services; Abatement.................................................................8
8. Improvements; Alterations; Repairs; Maintenance.............................................................9
(a) Improvements; Alterations..........................................................................9
(b) Repairs; Maintenance...............................................................................9
(c) Performance of Work................................................................................9
(d) Mechanic's Liens..................................................................................10
9. Use........................................................................................................10
10. Assignment and Subletting..................................................................................10
(a) Transfers.........................................................................................10
(b) Consent Standards.................................................................................11
(c) Request for Consent...............................................................................11
(d) Conditions to Consent.............................................................................11
(e) Cancellation......................................................................................11
(f) Additional Compensation...........................................................................12
(g) Permitted Transfers...............................................................................12
11. Insurance; Waivers; Subrogation; Indemnity.................................................................13
(a) Insurance.........................................................................................13
(b) Waiver of Negligence; No Subrogation..............................................................13
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(c) Indemnity.........................................................................................13
(d) Landlord's Insurance..............................................................................14
12. Subordination; Attornment; Notice to Landlord's Mortgagee..................................................14
(a) Subordination.....................................................................................14
(b) Attornment........................................................................................14
(c) Notice to Landlord's Mortgagee....................................................................14
(d) Landlord's Mortgagee's Protection Provisions......................................................14
(e) Subordination, Non-Disturbance and Attornment Agreement...........................................15
13. Rules and Regulations......................................................................................15
14. Condemnation...............................................................................................15
(a) Total Taking......................................................................................15
(b) Partial Taking - Tenant's Rights..................................................................15
(c) Partial Taking - Landlord's Rights................................................................16
(d) Award.............................................................................................16
15. Fire or Other Casualty.....................................................................................16
(a) Repair Estimate...................................................................................16
(b) Landlord's and Tenant's Rights....................................................................16
(c) Landlord's Rights.................................................................................16
(d) Repair Obligation.................................................................................17
16. Personal Property Taxes....................................................................................17
17. Events of Default..........................................................................................17
17A. Landlord's Default.........................................................................................18
18. Remedies...................................................................................................18
19. Payment by Tenant; Non-Waiver..............................................................................19
(a) Payment by Tenant.................................................................................19
(b) No Waiver.........................................................................................20
20. Landlord's Lien............................................................................................20
21. Surrender of Premises......................................................................................20
22. Holding Over...............................................................................................20
23. Certain Rights Reserved by Landlord........................................................................21
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
24. Intentionally Omitted......................................................................................21
25. Miscellaneous..............................................................................................21
(a) Landlord Transfer.................................................................................21
(b) Landlord's Liability..............................................................................21
(c) Force Majeure.....................................................................................22
(d) Brokerage.........................................................................................22
(e) Estoppel Certificates.............................................................................22
(f) Notices...........................................................................................22
(g) Separability......................................................................................22
(h) Amendments; and Binding Effect....................................................................23
(i) Quiet Enjoyment...................................................................................23
(j) No Merger.........................................................................................23
(k) No Offer..........................................................................................23
(l) Entire Agreement..................................................................................23
(m) Waiver of Jury Trial..............................................................................23
(n) Governing Law.....................................................................................23
(o) Joint and Several Liability.......................................................................23
(p) Financial Reports.................................................................................23
(q) Landlord's Fees...................................................................................24
(r) Telecommunications................................................................................24
(s) Confidentiality...................................................................................24
(t) Hazardous Materials...............................................................................25
(u) List of Exhibits..................................................................................25
26. Other Provisions...........................................................................................26
</TABLE>
vi
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
Additional Rent ...................................................................................................2
Affiliate ...................................................................................................1
Amendment .................................................................................................E-1
AS-IS .................................................................................................D-1
Basic Lease Information..............................................................................................1
Basic Rent ...................................................................................................i
Building ...................................................................................................i
Casualty ..................................................................................................16
Commencement Date ...................................................................................................i
Construction Allowance.............................................................................................D-3
Damage Notice ..................................................................................................16
Event of Default ..................................................................................................17
Fair Market Rental Rate............................................................................................H-1
GAAP ..................................................................................................13
Hazardous Materials.................................................................................................25
HVAC ...................................................................................................7
including ...................................................................................................1
Land ...................................................................................................i
Landlord ...................................................................................................1
Landlord Delay .................................................................................................D-1
Landlord's Mortgagee................................................................................................14
Law ...................................................................................................1
Laws ...................................................................................................1
Lease ...................................................................................................1
Lease Month ...................................................................................................i
Letter of Credit ...................................................................................................5
Loss ..................................................................................................13
Offer Notice .................................................................................................J-1
Offer Space .................................................................................................J-1
Operating Costs ...................................................................................................2
Operating Costs and Tax Statement....................................................................................4
Permitted Transfer..................................................................................................12
Permitted Transferee................................................................................................12
Permitted Use ..................................................................................................ii
Premises ...................................................................................................i
Rent ..................................................................................................ii
Security Deposit ..................................................................................................ii
Taking ..................................................................................................15
Tangible Net Worth..................................................................................................13
Taxes ...................................................................................................4
Tenant ...................................................................................................1
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Tenant Party ...................................................................................................1
Tenant's Proportionate Share........................................................................................ii
Term ...................................................................................................i
Third Party Offer .................................................................................................J-1
Total Construction Costs...........................................................................................D-2
Transfer ..................................................................................................11
Work .................................................................................................D-1
Working Drawings .................................................................................................D-1
</TABLE>
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LEASE
THIS LEASE AGREEMENT (this "LEASE") is entered into as of March 11,
1999, between DVPT LIMITED PARTNERSHIP, a Delaware limited partnership
("LANDLORD"), and ART TECHNOLOGY GROUP, INC., a Delaware corporation ("TENANT").
1. DEFINITIONS AND BASIC PROVISIONS. The definitions and basic
provisions set forth in the Basic Lease Information (the "BASIC LEASE
INFORMATION") executed by Landlord and Tenant contemporaneously herewith are
incorporated herein by reference for all purposes. Additionally, the following
terms shall have the following meanings when used in this Lease: "LAWS" means
all federal, state, and local laws, rules and regulations, all court orders,
governmental directives, and governmental orders, and all restrictive covenants
affecting the Property, and "LAW" shall mean any of the foregoing; "AFFILIATE"
means any person or entity which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
party in question; "TENANT PARTY" means any of the following persons: Tenant;
any assignees claiming by, through, or under Tenant; any subtenants claiming by,
through, or under Tenant; and any of their respective agents, contractors,
employees, and invitees; and "INCLUDING" means including, without limitation.
2. LEASE GRANT. Subject to the terms of this Lease, Landlord leases to
Tenant, and Tenant leases from Landlord, the Premises, together with the
non-exclusive right to use in common for itself and its employees, agents,
customers, invitees and licensees with others as appurtenant to the Premises
common lobbies, hallways, stairways, elevators, bathrooms, building entrances,
exits and accessways, and the Building's common utility pipes and service
connections.
3. TERM. Tenant's obligation to pay Basic Rent and Additional Rent (as
defined in Section 4) shall be waived until Landlord tenders possession of the
Premises to Tenant. Landlord shall not be in default hereunder or be liable for
damages for failure to deliver the Premises by a date certain. Tenant shall
accept possession of the Premises when Landlord tenders possession thereof to
Tenant. By occupying the Premises, Tenant shall be deemed to have accepted the
Premises in their condition as of the date of such occupancy. Tenant shall
execute and deliver to Landlord, within ten days after Landlord has requested
the same, an amendment substantially in the form of EXHIBIT E hereto confirming
the Commencement Date and the expiration date of the initial Term, that Tenant
has accepted the Premises, and that Landlord has performed all of its
obligations with respect to the Premises (except for punch-list items specified
in such letter). Use and occupancy of the Premises (or any portion thereof) by
Tenant prior to the Commencement Date shall be subject to all of the provisions
of this Lease excepting only those requiring the payment of Basic Rent.
Notwithstanding the foregoing, if the Premises have not been delivered to Tenant
in accordance with the terms and conditions of this Lease on or before November
30, 1999, then Tenant shall have the right to terminate this Lease upon thirty
(30) days prior written notice to Landlord; PROVIDED, HOWEVER, if Landlord
delivers possession of the Premises to Tenant within said thirty (30) day
period, then Tenant's termination notice shall be null and void and the
provisions of this Lease shall remain in full force and effect. If this Lease is
terminated in accordance with
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provisions in the preceding sentence, Landlord shall immediately return any
deposits or other funds paid to Landlord by Tenant.
Landlord and Tenant acknowledge that, subject to the
provisions of this Lease, Tenant intends to sublease approximately 10,000
rentable square feet (the "Subleased Premises") of the Premises at the beginning
of the Term. Notwithstanding any provisions of this Lease to the contrary, if
Tenant occupies only the Subleased Premises (as opposed to any other portion of
the Premises) for the Permitted Use prior to the date which is one hundred
twenty (120) days after the date upon which Landlord delivers the Premises to
Tenant, such occupancy for the Permitted Use shall not cause the Commencement
Date to otherwise occur except that Tenant shall be required to pay a
proportionate share of Rent for the Subleased Premises as of the date it
occupies the Subleased Premises for the Permitted Use.
4. RENT.
(a) PAYMENT. Tenant shall timely pay to Landlord Basic Rent
and all additional sums to be paid by Tenant to Landlord under this Lease,
without notice, deduction or set off, except as otherwise expressly provided
herein, at Landlord's address provided for in this Lease or as otherwise
specified by Landlord and shall be accompanied by all applicable state and local
sales or use taxes. Basic Rent, adjusted as herein provided, shall be payable
monthly in advance. The first monthly installment of Basic Rent shall be payable
contemporaneously with the execution of this Lease; thereafter, Basic Rent shall
be payable on the first day of each month beginning on the first day of the
second full calendar month of the Term. The monthly Basic Rent for any partial
month at the beginning of the Term shall equal the product of 1/365 of the
annual Basic Rent in effect during the partial month and the number of days in
the partial month from and after the Commencement Date, and shall be due on the
Commencement Date.
(b) OPERATING COSTS; TAXES.
(1) Tenant shall pay an amount (per each
rentable square foot in the Premises) ("ADDITIONAL RENT") equal to the
difference between the Operating Costs (defined below) per rentable square foot
in the Building and the Expense Stop (calculated on a per rentable square foot
basis). Landlord may make a good faith estimate of the Additional Rent to be due
by Tenant for any calendar year or part thereof during the Term, and Tenant
shall pay to Landlord, on January 1, 2000 and on the first day of each calendar
month thereafter, an amount equal to the estimated Additional Rent for such
calendar year or part thereof divided by the number of months therein. From time
to time, Landlord may estimate and re-estimate the Additional Rent to be due by
Tenant and deliver a copy of the estimate or re-estimate to Tenant. Thereafter,
the monthly installments of Additional Rent payable by Tenant shall be
appropriately adjusted in accordance with the estimations so that, by the end of
the calendar year in question, Tenant shall have paid all of the Additional Rent
as estimated by Landlord. Any amounts paid based on such an estimate shall be
subject to adjustment as herein provided when actual Operating Costs are
available for each calendar year.
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(2) The term "OPERATING COSTS" shall mean all
expenses and disbursements (subject to the limitations set forth below) that
Landlord incurs in connection with the ownership, operation, and maintenance of
the Building, determined in accordance with sound accounting principles
consistently applied, including, but not limited to, the following costs: (A)
wages and salaries (including management fees, which management fees shall not
exceed fair market management fees for comparable buildings in the Cambridge
area) of all employees at the level of Building Manager and below engaged in the
operation, maintenance, and security of the Building, including taxes, insurance
and benefits relating thereto; (B) all supplies and materials used in the
operation, maintenance, repair, replacement, and security of the Building; (C)
costs for improvements made to the Building which, although capital in nature,
are expected to reduce the normal operating costs (including all utility costs)
of the Building, as well as capital improvements made in order to comply with
any law hereafter promulgated by any governmental authority, as amortized over
the useful economic life of such improvements as determined by Landlord in its
reasonable discretion; (D) cost of all utilities, except the cost of other
utilities reimbursable to Landlord by the Building's tenants other than pursuant
to a provision similar to this Section 4.(b); (E) insurance expenses; (F)
repairs, replacements, and general maintenance of the Building; and (G) service
or maintenance contracts with independent contractors for the operation,
maintenance, repair, replacement, or security of the Building (including,
without limitation, alarm service, window cleaning, and elevator maintenance).
Operating Costs shall not include costs for (i)
capital improvements made to the Building, other than capital improvements
described in Section 4.(b)(2)(C) and except for items which are generally
considered maintenance and repair items, such as painting of common areas,
replacement of carpet in elevator lobbies, and the like; (ii) repair,
replacements and general maintenance paid by proceeds of insurance or by Tenant
or other third parties; (iii) interest, amortization or other payments on loans
to Landlord or under a ground lease or master lease relating to the Building;
(iv) depreciation; (v) leasing commissions; (vi) legal expenses for services,
other than those that benefit the Building tenants generally (e.g., tax
disputes); (vii) renovating or otherwise improving space for occupants of the
Building or vacant space in the Building; (viii) Taxes (defined below); (ix)
federal income taxes imposed on or measured by the income of Landlord from the
operation of the Building; (x) any cost or expense to the extent to which
Landlord is paid or reimbursed (other than as a payment for Operating Costs),
including but not necessarily limited to, (1) work or service performed for any
tenant (including Tenant) at such tenant's costs, (2) the cost of any item for
which Landlord is paid or reimbursed by insurance, warranties, service
contracts, condemnation proceeds or otherwise, (3) increased insurance or taxes
assessed specifically to any tenant of the Building, (4) charges (including
applicable taxes) for electricity, water and other utilities for which Landlord
is entitled to reimbursement from any tenant, and (5) the cost of any HVAC,
janitorial or other services provided to tenants on an extra-cost basis after
regular business hours as defined in the Lease; (xi) salaries and bonuses of
officers and executives of Landlord; (xii) the cost of any work or service
performed on an extra-cost basis for any tenant of the Building (including
Tenant); (xiii) the cost of any work or services performed for any facility
other than the Building; (xiv) any fees, costs, and commissions incurred in
procuring or attempting to procure other tenants including, but not necessarily
limited to brokerage commissions, finders fees, attorney's fees and expenses,
entertainment costs and travel expenses;
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(xv) any cost included in Operating Costs representing an amount paid to a
person, firm, corporation or other entity related to Landlord which is in excess
of the amount which would have been paid on an arms length basis in the absence
of such relationship; and (xvi) the cost of advertising for the Building.
(3) Tenant shall also pay its Proportionate
Share of any increase in Taxes for each year and partial year falling within the
Term over the Taxes for the fiscal year 2000. Tenant shall pay its Proportionate
Share of Taxes in the same manner as provided above for Additional Rent with
regard to Operating Costs. "TAXES" shall mean taxes, assessments, and
governmental charges whether federal, state, county or municipal, and whether
they be by taxing districts or authorities presently taxing or by others,
subsequently created or otherwise, and any other taxes and assessments
attributable to the Building (or its operation), excluding, however, penalties
and interest thereon, any inheritance, estate, succession, transfer, gift and
franchise taxes, and federal and state taxes on income (if the present method of
taxation changes so that in lieu of the whole or any part of any Taxes, there is
levied on Landlord a capital tax directly on the rents received therefrom or a
franchise tax, assessment, or charge based, in whole or in part, upon such rents
for the Building, then all such taxes, assessments, or charges, or the part
thereof so based, shall be deemed to be included within the term "TAXES" for
purposes hereof). Taxes shall include the costs of consultants retained in an
effort to lower taxes and all costs incurred in disputing any taxes or in
seeking to lower the tax valuation of the Building. For property tax purposes,
Tenant waives all rights to protest or appeal the appraised value of the
Premises, as well as the Building, and all rights to receive notices of
reappraisement.
(4) [INTENTIONALLY DELETED].
(5) By April 1 of each calendar year, or as soon
thereafter as practicable, Landlord shall furnish to Tenant a statement of
Operating Costs for the previous year, in each case adjusted as provided in
Section 4.(b)(6), and of the Taxes for the previous year (the "OPERATING COSTS
AND TAX STATEMENT"). If the Operating Costs and Tax Statement reveals that
Tenant paid more for Operating Costs than the actual amount for the year for
which such statement was prepared, or more than its actual share of Taxes for
such year, then Landlord shall promptly credit or reimburse Tenant for such
excess; likewise, if Tenant paid less than Tenant's actual Proportionate Share
of Additional Rent or share of Taxes due, then Tenant shall promptly pay
Landlord such deficiency. If Tenant disputes such Operating Cost and Tax
Statement as aforesaid, Tenant shall have the right to cause an accounting firm
not engaged on a contingent fee basis to audit Landlord's books used to
determine said Operating Cost and Tax Statement within ninety (90) days after
submission thereof by Landlord, which right Tenant agrees not to exercise more
than once annually. Access to said Operating Cost and Tax Statement books shall
be provided within thirty (30) days of Tenant's request. Any information
obtained by Tenant pursuant to the provisions of this Section 4(b)(5) shall be
treated as confidential and shall not be disclosed to anyone including without
limitation any other tenants of the Building (other than to Tenant's accounting
firm and/or Tenant's financial and legal consultants and lenders). If any such
audit discloses Tenant paid in excess of Tenant's proportionate share of
Operating Costs or Taxes, Landlord shall promptly reimburse such excess to
Tenant within thirty (30) days after Tenant's demand therefor. If any audit
discloses that
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Landlord overstated Operating Costs and/or Taxes by more than five percent (5%),
Landlord shall promptly reimburse Tenant for its reasonable out-of-pocket costs
associated with such audit.
(6) With respect to any calendar year or partial
calendar year in which the
Building is not occupied to the extent of 95% of the rentable area thereof, the
Operating Costs for such period shall, for the purposes hereof, be increased to
the amount which would have been incurred (computed on an item-by-item basis)
had the Building been occupied to the extent of 95% of the rentable area thereof
through such calendar year.
(c) BILLING FOR ELECTRICITY. To the extent that the Premises
are separately metered for utilities, Tenant shall pay (as hereinafter
described) for the use of all electrical service to the Premises. Tenant shall
be billed directly by such utility company and Tenant agrees to pay each bill
promptly in accordance with its terms, and upon default in making any such
payment, Landlord may pay such charges and collect the same from Tenant only
after Tenant's failure to pay such charges before they become delinquent. In the
event for any reason Tenant cannot be billed directly, Landlord shall forward
each bill received with respect to the Building to Tenant of which Tenant shall
pay its proportionate share (as reasonably determined by Landlord based upon
either square footage or level of use) promptly and in accordance with its
terms. If the Premises are not separately metered for any reason, Tenant shall
pay Landlord as further additional rent, in monthly installments at the time
prescribed for monthly installments of Basic Rent, a pro rata share of the cost
of electricity for the Premises as estimated by Landlord from time to time in
Landlord's reasonable discretion. As of the Commencement Date, the cost of
electricity estimated by Landlord shall be at the rate of $1.25 per rentable
square foot of the Premises per annum. Either party may require the purchase and
installation of a meter and/or sub-meter, at its sole cost and expense, for the
purpose of metering and/or sub-metering Tenant's consumption of electricity.
Tenant shall keep such meter and/or sub-meter serving the Premises and their
related installation equipment in good working order and repair.
5. DELINQUENT PAYMENT; HANDLING CHARGES. All past due payments required
of Tenant hereunder shall bear interest from the date due until paid at the
lesser of eighteen percent per annum or the maximum lawful rate of interest;
additionally, Landlord may charge Tenant a fee equal to 5% of the delinquent
payment to reimburse Landlord for its cost and inconvenience incurred as a
consequence of Tenant's delinquency. In no event, however, shall the charges
permitted under this Section 5 or elsewhere in this Lease, to the extent they
are considered to be interest under applicable Law, exceed the maximum lawful
rate of interest.
6. SECURITY DEPOSIT. On or prior to the date Landlord delivers the
Premises to Tenant, Tenant shall pay to Landlord the Security Deposit, which
shall be held by Landlord to secure Tenant's performance of its obligations
under this Lease. The Security Deposit is not an advance payment of Rent or a
measure or limit of Landlord's damages upon an Event of Default (defined in
Section 17). Landlord may, from time to time following an Event of Default and
without prejudice to any other remedy, use all or a part of the Security Deposit
to perform any obligation Tenant fails to perform hereunder. Following any such
application of the Security Deposit, Tenant shall pay to Landlord on demand the
amount so applied in order to restore the Security Deposit to
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<PAGE>
its original amount. Provided that Tenant has performed all of its obligations
hereunder, Landlord shall, within 30 days after the Term ends, return to Tenant
the portion of the Security Deposit which was not applied to satisfy Tenant's
obligations. The Security Deposit may be commingled with other funds, and no
interest shall be paid thereon. If Landlord transfers its interest in the
Premises and the transferee assumes Landlord's obligations under this Lease,
then Landlord shall transfer and assign the Security Deposit to the transferee
and Landlord thereafter shall have no further liability for the return of the
Security Deposit.
In lieu of a cash Security Deposit, simultaneously with the execution
and delivery of this Lease, Tenant may deliver to Landlord an irrevocable and
unconditional standby letter of credit made payable to Landlord, its successors
and assigns, in the sum of $1,500,000.00 (the "LETTER OF CREDIT"), in the form
of the sample letter of credit attached hereto as EXHIBIT I or in such other
form as is reasonably acceptable to Landlord, which shall secure the performance
by Tenant of all obligations on the part of Tenant hereunder. The issuer of the
Letter of Credit shall be a banking institution with at least a rating of A and
otherwise reasonably acceptable to Landlord. Although Landlord shall only have
the right to draw under the Letter of Credit as set forth herein, under the
terms of the Letter of Credit, the sole condition to Landlord's draw upon the
Letter of Credit shall be presentment to the issuer thereof, prior to or on the
expiration date, of a demand for payment. The Letter of Credit shall be
self-renewing from year to year during the Term of this Lease so as to expire no
earlier than thirty (30) days following the Lease expiration date and shall
contain such other customary terms as Landlord requires in its reasonable
discretion. It is agreed: (i) that the Letter of Credit may be drawn upon to
cure any Event of Default that may exist, without prejudice to any other remedy
or remedies which Landlord may have on account thereof, and upon Landlord's
demand, Tenant shall reimburse the issuer for the amount so drawn so that the
Letter of Credit will be restored to its original amount; (ii) subject to the
provisions of clause (iv) below, that the Letter of Credit may be drawn upon if
the Letter of Credit has not been extended or renewed without amendment at least
forty-five (45) days prior to any then-current expiration date thereof; (iii)
that if the rating of the issuer of the Letter of Credit at any time drops below
A, then, within sixty (60) days of Landlord's demand, Tenant shall replace the
Letter of Credit with another Letter of Credit in a form reasonably acceptable
to Landlord and with an issuer with a rating of at least an A and otherwise
reasonably acceptable to Landlord; Landlord may draw on the existing Letter of
Credit if, after Landlord requests that Tenant replace the Letter of Credit as
aforesaid, Landlord is not provided with a substitute Letter of Credit in a
form, and from an issuer, satisfactory to Landlord as provided above at least
fifteen (15) days prior to the then-current expiration date of the Letter of
Credit; (iv) if at any time, but in any event, at least sixty (60) days prior to
the expiration of the Letter of Credit, Tenant may seek Landlord's consent to
switch issuers of the Letter of Credit provided the prospective issuer has a
rating of at least an A and is otherwise reasonably acceptable to Landlord and
the new form of Letter of Credit satisfies the requirements of Landlord
hereunder and is otherwise reasonably acceptable to Landlord; Landlord may draw
on the existing Letter of Credit if, after Tenant requests Landlord's consent to
switch issuers as aforesaid, Landlord is not provided with a substitute Letter
of Credit in a form, and from an issuer, satisfactory to Landlord in its sole
and absolute discretion at least forty-five (45) days prior to the then-current
expiration date of the Letter of Credit; (v) that should the Premises be
conveyed by Landlord, the Letter of Credit or any portion thereof shall be
assigned to Landlord's grantee, and if the same be assigned
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as aforesaid, Tenant hereby releases Landlord from any and all liability with
respect to the Letter of Credit and its application or return, and Tenant agrees
to look to such grantee for such application or return, provided such grantee
assumes Landlord's obligations under this Lease (including this Section 6); and
(vi) that the Letter of Credit shall be returned to Tenant upon the later of (a)
thirty (30) days after the expiration of the Term or any renewal or extension
thereof, or (b) the date Tenant has vacated the Premises and surrendered
possession thereof to Landlord at the expiration of the Term or any extension
thereof as provided herein and has paid Landlord all sums due and owing under
this Lease.
If Tenant initially provides Landlord with a cash Security Deposit,
Tenant may replace such cash Security Deposit with a Letter of Credit in
accordance with the provisions of the preceding paragraph. Upon Landlord's
receipt of a Letter of Credit satisfying the terms and conditions of the
preceding paragraph, Landlord shall promptly return the cash Security Deposit to
Tenant.
For the purposes of this Section 6, a rating of at least A (or its
equivalent) shall mean that such issuer has a rating of at least A (or its
equivalent) from two (2) of the following four (4) rating agencies: Fitch
Investors Service, Moody's Investor Service, Standard & Poor's Corporation and
Duff & Phelps.
Notwithstanding any provisions of this Section 6 to the contrary, the
Security Deposit (or the applicable Letter of Credit) shall be reduced on
November 1 in each of 2001, 2002 and 2003 to $1,250,000.00, $1,000,000.00 and
$750,000.00, respectively, provided that on September 1 of each such calendar
year (i) the Lease is in full force and effect, (ii) no Event of Default exists,
(iii) no Event of Default has occurred during the Term, and (iv) Tenant has not
assigned this Lease to anyone other than a Permitted Transferee or to the
sublessee(s) consented to by Landlord in accordance with the provisions of this
Lease provided said sublessee(s) sublease(s), in the aggregate, occupy less than
twenty percent (20%) of the Premises for less than seventy-five percent (75%) of
the then-remaining Term. If on November 1 of any of the aforesaid calendar years
the Security Deposit (or the applicable Letter of Credit) shall not be reduced
because one or more of the conditions set forth in clauses (i), (ii) or (iii)
above cease to exist on September 1 of the applicable calendar year, the
Security Deposit (or applicable Letter of Credit) shall not be reduced during
any succeeding calendar year. If on November 1 of any of the aforesaid calendar
years the Security Deposit (or applicable Letter of Credit) shall not be reduced
because only the condition set forth in clause (iv) above (as opposed to the
conditions set forth in any of clauses (i), (ii) or (iii) above) ceases to exist
on September 1 of the applicable calendar year, the Security Deposit (or
applicable Letter of Credit) shall be so reduced on November 1 of the next
succeeding calendar year, provided the conditions set forth in clauses (i),
(ii), (iii) and (iv) above exist on November 1 of the next succeeding calendar
year, and provided further that the Security Deposit (or applicable Letter of
Credit) shall be reduced only by the amount which the Security Deposit (or
applicable Letter of Credit) would have been reduced in the preceding calendar
year if all of the conditions set forth in clauses (i), (ii), (iii) and (iv)
above existed. If the Security Deposit (or applicable Letter of Credit) is
reduced pursuant to the foregoing provisions, Landlord shall return the amount
of each such applicable reduction if Tenant paid the Security Deposit in cash or
Tenant may replace and/or amend the Letter of Credit accordingly.
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7. LANDLORD'S OBLIGATIONS
(a) SERVICES. Landlord shall furnish to Tenant (1) water at
those points of supply provided for general use of tenants of the Building; (2)
heated and refrigerated air conditioning ("HVAC") as appropriate, at such
temperatures and in such amounts as are standard for comparable buildings in the
vicinity of the Building; (3) janitorial service to the Premises on weekdays,
other than holidays, for Building-standard installations (as more specifically
set forth in the janitorial specifications attached hereto as EXHIBIT K) and
such window washing as may from time to time be reasonably required; (4)
elevators for ingress and egress to the floor on which the Premises are located,
in common with other tenants, provided that Landlord may reasonably limit the
number of operating elevators during non-business hours and holidays; and (5)
electrical current during normal business hours for equipment that does not
require more than 110 volts and whose electrical energy consumption does not
exceed normal office usage. Landlord shall maintain the common areas of the
Building in reasonably good order and condition, except for damage caused by a
Tenant Party's gross negligence or wilful misconduct. If Tenant desires any of
the services specified in Section 7.(a)(2) at any time other than between 8:00
a.m. and 6:00 p.m. on weekdays (excluding holidays), then such services shall be
supplied to Tenant upon the written request of Tenant delivered to Landlord
before 3:00 p.m. on the business day preceding such extra usage, and Tenant
shall pay to Landlord the cost of such services within ten days after Landlord
has delivered to Tenant an invoice therefor. The costs incurred by Landlord in
providing after-hour HVAC service to Tenant shall include costs for electricity,
water, sewage, water treatment, labor, metering, filtering, and maintenance
reasonably allocated by Landlord to providing such service.
(b) EXCESS UTILITY USE. Landlord shall not be required to
furnish electrical current for equipment that requires more than 110 volts or
other equipment whose electrical energy consumption exceeds normal office usage.
If Tenant's requirements for or consumption of electricity exceed the
electricity to be provided by Landlord as described in Section 7.(a), Landlord
shall, at Tenant's expense, make reasonable efforts to supply such service
through the then-existing feeders and risers serving the Building and the
Premises, and Tenant shall pay to Landlord the cost of such service within ten
days after Landlord has delivered to Tenant an invoice therefor. Landlord may
determine the amount of such additional consumption and potential consumption by
any verifiable method, including installation of a separate meter in the
Premises installed, maintained, and read by Landlord, at Tenant's expense.
Tenant shall not install any electrical equipment requiring special wiring or
requiring voltage in excess of 110 volts or otherwise exceeding Building
capacity unless approved in advance by Landlord. The use of electricity in the
Premises shall not exceed the capacity of existing feeders and risers to or
wiring in the Premises. Any risers or wiring required to meet Tenant's excess
electrical requirements shall, upon Tenant's written request, be installed by
Landlord, at Tenant's cost, if, in Landlord's judgment, the same are necessary
and shall not cause permanent damage to the Building or the Premises, cause or
create a dangerous or hazardous condition, entail excessive or unreasonable
alterations, repairs, or expenses, or interfere with or disturb other tenants of
the Building. If Tenant uses machines or equipment in the Premises which affect
the temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord may install supplemental air conditioning units
or other supplemental equipment in the Premises, and the cost thereof, including
the cost of installation, operation, use,
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and maintenance, shall be paid by Tenant to Landlord within ten days after
Landlord has delivered to Tenant an invoice therefor.
(c) RESTORATION OF SERVICES; ABATEMENT. Landlord shall use
reasonable efforts to restore any service required of it that becomes
unavailable; however, such unavailability shall not render Landlord liable for
any damages caused thereby, be a constructive eviction of Tenant, constitute a
breach of any implied warranty, or, except as provided in the next sentence,
entitle Tenant to any abatement of Tenant's obligations hereunder. If, however,
Tenant is prevented from using the Premises for more than 10 consecutive
business days because of the unavailability of any such service and such
unavailability was not caused by a Tenant Party, then Tenant shall, as its
exclusive remedy be entitled to a reasonable abatement of Rent for each
consecutive day (after such 10-day period) that Tenant is so prevented from
using the Premises.
8. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.
(a) IMPROVEMENTS; ALTERATIONS. Improvements to the Premises
shall be installed at Tenant's expense only in accordance with plans and
specifications which have been previously submitted to and approved in writing
by Landlord. No alterations or physical additions in or to the Premises may be
made without Landlord's prior written consent, which shall not be unreasonably
withheld, delayed or conditioned; however, Landlord may withhold and/or
condition its consent to any alteration or addition that would affect the
Building's structure or its HVAC, plumbing, electrical, or mechanical systems.
Tenant shall not paint or install lighting or decorations, signs, window or door
lettering, or advertising media of any type on or about the Premises without the
prior written consent of Landlord, which shall not be unreasonably withheld or
delayed; however, Landlord may withhold its consent to any such painting or
installation which would affect the appearance of the exterior of the Building
or of any common areas of the Building. All alterations, additions, and
improvements shall be constructed, maintained, and used by Tenant, at its risk
and expense, in accordance with all Laws; Landlord's approval of the plans and
specifications therefor shall not be a representation by Landlord that such
alterations, additions, or improvements comply with any Law. Notwithstanding the
foregoing, Tenant may from time to time make alterations, additions or
improvements to the Premises, without the consent of Landlord and without
Landlord's approval of plans, provided: (i) the cost thereof shall not exceed
Twenty-Five Thousand Dollars ($25,000) in the aggregate in any consecutive
twelve-month period; (ii) Tenant shall, prior to commencing any such
alterations, additions and/or improvements in the Premises in connection
therewith, furnish Landlord with a complete set of plans and specifications for
any such alterations, additions and/or improvements; (iii) such alterations,
additions and/or improvements shall not involve or affect the exterior or the
structure of the Building or any of the HVAC, mechanical, electrical, plumbing
or fire safety systems of the Building; and (iv) Tenant shall comply with all
requirements of this Lease with respect to such alterations, additions and/or
improvements other than obtaining the prior approval of Landlord.
(b) REPAIRS; MAINTENANCE. Tenant shall maintain the Premises
in a clean, safe, and operable condition, and shall not permit or allow to
remain any waste or damage to any portion of the Premises other than reasonable
wear and tear. Tenant shall repair or replace, subject to
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Landlord's direction and supervision, any damage to the Building caused by a
Tenant Party. If Tenant fails to make such repairs or replacements within 30
days after the occurrence of such damage, then Landlord may make the same at
Tenant's cost. If any such damage occurs outside of the Premises, then Landlord
may elect to repair such damage at Tenant's expense, rather than having Tenant
repair such damage. The cost of all repair or replacement work performed by
Landlord under this Section 8 shall be paid by Tenant to Landlord within ten
days after Landlord has invoiced Tenant therefor.
(c) PERFORMANCE OF WORK. All work described in this Section 8
shall be performed only by Landlord or by contractors and subcontractors
approved in writing by Landlord (which approval shall not be unreasonably
withheld, delayed or conditioned). Tenant shall cause all contractors and
subcontractors to procure and maintain insurance coverage naming Landlord as an
additional insured against such risks, in such amounts, and with such companies
as Landlord may reasonably require. All such work shall be performed in
accordance with all applicable Laws and in a good and workmanlike manner so as
not to damage the Building (including the Premises, the structural elements, and
the plumbing, electrical lines, or other utility transmission facility). All
such work which may affect the Building's HVAC, electrical, plumbing, other
mechanical systems, or structural elements must be approved by the Building's
engineer of record, at Tenant's expense and, at Landlord's election, must be
performed by Landlord's usual contractor for such work.
Tenant shall provide to Landlord the names and addresses of all
contractors and subcontractors and copies of contracts for all contractors and
subcontractors, and upon completion of any work shall promptly furnish Landlord
with full and final waivers of lien covering all labors and materials included
in the work in question.
(d) MECHANIC'S LIENS. Tenant shall not permit any mechanic's
liens to be filed against the Premises or the Building for any work performed,
materials furnished, or obligation incurred by or at the request of Tenant. If
such a lien is filed, then Tenant shall, within ten days after Landlord has
delivered notice of the filing thereof to Tenant, either pay the amount of the
lien or diligently contest such lien and deliver to Landlord a bond or other
security reasonably satisfactory to Landlord. If Tenant fails to timely take
either such action, then Landlord may pay the lien claim, and any amounts so
paid, including expenses and interest, shall be paid by Tenant to Landlord
within ten days after Landlord has invoiced Tenant therefor.
9. USE. Tenant shall occupy and use the Premises only for the Permitted
Use and uses ancillary thereto, and for no other purposes, and shall comply with
all Laws relating to the use, condition, access to, and occupancy of the
Premises. The population density within the Premises as a whole shall at no time
exceed one person for each 200 rentable square feet in the Premises. Tenant
shall not conduct second or third shift operations within the Premises; however,
Tenant may use the Premises after normal business hours, so long as Tenant is
not generally conducting business from the Premises after normal business hours.
The Premises shall not be used for any use which is disreputable, creates
extraordinary fire hazards, or results in an increased rate of insurance on the
Building or its contents, or for the storage of any Hazardous Materials (except
in accordance with Section 25.(t) below). If, because of a Tenant Party's acts,
the rate of insurance on the Building or
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its contents increases, then Tenant shall pay to Landlord the amount of such
increase on demand, and acceptance of such payment shall not waive any of
Landlord's other rights. Tenant shall conduct its business and control each
other Tenant Party so as not to create any nuisance or unreasonably interfere
with other tenants or Landlord in its management of the Building.
10. ASSIGNMENT AND SUBLETTING
(a) TRANSFERS. Except as provided in Section 10.(g), Tenant
shall not, without the prior written consent of Landlord, (1) assign, transfer,
or encumber this Lease or any estate or interest herein, whether directly or by
operation of law, (2) permit any other entity to become Tenant hereunder by
merger, consolidation, or other reorganization, (3) if Tenant is an entity other
than a corporation whose stock is publicly traded, permit the transfer of an
ownership interest in Tenant so as to result in a change in the current control
of Tenant (except that Tenant may permit the transfer of an ownership interest
in Tenant that results in a change in the current control of Tenant if such
change in control occurs as a result of an initial public offering of shares of
Tenant), (4) sublet any portion of the Premises, (5) grant any license,
concession, or other right of occupancy of any portion of the Premises, or (6)
permit the use of the Premises by any parties other than Tenant (any of the
events listed in Section 10.(a)(1) through 10.(a)(6) being a "TRANSFER").
(b) CONSENT STANDARDS. Landlord shall not unreasonably
withhold its consent to any assignment or subletting of the Premises, provided
that the proposed transferee is creditworthy,
has a good reputation in the business community, will use the Premises for the
Permitted Use (thus, excluding, without limitation, uses for credit processing
and telemarketing) and will not use the Premises in any manner that would
conflict with any exclusive use agreement or other similar agreement entered
into by Landlord with any other tenant of the Building (provided, however, no
present or future agreement shall prohibit the use of the Premises for the
Permitted Use, is not a governmental entity, or subdivision or agency thereof,
and is not another occupant of the Building or person or entity with whom
Landlord is negotiating to lease space in the Building; otherwise, Landlord may
withhold its consent in its sole discretion.
(c) REQUEST FOR CONSENT. If Tenant requests Landlord's consent
to a Transfer, then Tenant shall provide Landlord with a written description of
all terms and conditions of the proposed Transfer, copies of the proposed
documentation, and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its business and business
history; its proposed use of the Premises; banking, financial, and other credit
information reasonably required to determine the creditworthiness of a proposed
transferee; and general references sufficient to enable Landlord to determine
the proposed transferee's creditworthiness and character. Concurrently with
Tenant's notice of any request for consent to a Transfer, Tenant shall pay to
Landlord a fee of $750 to defray Landlord's expenses in reviewing such request,
and Tenant shall also reimburse Landlord immediately upon request for its
reasonable attorneys' fees incurred in connection with considering any request
for consent to a Transfer.
(d) CONDITIONS TO CONSENT. If Landlord consents to a proposed
Transfer, then the proposed transferee shall deliver to Landlord a written
agreement whereby it expressly assumes
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Tenant's obligations hereunder; however, any transferee of less than all of the
space in the Premises shall be liable only for obligations under this Lease that
are properly allocable to the space subject to the Transfer for the period of
the Transfer. No Transfer shall release Tenant from its obligations under this
Lease, but rather Tenant and its transferee shall be jointly and severally
liable therefor. Landlord's consent to any Transfer shall not waive Landlord's
rights as to any subsequent Transfers. If an Event of Default occurs while the
Premises or any part thereof are subject to a Transfer, then Landlord, in
addition to its other remedies, may collect directly from such transferee all
rents becoming due to Tenant and apply such rents against Rent. Tenant
authorizes its transferees to make payments of rent directly to Landlord upon
receipt of notice from Landlord to do so. Tenant shall pay for the cost of any
demising walls or other improvements necessitated by a proposed subletting or
assignment.
(e) CANCELLATION. Landlord may, within 30 days after
submission of Tenant's written request for Landlord's consent to an assignment
or subletting (except for an assignment or sublease to a Permitted Transferee),
cancel this Lease as to the portion of the Premises proposed to be sublet (if
the sublease is for more than twenty percent (20%) of the Premises and for more
than seventy-five percent (75%) of the then-remaining Term) or assigned as of
the date the proposed Transfer is to be effective. If Landlord cancels this
Lease as to any portion of the Premises, then this Lease shall cease for such
portion of the Premises and Tenant shall pay to Landlord all Rent accrued
through the cancellation date relating to the portion of the Premises covered by
the proposed Transfer. Thereafter, Landlord may lease such portion of the
Premises to the prospective transferee (or to any other person) without
liability to Tenant.
(f) ADDITIONAL COMPENSATION. Tenant shall pay to Landlord,
immediately upon receipt thereof, fifty percent (50%) of the excess of (1) all
compensation received by Tenant for a Transfer less the costs reasonably
incurred by Tenant with unaffiliated third parties in connection with such
Transfer (i.e., brokerage commissions, legal fees, tenant finish work, and the
like) over (2) the Rent allocable to the portion of the Premises covered
thereby.
(g) PERMITTED TRANSFERS. Notwithstanding Section 10.(a),
Tenant may Transfer all or part of its interest in this Lease or all or part of
the Premises (a "PERMITTED TRANSFER") to the following types of entities (a
"PERMITTED TRANSFEREE") without the written consent of Landlord:
(1) an Affiliate of Tenant;
(2) any corporation, limited partnership, limited
liability partnership, limited liability company or other business
entity in which or with which Tenant, or its corporate successors or
assigns, is merged or consolidated, in accordance with applicable
statutory provisions governing merger and consolidation of business
entities, so long as (A) Tenant's obligations hereunder are assumed by
the entity surviving such merger or created by such consolidation; and
(B) the Tangible Net Worth of the surviving or created entity is not
less than the greater of (i) the Tangible Net Worth of Tenant as of the
date hereof, or (ii) the Tangible Net Worth of Tenant at the time of
any such Permitted Transfer; or
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(3) any corporation, limited partnership, limited
liability partnership, limited liability company or other business
entity acquiring all or substantially all of Tenant's stock or assets
if such entity's Tangible Net Worth after such acquisition is not less
than the greater of (i) the Tangible Net Worth of Tenant as of the date
hereof, or (ii) the Tangible Net Worth of Tenant at the time of any
such Permitted Transfer.
Tenant shall promptly notify Landlord of any such Permitted Transfer.
Tenant shall remain liable for the performance of all of the obligations of
Tenant hereunder, or if Tenant no longer exists because of a merger,
consolidation, or acquisition, the surviving or acquiring entity shall expressly
assume in writing the obligations of Tenant hereunder. Additionally, the
Permitted Transferee shall comply with all of the terms and conditions of this
Lease, including the Permitted Use, and the use of the Premises by the Permitted
Transferee may not violate any other agreements affecting the Premises, the
Building, Landlord or other tenants of the Building. At least 30 days after the
effective date of any Permitted Transfer, Tenant agrees to furnish Landlord with
copies of the instrument effecting any of the foregoing Transfers and
documentation establishing Tenant's satisfaction of the requirements set forth
above applicable to any such Transfer. The occurrence of a Permitted Transfer
shall not waive Landlord's rights as to any subsequent Transfers. "TANGIBLE NET
WORTH" means the excess of total assets over total liabilities, in each case as
determined in accordance with generally accepted accounting principles
consistently applied ("GAAP"), excluding, however, from the determination of
total assets all assets which would be classified as intangible assets under
GAAP including, without limitation, goodwill, licenses, patents, trademarks,
trade names, copyrights, and franchises. Any subsequent Transfer by a Permitted
Transferee to any person other than a Permitted Transferee shall be subject to
Landlord's prior written consent (which Landlord may grant or deny in its sole
discretion).
11. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY
(a) INSURANCE. Tenant shall maintain throughout the Term the
following insurance policies: (1) commercial general liability insurance in
amounts of $3,000,000 per occurrence or such other amounts as Landlord may from
time to time reasonably require, insuring Tenant, Landlord, Landlord's agents
and their respective Affiliates against all liability for injury to or death of
a person or persons or damage to property arising from the use and occupancy of
the Premises, (2) insurance covering the full value of Tenant's property and
improvements, and other property (including property of others) in the Premises,
(3) contractual liability insurance sufficient to cover Tenant's indemnity
obligations hereunder (but only if such contractual liability insurance is not
already included in Tenant's commercial general liability insurance policy), (4)
worker's compensation insurance, containing a waiver of subrogation endorsement
reasonably acceptable to Landlord, and (5) business interruption insurance.
Tenant's insurance shall provide primary coverage to Landlord when any policy
issued to Landlord provides duplicate or similar coverage, and in such
circumstance Landlord's policy will be excess over Tenant's policy. Tenant shall
furnish to Landlord certificates of such insurance and such other evidence
reasonably satisfactory to Landlord of the maintenance of all insurance
coverages required hereunder, and Tenant shall use reasonable efforts to obtain
a written obligation on the part of each insurance company to notify Landlord at
least 30 days before cancellation or a material change of any such insurance
policies.
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All such insurance policies shall be in form, and issued by companies,
reasonably satisfactory to Landlord.
(b) WAIVER OF NEGLIGENCE; NO SUBROGATION. Landlord and Tenant
each waives any claim it might have against the other for any injury to or death
of any person or persons or damage to or theft, destruction, loss, or loss of
use of any property (a "LOSS"), to the extent the same is insured against under
any insurance policy that covers the Building, the Premises, Landlord's or
Tenant's fixtures, personal property, leasehold improvements, or business, or is
required to be insured against under the terms hereof, REGARDLESS OF WHETHER THE
NEGLIGENCE OF THE OTHER PARTY CAUSED SUCH LOSS; however, Landlord's waiver shall
not include any deductible amounts on insurance policies carried by Landlord.
Each party shall cause its insurance carrier to endorse all applicable policies
waiving the carrier's rights of recovery under subrogation or otherwise against
the other party.
(c) INDEMNITY. Subject to Section 11.(b), Tenant shall defend,
indemnify, and hold harmless Landlord and its representatives and agents from
and against all claims, demands, liabilities, causes of action, suits,
judgments, damages, and expenses (including attorneys' fees) arising from (1)
any Loss arising from any occurrence on the Premises (other than any Loss
arising out of a breach of Tenant's obligations under Section 25.(t), which
shall be subject to the indemnity in such section) or (2) Tenant's failure to
perform its obligations under this Lease, except to the extent caused by the
negligence or fault of Landlord or its agents. This indemnity provision shall
survive termination or expiration of this Lease. If any proceeding is filed for
which indemnity is required hereunder, Tenant agrees, upon request therefor, to
defend the indemnified party in such proceeding at its sole cost utilizing
counsel satisfactory to the indemnified party.
(d) LANDLORD'S INSURANCE. Landlord shall carry throughout the
Term of this Lease (i) fire and extended coverage insurance on the Building for
at least 90% of the full replacement value, and (ii) commercial general
liability insurance with respect to all common areas of the Building.
12. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE
(a) SUBORDINATION. This Lease shall be subordinate to any deed
of trust, mortgage, or other security instrument, or any ground lease, master
lease, or primary lease, that now or hereafter covers all or any part of the
Premises (the mortgagee under any such mortgage or the lessor under any such
lease is referred to herein as a "LANDLORD'S MORTGAGEE"). Any Landlord's
Mortgagee may elect, at any time, unilaterally, to make this Lease superior to
its mortgage, ground lease, or other interest in the Premises by so notifying
Tenant in writing.
(b) ATTORNMENT. Tenant shall attorn to any party succeeding to
Landlord's interest in the Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of lease, or otherwise, upon
such party's request, and shall execute such agreements confirming such
attornment as such party may reasonably request.
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(c) NOTICE TO LANDLORD'S MORTGAGEE. Tenant shall not seek to
enforce any remedy it may have for any default on the part of Landlord without
first giving written notice by certified mail, return receipt requested,
specifying the default in reasonable detail, to any Landlord's Mortgagee whose
address has been given to Tenant, and affording such Landlord's Mortgagee a
reasonable opportunity to perform Landlord's obligations hereunder.
(d) LANDLORD'S MORTGAGEE'S PROTECTION PROVISIONS. If
Landlord's Mortgagee shall succeed to the interest of Landlord under this Lease,
Landlord's Mortgagee shall not be: (1) liable for any act or omission of any
prior lessor (including Landlord); (2) bound by any rent or additional rent or
advance rent which Tenant might have paid for more than the current month to any
prior lessor (including Landlord), and all such rent shall remain due and owing,
notwithstanding such advance payment; (3) bound by any security or advance
rental deposit made by Tenant which is not delivered or paid over to Landlord's
Mortgagee and with respect to which Tenant shall look solely to Landlord for
refund or reimbursement; (4) bound by any termination, amendment or modification
of this Lease made without Landlord's Mortgagee's consent and written approval,
except for those terminations, amendments and modifications permitted to be made
by Landlord without Landlord's Mortgagee's consent pursuant to the terms of the
loan documents between Landlord and Landlord's Mortgagee; (5) subject to the
defenses which Tenant might have against any prior lessor (including Landlord)
except as expressly provided for in this Lease; and (6) subject to the offsets
which Tenant might have against any prior lessor (including Landlord) except for
those offset rights which (A) are expressly provided in this Lease, (B) relate
to periods of time following the acquisition of the Building by Landlord's
Mortgagee, and (C) Tenant has provided written notice to Landlord's Mortgagee
and provided Landlord's Mortgagee a reasonable opportunity to cure the event
giving rise to such offset event. Landlord's Mortgagee shall have no liability
or responsibility under or pursuant to the terms of this Lease or otherwise
after it ceases to own an interest in the Building. Nothing in this Lease shall
be construed to require Landlord's Mortgagee to see to the application of the
proceeds of any loan, and Tenant's agreements set forth herein shall not be
impaired on account of any modification of the documents evidencing and securing
any loan.
(e) SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT.
Simultaneously upon Tenant's and Landlord's respective execution of this Lease,
Tenant and Landlord shall execute a Subordination, Non-Disturbance and
Attornment Agreement in the form attached hereto as Exhibit L. Landlord shall
return a fully executed Subordination, Non-disturbance and Attornment Agreement
in the form attached hereto as EXHIBIT L from the Indenture Trustee named
therein as soon as reasonably possible. Landlord shall use reasonable efforts to
obtain a so-called "subordination, nondisturbance and attornment agreement" from
any future Landlord's Mortgagee.
13. RULES AND REGULATIONS. Tenant shall comply with the rules and
regulations of the Building which are attached hereto as EXHIBIT C. Landlord
may, from time to time, change such rules and regulations for the safety, care,
or cleanliness of the Building and related facilities, provided that such
changes are applicable to all tenants of the Building and will not unreasonably
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interfere with Tenant's use of the Premises. Tenant shall be responsible for the
compliance with such rules and regulations by each Tenant Party.
To the extent there are an inconsistencies between the
provisions of this Lease and the rules and regulations of the Building, the
provisions of this Lease shall control. Notwithstanding any provisions of the
rules and regulations to the contrary set forth on EXHIBIT C: (a) Tenant may
hang pictures for decorative purposes only on the walls of the Premises, but
shall use reasonable efforts to minimize any damage caused thereto; (b) Tenant
may install four (4) snack and soda vending machines within the Premises; and
(c) Tenant may have ice and mineral and/or bottled water delivered to the
Premises by reputable vendors during normal business hours.
14. CONDEMNATION.
(a) TOTAL TAKING. If the entire Building or Premises are taken
by right of eminent domain or conveyed in lieu thereof (a "TAKING"), this Lease
shall terminate as of the date of the Taking.
(b) PARTIAL TAKING - TENANT'S RIGHTS. If any part of the
Building becomes subject to a Taking and such Taking will prevent Tenant from
conducting its business in the Premises in a manner reasonably comparable to
that conducted immediately before such Taking for a period of more than 180
days, then Tenant may terminate this Lease as of the date of such Taking by
giving written notice to Landlord within 30 days after the Taking, and Rent
shall be apportioned as of the date of such Taking. If Tenant does not terminate
this Lease, then Rent shall be abated on a proportionate basis as to that
portion of the Premises rendered untenantable by the Taking.
(c) PARTIAL TAKING - LANDLORD'S RIGHTS. If any material
portion, but less than all, of the Building becomes subject to a Taking, or if
Landlord is required to pay any of the proceeds received for a Taking to a
Landlord's Mortgagee, then Landlord may terminate this Lease by delivering
written notice thereof to Tenant within 30 days after such Taking, and Rent
shall be apportioned as of the date of such Taking. If Landlord does not so
terminate this Lease, then this Lease will continue, but if any portion of the
Premises has been taken, Rent shall abate as provided in the last sentence of
Section 14.(b).
(d) AWARD. If any Taking occurs, then Landlord shall receive
the entire award or other compensation for the land on which the Building is
situated, the Building, and other improvements taken, and Tenant may separately
pursue a claim (to the extent it will not reduce Landlord's award) against the
condemnor for the value of Tenant's personal property which Tenant is entitled
to remove under this Lease, moving costs, loss of business, and other claims it
may have.
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15. FIRE OR OTHER CASUALTY
(a) REPAIR ESTIMATE. If the Premises or the Building are
damaged by fire or other casualty (a "CASUALTY"), Landlord shall, within 90 days
after such Casualty, deliver to Tenant a good faith estimate (the "DAMAGE
NOTICE") of the time needed to repair the damage caused by such Casualty.
(b) LANDLORD'S AND TENANT'S RIGHTS. If a material portion of
the Premises or the Building is damaged by Casualty such that Tenant is
prevented from conducting its business in the Premises in a manner reasonably
comparable to that conducted immediately before such Casualty and Landlord
estimates that the damage caused thereby cannot be repaired within 210 days
after the Casualty, then Tenant may terminate this Lease by delivering written
notice to Landlord of its election to terminate within 30 days after the Damage
Notice has been delivered to Tenant. If Tenant does not so timely terminate this
Lease, then (subject to Section 15.(c)) Landlord shall repair the Building or
the Premises, as the case may be, as provided below, and Rent for the portion of
the Premises rendered untenantable by the damage shall be abated on a
proportionate basis from the date of damage until the completion of the repair,
unless a Tenant Party caused such damage, in which case, Tenant shall continue
to pay Rent without abatement.
(c) LANDLORD'S RIGHTS. If a Casualty damages a material
portion of the Building, and Landlord makes a good faith determination that
restoring the Premises would be uneconomical, or if Landlord is required to pay
any insurance proceeds arising out of the Casualty to a Landlord's Mortgagee,
then Landlord may terminate this Lease by giving written notice of its election
to terminate within 30 days after the Damage Notice has been delivered to
Tenant, and Basic Rent and Additional Rent shall be abated as of the date of the
Casualty.
(d) REPAIR OBLIGATION. If neither party elects to terminate
this Lease following a Casualty, then Landlord shall, within a reasonable time
after such Casualty, begin to repair the Building and the Premises and shall
proceed with reasonable diligence to restore the Building and Premises to
substantially the same condition as they existed immediately before such
Casualty; however, Landlord shall not be required to repair or replace any of
the furniture, equipment, fixtures, and other improvements (with exception of
the improvements or a portion of the improvements, as the case may be, which are
constructed with the Construction Allowance) which may have been placed by, or
at the request of, Tenant or other occupants in the Building or the Premises,
and Landlord's obligation to repair or restore the Building or Premises shall be
limited to the extent of the insurance proceeds actually received by Landlord
for the Casualty in question. If the Premises are not substantially restored
within 210 days after a Casualty (notwithstanding anything contained in Section
25(c) to the contrary, such 210 day period may be extended for a period not to
exceed 180 additional days due to force majeure events), Tenant shall have the
right to terminate this Lease upon at least 30 days prior written notice;
provided, however, if Landlord substantially restores the Premises within said
thirty-day period, Tenant's termination notice shall be null and void and the
provisions of this Lease shall remain in full force and effect.
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16. PERSONAL PROPERTY TAXES. Tenant shall be liable for all taxes
levied or assessed against personal property, furniture, or fixtures placed by
Tenant in the Premises. If any taxes for which Tenant is liable are levied or
assessed against Landlord or Landlord's property and Landlord elects to pay the
same, or if the assessed value of Landlord's property is increased by inclusion
of such personal property, furniture or fixtures and Landlord elects to pay the
taxes based on such increase, then Tenant shall pay to Landlord, upon written
demand, the part of such taxes for which Tenant is primarily liable hereunder;
however, Landlord shall not pay such amount if Tenant notifies Landlord that it
will contest the validity or amount of such taxes before Landlord makes such
payment, and thereafter diligently proceeds with such contest in accordance with
law and if the non-payment thereof does not pose a threat of loss or seizure of
the Building or interest of Landlord therein or impose any fee or penalty
against Landlord.
17. EVENTS OF DEFAULT. Each of the following occurrences shall be an
"EVENT OF DEFAULT":
(a) Tenant's failure to pay Rent within five days after
Landlord has delivered notice to Tenant that the same is due; however, an Event
of Default shall occur hereunder without any obligation of Landlord to give any
notice if Landlord has given Tenant written notice under this Section 17.(a) on
two occasions during the twelve (12) month interval preceding such failure by
Tenant;
(b) For more than sixty (60) consecutive days or more than
sixty (60) days in a one hundred fifty (150) day period, Tenant abandons the
Premises or any substantial portion thereof;
(c) Tenant fails to comply with the Permitted Use set forth
herein and the continuance of such failure for a period of five (5) days after
Landlord has delivered to Tenant written notice thereof;
(d) Tenant fails to provide any estoppel certificate within
the time period required under Section 25.(e) and such failure shall continue
for five days after written notice thereof from Landlord to Tenant;
(e) Tenant's failure to perform, comply with, or observe any
other agreement or obligation of Tenant under this Lease and the continuance of
such failure for a period of more than 30 days after Landlord has delivered to
Tenant written notice thereof; provided that if the default is of such a nature
that it may not be reasonably cured within 30 days, then no Event of Default
shall occur hereunder if Tenant commences curing within such 30 day period and
thereafter diligently and continuously pursues such cure to completion within a
period of not more than 60 days after the delivery of such notice; and
(f) The filing of a petition by or against Tenant (the term
"TENANT" shall include, for the purpose of this Section 17.(f), any guarantor of
Tenant's obligations hereunder) (1) in any bankruptcy or other insolvency
proceeding; (2) seeking any relief under any state or federal debtor relief law;
(3) for the appointment of a liquidator or receiver for all or substantially all
of Tenant's
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property or for Tenant's interest in this Lease; or (4) for the reorganization
or modification of Tenant's capital structure; however, if such a petition is
filed against Tenant, then such filing shall not be an Event of Default unless
Tenant fails to have the proceedings initiated by such petition dismissed within
90 days after the filing thereof.
17A. LANDLORD'S DEFAULT. Landlord shall in no event be in default in
the performance of any of Landlord's obligations hereunder unless and until
Landlord shall have failed to perform such obligations within 30 days after
notice by Tenant to Landlord, which notice shall specify the nature of such
failure of performance; provided, however, that Landlord shall not be in default
hereunder if any such failure of performance is of such a nature that Landlord
cannot reasonably remedy the same within such 30 day period, Landlord commences
within such 30 day period to cure such failure of performance and thereafter in
good faith and with diligence and continuity prosecutes such cure to completion,
subject to unavoidable delays.
18. REMEDIES. Upon an Event of Default, Landlord may, in addition to
all other rights and remedies afforded Landlord hereunder, take any of the
following actions:
(a) Terminate this Lease by giving Tenant written notice
thereof, in which event Tenant shall pay to Landlord the sum of (1) all Rent
accrued hereunder through the date of termination, (2) all amounts due under
Section 19.(a), and (3) an amount equal to (A) the total Rent that Tenant would
have been required to pay for the remainder of the Term plus Landlord's estimate
of aggregate expenses of reletting to the Premises, discounted to present value
at a per annum rate equal to the "Prime Rate" as published on the date this
Lease is terminated by The Wall Street Journal, Northeast Edition, in its
listing of "Money Rates" minus one percent, minus (B) the then present fair
rental rate value of the Premises for such period, similarly discounted;
(b) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in which
event Tenant shall pay to Landlord (1) all Rent and other amounts accrued
hereunder to the date of termination of possession, (2) all amounts due from
time to time under Section 19.(a), and (3) all Rent and other net sums required
hereunder to be paid by Tenant during the remainder of the Term as they would
become due under the terms of this Lease, diminished by any net sums thereafter
received by Landlord through reletting the Premises during such period, after
deducting all out-of-pocket costs incurred by Landlord in reletting the
Premises. Landlord shall use reasonable efforts to relet the Premises on such
terms as Landlord in its sole discretion may determine (including a term
different from the Term, rental concessions, and alterations to, and improvement
of, the Premises); however, Landlord shall not be obligated to relet the
Premises before leasing other portions of the Building. Landlord shall not be
liable for, nor shall Tenant's obligations hereunder be diminished because of,
Landlord's failure to relet the Premises or to collect rent due for such
reletting. Tenant shall not be entitled to the excess of any consideration
obtained by reletting over the Rent due hereunder. Reentry by Landlord in the
Premises shall not affect Tenant's obligations hereunder for the unexpired Term;
rather, Landlord may, from time to time, bring an action against Tenant to
collect amounts due by Tenant, without the necessity of Landlord's waiting until
the expiration of the Term. Unless Landlord delivers written notice to Tenant
expressly stating that it has elected to terminate this
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<PAGE>
Lease, all actions taken by Landlord to dispossess or exclude Tenant from the
Premises shall be deemed to be taken under this Section 18.(b). If Landlord
elects to proceed under this Section 18.(b), it may at any time elect to
terminate this Lease under Section 18.(a); or
(c) Additionally, without notice, Landlord may alter locks or
other security devices at the Premises to deprive Tenant of access thereto, and
Landlord shall not be required to provide a new key or right of access to
Tenant.
Any and all remedies set forth in this Lease: (i) shall be in addition
to any and all other remedies Landlord may have at law or in equity; (ii) shall
be cumulative; and (iii) may be pursued successively or concurrently as Landlord
may elect. The exercise of any remedy by Landlord shall not be deemed an
election of remedies or preclude Landlord from exercising any other remedies in
the future. Notwithstanding the foregoing, Landlord shall only recover its
damages allowed hereunder once.
19. PAYMENT BY TENANT; NON-WAIVER
(a) PAYMENT BY TENANT. Upon any Event of Default, Tenant shall
pay to Landlord all costs incurred by Landlord (including court costs and
reasonable attorneys' fees and expenses) in (1) obtaining possession of the
Premises, (2) removing and storing Tenant's or any other occupant's property,
(3) repairing, restoring, altering, remodeling, or otherwise putting the
Premises into condition acceptable to a new tenant, (4) if Tenant is
dispossessed of the Premises and this Lease is not terminated, reletting all or
any part of the Premises (including brokerage commissions, cost of tenant finish
work, and other costs incidental to such reletting), (5) performing Tenant's
obligations which Tenant failed to perform, and (6) enforcing, or advising
Landlord of, its rights, remedies, and recourses arising out of the Event of
Default. To the full extent permitted by law, Landlord and Tenant agree the
federal and state courts of the state in which the Premises are located shall
have exclusive jurisdiction over any matter relating to or arising from this
Lease and the parties' rights and obligations under this Lease.
(b) NO WAIVER. Landlord's acceptance of Rent following an
Event of Default shall not waive Landlord's rights regarding such Event of
Default. No waiver by Landlord or Tenant of any violation or breach of any of
the terms contained herein shall waive Landlord's or Tenant's rights regarding
any future violation of such term. Landlord's acceptance of any partial payment
of Rent shall not waive Landlord's rights with regard to the remaining portion
of the Rent that is due, regardless of any endorsement or other statement on any
instrument delivered in payment of Rent or any writing delivered in connection
therewith; accordingly, Landlord's acceptance of a partial payment of Rent shall
not constitute an accord and satisfaction of the full amount of the Rent that is
due.
20. LANDLORD'S LIEN. Intentionally omitted, provided that the deletion
of this Section shall not be construed to be a waiver of Landlord's lien rights
provided by law, if any.
20
<PAGE>
21. SURRENDER OF PREMISES. No act by Landlord shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless it is in writing and signed by
Landlord, except upon expiration of this Lease or earlier termination by Tenant
pursuant to the provisions of this Lease. At the expiration or termination of
this Lease, Tenant shall deliver to Landlord the Premises with all improvements
located therein in good repair and condition, free of Hazardous Materials placed
on the Premises during the Term, broom-clean, reasonable wear and tear (and
condemnation and Casualty damage not caused by Tenant, as to which Sections 14
and 15 shall control) excepted, and shall deliver to Landlord all keys to the
Premises. Provided that Tenant has performed all of its obligations hereunder,
Tenant shall remove all trade fixtures which have not become part of the
Premises, equipment, furniture, and personal property placed in the Premises by
Tenant, and all such alterations, additions, improvements and wiring which, when
approved by Landlord, were required to be removed from the Premises at the
earlier expiration or termination of the Term of this Lease, and may remove all
such fixtures, alterations, additions, improvements and wiring which, when
approved by Landlord, were permitted to be removed by Tenant from the Premises
at the earlier expiration or termination of the Term of this Lease.
Additionally, at Landlord's option, Tenant shall remove such alterations,
additions, improvements, trade fixtures, personal property, equipment, wiring,
cabling, and furniture as Landlord may request; however, Tenant shall not be
required to remove any addition or improvement to the Premises if Landlord has
specifically agreed in writing that the improvement or addition in question need
not be removed. Tenant shall repair all damage caused by such removal. All items
not so removed shall, at Landlord's option, be deemed to have been abandoned by
Tenant and may be appropriated, sold, stored, destroyed, or otherwise disposed
of by Landlord without notice to Tenant and without any obligation to account
for such items; any such disposition shall not be considered a strict
foreclosure or other exercise of Landlord's rights in respect of the security
interest granted under Section 20. The provisions of this Section 21 shall
survive the end of the Term.
22. HOLDING OVER. If Tenant fails to vacate the Premises at the end of
the Term, then Tenant shall be a tenant at will and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay, in addition to the other Rent, a daily Basic Rent equal to the
greater of (a) 150% of the daily Basic Rent payable during the last month of the
Term, or (b) 125% of the prevailing rental rate in the Building for similar
space. The provisions of this Section 22 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law. If Tenant fails to surrender the Premises upon the termination or
expiration of this Lease, in addition to any other liabilities to Landlord
accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys' fees) and
liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any lost profits to Landlord resulting
therefrom.
23. CERTAIN RIGHTS RESERVED BY LANDLORD. Provided that the exercise of
such rights does not unreasonably interfere with Tenant's occupancy of the
Premises, Landlord shall have the following rights:
21
<PAGE>
(a) To decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise, in and
about the Building, or any part thereof; to enter upon the Premises (at
reasonable times and after giving Tenant reasonable notice thereof, which may be
oral notice, except in cases of real or apparent emergency, in which case no
notice shall be required) and, during the continuance of any such work, to
temporarily close doors, entryways, public space, and corridors in the Building;
to interrupt or temporarily suspend Building services and facilities; to change
the name of the Building; and to change the arrangement and location of
entrances or passageways, doors, and doorways, corridors, elevators, stairs,
restrooms, or other public parts of the Building;
(b) To take such reasonable measures as Landlord deems
advisable for the security of the Building and its occupants; evacuating the
Building for cause, suspected cause, or for drill purposes; temporarily denying
access to the Building; and closing the Building after normal business hours and
on Sundays and holidays, subject, however, to Tenant's right to enter when the
Building is closed after normal business hours under such reasonable regulations
as Landlord may prescribe from time to time; and
(c) To enter the Premises at reasonable hours and upon
reasonable prior notice (which may be oral notice) to show the Premises to
prospective purchasers, lenders, or, during the last 12 months of the Term,
tenants.
24. INTENTIONALLY OMITTED.
25. MISCELLANEOUS.
(a) LANDLORD TRANSFER. Landlord may transfer any portion of
the Building and any of its rights under this Lease. If Landlord assigns its
rights under this Lease, then Landlord shall thereby be released from any
further obligations hereunder arising after the date of transfer, provided that
the assignee assumes Landlord's obligations hereunder in writing.
(b) LANDLORD'S LIABILITY. The liability of Landlord to Tenant
for any default by Landlord under the terms of this Lease shall be limited to
Tenant's actual direct, but not consequential, damages therefor and shall be
recoverable only from the interest of Landlord in the Building, and Landlord
shall not be personally liable for any deficiency. This Section shall not limit
any remedies which Tenant may have for Landlord's defaults which do not involve
the personal liability of Landlord.
(c) FORCE MAJEURE. Other than for Tenant's obligations under
this Lease that can be performed by the payment of money (e.g., payment of Rent
and maintenance of insurance) and Landlord's delay in the delivery of possession
of the Premises to Tenant, whenever a period of time is herein prescribed for
action to be taken by either party hereto, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws,
22
<PAGE>
regulations, or restrictions, or any other causes of any kind whatsoever which
are beyond the control of such party.
(d) BROKERAGE. Neither Landlord nor Tenant has dealt with any
broker or agent in connection with the negotiation or execution of this Lease,
other than Fallon Hines & O'Connor and The McPherson Corporation, whose
commission shall be paid by Landlord. Tenant and Landlord shall each indemnify
the other against all costs, expenses, attorneys' fees, and other liability for
commissions or other compensation claimed by any broker or agent claiming the
same by, through, or under the indemnifying party.
(e) ESTOPPEL CERTIFICATES. From time to time, Tenant shall
furnish to any party designated by Landlord, within ten days after Landlord has
made a request therefor, a certificate signed by Tenant confirming and
containing such factual certifications and representations as to this Lease as
Landlord may reasonably request. Unless otherwise required by Landlord's
Mortgagee or a prospective purchaser or mortgagee of the Building, the initial
form of estoppel certificate to be signed by Tenant (in substantially the same
form) is attached hereto as EXHIBIT F. Landlord shall furnish to Tenant, within
a reasonable time after Tenant has made a request therefor, a certificate signed
by Landlord confirming and containing such factual certifications and
representations as to this Lease as Tenant may reasonably request.
(f) NOTICES. All notices and other communications given
pursuant to this Lease shall be in writing and shall be (1) mailed by first
class, United States Mail, postage prepaid, certified, with return receipt
requested, and addressed to the parties hereto at the address specified in the
Basic Lease Information, (2) hand delivered to the intended address, (3) sent by
a nationally recognized overnight courier service, or (4) sent by facsimile
transmission during normal business hours followed by a confirmatory letter sent
in another manner permitted hereunder. All notices shall be effective upon
delivery to the address of the addressee. The parties hereto may change their
addresses by giving notice thereof to the other in conformity with this
provision.
(g) SEPARABILITY. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws, then the
remainder of this Lease shall not be affected thereby and in lieu of such clause
or provision, there shall be added as a part of this Lease a clause or provision
as similar in terms to such illegal, invalid, or unenforceable clause or
provision as may be possible and be legal, valid, and enforceable.
(h) AMENDMENTS; AND BINDING EFFECT. This Lease may not be
amended except by instrument in writing signed by Landlord and Tenant. No
provision of this Lease shall be deemed to have been waived by Landlord or
Tenant unless such waiver is in writing signed by Landlord or Tenant, as
applicable, and no custom or practice which may evolve between the parties in
the administration of the terms hereof shall waive or diminish the right of
Landlord or Tenant to insist upon the performance by Tenant in strict accordance
with the terms hereof. The terms and conditions contained in this Lease shall
inure to the benefit of and be binding upon the parties hereto, and upon their
respective successors in interest and legal representatives, except as otherwise
23
<PAGE>
herein expressly provided. This Lease is for the sole benefit of Landlord and
Tenant, and, other than Landlord's Mortgagee, no third party shall be deemed a
third party beneficiary hereof.
(i) QUIET ENJOYMENT. Provided Tenant has performed all of its
obligations hereunder, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term, without hindrance from Landlord or any party claiming by,
through, or under Landlord, but not otherwise, subject to the terms and
conditions of this Lease.
(j) NO MERGER. There shall be no merger of the leasehold
estate hereby created with the fee estate in the Premises or any part thereof if
the same person acquires or holds, directly or indirectly, this Lease or any
interest in this Lease and the fee estate in the leasehold Premises or any
interest in such fee estate.
(k) NO OFFER. The submission of this Lease to Tenant shall not
be construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
(l) ENTIRE AGREEMENT. This Lease constitutes the entire
agreement between Landlord and Tenant regarding the subject matter hereof and
supersedes all oral statements and prior writings relating thereto. Except for
those set forth in this Lease, no representations, warranties, or agreements
have been made by Landlord or Tenant to the other with respect to this Lease or
the obligations of Landlord or Tenant in connection therewith. The normal rule
of construction that any ambiguities be resolved against the drafting party
shall not apply to the interpretation of this Lease or any exhibits or
amendments hereto.
(m) WAIVER OF JURY TRIAL. To the maximum extent permitted by
law, Landlord and Tenant each waive right to trial by jury in any litigation
arising out of or with respect to this Lease.
(n) GOVERNING LAW. This Lease shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located.
(o) JOINT AND SEVERAL LIABILITY. If Tenant is comprised of
more than one party, each such party shall be jointly and severally liable for
Tenant's obligations under this Lease.
(p) FINANCIAL REPORTS. Within 15 days after Landlord's written
request therefor, which request shall not occur more than once in each calendar
year and shall be in anticipation of selling, financing or refinancing (unless
an Event of Default exists hereunder, in which case Landlord may make periodic
requests), Tenant will furnish Tenant's most recent audited financial statements
(including any notes to them) to Landlord, or, if no such audited statements
have been prepared, such other financial statements (and notes to them) as may
have been prepared by an independent certified public accountant or, failing
those, Tenant's internally prepared financial statements. If Tenant is a
publicly traded corporation, Tenant may satisfy its obligations hereunder by
providing to Landlord Tenant's most recent annual and quarterly reports. Tenant
will discuss
24
<PAGE>
its financial statements with Landlord. Landlord will not disclose any aspect of
Tenant's financial statements that Tenant designates to Landlord as confidential
except (1) to Landlord's Mortgagee or prospective purchasers of the Building,
(2) in litigation between Landlord and Tenant, and (3) if required by court
order. Tenant shall not be required to deliver the financial statements required
under this Section 25.(p) more than once in any 12-month period unless requested
by Landlord's Mortgagee or a prospective buyer or lender of the Building or an
Event of Default occurs.
(q) LANDLORD'S FEES. Whenever Tenant requests Landlord to take
any action not required of it hereunder or give any consent required or
permitted under this Lease, Tenant will reimburse Landlord for Landlord's
reasonable out-of-pocket costs payable to third parties and incurred by Landlord
in reviewing the proposed action or consent, including without limitation
reasonable attorneys', engineers' or architects' fees, within ten days after
Landlord's delivery to Tenant of a statement of such costs. Tenant will be
obligated to make such reimbursement without regard to whether Landlord consents
to any such proposed action.
(r) TELECOMMUNICATIONS. Tenant and its telecommunications
companies, including but not limited to local exchange telecommunications
companies and alternative access vendor services companies shall have no right
of access to and within the Building, for the installation and operation of
telecommunications systems including but not limited to voice, video, data, and
any other telecommunications services provided over wire, fiber optic,
microwave, wireless, and any other transmission systems, for part or all of
Tenant's telecommunications within the Building and from the Building to any
other location without Landlord's prior written consent (which consent shall not
be unreasonably withheld or delayed). Notwithstanding any provisions of this
Section 25(r) to the contrary, and provided Tenant obtains Landlord's prior
written consent as aforesaid, Tenant may make or perform certain installation
affecting Tenant's telecommunications systems provided that: (i) any such
installations only affect the Premises; (ii) no such installations affect any of
the Building mechanical, electrical or plumbing systems; (iii) Tenant shall
promptly repair and restore any damage caused by any such installation; and (iv)
upon Landlord's request, at the earlier termination or expiration of this Lease,
Tenant shall restore the Premises to the condition that existed on the date of
this Lease if, at the time of its approval of the same, Landlord requires that
any and/or all such installations be removed at the earlier termination or
expiration of this Lease.
(s) CONFIDENTIALITY. Tenant acknowledges that the terms and
conditions of this Lease are to remain confidential for Landlord's benefit, and
may not be disclosed by Tenant to anyone, by any manner or means, directly or
indirectly, without Landlord's prior written consent, other than a Tenant Party
and Tenant's lenders, accountants, attorneys, brokers, investors, underwriters
and other advisors on a need to know basis only provided such advisors agree to
keep the terms and conditions of this Lease confidential or to the extent
required to be disclosed by Tenant (or its officers, employees, agents and/or
consultants) in connection with any litigation proceeding and/or in order to
comply with any federal, state or municipal laws, regulations, rules, ordinances
and/or with a judicial or administrative directive and/or any rules or
regulations of any stock exchange. The consent by Landlord to any disclosures
shall not be deemed to be a waiver on the part of Landlord of any prohibition
against any future disclosure.
25
<PAGE>
(t) HAZARDOUS MATERIALS. The term "HAZARDOUS MATERIALS" means
any substance, material, or waste which is now or hereafter classified or
considered to be hazardous, toxic, or dangerous under any Law relating to
pollution or the protection or regulation of human health, natural resources or
the environment, or poses or threatens to pose a hazard to the health or safety
of persons on the Premises or in the Building. Tenant shall not use, generate,
store, or dispose of, or permit the use, generation, storage or disposal of
Hazardous Materials on or about the Premises or the Building except in a manner
and quantity necessary for the ordinary performance of Tenant's business, and
then in compliance with all Laws. If Tenant breaches its obligations under this
Section 25.(t), Landlord may immediately take any and all action reasonably
appropriate to remedy the same, including taking all appropriate action to clean
up or remediate any contamination resulting from Tenant's use, generation,
storage or disposal of Hazardous Materials. Tenant shall defend, indemnify, and
hold harmless Landlord and its representatives and agents from and against any
and all claims, demands, liabilities, causes of action, suits, judgments,
damages and expenses (including reasonable attorneys' fees and cost of clean up
and remediation) arising from Tenant's failure to comply with the provisions of
this Section 25.(t). This indemnity provision shall survive termination or
expiration of the Lease.
(u) LIST OF EXHIBITS. All exhibits and attachments attached
hereto are incorporated herein by this reference.
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Outline of Premises
Exhibit B - Legal Description of Building
Exhibit C - Building Rules and Regulations
Exhibit D - Tenant Finish-Work: Allowance
Exhibit E - Amendment No. 1
Exhibit F - Form of Tenant Estoppel Certificate
Exhibit G - Parking
Exhibit H - Renewal Option
Exhibit I - Sample Letter of Credit
Exhibit J - Right of First Offer
Exhibit K - Janitorial Specifications
Exhibit L - Subordination, Non-Disturbance and Attornment
Agreement
</TABLE>
(v) TIME OF ESSENCE. Time is of the essence of this Lease and
each and all of its provisions.
(w) NOTICE OF LEASE. Tenant agrees not to record this Lease
and, subject to the provisions of Section 25(s) above, to keep the terms of this
Lease confidential, but each party hereto agrees, at the request of the others
to execute a so-called Notice of Lease in recordable form complying with
applicable law and reasonably satisfactory to Landlord's attorneys. In no event
shall such document set forth the Rent or other charges payable by Tenant
hereunder.
26
<PAGE>
(x) FAILURE OF TENANT TO CONTINUOUSLY OCCUPY THE PREMISES. If,
for more than sixty (60) consecutive days or more than sixty (60) days in a one
hundred fifty (150) day period, Tenant (1) vacates the Premises or any
substantial portion thereof or (2) fails to continuously operate its business in
the Premises, Landlord may terminate this Lease upon giving written notice to
Tenant as of the date specified in such notice. If Landlord terminates this
Lease, then this Lease shall terminate and neither party shall have any further
obligations hereunder as of the termination date except as otherwise provided
herein and Tenant shall pay to Landlord all Rent accrued through the termination
date. Thereafter, Landlord may lease the Premises (or any portion thereof) to
any person without liability to Tenant.
26. OTHER PROVISIONS. LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY
IMPLIED WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL
PURPOSE, AND, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, (i) TENANT'S
OBLIGATION TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE
PREMISES OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND (ii)
TENANT SHALL CONTINUE TO PAY THE RENT, WITHOUT ABATEMENT, SETOFF OR DEDUCTION,
NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS DUTIES OR OBLIGATIONS HEREUNDER,
WHETHER EXPRESS OR IMPLIED.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, and in consideration of the mutual entry into this
Lease and for other good and valuable consideration, and intending to be legally
bound, each party hereto has caused this Lease Agreement to be duly executed as
a Massachusetts instrument under seal as of the day and year first above
written.
TENANT:
ART TECHNOLOGY GROUP, INC.,
a Delaware corporation
By: /s/ Mahendrajeet Singh
---------------------------------------
Name: Mahendrajeet Singh
--------------------------------
Title: President/CEO
-------------------------------
LANDLORD:
DVPT LIMITED
PARTNERSHIP, a Delaware limited partnership
By: New DVPT Corp., a Delaware corporation, its
general partner
By: /s/ Brian Ainsworth
----------------------------------------
Name: Brian Ainsworth
--------------------------------------
Title: Vice President
------------------------------------
28
<PAGE>
EXHIBIT A
OUTLINE OF PREMISES
A-1
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION OF BUILDING
Beginning at a point, said point being the intersection of the westerly
sideline of First Street and the northerly sideline of Thorndike Street in the
City of Cambridge, County of Middlesex, Commonwealth of Massachusetts, bounded
and described as follows:
<TABLE>
<CAPTION>
<S> <C>
N 80(degree)- 28' - 11" W Along the northerly sideline of Thorndike Street a distance of Four Hundred
and Thirty Eight Hundredths feet (400.38') to a point, said point being the
intersection of the northerly sideline of Thorndike Street and the easterly
sideline of Second Street, thence turning and running;
N 09(degree)- 31' - 49" E Along the easterly sideline of Second Street a distance of Sixty and no
Hundredths feet (60.00'), to a point, thence turning and running;
S 80(degree)- 28' - 11" E A distance of One Hundred and No Hundredths feet (100.00') to a point,
thence turning and running;
N 09(degree)- 36' - 54" E A distance of One Hundred Forty and Seventy-Two Hundredths feet (140.72')
to a point, said being along the southerly sideline of Otis Street, thence
turning and running;
S 80(degree)- 21' - 10" E Along said southerly sideline of Otis Street a distance of Three Hundred and
No Hundredths feet (300.00') to a point, said point being the intersection of
said southerly sideline of Otis Street and the westerly sideline of First Street,
thence turning and running;
S 09(degree)- 28' - 49" W Along said westerly sideline of First Street a distance of Two Hundred and
Eleven Hundredths feet (200.11') to a point of beginning.
</TABLE>
Appurtenant to this parcel are leasehold parking rights as set forth in
a lease dated November 18, 1985 by and between Charlesport Limited Partnership
and the City of Cambridge a Notice of which was recorded in Deeds at Book 18968,
Page 68 for 250 parking spaces in Cambridge and leasehold parking rights as set
forth in a Lease dated March 10, 1985 made by and between the City of Cambridge
and Charlesport Limited Partnership, a Notice of which was recorded in Deeds at
Book 16059, Page 516.
B-1
<PAGE>
EXHIBIT C
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith, and the appurtenances
thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
oth`er than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the
purposes for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or deposited therein. Damage resulting to any such
fixtures or appliances from misuse by a tenant or its agents, employees or
invitees, shall be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on
or to any windows or doors or other part of the Building without the prior
written consent of Landlord. No nails, hooks or screws shall be driven or
inserted in any part of the Building except by Building maintenance personnel.
No curtains or other window treatments shall be placed between the glass and the
Building standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for
all tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent.
Landlord shall furnish to each tenant a reasonable number of keys to such
tenant's leased premises, at such tenant's cost, and no tenant shall make a
duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by tenants of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be conducted under Landlord's supervision at
such times and in such a manner as Landlord may reasonably require. Each tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the
locations for safes and other heavy equipment or items, which shall in all cases
be placed in the Building so as to distribute weight in a manner acceptable to
Landlord which may include the use of such supporting devices as Landlord may
require. All damages to the Building caused by the installation or removal of
any property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
C-1
<PAGE>
8. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its
leased premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel.
10. To ensure orderly operation of the Building, no ice, mineral or
other water, towels, newspapers, etc. shall be delivered to any leased area
except by persons approved by Landlord.
11. Tenant shall not make or permit any vibration or improper,
objectionable or unpleasant noises or odors in the Building or otherwise
interfere in any way with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall
be operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
13. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from tenant's leased premises or public or common
areas regardless of whether such loss occurs when the area is locked against
entry or not.
14. No vending or dispensing machines of any kind may be maintained in
any leased premises without the prior written permission of Landlord.
15. Tenant shall not conduct any activity on or about the Premises or
Building which will draw pickets, demonstrators, or the like.
16. All vehicles are to be currently licensed, in good operating
condition, parked for business purposes having to do with Tenant's business
operated in the Premises, parked within designated parking spaces, one vehicle
to each space. No vehicle shall be parked as a "billboard" vehicle in the
parking lot. Any vehicle parked improperly may be towed away. Tenant, Tenant's
agents, employees, vendors and customers who do not operate or park their
vehicles as required shall subject the vehicle to being towed at the expense of
the owner or driver. Landlord may place a "boot" on the vehicle to immobilize it
and may levy a charge of $50.00 to remove the "boot." Tenant shall indemnify,
hold and save harmless Landlord of any liability arising from the towing or
booting of any vehicles belonging to a Tenant Party.
17. No tenant may enter into phone rooms, electrical rooms, mechanical
rooms, or other service areas of the Building unless accompanied by Landlord or
the Building manager.
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<PAGE>
EXHIBIT D
TENANT FINISH-WORK: ALLOWANCE
1. Except as set forth in this Exhibit, Tenant accepts the Premises in
their "AS-IS" condition on the date that this Lease is entered into.
2. Tenant shall provide to Landlord for its approval final working
drawings, prepared by an architect that has been approved by Landlord (which
approval shall not unreasonably be withheld, delayed or conditioned), of all
improvements that Tenant proposes to install in the Premises; such working
drawings shall include the partition layout, ceiling plan, electrical outlets
and switches, telephone outlets, drawings for any modifications to the
mechanical and plumbing systems of the Building, and detailed plans and
specifications for the construction of the improvements called for under this
Exhibit in accordance with all applicable governmental laws, codes, rules, and
regulations. If any of Tenant's proposed construction work will affect the
Building's HVAC, electrical, mechanical, or plumbing systems, then the working
drawings pertaining thereto must be approved by the Building's engineer of
record (which approval shall not be unreasonably withheld, delayed or
conditioned). Landlord's approval or disapproval, as the case may be, of the
final working drawings (inclusive of any approval required by the Building's
engineer of record) shall be completed within ten (10) business days of
Landlord's receipt of such working drawings. If Landlord disapproves the final
working drawings, Landlord shall specify the reasons for such disapproval in
writing to Tenant. Landlord's approval of such working drawings shall not be
unreasonably withheld, delayed or conditioned, provided that (a) they comply
with all applicable laws, rules, and regulations, (b) such working drawings are
sufficiently detailed to allow construction of the improvements in a good and
workmanlike manner, (c) the improvements depicted thereon conform to the rules
and regulations promulgated from time to time by Landlord for the construction
of tenant improvements (a copy of which has been delivered to Tenant), and (d)
the improvements do not affect the Building's structure or any of its HVAC,
electrical, mechanical or plumbing systems. As used herein, "WORKING DRAWINGS"
shall mean the final working drawings approved by Landlord, as amended from time
to time by any approved changes thereto, and "WORK" shall mean all improvements
to be constructed in accordance with and as indicated on the Working Drawings.
Landlord's approval of the Working Drawings shall not be a representation or
warranty of Landlord that such drawings are adequate for any use or comply with
any law, but shall merely be the consent of Landlord thereto. Landlord shall, at
Tenant's request, sign the Working Drawings to evidence its review and approval
thereof. All changes in the Work must receive the prior written approval of
Landlord (which approval shall not be withheld, delayed or conditioned), and in
the event of any such approved change Tenant shall, upon completion of the Work,
furnish Landlord with an accurate, reproducible "as-built" plan of the
improvements as constructed.
3. The Commencement Date shall be extended by one day for each day of
LANDLORD DELAY (as hereinafter defined). "LANDLORD DELAY" is hereby defined as
limited to (i) any actual delay in the construction of the Work that is caused
by Landlord's removal of the staircase located
D-1
<PAGE>
in the Premises connecting the second floor to the third floor and/or Landlord's
restoration of the second and third floors resulting therefrom to the condition
that otherwise exists in building #1 and/or (ii) any actual delay in the
Commencement Date that is caused by Landlord's failure to approve or disapprove
of the final working drawings within the time period set forth above.
Landlord Delay, if any, shall be calculated on a net basis taking into
account time savings, if any, caused by Landlord so that any time saved from
such actions shall be offset against delays caused by Landlord's actions, and
Landlord Delay shall include only delays, if any, directly attributable to
Landlord (or Landlord's architect, Building Engineer or agents) and shall
exclude delays attributable to Tenant's architect, Tenant's contractor or
subcontractors or suppliers and shall exclude delays attributable to Force
Majeure Delays.
Tenant must identify any claimed Landlord Delay by written notice and
delivered to Landlord within five (5) business days following the commencement
of any claimed Landlord Delay ("LANDLORD DELAY NOTICE"). The Landlord Delay
Notice shall specify the cause of the Landlord Delay as well as the estimated
number of days the Commencement Date will be delayed by such Landlord Delay.
Tenant may not claim any Landlord Delay which has not been timely documented by
a Landlord Delay Notice, which does not actually cause a delay in the
Commencement Date beyond ninety (90) days following the date Landlord delivers
possession of the Premises to Tenant, or that is offset by a time saving caused
by Landlord. Landlord shall have the right to contest any claimed Landlord Delay
by written notice to Tenant given within five (5) business days following
receipt of the Landlord Delay Notice.
4. The Work shall be performed only by contractors and subcontractors
approved in writing by Landlord, which approval shall not be unreasonably
withheld or delayed. All contractors and subcontractors shall be required to
procure and maintain insurance against such risks, in such amounts, and with
such companies as Landlord may reasonably require. Certificates of such
insurance, with paid receipts therefor, must be received by Landlord before the
Work is commenced. Promptly upon Landlord's approval of the Working Drawings and
delivery of the Premises to Tenant, Tenant shall commence the construction of
the Work and diligently and continuously pursue the completion of the same. The
Work shall be performed in a good and workmanlike manner free of defects, shall
conform strictly with the Working Drawings, and shall be performed in such a
manner and at such times as not to interfere with or delay Landlord's other
contractors, the operation of the Building, and the occupancy thereof by other
tenants. All contractors and subcontractors shall contact Landlord and schedule
time periods during which they may use Building facilities in connection with
the Work (E.G., elevators, excess electricity, etc.), provided that such
Building facilities shall be available at a minimum as set forth in Sections
7(a)(1) - (5) of this Lease.
5. The entire cost of performing the Work (including, without
limitation, design of the Work and preparation of the Working Drawings, costs of
construction, labor and materials, electrical usage during construction,
additional janitorial services, general tenant signage, related taxes and
insurance costs, all of which costs are herein collectively called the "TOTAL
CONSTRUCTION COSTS") in excess of the Construction Allowance (as hereinafter
defined) shall be paid by Tenant.
D-2
<PAGE>
6. Landlord shall provide to Tenant a construction allowance (the
"CONSTRUCTION ALLOWANCE") equal to $18.00 per rentable square foot in the
Premises. If the Total Construction Costs are less than the Construction
Allowance, the balance of the Construction Allowance shall be applied to the
Rent due hereunder by Tenant.
Subject to the terms and conditions of this Lease, Landlord shall pay
the Construction Allowance to Tenant for the purpose of financing a portion of
the Work. As conditions to Tenant's right to receive the Construction Allowance:
(i) Tenant shall not be in default under the Lease; (ii) the Lease shall be in
full force and effect; (iii) the Work, or a portion of the Work, shall be, in
Landlord's reasonable discretion, substantially complete; (iv) Tenant shall
furnish to Landlord: (A) if the entire Work is substantially complete, a
Certificate of Occupancy respecting the Premises; and (B) such evidence as
Landlord may reasonably require to evidence that all persons furnishing or
supplying labor and materials in connection with the construction of the Work,
or in the case of completion of a portion of the Work, have been paid and that
no lien exists of record with respect thereto; and (v) Tenant shall not request
any portion of the Construction Allowance more than once a month. Landlord shall
fund the Construction Allowance within twenty (20) business days from Tenant's
written request for the same provided that Tenant has complied with the
requirements set forth in the preceding sentence. Upon paying the full amount of
the Construction Allowance to Tenant in accordance with the provisions hereof,
Landlord shall have no further obligation to extend any credit to Tenant.
7. In consideration for Landlord's management and supervision of
services performed in connection with the Work, Tenant shall pay to Landlord,
within ten (10) business days after demand therefor, the actual costs incurred
by Landlord to review the working drawings and/or any drafts and/or
modifications thereto and to review the construction of the Work; provided,
however, such costs shall not exceed five percent (5%) of the cost of the Work
(excluding the construction management fee).
D-3
<PAGE>
EXHIBIT E
AMENDMENT NO. 1
This Amendment No. 1 (this "AMENDMENT") is executed as of
__________, 199_ between DVPT Limited Partnership, a Delaware limited
partnership ("LANDLORD"), and Art Technology Group, Inc., a Delaware
corporation ("TENANT"), for the purpose of amending the Lease Agreement
between Landlord and Tenant dated __________, 1999 (the "LEASE"). Capitalized
terms used herein but not defined shall be given the meanings assigned to
them in the Lease.
AGREEMENTS
For valuable consideration, whose receipt and sufficiency are
acknowledged, Landlord and Tenant agree as follows:
1. CONDITION OF PREMISES. Tenant has accepted possession of the
Premises pursuant to the Lease. Any improvements required by the terms of the
Lease to be made by Landlord have been completed to the full and complete
satisfaction of Tenant in all respects, and Landlord has fulfilled all of its
duties under the Lease with respect to such initial tenant improvements.
Furthermore, Tenant acknowledges that the Premises are suitable for the
Permitted Use.
2. COMMENCEMENT DATE. The Commencement Date of the Lease is
_____________, 199_. If the Commencement Date set forth in the Lease is
different than the date set forth in the preceding sentence, then the
Commencement Date as contained in the Lease is amended to be the Commencement
Date set forth in the preceding sentence.
3. EXPIRATION DATE. The Term is scheduled to expire on _________,
2006, as such Term may be extended pursuant to the provisions of the Lease.
If the scheduled expiration date of the initial Term as set forth in the
Lease is different than the date set forth in the preceding sentence, then
the scheduled expiration date as set forth in the Lease is hereby amended to
the expiration date set forth in the preceding sentence.
4. CONTACT NUMBERS. Tenant's telephone number in the Premises
is _______________ . Tenant's telecopy number in the Premises is ____________.
5. RATIFICATION. Tenant hereby ratifies and confirms its obligations
under the Lease, and represents and warrants to Landlord that it has no defenses
thereto. Additionally, Tenant further confirms and ratifies that, as of the date
hereof, the Lease is and remains in good standing and in full force and effect,
and Tenant has no claims, counterclaims, set-offs or defenses against Landlord
arising out of the Lease or in any way relating thereto or arising out of any
other transaction between Landlord and Tenant.
E-1
<PAGE>
6. BINDING EFFECT; GOVERNING LAW. Except as modified hereby, the Lease
shall remain in full effect and this Amendment shall be binding upon Landlord
and Tenant and their respective successors and assigns. If any inconsistency
exists or arises between the terms of this Amendment and the terms of the Lease,
the terms of this Amendment shall prevail. This Amendment shall be governed by
the laws of the State in which the Premises is located.
7. COUNTERPARTS. This Amendment may be executed in multiple
counterparts, each of which shall constitute an original, but all of which shall
constitute one document.
Executed as of the date first written above.
TENANT:
ART TECHNOLOGY GROUP, INC.,
a Delaware corporation
By:
----------------------------------------
Name:
---------------------------------
Title:
---------------------------------
LANDLORD:
DVPT LIMITED PARTNERSHIP, a Delaware
limited partnership
By: New DVPT Corp., a Delaware
corporation, its general partner
By:
-----------------------------
Name:
-----------------------
Title:
----------------------
E-2
<PAGE>
EXHIBIT F
FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned is the Tenant under the Lease (defined below) between
, a , as Landlord, and the undersigned as
Tenant, for the Premises on the floor(s) of the office building located
at , and commonly known as , and hereby certifies as
follows:
1. The Lease consists of the original Lease Agreement dated as
of ___________ , 199__ between Tenant and Landlord ['S PREDECESSOR-IN-INTEREST]
and the following amendments or modifications thereto (if none, please
state "none"):
The documents listed above are herein collectively referred to as the "LEASE"
and represent the entire agreement between the parties with respect to the
Premises. All capitalized terms used herein but not defined shall be given the
meaning assigned to them in the Lease.
2. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Section 1 above.
3. The Term commenced on _________ , 199__ and the Term expires,
excluding any renewal options, on __________ , 200__, and Tenant has no option
to purchase all or any part of the Premises or the Building or, except as
expressly set forth in the Lease, any option to terminate or cancel the Lease.
4. Tenant currently occupies the Premises described in the Lease and
Tenant has not transferred, assigned, or sublet any portion of the Premises nor
entered into any license or concession agreements with respect thereto except as
follows (if none, please state "none"):
F-1
<PAGE>
5. All monthly installments of Basic Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through ____________ . The current monthly installment of Basic Rent is $______.
6. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder. In addition, Tenant has not delivered any notice to Landlord
regarding a default by Landlord thereunder.
7. As of the date hereof, there are no existing defenses or offsets,
or, to the undersigned's knowledge, claims or any basis for a claim, that the
undersigned has against Landlord and no event has occurred and no condition
exists, which, with the giving of notice or the passage of time, or both, will
constitute a default under the Lease.
8. No rental has been paid more than thirty (30) days in advance and no
security deposit has been delivered to Landlord except as provided in the Lease.
9. If Tenant is a corporation, partnership or other business entity,
each individual executing this Estoppel Certificate on behalf of Tenant hereby
represents and warrants that Tenant is a duly formed and existing entity
qualified to do business in the state in which the Premises is located and that
Tenant has full right and authority to execute and deliver this Estoppel
Certificate and that each person signing on behalf of Tenant is authorized to do
so.
10. There are no actions pending against Tenant under any bankruptcy or
similar laws of the United States or any state.
11. Other than in compliance with all applicable laws and incidental to
the ordinary course of the use of the Premises, the undersigned has not used or
stored any hazardous substances in the Premises.
12. All tenant improvement work to be performed by Landlord under the
Lease has been completed in accordance with the Lease and has been accepted by
the undersigned and all reimbursements and allowances due to the undersigned
under the Lease in connection with any tenant improvement work have been paid in
full.
13. Tenant acknowledges that this Estoppel Certificate may be delivered
to Landlord, Landlord's Mortgagee or to a prospective mortgagee or prospective
purchaser, and their respective successors and assigns, and acknowledges that
Landlord, Landlord's Mortgagee and/or such prospective mortgagee or prospective
purchaser will be relying upon the statements contained herein in disbursing
loan advances or making a new loan or acquiring the property of which the
Premises are a part and that receipt by it of this certificate is a condition of
disbursing loan advances or making such loan or acquiring such property.
F-2
<PAGE>
Executed as of , 199 .
TENANT: ,
-----------------------------------
a
------------------------------------------
By:
----------------------------------------
Name:
---------------------------------------
Title:
-------------------------------------
F-3
<PAGE>
EXHIBIT G
PARKING
Reference is made to that certain Lease Agreement for Parking Spaces in
the East Cambridge Parking Facility, dated November 18, 1985, as amended by a
certain First Amendment of Lease of undated date in January, 1988 and as further
amended by a certain Second Amendment of Lease dated August 19, 1993 and as
affected by that certain extension letter agreement dated May 15, 1995, between
the City of Cambridge, as lessor, and Landlord's predecessor-in-interest,
Charlesport Limited Partnership, as lessee (as so amended and affected, the
"Parking Lease"). Pursuant to the provisions of the Parking Lease, Landlord has
leased from the City of Cambridge certain parking spaces in the garage facility
known as the East Cambridge Parking Facility located at the corner of First
Street and Thorndike Street in Cambridge, Massachusetts (the "Parking Garage").
Landlord hereby subleases to Tenant and Tenant hereby subleases from Landlord
sixty (60) of such parking spaces (on an unassigned, non-reserved basis) during
the Term of this Lease at the current monthly rate provided for in the Parking
Lease, as adjusted from time to time. If Landlord and Tenant agree to expand the
Premises pursuant to the provisions of this Lease or otherwise, Landlord shall
agree to sublease to Tenant, and Tenant shall elect to sublease from Landlord at
the time of any such expansion, one (1) additional parking space for each
additional 1,000 rentable square feet leased by Tenant in accordance with the
provisions of this EXHIBIT G to the extent any additional parking spaces are
available for sublease. Landlord may, pursuant to Section 13 hereof, establish
rules and regulations regarding the parking spaces in the Parking Garage.
Tenant's sublease of the parking spaces is subject to the terms of the Parking
Lease, as amended form time to time. Tenant acknowledges and agrees to be bound
by every covenant, condition and restriction set forth in the Parking Lease.
Provided Tenant is not in default under this Lease, Landlord shall not terminate
the Parking Lease at least as such Parking Lease relates to the parking spaces
Landlord is subleasing to Tenant hereunder. In the event the Parking Lease is
for any reason terminated before the expiration of this Lease, Tenant's rights
under this Exhibit G shall also terminate as of the effective date of
termination of the Parking Lease, except with respect to the duties and
obligations of Landlord and Tenant, actual or contingent, which have accrued
prior to the date of such termination. If, for any reason, Landlord is unable to
provide all or any portion of the parking spaces to which it is entitled
hereunder, then Tenant's obligation to pay for such spaces shall be abated for
so long as Tenant does not have the use thereof; this abatement shall be in full
settlement of all claims that Tenant might otherwise have against Landlord
because of Landlord's failure or inability to provide Tenant with such parking
spaces.
G-1
<PAGE>
EXHIBIT H
RENEWAL OPTION
Provided no Event of Default exists and Tenant or a Permitted
Transferee is occupying the entire Premises at the time of such election, Tenant
may renew this Lease for one additional period of five (5) years, by delivering
written notice of the exercise thereof to Landlord not later than nine (9)
months before the expiration of the Term. The Basic Rent payable for each month
during such extended Term shall be the "FAIR MARKET RENTAL RATE" (determined as
set forth below), at the commencement of such extended Term, for renewals of
space of equivalent quality, size, utility and location, with the length of the
extended Term and the credit standing of Tenant to be taken into account. Within
thirty (30) days after receipt of Tenant's notice to renew but in any event not
earlier than fourteen (14) months prior to the commencement of the five-year
extension term, Landlord shall deliver to Tenant written notice of the Fair
Market Rental Rate and shall advise Tenant of the required adjustment to Basic
Rent, if any, and the other terms and conditions offered. Tenant shall, within
ten (10) days after receipt of Landlord's notice, notify Landlord in writing
whether Tenant accepts or rejects Landlord's determination of the Fair Market
Rental Rate. If Tenant timely notifies Landlord that Tenant accepts Landlord's
determination of the Fair Market Rental Rate (and failure of Tenant to notify
Landlord within the time period prescribed above shall be deemed acceptance),
then, on or before the commencement date of the extended Term, Landlord and
Tenant shall execute an amendment to this Lease extending the Term on the same
terms provided in this Lease, except as follows:
(a) Basic Rent shall be adjusted to the Fair Market Rental
Rate;
(b) Tenant shall have no further renewal option unless
expressly granted by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their
then-current condition, and Landlord shall not provide to Tenant any
allowances (e.g., moving allowance, construction allowance, and the
like) or other tenant inducements.
If Tenant rejects Landlord's determination of the Fair Market Rental Rate,
Tenant may, but only within ten (10) days after receipt of Landlord's notice,
require by written notice to Landlord that the determination of Fair Market
Rental Rates be made by brokers. In such event, within ten (10) days thereafter,
each party shall select a qualified commercial real estate broker with at least
ten (10) years experience in appraising property and buildings in the city or
submarket in which the Premises are located. The two brokers shall give their
opinion of Fair Market Rental Rates within ten (10) days after their retention.
In the event the opinions of the two brokers differ and, after good faith
efforts over the succeeding ten (10) day period, they cannot mutually agree, the
brokers shall immediately and jointly appoint a third broker with the
qualifications specified above. This third broker shall immediately (within five
(5) days) choose either the determination of Landlord's broker or Tenant's
broker and such choice of this third broker shall be final and binding on
H-1
<PAGE>
Landlord and Tenant. Each party shall pay its own costs for its real estate
broker. The parties shall equally share the costs of any third broker. The
parties shall immediately confirm the renewal term, Basic Rent and the other
terms and conditions so determined, in writing.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises to any
person other than a Permitted Transferee or to the sublessee(s) consented to by
Landlord in accordance with the provisions of this Lease provided said
sublessee(s) sublease(s), in the aggregate, occupy less than twenty percent
(20%) of the Premises for less than seventy-five percent (75%) of the
then-remaining Term, (3) Tenant fails to timely exercise its option under this
Exhibit, time being of the essence with respect to Tenant's exercise thereof, or
(4) Landlord determines, in its sole but reasonable discretion, that Tenant's
financial condition or creditworthiness has materially deteriorated since the
date of this Lease.
H-2
<PAGE>
EXHIBIT I
SAMPLE LETTER OF CREDIT
Beneficiary/Landlord: Issuance Date:
DVPT Limited Partnership ______________________, 1999
c/o Archon Group, L.P.
1275 K Street NW, Suite 900 Irrevocable Standby Letter
Washington, DC 20005 of Credit No. _______________
Applicant/Accountee/Tenant: Credit Amount:
Art Technology Group, Inc. USD $1,500,000.00.
Up to an Aggregate Thereof
- -----------------------------
Date and Place of Expiry:
- -----------------------------
- ----------------------------- ---------------,
At Our Counters in Boston, MA
Ladies and Gentlemen:
We hereby issue our irrevocable standby letter of credit in your favor
for the account of the applicant for an aggregate amount not to exceed ONE
MILLION FIVE HUNDRED THOUSAND and 00/100 ($1,500,000.00) US DOLLARS available
for payment by presentation of your draft(s) drawn on ourselves at sight, and
accompanied by the following documents:
1. Your statement/certificate, on your letterhead, signed by a person
purporting to be your authorized officer/representative, appropriately completed
in the following form:
A. "The undersigned, an authorized officer/representative of DVPT
Limited Partnership (the "Landlord"), hereby certifies with regard to __________
standby letter of credit no. __________ that Art Technology Group, Inc. (the
"Tenant") is in default relative to the Lease Agreement dated ________________,
1999 (the "Lease") by and between Landlord and Tenant and such default has
continued uncured beyond all applicable notice and grace periods."
OR
B. "We are in receipt of _______________ Notice of Non-Extension of
its letter of credit no. _______________ and Art Technology Group, Inc. (the
"Tenant") has failed to provide a replacement letter of credit reasonably
acceptable to us as of the date of our drawing and the Tenant remains liable to
us pursuant to the Lease."
2. The original of this letter of credit (for endorsement of drawing),
which will be returned unless the credit is fully utilized.
I-1
<PAGE>
Partial drawings are permitted.
Draft(s) must indicate the name of the issuing bank, the letter of
credit number and must be presented at this office (the address specified
below).
It is a condition of this letter of credit that it shall be deemed
automatically extended without amendment for an additional period of one year
from the present or each future expiration date hereof, but not beyond
_________________, unless at least forty-five (45) days prior to any such
expiration date we notify you by certified mail, that we elect not to so extend
this letter of credit for any such additional period. Upon receipt by you of
such notice, you may draw hereunder your draft(s) at sight on ourselves for the
then full amount of this letter of credit accompanied by your statement as
specified above.
It is another condition of this Letter of Credit that the credit amount
shall be automatically reduced to the amount and on the respective dates set
forth below if and when the letter of credit is automatically extended unless at
least thirty (30) days prior to such date of reduction we receive your statement
by certified mail in the following form: "The undersigned, an authorized
officer/ representative of DVPT Limited Partnership, hereby certifies with
regard to ___________________ Standby Letter of Credit No. ____________ that
under the terms of the Lease the credit amount shall not be reduced." Upon
receipt of such statement the credit amount will not be automatically reduced
but shall remain at the amount in place immediately prior to the receipt of such
statement. Following our receipt of such statement, the reduction schedule
contained herein shall be canceled and deleted and this Letter of Credit is
subject to further reduction only upon your subsequent statement received by us
by certified mail at least thirty (30) days prior to the specified reduction
date in the following form: "The undersigned, an authorized
officer/representative of DVPT Limited Partnership, hereby certifies with regard
to ______________________ Standby Letter of Credit No. _______________ that
under the terms of the Lease the credit amount shall be reduced to (insert
amount) on (insert date)."
The reduction schedule is as follows:
<TABLE>
<CAPTION>
Date of Reduction Reduced Security Deposit Amount
----------------- -------------------------------
<S> <C>
September 1, 2001 $1,250,000.00
September 1, 2002 $1,000,000.00
September 1, 2003 $750,000.00
</TABLE>
This letter of credit is transferable in its entirety, but not in part,
to any successor landlord under the Lease and may be successively transferred.
If it is your intention to transfer your interest hereunder, kindly return the
letter of credit to us for appropriate endorsement and furnish us with your
instructions. Please note your signature on your request for transfer must be
authenticated by your bank. (Transfer form is attached.) In the event of
transfer all required documents are to be signed by the transferee.
I-2
<PAGE>
This letter of credit sets forth in full the terms of our obligations
to you, and our undertaking shall not in any way be amended or amplified by
reference to any documents, instruments or any agreement referred to herein or
to which this letter of credit related, and such reference, if any, shall not be
deemed to incorporate herein by reference any document, instrument or agreement.
Except as otherwise expressly stated herein, this letter of credit is
subject to the "Uniform Customs and Practice for Documentary Credits,
International Chamber of Commerce, Publication N. 500 (1993 Revision)".
We engage with you that all draft(s) drawn under and in compliance with
the terms and conditions of this letter of credit shall be duly honored on
presentation to us at our office at _______________, Boston, MA _______, Attn:
_______________, ____ Floor on or before the expiring date as specified above or
any automatically extended date herein before set forth.
Very truly yours,
By:
-------------------------------
Name:
Title:
I-3
<PAGE>
TRANSFER
This form is to be used where a Letter of Credit is transferred
in its entirety and no substitution of invoices is involved.
Date
Re: Credit issued or advised by
-----------------------------
Gentlemen:
For value received, the undersigned beneficiary hereby irrevocably transfers to:
----------------------------
(NAME OF SECOND BENEFICIARY)
----------------------------
(ADDRESS)
----------------------------
(NAME OF ADVISING BANK)
----------------------------
(ADDRESS)
ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY TO DRAW UNDER THE ABOVE LETTER OF
CREDIT IN ITS ENTIRETY.
1. BY THIS TRANSFER, ALL RIGHTS OF THE UNDERSIGNED BENEFICIARY IN SUCH LETTER OF
CREDIT ARE TRANSFERRED TO THE SECOND BENEFICIARY AND THE SECOND BENEFICIARY
SHALL HAVE THE SOLE RIGHTS AS BENEFICIARY THEREOF, INCLUDING SOLE RIGHTS
RELATING TO ANY AMENDMENT, WHETHER INCREASES OR EXTENSIONS OR OTHER AMENDMENTS
AND WHETHER NOW EXISTING OR HEREAFTER MADE. ALL AMENDMENTS ARE TO BE ADVISED
DIRECT TO THE SECOND BENEFICIARY WITHOUT NECESSITY OF ANY CONSENT OF OR NOTICE
TO THE UNDERSIGNED BENEFICIARY.
I-4
<PAGE>
THE ADVICE OF SUCH LETTER OF CREDIT IS RETURNED HEREWITH, AND WE ASK
YOU TO ENDORSE THE TRANSFER ON THE REVERSE THEREOF, AND FORWARD IT DIRECT TO THE
SECOND BENEFICIARY WITH YOUR CUSTOMARY NOTICE OF TRANSFER, OR ADVISE THE LETTER
OF CREDIT TO THE SECOND BENEFICIARY BY TELEX/SWIFT.
SIGNATURE AUTHENTICATED VERY TRULY YOURS,
(BANK)
BY:
--------------------------
(AUTHORIZED SIGNATURE) NAME:
TITLE:
I-5
<PAGE>
EXHIBIT J
RIGHT OF FIRST OFFER
Subject to the rights of then-existing tenants to continue to occupy
their respective premises and to the then-existing renewal or expansion options
(including, without limitation, rights of first offer and/or rights of first
refusal) of other tenants, and provided no Event of Default then exists,
Landlord shall, prior to offering the same to any party (other than the
then-current tenant therein), first offer to lease to Tenant any space which may
become available on the third (3rd) and fourth (4th) floors of the Building (the
"OFFER SPACE") in an "AS-IS" condition; such offer shall be in writing and
specify the lease terms for the Offer Space, including the Fair Market Rental
Rate (as determined in accordance with Exhibit H above) to be paid for the Offer
Space and the date on which the Offer Space shall be included in the Premises
(the "OFFER NOTICE"). Tenant shall notify Landlord in writing whether Tenant
elects to lease the entire Offer Space on the terms set forth in the Offer
Notice, within ten days after Landlord delivers to Tenant the Offer Notice. Even
if Tenant rejects Landlord's determination of Fair Market Rental Rates as set
forth in the Offer Notice, Tenant shall decide whether to elect to lease the
Offer Space as set forth above and Fair Market Rental Rate shall be determined
in accordance with the provisions of EXHIBIT H above after Tenant elects to
lease the Offer Space. If Tenant timely elects to lease the Offer Space, then
Landlord and Tenant shall execute an amendment to this Lease, effective as of
the date the Offer Space is to be included in the Premises, on the terms set
forth in the Offer Notice and, to the extent not inconsistent with the Offer
Notice terms, the terms of this Lease; however, Tenant shall accept the Offer
Space in an "AS-IS" condition and Landlord shall not provide to Tenant any
allowances (e.g., moving allowance, construction allowance, and the like) or
other tenant inducements except as specifically provided in the Offer Notice or
otherwise agreed to by Landlord and Tenant. Notwithstanding the foregoing, if
prior to Landlord's delivery to Tenant of the Offer Notice, Landlord has
received a bona fide offer to lease all or part of the Offer Space from a third
party (a "THIRD PARTY OFFER") and such Third Party Offer includes space in
excess of the Offer Space, Tenant must exercise its rights hereunder, if at all,
as to all of the space contained in the Third Party Offer.
If Tenant fails or is unable to timely exercise its right hereunder,
then such right shall lapse, time being of the essence with respect to the
exercise thereof, and Landlord may lease all or a portion of the Offer Space to
third parties on such terms as Landlord may elect. Tenant may not exercise its
rights under this Exhibit if an Event of Default exists or Tenant, a Permitted
Transferee or the sublessee(s) consented to by Landlord in accordance with the
provisions of this Lease (provided said sublessee(s) sublease(s), in the
aggregate, occupy less than twenty percent (20%) of the Premises for less than
seventy-five percent (75%) of the then-remaining Term) is not then occupying the
entire Premises. For purposes hereof, if an Offer Notice is delivered for less
than all of the Offer Space but such notice provides for an expansion, right of
first refusal, or other preferential right to lease some of the remaining
portion of the Offer Space, then such remaining portion of the Offer Space shall
thereafter be excluded from the provisions of this Exhibit. In no event shall
Landlord be obligated to pay a commission with respect to any space leased by
Tenant under this Exhibit, and Tenant and Landlord shall each indemnify the
other against all costs,
J-1
<PAGE>
expenses, attorneys' fees, and other liability for commissions or other
compensation claimed by any broker or agent claiming the same by, through, or
under the indemnifying party.
Tenant's rights under this Exhibit shall terminate if (a) this Lease or
Tenant's right to possession of the Premises is terminated, (b) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises to any
person other than a Permitted Transferee or to the sublessee(s) consented to by
Landlord in accordance with the provisions of this Lease provided said
sublessee(s) sublease(s), in the aggregate, occupy less than twenty percent
(20%) of the Premises for less than seventy-five percent (75%) of the
then-remaining Term, or (c) less than three (3) full calendar years remain in
the Term of this Lease (as such Term may be extended pursuant to the provisions
of EXHIBIT H).
J-2
<PAGE>
EXHIBIT K
JANITORIAL MAINTENANCE
1. SPECIFIC SCOPE OF SERVICES
A. LOBBY AND CORRIDORS: DAILY SERVICE
i. Sweep and clean building entrances.
ii. Clean and sanitize all public telephones and
enclosures. (neatly arrange and
replace as needed all phone books)
iii. Clean and remove smudges from entry door glass.
iv. Polish all entry handles, door plates and metal trim.
v. Wipe clean all glass, wood, or metal doors and door
jambs.
vi. Screen all sand urns of cigarette butts and debris.
Wipe clean and polish.
vii. Empty all trash receptacles, clean container with
clean, damp cloth, and replace plastic liner.
(Manager supplies liners).
viii. Remove all debris from landscaped pots and planters.
(report any thefts, broken pots or missing plants).
ix. Dust and clean all horizontal surfaces under seven
feet.
x. Vacuum all carpet areas completely and remove spots.
xi. Dust mop and damp mop entry floors.
xii. Clean and remove smudges and marks on walls, wall
coverings, and artwork.
xiii. Clean, polish and straighten all furniture as needed.
xiv. Wipe clean all directory boards (exterior) with
clean, soft cloth using glass cleaner that is
considered safe and not labeled as hazardous waste.
xv. Wipe clean all fire extinguisher cabinets and glass.
(report broken glass or missing extinguishers).
K-1
<PAGE>
xvi. Clean and polish all elevator doors, jambs, call
plates, and hall lanterns.
xvii. Clean, polish and straighten all furniture as needed.
xviii. Dust and clean all lobby and corridor signage.
xix. Report any lights burned out.
xx. Secure all doors and turn off appropriate lights upon
completion of work assignments.
B. LOBBIES AND CORRIDORS - WEEKLY SERVICE
i. Clean and polish all entry metal and sills.
ii. Dust and clean or polish all baseboards.
iii. Spot clean all carpeted areas.
iv. Dust all ledges and exit signs.
v. Dust all walls above seven feet.
vi. Clean directory board with clean soft cloth.
C. LOBBIES AND CORRIDORS - MONTHLY SERVICE
i. Clean all ceiling vents and grills.
ii. Dust high ceiling corners and entry ways.
iii. Dust and clean light fixtures and covers (interior
and exterior).
iv. Clean and treat all wood paneling and furniture as
requested.
v. Shampoo carpet areas as necessary.
vi. Clean, detail and sanitize public phones and
enclosures.
vii. Dust and clean all fire lobby doors inside and out.
viii. Polish door floor plates.
K-2
<PAGE>
D. LOBBIES AND CORRIDORS - QUARTERLY
i. Strip, reseal or re-wax common area floors as
necessary.
E. OFFICES - DAILY SERVICE
i. Clean and remove hand spots/smudges from entry door
glass and side lights.
ii. Using a dustless mop, damp mop all non-carpeted
areas.
iii. Vacuum and spot clean carpets in all traffic areas,
removing staples and other debris.
iv. Properly position furniture, books and magazines in
reception areas.
v. Properly position furniture in offices and conference
rooms.
vi. Spot clean all partition glass and mirrors.
vii. Remove all fingerprints and smudges from private
entrances, light switches, cover plates, doorknob
ways and handles, and walls.
viii. Dust window sills and ledges.
ix. Dust all horizontal surfaces under seven feet,
furniture, and equipment. DO NOT move or disturb any
paperwork.
x. Dust and replace all desk ornaments, phones and
machines in their ORIGINAL POSITION.
xi. Clean furniture fabric with a whisk broom to sweep
off any dust, paper bits, and erasures as needed.
(remove all staples)
xii. Empty all wastebaskets and carry trash to designated
areas for removal; replace plastic liners as needed.
xiii. Empty all recycling bins from offices into separate
container to be disposed of into specially designated
recycling dumpsters.
xiv. Clean and wash all lunchroom table tops, counters,
sinks, cabinets, refrigerator, and stove (exterior
only) surfaces. (report any insect problems)
xv. Report all burned-out lights.
K-3
<PAGE>
xvi. Perform additional services requested by tenant and
bill tenant directly.
xvii. Before leaving any suite, shut off lights, electrical
appliances, close drapes and blinds and lock all
entrance doors and only interior doors as requested.
F. OFFICES - WEEKLY SERVICE
i. Damp wipe all interior doors with a treated cloth.
ii. Detail vacuum entire carpet areas; remove staples and
other debris.
iii. Damp mop all tile and hardwood floor areas.
iv. Polish all desk tops that are cleared of paperwork.
v. Dust all ledges, files, baseboards, and sills under
seven feet.
vi. Vacuum all furniture or wipe vinyl furniture clean.
vii. Dust all lower parts of furniture.
viii. Detail and clean all kitchen or wet bar areas.
G. OFFICES - MONTHLY SERVICE
i. Completely clean all partitions and doors, door
jambs, door floor plates, glass and mirrors from
floor to ceiling.
ii. Dust all ledges, wall moldings, pictures, shelves,
etc. over seven feet.
iii. Dust clean or vacuum all drapes and blinds.
iv. Brush down and clean all vents and grills.
v. Strip, clean and apply floor dressing to all
composition, hardwood and parquet floors.
vi. Scrub and wax all tile floors.
vii. Detail all desks and office furniture.
viii. Dust and clean all light fixtures and covers.
ix. Detail and clean all kitchen, wet bars or lunch room
areas.
K-4
<PAGE>
x. Clean all baseboards.
xi. Detail and vacuum chairs and upholstered furniture.
H. RESTROOMS - DAILY SERVICE
i. Dust and clean restroom signage and doors.
ii. Vacuum all restrooms vestibules and remove spots.
iii. Sweep, wet mop and disinfect tile floor, paying
particular attention to areas under urinals and
toilet bowls.
iv. Clean alkaline deposits and soap spills from floor
tile grout.
v. Wash and disinfect all basins, urinals, and toilet
bowls.
K-5
<PAGE>
EXHIBIT L
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
This Instrument Prepared By
and when Recorded, Return to:
Anne Rickard Jackowitz, Esq.
Choate, Hall & Stewart
One Exchange Place
53 State Street
Boston, MA 02109-2891
This SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE AGREEMENT (this
"AGREEMENT"), is made as of the ____ day of __________, 1999, among Bankers
Trust Company of California, N.A., a national banking association (together with
its successors and any separate co-trustee duly appointed "INDENTURE TRUSTEE"),
DVPT Limited Partnership, a Delaware limited partnership ("LANDLORD") and Art
Technology Group, Inc., a Delaware corporation ("TENANT").
RECITALS:
(a) Landlord owns the property commonly known as The Davenport Building
located at 25 First Street, Cambridge, Massachusetts ("TRUST PROPERTY"),
described on EXHIBIT A, which is subject to a certain Deed of Trust (as
hereinafter defined).
(b) Tenant has entered into a certain Lease dated February __, 1999,
with respect to a certain portion of the Trust Property (the "DEMISED
PREMISES"), as the same may have been amended, modified or supplemented (the
"LEASE") with Landlord, or predecessor-in-interest to Landlord, covering the
Demised Premises.
(c) Landlord has made in favor of Indenture Trustee certain
encumbrances which are described on EXHIBIT B annexed hereto and are hereinafter
referred to collectively as the "Deed of Trust".
(d) Indenture Trustee and Tenant desire to confirm their understanding
with respect to the Lease and the Deed of Trust. NOW, THEREFORE, in
consideration of the Demised Premises and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereby agree as
follows:
L-1
<PAGE>
1. REPRESENTATIONS.
(a) Tenant certifies that the Lease is currently in full force and
effect and unmodified since ____________, 1999; and that no default by Tenant
exists under the Lease (except as might be shown on an annex hereto).
(b) Tenant certifies that there are no known defaults on the part of
the Landlord, and the Lease is a complete statement of the agreement of the
parties thereto with respect to the letting of the Demised Premises.
2. SUBORDINATION. Subject to the provisions hereof, Tenant agrees that the Lease
as it may hereafter be amended, renewed, modified, replaced, substituted or
extended, from time to time, shall in all respects be, and is hereby expressly
made, subject, subordinate and inferior at all times to the lien, right, title
and terms of the Deed of Trust (and all Deeds of Trust which may hereafter
encumber the Trust Property) and to all of the terms, conditions and provisions
thereof, and to all advances and/or payments made or to be made thereunder, as
such Deed of Trust may have been or may hereafter be assigned, amended,
increased, renewed, modified, consolidated, replaced, combined, substituted,
severed, split, spread, refinanced, recast or extended, whether or not such Deed
of Trust also covers other lands and/or buildings and/or leases. Furthermore,
nothing contained in this Agreement shall in any way impair or affect the
lien(s) created by the Deed of Trust.
3. ATTORNMENT.
(a) In the event that the Indenture Trustee acquires or succeeds to the
interests of Landlord under the Lease by reason of a foreclosure, deed-in-lieu
of foreclosure or by exercise of some similar doctrine, Tenant shall be bound to
the Indenture Trustee, under all of the terms, covenants and conditions of the
Lease, except as provided in this Agreement, for the balance of the term thereof
remaining, with the same force and effect as if the Indenture Trustee were the
landlord named in the Lease and Tenant does hereby agree to (i) attorn to the
Indenture Trustee as its landlord on such terms, (ii) affirm its obligations
under the Lease, and (iii) make payments of all sums thereafter becoming due
under the Lease to the Indenture Trustee. Said attornment, affirmation and
agreement is to be effective and self-operative (without the execution of any
further instruments) upon the Indenture Trustee succeeding to the interests of
Landlord under the Lease.
(b) Tenant agrees to execute and deliver at any time, and from time to
time, upon the request of Landlord, Indenture Trustee or any successor secured
by the Deed of Trust, any instrument or certificate, as the case may be, deemed
reasonably to be necessary or appropriate to evidence such attornment.
(c) Tenant acknowledges that Landlord has made an assignment of the
Lease (the "ASSIGNMENT") to Indenture Trustee as additional security for
Landlord's obligations to Indenture Trustee, but Tenant agrees that the
acceptance by Indenture Trustee of such Assignment does not constitute an
assumption by Indenture Trustee of Landlord's obligations under the Lease, that
L-2
<PAGE>
Indenture Trustee is not bound to Tenant to perform Landlord's obligations under
the Lease unless and until Indenture Trustee shall succeed to the position of
Landlord by foreclosure of the Deed of Trust, deed in lieu or otherwise, and
that in all events Indenture Trustee's liability (if any) to Tenant shall be
limited as provided in this Agreement.
(d) From and after such attornment, Indenture Trustee, its nominee,
such other holder (or its nominee), or purchaser, as the case may be, as
Landlord, shall be bound to Tenant under all the terms, covenants and conditions
of the Lease with the same force and effect as if originally entered between
said parties; provided, however, Indenture Trustee, its nominee, such other
holder (or its nominee) or purchaser, as the case may be, shall not be:
(1) bound by any base rental or additional rental or advance
payment ("RENT") which Tenant paid for more than the current month to
any prior landlord (including Landlord);
(2) bound by any Lease modification which was entered into
without the Indenture Trustee's approval to the extent required under
the Indenture;
(3) liable for any security deposit paid to Landlord not
actually turned over to the Indenture Trustee;
(e) Anything herein or in the Lease to the contrary notwithstanding, in
the event that Indenture Trustee, by reason of an "Event of Default" as defined
in the Deed of Trust, shall acquire title to the Demised Premises, Indenture
Trustee shall have no obligation, nor incur any liability, beyond Indenture
Trustee's then interest, if any, in the Trust Property (including any title and
casualty insurance proceeds and condemnation awards), and Tenant shall look
exclusively to such interest of Indenture Trustee, if any, in the Trust Property
for the payment and discharge of any obligations which may be imposed upon
Indenture Trustee hereunder or under the Lease. Tenant agrees that with respect
to any money judgment that may be obtained or secured by Tenant against
Indenture Trustee, Tenant shall look solely to the estate or interest owned by
Indenture Trustee in the Trust Property, and Tenant will not collect or attempt
to collect any such judgment out of any other assets of Indenture Trustee.
4. NON-DISTURBANCE. Provided Tenant is not in default (beyond any applicable
notice and grace periods) under the terms of the Lease and Tenant complies with
this Agreement, Indenture Trustee agrees that in the event Indenture Trustee
exercises any of its rights under the Deed of Trust, and obtains title to the
Demised Premises (i) Tenant shall not be joined as a party defendant in any such
action or proceeding (unless, as a condition precedent to commencing or
proceeding with any such action to foreclose the Deed of Trust or obtain a
receiver, Indenture Trustee is required by statute, judicial decision or the
court in which such action or proceeding has been commenced or is pending so to
name Tenant as a party defendant, but, to the extent permitted by the then
applicable law, any such naming of Tenant will not in any manner interfere with
the protections intended to be afforded to Tenant in this Agreement or the
Lease); (ii) Tenant's possession and occupancy of the Demised Premises and
Tenant's rights and privileges under the Lease during the term thereof or during
the
L-3
<PAGE>
term of any extensions or renewals which may be effected in accordance with any
option therefore in the Lease for as long as the Lease is in full force and
effect, shall not be disturbed, subject to limitations or conditions set forth
in this Agreement and Indenture Trustee shall recognize the Lease and Tenant's
rights-thereunder. Subject to the limitations and conditions contained herein,
Indenture Trustee upon foreclosure or acceptance by Indenture Trustee of a
deed-in-lieu of foreclosure shall be deemed to be Landlord and assume the
obligations of Landlord under the Lease thereafter arising or accruing.
5. PRE-FORECLOSURE OBLIGATIONS. If Indenture Trustee delivers to Tenant a Notice
(i) stating that an Event of Default (as defined in the Deed of Trust) has
occurred under the Deed of Trust and (ii) requesting that all Rents and any
other amounts due under the Lease be thereafter paid to Indenture Trustee,
Tenant shall and is hereby authorized and directed by Landlord to pay said Rent
and any other amounts to Indenture Trustee for application in accordance with
the terms of the Deed of Trust, and Landlord releases Tenant from any and all
loss Landlord may sustain or incur as a result of Tenant making such payments.
Delivery to Tenant of the aforedescribed Notice from Indenture Trustee shall be
conclusive and evidence as to Tenant of the right of Indenture Trustee to
receive such Rents and any other amounts and payment of the Rents and any other
amounts by Tenant to Indenture Trustee pursuant to such Notice shall constitute
performance in full of Tenant's obligation under the Lease for the payment of
such Rents and any other amounts to Landlord.
6. NOTICE.
(a) All notices, demands and requests (collectively the "NOTICE")
required or permitted to be given under this Agreement must be in writing and
shall be deemed to have been given if personally delivered or delivered by
reliable overnight courier or by facsimile transmission or mailed, first-class
postage pre-paid and shall be deemed delivered as of the date of such Notice if
(i) delivered to the party intended, (ii) delivered to the then current address
of the party intended, or (iii) rejected at the then current address of the
party intended, provided such Notice was sent prepaid. The addresses of the
parties are:
To Indenture Trustee:
Bankers Trust Company of California, N.A.
3 Park Plaza
Irvine, CA 92714
Attn: KPAC 1994 - C3 (QRP)
To Landlord:
DVPT Limited Partnership
c/o Archon Group, L.P.
1275 K Street NW, Suite 900
Washington, DC 20005
L-4
<PAGE>
To Tenant: With a copy to:
The Davenport Building Hale and Dorr LLP
25 First Street 60 State Street
Cambridge, MA 02141 Boston, MA 02109
Attn: Jeffrey A. Hermanson, Esq.
(b) Upon at least ten (10) days prior written Notice, each party shall
have the right to change its address to any other address within the United
States of America.
7. MISCELLANEOUS. This Agreement (i) contains the entire agreement with respect
to the subject matter hereof; (ii) may not be modified or terminated, nor may
any provision hereof be waived, orally or in any manner other than by an
agreement in writing signed by the parties hereto or their respective
successors, administrators and assigns; (iii) shall inure to the benefit of, and
be binding upon, the parties hereto, their successors and assigns and any
purchaser and its or their respective heirs, personal representatives,
successors and assigns (including, without limitation, (a) Tenant's permitted
assignees and (b) any purchaser of the Trust Property at a foreclosure sale or
any grantee under a deed in lieu of foreclosure, including affiliates of
Indenture Trustee and all of their successors and assigns); and (iv) shall run
with the land.
8. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state in which the Demised Premises is situated
in connection with any action, claim or proceedings relating to the Demised
Premises.
9. ESTOPPEL CERTIFICATE. Tenant shall, upon request by the Indenture Trustee or
successor in interest, execute and deliver an estoppel certificate to the
Indenture Trustee or such successor in interest in which Tenant certifies as to
whether or not Landlord is in default under the Lease, whether Tenant has any
credits, claims, setoffs or defenses against the Landlord and as to such other
matters which the Indenture Trustee or such successor may reasonably request.
10. CONFLICTS. In the event of any inconsistency or conflict between terms and
provisions of this Agreement and the Lease, the terms and provisions of this
Agreement shall control.
L-5
<PAGE>
IN WITNESS WHEREOF, Indenture Trustee, Landlord and Tenant have
executed this Agreement effective as of the day and year first above written.
"INDENTURE TRUSTEE"
Bankers Trust Company of California, N.A.
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address: 3 Park Plaza
Irvine, CA 92714
Attention: KPAC 1994 - C3 (QRP)
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address:
"LANDLORD"
DVPT Limited Partnership
By: New DVPT Corp., its general partner
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address: 1275 K Street NW, Suite 900
Washington, DC 20005
"TENANT"
ART TECHNOLOGY GROUP, INC.
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address: The Davenport Building
25 First Street
Cambridge, MA 02141
L-6
<PAGE>
STATE OF ________________________ )
)
COUNTY OF _______________________ ) __________ __, 1999
Then personally appeared the above-named ____________________________,
__________________________________ of Bankers Trust Company of California,
N.A., and acknowledged the foregoing instrument to be his/her free act and
deed and the free act and deed of Bankers Trust Company of California, N.A.,
before me,
------------------------------------
(Seal)
Notary Public
My commission expires:
STATE OF ________________________ )
)
COUNTY OF _______________________ ) __________ __, 1999
Then personally appeared the above-named ____________________________,
__________________________ of New DVPT Corp., as General Partner of DVPT Limited
Partnership, and acknowledged the foregoing instrument to be his/her free act
and deed, the free act and deed of New DVPT Corp. and the free act and deed of
DVPT Limited Partnership, before me,
------------------------------------
(Seal)
Notary Public
My commission expires:
STATE OF )
)
COUNTY OF ) , 1999
Then personally appeared the above-named _________________, _________
of Art Technology Group, Inc., and acknowledged the foregoing instrument to
be his/her free act and deed and the free act and deed of Art Technology
Group, Inc. before me,
------------------------------------
(Seal)
Notary Public
My commission expires:
L-7
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF LANDLORD'S PREMISES
(The Davenport Building, 25 First Street, Cambridge, Massachusetts)
Beginning at a point, said point being the intersection of the westerly sideline
of First Street and the northerly sideline of Thorndike Street in the City of
Cambridge, County of Middlesex, Commonwealth of Massachusetts, bounded and
described as follows:
<TABLE>
<CAPTION>
<S> <C>
N 80 DEG. 28' - 11" W Along the northerly sideline of Thorndike Street a distance of Four Hundred
and Thirty Eight Hundredths feet (400.38') to a point, said point being the
intersection of the northerly sideline of Thorndike Street and the easterly
sideline of Second Street, thence turning and running;
N 09 DEG. 31' - 49" E Along the easterly sideline of Second Street a distance of Sixty and no
Hundredths feet (60.00'), to a point, thence turning and running;
S 80 DEG. 28' - 11" E A distance of One Hundred and No Hundredths feet (100.00') to a point,
thence turning and running;
N 09 DEG. 36' - 54" E A distance of One Hundred Forty and Seventy-Two Hundredths feet (140.72')
to a point, said being along the southerly sideline of Otis Street, thence
turning and running;
S 80 DEG. 21' - 10" E Along said southerly sideline of Otis Street a distance of Three Hundred and
No Hundredths feet (300.00') to a point, said point being the intersection of
said southerly sideline of Otis Street and the westerly sideline of First Street,
thence turning and running;
S 09 DEG. 28' - 49" W Along said westerly sideline of First Street a distance of Two Hundred and
Eleven Hundredths feet (200.11') to a point of beginning.
</TABLE>
Appurtenant to this parcel are leasehold parking rights as set forth in
a lease dated November 18, 1985 by and between Charlesport Limited Partnership
and the City of Cambridge a Notice of which was recorded in Deeds at Book 18968,
Page 68 for 250 parking spaces in Cambridge and leasehold parking rights as set
forth in a Lease dated March 10, 1985 made by and between the City of Cambridge
and Charlesport Limited Partnership, a Notice of which was recorded in Deeds at
Book 16059, Page 516.
L-8
<PAGE>
Exhibit 10.5
LOAN AND SECURITY AGREEMENT
$500,000 WORKING CAPITAL LINE
$500,000 TERM LOAN
PROVIDED BY
SILICON VALLEY BANK
TO
ART TECHNOLOGY GROUP, INC.
NOVEMBER 26, 1997
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of November 26, 1997,
by and between SILICON VALLEY BANK, a California-chartered bank with its
principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with
a loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, MA 02181, doing business under the name Silicon Valley
East ("Bank"), and ART TECHNOLOGY GROUP, INC., a Delaware corporation with its
principal place of business at 101 Huntington Avenue, Boston, Massachusetts
02199 ("Borrower).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Person's managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees
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and expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to EIGHTY percent (80%) of
Eligible Accounts as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached
hereto.
"Committed Revolving Line" means a credit extension of up to FIVE
HUNDRED THOUSAND AND NO/100THS Dollars ($500,000), made available to Borrower on
and after the first day of the month following Bank's receipt of Borrower's
financial statements showing that Borrower has raised new equity capital after
September 1, 1997 of no less than One Million Seven Hundred Fifty Thousand
Dollars ($1,750,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall
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not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment Advance, Letter
of Credit, Term Loan, Exchange Contract or any other extension of credit by Bank
for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4. Unless
otherwise agreed to by Bank in writing, Eligible Accounts shall not include the
following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%)
of all Accounts, except with respect to RR Donnelly, Sony and other account
debtors approved by Bank in its sole discretion, as to which the percentage
shall be fifty percent (50%) to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
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(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United States except for
Eligible Foreign Accounts;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit
either advised or negotiated through Bank or in favor of Bank as beneficiary, in
an amount and of a tenor, and issued by a financial institution, acceptable to
Bank; or (3) that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
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"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means the following rights of
the Borrower.
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
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"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"lRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired;
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means December 29, 2000.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"New Equity" has the meaning set forth in Section 6.11.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any
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debt, liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"Payment Date" means the LAST BUSINESS DAY of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
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(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, PROVIDED the same have no priority
over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, PROVIDED that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means NOVEMBER 25, 1998.
"Schedule" means the schedule of exceptions attached hereto, if
any.
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"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, a corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries MINUS, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Term Loan" means a credit extension of FIVE HUNDRED THOUSAND AND
NO/100THS Dollars ($500,000).
"Term Loan Payment" has the meaning set forth in Section 2.1.2.
"Total Liabilities" means as of any applicable date, any date as
of which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
"Trademarks" means any trademark and service mark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/"includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of Bank,
in lawful money of the United States of America, the aggregate unpaid principal
amount of all
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Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 REVOLVING ADVANCES.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed the Committed Revolving Line or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of EXHIBIT B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1 to
Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 TERM LOAN.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank shall make a Term Loan available to Borrower.
(b) Interest shall accrue from the date of the Term Loan
advance at a rate equal to ONE AND ONE QUARTER (1.25) percentage points above
the Prime Rate. Borrower shall pay thirty-six (36) equal monthly installments of
principal PLUS all accrued and unpaid interest (the "Term Loan Payment") on the
Payment Date of each month commencing January 1998 and ending on the Maturity
Date. Borrower's final Term Loan Payment shall include all outstanding Term Loan
principal plus all accrued interest not yet paid. The Term Loan, once repaid,
may not be reborrowed.
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2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Advances owed by Borrower to Bank pursuant to Section 2.1.1 of this Agreement is
greater than the lesser of (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 INTEREST RATES, PAYMENTS, AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b),
any Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to ONE AND ONE QUARTER (1.25) percentage points above the Prime
Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) PAYMENTS. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number 3300070667 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00 noon
Pacific time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not
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a Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to FIVE THOUSAND AND
NO/100ths Dollars ($5,000), which fee shall be due on the Closing Date and shall
be fully earned and non-refundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's
customary fees and out-of- pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
attributable to the loans made by Bank pursuant hereto as and when such cost,
reduction or expense is incurred or determined, upon presentation by Bank of a
statement of the amount and setting forth Bank's calculation thereof, all in
reasonable detail, which statement shall be deemed true and correct absent
manifest error.
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2.7 TERM. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Borrower may prepay any or all amounts owed to Bank hereunder without premium or
penalty and thereafter, at its option, terminate this Agreement. Notwithstanding
the foregoing, Bank shall have the right to terminate its obligation to make
Credit Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank's lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
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3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement and the Revolving Promissory Note each
duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with respect
to charter, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a payoff letter from Fleet Bank in a form reasonably
satisfactory to Bank;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof;
(g) Certificate of Foreign Qualification (if applicable);
and
(h) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
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4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all Borrower's presently existing and hereafter
acquired or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Borrower acknowledges that Bank may place a "hold" on any Deposit Account
pledged as Collateral to secure the Obligations. Notwithstanding termination of
this Agreement, Bank's Lien on the Collateral shall remain in effect for so long
as any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
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5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects
of good and marketable quality, free from all material defects.
5.6 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision could have a Material Adverse Effect or a material
adverse effect on Borrower's interest or Bank's security interest in the
Collateral.
5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.9 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; the
Borrower is not left with unreasonably small capital after the transactions
contemplated by this Agreement; and Borrower is able to pay its debts (including
trade debts) as they mature.
5.10 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERlSA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an
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"investment company within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.11 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.12 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein.
5.13 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.15 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
5.16 INTELLECTUAL PROPERTY. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the
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Intellectual Property Collateral has been judged invalid or unenforceable, in
whole or in part, and no claim has been made that any part of the Intellectual
Property Collateral violates the rights of any third party. Except for and upon
the filings with the United States Patent and Trademark Office with respect to
the Patents and registered Trademarks and the Register of Copyrights with
respect to the registered Copyrights and registered Mask Works necessary to
perfect the security interests created hereunder, and except as has been already
made or obtained, no authorization, approval or other action by, and no notice
to or filing with, any United States governmental authority or United States
regulatory body is required either (i) for the grant by Borrower of the security
interest granted hereby or for the execution, delivery or performance of the
Loan Documents by Borrower in the United States or (ii) for the perfection in
the United States or the exercise by Bank of its rights and remedies hereunder.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. (i) Borrower shall
deliver to Bank:
(a) as soon as available, but in any event within
twenty-five (25) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, in a form and certified by an officer of Borrower
reasonably acceptable to Bank;
(b) as soon as available, but in any event within one
hundred twenty (120) days after the end of Borrower's fiscal year, audited
consolidated financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with
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an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank;
(c) within five (5) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Form 10-K, 1 0-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of One Hundred
Thousand Dollars ($100,000) or more;
(e) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time.
(f) within twenty-five (25) days after the last day of each
month, a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of EXHIBIT C hereto, together with aged listings of
accounts receivable.
(g) within twenty-five (25) days after the last day of each
month, with the monthly financial statements, a Compliance Certificate signed by
a Responsible Officer in substantially the form of EXHIBIT D hereto.
(ii) Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, with the first such audit to be
completed prior to the Closing Date, provided that such audits will be conducted
no more often than every twelve (12) months unless an Event of Default has
occurred and is continuing.
6.4 INVENTORY; RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A, F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon
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request, furnish Bank with proof satisfactory to Bank indicating that Borrower
or a Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
is (i) contested in good faith by appropriate proceedings, (ii) is reserved
against (to the extent required by GAAP) by Borrower and (iii) no lien other
than a Permitted Lien results.
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal
operating accounts and some portion of its excess funds with Bank.
6.8 QUICK RATIO. Borrower shall maintain, as of the last day of each
calendar month commencing February, 1998, a ratio of Quick Assets to Current
Liabilities of at least 1.5 to 1.0.
6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day
of each calendar month commencing February, 1998, a Tangible Net Worth of not
less than ONE MILLION AND NO/100THS Dollars ($1,000,000).
6.10 PROFITABILITY. Borrower shall be profitable for the fiscal
quarters ending December 31, 1997 and March 31, 1998. Borrower shall have a
minimum net income of (i) ONE HUNDRED THOUSAND AND NO/100THS Dollars ($100,000)
in the fiscal quarter ending June 30, 1998, (ii) TWO HUNDRED THOUSAND AND
NO/100THS Dollars ($200,000) in the fiscal quarter ending September 30, 1998,
and (iii) THREE HUNDRED THOUSAND AND NO/100THS Dollars ($300,000) in the fiscal
quarter ending December 31, 1998.
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6.11 NEW EQUITY. Borrower shall have received new equity capital
after September 1, 1997 of no less than THREE MILLION AND NO/100ths Dollars
($3,000,000) (the "New Equity") on or before January 31, 1998.
6.12 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
6.13 WARRANT PURCHASE AGREEMENT. Promptly after the Closing Date,
Borrower shall deliver to Bank a Warrant Purchase Agreement and Warrant in form
reasonably satisfactory to Bank, duly executed by Borrower, providing for the
purchase by Bank of up to 46,296 shares of Borrower's Series C Preferred Stock.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business, (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business, or (iv) of worn-out
or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS
LOCATIONS. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a change in Borrower's ownership in excess of 25%, other than changes
resulting from the New Equity, or management. Borrower will not, without at
least thirty (30) days prior written notification to Bank, relocate its chief
executive office or add any new offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
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7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgment.
7.10 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11 COLLATERAL. Store the Collateral with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Collateral. Except for Collateral sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Collateral only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 COMPLIANCE. Become an "investment company or a company controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose; fail
to meet the minimum funding requirements of ERISA;
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permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to
occur where the effect of such Reportable Event or Prohibited Transaction is to
cause a Material Adverse Effect; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, which violation could have
a Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral; or permit any of its Subsidiaries to
do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the
Obligations.
8.2 COVENANT DEFAULT.
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advances
will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations, or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if
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Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
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(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in equity,
or otherwise;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
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(h) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(i) Bank may credit bid and purchase at any public sale,
or at any private sale as permitted by law; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(k) Bank shall have a non-exclusive, royalty-free license
to use the Intellectual Property Collateral to the extent reasonably necessary
to permit Bank to exercise its rights and remedies upon the occurrence of an
Event of Default.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; and (f) to file, in its
sole discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section 4.2
regardless of whether an Event of Default has occurred. The appointment of Bank
as Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank's security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
27
<PAGE>
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Art Technology Group, Inc.
28
<PAGE>
101 Huntington Avenue
Boston, Massachusetts 02199
Attn: Ann Brady, CFO
FAX: (617) 859-1211
If to Bank Silicon Valley Bank
40 William Street
Wellesley, MA 02181
Attn: Joan M. Parsons
FAX: 617-431-9906
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole
29
<PAGE>
discretion. Bank shall have the right without the consent of or notice to
Borrower to sell, transfer, negotiate, or grant participation in all or any part
of, or any interest in, Bank's obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall indemnify, defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
12.8 EFFECTIVENESS. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ART TECHNOLOGY GROUP, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /S/ JEET SINGH By: /S/ JAMES C. MAYNARD
------------------------ ----------------------------------
Jeet Singh, President James C. Maynard, SVP
By: /S/ JOSEPH T. CHUNG
------------------------
SILICON VALLEY BANK
By: /S/ MICHELLE D. GIANNINI
----------------------------------
Title: AVP
----------------------------------
(Signed in Santa Clara County, California)
31
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities, investment property,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
32
<PAGE>
(g) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
33
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ____________________
FAX#: (408) __________ TIME: ____________________
FROM:_____________________________________________________________________
BORROWER'S NAME
FROM:_____________________________________________________________________
AUTHORIZED SIGNER'S NAME
__________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:____________________________________________________________________
FROM ACCOUNT #_______________________TO ACCOUNT #__________________
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $_________________________________
PRINCIPAL PAYMENT (ONLY) $_________________________________
INTEREST PAYMENT (ONLY) $_________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________________________
</TABLE>
OTHER INSTRUCTIONS: __________________________________________________
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of November 26, 1997 are true, correct and complete in all
material respects as of the date of the telephone request for and Advance
confirmed by this Advance Request; provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
__________________________________
Authorized Requested
___________________________________________
Authorized Signature (Bank)
Phone # ___________________________________
- --------------------------------------------------------------------------------
34
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Art Technology Group, Inc. Lender: Silicon Valley Bank
101 Huntington Avenue 3003 Tasman Drive
Boston, Massachusetts 02199 Santa Clara, CA 95054
Commitment Amount: $500,000
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of _________ $_______
2. Additions (please explain on reverse) $_______
3. TOTAL ACCOUNTS RECEIVABLE $_______
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $_________
5. Balance of 50% over 90 day accounts $_________
6. Concentration Limits $_________
7. Ineligible Foreign Accounts $_________
8. Governmental Accounts $_________
9. Contra Accounts $_________
10. Promotion or Demo Accounts $_________
11. Intercompany/Employee Accounts $_________
12. Other (please explain on reverse) $_________
13. TOTAL ACCOUNTS RECEIVABLE
DEDUCTIONS $_______
14. Eligible Accounts (#3 - #13) $_______
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_______
BALANCES
16. Maximum Loan Amount $500,000
17. Total Funds Available (Lesser of #16 or #15) $_______
18. Present balance owing on Line of Credit $_______
19. Outstanding under Sublimits (none) $_________
20. RESERVE POSITIVE (#17 minus #18 and #19) $_______
</TABLE>
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE FOREGOING IS TRUE, COMPLETE AND
CORRECT, AND THAT THE INFORMATION REFLECTED IN THIS BORROWING BASE CERTIFICATE
COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE LOAN AND
SECURITY AGREEMENT DATED AS OF NOVEMBER 26, 1997, AS MAY BE AMENDED FROM TIME TO
TIME, BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK.
COMMENT:
- -----------------------------
By:
------------------------
Authorized Signer
- -----------------------------------------
BANK USE ONLY
Rec'd By: ___________________________
Date: ______________________________
Reviewed By:________________________
Compliance Status: Yes/No
- -----------------------------------------
35
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Art Technology Group, Inc. Lender: Silicon Valley Bank
101 Huntington Avenue 3003 Tasman Drive
Boston, Massachusetts 02199 Santa Clara, CA 95054
The undersigned authorized officer of ART TECHNOLOGY GROUP, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated as of November 26, 1997 between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
____________ of all required conditions and terms except as noted below and (ii)
all representations and warranties of Borrower stated in the Agreement are true,
accurate and complete in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principals (GAAP) and are consistent from one period to the
next except as explained in an accompanying letter or footnotes. The Officer
further expressly acknowledges Borrower may not request any borrowings at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that such compliance is determined not just at the
date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- -------------------------------------- -------------------------- --------------
<S> <C> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R Agings Monthly within 25 days Yes No
A/R Audit Initial and Annual Yes No
<CAPTION>
FINANCIAL COVENANTS REQUIRED ACTUAL COMPLIES
- ----------------------------------------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
MAINTAIN ON A MONTHLY BASIS:
Minimum Quick Ratio Commencing 2/28/98 1.5:1.0 _____:1.0 Yes No
Minimum TNW commencing 2/28/98 $1,000,000 $__________ Yes No
MAINTAIN ON A QUARTERLY BASIS:
Profitability FQE 12/31/97 and 3/31/98 $1.00 $__________ Yes No
---------------
Profitability FQE 6/30/98 $100,000 $__________ Yes No
Profitability FQE 9/30/98 $200,000 $__________ Yes No
Profitability FQE 12/31/98 $300,000 $___________ Yes No
OTHER:
New Equity to trigger Committed Revolving Line $1,750,000 $___________ Yes No
New Equity on or before 1/31/98 $3,000,000 $___________ Yes No
</TABLE>
Comments Regarding Exceptions:
Sincerely,
- ----------------------------
Signature
- ----------------------------
TITLE
- ----------------------------
DATE
BANK USE ONLY
Received by:_____________________
Date:_____________________
Reviewed by:_____________________
Compliance Status: Yes No
Comments Regarding Exceptions:
Sincerely,
- ----------------------------
Signature
- ----------------------------
TITLE
- ----------------------------
DATE
36
<PAGE>
DISCLOSURE SCHEDULE TO LOAN AND SECURITY AGREEMENT
Section 5.2
In a letter dated October 17, 1997, Fleet National Bank ("Fleet") declared its
loan to the Company in default and demanded payment of all amounts outstanding
thereunder. The Company is in default on payments due under two leases. The
Company has delayed payments due to substantially all of its creditors,
including employees.
Section 5.3
The Collateral is subject to Liens under the following agreements with Fleet,
each dated December 20, 1996: Revolving Note, Term Note I, Term Note II,
Promissory Note, Letter Agreement, Inventory, Accounts Receivable and
Intangibles Security Agreement, Supplementary Security Agreement and Security
Agreement (Trademarks).
Section 5.7
The Company is negotiating with one of its landlords regarding past due amounts
outstanding under a lease. A default judgment in the amount of $94,365 was
entered in November 1997 in favor of the First Church of Christ Scientist of
Boston, the other of the Company's landlords (of property no longer occupied by
the Borrower), on a claim for amounts past due. The Company believes that
Sybase, Inc. is infringing certain of the Company's DYNAMO trademarks. In
addition, see matters described in Sections 5.9, 5.10 and 5.12.
Section 5.8
The Company has delivered to the Bank its unaudited balance sheet as of
September 30, 1997 (the "Statement Date") and the related statements of
operations for the nine-month period ended as of the Statement Date. Since the
Statement Date, the Company has continued to incur operating losses. The
Company's discussions with Robertson, Stephens & Company regarding a private
placement of the Company's capital stock are on hold. The Company is instead
pursuing private equity investments by individuals. The matters set forth in
Sections 5.9, 5.10 and 5.12, individually or in the aggregate, may also
constitute a material adverse change in the Company's financial condition since
the Statement Date.
<PAGE>
Section 5.9
As of the date of this Loan and Security Agreement, the fair saleable value of
Borrower's assets (including goodwill minus disposition costs) does not exceed
the fair value of its liabilities. Following the transactions contemplated by
this Loan and Security Agreement, Borrower may be left with unreasonably small
capital. As of and prior to the date of this Loan and Security Agreement,
Borrower has not been able to pay its debts (including trade debts) as they
mature. See Sections 5.2, 5.7, 5.8 and 5.12.
Section 5.10
See Section 5.12 regarding arrears in payroll and withholding taxes.
Section 5.12
The Company is in arrears in the amount of approximately $540,000 with respect
to payroll and withholding taxes.
<PAGE>
LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of March 31, 1998, by
and between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name "Silicon Valley East
("Bank"), and ART TECHNOLOGY GROUP, INC., a Delaware corporation with its
principal place of business at 101 Huntington Avenue, Boston, Massachusetts
02199 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Revolving Promissory Note dated November 26, 1997 in
the original principal amount of FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS
($500,000) (the "Revolving Note"), and a Term Promissory Note dated November 26,
1997 in the original principal amount of FIVE HUNDRED THOUSAND AND NO/100THS
DOLLARS ($500,000) (the "Term Note"). The Revolving Note and the Term Note are
governed by the terms of a Loan and Security Agreement dated November 26, 1997
between Borrower and Bank, as such Loan and Security Agreement may be amended
from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owning by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement, the Revolving
Note and the Term Note, together with all other documents securing payment of
the Indebtedness, shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 MODIFICATIONS TO TERM LOAN INTEREST RATES. Section 2.1.2(b) of the
Loan Agreement is hereby replaced in its entirety with the following:
(b) Interest shall accrue from the date of the Term Loan advance at a
rate equal to ONE AND ONE QUARTER (1.25) percentage points above the
Prime
1
<PAGE>
Rate until March 1, 1998, and thereafter, at TWO AND THREE QUARTERS
(2.75) percentage points above the Prime Rate. Borrower shall pay
thirty-six (36) equal monthly installments of principal PLUS all
accrued and unpaid interest (the "Term Loan Payment") on the Payment
Date of each month commencing January 1998 and ending on the Maturity
Date. Borrower's final Term Loan Payment shall include all outstanding
Term Loan principal plus all accrued interest not yet paid. The Term
Loan, once repaid, may not be reborrowed.
3.2 MODIFICATIONS TO INTEREST RATES. Section 2.3(a) of the Loan Agreement
is hereby replaced in its entirety with the following:
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average daily balance thereof, at a per
annum rate equal to ONE AND ONE QUARTER (1.25) percentage points above
the Prime Rate until March 1, 1998, and thereafter, at TWO AND THREE
QUARTERS (2.75) percentage points above the Prime Rate.
3.3 MODIFICATIONS TO NEW EQUITY COVENANT. Section 6.11 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.11 NEW EQUITY. Borrower shall have received new equity capital after
September 1, 1997 of no less than FOUR MILLION AND NO/100THS DOLLARS
($4,000,000) (the "New Equity") on or before April 15, 1998. Borrower
will deposit in its accounts with Bank any new equity raised after
January 31, 1998 and will notify Bank promptly of its compliance or
non-compliance with this covenant.
3.4 MODIFICATIONS TO COMPLIANCE CERTIFICATE. Exhibit D of the Loan
Agreement is hereby replaced in its entirety with Exhibit D to this Agreement.
4. WAIVER OF DEFAULT; FORBEARANCE. (i) Bank hereby forbears from any
violation by Borrower of the Quick Ratio Covenant set forth in section 6.8 of
the Loan Agreement for the periods ending February 28, 1998 and March 31, 1998
and of the Tangible Net Worth Covenant set forth in section 6.9 of the Loan
Agreement for the periods ending February 28, 1998 and March 31, 1998.
(ii) Bank hereby waives Borrower's violation of the Profitability
Covenant set forth in Section 6.10 of the Loan Agreement for the period ending
December 31, 1997 and forbears from any violation by Borrower of such covenant
for the period ending March 31, 1998.
(iii) Bank hereby waives Borrower's violation of the New Equity
Covenant set forth in Section 6.11 of the Loan Agreement prior to its amendment
by this Loan Modification Agreement.
2
<PAGE>
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to
make further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Loan Modification Agreement duly executed by Borrower;
(b) a Warrant Purchase Agreement and Warrant to purchase 10,000
shares of Borrower's Series C Convertible Preferred Stock, $.01 par value per
share at $0.01 per share, otherwise on terms substantially similar to the terms
of the Warrant Purchase Agreement and Warrant dated as of November 26, 1998
between Borrower and Bank; and
(c) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described in this Loan Modification
Agreement.
7. NO DEFENSES OR BORROWER. Borrower agrees that as of this date, it has
no defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents and modified by the attached Disclosure Schedule, (ii) except as
expressly modified pursuant to this Loan Modification Agreement (including the
effects of Section 6 hereof), the Existing Loan Documents remain unchanged and
in full force and effect, (iii) Bank's agreement to modify the Existing Loan
Documents pursuant to this Loan Modification Agreement shall in no way obligate
Bank to make any future modifications to the Existing Loan Documents, (iv) it is
the intention of Bank and Borrower to retain as liable parties all makers and
endorsers of the Existing Loan Documents, unless a party is expressly released
by Bank in writing, (v) no maker, endorser or guarantor will be released by
virtue of this Loan Modification Agreement, and (vi) the terms of this Section 8
apply not only to this Loan Modification Agreement but also to all subsequent
loan modification agreements, if any.
9. EFFECTIVENESS. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
3
<PAGE>
"Borrower" "Bank"
ART TECHNOLOGY GROUP, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /S/ JEET SINGH By: /S/ JAMES C. MAYNARD
------------------------ ------------------------
Jeet Singh, President James C. Maynard, SVP
SILICON VALLEY BANK
By: /S/ AMY B. YOUNG
----------------------------
Title: VICE PRESIDENT
----------------------------
(Signed in Santa Clara County,
California)
EXHIBIT D FOLLOWS
4
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Art Technology Group, Inc. Lender: Silicon Valley Bank
101 Huntington Avenue 3003 Tasman Drive
Boston, Massachusetts 02199 Santa Clara, CA 95054
The undersigned authorized officer of ART TECHNOLOGY GROUP, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated as of November 26, 1997 between Borrower and Bank as
amended from time to time (the "Agreement"), (i) Borrower is in complete
compliance for the period ending ________ of all required conditions and terms
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true, accurate and complete in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further claims that these are prepared in
accordance with Generally Accepted Accounting Principals (GAAP) and are
consistent from one period to the next except as explained in an accompanying
letter or footnotes. The Officer further expressly acknowledges Borrower may not
request any borrowings at any time or date of determination that Borrower is not
in compliance with any of the terms of the Agreement, and that such compliance
is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column
<TABLE>
<CAPTION>
REQUIRED COMPLIES
<S> <C> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R Agings Monthly within 25 days Yes No
A/R Audit Initial and Annual Yes No
<CAPTION>
COVENANTS REQUIRED ACTUAL COMPLIES
<S> <C> <C> <C> <C>
MAINTAIN ON A MONTHLY BASIS:
Minimum Quick Ratio commencing 4/30/98 1.5; 1.0 _______; 1.0 Yes No
Minimum TNW commencing 4/30/98 $1,000,000 $___________ Yes No
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COVENANTS REQUIRED ACTUAL COMPLIES
<S> <C> <C> <C> <C>
MAINTAIN ON A QUARTERLY BASIS:
Profitability FQE 6/30/98 $100,000 $___________ Yes No
Profitability FQE 9/30/98 $200,00 $___________ Yes No
Profitability FQE 12/31/98 $300,000 $___________ Yes No
OTHER:
New Equity on or before 4/15/98 $4,000,000 $___________ Yes No
</TABLE>
Comments Regarding Exceptions:
Sincerely,
- ----------------------------
Signature
- ----------------------------
TITLE
- ----------------------------
DATE
- ----------------------------------------
BANK USE ONLY
Received by:
Date:
Reviewed by:
Compliance Status: Yes No
- ----------------------------------------
<PAGE>
DISCLOSURE SCHEDULE TO LOAN MODIFICATION AGREEMENT
Section 5.2
The Company is in default on payments due under a lease and has agreed to a
payment plan with the lessor. The Company has delayed payments due to
substantially all of its creditors, including employees.
Section 5.3
The Collateral is subject to Liens in favor of Silicon Valley Bank.
Section 5.7
A default judgment in the amount of $94,365 was entered in November 1997 in
favor of the First Church of Christ Scientist of Boston, the Company's
landlord (of property no longer occupied by the Borrower), on a claim for
amounts past due. The balance due on this judgment was $24,365 as of March
15, 1998. In a letter to the Company dated February 6, 1998, Weblogic, Inc.
alleged that the Company is in default under the terms of a license
agreement. The Company believes that it is not in default under the license
agreement and has communicated this to Weblogic. No further communication
has been received from Weblogic to date. The Company believes that Sybase,
Inc. is infringing certain of the Company's DYNAMO trademarks. In addition,
see matters described in Sections 5.9, 5.10 and 5.12.
Section 5.8
The Company has delivered to the Bank its unaudited balance sheet as of
February 28, 1998 (the "Statement Date") and the related statements of
operations for the two-month period ended as of the Statement Date. Since
the Statement Date, the Company has continued to incur operating losses.
The Company is pursuing private equity investments by venture capital firms
and investment banks. The matters set forth in Sections 5.7, 5.9, 5.10 and
5.12, individually or in the aggregate, may also constitute a material
adverse change in the Company's financial condition since the Statement
Date.
Section 5.9
As of the date of this Loan and Security Agreement, the fair saleable value
of Borrower's assets (including goodwill minus disposition costs) does not
exceed the fair value of its liabilities. Following the transactions
contemplated by this Loan and Security Agreement, Borrower may be left with
unreasonably small capital. As of and prior to the date of this Loan and
Security Agreement, Borrower has not been able to pay its debts (including
trade debts) as they mature. See Sections 5.2, 5.7, 5.8 and 5.12.
<PAGE>
Section 5.10
See Section 5.12 regarding arrears in payroll and withholding taxes.
Section 5.12
The Company is in arrears in the amount of approximately $168,000 with
respect to payroll and withholding taxes.
<PAGE>
SECOND LOAN MODIFICATION AGREEMENT
This SECOND LOAN MODIFICATION AGREEMENT is entered into as of July 2, 1998,
by and between SILICON VALLEY BANK, a California-chartered bank with its
principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with
a loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, MA 02131, doing business under the name Silicon Valley
East ("Bank"), and ART TECHNOLOGY GROUP, INC., a Delaware corporation with its
principal place of business at 101 Huntington Avenue, Boston, Massachusetts
02199 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Revolving Promissory Note dated November 26, 1997 in the
original principal amount of FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS
($500,000) (the "Revolving Note"), and a Term Promissory Note dated
November 26, 1997 in the original principal amount of FIVE HUNDRED THOUSAND
AND NO/100THS DOLLARS ($500,000) (the "Term Note"). The Revolving Note and
the Term Note are governed by the terms of a Loan and Security Agreement
dated November 26, 1997 between Borrower and Bank, as such Loan and
Security Agreement was amended by a Loan Modification Agreement dated March
__, 1988 between Borrower and Bank, and as such Loan and Security Agreement
may be further amended from time to time (the "Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
pursuant to the Loan Agreement and pursuant to an Intellectual Property
Security Agreement dated as of November 26, 1997 between Borrower and Bank
(the "IP Security Agreement"). Hereinafter, the Loan Agreement, the IP
Security Agreement, the Revolving Notes and the Term Note, together with
all other documents securing payment of the Indebtedness, shall be referred
to as the "Existing Loan Documents."
<PAGE>
3. DESCRIPTION OF CHANGES IN TERMS.
3.1 MODIFICATIONS TO DEFINITIONS. Section 1.1 of the Loan Agreement is
hereby amended by substituting the following definitions for those set forth
therein for the same terms and in the case of new definitions, by adding those
new definitions to that Section 1.1:
"Committed Equipment Line" means a credit extension of up to TWO
HUNDRED THOUSAND AND NO/100THS Dollars ($200,000).
"Committed Revolving Line" means a credit extension of up to ONE
MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100THS Dollars
($1,750,000); PROVIDED, HOWEVER, that if Borrower complies with its
covenant in Section 6.11 of this Agreement on or prior to July 17,
1998, the Committed Revolving Line will be increased, on the date Bank
receives notice of such compliance, up to TWO MILLION FIVE HUNDRED
THOUSAND AND NO/100THS Dollars ($2,500,000).
"Equipment Advance" has the meaning set forth in Section 2.1.3.
"Equipment Line Maturity Date" means June 29, 2001.
"New Equity" has the meaning set forth in Section 6.11.
"Revolving Maturity Date" means JULY 1, 1999.
3.2 MODIFICATIONS TO COMMITTED REVOLVING LINE. Section 2.1.1(a) of the
Loan Agreement is hereby replaced in its entirety with the following:
(a) Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Advances to Borrower in an aggregate outstanding
amount not to exceed the Committed Revolving Line; PROVIDED, HOWEVER,
that on the earlier of July 17, 1998 or the date on which Borrower
complies with its covenant in Section 6.11 of this Agreement, Bank
Advances to Borrower shall not, in the aggregate outstanding at any
time, exceed the lesser of the Committed Revolving Line or the
Borrowing Base. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1.1 may be repaid and
reborrowed at any time during the term of this Agreement.
3.3 MODIFICATIONS TO TERM LOAN INTEREST RATES. Section 2.1.2(b) of the
Loan Agreement is hereby replaced in its entirety with the following:
(b) Interest shall accrue from the date of the Term Loan advance at a
rate equal to ONE (1.0) percentage point above the Prime Rate.
Borrower shall pay
-2-
<PAGE>
thirty-six (36) equal monthly installments of principal PLUS all
accrued and unpaid interest (the "Term Loan Payment") on the Payment
Date of each month commencing January 1998 and ending on the Maturity
Date. Borrower's final Term Loan Payment shall include all outstanding
Term Loan principal plus all accrued interest not yet paid. The Term
Loan, once repaid, may not be reborrowed.
3.4 ADDITION OF COMMITTED EQUIPMENT LINE. Section 2.1.3 is hereby added to
the Loan Agreement as follows:
2.1.3 Equipment Advances.
(a) Subject to and upon the terms and conditions of this Agreement, at
any time from the date hereof through JANUARY 2, 1999, Bank agrees to
make advances (each in "Equipment Advance" and collectively, the
"Equipment Advances") to Borrower in an aggregate outstanding amount
not to exceed the Committed Equipment Line. To evidence the Equipment
Advance or Equipment Advances, Borrower shall deliver to Bank, at the
time of each Equipment Advance request, an invoice for the equipment
to be purchased or financed. The Equipment Advances shall be used only
to purchase or finance Equipment approved from time to time by Bank,
and shall not exceed ONE HUNDRED Percent (100%) (i) of the invoice
amount of Equipment purchased on or after April 1, 1998, excluding
taxes, shipping, warranty charges, freight discounts and installation
expense, and (ii) of the book value of Equipment purchased prior to
April 1, 1998.
(b) Interest shall accrue from the date of each Equipment Advance on
the average daily balance thereof, at a per annum rate equal to ONE
(1.0) percentage point above the Prime Rate and shall be payable
monthly on the Payment Date of each month through December 31, 1998.
Any Equipment Advances that are outstanding on January 2, 1999 will be
payable in THIRTY (30) equal monthly installments of principal, plus
all accrued interest, beginning on the Payment Date of each month
commencing January 29, 1999 and ending on the Equipment Line Maturity
Date. Equipment Advances, once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Equipment Advance is to
be made. Such notice shall be substantially in the form of Exhibit B.
The notice shall be signed by a Responsible Officer or its designee
and include a copy of the invoice(s) for the Equipment to be
financial.
-3-
<PAGE>
3.5 MODIFICATIONS TO INTEREST RATES. Section 2.3(a) of the Loan Agreement
is hereby replaced in its entirety with the following:
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average daily balance thereof, at a per
annum rate equal to ONE AND ONE-HALF (1.50) percentage points above
the Prime Rate; PROVIDED, HOWEVER, that if Borrower complies with its
covenant in Section 6.11 of this Agreement on or prior to July 17,
1998, any Advances shall bear interest on the average daily balance
thereof, starting on the date Bank receives notice of such compliance,
at a per annum rate equal to ONE-QUARTER (0.25) percentage points
above the Prime Rate.
3.6 MODIFICATIONS TO QUICK RATIO COVENANT. Section 6.8 of the Loan
Agreement is hereby replaced in its entirety with the follows:
6.8 QUICK RATIO. Borrower shall maintain, as of the last day of each
calendar month commencing July 31, 1998, a ratio of Quick Assets to
Current Liabilities, excluding deferred maintenance revenues, and
including all outstanding Credit Extensions, of at least 1.75 to 1.0.
3.7 MODIFICATIONS TO TANGIBLE NET WORTH COVENANT. Section 6.9 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.9 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day of
each calendar month commencing July 31, 1998, a Tangible Net Worth of
not less than TWO MILLION AND NO/100THS Dollars ($2,000,000).
3.8 DELETION OF PROFITABILITY COVENANT. Section 6.10 of the Loan Agreement
is hereby replaced in its entirety with the following:
6.10 INTENTIONALLY OMITTED
3.9 MODIFICATIONS TO NEW EQUITY COVENANT. Section 6.11 of the Loan
Agreement is hereby replaced in its entirety with the following:
6.11 NEW EQUITY. Borrower shall have received new equity capital after
July 1, 1998 and on or before July 17, 1998 of no less than SIX
MILLION AND NO/100THS Dollars ($6,000,000) (the "New Equity").
Borrower will deposit in its accounts with Bank any new equity raised
after January 31, 1998 and will notify Bank promptly of its compliance
or non-compliance with this covenant.
3.10 MODIFICATIONS OF COMPLIANCE CERTIFICATE. Exhibit D of the Loan
Agreement is hereby replaced in its entirety with Exhibit D to this Agreement.
-4-
<PAGE>
4. FACILITY FEE. Borrower shall pay to Bank a loan modification fee of TWO
THOUSAND FIVE HUNDRED DOLLARS ($2,500) as well as any out-if-pocket
expenses incurred by Bank through the date hereof, including reasonable
attorneys' fees and expenses, and after the date hereof, all Bank Expenses,
including reasonable attorneys' fees and expenses, as and when they become
due.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to make
further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory
to Bank, the following:
(a) this Second Loan Modification Agreement duly executed by
Borrower;
(b) payment of the fees and Bank Expenses then due specified in
Section 4 hereof; and
(c) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended whenever
necessary to reflect the changes described in this Second Loan Modification
Agreement.
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has no
defenses against any of the obligations to pay any amounts under the
indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in modifying
the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing
Loan Documents, (ii) except as expressly modified pursuant to this Second
Loan Modification Agreement (including the effects of Section 6 hereof),
the Existing Loan Documents remain unchanged and in full force and effect,
(iii) Bank's agreement to modify the Existing Loan Documents pursuant to
this Second Loan Modification Agreement shall in no way obligate Bank to
make any future modifications to the Existing Loan Documents, (iv) it is
the intention of Bank and Borrower to retain as liable parties all makers
and endorsers of the Existing Loan Documents, unless a party is expressly
released by Bank in writing, (v) no maker, endorser or guarantor will be
released by virtue of this Second Loan Modification Agreement, and (vi) the
terms of this Section 8 apply not only to this Second Loan Modification
Agreement but also to all subsequent loan modification agreements, if any.
9. EFFECTIVENESS. This Agreement shall become effective only when it shall
have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ART TECHNOLOGY GROUP, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /S/ JEET SINGH By: /S/ DAVE RODRIGUEZ for
------------------------ -----------------------------
Jeet Singh, President James C. Maynard, SVP
SILICON VALLEY BANK
By: /S/ MICHELLE D. GIANNINI
-----------------------------
Title: ASST. VICE PRES.
(Signed in Santa Clara County,
California)
EXHIBIT D FOLLOWS
-6-
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: Art Technology Group, Inc. Lender: Silicon Valley Bank
101 Huntington Avenue 3003 Tasman Drive
Boston, Massachusetts 02199 Santa Clara, CA 95054
The undersigned authorized officer of ART TECHNOLOGY GROUP, INC. hereby
certify that in accordance with the terms and conditions of the Loan Security
Agreement dated as of November 26, 1997 between Borrower and Bank, as amended
from time to time (the "Agreement"), (i) Borrower is in complete compliance for
the period ending ____________________ of all required conditions and terms
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true, accurate and complete in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Certification. The Officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principals (GAAP) and are consistent from one period to the next
except as explained in an accompanying letter or footnotes. The Officer further
expressly acknowledges Borrower may not request any borrowings at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that such compliance is determined not just as the date
this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column
<TABLE>
<S> <C> <C> <C>
Monthly financial statements Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R Agings Monthly within 25 days Yes No
A/R Audit Initial and Annual Yes No
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio commencing 1.75:1.0 _________:1.0 Yes No
7/31/98
Minimum TNW commencing 7/31/98 $2,000,000 $__________ Yes No
Other:
New Equity on or before 7/17/98 $6,000,000 $__________ Yes No
</TABLE>
-7-
<PAGE>
Comments Regarding Exceptions:
Sincerely,
- --------------------------
Signature
- --------------------------
TITLE
- --------------------------
DATE
-8-
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of September 8, 1998,
by and between Art Technology Group, Inc. ("Borrower") and Silicon Valley Bank a
California-chartered bank doing business as Silicon Valley East ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, a Loan and Security Agreement, dated November 26, 1997, as may be
amended from time to time (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Revolving Line in the original principal
amount of Five Hundred Thousand and 00/100 Dollars ($500,000) and a Term Note in
original principal amount of Fine Hundred Thousand and 00/100 ($500,000). The
Committed Revolving Line and the Term Note have been modified pursuant to, among
other documents, a Second Loan Modification Agreement dated July 2, 1998,
pursuant to which, among other things, the Committed Revolving Line was
increased to Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000),
however capped at One Million Seven Hundred Fifty Thousand and 00/100
($1,750,000) until Borrower meets certain criteria as described therein and a
Committed Equipment Line was provided in the original principal amount of Two
Hundred Thousand and 00/100 Dollars ($200,000). Defined terms used but not
otherwise defined herein shall have the same meanings as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES: Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement and an Intellectual
Property Security Agreement dated November 26, 1997.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. MODIFICATION(S) TO LOAN AGREEMENT
1. The following defined terms are hereby incorporated into Section
1.1 entitled "Definitions" or amended to read as follows:
"Cash Management Services" shall have the meaning set forth in
Section 2.1.4.
"Letter of Credit" shall have the meaning set forth in Section
2.1.3.
<PAGE>
2. The following Sections are hereby incorporated into the Loan Agreement to
read as follows:
Section 2.1.3 Letters of Credit.
Subject to the terms and conditions of this Agreement, Bank agrees to issue
or cause to be issued Letters of Credit for the account of Borrower in an
aggregate outstanding face amount not to exceed (i) the lesser of the
Committed Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the then outstanding principal balance of the Advances; PROVIDED that
the face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) shall not in any case exceed One Hundred
Thousand and 00/100 Dollars ($100,000). Each Letter of Credit shall have an
expiry date no later than one hundred eighty days (180) days after the
Revolving Maturity Date provided that Borrower's Letter of Credit
reimbursement obligation shall be secured by cash on terms acceptable to
Bank at any time after the Revolving Maturity Date if the term of this
Agreement is not extended by Bank. All Letters of Credit shall be, in form
and substance, acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank's form of standard Application
and Letter of Credit Agreement.
The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of this
Agreement and such Letters of Credit under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold harmless from any loss,
cost, expense or liability, including without limitation, reasonable
attorneys' fees, arising out of or in connection with any Letters of
Credit.
Borrower may request that Bank issue a Letter of Credit payable in a
currency other than United States Dollars. If a demand for payment is made
under any such Letter of Credit. Bank shall treat such demand as an Advance
to Borrower of the equivalent of the amount thereof (plus cable charges) in
United States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
Upon the issuance of any Letter of Credit payable in a currency other than
United States Dollars, Bank shall create a reserve under the Committed
Revolving Line for Letters of Credit against fluctuations in currency
exchange rates, in an amount equal to ten percent (10%) of the face
-2-
<PAGE>
amount of such Letter of Credit. The amount of such reserve may be amended
by Bank from time to time to account for fluctuations in the exchange rate.
The availability of funds under the Committed Revolving Line shall be
reduced by the amount of such reserve for so long as such Letter of Credit
remains outstanding.
Section 2.1.4 Cash Management Sublimit.
Borrower may use up to Thirty Thousand and 00/100 ($30,000) for Bank's Cash
Management Services, which include business credit card services identified
in the Cash Management Services Agreement (the "Cash Management Services").
All amounts Bank pays for any Cash Management Services will be treated as
an Advance under the Committed Revolving Line.
3. The following Sections are hereby amended to read as follows:
Section 2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Advances to Borrower in an aggregate outstanding amount
not to exceed the Committed Revolving Line, minus the Cash Management
Sublimit, minus the face amount of all Letter of Credit (including drawn
but unreimbursed Letters of Credit) or the Borrowing Base, minus the face
amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), whichever is less. Subject to the terms
and conditions of this Agreement, amounts borrowed under Section 2.1 may be
repaid and reborrowed at any time during the terms of this Agreement.
Section 2.2 Overadvances.
If, at any time or for any reason, the amount of Advances owed by Borrower
to Bank pursuant to Section 2.1.1, 2.1.3 and 2.1.4 exceed the lesser of (i)
the Committed Revolving Line or (ii) the Borrowing Base, Borrower must
immediately pay in cash to Bank the excess.
4. CONSISTENT CHANGES: The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER: Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
-3-
<PAGE>
6. CONTINUING VALIDITY: Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ART TECHNOLOGY GROUP, INC. SILICON VALLEY BANK
By: /S/ JEET SINGH By: DAVE RODRIGUEZ
------------------------ ------------------------
Name: Jeet Singh Name: Dave Rodriguez
Title: President & CEO Title: AVP
-4-
<PAGE>
Exhibit 10.6
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
November 26, 1997, by and between SILICON VALLEY BANK, a California-chartered
bank with its principal place of business at 3003 Tasman Drive, Santa Clara, CA
95054 and with a loan production office located at Wellesley Office Park, 40
William Street, Suite 350, Wellesley, MA 02181, doing business under the name
Silicon Valley East ("Bank"), and ART TECHNOLOGY GROUP, INC., a Delaware
corporation with its principal place of business at 101 Huntington Avenue,
Boston, Massachusetts 02199 ("Grantor").
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the 'Loan Agreement'; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of its
Intellectual Property Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, as collateral
security for the prompt and complete payment when due of its obligations under
the Loan Agreement, Grantor hereby represents, warrants, covenants and agrees as
follows;
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents and Trademarks listed on Schedule A
hereto), and including without limitation all proceeds thereof (such as, by way
of example but not by way of limitation, license royalties and proceeds of
infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with
<PAGE>
respect to the security interest granted hereby are in addition to those set
forth in the Loan Agreement and the other Loan Documents, and those which are
now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by any person, including Bank, of any or all other rights, powers
or remedies.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Grantor" "Bank"
ART TECHNOLOGY GROUP, INC. SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ Jeet Singh By: /s/ James C. Maynard
-------------------------- -----------------------------
Jeet Singh, President James C. Maynard, SVP
-2-
<PAGE>
EXHIBIT A
COPYRIGHTS, PATENTS & TRADEMARKS
TRADEMARKS
<TABLE>
<CAPTION>
Registration/ Registration/
Description Application No. Application Date
- ----------- --------------- ----------------
<S> <C> <C>
ATG 75/150643 8/15/96
DYNAMO 74/722198 8/29/95
</TABLE>
PATENTS
<TABLE>
<CAPTION>
Registration Registration
Description Application No. Application Date
- ----------- --------------- ----------------
<S> <C> <C>
METHOD AND APPARATUS FOR ON 08/855,379 5/13/97
THE FLY COMPILATION AND
EXECUTION OF CONTENT
DOCUMENTS WITH EMBEDDED
SOURCE PROGRAM CODE
</TABLE>
-3-
<PAGE>
Exhibit 10.9
STOCK PURCHASE AGREEMENT
This Agreement, dated as of July __, 1995, is entered into by and among
Art Technology Group, Inc., a Massachusetts corporation with an address at 300
Massachusetts Avenue, Boston, MA 02115 (the "Company"), and Madanjeet Singh, an
individual residing at 57 Quai de Grenelle, Paris, France 75015, and B.U. Chung,
an individual residing at Route 7, Overlook Road, Barrington Hills, IL 60010
(the "Purchasers")
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has duly authorized the sale
and issuance to the Purchasers, pursuant to the terms of this Agreement, of an
aggregate of 130,000 shares of its Series A Convertible Preferred Stock, $.01
par value per share (the "Series A Stock"), having the rights, restrictions,
privileges and preferences set forth in the Articles of Amendment attached
hereto as EXHIBIT A (the "Articles of Amendment"). The Company has, or before
the Closing will have, adopted and filed the Articles of Amendment with the
Secretary of State of the Commonwealth of Massachusetts.
1.2 SALE OF SHARES. The Company hereby sells and issues to
each of the Purchasers, and each of the Purchasers hereby purchases, 65,000
shares of Series A Stock for a purchase price of $3.85 per share. The shares of
Series A Stock being sold under this Agreement are referred to as the "Shares".
The Company's agreement with each of the Purchasers is a separate agreement, and
the sale of Shares to each of the Purchasers is a separate sale.
2. THE CLOSING. Concurrently with the execution and delivery of
this Agreement, the Company is delivering to each of the Purchasers a
certificate for the number of Shares being purchased by such Purchaser,
registered in the name of such Purchaser, against payment to the Company of the
purchase price therefor, by wire transfer, check, cancellation of indebtedness
or other method acceptable to the Company.
3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents
and warrants to each of the Purchasers as follows:
3.1 CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the sale of the Shares) consists of 1,000,000
shares of Common Stock, $.01 par value per share (the "Common Stock"), of which
525,000 shares are
<PAGE>
issued and outstanding, and 2,000,000 shares of Preferred Stock, $.01 par value
per share, of which 130,000 shares have been designated as Series A Stock, none
of which shares are issued or outstanding. All of the issued and outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. Except as provided in this Agreement, no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
is authorized or outstanding.
3.2 ISSUANCE OF SHARES. The issuance, sale and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares, have been duly
authorized by all necessary corporate action on the part of the Company, and all
such shares have been duly reserved for issuance. The Shares, when issued, sold
and delivered against payment there for in accordance with the provisions of
this Agreement, and the shares of Common Stock issuable upon conversion of the
Shares, when issued upon such conversion, will be duly and validly issued, fully
paid and non-assessable.
3.3 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action. This Agreement has been duly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms.
4. INVESTMENT REPRESENTATIONS OF THE PURCHASERS. Each of the
Purchasers severally represents and warrants to the Company as follows:
(a) Such Purchaser is purchasing the Shares for his own
account for investment only, and not with a view to, or for sale in connection
with, any distribution of the Shares in violation of the Securities Act of 1933,
as amended (the "Securities Act"), or any rule or regulation under the
Securities Act.
(b) Such Purchaser has had such opportunity as he has deemed
adequate to obtain from representatives of the Company such information as is
necessary to permit him to evaluate the merits and risks of his investment in
the Company.
(c) Such Purchaser has sufficient experience in business,
financial and investment matters to be able to evaluate the risks involved in
the purchase of the Shares and to make an informed investment decision with
respect to such purchase.
-2-
<PAGE>
(d) Such Purchaser can afford a complete loss of the value of
the Shares and is able to bear the economic risk of holding such Shares for an
indefinite period.
(e) Such Purchaser understands that (i) the Shares and the
shares of Common Stock issuable upon conversion of the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares and the shares of
Common Stock issuable upon conversion of the Shares cannot be sold, transferred
or otherwise disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then available; (iii) in any
event, the exemption from registration under Rule 144 or otherwise may not be
available for at least two years and even then will not be available unless a
public market then exists for the Shares or the shares of Common Stock issuable
upon conversion of the Shares, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and (iv) there is now no registration statement on file with the
Securities and Exchange Commission with respect to any stock of the Company and
the Company has no obligation or current intention to register the Shares or the
shares of Common Stock issuable upon conversion of the Shares under the
Securities Act.
(f) A legend substantially in the following form will be
placed on the certificate representing the Shares and the shares of Common Stock
issuable upon conversion of the Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement under such Act
or an opinion of counsel satisfactory to the corporation to
the effect that such registration is not required."
5. MISCELLANEOUS.
5.1 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
5.2 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
-3-
<PAGE>
5.3 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
5.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts in
the United States, without reference to conflict of laws principles.
ART TECHNOLOGY GROUP, INC.
By: /S/ JEET SINGH
----------------------
Title: PRESIDENT/CEO
-------------------
/S/ MADANJEET SINGH
-------------------------
Madanjeet Singh
/S/ B.U. CHUNG
-------------------------
B.U. Chung
-4-
<PAGE>
EXHIBIT A
THE COMMONWEALTH OF MASSACHUSETTS
- ------------ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
Examiner MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
We Mahendrajeet Singh , President and
Mahendrajeet Singh Clerk of
Art Technology Group, Inc.
-------------------------------------------------------------------
(EXACT Name of Corporation)
located at: 300 Massachusetts Avenue, Boston, Massachusetts 02115
-------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT affecting
Articles NUMBERED: 3 AND 4
-----------
-------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
- --------- of the Articles of Organization were duly adopted by written
Name consent dated June 30, 1995, by vote of:
Approved
525,000 shares of Common Stock out of 525,000 shares outstanding,
-------- ------------- -------
type, class & series, (if any)
shares of out of shares outstanding,
-------- ------------- --------
type, class & series, (if any)
shares of out of shares outstanding,
-------- ------------- --------
type, class & series, (if any)
CROSS OUT being at least a majority of each type, class or
IN APPLI- series outstanding and entitled to vote thereo:1
/ / CABLE CLAUSE
P / /
M / / 1 For amendments adopted pursuant to Chapter 156B, Section 70.
R.A. / / 2 For amendments adopted pursuant to Chapter 156B, Section 71.
- ------------ Note: If the space provided under any Amendment or item on
P.C. this form is sufficient, additions shall be set forth on
separate 8 1/2 x 11 sheets of paper leaving a left-hand
margin of at least 1 inch for binding. Additions to more than
one Amendment may be continued on a single sheet so long as
each Amendment requiring each such addition is clearly
indicated.
<PAGE>
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -----------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON: COMMON: 1,000,000 $.01
- -----------------------------------------------------------------------------------
PREFERRED: PREFERRED:
- -----------------------------------------------------------------------------------
</TABLE>
CHANGE the total authorized to:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -----------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON: COMMON: 2,000,000 $.01
- -----------------------------------------------------------------------------------
PREFERRED: PREFERRED: 1,000,000 $.01
- -----------------------------------------------------------------------------------
</TABLE>
<PAGE>
1. Article IV of the Articles of Organization is amended to read in its entirety
as follows:
See Continuation Sheets 1A-12A attached hereto.
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. LATER EFFECTIVE DATE:
Upon Filing.
- ------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this day of July, in the year 1995.
/S/ MAHENDRAJEET SINGH President
- ---------------------------------------------------------------------
Mahendrajeet Singh
/S/ MAHENDRAJEET SINGH Clerk
- -------------------------------------------------------------------------
Mahendrajeet Singh
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
------------------------------------------------------------------------------
------------------------------------------------------------------------------
I hereby approve the within articles of
amendment and, in the filing fee in the amount of
$ having been paid, said articles are deemed to have
been filed with me this day of , 19 .
MICHAEL J. CONNOLLY
SECRETARY OF STATE
TO BE FILED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO: David A. Westenberg, Esq.
Hale and Dorr
60 State Street
Boston, MA 02109
Telephone: (617) 526-6000
<PAGE>
CONTINUATION SHEET 1A
ARTICLE IV. If more than one class of stock is authorized, state a
distinguishing designation for each class. Prior to the issuance of any shares
of a class, if shares of another class are outstanding, the corporation must
provide a description of the preferences, voting powers, qualifications, and
special or relative rights or privileges of that class and of each other class
of which shares are outstanding and of each series then established with any
class.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available there for as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the
<PAGE>
CONTINUATION SHEET 2A
creation of any such series, by resolution or resolutions providing for the
issue of the shares thereof, to determine and fix such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
special voting rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by Chapter 156B of the Massachusetts
General Laws. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior or rank equally or be junior to the Preferred Stock of
any other series to the extent permitted by law. Except as otherwise
specifically provided in this Certificate of Incorporation, no vote of the
holders of the Preferred Stock or Common Stock shall be a prerequisite to the
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of Incorporation, the right to
have such vote being expressly waived by all present and future holders of the
capital stock of the Corporation.
C. SERIES A CONVERTIBLE PREFERRED STOCK.
One Hundred Thirty Thousand (130,000) shares of the authorized and
unissued Preferred Stock of the Corporation are hereby designated "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock") with the following
rights, preferences, powers, privileges and restrictions, qualifications and
limitations.
1. DIVIDENDS.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $.1925 per share per annum (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), payable
when and as declared by the Board of Directors of the Corporation. The right to
receive dividends on Series A Preferred Stock shall be noncumulative, and no
right to dividends shall accrue by reason of the fact that no dividend has been
declared on the Series A Preferred Stock in any prior year.
(b) The Corporation shall not declare or pay any distributions
(as defined below) on shares of Common Stock until the holders of the Series A
Preferred Stock then outstanding shall have first received a distribution at the
rate specified in paragraph (a) of this Section 1.
2
<PAGE>
CONTINUATION SHEET 3A
(c) For purposes of this Section 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of Common Stock or any other class or series of
stock ranking on liquidation junior to the Series A Preferred Stock (such Common
Stock and other stock being collectively referred to as "Junior Stock") by
reason of their ownership thereof, an amount equal to $3.85 per share (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid thereon. If upon any such liquidation, dissolution
or winding up of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of shares of Series A Preferred Stock the full amount to which they
shall be entitled, the holders of shares of Series A Preferred Stock and any
class or series of stock ranking on liquidation on a parity with the Series A
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series A Preferred Stock and
any other class or series of stock of the Corporation ranking on liquidation on
a parity with the
3
<PAGE>
CONTINUATION SHEET 4A
Series A Preferred Stock, upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation available
for distribution to its stockholders.
(c) A consolidation or merger of the Corporation with or into
another corporation or entity, or a sale of all or substantially all of the
assets of the Corporation, shall not be regarded as a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 2.
3. VOTING.
(a) Each holder of outstanding shares of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock held by
such holder are then convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or by the provisions establishing any other series of Series Preferred
Stock, holders of Series A Preferred Stock and of any other outstanding series
of Series Preferred Stock shall vote together with the holders of Common Stock
as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock, and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series A Preferred Stock.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
4
<PAGE>
CONTINUATION SHEET 5A
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $3.85 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" shall initially be
$3.85. Such initial Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 6 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on the
fifth full day preceding the date fixed for redemption, unless the redemption
price is not paid when due, in which case the Conversion Rights for such shares
shall continue until such price is paid in full. In the event of a liquidation
of the Corporation, the Conversion Rights shall terminate at the close of
business on the first full day preceding the date fixed for the payment of any
amounts distributable on liquidation to the holders of Series A Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock
to convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The
5
<PAGE>
CONTINUATION SHEET 6A
Corporation shall, as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder of Series A Preferred Stock, or to his or
its nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the
Series A Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange there for and payment of any
dividends declared but unpaid thereon. Any shares of Series A Preferred Stock so
converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series A Preferred Stock pursuant
to this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to
6
<PAGE>
CONTINUATION SHEET 7A
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall, at any time or from time to time after the date on which a
share of Series A Preferred Stock was first issued (the "Original Issue Date"),
effect a subdivision of the outstanding Common Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred
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CONTINUATION SHEET 8A
Stock simultaneously receive a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as they
would have received if all outstanding shares of Series A Preferred Stock had
been converted into Common Stock on the date of such event.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Original Issue
Date for the Series A Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR
SUBSTITUTION. If the Common Stock issuable upon the conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of
any consolidation or merger of the Corporation with or into another corporation
or the
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CONTINUATION SHEET 9A
sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(i) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.
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CONTINUATION SHEET 10A
(k) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities
of the Corporation;
(ii) that the Corporation subdivides or combines
its outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision
or combination of its outstanding shares of
Common Stock or a stock dividend or stock
distribution thereon), or of any
consolidation or merger of the Corporation
into or with another corporation, or of the
sale of all or substantially all of the
assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the
Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it
is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution
or winding up.
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CONTINUATION SHEET 11A
5. MANDATORY CONVERSION.
(a) Upon the closing of the sale of shares of Common Stock, at
a price of at least $3.85 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $7,500,000 of gross proceeds to the Corporation (the "Mandatory
Conversion Date"), (i) all outstanding shares of Series A Preferred Stock shall
automatically be converted into shares of Common Stock, at the then effective
conversion rate and (ii) the number of authorized shares of Preferred Stock
shall be automatically reduced by the number of shares of Preferred Stock that
had been designated as Series A Preferred Stock, and all provisions included
under the caption "Series A Convertible Preferred Stock", and all references to
the Series A Preferred Stock, shall be deleted and shall be of no further force
or effect.
(b) All holders of record of shares of Series A Preferred
Stock shall be given written notice of the Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series A
Preferred Stock pursuant to this Section 5. Such notice need not be given in
advance of the occurrence of the Mandatory Conversion Date. Such notice shall be
sent by first class or registered mail, postage prepaid, to each record holder
of Series A Preferred Stock at such holder's address last shown on the records
of the transfer agent for the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock shall surrender his or
its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Mandatory Conversion Date, all rights with respect to
the Series A Preferred Stock so converted, including the rights, if any, to
receive notices and vote (other than as a holder of Common Stock) will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted, and payment of any declared but unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or
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CONTINUATION SHEET 12A
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Subsection 4(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
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Exhibit 10.10
ART TECHNOLOGY GROUP, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
DECEMBER 23, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization and Sale of Shares 1
2. The Closing 1
3. Representations of the Company 2
4. Representations of the Purchasers 7
5. Conditions to the Obligations of the Purchasers 8
6. Conditions to the Obligations of the Company 9
7. Covenants 10
8. Transfer of Shares 11
9. Miscellaneous 13
</TABLE>
SCHEDULES AND EXHIBITS
Exhibit A Terms of Series B Preferred Stock
Exhibit B Form of Warrant
Exhibit C Disclosure Schedule
Exhibit D Form of Stockholders Agreement
Exhibit E Form of Opinion of Hale and Dorr
<PAGE>
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement dated as of December
23, 1996, is entered into by and among Art Technology Group, Inc., a
Massachusetts corporation (the "Company") and SOFTBANK Ventures, Inc., a
Japanese corporation (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1 AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has, or before the Closing (as defined in
Section 2) will have, duly authorized the sale and issuance, pursuant
to the terms of this Agreement, of up to 425,532 shares (the "Shares")
of its Series B Convertible Preferred Stock, $.01 par value per share
(the "Series B Preferred"), having the rights, restrictions, privileges
and preferences set forth in EXHIBIT A hereto.
1.2 SALE OF SHARES. Subject to the terms and conditions of this Agreement,
at the Closing, the Company will sell and issue to the Purchaser, and
the Purchaser will purchase 425,532 shares for a purchase price of
$7.05 per share.
1.3 SALE OF WARRANTS. Subject to the terms and conditions of this
Agreement, at the Closing the Company will sell and issue to the
Purchaser, and the Purchaser will purchase, a Performance Warrant
substantially in the form attached hereto as EXHIBIT B (the "Warrant")
to acquire, for $7.05 per share, up to 425,532 shares of Series B
Preferred. The shares of Series B Preferred issuable upon the exercise
of the Warrants are referred to herein as the "Warrant Shares".
1.4 USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Shares and Warrants for product development and other working capital
purposes.
2 THE CLOSING.
The closing (the "Closing") of the sale and purchase of the Shares and
the Warrants under this Agreement shall take place at the offices of
Hale and Dorr, 60 State Street, Boston, Massachusetts 02109 at such
time, date and place as are mutually agreeable to the Company and the
Purchaser. At the Closing, the Company shall deliver to the Purchaser a
certificate evidencing the number of Shares being purchased registered
in the name of the Purchaser, against payment to the Company of the
purchase price therefor, by wire transfer, check or other method
acceptable to the Company, and a Warrant, registered in the name of the
Purchaser. The date of the Closing is hereinafter referred to as the
"Closing Date." If at the Closing any of the conditions specified in
Section 5 shall not
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<PAGE>
have been fulfilled, the Purchaser shall, at its election, be relieved
of its obligations to purchase the Shares and the Warrant at the
Closing without thereby waiving any other rights it may have by reason
of such failure or such non-fulfillment.
3 REPRESENTATIONS OF THE COMPANY.
Subject to and except as disclosed by the Company in EXHIBIT C hereto
(the "Disclosure Schedule"), the Company hereby represents and warrants
to the Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has full corporate power and
authority to conduct its business as presently conducted and as
proposed to be conducted by it and to enter into and perform this
Agreement and to carry out the transactions contemplated by this
Agreement. The Company is duly qualified to do business as a foreign
corporation in every other jurisdiction in which the failure to so
qualify would have a material adverse effect on the operations or
financial condition of the Company.
3.2 CAPITALIZATION. The authorized capital stock of the Company
(immediately prior to the Closing) consists of 12,000,000 shares of
common stock, $.01 par value per share (the "Common Stock"), of which
5,900,000 shares are issued and outstanding, and 1,000,000 shares of
Preferred Stock, $.01 par value per share, 130,000 of which shares have
been designated as Series A Convertible Preferred Stock (all of which
are issued and outstanding and which are convertible into an aggregate
of 1,300,000 shares of Common Stock), 851,064 shares have been
designated as Series B Preferred (none of which are issued or
outstanding) and 18,936 shares remain available for future designation.
All of the issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth in the Disclosure Schedule or as
contemplated by this Agreement, (i) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock of the Company is
authorized or outstanding, (ii) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of
indebtedness or assets of the Company, and (iii) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. All
of the issued and outstanding shares of capital stock of the Company
have been offered, issued and sold by the Company in compliance with
applicable Federal and state securities laws.
3.3 SUBSIDIARIES, ETC. The Company has no subsidiaries and does not own or
control, directly or indirectly, any shares of capital stock of any
other corporation or any interest in any partnership, joint venture or
other non-corporate business enterprise.
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<PAGE>
3.4 STOCKHOLDER LIST AND AGREEMENTS. Set forth in the Disclosure Schedule
is a true and complete list of the stockholders of the Company, showing
the number of shares of Common Stock or other securities of the Company
held by each stockholder as of the date of this Agreement. Except as
provided in, or contemplated by, this Agreement, or as set forth on the
Disclosure Schedule, there are no agreements, written or oral, between
the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating
to the acquisition (including without limitation rights of first
refusal or pre-emptive rights), disposition, registration under the
Securities Act of 1933, as amended (the "Securities Act"), or voting of
the capital stock of the Company.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery of the Shares and
the Warrants in accordance with this Agreement, and the issuance and
delivery of the shares of Common Stock issuable upon conversion of the
Shares and the Warrant Shares issuable upon exercise of the Warrants,
have been, or will be on or prior to the Closing, duly authorized by
all necessary corporate action on the part of the Company, and all such
shares have been duly reserved for issuance. The Shares when so issued,
sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable
upon conversion of the Shares and the Warrant Shares issuable upon
exercise of the Warrants, when issued upon such conversion or exercise,
will be duly and validly issued, fully paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and performance by the
Company of this Agreement, the Warrants, and the Stockholders Agreement
(as defined in Section 5.3 below), and the consummation by the Company
of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action. This Agreement, the
shares, the Warrants and the Stockholders Agreement have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their
respective terms. The execution of and performance of the transactions
contemplated by this Agreement, the Warrants and the Stockholders
Agreement and compliance with their provisions by the Company will not
violate any provision of law and will not conflict with or result in
any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its
Articles of Organization or By-Laws (each as amended to date) or any
indenture, lease, agreement or other instrument to which the Company is
a party or by which it or any of its properties is bound, or any
decree, judgment, order, statute, rule or regulation applicable to the
Company.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing
with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the
Stockholders Agreement or the Warrants, the offer, issuance, sale and
delivery of the Shares or the Warrants, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except
such filings as shall have been made
3
<PAGE>
prior to and shall be effective on and as of the Closing. Based on the
representations made by each of the Purchaser in Section 4 of this
Agreement, the offer and sale of the Shares and the Warrants to the
Purchaser will be in compliance with applicable Federal and state
securities laws.
3.8 LITIGATION. There is no action, suit or proceeding, or governmental
inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company,
which questions the validity of this Agreement or the right of the
Company to enter into it, or which might result, either individually or
in the aggregate, in any material adverse change in the business or
financial condition of the Company.
3.9 TAXES. The Company has filed all Federal, state, county, local and
foreign tax returns which are required to be filed by it, such returns
are true and correct and all taxes, if any, shown thereon to be due
have been timely paid with exceptions not material to the Company.
3.10 PROPERTY AND ASSETS. The Company has good title to all of its material
properties and assets, except those disposed of since the date thereof
in the ordinary course of business, and none of such properties or
assets is subject to any mortgage, pledge, lien, security interest,
lease, charge or encumbrance.
3.11 INTELLECTUAL PROPERTY. Set forth on the Disclosure Schedule is a true
and complete list of all patents, patent applications, trademarks,
service marks, trademark and service mark applications, trade names and
copyright registrations owned by the Company (the "Intellectual
Property Rights"). The Company owns, or has the right to use, all third
party technology and intellectual property necessary for the conduct of
the company's business. The Company has taken all actions reasonably
necessary to protect the Intellectual Property Rights. To the best of
the Company's knowledge, the business conducted or proposed by the
Company does not and will not cause the Company to infringe or violate
any of the patents, trademarks, service marks, trade names, copyrights,
licenses, trade secrets or other intellectual property rights of any
other person or entity. No other person or entity (including without
limitation any prior employer of any employee of the Company) has any
right to or interest in any inventions, improvements, discoveries or
other confidential information of the Company.
3.12 FINANCIAL STATEMENTS. The Company has furnished to the Purchaser its
unaudited balance sheet (the "Balance Sheet") as at June 30, 1996 (the
"Balance Sheet Date") and the related statements of operations and cash
flow for the six months then ended (collectively, the "financial
Statements"). The Financial Statements are complete and correct, are in
accordance with the books and records of the Company and present fairly
the financial condition and results of operations of the company, as at
the dates and for the periods indicated, and have been prepared in
accordance with generally accepted accounting principles consistently
applied, except that the Financial Statements have been prepared
4
<PAGE>
for the internal use of management and may not be in accordance with
generally accepted accounting principles because of the absence of
footnotes normally contained therein and are subject to normal year-end
audit adjustments which in the aggregate will not be material.
3.13 ABSENCE OF LIABILITIES. Except as disclosed in the Disclosure Schedule,
the company did not have, at the Balance Sheet Date, any liabilities of
any type which in the aggregate exceeded $50,000 whether absolute or
contingent, which were not reflected on the Balance Sheet, and since
the Balance Sheet Date, the company has not incurred or otherwise
become subject to any such liabilities or obligations except in the
ordinary course of business.
3.14 ABSENCE OF CHANGES. Since the Balance Sheet Date, there has been no
material adverse change in the condition, financial or otherwise, net
worth or results of operations of the Company, other than changes
occurring in the ordinary course of business which changes have not,
individually or in the aggregate, had a materially adverse effect on
the business, prospects, properties or condition, financial or
otherwise of the Company.
3.15 COMPLIANCE. The Company has, in all material respects, complied with
all laws, regulations and orders applicable to its business and has all
material permits and licenses required thereby.
3.16 EMPLOYEES. The Company's relations with its employees are good. All
employees of the Company whose employment responsibility requires
access to confidential or proprietary information of the Company have
executed and delivered nondisclosure and assignment of invention
agreements, the form of which has been made available to the Purchaser
for review.
3.17 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 other than a medical benefit
plan with respect to which the Company has made all required
contributions and has complied with all applicable laws.
3.18 COMPLIANCE WITH OTHER INSTRUMENTS. The company is not in violation of
any term of its Articles of Organization or its Bylaws or any mortgage,
indebtedness, indenture, judgment or decree to which it is a party or
by which it or any of its properties is bound, and is not in violation
of any material respect of any term or provision of any material
contact, agreement or instrument to which it is a party or by which it
or any of its properties is bound.
3.19 PERMITS. The Company has all franchises, permits, licenses and other
governmental authority necessary for its business as now being
conducted and believes it can obtain, without undue burden or expense,
any similar authority for its business as planned to be conducted. The
Company is not in default in any material respect under any such
5
<PAGE>
franchise, permit, license or other authority.
3.20 DISCLOSURES. Neither this Agreement nor any Schedule or Exhibit hereto,
nor any information furnished in writing by or on behalf of the Company
to the Purchaser at or prior to the Closing, when read together,
contains or will contain any untrue statement of a material fact or
merits or will omit to state a material fact necessary in order to make
the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company
knows of no information or fact which has or would have a material
adverse effect on the business, prospects, assets or condition,
financial or otherwise, of the Company which has not been disclosed to
the Purchaser.
4 REPRESENTATIONS OF THE PURCHASERS.
The Purchaser represents and warrants to the Company as follows:
4.1 INVESTMENT. The Purchaser is acquiring the Shares, the Warrants, the
Warrant Shares, and the shares of Common Stock into which the Shares
and the Warrant Shares may be converted, for its own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or
selling the same; and the Purchaser has no present or contemplated
agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof.
4.2 AUTHORITY. The Purchaser has full power and authority to enter into and
to perform this Agreement in accordance with its terms. The Purchaser
that is a corporation, partnership or trust represents it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.3 EXPERIENCE. The Purchaser has carefully reviewed the representations
concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its
personnel; the officers of the Company have made available to such
Purchaser business and financial data concerning the Company any and
all other written information which he or it has requested and have
answered to such Purchaser's satisfaction all inquiries made by such
Purchaser. Such Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to
evaluate the risks and merits of its investment in the Company and is
able financially to bear the risks thereof. Such Purchaser's overall
commitment to investments which are not readily marketable is not
disproportionate to the Purchaser's net worth and the Purchaser's
investment in the Company will not cause such overall commitment to
become excessive. The Purchaser has adequate net worth and means of
providing for current needs and personal contingencies to sustain a
complete loss of the Purchaser's investment in the Company, and the
Purchaser has no need for liquidity in this investment.
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4.4 SECURITIES LAWS. The Purchaser acknowledges that no federal or state
agency has made any finding or determination as to the fairness of the
terms of this offering. Neither the Shares nor the Warrants have been
recommended or endorsed by any federal or state securities commission
or regulatory agency nor have any of the foregoing authorities
confirmed the accuracy or determined the adequacy of the materials and
information provided to the Purchaser by the Company.
4.5 RISK. The Purchaser understands that an investment in the Company
involves significant risks, and the Purchaser has carefully reviewed
and is aware of all of the risk factors related to the purchase of the
Shares and the Warrants.
4.6 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act of 1933, as amended.
5 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER.
The obligation of the Purchaser to purchase the Shares and the Warrants
at the Closing is subject to the fulfillment, or the waiver by the
Purchaser, of each of the following conditions on or before the
applicable Closing:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation and
warranty contained in Section 3 shall be true on and as of the Closing
Date with the same effect as though such representation and warranty
had been made on and as of that date.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5.3 STOCKHOLDERS AGREEMENT. A Stockholders Agreement among the Purchaser,
the Company and certain of its stockholders, substantially in the form
attached hereto as EXHIBIT D (the "Stockholders Agreement") shall have
been executed and delivered by the Company and by each of the
Stockholders (as defined therein).
5.4 CERTIFICATES AND DOCUMENTS. The Company shall have delivered to the
Purchaser:
(a) A Certificate, as of a recent date, as to the corporate good
standing of the Company issued by the Secretary of State of the
Commonwealth of Massachusetts;
(b) The Articles of Organization of the Company, as amended and in
effect as of the Closing Date, certified by its Clerk or
Assistant Clerk as of the Closing Date;
(c) By-laws of the Company, certified by its Clerk or Assistant
Clerk as of the Closing Date; and
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(d) Resolutions of the Board of Directors of the Company
authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby, certified
by its Clerk or Assistant Clerk as of the Closing Date.
5.5 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser a certificate, executed by the President of the Company,
dated the Closing Date, certifying to the fulfillment of the conditions
specified in Sections 5.1 and 5.2 of this Agreement.
5.6 OPINION OF COMPANY'S COUNSEL. The Purchaser shall have received from
counsel to the Company an opinion addressed to the Purchaser, dated the
date of the Closing, substantially in the form attached hereto as
EXHIBIT E.
5.7 OTHER MATTERS. All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser and its counsel,
and the Purchaser and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they may reasonably request.
6 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to issue and sell the Shares and
Warrants to a Purchaser under Section 1 of this Agreement are subject
to fulfillment, or the waiver, of the following conditions on or before
the Closing:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 4 shall be true on and
as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date.
7 COVENANTS
7.1 FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company shall deliver to each Purchaser:
(a) within 90 days after the end of each fiscal year of
the Company, an audited balance sheet of the Company
as at the end of such year and audited statements of
income and of cash flows of the Company for such
year, certified by reputable certified public
accountants selected by the Company, and prepared in
accordance with generally accepted accounting
principles;
(b) within 45 days after the end of each fiscal quarter
of the Company, an unaudited balance sheet of the
Company as at the end of such quarter,
8
<PAGE>
and unaudited statements of income and of cash flows
of the Company for such fiscal quarter and for the
current fiscal year to the end of such fiscal
quarter; and
(c) no later than 30 days prior to the beginning of each
fiscal year of the Company, an annual business plan
and annual operating budget of the Company.
7.2 BOARD OF DIRECTORS.
(a) SIZE AND COMPOSITION OF BOARD. The size of the Company's Board
of Directors shall not exceed seven (7) directors without the
prior written consent of the holders of a majority of the
then-outstanding Shares. At all times, at least one (1)
director of the Company shall not be an employee of the
Company.
(b) COMPENSATION COMMITTEE. The Company shall have a compensation
committee of its Board of Directors, a majority of the members
of which committee shall constitute non-employee directors of
the Company. Such committee shall review and approve all
salaries in excess of $150,000, stock option grants and
employment agreements.
7.3 RESERVATION OF COMMON STOCK. The Company shall reserve and maintain a
sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares and Warrant Shares and a
sufficient number of shares of Series B Preferred for issuance upon
exercise of the Warrants.
7.4 ADDITIONAL PURCHASES. No Purchaser shall, without the prior written
consent of the Company, purchase, receive or otherwise acquire any
securities of the Company except (a) pursuant to the exercise of a
Warrant or the conversion of Shares or Warrant Shares, (b) pursuant to
the exercise of its rights described in Articles III or IV of the
Stockholders Agreement.
7.5 TERMINATION OF COVENANTS. The covenants of the Company and the
Purchasers contained in Sections 7.1 through 7.4 shall terminate and be
of no further force or effect on the earlier to occur of (a) the
closing of a registration statement filed by the Company under the
Securities Act covering the Company's first public offering of Common
Stock or (b) the date on which the Purchasers and any transferees to
which they have transferred Shares in accordance with the provisions of
this Agreement collectively hold less than ten percent (10%) of the
Shares purchased by the Purchasers at the Closing.
8 TRANSFER OF SHARES.
8.1 RESTRICTED SHARES. "Restricted Shares" means (i) the Shares, the
Warrants and the Warrant Shares, (ii) the shares of Common Stock issued
or issuable upon conversion of the Shares
9
<PAGE>
or the Warrant Shares, (iii) any shares of capital stock of the Company
acquired by the Purchaser pursuant to the Stockholders Agreement, and
(iv) any other shares of capital stock of the Company issued in respect
of such shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations or similar events); PROVIDED,
HOWEVER, that shares of Common Stock which are Restricted Shares shall
cease to be Restricted Shares (i) upon any sale pursuant to a
registration under the Securities Act, under Section 4(1) of the
Securities Act or Rule 144 under the Securities Act or (ii) at such
time as they become eligible for sale under Rule 144(k) under the
Securities Act.
8.2 REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the
Securities Act, or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the
Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for transfer by the Purchaser to one
or more of its affiliated corporations or partnerships.
8.3 TRANSFEREES. Any permitted transferee to whom Shares are transferred by
a Purchaser shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be
bound by the obligations imposed upon the Purchaser under this
Agreement to the same extent as if such transferee were a party hereto
and, to the extent that such transferee will receive confidential
information from the Company and to the extent that such transferee is
not at such time a party to a confidentiality agreement with the
Company, shall execute and deliver to the Company a confidentiality
agreement in form and substance acceptable to the Company. A permitted
transferee to whom rights are transferred pursuant to this Section 8
may not again transfer such rights to any other person or entity.
8.4 LEGEND. Each certificate representing Restricted Shares shall bear a
legend substantially in the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act or an opinion of counsel satisfactory to the Company
is obtained to the effect that such registration is not
required."
10
<PAGE>
The foregoing legend shall be removed from the certificates
representing any Restricted Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Securities Act.
8.5 RULE 144A INFORMATION. The Company shall, at all times during which it
is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of a Purchaser, provide in
writing to the Purchaser and to any prospective transferee of any
Restricted Shares the information concerning the Company described in
Rule 144A(d)(4) under the Securities Act ("Rule 144A Information"). The
Company also shall, upon the written request of a Purchaser, cooperate
with and assist the Purchaser or any member of the National Association
of Securities Dealers, Inc. PORTAL system in applying to designate and
thereafter maintain the eligibility of the Restricted Shares for
trading through PORTAL. The Company's obligations under this Section
8.5 shall at all times be contingent upon receipt from the prospective
transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than persons who will assist such transferee
in evaluating the purchase of any Restricted Shares.
9 MISCELLANEOUS.
9.1 SUCCESSORS AND ASSIGNS. Except as provided in Section 8 hereof, the
rights granted pursuant to this Agreement may not be transferred or
assigned, and any transfer in violation of the provisions of this
Section 9.1 shall be null and void and of no force or effect. Subject
to the foregoing, the provisions of this Agreement shall be binding
upon, and inure to the benefit of, the respective successors, assigns,
heirs, executors and administrators of the parties hereto.
9.2 CONFIDENTIALITY. Each Purchaser agrees that it will keep confidential
and will not disclose or divulge any confidential, proprietary or
secret information which it may obtain from the Company pursuant to
financial statements, reports and other materials provided by the
Company to the Purchaser pursuant to this Agreement, unless such
information is known, or until such information becomes known, to the
public; PROVIDED, HOWEVER, that the Purchaser may disclose such
information (i) to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in
connection with its investment in the Company, (ii) to any prospective
purchaser of any Shares from the Purchaser as long as such prospective
purchaser agrees in writing to be bound by the provisions of this
Section or (iii) to any affiliate of the Purchaser or to a partner,
shareholder or subsidiary of the Purchaser.
9.3 NOTICES. All notices, requests, consents and other communications under
this Agreement shall be in writing and shall be delivered by hand,
telecopy or overnight courier (by a
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<PAGE>
nationally recognized carrier) or mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
If to the Company: Art Technology Group, Inc.
101 Huntington Avenue
22nd Floor
Boston, Massachusetts 02199
Attention: President,
with a copy to Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: David A. Westenberg, Esq.
If to a Purchaser: SOFTBANK Ventures, Inc.
24-1, Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103, Japan
Attention: President
with a copy to: Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Stephen A. Grant, Esq.
or at such other address or addresses as may have been furnished by the
parties in accordance with this Section 9.3. Notices provided in
accordance with this Section 9.3 shall be deemed delivered upon
personal delivery, upon receipt of a telecopy confirmation, one day
after deposit with an overnight delivery service or three business days
after deposit in the mail.
9.4 BROKERS. The Company and the Purchaser (i) represent and warrant to the
other parties hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and
(ii) will indemnify and save the other parties harmless from and
against any and all claims, liabilities or obligations with respect to
brokerage or finders' fees or commissions, or consulting fees in
connection with the transactions contemplated by this Agreement
asserted by any person on the basis of any statement or representation
alleged to have been made by such indemnifying party.
9.5 LEGAL FEES. The Company shall pay the reasonable fees and expenses of
legal counsel for the Purchaser in connection with the purchase and
sale of the Shares and Warrants, and the negotiation of this Agreement
and the other agreements and documents referred to herein, up to a
maximum amount of $20,000.
12
<PAGE>
9.6 ENTIRE AGREEMENT. This Agreement (including the Schedule and Exhibits
hereto) embodies the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
9.7 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with
the written consent of the Company and the holder(s) of a majority of
the Shares. Any amendment or waiver effected in accordance with this
Section 9.7 shall be binding upon the Purchaser and each holder of any
Shares, Warrants or Warrant Shares (including shares of Common Stock
into which such Shares or Warrant Shares have been converted), each
future holder of all such securities and the Company. No waivers of or
exceptions to any term, condition or provision of this Agreement, in
any one or more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such term, condition or provision.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
9.9 SECTION HEADINGS. The section headings are for the convenience of the
parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
9.10 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
9.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts,
excluding its choice of law rules.
9.12 PUBLICITY. All publicity and press releases relating to the
transactions contemplated by this Agreement shall be coordinated and
approved by the Company, on the one hand, and the Purchaser.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMPANY:
ART TECHNOLOGY GROUP, INC.
By: /s/ Mahendrajeet Singh
-------------------------
Name: Mahendrajeet Singh
Title: President
PURCHASER:
SOFTBANK VENTURES, INC.
By: /s/ Yoshitaka Kitao
------------------------
Name: Yoshitaka Kitao
Title: President and Chief Executive Officer
[SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
EXHIBIT A
TERMS OF SERIES B PREFERRED STOCK
<PAGE>
PREFERENCES, VOTING POWERS, QUALIFICATIONS,
AND SPECIAL OR RELATIVE RIGHTS AND PRIVILEGES OF
SERIES B CONVERTIBLE PREFERRED STOCK
VOTED: That 851,064 shares of the authorized and unissued Preferred
Stock of the Corporation be and hereby are hereby designated
Series B Convertible Preferred Stock" (the "Series B Preferred
Stock"), having the rights, preferences, powers, privileges
and restrictions, qualifications and limitations set forth
below:
1. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock shall be entitled
to receive, out of funds legally available therefor, dividends of $0.3525 per
share per annum (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), payable when and as declared by the Board of Directors of the
Corporation. Such dividends shall accrue and shall be cumulative from the date
of issuance of each share of Series B Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any distributions (as
defined below) on shares of Common Stock, or any other class or series of stock
ranking on liquidation junior to the Series B Preferred Stock, until the holders
of the Series B Preferred Stock then outstanding shall have first received a
distribution at the rate specified in paragraph (a) of this Section 1.
(c) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
Continuation Sheet 2A
<PAGE>
2. LIQUIDATION, DISSOLUTION OR WINDING UP: CERTAIN MERGERS, CONSOLIDATIONS
AND ASSET SALES.
(a) (1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series B Preferred Stock, but before
any payment shall be made to the holders of Common Stock or Series A Preferred
Stock, or any other class or series of stock ranking on liquidation junior to
the Series B Preferred Stock, by reason of their ownership thereof, an amount
equal to the greater of (i) $7.05 per share (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any accrued but unpaid dividends
thereon, or (ii) such amount per share as would have been payable had each such
share been converted into Common Stock pursuant to Section 4 immediately prior
to such liquidation, dissolution or winding up. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series B Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series B Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series B Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Series B Preferred Stock and any other class or series of
stock of the Corporation ranking on liquidation on a parity with the Series B
Preferred Stock, upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Common Stock and Series A Preferred Stock
then outstanding shall be entitled to receive the remaining assets and funds of
the Corporation available for distribution to its stockholders.
(c) In the event of any merger or consolidation of the Corporation into
or with another corporation (except one in which the shares of capital stock of
the Corporation outstanding immediately prior to such merger or consolidation
represent, or are exchanged for or converted into, securities that represent at
least 80% by voting power of the capital stock of the resulting or surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 80% of the then outstanding shares of
Series B Preferred Stock so elect by giving written notice thereof to the
Corporation at least three days before the effective date
Continuation Sheet 2B
<PAGE>
of such event, then such merger, consolidation or asset sale shall be deemed to
be a liquidation of the Corporation, and all consideration payable to the
stockholders of the Corporation (in the case of a merger or consolidation), or
all consideration payable to the Corporation, together with all other available
assets of the Corporation (in the case of an asset sale), shall be distributed
to the holders of capital stock of the Corporation in accordance with
Subsections 2(a) and 2(b) above. The Corporation shall promptly provide to the
holders of shares of Series B Preferred Stock such information concerning the
terms of such merger, consolidation or asset sale and the value of the assets of
the Corporation as may reasonably be requested by the holders of Series B
Preferred Stock in order to assist them in determining whether to make such an
election. If the holders of the Series B Preferred Stock make such an election,
the Corporation shall use its best efforts to amend the agreement or plan of
merger or consolidation to adjust the rate at which the shares of capital stock
of the Corporation are converted into or exchanged for cash, new securities or
other property to give effect to such election. The amount deemed distributed to
the holders of Preferred Stock upon any such merger or consolidation shall be
the cash or the value of the property, rights or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation. If no notice of the election permitted by
this Subsection 2(c) is given, the provisions of Subsection 4(i) shall apply.
3. VOTING.
(a) Each holder of outstanding shares of Series B Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series B Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Section 4 hereof),
at each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 3(b) below or by the
provisions establishing any other series of preferred stock, holders of Series B
Preferred Stock shall vote together with the holders of Common Stock and other
series of Preferred Stock as a single class.
(b) The holders of record of the shares of Series B Preferred Stock,
exclusively and as a separate class, shall be entitled to elect one director of
the Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series B Preferred Stock then outstanding shall constitute a quorum of the
Series B Preferred Stock for the purpose of electing a director by holders of
the Series B Preferred Stock. A vacancy in any directorship filled by the
holders of Series B Preferred Stock shall be filled only by vote or written
consent in lieu of a meeting of the holders of the Series B Preferred Stock. The
rights of the holders of the Series B Preferred Stock under this
Continuation Sheet 2C
<PAGE>
Subsection 3(b) shall terminate on the first date on which (i) there are issued
and outstanding less than 50,000 shares of Series B Preferred Stock (subject to
appropriate adjustment in the event of any dividend, stock split, combination or
other similar recapitalization affecting such shares) or (ii) the outstanding
shares of Series B Preferred Stock represent less than 5% of the outstanding
shares of Common Stock, after giving effect to the conversion into Common Stock
of all outstanding shares of convertible Preferred Stock.
(c) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority senior to the Series B Preferred Stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series B Preferred Stock, and the authorization of any
shares of capital stock junior to or on parity with the Series B Preferred Stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series B Preferred Stock. The number of authorized shares
of Series B Preferred Stock may be increased or decreased (but not below the
number of shares then outstanding) by the directors of the Corporation pursuant
to Section 26 of Chapter 156B of the Massachusetts General Laws or by the
affirmative vote of the holders of a majority of the then outstanding shares of
the Common Stock and Preferred Stock and all other classes or series of stock of
the Corporation entitled to vote thereon, voting as a single class, irrespective
of the provisions of Section 70 of Chapter 156B of the Massachusetts General
Laws.
4. OPTIONAL CONVERSION. The holders of the Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights")
(a) RIGHT TO CONVERT. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $7.05 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" for the Series B
Preferred Stock shall initially be $7.05. Such initial Conversion Price, and the
rate at which shares of Series B Preferred Stock may be converted into shares of
Common Stock, shall be subject to adjustment as provided below. In the event of
a liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day
Continuation Sheet 2D
<PAGE>
preceding the date fixed for the payment of any amounts distributable on
liquidation to the holders of Series B Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series B Preferred Stock to
convert shares of Series B Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
B Preferred Stock, at the office of the transfer agent for the Series B
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series B
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series B
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series B
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series B Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series B Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series B Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
Continuation Sheet 2E
<PAGE>
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued but unpaid dividends on the
Series B Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series B Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange there for and payment of any dividends
accrued but unpaid thereon. Any shares of Series B Preferred Stock so converted
shall be retired and canceled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series B
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series B Preferred Stock pursuant to
this Section 4. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series B Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in Subsection 4(d)(i)(D)(IV) below.
(B) "ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series B Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences
of indebtedness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean
all shares of Common Stock issued (or, pursuant to Subsection 4(d) (iii) below,
deemed to be
Continuation Sheet 2F
<PAGE>
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of any Convertible
Securities outstanding on the
Original Issue Date, or upon
exercise of any Options outstanding
on the Original Issue Date;
(II) as a dividend or distribution on the
Series B Preferred Stock;
(III) by reason of a dividend, stock
split, split-up or other
distribution on shares of Common
Stock that is covered by Subsection
4(e) or 4(f) below;
(IV) shares of Common Stock, and options
and warrants therefor, issued or
issuable to employees, directors,
consultants or strategic partners of
or to the Corporation, as approved
by a majority of the Board of
Directors; or
(V) shares issued upon exercise of the
Performance Warrant (and the shares
issued upon conversion of such
shares) issued by the Corporation to
the original holder of the Series B
Preferred Stock.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which the Series B Preferred Stock is
convertible shall be made, by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4 (d) (v)) for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares of Common Stock, or (b) if prior to such issuance, the Corporation
receives written notice from the holders of at least 50% of the then outstanding
shares of Series B Preferred Stock as to which such adjustment would apply
agreeing that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. If the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock (as set forth in the instrument relating
thereto without
Continuation Sheet 2G
<PAGE>
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d) (v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of any
unexercised Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price;
(D) In the event of any change in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of any
Option or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Conversion Price then
in effect shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the
Continuation Sheet 2H
<PAGE>
lower of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuances of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d) (iii) shall
apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall at any
time after the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d) (iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event such Conversion Price
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Conversion Price by a fraction, (A)
the numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares of
Common Stock which the aggregate consideration received or to be received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price; and (B) the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued;
PROVIDED THAT, (i) for the purpose of this Subsection 4(d)(iv), all shares of
Common Stock issuable upon exercise or conversion of Options or Convertible
Securities outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) the number of shares of Common Stock deemed issuable upon
exercise or conversion of such outstanding Options and Convertible Securities
shall not give effect to any adjustments to the conversion price or conversion
rate of such Options or Convertible Securities resulting from the issuance of
Additional Shares of Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
Continuation Sheet 2I
<PAGE>
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be
computed at the aggregate of cash
received by the Corporation,
excluding amounts paid or payable
for accrued interest;
(II) insofar as it consists of property
other than cash, be computed at the
fair market value thereof at the
time of such issue, as determined in
good faith by the Board of
Directors; and
(III) in the event Additional Shares of
Common Stock are issued together
with other shares or securities or
other assets of the Corporation for
consideration which covers both, be
the proportion of such consideration
so received, computed as provided in
clauses (I) and (11) above, as
determined in good faith by the
Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Series B Preferred Stock, and
such issuance dates occur within a period of no more than 120 days, then the
Conversion Price shall be
Continuation Sheet 2J
<PAGE>
adjusted only once on account of such issuances, with such adjustment to occur
upon the final such issuance and to give effect to all such issuances as if they
occurred on the date of the final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series B Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series B Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series B Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series B Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
Continuation Sheet 2K
<PAGE>
have received if all outstanding shares of Series B Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time or from time to time after the Original Issue Date for
the Series B Preferred Stock shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series B Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series B Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series B Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series B Preferred Stock had been converted into Common
Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series B Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series B Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series B Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series B Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of
Continuation Sheet 2L
<PAGE>
Common Stock of the Corporation deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions in
this Section 4 set forth with respect to the rights and interest thereafter of
the holders of the Series B Preferred Stock, to the end that the provisions set
forth in this Section 4 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series B Preferred
Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred Stock subject to such adjustment a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred Stock, furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series B Preferred
Stock.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock
Continuation Sheet 2M
<PAGE>
or a stock dividend or stock distribution thereon), or of any consolidation or
merger of the Corporation into or with another corporation, or of the sale of
all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series B Preferred Stock, and shall cause to
be mailed to the holders of the Series B Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
5. MANDATORY CONVERSION.
(a) (1) Upon the closing of the sale of shares of Common Stock, at a
price of at least $15.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, resulting
in at least $10,000,000 of gross proceeds to the Corporation, (i) all
outstanding shares of Series B Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective Conversion Price, and (ii)
the number of authorized shares of Preferred Stock of the Company shall be
automatically reduced by the number of shares of Series B Preferred Stock, and
all provisions included under the caption "Series B Preferred Stock", and all
references to the Series B Preferred Stock shall be deleted and shall be of no
further force or effect.
(2) Upon the affirmative vote of the holders of a majority of
the Series B Preferred Stock, (i) all outstanding shares of Series B Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective Conversion Price, and (ii) the number of authorized shares of Series B
Preferred Stock of the Company shall be automatically reduced by the number of
shares of Series B
Continuation Sheet 2N
<PAGE>
Preferred Stock so converted, and all references to the Series B Preferred
Stock, shall be deleted and shall be of no further force or effect.
(3) The date of conversion specified in paragraphs (1) and (2)
above shall be termed the "Mandatory Conversion Date".
(b) All holders of record of shares of Series B Preferred Stock to be
converted pursuant to this Section 5 shall be given written notice of the
Mandatory Conversion Date and the place designated for mandatory conversion of
all such shares of Series B Preferred Stock pursuant to this Section 5. Such
notice need not be given in advance of the occurrence of the Mandatory
Conversion Date. Such notice shall be sent by first class or registered mail,
postage prepaid, to each record holder of such Series B Preferred Stock at such
holder's address last shown on the records of the transfer agent for the Series
B Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent). Upon receipt of such notice, each holder of shares of Series B
Preferred Stock so converted shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such notice, and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled pursuant to this Section 5. On
the Mandatory Conversion Date, all rights with respect to the Series B Preferred
Stock so converted, including the rights, if any, to receive notices and vote
(other than as a holder of Common Stock) will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series B Preferred Stock has been converted, and payment of any
accrued but unpaid dividends thereon. If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
B Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(c) All certificates evidencing shares of Series B Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and canceled and the shares of Series B Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for
Continuation Sheet 2O
<PAGE>
stockholder action) as may be necessary to reduce the authorized Series B
Preferred Stock accordingly.
6. MANDATORY REDEMPTION
(a) Provided that the Corporation receives notice from the holders of
not less than 25% of the then-outstanding Series B Preferred Stock no later than
sixty (60) days prior to one of the Mandatory Redemption Dates listed below, the
Corporation will, subject to the conditions set forth in Subsection 6(b) below,
redeem from each holder of shares of Series B Preferred Stock giving such
notice, at a price equal to $7.05 per share, plus any dividends accrued but
unpaid thereon, subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares (the "Mandatory Redemption Price"), the following respective
portions of the number of shares of Series B Preferred Stock held by such holder
(or such lesser percentage specified by such holder) on the applicable Mandatory
Redemption Date:
<TABLE>
<CAPTION>
Portion of Shares of
Series B Preferred Stock
Mandatory Redemption Date That May Be Redeemed
- ------------------------------------------------------- -------------------------------------------------------
<S> <C>
December 31, 2001 25%
December 31, 2002 50%
December 31, 2003 75%
December 31, 2004 and
each December 31 thereafter 100%
</TABLE>
(b) The Corporation shall not, on any Mandatory Redemption Date, be
required to pay more than 10% of its consolidated net income, before taxes, for
the immediately preceding fiscal year to redeem shares of the Series B Preferred
Stock pursuant to Subsection 6(a) above. If the Corporation cannot by
application of this Subsection 6(b) redeem all of the shares subject to
mandatory redemption on a particular Mandatory Redemption Date, it shall redeem
the maximum possible number of whole shares of Series B Preferred Stock ratably
on the basis of the number of shares of Series B Preferred Stock which would be
redeemed on such date if the Corporation were not prevented by this Subsection
6(b) from redeeming any shares.
(c) If the funds of the Corporation legally available for redemption of
Series B Preferred Stock on any Mandatory Redemption Date are insufficient to
redeem the number of shares of Series B Preferred Stock required under this
Section 6 to be redeemed on such date, those funds which are legally available
will be used to
Continuation Sheet 2P
<PAGE>
redeem the maximum possible number of such shares of Series B Preferred Stock
ratably on the basis of the number of shares of Series B Preferred Stock which
would be redeemed on such date if the funds of the Corporation legally available
therefor had been sufficient to redeem all shares of Series B Preferred Stock
required to be redeemed on such date. At any time thereafter when additional
funds of the Corporation become legally available for the redemption of Series B
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of the shares which the Corporation was
theretofore obligated to redeem, ratably on the basis set forth in the preceding
sentence.
(d) The Corporation shall be entitled, at its option, to credit against
the number of shares of Series B Preferred Stock required to be redeemed from
any holder on any Mandatory Redemption Date, (i) any shares of Series B
Preferred Stock previously redeemed from such holder pursuant to Section 6 and
not previously so credited, and (ii) any shares of Series B Preferred Stock
previously converted by such holder into Common Stock pursuant to Section 4 and
not previously so credited.
(e) The Corporation shall provide notice of any redemption of Series B
Preferred Stock pursuant to this Section 6 specifying the time and place of
redemption and the Mandatory Redemption Price, by first class or registered
mail, postage prepaid, to each holder of record of Series B Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not more than 60 nor less than 30 days prior to the date on which such
redemption is to be made. If less than all Series B Preferred Stock owned by
such holder is then to be redeemed, the notice will also specify the number of
shares which are to be redeemed. Upon mailing any such notice of redemption, the
Corporation will become obligated to redeem at the time of redemption specified
therein all Series B Preferred Stock specified therein (other than such shares
of Series B Preferred Stock as are duly converted pursuant to Section 4 prior to
the close of business on the fifth full day preceding the Mandatory Redemption
Date). In case less than all Series B Preferred Stock represented by any
certificate is redeemed in any redemption pursuant to this Section 6, a new
certificate will be issued representing the unredeemed Series B Preferred Stock
without cost to the holder thereof.
(f) Unless there shall have been a default in payment of the Mandatory
Redemption Price, no share of Series B Preferred Stock shall be entitled to any
dividends declared after its Mandatory Redemption Date, and on such Mandatory
Redemption Date all rights of the holder of such share as a stockholder of the
Corporation by reason of the ownership of such share will cease, except the
right to receive the Mandatory Redemption Price of such share, without interest,
upon presentation and surrender of the certificate representing such share, and
such share will not from and after such Mandatory Redemption Date be deemed to
be outstanding.
Continuation Sheet 2Q
<PAGE>
(g) Any Series B Preferred Stock redeemed pursuant to this Section 6
will be canceled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series B Preferred Stock
accordingly.
<PAGE>
EXHIBIT B
FORM OF WARRANT
<PAGE>
ART TECHNOLOGY GROUP, INC.
PERFORMANCE WARRANT
Art Technology Group, Inc., a Massachusetts corporation (the
"Company"), for value received, hereby grants SOFTBANK Ventures, Inc., a
Japanese corporation (the "Holder"), a warrant (this "Warrant"), subject to the
terms set forth below, to purchase the Warrant Shares (as hereinafter defined)
at a purchase price of $7.05 per share (the "Purchase Price"), exercisable upon
sixty (60) days prior written notice, at any time on or after February 28, 1998
and prior to the earlier of (i) the closing of the initial public offering of
shares of Common Stock of the Company ("Common Stock") at a price to the public
of at least $15.00 per share (subject to appropriate adjustment in the event of
any stock dividend, stock split, combination or other similar recapitalization
affecting the Common Stock) and resulting in gross proceeds to the Company of at
least $10,000,000 (the "IPO") and (ii) February 28, 1999 (or, if later, the
delivery to the Holder of a copy of the Company's audited financial statements
for the year ending December 31, 1998). If the IPO occurs prior to February 28,
1998, this Warrant may be exercised coincident with the IPO, in which case the
Warrant Shares shall consist of shares of Common Stock of the Company based on
the rate at which Series B Convertible Preferred Stock of the Company ("Series B
Stock") is converted into Common Stock of the Company.
The Company shall not be required upon the exercise of this Warrant to
issue any fractional shares, but shall make an adjustment therefor in cash on
the basis of the fair market value per Warrant Share, as determined in good
faith by the Company's Board of Directors.
1. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following respective meanings:
(a) The term "Revenue" shall mean all revenue, whether from
the sale of products, the provision of services or other sources, recognized by
the Company in accordance with generally accepted accounting practices
consistently applied.
(b) The term "Qualifying Softbank Revenue" shall mean all
Revenue recognized during the Measurement Period and attributable to the sale of
products or provision of services by the Company to Softbank Entities.
(c) The term "Softbank Entities" shall mean the Holder, any
subsidiary of the Holder and any corporation or other entity in which the Holder
holds an equity interest.
<PAGE>
(d) The term "Measurement Period" shall mean the period from
January 1, 1997 through the close of business on the date on which the Holder
notifies the Company of its exercise of this Warrant.
(e) The term "ATG Revenue" shall mean all Revenue other than
Qualifying Softbank Revenue recognized during the Measurement Period by the
Company.
(f) The term "Warrant Shares" shall mean 425,532 shares of
Series B Stock multiplied by the ratio of the Qualifying Softbank Revenue to 50%
of the ATG Revenue. The Warrant Shares shall be subject to adjustment as
described herein.
2. EXERCISE.
(a) This Warrant may be exercised by the Holder, in whole or
in part, by surrendering this Warrant at the principal office of the Company, or
at such other office or agency as the Company may designate, accompanied by
payment in full, in lawful money of the United States, of the Purchase Price
payable in respect of the number of Warrant Shares purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Section 2(a)
above. At such time, the Holder shall be deemed to have become the holder of
record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the Company, at
its expense, will cause to be issued in the name of, and delivered to, the
Holder:
(i) a certificate or certificates for the number of
full Warrant Shares to which the Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which the Holder would otherwise be
entitled, cash in an amount determined as set forth herein; and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased
by the Holder upon such exercise.
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<PAGE>
3. ADJUSTMENTS.
(a) If outstanding shares of the Series B Stock shall be
subdivided into a greater number of shares or a dividend in Series B Stock shall
be paid in respect of Series B Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Series B Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of Warrant Shares purchasable upon the exercise of this Warrant shall be
changed to the number determined by dividing (i) an amount equal to the number
of shares issuable upon the exercise of this Warrant immediately prior to such
adjustment, multiplied by the Purchase Price in effect immediately prior to such
adjustment, by (ii) the Purchase Price in effect immediately after such
adjustment.
(b) If there shall occur any capital reorganization or
reclassification of the Series B Stock (other than a change in par value or a
subdivision or combination as provided for in Section 3 (a) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Holder shall have
the right thereafter to receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which the Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, the Holder
had held the number of shares of Series B Stock which were then purchasable upon
the exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Company)
shall be made in the application of the provisions set forth herein with respect
to the rights and interests thereafter of the Holder, such that the provisions
set forth in this Section 3 (including provisions with respect to adjustment of
the Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Holder a certificate setting forth
the Purchase Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Such certificate shall also set forth the
kind and amount of stock or other securities or property into which this Warrant
shall be exercisable following the occurrence of any of the events specified in
Section 3(a) or 3(b) above.
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<PAGE>
4. INVESTMENT REPRESENTATIONS; LEGENDS.
(a) REPRESENTATIONS. The Holder represents, warrants and
covenants that:
(i) The Warrant Shares purchased upon exercise of
this Warrant, and the shares issuable upon conversion of the
Warrant Shares, shall be acquired for the Holder's account for
investment only and not with a view to, or for sale in
connection with, any distribution of the shares in violation
of the Securities Act of 1933, as amended (the "Securities
Act"), or any rule or regulation under the Securities Act.
(ii) The Holder has had such opportunity as it has
deemed adequate to obtain from representatives of the Company
such information as is necessary to permit the Holder to
evaluate the merits and risks of its investment in the
Company.
(iii) The Holder is able to bear the economic risk of
holding shares acquired pursuant to the exercise of this
Warrant for an indefinite period.
(iv) The Holder understands that (A) the shares
acquired pursuant to the exercise of this Warrant will not be
registered under the Securities Act and are "restricted
securities" within the meaning of Rule 144 under the
Securities Act; (B) such shares cannot be sold, transferred or
otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is
then available; (C) in any event, an exemption from
registration under Rule 144 or otherwise under the Securities
Act may not be available for at least two years and even then
will not be available unless a public market then exists for
the Warrant Shares, adequate information concerning the
Company is then available to the public and other terms and
conditions of Rule 144 are complied with; and (D) there is now
no registration statement on file with the Securities and
Exchange Commission with respect to any stock of the Company
and the Company has no obligation or current intention to
register any shares acquired pursuant to the exercise of this
Warrant under the Securities Act.
(v) The Holder agrees that, if the Company offers for
the first time any of its Common Stock for sale pursuant to a
registration statement under the Securities Act, the Holder
will not, without the prior written consent of the Company,
publicly offer, sell, contract to sell or otherwise dispose
of, directly or indirectly, any shares purchased
-4-
<PAGE>
upon exercise of this Warrant for a period of 90 days after
the effective date of such registration statement.
By making payment upon exercise of this Warrant, the Holder shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 4.
(b) LEGENDS ON STOCK CERTIFICATES. Each certificate
representing Warrant Shares shall bear a legend substantially in the following
form:
"The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 and may not
be transferred, sold or otherwise disposed of in the absence
of an effective registration statement with respect to the
shares evidenced by this certificate, filed and made effective
under the Securities Act of 1933, or an opinion of counsel
satisfactory to the Company to the effect that registration
under such Act is not required."
5. RESERVATION OF STOCK. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant or the Common
Stock issuable upon conversion of the Warrant Shares.
6. NOTICES. All notices and other communications from the Company to
the Holder shall be mailed by first-class certified or registered mail, postage
prepaid, to the address furnished to the Company in writing by the Holder. All
notices and other communications from the Holder or in connection herewith to
the Company shall be mailed by first-class certified or registered mail, postage
prepaid, to the Company at its principal office.
7. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Holder shall not have or exercise any rights by virtue hereof as a stockholder
of the Company.
8. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
9. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
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<PAGE>
10. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without reference
to conflict of laws principles.
Date of Grant: December 23, 1996
ART TECHNOLOGY GROUP, INC.
By:____________________________________
Mahendrajeet Singh
President
HOLDER
SOFTBANK VENTURES, INC.
By:____________________________________
Yoshitaka Kitao
President and Chief Executive
Officer
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<PAGE>
EXHIBIT C
DISCLOSURE SCHEDULE
Each disclosure contained in this Disclosure Schedule shall be deemed to have
been made with respect to each applicable representation and warranty contained
in Section 3 of the Agreement, irrespective of the section of this Disclosure
Schedule in which such disclosure appears.
3.2 CAPITALIZATION.
A. The Company has reserved a total of 1,000,000 shares of Common
Stock for issuance pursuant to the Company's 1996 Stock Option
Plan (the "Plan"). Options to purchase 734,600 shares of
Common Stock have been granted under the Plan. Shortly after
the closing, the Company intends to grant an option to
purchase 200 shares to each employee.
B. The Company has been informed that one of its former employees
intends to exercise an option to purchase 500 shares of Common
Stock for a purchase price of $0.20 per share. Options to
purchase an additional 3,500 shares of Common Stock held by
such employee will be terminated following such exercise in
connection with the cessation of such person's employment with
the Company.
3.4 STOCKHOLDER LIST AND AGREEMENTS.
A. See Stockholder List attached hereto.
B Agreements.
1. Stock Purchase Agreement dated as of July, 1995,
among the Corporation, Madanjeet Singh and B.U.
Chung.
2. Stock Restriction Agreement dated as of December 31,
1991 between the Corporation and Mahendrajeet Singh.
3. Stock Restriction Agreement dated as of December 31,
1991 between the Corporation and Joseph T. Chung.
3.11 INTELLECTUAL PROPERTY.
A. Trademarks
The Company has filed applications to register its marks ATG
(Serial No. 75/150643, filed August 15, 1996) and DYNAMO (Serial No. 75/722198,
filed August 29, 1996).
<PAGE>
3.12 ABSENCE OF LIABILITIES.
A. The Company has entered into agreements for a $500,000
revolving line of credit and $500,000 in term loans with Fleet
Bank. Such debts will be secured by all the assets of the
Company.
B. The Company is a party to a four-year sublease agreement
(through October 31, 2000) with Sybase Inc. for office
premises at 101 Huntington Ave., Boston, MA, providing for
annual rent of $669,084.
C. The Company is a party to a three year lease agreement
(through October 31, 1997) with First Church of Christ
Scientist for office premises at 300 Massachusetts Ave.,
Boston, MA, providing for annual rent of $117,468.
3.16 EMPLOYEES.
A. The Company was unable to make its scheduled payroll payments
on December 13, 1996.
<PAGE>
EXHIBIT D
FORM OF STOCKHOLDERS AGREEMENT
<PAGE>
STOCKHOLDERS AGREEMENT
THIS AGREEMENT, dated as of December 23, 1996, is entered into by and
among Art Technology Group, Inc., a Massachusetts corporation (the "Company"),
SOFTBANK Ventures, Inc., a Japanese corporation (the "Purchaser"), Mahendrajeet
Singh and Joseph T. Chung (individually, a "Founder" and collectively, the
"Founders"), and Madanjeet Singh and B.U. Chung (individually, a "Series A
Holder" and collectively, the "Series A Holders")
BACKGROUND
WHEREAS, the Company and the Purchaser have entered into a Series B
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement") pursuant to which the Purchaser is purchasing 425,532 shares (the
"Series B Shares") of Series B Convertible Preferred Stock, $.01 par value per
share of the Company ("Series B Preferred Stock");
WHEREAS, the Company wishes to grant the Purchaser certain rights with
respect to the registration of shares of capital stock of the Company under the
Securities Act of 1933, as amended;
WHEREAS, the Company wishes to grant the Purchaser certain rights of
first refusal with respect to the issuance of securities of the Company; and
WHEREAS, the Founders wish to grant each other, the Series A Holders,
the Company and the Purchaser, in such order of priority, certain rights of
first refusal and, alternatively, rights of co-sale with respect to the sale of
capital stock of the Company by the Founders;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and the consummation of the sale and purchase of
the Series B Preferred Stock pursuant to the Purchase Agreement, and for other
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" means the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"COMMON STOCK" means the Common Stock, $.01 per share, of the Company.
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"FOUNDER SHARES" shall mean all shares of Common Stock of the Company
held by the Founders, whether now owned or hereafter acquired.
"INITIAL PUBLIC OFFERING" means the initial public offering of shares
of Common Stock pursuant to a Registration Statement at a price to the public of
at least $15.00 per share (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting the Common Stock) and resulting in gross proceeds to the Company of at
least $10,000,000.
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation, or any registration statement
covering only securities to be sold for the account of stockholders of the
Company other than the Purchaser).
"REGISTRATION EXPENSES" means the expenses described in Section 4 of
Article II below.
"REGISTRABLE SHARES" means (i) the shares of Common Stock issued or
issuable upon conversion of the Series B Shares, (ii) any shares of Common
Stock, and any shares of Common Stock issued or issuable upon the conversion or
exercise of any other securities, acquired by the Purchaser pursuant to Article
III of this Agreement, and (iii) any other shares of Common Stock issued in
respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares (a) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act, or (b) upon any sale in any manner to a
person or entity which, by virtue of Section 2 of Article V of this Agreement,
is not entitled to the rights provided by this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.
"SHARES" shall mean all shares of Common Stock of the Company held by
the Founders, the Series A Holders and the Purchaser, whether now owned or
hereafter acquired. For purposes of calculating the pro rata ownership of Shares
by a Founder, a Series A Holder or the Purchaser, all shares of Preferred Stock
of the Company
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<PAGE>
shall be deemed to have been converted into Common Stock of the Company.
ARTICLE II. REGISTRATION RIGHTS
1. REQUIRED REGISTRATIONS.
(a) At any time after the closing of the Company's first
underwritten public offering of shares of Common Stock pursuant to a
Registration Statement, the Purchaser may request, in writing, that the Company
effect the registration on Form S-1 or Form S-2 (or any successor form) of
Registrable Shares owned by the Purchaser and having an offering price of at
least $5,000,000 (based on the then current public market price or fair value).
If the Purchaser intends to distribute the Registrable Shares by means of an
underwriting, the Purchaser shall so advise the Company in its request.
Thereupon, the Company shall, as expeditiously as possible, use its reasonable
best efforts to effect the registration on Form S-1 or Form S-2 (or any
successor form) of all Registrable Shares which the Company has been requested
to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), the Purchaser may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form), of Registrable Shares having
an aggregate offering price of at least $1,000,000 (based on the then current
public market price). Thereupon, the Company shall, as expeditiously as
possible, use its reasonable best efforts to effect the registration on Form S-3
(or such successor form) of all Registrable Shares which the Company has been
requested to so register.
(c) The Company shall not be required to effect more than
two registrations pursuant to Section 1(a) above or more than one registration
during any period of twelve consecutive months pursuant to Section 1(b) above;
PROVIDED, HOWEVER, that such obligation shall be deemed satisfied only when a
registration statement covering the applicable Registrable Shares shall have
become effective and, if such method of disposition is a firm commitment
underwritten public offering, all such Registrable Shares have been sold
pursuant thereto. In addition, the Company shall not be required to effect any
registration (other than on Form S-3 or any successor form relating to secondary
offerings) within six months after the effective date of any other Registration
Statement on Form S-1 of the Company.
(d) If at the time of any request to register Registrable
Shares pursuant to this Section 1, the Company is engaged or has plans to engage
within 90 days of the time of the request in a registered public offering of
securities for its own account or is engaged in any other activity which, in the
good faith determination of the Company's Board of Directors, would be adversely
affected by the requested registration to the material detriment of the Company,
then the Company may at its
3
<PAGE>
option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any twelve-month period.
2. INCIDENTAL REGISTRATIONS.
(a) Whenever the Company proposes to file a Registration
Statement at any time and from time to time, it will, prior to such filing, give
written notice to the Purchaser of its intention to do so and, upon the written
request of the Purchaser, given within 20 days after the Company provides such
notice (which request shall state the intended method of disposition of such
Registrable Shares), the Company shall use its reasonable best efforts to cause
all Registrable Shares which the Company has been requested by the Purchaser to
register to be registered under the Securities Act to the extent necessary to
permit their sale or other disposition in accordance with the intended methods
of distribution specified in the request of the Purchaser; PROVIDED, HOWEVER,
that the Company shall have the right to postpone or withdraw any registration
effected pursuant to this Section 2 without obligation to the Purchaser.
(b) In connection with any registration under this Section 2
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the Purchaser accepts the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by it. If in the opinion of the managing underwriter it is desirable
because of marketing factors to limit the number of Registrable Shares to be
included in the offering, then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the managing
underwriter believes should be included therein; PROVIDED, HOWEVER, that no
persons or entities other than the Company, the Purchaser and other persons or
entities holding registration rights shall be permitted to include securities in
the offering. If the number of Registrable Shares to be included in the offering
in accordance with the foregoing is less than the total number of shares which
the holders of Registrable Shares have requested to be included, then the
holders of Registrable Shares who have requested registration and other holders
of securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in the
preceding sentence.
3. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
4
<PAGE>
(a) File with the Commission a Registration Statement with
respect to such Registrable Shares and use its reasonable best efforts to cause
that Registration Statement to become and remain effective;
(b) As expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) As expeditiously as possible furnish to the Purchaser
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Purchaser may reasonably request in order to facilitate
the public sale or other disposition of the Registrable Shares owned by the
Purchaser; and
(d) As expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the Purchaser shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the Purchaser to consummate the public sale or
other disposition in such states of the Registrable Shares owned by the
Purchaser; PROVIDED, HOWEVER, that the Company shall not be required in
connection with this paragraph (d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
Purchaser and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify the
Purchaser and, if requested, the Purchaser shall immediately cease making offers
of Registrable Shares and return all prospectuses then in their possession to
the Company. The Company shall promptly provide the Purchaser with revised
prospectuses and, following receipt of the revised prospectuses, the Purchaser
shall be free to resume making offers of the Registrable Shares.
Notwithstanding the foregoing, the Purchaser shall cease making offers
or sales pursuant to a Registration Statement during any period (not to exceed
90 days) in which the Company determines, by notice to the Purchaser, that it is
in possession of material non-public information.
4. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of all registrations under this Agreement. For purposes of this Section
4,
5
<PAGE>
the term "Registration Expenses" shall mean all expenses incurred by the Company
in complying with Article II, including without limitation all registration and
filing fees, exchange listing fees, printing expenses, fees and expenses of
counsel for the Company and the fees and expenses (not to exceed $10,000) of one
counsel selected by the Purchaser to represent the Purchaser, state Blue Sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration, but excluding underwriting discounts, commissions and
the fees and expenses of the Purchaser's counsel (to the extent the fees and
expenses of such counsel exceed $10,000).
5. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or any violation by the Company of the
Securities Act or the Exchange Act or the securities act of any state or any
rule or regulation thereunder applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification or compliance; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company will 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 any untrue statement or omission made in such
Registration Statement, preliminary prospectus or final prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
(b) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
seller of Registrable Shares,
6
<PAGE>
severally and not jointly, will indemnify and hold harmless the Company, each of
its directors and officers and each underwriter (if any) and each person, if
any, who controls the Company or any such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company, such directors and
officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement, or arise out of or are based upon any violation by such seller of
the Securities Act or the Exchange Act or the securities act of any state or any
rule or regulation thereunder applicable to such seller and relating to action
or inaction required of such seller in connection with any such registration,
qualification or compliance; PROVIDED, HOWEVER, that the obligations of such
seller of Registrable Shares shall be limited to an amount equal to the proceeds
to such seller of the Registrable Shares sold in connection with such
registration.
(c) Each party entitled to indemnification under this
Section 5 (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, HOWEVER, 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 be unreasonably withheld); and, PROVIDED FURTHER, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 5. The Indemnified
Party may participate in such defense at such party's expense; PROVIDED,
HOWEVER, that the Indemnifying Party shall pay such expense if representation of
such Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. 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
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<PAGE>
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party.
(d) In order to provide for just and equitable contribution
to joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 5 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any seller of
Registrable Shares or any such controlling person in circumstances for which
indemnification is provided under this Section 5; then, in each such case, the
Company and the seller of Registrable Shares will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportions as is appropriate to reflect the
relative fault of the Company, on the one hand, and of the seller, on the other,
in connection with the statements or omissions which resulted in such claim,
loss, damage, liability or expense as well as any other relevant equitable
considerations. The relative fault of the Company and of the seller shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Company or by the seller and the parties'
relevant intent, knowledge, access to information and opportunity to correct or
prevent such statement or omissions. Notwithstanding the foregoing, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
6. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to this Article II, the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
7. INFORMATION BY HOLDER. The Purchaser shall furnish to the Company
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such information regarding the Purchaser and the distribution proposed by the
Purchaser 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.
8. "STAND-OFF" AGREEMENT. The Purchaser, if requested by the Company
and the managing underwriter of an offering by the Company of Common Stock or
other securities of the Company pursuant to a Registration Statement, shall
agree not to sell publicly or otherwise transfer or dispose of any Registrable
Shares or other securities of the Company held by the Purchaser for a specified
period of time (not to exceed 180 days) following the effective date of such
Registration Statement; PROVIDED, that:
(a) such agreement shall only apply to the first
Registration Statement covering Common Stock to be sold on its behalf to the
public in an underwritten offering; and
(b) all officers and directors of the Company enter into
similar agreements.
9. RULE 144 REQUIREMENTS. After the earliest of (a) the closing of the
sale of securities of the Company pursuant to a Registration Statement, (b) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (c) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(i) Comply with the requirements of Rule 144(c) under
the Securities Act with respect to current public information about the Company;
(ii) 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); and
(iii) Furnish to any holder of Registrable Shares
upon request (A) a written statement by the Company as to its compliance with
the requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (B) a copy of the most recent annual or quarterly
report of the Company, and (C) such other reports and documents of the Company
as such holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities without
registration.
ARTICLE III. RIGHTS OF FIRST REFUSAL FROM THE COMPANY
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1. RIGHTS OF FIRST REFUSAL
(a) The Company shall not issue, sell or exchange, agree to
issue, sell or exchange, or reserve or set aside for issuance, sale or exchange,
(i) any shares of its Common Stock, (ii) any other equity securities of the
Company, including, without limitation, shares of preferred stock, (iii) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any equity securities of the Company, or (iv) any debt securities convertible
into capital stock of the Company (collectively, the "Company Securities"),
unless in each such case the Company shall have first complied with this Article
III. The Company shall deliver to the Purchaser a written notice of any proposed
or intended issuance, sale or exchange of Company Securities (the "Offer"),
which Offer shall (i) identify and describe the Company Securities, (ii)
describe the price and other terms upon which they are to be issued, sold or
exchanged, and the number or amount of the Company Securities to be issued, sold
or exchanged, (iii) identify the persons or entities, if known, to which or with
which the Company Securities are to be offered, issued, sold or exchanged, and
(iv) offer to issue and sell to or exchange with the Purchaser such portion of
the Company Securities as the number of shares of Common Stock (including shares
of Common Stock issuable upon conversion of the Series B Shares even if such
conversion has not yet been effected) then held by the Purchaser bears to the
total number of shares of Common Stock then outstanding (including shares of
Common Stock issuable upon conversion of outstanding convertible securities
without the payment of additional consideration even if such conversion has not
yet been effected) (the "Preemptive Amount"). The Purchaser shall have the
right, for a period of 10 days following delivery of the Offer, to purchase or
acquire, at the price and upon the other terms specified in the Offer, the
number or amount of Company Securities described above. The Offer by its term
shall remain open and irrevocable for such 10-day period.
(b) To accept an Offer, in whole or in part, the Purchaser
must deliver a written notice to the Company prior to the end of the 10-day
period of the Offer, setting forth the portion of the Preemptive Amount that the
Purchaser elects to purchase (the "Notice of Acceptance").
(c) In the event that a Notice of Acceptance is not given by
the Purchaser in respect of all the Company Securities, the Company shall have
90 days from the expiration of the period set forth in Section 1(a) to issue,
sell or exchange all or any part of such Company Securities as to which a Notice
of Acceptance have not been given by the Purchaser (the "Refused Securities"),
but only to the offerees or purchasers described in the Offer and only upon
terms and conditions (including, without limitation, unit prices and interest
rates) which are not more favorable, in the aggregate, to the acquiring person
or persons or less favorable to the Company than those set forth in the Offer.
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(d) In the event the Company shall propose to sell less than
all the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 1(c)), then the Purchaser may, at its sole option and in
its sole discretion, reduce the number or amount of the Company Securities
specified in the Notice of Acceptance to an amount that shall be not less than
the number or amount of the Company Securities that the Purchaser elected to
purchase pursuant to Section 1(b), multiplied by a fraction (i) the numerator of
which shall be the number or amount of Company Securities the Company actually
proposes to issue, sell or exchange (including Company Securities to be issued
or sold to the Purchaser pursuant to Section 1(b) prior to such reduction) and
(ii) the denominator of which shall be the amount of all Company Securities. In
the event that the Purchaser so elects to reduce the number or amount of Company
Securities specified in the Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Company
Securities unless and until such securities have again been offered to the
Purchaser in accordance with Section 1(a).
(e) Upon the closing of the issuance, sale or exchange of
all or less than all the Refused Securities, the Purchaser shall acquire from
the Company, and the Company shall issue to the Purchaser, the number or amount
of Company Securities specified in the Notice of Acceptance, as reduced pursuant
to Section 1(d) if the Purchaser has so elected, upon the terms and conditions
specified in the Offer. The purchase by the Purchaser of any Company Securities
is subject in all cases to the preparation, execution and delivery by the
Company and the Purchaser of a purchase agreement relating to such Company
Securities reasonably satisfactory in form and substance to the Purchaser and
its counsel.
(f) Any Company Securities not acquired by the Purchaser or
other persons in accordance with Section 1 may not be issued, sold or exchanged
until they are again offered to the Purchaser under the procedures specified in
this Article III.
2. EXCLUDED ISSUANCES. The rights of the Purchaser under this Article
III shall not apply to:
(a) Common Stock issued as a stock dividend to holders of
Common Stock or upon any subdivision or combination of shares of Common Stock;
(b) the issuance of any shares of Common Stock upon
conversion of convertible preferred stock;
(c) shares of Common Stock issued or issuable, or options
therefor, to employees, officers or directors of, or consultants to, the Company
or any subsidiary of the Company pursuant to a plan, agreement or other
arrangement approved by the Board of Directors of the Company, provided that the
aggregate number of such shares after the date hereof shall not exceed 1,000,000
shares (subject
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to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting the Common Stock);
(d) securities issued solely in consideration for the
acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity;
(e) shares of Common Stock sold by the Company in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act;
(f) shares of Common Stock issued by the Company, with the
approval of the Board of Directors of the Company, in connection with strategic
alliances, equipment lease financings;
(g) the Series B Shares issued by the Company pursuant to
the Purchase Agreement; or
(h) shares issued upon exercise of the Performance Warrant
issued by the Company pursuant to the Purchase Agreement.
ARTICLE IV. RIGHTS OF FIRST REFUSAL AND CO-SALE FROM THE
FOUNDERS
1. RESTRICTIONS ON TRANSFER.
(a) Any sale or other disposition of any Founder Shares by a
Founder, other than according to the terms of this Article IV, shall be void and
shall not transfer any right, title or interest in or to any of such Founder
Shares to the purported transferee.
(b) An original copy of this Agreement, duly executed by
each of the parties hereto, shall be maintained at the principal executive
office of the Company and made available for inspection by any person requesting
it.
(c) Each Founder agrees to present the certificates
representing the Founder Shares presently owned or hereafter acquired by him to
the Company and to cause the Company to stamp on the certificate the following
legend:
"The sale or other disposition of any of the shares
represented by this certificate is restricted by a
Stockholders Agreement among the Company and certain
stockholders of the Company. A copy of such agreement is
available for inspection without charge at
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the office of the Secretary of the Company."
2. TRANSFERS NOT SUBJECT TO RESTRICTIONS.
(a) Any Founder may sell, assign or transfer Founder Shares
to his spouse, children, grandchildren or parents, or to a trust established for
the benefit of his spouse, children, grandchildren, parent or himself, or
dispose of them under his will, without compliance with Sections 2 through 5
hereof, provided that each such transferee agrees in writing to be bound, to the
same extent as the transferor, by this Article IV.
(b) The rights of a Buying Founder (as defined below), the
Series A Holders, the Company and the Purchaser (individually, an "RFR Holder"
and collectively, the "RFR Holders") under Sections 3 and 4 hereof shall not
apply to any pledge of Founder Shares by a Founder which creates a mere security
interest, provided the pledgee provides the RFR Holders with a written agreement
to be bound hereby to the same extent as the pledging Founder.
3. OFFER OF SALE; NOTICE OF PROPOSED SALE. If a Founder (a "Selling
Founder") desires to sell, transfer or otherwise dispose of any of his Founder
Shares, or of any interest in such Founder Shares, whether voluntarily or by
operation of law, in any transaction other than pursuant to Section 2, the
Selling Founder shall first deliver written notice of his desire to do so (the
"Notice") to the RFR Holders. The Notice must specify: (i) the name and address
of the party to which the Selling Founder proposes to sell or otherwise dispose
of Founder Shares or an interest in the Founder Shares (the "Offeree"), (ii) the
number of Founder Shares the Selling Founder proposes to sell or otherwise
dispose of (the "Offered Shares"), (iii) the consideration per Founder Share to
be delivered to the Selling Founder for the proposed sale, transfer or other
disposition, and (iv) all other material terms and conditions of the proposed
transaction.
4. OPTIONS TO PURCHASE.
(a) For the consideration per share and on the terms and
conditions specified in the Notice, and subject to Section 5, (i) the Founder
other than the Selling Founder (the "Buying Founder") shall have the first
option to purchase all or any part of the Offered Shares, (ii) the Series A
Holders shall have the second option (on a pro rata basis according to the
number of Shares owned by each Series A Holder relative to the number of Shares
held by all Series A Holders) to purchase all or any part of the Offered Shares,
(iii) the Company shall have the third option to purchase all or any part of the
Offered Shares and (iv) the Purchaser shall have the fourth option to purchase
all or any part of the Offered Shares. Any RFR Holder wishing to exercise its
option must so notify the Selling Founder and the other RFR Holders within 10
days after the Notice. In the event there are two or more RFR Holders that
choose to
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exercise their options for a total number of Offered Shares in excess of the
number available, the Offered Shares available for each such RFR Holder's option
shall be allocated among such RFR Holders in accordance with the priorities set
forth in the first sentence of this Section 4(a). Alternatively, each RFR Holder
may within the same 10-day period notify the Selling Founder of its desire to
participate in the sale of the Offered Shares on the terms set forth in the
Notice and the number of Shares it desires to sell.
(b) In the event options to purchase have been exercised by
the RFR Holders with respect to some but not all of the Offered Shares, those
RFR Holders who have exercised their options within the 10-day period specified
in Section 4(a) shall have an additional option, for a period of five days next
succeeding the expiration of such 10-day period, to purchase all or any part of
the balance of such Offered Shares on the terms set forth in the Notice, which
option shall be exercised by the delivery of written notice to the Selling
Founder and the other RFR Holders. In the event there are two or more RFR
Holders that choose to exercise the last-mentioned option for a total number of
Offered Shares in excess of the number available, the Offered Shares available
for each such RFR Holder's option shall be allocated among such RFR Holders in
accordance with the priorities set forth in the first sentence of Section 4(a).
(c) If the options to purchase the Offered Shares are
exercised in full by the RFR Holders, the Selling Founder shall immediately
notify all of the RFR Holders of that fact. The closing of the purchase of the
Offered Shares shall take place at the offices of the Company no later than five
days after the date of such notice to the RFR Holders. To the extent that the
consideration proposed to be paid by the Offeree for the Offered Shares consists
of property other than cash or a promissory note, the consideration required to
be paid by the RFR Holders exercising their options under this Section 4 may
consist of cash equal to the value of such property, as determined in good faith
by agreement of the Selling Founder and the RFR Holders acquiring such Offered
Shares.
(d) Notwithstanding anything to the contrary herein, no RFR
Holder shall have any right to purchase any of the Offered Shares hereunder
unless the RFR Holders exercise their options to purchase all of the Offered
Shares.
5. FAILURE TO FULLY EXERCISE OPTIONS; CO-SALE.
(a) If the RFR Holders do not exercise their options to
purchase all of the Offered Shares within the period described in this Article
IV (the "Option Period"), then all options of the RFR Holders to purchase the
Offered Shares, whether exercised or not, shall terminate, but each RFR Holder
which has, pursuant to Section 4(a), expressed a desire to sell Shares in the
transaction (a "Participating RFR Holder"), shall be entitled to do so pursuant
to this Section 5. The Selling Founder
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<PAGE>
shall use his best efforts to interest the Offeree in purchasing, in addition to
the Offered Shares, the Shares the Participating RFR Holders wish to sell. If
the Offeree does not wish to purchase all of the shares made available by the
Selling Founder and the Participating RFR Holders, then each Participating RFR
Holder and the Selling Founder shall be entitled to sell, at the price and on
the terms and conditions set forth in the Notice, a portion of the Offered
Shares being sold to the Offeree, with the number of Shares to be sold by each
Participating RFR Holder based on the priorities set forth in the first sentence
of Section 4(a) and the allocation between the Selling Founder, on the one hand,
and the Participating RFR Holders, on the other hand, to be pro rata based on
number of Shares owned by the Selling Founder and such Participating RFR
Holders. The transaction contemplated by the notice shall be consummated not
later than five days after the expiration of the Option Period.
(b) If the Participating RFR Holders do not elect to sell
the full number of Shares which they are entitled to sell pursuant to Section
5(a), the Selling Founder shall be entitled to sell to the Offeree, according to
the terms set forth in the Notice, that number of his own Founder Shares which
equals the difference between the number of Shares desired to be purchased by
the Offeree and the number of Shares the Participating RFR Holders wish to sell.
If the Selling Founder wishes to sell, transfer or otherwise dispose of any such
Founder Shares at a price per share which differs from that set forth in the
Notice, upon terms different from those previously offered to the RFR Holders,
or more than five days after the expiration of the Option Period, such Founder
Shares must, as a condition precedent to such transaction, first be offered to
the RFR Holders on the same terms and conditions as given the Offeree, and in
accordance with the procedures and time periods set forth above.
6. PARTIAL LIQUIDITY. Notwithstanding any other provision of this
Article IV, the Purchaser recognizes that the Founders may desire to achieve
some partial liquidity in the future, and the Purchaser agrees to work
reasonably with the Founders to achieve this.
ARTICLE V. GENERAL
1. TERMINATION. All of the Company's obligations to register
Registrable Shares under Article II of this Agreement shall terminate in its
entirety on the tenth anniversary of the Initial Public Offering. Article III of
this Agreement shall terminate upon the earlier of, and shall not apply with
respect to, (i) the sale of all or substantially all of the assets or business
of the Company, by merger, sale of assets or otherwise, and (ii) the closing of
an Initial Public Offering. Article IV of this Agreement shall terminate upon
the earlier of, and shall not apply with respect to the events described in the
following clauses (i) and (ii), (i) the sale of all or substantially all of the
assets or business of the Company, by merger, sale of assets or otherwise, (ii)
the closing of an Initial Public Offering, (iii) the fifth anniversary of the
date
15
<PAGE>
hereof and (iv) the first date on which all Series B Shares have been converted
into Common Stock at the election of the holders thereof.
2. TRANSFER OF RIGHTS. This Agreement, and the rights and obligations
of the parties hereunder, may not be assigned or transferred, except that the
Purchaser may assign its rights and obligations hereunder to one or more
affiliates to which Registrable Shares are transferred by the Purchaser, and
such transferees shall be deemed a "Purchaser" for purposes of this Agreement,
provided that each such transferee agrees in writing to be bound, to the same
extent as the Purchaser, by this Agreement.
3. SEVERABILITY. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
4. SPECIFIC PERFORMANCE. In addition to any and all other remedies that
may be available at law in the event of any breach of this Agreement, the
parties hereto shall be entitled to specific performance of the agreements and
obligations of the other parties hereto and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
5. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of Massachusetts
(without reference to the conflicts of law provisions thereof).
6. NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand, via
facsimile or a reputable nationwide overnight courier service, or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:
If to the Company, at Art Technology Group, Inc. 101 Huntington Avenue,
Floor 22, Boston, MA 02197, Attention: President, or at such other address or
addresses as may have been furnished in writing by the Company to the other
parties hereto, with a copy to Hale and Dorr, 60 State Street, Boston, MA 02109,
Attention: David A. Westenberg, Esquire;
If to the Purchaser, at SOFTBANK Ventures, Inc., 24-1,
Nihonbashi-Hakozakicho, Chuo-ku, Tokyo 103, Japan, Attention: President, or at
such other address as the Purchaser may have furnished in writing to the other
parties hereto, with a copy to Sullivan & Cromwell, 125 Broad Street, New York,
NY 10004, Attention: Stephen A. Grant, Esquire; or
If to a Founder or Series A Holder, at the respective address set forth
below, or
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<PAGE>
at such other address as such Founder or Series A Holder may have furnished in
writing to the other parties hereto.
Notices provided in accordance with this Section 6 shall be deemed
delivered (a) on the date delivered, if delivered personally or upon
confirmation of receipt by facsimile or overnight courier, or (b) five days
after deposit in the mail.
7. COMPLETE AGREEMENT; AMENDMENTS. This Agreement constitutes the full
and complete agreement of the parties hereto with respect to the subject matter
hereof. This Agreement may be amended at any time by a written instrument signed
by the Company and (i) in the case of amendments to Articles II or III or this
Section 7 with respect to Articles II or III, the holders of at least a majority
of the Registrable Shares then outstanding, (ii) in the case of amendments to
Article IV or this Section 7 with respect to Article IV, the Founders, the
Series A Holders and the holders of at least a majority of the Registrable
Shares and (iii) in the case of amendments to any other provision of this
Agreement, the holders of at least a majority of the Registrable Shares.
Wherever reference is made in this Agreement to a request or consent of holders
of a certain percentage of Registrable Shares, the determination of such
percentage shall include shares of Common Stock issuable upon conversion of the
Series B Shares even if such conversion has not yet been effected. No waivers of
or exceptions to any term, condition or provision of this Agreement, in any one
or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
8. PRONOUNS. Whenever the content may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one Agreement binding on all the parties hereto.
10. CAPTIONS. Captions of sections have been added only for convenience
and shall not be deemed to be a part of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date
first written above.
ART TECHNOLOGY GROUP, INC.
By:
-------------------------------------------
Mahendrajeet Singh
President
SOFTBANK VENTURES, INC.
By:
-------------------------------------------
Yoshitaka Kitao
President and Chief Executive Officer
MAHENDRAJEET SINGH
----------------------------------------------
Mahendrajeet Singh
Address: 30 Claremont Park
Boston, MA 02118
JOSEPH T. CHUNG
----------------------------------------------
Joseph T. Chung
Address: 144 Marlboro Street
Apartment 2
Boston, MA 02166
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<PAGE>
MADANJEET SINGH
-----------------------------------------------
Madanjeet Singh
Address: 57 Quai de Grenelle
Paris, France 75015
B.U. CHUNG
-----------------------------------------------
B.U. Chung
Address: Route 7
Overlook Road
Barrington Hills, IL 60010
19
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EXHIBIT E
FORM OF LEGAL OPINION
<PAGE>
HALE AND DORR LLP
COUNSELLORS AT LAW
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
617-526-6000 - FAX 617-526-5000
December 23, 1996
SOFTBANK Ventures, Inc.
24-1, Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103, Japan
Re: SALE OF SERIES B CONVERTIBLE PREFERRED STOCK
Ladies/Gentlemen:
This opinion is furnished to you pursuant to Section 5.6 of the Series
B Preferred Stock Purchase Agreement dated as of December 23, 1996 (the
"Purchase Agreement") between you and Art Technology Group, Inc., a
Massachusetts corporation (the "Company"), in connection with the issuance and
sale by the Company to you of 425,532 shares of Series B Preferred Stock (the
"Shares"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Purchase Agreement.
We have acted as counsel for the Company in connection with the
preparation, execution and delivery of the Purchase Agreement and the
transactions contemplated therein.
In connection with this opinion, we have examined and relied upon the
following:
1. an executed copy of the Purchase Agreement;
2. an executed copy of the Stockholders Agreement;
3. an executed copy of the Warrant;
4. the Company's Articles of Organization, as amended (the
"Articles of Organization");
5. the Company's By-Laws (the "By-Laws");
Washington, DC Boston, MA London, UK*
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
<PAGE>
SOFTBANK Ventures, Inc.
December 23, 1996
Page 2
6. a certificate, dated December 23, 1996, of the Secretary of
State of the Commonwealth of Massachusetts certifying to the
legal existence and good standing of the Company in
Massachusetts (the "'Good Standing Certificate");
7. a Certificate of the Company, executed on behalf of the
Company by the Treasurer of the Company, dated of even date
herewith, certifying as to the filing of all tax returns and
payment of all taxes by the Company (the "Tax Certificate");
8. Certificate of the Company, executed on behalf of the Company
by the Clerk of the Company, dated of even date herewith,
certifying, among other things, as to (a) the Articles of
Organization, (b) the By-Laws and (c) certain resolutions of
the Board of Director's of the Company relating to the
Purchase Agreement and the transactions contemplated thereby;
9. the Company's corporate minute and stock record books; and
10. such other agreements, documents, corporate records,
certificates and materials as we have deemed necessary for the
purposes of the opinions rendered herein.
In our examination of the documents described above, we have assumed
the genuineness of all signatures, the completeness of all corporate records
provided to us, the authenticity of all documents submitted to us as originals,
the conformity to original documents of documents submitted to us as certified,
telecopied or photostatic copies, the authenticity of the originals of such
latter documents and the legal competence of all signatories to such documents.
In rendering this opinion, we have relied, as to all questions of fact
material to this opinion, upon certificates of public officials and officers of
the Company and upon the representations and warranties made by the Company and
you in the Purchase Agreement. We have not attempted to verify independently
such facts, although we know of no facts which lead us to question the accuracy
of such certificates or representations and warranties.
Any reference herein to "our knowledge," "known to us," "know" or to
any matter "coming to our attention" or any variation of any of the foregoing
shall mean the conscious awareness of the attorneys in this firm who have
rendered substantive attention to the transactions contemplated by the Purchase
Agreement of the existence or absence of any facts which would contradict our
opinions set forth below. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our
<PAGE>
SOFTBANK Ventures, Inc.
December 23, 1996
Page 3
representation of the Company. Without limiting the foregoing, we have not
conducted a search of any computerized or electronic databases or the dockets of
any court, administrative or regulatory body, agency or other filing office in
any jurisdiction.
For purposes of this opinion, we have assumed that the Purchase
Agreement, the Stockholders Agreement and the Warrant (collectively, the
"Transaction Agreements") have been duly authorized, executed and delivered by
you, and that you have all requisite power and authority to effect the
transactions contemplated by the Transaction Agreements. We have also assumed
that the Transaction Agreements are your valid and binding obligations,
enforceable against you in accordance with their respective terms. We do not
render any opinion as to the application of any foreign, federal or state law or
regulation to your power, authority or competence.
Our opinions set forth below are qualified to the extent that they may
be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, public policy, fraudulent conveyance or similar laws
relating to or affecting the rights of creditors generally, (ii) statutory or
decisional law concerning recourse by creditors to security in the absence of
notice or hearing, (iii) duties and standards imposed on creditors and parties
to contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing, (iv) the enforceability of remedies for
breaches which are determined by a court to be immaterial, and (v) provisions
which purport to grant remedies which are wholly disproportionate to the damages
suffered or expenses incurred by a party, or which provide that rights or
remedies are not exclusive and are cumulative. Furthermore, we express no
opinion as to the availability of any equitable or specific remedy upon any
breach of such documents or any of the agreements, documents or obligations
referred to therein, or to the successful assertion of any equitable defenses,
inasmuch as the availability of such remedies or the success of any equitable
defense may be subject to the discretion of a court. We express no opinion
herein as to the enforceability of Sections 5 and 6 of Article II of the
Stockholders Agreement.
For purposes of our opinion expressed in the first sentence of
paragraph 1 below, we have relied solely upon the Good Standing Certificate and
the Tax Certificate, and such opinion is limited accordingly and is made as of
the date of the Good Standing Certificate and the Tax Certificate. We express no
opinion as to the tax good standing of the Company.
For purposes of our opinion in paragraph 5 below, we have relied upon
representations made by you in Section 4 of the Purchase Agreement, and have
assumed (without any independent investigation) the accuracy of such
representations.
<PAGE>
SOFTBANK Ventures, Inc.
December 23, 1996
Page 4
We express no opinion with respect to any securities anti-fraud laws or
fraudulent transfer laws.
We express no opinion concerning the treatment for tax purposes of the
transactions contemplated by the Purchase Agreement
We express no opinion with regard to any foreign or state securities or
"Blue Sky" laws.
We are opining herein only with respect to the state laws of the
Commonwealth of Massachusetts and the federal laws of the United States of
America as in our experience are normally applicable to transactions of the type
contemplated by the Transaction Agreements and, with your permission, our
opinions exclude the applicability and effect of (i) any foreign, city or county
laws and (ii) antitrust and unfair competition laws.
Furthermore, we express no opinion as to any filing, permit,
authorization, consent or approval (i) which may be required by or otherwise
applicable to the Company as a result of the involvement of you in the
transactions contemplated by the Transaction Agreements because of your legal or
regulatory status or because of any other facts specifically pertaining to you,
or (ii) which does not have any material adverse effect on you and does not
deprive you of any material benefit under the Transaction Agreements.
For the purposes of this opinion, we have assumed that the facts and
law governing the performance by the parties of their respective obligations
under the Transaction Agreements will be identical to the facts and law
governing such performance as of the date of this opinion.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts. The Company
has the corporate power and authority to carry on its business as, to our
knowledge, it is now conducted and to own and operate its properties in
connection therewith.
2. The Shares will be, when issued and paid for in accordance with the
Purchase Agreement, duly authorized, validly issued, fully paid and
nonassessable. The shares issuable upon conversion of the Shares have been duly
reserved for issuance upon conversion of the Shares and, when so issued, will be
duly authorized, validly issued, fully paid and nonassessable shares of Common
Stock. The Warrant Shares have been duly reserved for issuance upon exercise of
the Warrant and, when so issued and paid for, will be duly authorized, validly
issued, fully paid and
<PAGE>
SOFTBANK Ventures, Inc.
December 23, 1996
Page 5
nonassessable. The shares issuable upon conversion of the Warrant Shares have
been duly reserved for issuance upon conversion of the Warrant Shares and, when
so issued, will be duly authorized, validly issued, fully paid and
nonassessable.
3. The Company has all requisite corporate power and authority to
execute and deliver the Transaction Agreements and to perform its respective
obligations thereunder. The execution and delivery of the Transaction Agreements
and the consummation of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action on the part of the Company.
The Transaction Agreements have been duly and validly executed and delivered by
the Company and constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms (other
than Sections 5 and 6 of Article II of the Stockholders Agreement, as to which
we express no opinion).
4. Except as set forth in the Transaction Agreements, neither the
Company's execution and delivery of the Transaction Agreements, nor the
Company's consummation of the transactions contemplated thereby, (i) conflicts
with or violates any provision of the Articles of Organization or the By-Laws,
(ii) to our knowledge, requires on the part of the Company any filing with, or
permit, authorization, consent or approval of, any federal or state governmental
agency, (iii) to our knowledge, violates any order, writ, injunction or decree
specifically naming the Company or any of its properties or assets or (iv) to
our knowledge, violates any statute, rule or regulation applicable to the
Company.
5. The authorized capital stock of the Company (immediately prior to
the Closing) consists of 12,000,000 shares of common stock, $.01 par value per
share (the "Common Stock"), of which 5,900,000 shares are issued and outstanding
of record, and 1,000,000 shares of Preferred Stock, $.01 par value per share, of
which 130,000 shares have been designated as Series A Convertible Preferred
Stock (all of which are issued and outstanding of record), 851,064 shares have
been designated as Series B Preferred (none of which are issued or outstanding
of record), and 18,936 shares remain available for future designation and
issuance in accordance with the Articles of Organization and applicable law.
6. Based on the representations made by you in Section 4 of the
Purchase Agreement, the issuance of the Shares to you pursuant to the Purchase
Agreement will be exempt from the registration provisions of Section 5 of the
Securities Act of 1933, as amended.
7. To our knowledge, there is no action, suit or proceeding, or
governmental inquiry or investigation, pending against the Company.
<PAGE>
SOFTBANK Ventures, Inc.
December 23, 1996
Page 6
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions, and we disclaim any obligation to advise you
of any change in any of these sources of law or subsequent legal or factual
developments which might affect any matters or opinions set forth herein.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is solely for your benefit in connection with the transactions
contemplated by the Purchase Agreement and may not be quoted or relied upon by
any other person or used for any other purpose without our prior written
consent.
Very truly yours,
HALE AND DORR
<PAGE>
Exhibit 10.11
ART TECHNOLOGY GROUP, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
NOVEMBER 12, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Authorization and Sale of Shares 1
2. The Closings 1
3. Representations of the Company 2
4. Representations of the Purchasers 6
5. Conditions to the Obligations of the Purchasers 7
6. Conditions to the Obligations of the Company 8
7. Covenants 9
8. Transfer of Shares 10
9. Miscellaneous 11
</TABLE>
SCHEDULES AND EXHIBITS
Schedule 1 Purchasers
Exhibit A Certificate of Designations
Exhibit B Disclosure Schedule
Exhibit C Form of Registration Rights Agreement
<PAGE>
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
entered into as of November 12, 1997 by and among Art Technology Group, Inc., a
Delaware corporation (the "Company") and the persons and/or entities listed on
SCHEDULE 1 hereto (each individually a "Purchaser" and collectively, the
"Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1 AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has, or before the applicable Closing (as
defined in Section 2) will have, duly authorized the sale and issuance,
pursuant to the terms of this Agreement, of up to 1,000,000 shares (the
"Shares") of its Series C Convertible Preferred Stock, $.01 par value
per share (the "Series C Preferred"), having the rights, restrictions,
privileges and preferences set forth in the Certificate of Designations
attached hereto as EXHIBIT A hereto.
1.2 SALE OF SHARES AT CLOSINGS.
(a) Subject to the terms and conditions of this Agreement, at the
First Closing (as defined below) the Company will sell and
issue to each of the Purchasers purchasing Shares thereat, and
each of such Purchasers will purchase, the number of shares of
Series C Preferred set forth opposite such Purchaser's name on
SCHEDULE 1, for the purchase price of $1.62 per share.
(b) Subject to the terms and Conditions of this Agreement, at the
Additional Closings (as defined below) the Company will sell
and issue to each of the Purchasers who executes a counterpart
of this Agreement after the First Closing Date the number of
shares of Series C Preferred set forth opposite such
Purchaser's name on the revised SCHEDULE 1 prepared by the
Company prior to the date of such Additional Closing, for the
purchase price of $1.62 per share.
2 THE CLOSINGS.
2.1 GENERALLY. At each Closing (as defined below), the Company shall
deliver to the applicable Purchaser(s) a certificate for the number of
Shares being purchased by such Purchaser, registered in the name of
such Purchaser, against payment to the Company of the purchase price
therefor, by wire transfer, check, or other method acceptable to the
Company (provided that the Company acknowledges receipt from Mr. Scott
A. Jones of the amount of $250,000 on October 16, 1997 as advance
payment of the purchase price for 154,321 of the Shares). If
immediately prior to a Closing any of the conditions
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<PAGE>
specified in Section 5 shall not have been fulfilled, each Purchaser
purchasing Shares at such Closing shall, at his or its election, be
relieved of his or its obligation to purchase such Shares under this
Agreement without thereby waiving any other rights he or it may have by
reason of such failure or such nonfulfillment.
2.2 FIRST CLOSING. The first closing of the purchase and sale of Shares
will take place at the offices of Hale and Dorr LLP, at 60 State
Street, Boston, Massachusetts, on November 12, 1997 or at such time and
place as the Company and the Purchasers purchasing at least a majority
of the Shares at such closing may agree (such closing is referred to as
the "First Closing," and the date of the First Closing is referred to
as the "First Closing Date").
2.3 ADDITIONAL CLOSINGS. The Company may, at its election, from time to
time during the 90 day period following the First Closing Date,
consummate one or more additional closings (collectively the
"Additional Closings" and each individually an "Additional Closing") of
the purchase and sale pursuant to the terms of this Agreement of such
of the Shares that were not sold at the First Closing and, as
applicable, any prior Additional Closing, on such dates and to such
purchasers as the Company may determine. No consent, waiver, signature,
approval or the like from any Purchaser participating in the First
Closing or, as applicable, any prior Additional Closing, will be
required for any Additional Closing. Each purchaser of Shares at any
Additional Closing pursuant to this Agreement shall, effective upon
execution and delivery of a counterpart signature page hereto, become a
party to, and be bound by, this Agreement and shall thereupon be deemed
a "Purchaser" for all purposes of this Agreement. (The First Closing
and any Additional Closing are each sometimes referred to as a
"Closing," and the First Closing Date and the date of any Additional
Closing are each sometimes referred to as a "Closing Date.").
2.4 AMENDMENT OF AGREEMENT. Upon each Additional Closing, this Agreement
shall be amended to add to Schedule 1 hereto (i) the name and address
of each Purchaser at such Additional Closing and (ii) the number of
Shares purchased at such Additional Closing by each such Purchaser.
3 REPRESENTATIONS OF THE COMPANY.
Subject to and except as disclosed by the Company in EXHIBIT B hereto
(the "Disclosure Schedule"), the Company hereby represents and warrants
to each of the Purchasers, as of the applicable Closing Date, as
follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its
business as presently conducted and as proposed to be conducted by it
and to enter into and perform this Agreement and to carry out the
transactions contemplated by this Agreement. The Company is duly
qualified to do business as a foreign corporation in every other
jurisdiction in which the failure to so
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<PAGE>
qualify would have a material adverse effect on the operations or
financial condition of the Company.
3.2 CAPITALIZATION. The authorized capital stock of the Company
(immediately prior to the Closing) consists of 25,000,000 shares of
common stock, $.01 par value per share (the "Common Stock"), of which
5,923,912 shares are issued and outstanding, and 10,000,000 shares of
Preferred Stock, $.01 par value per share, 1,300,000 of which shares
have been designated as Series A Convertible Preferred Stock (all of
which are issued and outstanding), 851,064 of which shares have been
designated as Series B Convertible Preferred Stock (425,532 of which
are issued and outstanding) and 1,000,000 shares of Series C Preferred
(none of which are issued or outstanding). All of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
Except as set forth in the Disclosure Schedule or as contemplated by
this Agreement, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company is authorized or
outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible
security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets
of the Company, and (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make
any other distribution in respect thereof. All of the issued and
outstanding shares of capital stock of the Company have been offered,
issued and sold by the Company in compliance with applicable Federal
and state securities laws.
3.3 SUBSIDIARIES, ETC. The Company has no subsidiaries and does not own or
control, directly or indirectly, any shares of capital stock of any
other corporation or any interest in any partnership, joint venture or
other non-corporate business enterprise.
3.4 STOCKHOLDER LIST AND AGREEMENTS. Set forth in the Disclosure Schedule
is a true and complete list of the stockholders of the Company, showing
the number of shares of Common Stock or other securities of the Company
held by each stockholder as of the date of this Agreement. Except as
provided in, or contemplated by, this Agreement, or as set forth on the
Disclosure Schedule, there are no agreements, written or oral, between
the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating
to the acquisition (including without limitation rights of first
refusal or pre-emptive rights), disposition, registration under the
Securities Act of 1933, as amended (the "Securities Act"), or voting of
the capital stock of the Company.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery of the Shares in
accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares, have
been, or will be on or prior to the Closing, duly authorized by all
necessary corporate action on the part of the Company, and all such
shares have
-3-
<PAGE>
been duly reserved for issuance. The Shares when so issued, sold and
delivered against payment therefor in accordance with the provisions of
this Agreement, and the shares of Common Stock issuable upon conversion
of the Shares, when issued upon such conversion or exercise, will be
duly and validly issued, fully paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and performance by the
Company of this Agreement and the Registration Rights Agreement, and
the consummation by the Company of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate
action. This Agreement and the Registration Rights Agreement have been
duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms. The execution of and performance of the transactions
contemplated by this Agreement and the Registration Rights Agreement
and compliance with their provisions by the Company will not violate
any provision of law and will not conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute a
default under, or require a consent or waiver under, its Certificate of
Incorporation or By-Laws (each as amended to date) or any indenture,
lease, agreement or other instrument to which the Company is a party or
by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing
with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the
Registration Rights Agreement, the offer, issuance, sale and delivery
of the Shares, or the other transactions to be consummated at the
applicable Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and
as of the applicable Closing. Based on the representations made by each
of the Purchasers in Section 4 of this Agreement, the offer and sale of
the Shares to each of the Purchasers will be in compliance with
applicable Federal and state securities laws.
3.8 LITIGATION. There is no action, suit or proceeding, or governmental
inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor, against the Company, which questions the
validity of this Agreement or the right of the Company to enter into
it, or which might result, either individually or in the aggregate, in
any material adverse change in the business or financial condition of
the Company.
3.9 TAXES. Except as set forth in the Disclosure Schedule, the Company has
filed all Federal, state, county, local and foreign tax returns which
are required to be filed by it, such returns are true and correct and
all taxes, if any, shown thereon to be due have been timely paid with
exceptions not material to the Company.
3.10 PROPERTY AND ASSETS. Except as set forth in the Disclosure Schedule,
the Company has good title to all of its material properties and
assets, except those disposed of since the
-4-
<PAGE>
date thereof in the ordinary course of business, and none of such
properties or assets is subject to any mortgage, pledge, lien, security
interest, lease, charge or encumbrance.
3.11 INTELLECTUAL PROPERTY. Set forth on the Disclosure Schedule is a true
and complete list of all patents, patent applications, trademarks,
service marks, trademark and service mark applications owned by the
Company (the "Intellectual Property Rights"). The Company owns, or has
the right to use, all third party technology and intellectual property
necessary for the conduct of the Company's business. The Company has
taken all actions reasonably necessary to protect the Intellectual
Property Rights. To the best of the Company's knowledge, the business
conducted or proposed by the Company does not and will not cause the
Company to infringe or violate any of the patents, trademarks, service
marks, trade names, copyrights, licenses, trade secrets or other
intellectual property rights of any other person or entity. No other
person or entity (including without limitation any prior employer of
any employee of the Company) has any right to or interest in any
inventions, improvements, discoveries or other confidential information
of the Company.
3.12 FINANCIAL STATEMENTS. The Company has furnished to each of the
Purchasers its audited income statement and balance sheet as at
December 31, 1996 and its unaudited balance sheet (the "Balance Sheet")
as of September 30, 1997 (the "Balance Sheet Date") (collectively, the
"Financial Statements"). The Financial Statements are complete and
correct, are in accordance with the books and records of the Company
and present fairly the financial condition and results of operations of
the Company, as at the dates and for the periods indicated, and have
been prepared in accordance with generally accepted accounting
principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the
absence of footnotes normally contained therein and are subject to
normal year-end audit adjustments which in the aggregate will not be
material.
3.13 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule, there has been no material adverse change
in the condition, financial or otherwise, net worth or results of
operations of the Company, other than changes occurring in the ordinary
course of business which changes have not, individually or in the
aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.
3.14 COMPLIANCE. Except as set forth in the Disclosure Schedule, the Company
has, in all material respects, complied with all laws, regulations and
orders applicable to its business and has all material permits and
licenses required thereby.
3.15 EMPLOYEES. Except as set forth in the Disclosure Schedule, the
Company's relations with its employees are good. All employees of the
Company whose employment responsibility requires access to confidential
or proprietary information of the Company have executed
-5-
<PAGE>
and delivered nondisclosure and assignment of invention agreements, the
form of which has been made available to the Purchaser for review.
3.16 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 other than a medical benefit
plan with respect to which the Company has made all required
contributions and has complied with all applicable laws.
4 REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser severally, but not jointly, represents and warrants to
the Company as follows:
4.1 INVESTMENT. The Purchaser is acquiring the Shares, and the shares of
Common Stock into which the Shares may be converted for its own account
for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of
distributing or selling the same; and the Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof.
4.2 AUTHORITY. The Purchaser has full power and authority to enter into and
to perform this Agreement and the Registration Rights Agreement in
accordance with their terms. This Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Purchaser and
constitute valid and binding obligations of the Purchaser enforceable
in accordance with their respective terms. Any Purchaser that is a
corporation, partnership or trust represents it has not been organized,
reorganized or recapitalized specifically for the purpose of investing
in the Company.
4.3 EXPERIENCE. The Purchaser has carefully reviewed the representations
concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its
personnel; the officers of the Company have made available to such
Purchaser business and financial data concerning the Company any and
all other written information which he or it has requested and have
answered to such Purchaser's satisfaction all inquiries made by such
Purchaser. Such Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to
evaluate the risks and merits of its investment in the Company and is
able financially to bear the risks thereof. Such Purchaser's overall
commitment to investments which are not readily marketable is not
disproportionate to the Purchaser's net worth and the Purchaser's
investment in the Company will not cause such overall commitment to
become excessive. The Purchaser has adequate net worth and means of
providing for current needs and personal contingencies to sustain a
complete loss of the Purchaser's investment in the Company, and the
Purchaser has no need for liquidity in this investment.
-6-
<PAGE>
4.4 SECURITIES LAWS. The Purchaser acknowledges that no federal or state
agency has made any finding or determination as to the fairness of the
terms of this offering. The Shares have not been recommended or
endorsed by any federal or state securities commission or regulatory
agency nor have any of the foregoing authorities confirmed the accuracy
or determined the adequacy of the materials and information provided to
the Purchaser by the Company.
4.5 RISK. The Purchaser understands that an investment in the Company
involves significant risks, and the Purchaser has carefully reviewed
and is aware of all of the risk factors related to the purchase of the
Shares. Purchaser understands and has fully considered for purposes of
this investment that: (1) the Company is an enterprise with limited
financial and operating history; (2) the Shares and the Common Stock
issuable upon conversion thereof represent an extremely speculative
investment which involves a high degree of risk of loss; (3) there are
substantial restrictions on the transferability of, and there is
currently and may in the future be no public market for the Shares of
Common Stock issuable upon conversion thereof, and, accordingly, it may
not be possible for the Purchaser to liquidate its investment in the
Shares and the Common Stock issuable upon conversion thereof; and (4)
there have been no representations as to the possible future value, if
any, of the Shares and the Common Stock issuable upon conversion
thereof. In making this investment, the Purchaser has relied
exclusively on the representations and warranties of the Company set
forth in Section 3 of this Agreement and the Financial Statements. The
Purchaser represents and warrants that it has not relied on any other
information or material relating to the Company, including but not
limited to the draft of private placement memorandum dated September
19, 1997, which the Company disclaims in its entirety.
4.6 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act of 1933, as amended.
4.7 CONSENTS. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of
the Purchaser is required in connection with the valid execution and
delivery of this Agreement or the Registration Rights Agreement.
5 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS.
The obligation of each Purchaser to purchase the Shares at the
applicable Closing is subject to the fulfillment, or the waiver by the
Purchaser, of each of the following conditions on or before the
applicable Closing:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation and
warranty contained in Section 3 shall be true on and as of the
applicable Closing Date with the same effect as though such
representation and warranty had been made on and as of that date.
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<PAGE>
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5.3 REGISTRATION RIGHTS AGREEMENT. A Registration Rights Agreement among
the Purchasers and the Company, substantially in the form attached
hereto as EXHIBIT C (the "Registration Rights Agreement") shall have
been executed and delivered by the Company.
5.4 CERTIFICATES AND DOCUMENTS. The Company shall have delivered to the
Purchaser:
(a) A Certificate, as of a recent date, as to the corporate good
standing of the Company issued by the Secretary of State of
the State of Delaware;
(b) A Certificate, as of a recent date, as to the qualification of
the Company to do business in Massachusetts, issued by the
Secretary of State of the Commonwealth of Massachusetts;
(c) The Certificate of Incorporation of the Company, as amended
and in effect as of the Closing Date, certified by its
Secretary or Assistant Secretary as of the Closing Date;
(d) By-laws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date; and
(e) Resolutions of the Board of Directors of the Company
authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby, certified
by its Secretary or Assistant Secretary as of the Closing
Date.
5.5 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser a certificate, executed by the President of the Company,
dated as of the applicable Closing Date, certifying to the fulfillment
of the conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.6 OTHER MATTERS. All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser and its counsel,
and the Purchaser and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they may reasonably request.
6 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to issue and sell the Shares to a
Purchaser under Section 1 of this Agreement are subject to fulfillment,
or the waiver, of the following conditions on or before the Closing:
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<PAGE>
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 4 shall be true on and
as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date.
7 COVENANTS
7.1 FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company shall deliver to each Purchaser:
(a) within 90 days after the end of each fiscal year of the
Company, an audited balance sheet of the Company as at the end
of such year and audited statements of income and of cash
flows of the Company for such year, certified by reputable
certified public accountants selected by the Company, and
prepared in accordance with generally accepted accounting
principles;
(b) within 45 days after the end of each fiscal quarter of the
Company, an unaudited balance sheet of the Company as at the
end of such quarter, and unaudited statements of income and of
cash flows of the Company for such fiscal quarter and for the
current fiscal year to the end of such fiscal quarter; and
(c) no later than 30 days prior to the beginning of each fiscal
year of the Company, an annual business plan and annual
operating budget of the Company.
7.2 RESERVATION OF COMMON STOCK. The Company shall reserve and maintain a
sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
7.3 ADDITIONAL PURCHASES. No Purchaser shall, without the prior written
consent of the Company, purchase, receive or otherwise acquire any
securities of the Company except pursuant to the conversion of Shares.
7.4 TERMINATION OF COVENANTS. The covenants of the Company and the
Purchasers contained in Sections 7.1 through 7.3 shall terminate and be
of no further force or effect on the earlier to occur of (a) the
closing of a registration statement filed by the Company under the
Securities Act covering the Company's first public offering of Common
Stock or (b) the date on which the Purchasers and any transferees to
which they have transferred Shares in accordance with the provisions of
this Agreement collectively hold less than ten percent (10%) of the
Shares purchased by the Purchasers hereunder.
-9-
<PAGE>
8 TRANSFER OF SHARES.
8.1 RESTRICTED SHARES. "Restricted Shares" means (i) the Shares, (ii) the
shares of Common Stock issued or issuable upon conversion of the
Shares, (iii) any shares of capital stock of the Company acquired by
the Purchaser pursuant to the Stockholders Agreement, and (iv) any
other shares of capital stock of the Company issued in respect of such
shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations or similar events); PROVIDED,
HOWEVER, that shares of Common Stock which are Restricted Shares shall
cease to be Restricted Shares (i) upon any sale pursuant to a
registration under the Securities Act, under Section 4(1) of the
Securities Act or Rule 144 under the Securities Act or (ii) at such
time as they become eligible for sale under Rule 144(k) under the
Securities Act.
8.2 REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the
Securities Act, or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the
Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for a distribution by a Purchaser
which is a partnership to a partner of such partnership or a
retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired
partner, pro rata in accordance with such partner's interest
in the partnership.
8.3 TRANSFEREES. Any permitted transferee to whom Shares are transferred by
a Purchaser shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be
bound by the obligations imposed upon the Purchaser under this
Agreement to the same extent as if such transferee were a party hereto
and, to the extent that such transferee will receive confidential
information from the Company and to the extent that such transferee is
not at such time a party to a confidentiality agreement with the
Company, shall execute and deliver to the Company a confidentiality
agreement in form and substance acceptable to the Company. A permitted
transferee to whom rights are transferred pursuant to this Section 8
may not again transfer such rights to any other person or entity.
8.4 LEGEND. Each certificate representing Restricted Shares shall bear a
legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged
-10-
<PAGE>
or hypothecated unless and until such shares are registered under such
Act or an opinion of counsel satisfactory to the Company is obtained to
the effect that such registration is not required."
The foregoing legend shall be removed from the certificates
representing any Restricted Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Securities Act.
8.5 RULE 144A INFORMATION. The Company shall, at all times during which it
is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of a Purchaser, provide in
writing to the Purchaser and to any prospective transferee of any
Restricted Shares the information concerning the Company described in
Rule 144A(d)(4) under the Securities Act ("Rule 144A Information"). The
Company also shall, upon the written request of a Purchaser, cooperate
with and assist the Purchaser or any member of the National Association
of Securities Dealers, Inc. PORTAL system in applying to designate and
thereafter maintain the eligibility of the Restricted Shares for
trading through PORTAL. The Company's obligations under this Section
8.5 shall at all times be contingent upon receipt from the prospective
transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than persons who will assist such transferee
in evaluating the purchase of any Restricted Shares.
9 MISCELLANEOUS.
9.1 SUCCESSORS AND ASSIGNS. Except as provided in Section 8 hereof, the
rights granted pursuant to this Agreement may not be transferred or
assigned, and any transfer in violation of the provisions of this
Section 9.1 shall be null and void and of no force or effect. Subject
to the foregoing, the provisions of this Agreement shall be binding
upon, and inure to the benefit of, the respective successors, assigns,
heirs, executors and administrators of the parties hereto.
9.2 CONFIDENTIALITY. Each Purchaser agrees that it will keep confidential
and will not disclose or divulge any confidential, proprietary or
secret information which it may obtain from the Company pursuant to
financial statements, reports and other materials provided by the
Company to the Purchaser pursuant to this Agreement, unless such
information is known, or until such information becomes known, to the
public; PROVIDED, HOWEVER, that the Purchaser may disclose such
information (i) to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in
connection with its investment in the Company, (ii) to any prospective
purchaser of any Shares from the Purchaser as long as such prospective
purchaser agrees in writing to be bound by the provisions of this
Section or (iii) to any affiliate of the Purchaser or to a partner,
shareholder or subsidiary of the Purchaser.
-11-
<PAGE>
9.3 NOTICES. All notices, requests, consents and other communications under
this Agreement shall be in writing and shall be delivered by hand,
telecopy or overnight courier (by a nationally recognized carrier) or
mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company: Art Technology Group, Inc.
101 Huntington Avenue
22nd Floor
Boston, Massachusetts 02199
Attention: President
with a copy to Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David A. Westenberg, Esq.
If to a Purchaser: to the address set forth on SCHEDULE 1
or at such other address or addresses as may have been furnished by the
parties in accordance with this Section 9.3. Notices provided in
accordance with this Section 9.3 shall be deemed delivered upon
personal delivery, upon receipt of a telecopy confirmation, one day
after deposit with an overnight delivery service or three business days
after deposit in the mail.
9.4 BROKERS. The Company and each Purchaser (i) represent and warrant to
the other parties hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and
(ii) will indemnify and save the other parties harmless from and
against any and all claims, liabilities or obligations with respect to
brokerage or finders' fees or commissions, or consulting fees in
connection with the transactions contemplated by this Agreement
asserted by any person on the basis of any statement or representation
alleged to have been made by such indemnifying party.
9.5 ENTIRE AGREEMENT. This Agreement (including the Schedule and Exhibits
hereto) embodies the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter,
including, but not limited to, that letter dated November 5, 1997 from
Thomas N. Matlack to the Company and that letter dated October 17, 1997
from the Company to Scott A. Jones.
9.6 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with
the written consent of the Company and the
-12-
<PAGE>
Purchasers holding a majority of the Shares. Any amendment or waiver
effected in accordance with this Section 9.6 shall be binding upon each
Purchaser and each holder of any Shares, (including shares of Common
Stock into which such Shares have been converted), each future holder
of all such securities and the Company. No waivers of or exceptions to
any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
9.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
9.8 SECTION HEADINGS. The section headings are for the convenience of the
parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
9.9 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
9.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts,
excluding its choice of law rules.
9.11 PUBLICITY. All publicity and press releases relating to the
transactions contemplated by this Agreement shall be coordinated and
approved by the Company, on the one hand, and the Purchasers (by action
of the holders of a majority of the Shares) on the other hand.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
-13-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMPANY:
ART TECHNOLOGY GROUP, INC.
By: /s/ Mahendrajeet Singh
--------------------------------
Mahendrajeet Singh, President
PURCHASERS:
TRYG MYHREN
/s/ Tryg Myhren
- -------------------------------------
THE HAMBLETT LONG RANGE PARTNERSHIP
By: /s/ Stephen Hamblett
- --------------------------------------
Name: Stephen Hamblett
Title: General Partner
PATRICK WILMERDING for Osprey Venture Capital Partnership
/s/ Patrick Wilmerding
- -------------------------------------
HENRY P. BECTON, JR., TRUST
By: /s/ Henry P. Becton, Jr., Trustee
----------------------------------
Name: Henry P. Becton, Jr.
Title: Trustee
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
-14-
<PAGE>
THE CLIFFORD FAMILY LIMITED PARTNERSHIP
By: /s/ Patricia A. Mccarthy
--------------------------------------
Name: Patricia A. McCarthy
Title: Trustee
WYNDCREST ATG HOLDINGS, LTD.
By: /s/ John C. Textor
---------------------------------------
Name: John C. Textor
Title: President of the General Partner
THOMAS N. MATLACK
/s/ Thomas N. Matlack
- --------------------------------------------
BRADLEY LUBIN
/s/ Bradley Lubin
- --------------------------------------------
MS. JON P. GOODMAN
/s/ Jon P. Goodman
- --------------------------------------------
SCOTT A. JONES
/s/ Scott A. Jones
- --------------------------------------------
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
-15-
<PAGE>
SCHEDULE 1
PURCHASERS
<TABLE>
<CAPTION>
Purchaser Address Shares Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mr. Trygve E. Myhren 355 Clayton Street 92,593 $150,000
Denver, CO 80206
The Hamblett Long c/o Mr. Steve Hamblett 154,321 $250,000
Range Partnership Chairman, CEO, & Publisher
The Providence Journal Company
75 Fountain Street
Providence, RI 02902
Osprey Venture Capital c/o Mr. Patrick Wilmerding
Limited Partnership Private Signals 46,296 $75,000
79 Milk Street, Suite 709
Boston, MA 02109
Henry P. Becton Jr. Trust Mr. Henry P. Becton, Jr., 30,864 $50,000
Trustee
President & General Manager
WGBH
125 Western Avenue
Alston, MA
The Clifford Family c/o Pat McCarthy 61,728 $100,000
Limited Partnership 35 Hobbs Avenue
Warwick, RI 02889
Wyndcrest ATG John Textor & Jeff Kukes 324,074 $525,000
Holdings Ltd. Phillips Point-- West Tower
777 South Flagler Drive
West Palm Beach, FL 33401
Mr. Thomas N. Matlack 362 Commonwealth Avenue 30,864 $50,000
Boston, MA 02115
Mr. Bradley Lubin 130 West 79th Street, Apt. 12F 24,691 $40,000
New York, NY 10024
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ms. Jon P. Goodman 4907 Roma Court 33,951 $55,000
Marina Del Ray, CA 90292
Mr. Scott A. Jones 1150 West 116th St. 154,321 $250,000
------- --------
Carmel, IN 46032
TOTAL 953,703 $1,545,000
</TABLE>
With copies of notices to:
Walter Reed, Esq.
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903-2499
-17-
<PAGE>
EXHIBIT A
Certificate of Designations of the Preferred Stock
of
ART TECHNOLOGY GROUP, INC.
to be designated
Series C Convertible Preferred Stock
------------------------------------
ART TECHNOLOGY GROUP, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to authority
conferred on the Board of Directors of the Corporation by the Certificate of
Incorporation and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, certifies that the Board of
Directors of the Corporation, at a meeting duly called and held, at which a
quorum was present and acting throughout, duly adopted the following resolution:
RESOLVED: That, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 1,000,000 shares, to
be designated "Series C Convertible Preferred Stock" (hereinafter "Series C
Preferred Stock"); that the Board of Directors be and hereby is authorized to
issue such shares of Series C Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
that, subject to the limitations provided by law and by the Certificate of
Incorporation, the powers, designations, preferences and relative,
participating, optional or other special rights of, and the qualifications,
limitations or restrictions upon, the Series C Preferred Stock shall be as set
forth in the form appended hereto as Exhibit A-1.
In witness whereof, ART TECHNOLOGY GROUP, INC. has caused this
Certificate of Designations of Preferred Stock to be signed by its President
this 12th day of November, 1997.
ART TECHNOLOGY GROUP, INC.
-------------------------------
Mahendrajeet Singh, President
1
<PAGE>
EXHIBIT A-1
SERIES C CONVERTIBLE PREFERRED STOCK
One Million (1,000,000) shares of the authorized and unissued Preferred
Stock of the Corporation be and hereby are hereby designated "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock"), having the
rights, preferences, powers, privileges and restrictions, qualifications and
limitations set forth below.
1. DIVIDENDS
(a) The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends of $0.08
per share per annum (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), payable when and as declared by the Board of Directors of the
Corporation. Such dividends shall accrue and shall be cumulative from the date
of issuance of each share of Series C Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any distributions
(as defined below) on shares of Common Stock, Series A Preferred Stock or any
other class or series of stock ranking on liquidation junior to the Series C
Preferred Stock, until the holders of the Series C Preferred Stock then
outstanding shall have first received a distribution at the rate specified in
paragraph (a) of this Section 1. In the event that the Corporation declares any
cash dividends on Series B Preferred Stock or other series of preferred stock
ranking in liquidation on parity with the Series C Preferred Stock, the
Corporation shall also declare a cash dividend on the Series C Preferred Stock
in an amount equal to the common equivalent per share dividend declared on the
Series B Preferred Stock or such other series of parity preferred stock.
(c) For purposes of this Section 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its
2
<PAGE>
stockholders, after and subject to the payment in full of all amounts required
to be distributed to the holders of the any class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series C
Preferred Stock, but before any payment shall be made to the holders of Common
Stock or Series A Preferred Stock, or any other class or series of stock ranking
on liquidation junior to the Series C Preferred Stock, by reason of their
ownership thereof, an amount equal to the greater of (i) $1.62 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any accrued but unpaid dividends thereon, or (ii) such amount per share as
would have been payable had each such share been converted into Common Stock
pursuant to Section 4 immediately prior to such liquidation, dissolution or
winding up. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
C Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series C Preferred Stock, Series B Convertible Preferred Stock and
any other class or series of stock ranking on liquidation on a parity with the
Series C Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full. A consolidation or merger of the Corporation with or into
another corporation or entity, or a sale of all or substantially all of the
assets of the Corporation, shall not be regarded as a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 2.
3. VOTING
(a) Each holder of outstanding shares of Series C Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series C Preferred Stock held by
such holder are then convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or by the provisions establishing any other series of preferred stock,
holders of Series C Preferred Stock shall vote together with the holders of
Common Stock and other series of Preferred Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series C Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority senior to the Series C
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series C Preferred Stock, and the
authorization of any shares of capital stock junior to or on parity with the
Series C Preferred Stock as to the right to
3
<PAGE>
receive either dividends or amounts distributable upon liquidation, dissolution
or winding up of the Corporation shall not be deemed to affect adversely the
Series C Preferred Stock. The number of authorized shares of Series C Preferred
Stock may be increased or decreased (but not below the number of shares then
outstanding) by the directors of the Corporation pursuant to Section 151 of the
General Corporation Law of Delaware or by the affirmative vote of the holders of
a majority of the then outstanding shares of the Common Stock and Preferred
Stock and all other classes or series of stock of the Corporation entitled to
vote thereon, voting as a single class, irrespective of the provisions of
Section 242(b)(2) of the General Corporation Law of Delaware.
4. OPTIONAL CONVERSION. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series C Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.62 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" for the Series C
Preferred Stock shall initially be $1.62. Such initial Conversion Price, and the
rate at which shares of Series C Preferred Stock may be converted into shares of
Common Stock, shall be subject to adjustment as provided below. In the event of
a liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for the payment
of any amounts distributable on liquidation to the holders of Series C Preferred
Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series C Preferred
Stock to convert shares of Series C Preferred Stock into shares of Common Stock,
such holder shall surrender the certificate or certificates for such shares of
Series C Preferred Stock, at the office of the transfer agent for the Series C
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series C
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the
4
<PAGE>
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to such
holder of Series C Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the
Series C Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series C Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series C Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued but unpaid dividends on the
Series C Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series C Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
dividends accrued but unpaid thereon. Any shares of Series C Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series C
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series C Preferred Stock pursuant
to this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series C Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
5
<PAGE>
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this
Subsection 4(d), the following definitions shall apply:
(A) "OPTION" shall mean rights, options
or warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options described in Subsection 4(d)(i)(D)(IV)
below.
(B) "ORIGINAL ISSUE DATE" shall mean the
date on which a share of Series C Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean
any evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Common Stock issued (or, pursuant to Subsection
4(d)(iii) below, deemed to be issued) by the Corporation after the Original
Issue Date, other than shares of Common Stock issued or issuable:
(I) upon conversion of any
Convertible Securities
outstanding on the Original
Issue Date, or upon exercise of
any Options outstanding on the
Original Issue Date;
(II) as a dividend or distribution on
the Series C Preferred Stock;
(III) by reason of a dividend, stock
split, split-up or other
distribution on shares of Common
Stock that is covered by
Subsection 4(e) or 4(f) below;
or
(IV) shares of Common Stock, and
options and warrants therefor,
issued or issuable to employees,
directors, consultants or
strategic partners of or to the
Corporation, as approved by a
majority of the Board of
Directors.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No
adjustment in the number of shares of Common Stock into which the Series C
Preferred Stock is convertible shall be made, by adjustment in the applicable
Conversion Price thereof: (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares of Common Stock, or (b) if prior to such issuance, the
Corporation receives written notice from the holders of at least 50% of the then
outstanding shares of Series C Preferred Stock as to which such adjustment
6
<PAGE>
would apply agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF
ADDITIONAL SHARES OF COMMON STOCK. If the Corporation at any time or from time
to time after the Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set forth in
the instrument relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) No further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase
becoming effective, be recomputed to reflect such increase insofar as it affects
such Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of
any unexercised Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price;
(D) In the event of any change in the number
of shares of Common Stock issuable upon the exercise, conversion or exchange of
any Option or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Conversion Price then
in effect shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change; and
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(E) No readjustment pursuant to clause (B)
or (D) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from any
issuances of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall,
between the Original Issue Date and the second anniversary of the Original Issue
Date, issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but excluding
shares issued as a dividend or distribution as provided in Subsection 4(f) or
upon a stock split or combination as provided in Subsection 4(e)), without
consideration or for a consideration per share less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to the consideration per share received by the Corporation for
the issue of the Additional Shares of Common Stock (determined pursuant to
Subsection 4(d)(v)).
(v) DETERMINATION OF CONSIDERATION. For
purposes of this Subsection 4(d), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) CASH AND PROPERTY: Such consideration
shall:
(I) insofar as it consists of cash,
be computed at the aggregate of cash
received by the Corporation, excluding
amounts paid or payable for accrued
interest;
(II) insofar as it consists of property
other than cash, be computed at the fair
market value thereof at the time of such
issue, as determined in good faith by the
Board of Directors; and
(III) in the event Additional Shares of
Common Stock are issued together with other
shares or securities or other assets of the
Corporation for consideration which covers
both, be the proportion of such
consideration so received, computed as
provided in clauses (I) and (II) above, as
determined in good faith by the Board of
Directors.
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(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Series C Preferred Stock, and
such issuance dates occur within a period of no more than 120 days, then the
Conversion Price shall be adjusted only once on account of such issuances, with
such adjustment to occur upon the final such issuance and to give effect to all
such issuances as if they occurred on the date of the final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series C Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series C Preferred Stock then in effect by a fraction:
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(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series C Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series C Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series C Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time or from time to time after the Original Issue Date for
the Series C Preferred Stock shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series C Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series C Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series C Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series C Preferred Stock had been converted into Common
Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series C Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series C Preferred Stock
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shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series C Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(i)(1) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation, each share of Series C Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series C Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series C Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series C Preferred Stock.
(2) SPECIAL ADJUSTMENT. In the event that neither of the two
conditions described in clauses (x) and (y) below are satisfied, then on April
1, 1998 the Conversion Price of all shares of Series C Preferred Stock with
Original Issue Dates on or before November 12, 1997 shall be adjusted as
follows: the Conversion Price of such shares as of their Original Issue Date
shall be deemed to be $0.81, all adjustments to the Conversion Price of such
shares made between their Original Issue Date and April 1, 1998 shall be applied
retroactively to such deemed Conversion Price, and all adjustments to the
Conversion Price of such shares made after April 1, 1998 shall be made to such
deemed Conversion Price, as adjusted; such adjusted Conversion Price shall for
all purposes be deemed to be the Conversion Price of such shares. The conditions
referred to above are as follows: (x) the Corporation receives aggregate
proceeds of at least $3,000,000 from the sale of its capital stock, options,
warrants or other securities convertible into or exercisable or exchangeable for
shares of its capital stock, or agreements to issue capital stock or such
options, warrants or convertible securities, based on an aggregate
post-investment valuation for the Corporation of at least $25,000,000 (at a per
share price of at least $2.70), on or prior to December 31, 1997 or (y) the
Corporation receives aggregate proceeds of at least $3,000,000 from the sale of
its capital stock, options, warrants or other securities convertible into or
exercisable or exchangeable for shares of its capital stock, or agreements to
issue capital stock or such options, warrants or convertible securities, based
on an aggregate post-investment valuation of the Corporation of at least
$30,000,000 (at a per share price of at least $3.24), on or prior to March 31,
1998.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution,
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issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series C Preferred Stock against
impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C Preferred Stock subject to such adjustment a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series C Preferred Stock, furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series C Preferred
Stock.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable
in Common Stock or other securities of the
Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or
combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of
the Corporation into or with another
corporation, or of the sale of all or
substantially all of the assets of the
Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C Preferred Stock, and shall cause to
be mailed to the holders of the Series C Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination,
or, if a record is not to be taken, the date
as of which
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the holders of Common Stock of record to be
entitled to such dividend, distribution,
subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to
become effective, and the date as of which
it is expected that holders of Common Stock
of record shall be entitled to exchange
their shares of Common Stock for securities
or other property deliverable upon such
reclassification, consolidation, merger,
sale, dissolution or winding up.
5. MANDATORY CONVERSION
(a) (1) Upon the closing of the sale of shares of Common
Stock, at a price of at least $3.24 per share (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least $10,000,000 of gross proceeds to the Corporation, (i) all
outstanding shares of Series C Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective Conversion Price, and (ii)
the number of authorized shares of Preferred Stock of the Company shall be
automatically reduced by the number of shares of Series C Preferred Stock, and
all provisions included under the caption "Series C Preferred Stock", and all
references to the Series C Preferred Stock shall be deleted and shall be of no
further force or effect.
(2) Upon the affirmative vote of the holders of a majority of
the Series C Preferred Stock, (i) all outstanding shares of Series C Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective Conversion Price, and (ii) the number of authorized shares of Series C
Preferred Stock of the Company shall be automatically reduced by the number of
shares of Series C Preferred Stock so converted, and all references to the
Series C Preferred Stock, shall be deleted and shall be of no further force or
effect.
(3) The date of conversion specified in paragraphs (1) and (2)
above shall be termed the "Mandatory Conversion Date".
(b) All holders of record of shares of Series C Preferred Stock to be
converted pursuant to this Section 5 shall be given written notice of the
Mandatory Conversion Date and the place designated for mandatory conversion of
all such shares of Series C Preferred Stock pursuant to this Section 5. Such
notice need not be given in advance of the occurrence of the Mandatory
Conversion Date. Such notice shall be sent by first class or registered mail,
postage prepaid, to each record holder of such Series C Preferred Stock at such
holder's address last shown on the records of the transfer agent for the Series
C Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent). Upon receipt of such notice, each holder of shares of Series C
Preferred Stock so converted shall surrender his or its certificate or
certificates
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for all such shares to the Corporation at the place designated in such notice,
and shall thereafter receive certificates for the number of shares of Common
Stock to which such holder is entitled pursuant to this Section 5. On the
Mandatory Conversion Date, all rights with respect to the Series C Preferred
Stock so converted, including the rights, if any, to receive notices and vote
(other than as a holder of Common Stock) will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series C Preferred Stock has been converted, and payment of any
accrued but unpaid dividends thereon. If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
C Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(c) All certificates evidencing shares of Series C Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and canceled and the shares of Series C Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series C Preferred Stock accordingly.
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EXHIBIT B
DISCLOSURE SCHEDULE
Each disclosure contained in this Disclosure Schedule shall be deemed to have
been made with respect to each applicable representation and warranty contained
in Section 3 of the Agreement, irrespective of the section of this Disclosure
Schedule in which such disclosure appears.
3.2 CAPITALIZATION.
A. The Company has reserved a total of 2,000,000 shares of Common
Stock for issuance pursuant to the Company's 1996 Stock Option
Plan (the "Plan"). Options to purchase 1,296,300 shares of
Common Stock are outstanding under the Plan.
B. The Company has issued a Performance Warrant to Softbank
Ventures Inc. for the purchase of certain shares of Series B
Convertible Preferred Stock at an exercise price of $7.05. The
number of shares subject to the warrant is based on the
financial performance of the Company. The warrant is
exercisable between February 28, 1998 and the earlier to occur
of an initial public offering of the Company and February 28,
1999.
C. The Company intends to issue Common Stock purchase options to
Scott Jones and Thomas Matlack in connection with their
election to the Board of Directors of the Company upon the
closing of this transaction.
D. The Conversion Price of the Company's Series B Convertible
Preferred Stock will be adjusted (resulting in the conversion
of such Series B Convertible Preferred Stock into a greater
number of shares of Common Stock) as a result of the issuance
and sale of the Shares pursuant to this Agreement.
E. At the First Closing, the Company will enter into a Consulting
Agreement with Mr. Thomas Matlack, a shareholder and
director of the Company, pursuant to which Mr. Matlack will
provide strategic and financial consulting services to the
Company for a one-year period in consideration for the grant
of an option to purchase 73,000 shares of common stock at an
exercise price of $.75 per share, to be exercisable in full
on the first anniversary of such Closing. In addition, the
Company has agreed to use its best efforts to ensure that
Mr. Matlack continues to be elected to the Board of
Directors of the Company until an initial public offering of
the Company or his death or resignation.
3.4 STOCKHOLDER LIST AND AGREEMENTS.
A. See Stockholder List attached hereto as Attachment 1.
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B. Agreements.
1. Stock Purchase Agreement dated as of July, 1995,
among the Company,
Madanjeet Singh and B.U. Chung.
2. Stock Restriction Agreement dated as of December 31,
1991 between the Company and Mahendrajeet Singh.
3. Stock Restriction Agreement dated as of December 31,
1991 between the Company and Joseph T. Chung.
4. Series B Stock Purchase Agreement dated as of
December 23, 1996, between the Company and Softbank
Ventures, Inc.
5. Stockholders Agreement dated December 23, 1996 among
the Company.
Softbank Ventures, Inc. and the other parties named
therein. Section 7.2 of such Agreement requires to
Company to have at least one outside directors, and
to have a compensation committee comprised solely of
outside directors. To date, the Company has not
complied with this Section. However, upon the First
Closing, the Board of Directors of the Company
intends to elect Messrs. Scott Jones and Thomas
Matlack to its Board of Directors and to appoint them
to a compensation committee in accordance with
Section 7.2 of such agreement.
3.8 LITIGATION. The matters disclosed in Sections 3.9 and 3.13 of this
Disclosure Schedule could result in litigation or governmental action
against the Company.
3.9 TAXES. The Company is in arrears with respect to the payment of
approximately $200,000 of payroll withholding taxes.
3.10 PROPERTY AND ASSETS. All the assets of the Company are subject to liens
pursuant to a lending facility with Fleet National Bank ("Fleet") (See
Section 3.13A). Additional liens on certain of the Company's assets are
in favor of Sanwa Leasing Corporation, AT&T Capital Leasing and IBM
Credit Corporation.
3.11 INTELLECTUAL PROPERTY.
A. Trademarks
The Company has filed applications to register its trademarks
ATG (Serial No. 75/150643) and DYNAMO (Serial No. 75/722198)
with the U.S. Patent and Trademark Office.
Sybase, Inc. may be using a trademark similar or identical to
the Company's DYNAMO trademark. The Company has not pursued
formal legal action with respect to such use.
B. Patents
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The Company filed U.S. Patent Application No. 08/855379
entitled "Method and apparatus for on-the-fly compilation
and execution of content documents with embedded source
program" with the U.S. Patent and Trademark Office on May
13, 1997.
3.13 ABSENCE OF CHANGES.
A. In a letter dated October 17, 1997, Fleet National Bank
("Fleet") declared its loan to the Company in default and
demanded payment of all amounts outstanding thereunder. On
November 5, 1997, the Company obtained a 30-day extension from
Fleet with regard to repayment of amounts under such loan.
B. The Company is in default on payments due under its two real
property leases. Sybase, Inc., one of the Company's lessors,
has notified the Company of its default under the lease, and
has formally demanded unpaid rent payments. The Company and
Sybase are currently negotiating a repayment schedule for such
overdue amounts, including a payment of $180,000 to be made
upon the First Closing, and an additional $180,000 payment to
be made thereafter.
C. The Company has delayed payments due to substantially all of
its creditors, including employees, and is currently unable to
meet its obligations as they become due.
D. The Company has continued to incur operating losses.
3.14 COMPLIANCE. See 3.9 above with respect to arrears of withholding taxes
and 3.15 below with respect to failure to pay employees.
3.15 EMPLOYEES. The Company is in arrears with respect to the payment of
approximately $200,000 of payroll withholding taxes and $750,000 of
employee payroll.
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of November 12, 1997 is entered into by and
among ART TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company"), and
the persons and entities listed on EXHIBIT A hereto (individually, a
"Purchaser", and collectively, the "Purchasers").
WHEREAS, the Company and the Purchasers have entered into a Series C
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or
any other Federal agency at the time administering the Securities Act.
"COMMON STOCK" means the common stock, $0.01 par value per
share, of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"REGISTRATION STATEMENT" means a registration statement filed
by the Company with the Commission for a public offering and sale of Common
Stock (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"REGISTRATION EXPENSES" means the expenses described in
Section 5.
"REGISTRABLE SHARES" means (i) the shares of Common Stock
issued or issuable upon conversion of the Shares, (ii) any other shares of
Common Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); PROVIDED,
HOWEVER, that shares of Common Stock which are Registrable Shares shall cease to
be Registrable Shares (i) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act or (ii) upon any sale in any manner to a
person or entity which, by
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virtue of Section 14 of this Agreement, is not entitled to the rights provided
by this Agreement. Wherever reference is made in this Agreement to a request or
consent of holders of a certain percentage of Registrable Shares, the
determination of such percentage shall include shares of Common Stock issuable
upon conversion of the Shares even if such conversion has not yet been effected.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"SHARES" shall have the meaning specified in Subsection 1.1 of
the Purchase Agreement.
"STOCKHOLDERS" means the Purchasers and any persons or
entities to whom the rights granted under this Agreement are transferred by any
Purchasers, their successors or assigns pursuant to Section 14 hereof.
2. REQUIRED REGISTRATIONS.
(a) At any time after the first anniversary of the closing of
the Company's first underwritten public offering of shares of Common Stock
pursuant to a Registration Statement, a Stockholder or Stockholders holding in
the aggregate at least 50% of the Registrable Shares may request, in writing,
that the Company effect the registration on Form S-1 or Form S-2 (or any
successor form) of Registrable Shares owned by such Stockholder or Stockholders
having an aggregate offering price of at least $5,000,000 (based on the then
current market price or fair value). If the holders initiating the registration
intend to distribute the Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. In the event such registration is
underwritten, the right of other Stockholders to participate shall be
conditioned on such Stockholders' participation in such underwriting. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Stockholders. Such Stockholders shall have the
right, by giving written notice to the Company within 30 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Stockholders may request in such notice of
election; provided that if the underwriter (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Shares
requested to be registered by all Stockholders may not be included in the
offering, then all Stockholders who have requested registration shall
participate in the registration pro rata based upon the number of Registrable
Shares which they have requested to be so registered. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-1 or Form S-2 (or any successor form) of all Registrable
Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders holding in the aggregate at least 30%
of the Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form), of
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<PAGE>
Registrable Shares having an aggregate offering price of at least $500,000
(based on the then current public market price). Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all Stockholders. Such Stockholders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of their
Registrable Shares as such Stockholders may request in such notice of election;
provided that if the underwriter (if any) managing the offering determines that,
because of marketing factors, all of the Registrable Shares requested to be
registered by all Stockholders may not be included in the offering, then all
Stockholders who have requested registration shall participate in the
registration pro rata based upon the number of Registrable Shares which they
have requested to be so registered. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-3 (or such successor form) of all Registrable Shares which the Company
has been requested to so register.
(c) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above or more than one registration
during any period of twelve months pursuant to paragraph (b) above. The Company
shall not be required to effect any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months after the
effective date of any other Registration Statement of the Company.
(d) If at the time of any request to register Registrable
Shares pursuant to this Section 2, the Company is engaged or has fixed plans to
engage within 30 days of the time of the request in a registered public offering
as to which the Stockholders may include Registrable Shares pursuant to Section
3 or is engaged in any other activity which, in the good faith determination of
the Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any two-year period.
3. INCIDENTAL REGISTRATION.
(a) Whenever the Company proposes to file a Registration
Statement (other than pursuant to Section 2 or pursuant to a registration
requested pursuant to Article II of that Stockholders Agreement dated December
23, 1996 among the Company, Softbank Ventures, Inc. and certain other parties
named therein (the "Stockholders Agreement")) at any time and from time to time,
it will, prior to such filing, give written notice to all Stockholders of its
intention to do so and, upon the written request of a Stockholder or
Stockholders given within 20 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall use its best efforts to cause all Registrable Shares
which the Company has been requested by such Stockholder or Stockholders to
register to be registered under the Securities Act to the extent necessary to
permit their sale or other disposition in accordance with the intended methods
of distribution specified in the request of such Stockholder or Stockholders;
provided that the Company shall have the right to
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<PAGE>
postpone or withdraw any registration effected pursuant to this Section 3
without obligation to any Stockholder.
(b) In connection with any registration under this Section 3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided that such terms must be consistent with
this Agreement). If in the opinion of the managing underwriter it is appropriate
because of marketing factors to limit the number of Registrable Shares to be
included in the offering, then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the managing
underwriter believes should be included therein; provided that no persons or
entities other than the Company, the Stockholders and Softbank Ventures, Inc.
(or its assigns or transferees) shall be permitted to include securities in the
offering. If the number of Registrable Shares to be included in the offering in
accordance with the foregoing is less than the total number of shares which the
holders of Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in the
preceding sentence.
4. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
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<PAGE>
(d) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Stockholders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; PROVIDED, HOWEVER, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
5. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of all registrations under this Agreement; PROVIDED, HOWEVER, that if a
registration under Section 2 is withdrawn at the request of the Stockholders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders elect not to have such registration counted as a
registration requested under Section 2, the requesting Stockholders shall pay
the Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section 5, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses and fees and expenses of counsel for the Company, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling commissions
and the fees and expenses of selling Stockholders' own counsel.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or
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<PAGE>
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse such seller, underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company will 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 any untrue statement
or omission made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; PROVIDED, HOWEVER, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section
6 (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 be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6. The Indemnified Party may participate in such
defense at such party's expense; PROVIDED, HOWEVER, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests
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<PAGE>
between the Indemnified Party and any other party represented by such counsel in
such proceeding. 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 of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 6 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling
Stockholder or any such controlling person in circumstances for which
indemnification is provided under this Section 6; then, in each such case, the
Company and such Stockholder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportions so that such holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Shares offered by the Registration Statement bears to the public offering price
of all securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; PROVIDED, HOWEVER, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
7. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
8. INFORMATION BY HOLDER. Each Stockholder including Registrable Shares
in any registration shall furnish to the Company such information regarding such
Stockholder and the distribution proposed by such Stockholder 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.
9. "STAND-OFF" AGREEMENT. Each Stockholder, if requested by the
Company and the managing underwriter of an offering by the Company of Common
Stock or other securities of
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<PAGE>
the Company pursuant to a Registration Statement, shall agree not to sell
publicly or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Stockholder for a specified period of
time (not to exceed 180 days) following the effective date of such Registration
Statement; PROVIDED, that:
(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold on its behalf to the public in an
underwritten offering; and
(b) all officers and directors of the Company enter into
similar agreements.
10. RULE 144 REQUIREMENTS. After the earliest of (i) the closing of the
sale of securities of the Company pursuant to a Registration Statement, (ii) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(a) comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(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); and
(c) furnish to any holder of Registrable Shares upon request
(i) a written statement by the Company as to its compliance with the
requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents of the Company
as such holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities without
registration.
11. TERMINATION. All of the Company's obligations to register
Registrable Shares under this Agreement shall terminate on the tenth anniversary
of this Agreement.
12. TRANSFERS OF RIGHTS. This Agreement, and the rights and obligations
of each Purchaser hereunder, may be assigned by such Purchaser to any person or
entity to which Shares are transferred by such Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company.
13. GENERAL.
(a) NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
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<PAGE>
If to the Company, at Art Technology Group, Inc., 101 Huntington
Avenue, 22nd Floor, Boston, Massachusetts 02199, Attention: President, or at
such other address or addresses as may have been furnished in writing by the
Company to the Purchasers, with a copy to Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts 02109, Attention David A. Westenberg, Esq.; or
If to a Stockholder, at his or its address set forth on EXHIBIT A, or
at such other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to Walter Reed, Esq., Edwards & Angell,
2700 Hospital Trust Tower, Providence, Rhode Island 02903-2499.
Notices provided in accordance with this Section 13(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(c) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least a majority of the Registrable Shares; PROVIDED, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all Registrable Shares in the same fashion. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision. EXHIBIT A to this
Agreement may be amended by the Company, without the consent of the other
parties, only to reflect the addition of Purchasers of Shares under the Purchase
Agreement.
(d) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
(e) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
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Executed as of the date first written above.
COMPANY:
ART TECHNOLOGY GROUP, INC.
By:
--------------------------------
Mahendrajeet Singh, President
PURCHASERS:
TRYG MYHREN
---------------------------------
THE HAMBLETT LONG RANGE PARTNERSHIP
By:
--------------------------------
Name:
Title:
PATRICK WILMERDING
---------------------------------
HENRY P. BECTON, JR. TRUST
By:
--------------------------------
Name:
Title:
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
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THE CLIFFORD FAMILY LIMITED
PARTNERSHIP
By: ______________________________
Name:
Title:
WINDCREST PARTNERS LTD.
By: ______________________________
Name:
Title:
THOMAS N. MATLACK
------------------------------------
BRADLEY LUBIN
------------------------------------
MS. JON P. GOODMAN
------------------------------------
SCOTT A. JONES
---------------------------------
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
EXHIBIT A
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List of Purchasers and Addresses
Mr. Trygve E. Myhren Mr. Bradley Lubin
355 Clayton Street 130 West 79th Street, Apt. 12F
Denver, CO 80206 New York, NY 10024
The Hamblett Long Range Partnership Ms. Jon P. Goodman
c/o Mr. Steve Hamblett 4907 Roma Court
Chairman, CEO, & Publisher Marina Del Ray, CA 90292
The Providence Journal Company
75 Fountain Street Mr. Scott A. Jones
Providence, RI 02902 1150 West 116th St.
Carmel, IN 46032
Osprey Venture Capital Limited Partnership
c/o Mr. Patrick Wilmerding
Private Signals
79 Milk Street, Suite 709
Boston, MA 02109
Henry P. Becton Jr. Trust
Mr. Henry P. Becton, Jr., Trustee
President & General Manager
WGBH
125 Western Avenue
Alston, MA
The Clifford Family Limited Partnership
c/o Pat McCarthy
35 Hobbs Avenue
Warwick, RI 02889
Windcrest ATG Holdings Ltd.
John Texter & Jeff Kukes
7777 South Flagler Drive
Suite 750
West Palm Beach, FL 33401
Mr. Thomas N. Matlack Federal Express To: c/o Ariel Technology
362 Commonwealth Avenue 45 Newbury Street,
Boston, MA 02115 Suite 209
Boston, MA 02116
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<PAGE>
Exhibit 10.12
ART TECHNOLOGY GROUP, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
DECEMBER 8, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Authorization and Sale of Shares 1
2. The Closings 1
3. Representations of the Company 2
4. Representations of the Purchasers 6
5. Conditions to the Obligations of the Purchasers 7
6. Conditions to the Obligations of the Company 8
7. Covenants 9
8. Transfer of Shares 10
9. Miscellaneous 11
</TABLE>
SCHEDULES AND EXHIBITS
Schedule 1 Purchasers
Exhibit A Terms of Series C Preferred Stock
Exhibit B Disclosure Schedule
Exhibit C Form of Amended and Restated Registration Rights Agreement
<PAGE>
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
entered into as of December 8, 1997 by and among Art Technology Group, Inc., a
Delaware corporation (the "Company") and the persons and/or entities listed on
SCHEDULE 1 hereto (each individually a "Purchaser" and collectively, the
"Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1 AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has, or before the applicable Closing (as
defined in Section 2) will have, duly authorized the sale and issuance,
pursuant to the terms of this Agreement, of up to 1,000,000 shares (the
"Shares") of its Series C Convertible Preferred Stock, $.01 par value
per share (the "Series C Preferred"), having the rights, restrictions,
privileges and preferences set forth in EXHIBIT A hereto.
1.2 SALE OF SHARES AT CLOSINGS.
(a) Subject to the terms and conditions of this Agreement, at the
First Closing (as defined below) the Company will sell and
issue to each of the Purchasers purchasing Shares thereat, and
each of such Purchasers will purchase, the number of shares of
Series C Preferred set forth opposite such Purchaser's name on
SCHEDULE 1, for the purchase price of $1.62 per share.
(b) Subject to the terms and Conditions of this Agreement, at the
Additional Closings (as defined below) the Company will sell
and issue to each of the Purchasers who executes a counterpart
of this Agreement after the First Closing Date the number of
shares of Series C Preferred set forth opposite such
Purchaser's name on the revised SCHEDULE 1 prepared by the
Company prior to the date of such Additional Closing, for the
purchase price of $1.62 per share.
2 THE CLOSINGS.
2.1 GENERALLY. At each Closing (as defined below), the Company shall
deliver to the applicable Purchaser(s) a certificate for the number of
Shares being purchased by such Purchaser, registered in the name of
such Purchaser, against payment to the Company of the purchase price
therefor, by wire transfer, check, or other method acceptable to the
Company. If immediately prior to a Closing any of the conditions
specified in Section 5 shall not have been fulfilled, each Purchaser
purchasing Shares at such Closing shall, at his or its election, be
relieved of his or its obligation to purchase such Shares under this
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Agreement without thereby waiving any other rights he or it may have by
reason of such failure or such nonfulfillment.
2.2 FIRST CLOSING. The first closing of the purchase and sale of Shares
will take place at the offices of Hale and Dorr LLP, at 60 State
Street, Boston, Massachusetts, on December 8, 1997 or at such time and
place as the Company and the Purchasers purchasing at least a majority
of the Shares at such closing may agree (such closing is referred to as
the "First Closing," and the date of the First Closing is referred to
as the "First Closing Date").
2.3 ADDITIONAL CLOSINGS. The Company may, at its election, from time to
time during the 90 day period following the First Closing Date,
consummate one or more additional closings (collectively the
"Additional Closings" and each individually an "Additional Closing") of
the purchase and sale pursuant to the terms of this Agreement of such
of the Shares that were not sold at the First Closing and, as
applicable, any prior Additional Closing, on such dates and to such
purchasers as the Company may determine. No consent, waiver, signature,
approval or the like from any Purchaser participating in the First
Closing or, as applicable, any prior Additional Closing, will be
required for any Additional Closing. Each purchaser of Shares at any
Additional Closing pursuant to this Agreement shall, effective upon
execution and delivery of a counterpart signature page hereto, become a
party to, and be bound by, this Agreement and shall thereupon be deemed
a "Purchaser" for all purposes of this Agreement. (The First Closing
and any Additional Closing are each sometimes referred to as a
"Closing," and the First Closing Date and the date of any Additional
Closing are each sometimes referred to as a "Closing Date.").
2.4 AMENDMENT OF AGREEMENT. Upon each Additional Closing, this Agreement
shall be amended to add to Schedule 1 hereto (i) the name and address
of each Purchaser at such Additional Closing and (ii) the number of
Shares purchased at such Additional Closing by each such Purchaser.
3 REPRESENTATIONS OF THE COMPANY.
Subject to and except as disclosed by the Company in EXHIBIT B hereto
(the "Disclosure Schedule"), the Company hereby represents and warrants
to each of the Purchasers, as of the applicable Closing Date, as
follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its
business as presently conducted and as proposed to be conducted by it
and to enter into and perform this Agreement and to carry out the
transactions contemplated by this Agreement. The Company is duly
qualified to do business as a foreign corporation in every other
jurisdiction in which the failure to so qualify would have a material
adverse effect on the operations or financial condition of the Company.
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<PAGE>
3.2 CAPITALIZATION. The authorized capital stock of the Company
(immediately prior to the Closing) consists of 25,000,000 shares of
common stock, $.01 par value per share (the "Common Stock"), of which
5,923,912 shares are issued and outstanding, and 10,000,000 shares of
Preferred Stock, $.01 par value per share, 1,300,000 of which shares
have been designated as Series A Convertible Preferred Stock (all of
which are issued and outstanding), 851,064 of which shares have been
designated as Series B Convertible Preferred Stock (425,532 of which
are issued and outstanding) and 2,000,000 shares of Series C Preferred
(953,703 of which are issued or outstanding). All of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
Except as set forth in the Disclosure Schedule or as contemplated by
this Agreement, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company is authorized or
outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible
security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets
of the Company, and (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make
any other distribution in respect thereof. All of the issued and
outstanding shares of capital stock of the Company have been offered,
issued and sold by the Company in compliance with applicable Federal
and state securities laws.
3.3 SUBSIDIARIES, ETC. The Company has no subsidiaries and does not own or
control, directly or indirectly, any shares of capital stock of any
other corporation or any interest in any partnership, joint venture or
other non-corporate business enterprise.
3.4 STOCKHOLDER LIST AND AGREEMENTS. Set forth in the Disclosure Schedule
is a true and complete list of the stockholders of the Company, showing
the number of shares of Common Stock or other securities of the Company
held by each stockholder as of the date of this Agreement. Except as
provided in, or contemplated by, this Agreement, or as set forth on the
Disclosure Schedule, there are no agreements, written or oral, between
the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating
to the acquisition (including without limitation rights of first
refusal or pre-emptive rights), disposition, registration under the
Securities Act of 1933, as amended (the "Securities Act"), or voting of
the capital stock of the Company.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery of the Shares in
accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares, have
been, or will be on or prior to the Closing, duly authorized by all
necessary corporate action on the part of the Company, and all such
shares have been duly reserved for issuance. The Shares when so issued,
sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of
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<PAGE>
Common Stock issuable upon conversion of the Shares, when issued upon
such conversion or exercise, will be duly and validly issued, fully
paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and performance by the
Company of this Agreement and the Registration Rights Agreement, and
the consummation by the Company of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate
action. This Agreement and the Registration Rights Agreement have been
duly executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms. The execution of and performance of the transactions
contemplated by this Agreement and the Registration Rights Agreement
and compliance with their provisions by the Company will not violate
any provision of law and will not conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute a
default under, or require a consent or waiver under, its Certificate of
Incorporation or By-Laws (each as amended to date) or any indenture,
lease, agreement or other instrument to which the Company is a party or
by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing
with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the
Registration Rights Agreement, the offer, issuance, sale and delivery
of the Shares, or the other transactions to be consummated at the
applicable Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and
as of the applicable Closing. Based on the representations made by each
of the Purchasers in Section 4 of this Agreement, the offer and sale of
the Shares to each of the Purchasers will be in compliance with
applicable Federal and state securities laws.
3.8 LITIGATION. There is no action, suit or proceeding, or governmental
inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor, against the Company, which questions the
validity of this Agreement or the right of the Company to enter into
it, or which might result, either individually or in the aggregate, in
any material adverse change in the business or financial condition of
the Company.
3.9 TAXES. Except as set forth in the Disclosure Schedule, the Company has
filed all Federal, state, county, local and foreign tax returns which
are required to be filed by it, such returns are true and correct and
all taxes, if any, shown thereon to be due have been timely paid with
exceptions not material to the Company.
3.10 PROPERTY AND ASSETS. Except as set forth in the Disclosure Schedule,
the Company has good title to all of its material properties and
assets, except those disposed of since the date thereof in the ordinary
course of business, and none of such properties or assets is subject to
any mortgage, pledge, lien, security interest, lease, charge or
encumbrance.
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<PAGE>
3.11 INTELLECTUAL PROPERTY. Set forth on the Disclosure Schedule is a true
and complete list of all patents, patent applications, trademarks,
service marks, trademark and service mark applications owned by the
Company (the "Intellectual Property Rights"). The Company owns, or has
the right to use, all third party technology and intellectual property
necessary for the conduct of the Company's business. The Company has
taken all actions reasonably necessary to protect the Intellectual
Property Rights. To the best of the Company's knowledge, the business
conducted or proposed by the Company does not and will not cause the
Company to infringe or violate any of the patents, trademarks, service
marks, trade names, copyrights, licenses, trade secrets or other
intellectual property rights of any other person or entity. No other
person or entity (including without limitation any prior employer of
any employee of the Company) has any right to or interest in any
inventions, improvements, discoveries or other confidential information
of the Company.
3.12 FINANCIAL STATEMENTS. The Company has furnished to each of the
Purchasers its audited income statement and balance sheet as at
December 31, 1996 and its unaudited balance sheet (the "Balance Sheet")
as of September 30, 1997 (the "Balance Sheet Date") (collectively, the
"Financial Statements"). The Financial Statements are complete and
correct, are in accordance with the books and records of the Company
and present fairly the financial condition and results of operations of
the Company, as at the dates and for the periods indicated, and have
been prepared in accordance with generally accepted accounting
principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the
absence of footnotes normally contained therein and are subject to
normal year-end audit adjustments which in the aggregate will not be
material.
3.13 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Disclosure Schedule, there has been no material adverse change
in the condition, financial or otherwise, net worth or results of
operations of the Company, other than changes occurring in the ordinary
course of business which changes have not, individually or in the
aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.
3.14 COMPLIANCE. Except as set forth in the Disclosure Schedule, the Company
has, in all material respects, complied with all laws, regulations and
orders applicable to its business and has all material permits and
licenses required thereby.
3.15 EMPLOYEES. Except as set forth in the Disclosure Schedule, the
Company's relations with its employees are good. All employees of the
Company whose employment responsibility requires access to confidential
or proprietary information of the Company have executed and delivered
nondisclosure and assignment of invention agreements, the form of which
has been made available to the Purchaser for review.
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<PAGE>
3.16 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 other than a medical benefit
plan with respect to which the Company has made all required
contributions and has complied with all applicable laws.
4 REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser severally, but not jointly, represents and warrants to
the Company as follows:
4.1 INVESTMENT. The Purchaser is acquiring the Shares, and the shares of
Common Stock into which the Shares may be converted for its own account
for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of
distributing or selling the same; and the Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof.
4.2 AUTHORITY. The Purchaser has full power and authority to enter into and
to perform this Agreement and the Registration Rights Agreement in
accordance with their terms. This Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Purchaser and
constitute valid and binding obligations of the Purchaser enforceable
in accordance with their respective terms. Any Purchaser that is a
corporation, partnership or trust represents it has not been organized,
reorganized or recapitalized specifically for the purpose of investing
in the Company.
4.3 EXPERIENCE. The Purchaser has carefully reviewed the representations
concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its
personnel; the officers of the Company have made available to such
Purchaser business and financial data concerning the Company any and
all other written information which he or it has requested and have
answered to such Purchaser's satisfaction all inquiries made by such
Purchaser. Such Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to
evaluate the risks and merits of its investment in the Company and is
able financially to bear the risks thereof. Such Purchaser's overall
commitment to investments which are not readily marketable is not
disproportionate to the Purchaser's net worth and the Purchaser's
investment in the Company will not cause such overall commitment to
become excessive. The Purchaser has adequate net worth and means of
providing for current needs and personal contingencies to sustain a
complete loss of the Purchaser's investment in the Company, and the
Purchaser has no need for liquidity in this investment.
4.4 SECURITIES LAWS. The Purchaser acknowledges that no federal or state
agency has made any finding or determination as to the fairness of the
terms of this offering. The Shares have not been recommended or
endorsed by any federal or state securities commission
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<PAGE>
or regulatory agency nor have any of the foregoing authorities
confirmed the accuracy or determined the adequacy of the materials and
information provided to the Purchaser by the Company.
4.5 RISK. The Purchaser understands that an investment in the Company
involves significant risks, and the Purchaser has carefully reviewed
and is aware of all of the risk factors related to the purchase of the
Shares. Purchaser understands and has fully considered for purposes of
this investment that: (1) the Company is an enterprise with limited
financial and operating history; (2) the Shares and the Common Stock
issuable upon conversion thereof represent an extremely speculative
investment which involves a high degree of risk of loss; (3) there are
substantial restrictions on the transferability of, and there is
currently and may in the future be no public market for the Shares of
Common Stock issuable upon conversion thereof, and, accordingly, it may
not be possible for the Purchaser to liquidate its investment in the
Shares and the Common Stock issuable upon conversion thereof; and (4)
there have been no representations as to the possible future value, if
any, of the Shares and the Common Stock issuable upon conversion
thereof. In making this investment, the Purchaser has relied
exclusively on the representations and warranties of the Company set
forth in Section 3 of this Agreement and the Financial Statements. The
Purchaser represents and warrants that it has not relied on any other
information or material relating to the Company, including but not
limited to the draft of private placement memorandum dated September
19, 1997, which the Company disclaims in its entirety.
4.6 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act of 1933, as amended.
4.7 CONSENTS. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of
the Purchaser is required in connection with the valid execution and
delivery of this Agreement or the Registration Rights Agreement.
5 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS.
The obligation of each Purchaser to purchase the Shares at the
applicable Closing is subject to the fulfillment, or the waiver by the
Purchaser, of each of the following conditions on or before the
applicable Closing:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation and
warranty contained in Section 3 shall be true on and as of the
applicable Closing Date with the same effect as though such
representation and warranty had been made on and as of that date.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
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<PAGE>
5.3 REGISTRATION RIGHTS AGREEMENT. An Amended and Restated Registration
Rights Agreement among the Purchasers and the Company, substantially in
the form attached hereto as EXHIBIT C (the "Registration Rights
Agreement") shall have been executed and delivered by the Company.
5.4 CERTIFICATES AND DOCUMENTS. The Company shall have delivered to the
Purchaser:
(a) A Certificate, as of a recent date, as to the corporate good
standing of the Company issued by the Secretary of State of
the State of Delaware;
(b) A Certificate, as of a recent date, as to the qualification of
the Company to do business in Massachusetts, issued by the
Secretary of State of the Commonwealth of Massachusetts;
(c) The Certificate of Incorporation of the Company, as amended
and in effect as of the Closing Date, certified by its
Secretary or Assistant Secretary as of the Closing Date;
(d) By-laws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date; and
(e) Resolutions of the Board of Directors of the Company
authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby, certified
by its Secretary or Assistant Secretary as of the Closing
Date.
5.5 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser a certificate, executed by the President of the Company,
dated as of the applicable Closing Date, certifying to the fulfillment
of the conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.6 OTHER MATTERS. All corporate and other proceedings in connection with
the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser and its counsel,
and the Purchaser and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they may reasonably request.
6 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to issue and sell the Shares to a
Purchaser under Section 1 of this Agreement are subject to fulfillment,
or the waiver, of the following conditions on or before the Closing:
-8-
<PAGE>
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in Section 4 shall be true on and
as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of that date.
7 COVENANTS
7.1 FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company shall deliver to each Purchaser:
(a) within 90 days after the end of each fiscal year of the
Company, an audited balance sheet of the Company as at the end
of such year and audited statements of income and of cash
flows of the Company for such year, certified by reputable
certified public accountants selected by the Company, and
prepared in accordance with generally accepted accounting
principles;
(b) within 45 days after the end of each fiscal quarter of the
Company, an unaudited balance sheet of the Company as at the
end of such quarter, and unaudited statements of income and of
cash flows of the Company for such fiscal quarter and for the
current fiscal year to the end of such fiscal quarter; and
(c) no later than 30 days prior to the beginning of each fiscal
year of the Company, an annual business plan and annual
operating budget of the Company.
7.2 RESERVATION OF COMMON STOCK. The Company shall reserve and maintain a
sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
7.3 ADDITIONAL PURCHASES. No Purchaser shall, without the prior written
consent of the Company, purchase, receive or otherwise acquire any
securities of the Company except pursuant to the conversion of Shares.
7.4 TERMINATION OF COVENANTS. The covenants of the Company and the
Purchasers contained in Sections 7.1 through 7.3 shall terminate and be
of no further force or effect on the earlier to occur of (a) the
closing of a registration statement filed by the Company under the
Securities Act covering the Company's first public offering of Common
Stock or (b) the date on which the Purchasers and any transferees to
which they have transferred Shares in accordance with the provisions of
this Agreement collectively hold less than ten percent (10%) of the
Shares purchased by the Purchasers hereunder.
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<PAGE>
8 TRANSFER OF SHARES.
8.1 RESTRICTED SHARES. "Restricted Shares" means (i) the Shares, (ii) the
shares of Common Stock issued or issuable upon conversion of the
Shares, (iii) any shares of capital stock of the Company acquired by
the Purchaser pursuant to the Stockholders Agreement, and (iv) any
other shares of capital stock of the Company issued in respect of such
shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations or similar events); PROVIDED,
HOWEVER, that shares of Common Stock which are Restricted Shares shall
cease to be Restricted Shares (i) upon any sale pursuant to a
registration under the Securities Act, under Section 4(1) of the
Securities Act or Rule 144 under the Securities Act or (ii) at such
time as they become eligible for sale under Rule 144(k) under the
Securities Act.
8.2 REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the
Securities Act, or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the
Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for a distribution by a Purchaser
which is a partnership to a partner of such partnership or a
retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired
partner, pro rata in accordance with such partner's interest
in the partnership.
8.3 TRANSFEREES. Any permitted transferee to whom Shares are transferred by
a Purchaser shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be
bound by the obligations imposed upon the Purchaser under this
Agreement to the same extent as if such transferee were a party hereto
and, to the extent that such transferee will receive confidential
information from the Company and to the extent that such transferee is
not at such time a party to a confidentiality agreement with the
Company, shall execute and deliver to the Company a confidentiality
agreement in form and substance acceptable to the Company. A permitted
transferee to whom rights are transferred pursuant to this Section 8
may not again transfer such rights to any other person or entity.
8.4 LEGEND. Each certificate representing Restricted Shares shall bear a
legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged
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<PAGE>
or hypothecated unless and until such shares are registered under such
Act or an opinion of counsel satisfactory to the Company is obtained to
the effect that such registration is not required."
The foregoing legend shall be removed from the certificates
representing any Restricted Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Securities Act.
8.5 RULE 144A INFORMATION. The Company shall, at all times during which it
is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of a Purchaser, provide in
writing to the Purchaser and to any prospective transferee of any
Restricted Shares the information concerning the Company described in
Rule 144A(d)(4) under the Securities Act ("Rule 144A Information"). The
Company also shall, upon the written request of a Purchaser, cooperate
with and assist the Purchaser or any member of the National Association
of Securities Dealers, Inc. PORTAL system in applying to designate and
thereafter maintain the eligibility of the Restricted Shares for
trading through PORTAL. The Company's obligations under this Section
8.5 shall at all times be contingent upon receipt from the prospective
transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from
disclosure to anyone other than persons who will assist such transferee
in evaluating the purchase of any Restricted Shares.
9 MISCELLANEOUS.
9.1 SUCCESSORS AND ASSIGNS. Except as provided in Section 8 hereof, the
rights granted pursuant to this Agreement may not be transferred or
assigned, and any transfer in violation of the provisions of this
Section 9.1 shall be null and void and of no force or effect. Subject
to the foregoing, the provisions of this Agreement shall be binding
upon, and inure to the benefit of, the respective successors, assigns,
heirs, executors and administrators of the parties hereto.
9.2 CONFIDENTIALITY. Each Purchaser agrees that it will keep confidential
and will not disclose or divulge any confidential, proprietary or
secret information which it may obtain from the Company pursuant to
financial statements, reports and other materials provided by the
Company to the Purchaser pursuant to this Agreement, unless such
information is known, or until such information becomes known, to the
public; PROVIDED, HOWEVER, that the Purchaser may disclose such
information (i) to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in
connection with its investment in the Company, (ii) to any prospective
purchaser of any Shares from the Purchaser as long as such prospective
purchaser agrees in writing to be bound by the provisions of this
Section or (iii) to any affiliate of the Purchaser or to a partner,
shareholder or subsidiary of the Purchaser.
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<PAGE>
9.3 NOTICES. All notices, requests, consents and other communications under
this Agreement shall be in writing and shall be delivered by hand,
telecopy or overnight courier (by a nationally recognized carrier) or
mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company: Art Technology Group, Inc.
101 Huntington Avenue
22nd Floor
Boston, Massachusetts 02199
Attention: President
with a copy to Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David A. Westenberg, Esq.
If to a Purchaser: to the address set forth on SCHEDULE 1
or at such other address or addresses as may have been furnished by the
parties in accordance with this Section 9.3. Notices provided in
accordance with this Section 9.3 shall be deemed delivered upon
personal delivery, upon receipt of a telecopy confirmation, one day
after deposit with an overnight delivery service or three business days
after deposit in the mail.
9.4 BROKERS. The Company and each Purchaser (i) represent and warrant to
the other parties hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and
(ii) will indemnify and save the other parties harmless from and
against any and all claims, liabilities or obligations with respect to
brokerage or finders' fees or commissions, or consulting fees in
connection with the transactions contemplated by this Agreement
asserted by any person on the basis of any statement or representation
alleged to have been made by such indemnifying party.
9.5 ENTIRE AGREEMENT. This Agreement (including the Schedule and Exhibits
hereto) embodies the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter,
including, but not limited to, that letter dated November 5, 1997 from
Thomas N. Matlack to the Company.
9.6 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with
the written consent of the Company and the Purchasers holding a
majority of the Shares. Any amendment or waiver effected in
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<PAGE>
accordance with this Section 9.6 shall be binding upon each Purchaser
and each holder of any Shares, (including shares of Common Stock into
which such Shares have been converted), each future holder of all such
securities and the Company. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver
of any such term, condition or provision.
9.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
9.8 SECTION HEADINGS. The section headings are for the convenience of the
parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
9.9 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
9.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts,
excluding its choice of law rules.
9.11 PUBLICITY. All publicity and press releases relating to the
transactions contemplated by this Agreement shall be coordinated and
approved by the Company, on the one hand, and the Purchasers (by action
of the holders of a majority of the Shares) on the other hand.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMPANY:
ART TECHNOLOGY GROUP, INC.
By: /S/ MAHENDRAJEET SINGH
-----------------------------
Mahendrajeet Singh, President
PURCHASERS:
HASANAIN PANJU JANE THOMPSON
/S/ HASANAIN PANJU /S/ JANE THOMPSON
- ---------------------- -------------------------
MICHAEL MARGOLIS PRATAP TALWAR
/S/ MICHAEL MARGOLIS /S/ PRATAP TALWAR
- ---------------------- -------------------------
WYNDCREST ATG HOLDINGS, LTD.
By: /S/ JOHN C. TEXTOR
----------------------
Name:
Title:
[SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
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<PAGE>
SCHEDULE 1
PURCHASERS
<TABLE>
<CAPTION>
PURCHASER ADDRESS SHARES PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hasanain Panju Cinar Films Inc. 46,296 $75,000
1055 Blvd. Rene-Levesque East
Suite 800
Montreal, Quebec
H2L 4S5 CANADA
Michael Margolis Bear Sterns 46,296 $75,000
245 Park Ave.
New York, NY 10167
Pratap Talwar Thompson Design Group 15,432 $25,000
368 Congress
Boston, MA 02210
Jane Thompson Thompson Design Group 95,679 $155,000
368 Congress
Boston, MA 02210
Wyndcrest ATG
Holdings Ltd. John Textor & Jeff Kukes 52,469 $85,000
Phillips Point - West Tower
777 South Flagler Drive
West Palm Beach, FL 33401
TOTAL 256,172 $415,000
</TABLE>
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<PAGE>
Exhibit A
SERIES C CONVERTIBLE PREFERRED STOCK
1. Dividends
(a) The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends of $0.08
per share per annum (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), payable when and as declared by the Board of Directors of the
Corporation. Such dividends shall accrue and shall be cumulative from the date
of issuance of each share of Series C Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any distributions
(as defined below) on shares of Common Stock, Series A Preferred Stock or any
other class or series of stock ranking on liquidation junior to the Series C
Preferred Stock, until the holders of the Series C Preferred Stock then
outstanding shall have first received a distribution at the rate specified in
paragraph (a) of this Section 1. In the event that the Corporation declares any
cash dividends on Series B Preferred Stock or other series of preferred stock
ranking in liquidation on parity with the Series C Preferred Stock, the
Corporation shall also declare a cash dividend on the Series C Preferred Stock
in an amount equal to the common equivalent per share dividend declared on the
Series B Preferred Stock or such other series of parity preferred stock.
(c) For purposes of this Section 1, unless the context
requires otherwise, "distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding Up
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of the any class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series C Preferred Stock, but before
any payment shall be made to the holders of Common Stock or Series A Preferred
Stock, or any other class or series of stock
<PAGE>
ranking on liquidation junior to the Series C Preferred Stock, by reason of
their ownership thereof, an amount equal to the greater of (i) $1.62 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any accrued but unpaid dividends thereon, or (ii) such amount per share as
would have been payable had each such share been converted into Common Stock
pursuant to Section 4 immediately prior to such liquidation, dissolution or
winding up. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
C Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series C Preferred Stock, Series B Convertible Preferred Stock and
any other class or series of stock ranking on liquidation on a parity with the
Series C Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full. A consolidation or merger of the Corporation with or into
another corporation or entity, or a sale of all or substantially all of the
assets of the Corporation, shall not be regarded as a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 2.
3. Voting
(a) Each holder of outstanding shares of Series C Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series C Preferred Stock held by
such holder are then convertible (as adjusted from time to time pursuant to
Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or by the provisions establishing any other series of preferred stock,
holders of Series C Preferred Stock shall vote together with the holders of
Common Stock and other series of Preferred Stock as a single class.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series C Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority senior to the Series C
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series C Preferred Stock, and the
authorization of any shares of capital stock junior to or on parity with the
Series C Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall not be deemed to affect adversely the Series C Preferred Stock. The number
of authorized shares of Series C Preferred Stock may be increased or decreased
(but not below the number of shares then outstanding) by the directors of the
Corporation pursuant to
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Section 151 of the General Corporation Law of Delaware or by the affirmative
vote of the holders of a majority of the then outstanding shares of the Common
Stock and Preferred Stock and all other classes or series of stock of the
Corporation entitled to vote thereon, voting as a single class, irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of Delaware.
4. Optional Conversion. The holders of the Series C Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series C Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.62 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" for the Series C
Preferred Stock shall initially be $1.62. Such initial Conversion Price, and the
rate at which shares of Series C Preferred Stock may be converted into shares of
Common Stock, shall be subject to adjustment as provided below. In the event of
a liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for the payment
of any amounts distributable on liquidation to the holders of Series C Preferred
Stock.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series C Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series C Preferred Stock
to convert shares of Series C Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
C Preferred Stock, at the office of the transfer agent for the Series C
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series C
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series C
Preferred Stock, or to his or its
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<PAGE>
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the
Series C Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series C Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series C Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any accrued but unpaid dividends on the
Series C Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series C Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
dividends accrued but unpaid thereon. Any shares of Series C Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series C
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issuance or delivery of shares
of Common Stock upon conversion of shares of Series C Preferred Stock pursuant
to this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series C Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this
Subsection 4(d), the following definitions shall apply:
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<PAGE>
(A) "Option" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding options described in Subsection 4(d)(i)(D)(IV)
below.
(B) "Original Issue Date" shall mean the
date on which a share of Series C Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any
evidences of indebtedness, shares or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Subsection
4(d)(iii) below, deemed to be issued) by the Corporation after the Original
Issue Date, other than shares of Common Stock issued or issuable:
(I) upon conversion of any Convertible
Securities outstanding on the Original
Issue Date, or upon exercise of any
Options outstanding on the Original
Issue Date;
(II) as a dividend or distribution on the
Series C Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares
of Common Stock that is covered by
Subsection 4(e) or 4(f) below; or
(IV) shares of Common Stock, and options and
warrants therefor, issued or issuable to
employees, directors, consultants or
strategic partners of or to the
Corporation, as approved by a majority
of the Board of Directors.
(ii) No Adjustment of Conversion Price. No adjustment
in the number of shares of Common Stock into which the Series C Preferred Stock
is convertible shall be made, by adjustment in the applicable Conversion Price
thereof: (a) unless the consideration per share (determined pursuant to
Subsection 4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares of Common Stock, or (b) if prior to such issuance, the Corporation
receives written notice from the holders of at least 50% of the then outstanding
shares of Series C Preferred Stock as to which such adjustment would apply
agreeing that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional
Shares of Common Stock. If the Corporation at any time or from time to time
after the Original Issue Date shall
5
<PAGE>
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of
Common Stock would be less than the applicable Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase
becoming effective, be recomputed to reflect such increase insofar as it affects
such Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of
any unexercised Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Conversion Price;
(D) In the event of any change in the number
of shares of Common Stock issuable upon the exercise, conversion or exchange of
any Option or Convertible Security, including, but not limited to, a change
resulting from the anti-dilution provisions thereof, the Conversion Price then
in effect shall forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B)
or (D) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would
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<PAGE>
have resulted from any issuances of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d)(iii) shall apply.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall, between
the Original Issue Date and the second anniversary of the Original Issue Date,
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Subsection 4(d)(iii), but excluding shares
issued as a dividend or distribution as provided in Subsection 4(f) or upon a
stock split or combination as provided in Subsection 4(e)), without
consideration or for a consideration per share less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to the consideration per share received by the Corporation for
the issue of the Additional Shares of Common Stock (determined pursuant to
Subsection 4(d)(v)).
(v) Determination of Consideration. For purposes of
this Subsection 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be
computed at the aggregate of cash received by the
Corporation, excluding amounts paid or payable
for accrued interest;
(II) insofar as it consists of property other
than cash, be computed at the fair market value
thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(III) in the event Additional Shares of
Common Stock are issued together with other
shares or securities or other assets of the
Corporation for consideration which covers both,
be the proportion of such consideration so
received, computed as provided in clauses (I) and
(II) above, as determined in good faith by the
Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued
7
<PAGE>
pursuant to Subsection 4(d)(iii), relating to Options and Convertible
Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Series C Preferred Stock, and
such issuance dates occur within a period of no more than 120 days, then the
Conversion Price shall be adjusted only once on account of such issuances, with
such adjustment to occur upon the final such issuance and to give effect to all
such issuances as if they occurred on the date of the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series C Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series C Preferred Stock then in effect by a fraction:
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<PAGE>
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series C Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series C Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series C Preferred Stock had been
converted into Common Stock on the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event the
Corporation at any time or from time to time after the Original Issue Date for
the Series C Preferred Stock shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series C Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series C Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series C Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series C Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series C Preferred Stock had been converted into Common
Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon the conversion of the Series C Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series C Preferred Stock
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<PAGE>
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which such shares of Series C Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(i)(1) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation, each share of Series C Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series C Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series C Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series C Preferred Stock.
(2) Special Adjustment. In the event that neither of the two
conditions described in clauses (x) and (y) below are satisfied, then on April
1, 1998 the Conversion Price of all shares of Series C Preferred Stock with
Original Issue Dates on or before November 12, 1997 shall be adjusted as
follows: the Conversion Price of such shares as of their Original Issue Date
shall be deemed to be $0.81, all adjustments to the Conversion Price of such
shares made between their Original Issue Date and April 1, 1998 shall be applied
retroactively to such deemed Conversion Price, and all adjustments to the
Conversion Price of such shares made after April 1, 1998 shall be made to such
deemed Conversion Price, as adjusted; such adjusted Conversion Price shall for
all purposes be deemed to be the Conversion Price of such shares. The conditions
referred to above are as follows: (x) the Corporation receives aggregate
proceeds of at least $3,000,000 from the sale of its capital stock, options,
warrants or other securities convertible into or exercisable or exchangeable for
shares of its capital stock, or agreements to issue capital stock or such
options, warrants or convertible securities, based on an aggregate
post-investment valuation for the Corporation of at least $25,000,000 (at a per
share price of at least $2.70), on or prior to December 31, 1997 or (y) the
Corporation receives aggregate proceeds of at least $3,000,000 from the sale of
its capital stock, options, warrants or other securities convertible into or
exercisable or exchangeable for shares of its capital stock, or agreements to
issue capital stock or such options, warrants or convertible securities, based
on an aggregate post-investment valuation of the Corporation of at least
$30,000,000 (at a per share price of at least $3.24), on or prior to March 31,
1998.
(j) No Impairment. The Corporation will not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution,
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<PAGE>
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series C Preferred Stock against
impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C Preferred Stock subject to such adjustment a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series C Preferred Stock, furnish or cause
to be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series C Preferred
Stock.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any
other distribution) on its Common Stock payable
in Common Stock or other securities of the
Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of
the Corporation (other than a subdivision or
combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of
the Corporation into or with another
corporation, or of the sale of all or
substantially all of the assets of the
Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C Preferred Stock, and shall cause to
be mailed to the holders of the Series C Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination,
or, if a record is not to be taken, the date
as of which
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the holders of Common Stock of record to be
entitled to such dividend, distribution,
subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to
become effective, and the date as of which
it is expected that holders of Common Stock
of record shall be entitled to exchange
their shares of Common Stock for securities
or other property deliverable upon such
reclassification, consolidation, merger,
sale, dissolution or winding up.
5. Mandatory Conversion
(a) (1) Upon the closing of the sale of shares of Common
Stock, at a price of at least $3.24 per share (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
resulting in at least $10,000,000 of gross proceeds to the Corporation, (i) all
outstanding shares of Series C Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective Conversion Price, and (ii)
the number of authorized shares of Preferred Stock of the Company shall be
automatically reduced by the number of shares of Series C Preferred Stock, and
all provisions included under the caption "Series C Preferred Stock", and all
references to the Series C Preferred Stock shall be deleted and shall be of no
further force or effect.
(2) Upon the affirmative vote of the holders of a majority of
the Series C Preferred Stock, (i) all outstanding shares of Series C Preferred
Stock shall automatically be converted into shares of Common Stock, at the then
effective Conversion Price, and (ii) the number of authorized shares of Series C
Preferred Stock of the Company shall be automatically reduced by the number of
shares of Series C Preferred Stock so converted, and all references to the
Series C Preferred Stock, shall be deleted and shall be of no further force or
effect.
(3) The date of conversion specified in paragraphs (1) and (2)
above shall be termed the "Mandatory Conversion Date".
(b) All holders of record of shares of Series C Preferred Stock to be
converted pursuant to this Section 5 shall be given written notice of the
Mandatory Conversion Date and the place designated for mandatory conversion of
all such shares of Series C Preferred Stock pursuant to this Section 5. Such
notice need not be given in advance of the occurrence of the Mandatory
Conversion Date. Such notice shall be sent by first class or registered mail,
postage prepaid, to each record holder of such Series C Preferred Stock at such
holder's address last shown on the records of the transfer agent for the Series
C Preferred Stock (or the records of the Corporation, if it serves as its own
transfer agent). Upon receipt of such notice, each holder of shares of Series C
Preferred Stock so converted shall surrender his or its certificate or
certificates
12
<PAGE>
for all such shares to the Corporation at the place designated in such notice,
and shall thereafter receive certificates for the number of shares of Common
Stock to which such holder is entitled pursuant to this Section 5. On the
Mandatory Conversion Date, all rights with respect to the Series C Preferred
Stock so converted, including the rights, if any, to receive notices and vote
(other than as a holder of Common Stock) will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series C Preferred Stock has been converted, and payment of any
accrued but unpaid dividends thereon. If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
C Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(c) All certificates evidencing shares of Series C Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and canceled and the shares of Series C Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series C Preferred Stock accordingly.
13
<PAGE>
EXHIBIT B
Disclosure Schedule
Each disclosure contained in this Disclosure Schedule shall be deemed to have
been made with respect to each applicable representation and warranty contained
in Section 3 of the Agreement, irrespective of the section of this Disclosure
Schedule in which such disclosure appears.
3.2 Capitalization.
A. The Company has reserved a total of 2,000,000 shares of Common
Stock for issuance pursuant to the Company's 1996 Stock Option
Plan (the "Plan"). Options to purchase 1,296,300 shares of
Common Stock are outstanding under the Plan.
B. The Company has issued a Performance Warrant to Softbank
Ventures Inc. for the purchase of certain shares of Series B
Convertible Preferred Stock at an exercise price of $7.05. The
number of shares subject to the warrant is based on the
financial performance of the Company. The warrant is
exercisable between February 28, 1998 and the earlier to occur
of an initial public offering of the Company and February 28,
1999.
C. The Conversion Price of the Company's Series B Convertible
Preferred Stock has been adjusted in connection with the
issuance of shares of Series C Preferred Stock on November
12, 1997 resulting in the conversion of such Series B
Convertible Preferred Stock into a greater number of shares of
Common Stock. Such Conversion Price will be adjusted again as
a result of the issuance and sale of the Shares pursuant to
this Agreement.
D. The Company has entered into a Consulting Agreement with
Mr. Thomas Matlack, a shareholder and director of the
Company, pursuant to which Mr. Matlack will provide
strategic and financial consulting services to the Company
for a one-year period ending on November 12, 1998 in
consideration for the grant of an option to purchase 73,000
shares of common stock at an exercise price of $.75 per
share, to be exercisable in full on November 12, 1998. In
addition, the Company has agreed to use its best efforts to
ensure that Mr. Matlack continues to be elected to the
Board of Directors of the Company until an initial public
offering of the Company or his death or resignation. The
Company expects to increase the number of shares subject to
Mr. Matlack's option to reflect his higher-than-anticipated
level of services and time commitment to the Company.
E. The Company has agreed that in the event that the Company
enters into an exclusive arrangement with an investment
bank or investment advisor, the Company will ensure that
such arrangement does not preclude the Company's
-1-
<PAGE>
existing holders of Series C Stock from making additional
equity investments in the Company as mutually agreed by
such stockholders and the Company.
F. The Company intends to grant a five-year warrant to Silicon
Valley Bank ("SVB") in connection with the extension of
credit by SVB to the Company (see 3.13.A below). Such
warrant (the "SVB Warrant") would grant SVB the right to
purchase up to 46,292 shares of Series C Preferred Stock of
the Company at an exercise price of $1.62 per share. The
Company intends to grant SVB certain rights with respect to
the registration of the Common Stock issuable upon exercise
of the SVB Warrant. Under certain circumstances, if the
Company is acquired and the SVB Warrant is not assumed by
the acquiror, the Company may be required to repurchase the
shares under the SVB Warrant.
G. The Company's Series B Convertible Preferred Stock may be
redeemed for $7.05 per share plus accrued but unpaid
dividends on each December 31 of 2001 (up to 25% of such
shares), 2002 (up to 50% of such shares), 2003 (up to 75%
of such shares) and 2004 (up to 100% of such shares).
3.4 Stockholder List and Agreements.
A. See Stockholder Lists attached hereto.
B. Agreements.
1. Stock Purchase Agreement dated as of July, 1995,
among the Company, Madanjeet Singh and B.U. Chung.
2. Stock Restriction Agreement dated as of December 31,
1991 between the Company and Mahendrajeet Singh.
3. Stock Restriction Agreement dated as of December 31,
1991 between the Company and Joseph T. Chung.
4. Series B Stock Purchase Agreement dated as of
December 23, 1996, between the Company and Softbank
Ventures, Inc.
5. Stockholders Agreement dated December 23, 1996
among the Company, Softbank Ventures, Inc. and the
other parties named therein. (A) Section 7.2 of
such Agreement requires to Company to have at
least one outside directors, and to have a
compensation committee comprised solely of outside
directors. The Company did not comply with this
provision until November 1997. (B) Article II of
this Agreement gives Softbank a right to require
the registration of certain shares of the
Company's Common Stock held by it. (C) Article III
of this Agreement gives Softbank a right of first
refusal to purchase shares of the Company in this
transaction to maintain its current percentage
ownership level in the Company.
6. Series C Preferred Stock Purchase Agreement dated
November 12, 1997.
7. Registration Rights Agreement dated November 12,
1997.
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<PAGE>
3.8 Litigation. The matters disclosed in Sections 3.9 and 3.13.C and D of
this Disclosure Schedule could result in litigation or governmental
action against the Company.
3.9 Taxes. The Company is in arrears with respect to the payment of
certain payroll withholding taxes, as described under Section 3.15
below.
3.10 Property and Assets. All the assets of the Company are subject to liens
pursuant to a lending facility with SVB (See Section 3.13A).
Additional liens on certain of the Company's assets are in favor of
Sanwa Leasing Corporation, AT&T Capital Leasing and IBM Credit
Corporation.
3.11 Intellectual Property.
A. Trademarks
The Company has filed applications to register its trademarks
ATG (Serial No. 75/150643) and DYNAMO (Serial No. 75/722198)
with the U.S. Patent and Trademark Office.
Sybase, Inc. may be using a trademark similar or identical to
the Company's DYNAMO trademark. The Company has not pursued
formal legal action with respect to such use.
B. Patents
The Company filed U.S. Patent Application No. 08/855379
entitled "Method and apparatus for on-the-fly compilation and
execution of content documents with embedded source program"
with the U.S. Patent and Trademark Office on May 13, 1997.
3.13 Absence of Changes.
A. In December 1997, the Company obtained a lending facility
from SVB in the aggregate amount of $1,000,000, comprising
a $500,000 term loan and a $500,000 revolving line of
credit, each bearing annual interest at 1.25% above SVB's
prime lending rate. The term loan is payable in 36 monthly
installments beginning in January 1998. All principal and
interest on the line of credit are due on December 29,
2000. The Company has drawn $300,000 under the line of
credit, and it expects to draw the remaining available
credit under the line of credit shortly following the First
Closing. Under the loan agreement, the Company is obligated
to raise at least $3,000,000 in equity financing between
September 1, 1997 and January 31, 1998. A failure to raise
this financing would constitute a default under the loan
agreement. In connection with these lending facilities, SVB
has obtained a first priority security interest in all the
Company's assets.
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<PAGE>
B. The Company is in default on payments due under its two real
property leases. (I) Sybase, Inc., one of the Company's
lessors, has notified the Company of its default under the
lease, and has formally demanded unpaid rent payments,
amounting to approximately $180,000. The Company and Sybase
are currently negotiating a repayment schedule for such
overdue amounts. (2) A default judgment in the amount of
$47,362.82 against the Company was entered in November 1997
in favor of First Church of Christ Scientist of Boston, the
other of the Company's landlords (for property no longer
occupied by the Company) on a claim for amounts past due.
C. The Company has delayed payments due to substantially all of
its creditors, including employees, and is currently unable to
meet its obligations as they become due.
D. The Company has continued to incur operating losses.
3.14 Compliance. See 3.9 above with respect to arrears of withholding taxes
and 3.15 below with respect to failure to pay employees.
3.15 Employees. The Company is not currently in arrears with respect to
the payment of payroll withholding taxes or employee payroll,
although the Company has recently been delinquent in making such
payments. Governmental taxing authorities may impose penalties on
the Company with respect to such past delinquency. There can be no
assurance that the Company will not, in the future, again become
delinquent in the payment of payroll withholding taxes and/or
employee payroll.
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<PAGE>
Exhibit C
Form of Amended and Restated Registration Rights Agreement
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of December 8, 1997 is entered into by and
among ART TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company"), and
the persons and entities listed on Exhibit A hereto (individually, a
"Purchaser", and collectively, the "Purchasers").
WHEREAS, the Company and the Purchasers have entered into a Series C
Preferred Stock Purchase Agreement dated November 12, 1997 and a Series C
Preferred Stock Purchase Agreement dated December 8, 1997 (collectively, the
"Purchase Agreements"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $0.01 par value per share,
of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registration Statement" means a registration statement filed by
the Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section 5.
"Registrable Shares" means (i) the shares of Common Stock issued
or issuable upon conversion of the Shares, (ii) any other shares of Common Stock
issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
that shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares (i) upon any sale pursuant to a Registration Statement or
Rule 144
<PAGE>
under the Securities Act or (ii) upon any sale in any manner to a person or
entity which, by virtue of Section 14 of this Agreement, is not entitled to the
rights provided by this Agreement. Wherever reference is made in this Agreement
to a request or consent of holders of a certain percentage of Registrable
Shares, the determination of such percentage shall include shares of Common
Stock issuable upon conversion of the Shares even if such conversion has not yet
been effected.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" shall have the meaning specified in Subsection 1.1 of
each of the Purchase Agreements.
"Stockholders" means the Purchasers and any persons or entities to
whom the rights granted under this Agreement are transferred by any Purchasers,
their successors or assigns pursuant to Section 14 hereof.
2. Required Registrations.
(a) At any time after the first anniversary of the closing of
the Company's first underwritten public offering of shares of Common Stock
pursuant to a Registration Statement, a Stockholder or Stockholders holding in
the aggregate at least 50% of the Registrable Shares may request, in writing,
that the Company effect the registration on Form S-1 or Form S-2 (or any
successor form) of Registrable Shares owned by such Stockholder or Stockholders
having an aggregate offering price of at least $5,000,000 (based on the then
current market price or fair value). If the holders initiating the registration
intend to distribute the Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. In the event such registration is
underwritten, the right of other Stockholders to participate shall be
conditioned on such Stockholders' participation in such underwriting. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all Stockholders. Such Stockholders shall have the
right, by giving written notice to the Company within 30 days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Stockholders may request in such notice of
election; provided that if the underwriter (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Shares
requested to be registered by all Stockholders may not be included in the
offering, then all Stockholders who have requested registration shall
participate in the registration pro rata based upon the number of Registrable
Shares which they have requested to be so registered. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-1 or Form S-2 (or any successor form) of all Registrable
Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders holding in the aggregate at least 30%
of the Registrable Shares may request the
<PAGE>
Company, in writing, to effect the registration on Form S-3 (or such successor
form), of Registrable Shares having an aggregate offering price of at least
$500,000 (based on the then current public market price). Upon receipt of any
such request, the Company shall promptly give written notice of such proposed
registration to all Stockholders. Such Stockholders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of their
Registrable Shares as such Stockholders may request in such notice of election;
provided that if the underwriter (if any) managing the offering determines that,
because of marketing factors, all of the Registrable Shares requested to be
registered by all Stockholders may not be included in the offering, then all
Stockholders who have requested registration shall participate in the
registration pro rata based upon the number of Registrable Shares which they
have requested to be so registered. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration on
Form S-3 (or such successor form) of all Registrable Shares which the Company
has been requested to so register.
(c) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above or more than one registration
during any period of twelve months pursuant to paragraph (b) above. The Company
shall not be required to effect any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months after the
effective date of any other Registration Statement of the Company.
(d) If at the time of any request to register Registrable
Shares pursuant to this Section 2, the Company is engaged or has fixed plans to
engage within 30 days of the time of the request in a registered public offering
as to which the Stockholders may include Registrable Shares pursuant to Section
3 or is engaged in any other activity which, in the good faith determination of
the Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any two-year period.
3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement (other than pursuant to Section 2 or pursuant to a registration
requested pursuant to Article II of that Stockholders Agreement dated December
23, 1996 among the Company, Softbank Ventures, Inc. and certain other parties
named therein (the "Stockholders Agreement")) at any time and from time to time,
it will, prior to such filing, give written notice to all Stockholders of its
intention to do so and, upon the written request of a Stockholder or
Stockholders given within 20 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall use its best efforts to cause all Registrable Shares
which the Company has been requested by such Stockholder or Stockholders to
register to be registered under the Securities Act to the extent necessary to
permit their sale or other disposition in accordance with the intended methods
of distribution specified in the
<PAGE>
request of such Stockholder or Stockholders; provided that the Company shall
have the right to postpone or withdraw any registration effected pursuant to
this Section 3 without obligation to any Stockholder.
(b) In connection with any registration under this Section 3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided that such terms must be consistent with
this Agreement). If in the opinion of the managing underwriter it is appropriate
because of marketing factors to limit the number of Registrable Shares to be
included in the offering, then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the managing
underwriter believes should be included therein; provided that no persons or
entities other than the Company, the Stockholders and Softbank Ventures, Inc.
(or its assigns or transferees) shall be permitted to include securities in the
offering. If the number of Registrable Shares to be included in the offering in
accordance with the foregoing is less than the total number of shares which the
holders of Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in the
preceding sentence.
4. Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to use its best efforts to effect
the registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
<PAGE>
(d) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Stockholders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; provided, however, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
5. Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration under Section 2 is withdrawn at the request of the Stockholders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders elect not to have such registration counted as a
registration requested under Section 2, the requesting Stockholders shall pay
the Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section 5, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses and fees and expenses of counsel for the Company, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling commissions
and the fees and expenses of selling Stockholders' own counsel.
6. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or
<PAGE>
supplement to such Registration Statement, or arise out of or are based upon
the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse such seller, underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will 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 any untrue statement
or omission made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; provided, however, that the obligations of such Stockholders
hereunder shall be limited to an amount equal to the proceeds to each
Stockholder of Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section
6 (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 be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests
<PAGE>
between the Indemnified Party and any other party represented by such counsel in
such proceeding. 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 of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 6 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling
Stockholder or any such controlling person in circumstances for which
indemnification is provided under this Section 6; then, in each such case, the
Company and such Stockholder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportions so that such holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Shares offered by the Registration Statement bears to the public offering price
of all securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
7. Indemnification with Respect to Underwritten Offering. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 2, the Company agrees to enter into
an underwriting agreement containing customary representations and warranties
with respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
8. Information by Holder. Each Stockholder including Registrable
Shares in any registration shall furnish to the Company such information
regarding such Stockholder and the distribution proposed by such Stockholder 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.
9. "Stand-Off" Agreement. Each Stockholder, if requested by
the Company and the managing underwriter of an offering by the Company of Common
Stock or other securities of
<PAGE>
the Company pursuant to a Registration Statement, shall agree not to sell
publicly or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Stockholder for a specified period of
time (not to exceed 180 days) following the effective date of such Registration
Statement; provided, that:
(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold on its behalf to the public in an
underwritten offering; and
(b) all officers and directors of the Company enter into
similar agreements.
10. Rule 144 Requirements. After the earliest of (i) the closing
of the sale of securities of the Company pursuant to a Registration Statement,
(ii) the registration by the Company of a class of securities under Section 12
of the Exchange Act, or (iii) the issuance by the Company of an offering
circular pursuant to Regulation A under the Securities Act, the Company agrees
to:
(a) comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(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); and
(c) furnish to any holder of Registrable Shares upon request
(i) a written statement by the Company as to its compliance with the
requirements of said Rule 144(c), and the reporting requirements of the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents of the Company
as such holder may reasonably request to avail itself of any similar rule or
regulation of the Commission allowing it to sell any such securities without
registration.
11. Termination. All of the Company's obligations to register
Registrable Shares under this Agreement shall terminate on the tenth anniversary
of this Agreement.
12. Transfers of Rights. This Agreement, and the rights and obligations
of each Purchaser hereunder, may be assigned by such Purchaser to any person or
entity to which Shares are transferred by such Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company.
13. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
<PAGE>
If to the Company, at Art Technology Group, Inc., 101 Huntington
Avenue, 22nd Floor, Boston, Massachusetts 02199, Attention: President, or at
such other address or addresses as may have been furnished in writing by the
Company to the Purchasers, with a copy to Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts 02109, Attention David A. Westenberg, Esq.; or
If to a Stockholder, at his or its address set forth on Exhibit A, or
at such other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to Walter Reed, Esq., Edwards & Angell,
2700 Hospital Trust Tower, Providence, Rhode Island 02903-2499.
Notices provided in accordance with this Section 13(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(b) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter, including that Registration Rights Agreement
dated November 12, 1997 among the Company and certain Purchasers, which is
hereby terminated.
(c) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least a majority of the Registrable Shares; provided, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all Registrable Shares in the same fashion. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision. Exhibit A to this
Agreement may be amended by the Company, without the consent of the other
parties, only to reflect the addition of Purchasers of Shares under the Purchase
Agreements.
(d) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
<PAGE>
Executed as of the date first written above.
COMPANY:
ART TECHNOLOGY GROUP, INC.
By:
------------------------------
Mahendrajeet Singh, President
[Signature Page to Amended and Restated Registration Rights Agreement]
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
OF
ART TECHNOLOGY GROUP, INC.
December 8, 1997
PURCHASER:
---------------------------
By:
Name/Title:
---------------------------
Address:
---------------------------
---------------------------
---------------------------
<PAGE>
Exhibit A
List of Purchasers and Addresses
Mr. Trygve E. Myhren Mr. Bradley Lubin
355 Clayton Street 130 West 79th Street, Apt. 12F
Denver, CO 80206 New York, NY 10024
The Hamblett Long Range Partnership Ms. Jon P. Goodman
c/o Mr. Steve Hamblett 4907 Roma Court
Chairman, CEO, & Publisher Marina Del Ray, CA 90292
The Providence Journal Company
75 Fountain Street Mr. Scott A. Jones
Providence, RI 02902 1150 West 116th St.
Carmel, IN 46032
Osprey Venture Capital Limited Partnership
Mr. Patrick Wilmerding
Private Signals
79 Milk Street, Suite 709
Boston, MA 02109
Henry P. Becton Jr. Trust
Mr. Henry P. Becton, Jr., Trustee
President & General Manager
WGBH
125 Western Avenue
Alston, MA
The Clifford Family Limited Partnership
c/o Pat McCarthy
35 Hobbs Avenue
Warwick, RI 02889
Wyndcrest ATG Holdings Ltd.
John Textor & Jeff Kukes
Phillips Point - West Tower
777 South Flagler Drive
West Palm Beach, FL 33401
<PAGE>
Mr. Thomas N. Matlack Federal Express To: c/o Ariel Technology
362 Commonwealth Avenue 45 Newbury Street, Suite 209
Boston, MA 02115 Boston, MA 02116
Hasanain Panju
Cinar Films Inc.
1055 Blvd. Rene-Levesque East
Suite 800
Montreal, Quebec
H2L 4S5 CANADA
Michael Margolis
Bear Sterns
245 Park Ave.
New York, NY 10167
Pratap Talwar
Thompson Design Group
368 Congress
Boston, MA 02210
Jane Thompson
Thompson Design Group
368 Congress
Boston, MA 02210
<PAGE>
Exhibit 10.13
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of April 16, 1998 by and between Art Technology Group, Inc., a
Delaware corporation (the "COMPANY"), and Scott A. Jones (the "PURCHASER"). In
consideration of the mutual promises and covenants contained in this Agreement,
the Company and the Purchaser agree as follows:
1 SALE OF SHARES
Subject to the terms and conditions of this Agreement, the Company
agrees to sell and issue to the Purchaser, and the Purchaser agrees to
purchase, for the purchase price of $1.62 per share, 246,914 shares
(the "SHARES") of the Company's Series C Convertible Preferred Stock,
$.01 par value per share, having the rights, restrictions, privileges
and preferences set forth in the Certificate of Designations of the
Preferred Stock of the Company, filed with the Secretary of State of
the State of Delaware on November 12, 1997 (the "SERIES C PREFERRED").
On the date hereof, the Company shall deliver to the Purchaser a
certificate for the Shares registered in the name of the Purchaser,
upon the receipt of payment to the Company of the purchase price
therefor.
2 REPRESENTATIONS OF THE COMPANY
Subject to and except as disclosed by the Company in EXHIBIT A hereto
(the "DISCLOSURE SCHEDULE"), the Company hereby represents and warrants
to the Purchaser, as of the Closing Date, as follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its
business as presently conducted and as proposed to be conducted by it
and to enter into and perform this Agreement and to carry out the
transactions contemplated by this Agreement. The Company is duly
qualified to do business as a foreign corporation in every other
jurisdiction in which the failure to so qualify would have a material
adverse effect on the operations or financial condition of the Company.
2.2 CAPITALIZATION. The authorized capital stock of the Company consists of
25,000,000 shares of common stock, $.01 par value per share (the
"COMMON STOCK"), of which, as of the date hereof, 5,959,752 shares are
issued and outstanding, and 10,000,000 shares of Preferred Stock, $.01
par value per share, 1,300,000 of which shares have been designated as
Series A Convertible Preferred Stock (all of which are issued and
outstanding as of the date hereof), 851,064 of which shares have been
designated as Series B Convertible Preferred Stock (425,532 of which
are issued and outstanding as of the date hereof) and 2,000,000 shares
of Series C Preferred (1,209,875 of which are issued or outstanding as
of the date hereof). All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in the
Disclosure Schedule or as
<PAGE>
contemplated by this Agreement, (i) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock of the Company is
authorized or outstanding, (ii) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of
indebtedness or assets of the Company, and (iii) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. All
of the issued and outstanding shares of capital stock of the Company
have been offered, issued and sold by the Company in compliance with
applicable federal and state securities laws.
2.3 SUBSIDIARIES, ETC. The Company has no subsidiaries and does not own or
control, directly or indirectly, any shares of capital stock of any
other corporation or any interest in any partnership, joint venture or
other non-corporate business enterprise.
2.4 STOCKHOLDER LIST AND AGREEMENTS. Set forth in the Disclosure Schedule
is a true and complete list of the stockholders of the Company, showing
the number of shares of Common Stock or other securities of the Company
held by each stockholder as of the date of this Agreement. Except as
provided in, or contemplated by, this Agreement, or as set forth on the
Disclosure Schedule, there are no agreements, written or oral, between
the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating
to the acquisition (including without limitation rights of first
refusal or pre-emptive rights), disposition, registration under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or voting of
the capital stock of the Company.
2.5 ISSUANCE OF SHARES. The issuance, sale and delivery of the Shares in
accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares, have
been duly authorized by all necessary corporate action on the part of
the Company. The Shares so issued, sold and delivered against payment
therefor in accordance with the provisions of this Agreement are, and
the shares of Common Stock issuable upon conversion of the Shares when
issued upon such conversion will be, duly and validly issued, fully
paid and non-assessable.
2.6 AUTHORITY FOR AGREEMENT. The execution, delivery and performance by the
Company of this Agreement and the Registration Rights Amendment (as
defined in Section 2.7), and the consummation by the Company of the
transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action. This Agreement and the Registration
Rights Amendment have been duly executed and delivered by the Company
and constitute valid and binding obligations of the Company enforceable
in accordance with their respective terms. The execution of and
performance of the transactions contemplated by this Agreement and the
Registration Rights Amendment and compliance with their provisions by
the Company does not violate any provision of law and does not conflict
with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or
2
<PAGE>
waiver under, its Certificate of Incorporation or By-Laws (each as
amended to date) or any indenture, lease, agreement or other instrument
to which the Company is a party or by which it or any of its properties
is bound, or any decree, judgment, order, statute, rule or regulation
applicable to the Company.
2.7 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing
with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement or the
Registration Rights Amendment, the offer, issuance, sale and delivery
of the Shares, or the other transactions contemplated hereby, except
such filings as have been made prior hereto and are effective on the
date hereof. Based on the representations made by the Purchaser in
Section 3 of this Agreement, the offer and sale of the Shares to the
Purchaser is in compliance with applicable federal and state securities
laws.
2.8 LITIGATION. There is no action, suit or proceeding, or governmental
inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor, against the Company, which questions the
validity of this Agreement or the right of the Company to enter into
it, or which might result, either individually or in the aggregate, in
any material adverse change in the business or financial condition of
the Company.
2.9 TAXES. The Company has filed all federal, state, county, local and
foreign tax returns which are required to be filed by it, such returns
are true and correct and all taxes, if any, shown thereon to be due
have been timely paid with exceptions not material to the Company.
2.10 PROPERTY AND ASSETS. The Company has good title to all of its material
properties and assets and none of such properties or assets is subject
to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance.
2.11 INTELLECTUAL PROPERTY. Set forth on the Disclosure Schedule is a true
and complete list of all patents, patent applications, trademarks,
service marks, trademark and service mark applications owned by the
Company (the "INTELLECTUAL PROPERTY RIGHTS"). The Company owns, or has
the right to use, all third-party technology and intellectual property
necessary for the conduct of the Company's business. The Company has
taken all actions reasonably necessary to protect the Intellectual
Property Rights. To the best of the Company's knowledge, the business
conducted or proposed by the Company does not and will not cause the
Company to infringe or violate any of the patents, trademarks, service
marks, trade names, copyrights, licenses, trade secrets or other
intellectual property rights of any other person or entity. No other
person or entity (including without limitation any prior employer of
any employee of the Company) has any right to or interest in any
inventions, improvements, discoveries or other confidential information
of the Company.
2.12 FINANCIAL STATEMENTS. The Company has furnished to the Purchaser its
unaudited income statement and balance sheet as at December 31, 1997
and its unaudited
3
<PAGE>
balance sheet (the "Balance Sheet") as of March 31, 1998 (the "Balance
Sheet Date") (collectively, the "Financial Statements"). The Financial
Statements are complete and correct, are in accordance with the books
and records of the Company and present fairly the financial condition
and results of operations of the Company as at the dates and for the
periods indicated, and have been prepared in accordance with generally
accepted accounting principles consistently applied, except that the
Financial Statements have been prepared for the internal use of
management and may not be in accordance with generally accepted
accounting principles because of the absence of footnotes normally
contained therein and are subject to normal year-end audit adjustments
which in the aggregate will not be material.
2.13 ABSENCE OF CHANGES. Since the Balance Sheet Date, there has been no
material adverse change in the condition, financial or otherwise, net
worth or results of operations of the Company, other than changes
occurring in the ordinary course of business which changes have not,
individually or in the aggregate, had a materially adverse effect on
the business, prospects, properties or condition, financial or
otherwise, of the Company.
2.14 COMPLIANCE. The Company has, in all material respects, complied with
all laws, regulations and orders applicable to its business and has all
material permits and licenses required thereby.
2.15 EMPLOYEES. The Company's relations with its employees are good. All
employees of the Company whose employment responsibility requires
access to confidential or proprietary information of the Company have
executed and delivered nondisclosure and assignment of invention
agreements, the form of which has been made available to the Purchaser
for review.
2.16 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 other than a medical benefit
plan with respect to which the Company has made all required
contributions and has complied with all applicable laws.
3 REPRESENTATIONS OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
3.1 INVESTMENT. The Purchaser is acquiring the Shares, and the shares of
Common Stock into which the Shares may be converted, for his own
account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present
intention of distributing or selling the same; and the Purchaser has no
present or contemplated agreement, undertaking, arrangement,
obligation, indebtedness or commitment providing for the disposition
thereof.
3.2 AUTHORITY. The Purchaser has full power and authority to enter into and
to perform this Agreement. This Agreement has been duly executed and
delivered by the Purchaser and constitutes valid and binding obligation
of the Purchaser enforceable in accordance with its terms.
4
<PAGE>
3.3 EXPERIENCE. The Purchaser has carefully reviewed the representations
concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its
personnel; and the officers of the Company have made available to the
Purchaser business and financial data concerning the Company and any
and all other written information which he has requested and have
answered to the Purchaser's satisfaction all inquiries made by the
Purchaser. The Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to
evaluate the risks and merits of his investment in the Company and is
able financially to bear the risks thereof. The Purchaser's overall
commitment to investments which are not readily marketable is not
disproportionate to the Purchaser's net worth and the Purchaser's
investment in the Company will not cause such overall commitment to
become excessive. The Purchaser has adequate net worth and means of
providing for current needs and personal contingencies to sustain a
complete loss of the Purchaser's investment in the Company, and the
Purchaser has no need for liquidity in this investment.
3.4 SECURITIES LAWS. The Purchaser acknowledges that no federal or state
agency has made any finding or determination as to the fairness of the
terms of this offering. The Shares have not been recommended or
endorsed by any federal or state securities commission or regulatory
agency nor have any of the foregoing authorities confirmed the accuracy
or determined the adequacy of the materials and information provided to
the Purchaser by the Company.
3.5 RISK. The Purchaser understands that an investment in the Company
involves significant risks, and the Purchaser has carefully reviewed
and is aware of all of the risk factors related to the purchase of the
Shares. The Purchaser understands and has fully considered for purposes
of this investment that: (1) the Company is an enterprise with limited
financial and operating history; (2) the Shares and the Common Stock
issuable upon conversion thereof represent an extremely speculative
investment which involves a high degree of risk of loss; (3) there are
substantial restrictions on the transferability of, and there is
currently and may in the future be no public market for, the Shares and
the Common Stock issuable upon conversion thereof, and, accordingly, it
may not be possible for the Purchaser to liquidate his investment in
the Shares and the Common Stock issuable upon conversion thereof; and
(4) there have been no representations as to the possible future value,
if any, of the Shares and the Common Stock issuable upon conversion
thereof. In making this investment, the Purchaser has relied
exclusively on the representations and warranties of the Company set
forth in Section 2 of this Agreement and the Financial Statements. The
Purchaser represents and warrants that it has not relied on any other
information or material relating to the Company, including but not
limited to the draft of private placement memorandum dated September
19, 1997, which the Company disclaims in its entirety.
3.6 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
5
<PAGE>
4 COVENANTS
4.1 RESERVATION OF COMMON STOCK. The Company shall reserve and maintain a
sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
4.2 ADDITIONAL PURCHASES. The Purchaser shall not, without the prior
written consent of the Company, purchase, receive or otherwise acquire
any securities of the Company except pursuant to the conversion of the
Shares.
4.3 TERMINATION OF COVENANTS. The covenants of the Company and the
Purchaser contained in Sections 4.1 and 4.2 shall terminate and be of
no further force or effect on the earlier to occur of (a) the closing
of the Company's first public offering of Common Stock covered by a
registration statement filed by the Company under the Securities Act or
(b) the date on which the Purchaser and any transferee to which he has
transferred Shares in accordance with the provisions of this Agreement
collectively hold less than ten percent (10%) of the Shares purchased
hereunder.
4.4 REGISTRATION RIGHTS AMENDMENT. In order to grant the Purchaser
registration rights with respect to the shares of Common Stock issuable
upon conversion of the Shares, the Company and the Purchaser shall
enter into, and the Company shall use its best efforts to cause the
other parties thereto to enter into, an amendment of the Amended and
Restated Registration Rights Agreement dated as of December 8, 1997, as
amended, among the Purchasers (as defined therein) and the Company.
5 TRANSFER OF SHARES
5.1 RESTRICTED SHARES. "Restricted Shares" means (i) the Shares, (ii) the
shares of Common Stock issued or issuable upon conversion of the
Shares, and (iii) any other shares of capital stock of the Company
issued in respect of such shares (as a result of stock splits, stock
dividends, reclassifications, recapitalizations or similar events);
PROVIDED, HOWEVER, that shares of Common Stock which are Restricted
Shares shall cease to be Restricted Shares (i) upon any sale that is
registered under the Securities Act, (ii) upon any sale pursuant to
Section 4(1) of, or Rule 144 under, the Securities Act, or (iii) at
such time as they become eligible for resale under Rule 144(k) under
the Securities Act.
5.2 REQUIREMENTS FOR TRANSFER.
Restricted Shares shall not be sold or transferred unless either (i)
they first shall have been registered under the Securities Act, or (ii)
the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that
such sale or transfer is exempt from the registration requirements of
the Securities Act.
5.3 TRANSFEREES. Any permitted transferee to whom Shares are transferred by
the Purchaser shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be
bound by the obligations imposed upon the Purchaser under this
Agreement to the same extent as if such transferee were
6
<PAGE>
a party hereto and shall, if such transferee will receive confidential
information from the Company and is not at such time a party to a
confidentiality agreement with the Company, execute and deliver to the
Company a confidentiality agreement in form and substance acceptable to
the Company. A permitted transferee to whom rights are transferred
pursuant to this Section 5 may not again transfer such rights to any
other person or entity.
5.4 LEGEND. Each certificate representing Restricted Shares shall bear a
legend substantially in the following form:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such shares are registered under
such Act or an opinion of counsel satisfactory to the Company
is obtained to the effect that such registration is not
required.
The foregoing legend shall be removed from the certificates
representing any Restricted Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Securities Act.
5.5 RULE 144A INFORMATION. The Company shall, at all times during which it
is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of the Purchaser, provide in
writing to the Purchaser and to any prospective transferee of any
Restricted Shares the information concerning the Company described in
Rule 144A(d)(4) under the Securities Act ("RULE 144A INFORMATION"). The
Company also shall, upon the written request of the Purchaser,
cooperate with and assist the Purchaser or any member of the National
Association of Securities Dealers, Inc. PORTAL system in applying to
designate and thereafter maintain the eligibility of the Restricted
Shares for trading through PORTAL. The Company's obligations under this
Section 5.5 shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to
take all reasonable precautions to safeguard the Rule 144A Information
from disclosure to anyone other than persons who will assist such
transferee in evaluating the purchase of any Restricted Shares.
6 MISCELLANEOUS
6.1 SUCCESSORS AND ASSIGNS. Except as provided in Section 5 hereof, the
rights granted pursuant to this Agreement may not be transferred or
assigned, and any transfer in violation of the provisions of this
Section 6.1 shall be null and void and of no force or effect. Subject
to the foregoing, the provisions of this Agreement shall be binding
upon, and inure to the benefit of, the respective successors, assigns,
heirs, executors and administrators of the parties hereto.
6.2 NOTICES. All notices, requests, consents and other communications under
this Agreement shall be in writing and shall be delivered by hand,
telecopy or overnight
7
<PAGE>
courier (by a nationally recognized carrier) or mailed by first class
certified or registered mail, return receipt requested, postage
prepaid:
If to the Company: Art Technology Group, Inc.
101 Huntington Avenue, 22nd Floor
Boston, Massachusetts 02199
Attention: President
with a copy to: Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: David A. Westenberg, Esq.
If to the Purchaser: Mr. Scott A. Jones
1150 West 116th Street
Carmel, IN 46032
or at such other address or addresses as may have been furnished by the
parties in accordance with this Section 6.2. Notices provided in
accordance with this Section 6.2 shall be deemed delivered upon
personal delivery, upon receipt of a telecopy confirmation, one day
after deposit with an overnight delivery service or three business days
after deposit in the mail.
6.3 BROKERS. Each of the Company and the Purchaser (i) represents and
warrants to the other party that it or he has retained no finder or
broker in connection with the transactions contemplated by this
Agreement, and (ii) will indemnify and hold the other party harmless
from and against any and all claims, liabilities or obligations with
respect to brokerage or finders' fees or commissions, or consulting
fees in connection with the transactions contemplated by this Agreement
asserted by any person on the basis of any statement or representation
alleged to have been made by such indemnifying party.
6.4 ENTIRE AGREEMENT. This Agreement (including the Schedule and Exhibits
hereto) embodies the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
6.5 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with
the written consent of the Company and the Purchaser. Any amendment or
waiver effected in accordance with this Section 6.5 shall be binding
upon the Purchaser, each future holder of the Shares (including shares
of Common Stock into which such Shares have been converted) and the
Company. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
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6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
6.7 SECTION HEADINGS. The section headings are for the convenience of the
parties and in no way alter, modify, amend, limit or restrict the
contractual obligations of the parties.
6.8 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement.
6.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts,
excluding its choice of law rules.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
ART TECHNOLOGY GROUP, INC.
By: /s/ Jeet Singh
---------------------------
Jeet Singh, President
PURCHASER:
SCOTT A. JONES
/s/ Scott A. Jones
----------------------------
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EXHIBIT A
DISCLOSURE SCHEDULE
Each disclosure contained in this Disclosure Schedule shall be deemed
to have been made with respect to each applicable representation and warranty
contained in Section 3 of the Agreement, irrespective of the section of this
Disclosure Schedule in which such disclosure appears.
3.2 CAPITALIZATION.
A. The Company has reserved a total of 2,000,000 shares of Common
Stock for issuance pursuant to the Company's 1996 Stock Option
Plan (the "Plan"). Options to purchase 1,680,964 shares of
Common Stock are outstanding under the Plan.
B. The Company has issued a Performance Warrant to Softbank
Ventures Inc. for the purchase of certain shares of Series B
Convertible Preferred Stock at an exercise price of $7.05. The
number of shares subject to the warrant is based on the
financial performance of the Company. The warrant is
exercisable between February 28, 1998 and the earlier to occur
of an initial public offering of the Company and February 28,
1999.
C. The Conversion Price of the Company's Series B Convertible
Preferred Stock has been adjusted in connection with the
issuance of shares of Series C Preferred Stock on November 12,
1997 resulting in the conversion of such Series B Convertible
Preferred Stock into a greater number of shares of Common
Stock. Such Conversion Price will be adjusted again as a
result of the issuance and sale of the Shares pursuant to this
Agreement.
D. The Company has entered into a Consulting Agreement with Mr.
Thomas Matlack, a shareholder and director of the Company,
pursuant to which Mr. Matlack will provide strategic and
financial consulting services to the Company for a one-year
period ending on November 12, 1998 in consideration for the
grant of an option to purchase 130,000 shares of common stock
at an exercise price of $.75 per share, to be exercisable in
full on November 12, 1998. In addition, the Company has agreed
to use its best efforts to ensure that Mr. Matlack continues
to be elected to the Board of Directors of the Company until
an initial public offering of the Company or his death or
resignation.
E. The Company has agreed that in the event that the Company
enters into an exclusive arrangement with an investment bank
or investment advisor, the Company will ensure that such
arrangement does not preclude the Company's existing holders
of Series C Stock from making additional equity investments in
the Company as mutually agreed by such stockholders and the
Company.
F. The Company has granted a warrant to Silicon Valley Bank
("SVB"), in connection with the extension of credit by SVB to
the Company (see 3.13.A below), to purchase up to 46,292
shares of Series C Preferred Stock of the
A-1
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Company at an exercise price of $1.62 per share and, in
connection with a modification of its credit facility with
SVB, a warrant to purchase up to 10,000 shares of Series C
Preferred Stock of the Company at an exercise price of $.01
per share (collectively, the "SVB Warrants"). The Company has
also granted SVB certain rights with respect to the
registration of the Common Stock issuable upon exercise of the
SVB Warrants. Under certain circumstances, if the Company is
acquired and the SVB Warrants are not assumed by the acquiror,
the Company may be required to repurchase the shares under the
SVB Warrants.
G. The Company's Series B Convertible Preferred Stock may be
redeemed for $7.05 per share plus accrued but unpaid dividends
on each December 31 of 2001 (up to 25% of such shares), 2002
(up to 50% of such shares), 2003 (up to 75% of such shares)
and 2004 (up to 100% of such shares).
3.4 STOCKHOLDER LIST AND AGREEMENTS.
A. See Stockholder Lists attached hereto.
B. Agreements.
1. Stock Purchase Agreement dated as of July, 1995,
among the Company, Madanjeet Singh and B.U. Chung.
2. Stock Restriction Agreement dated as of December 31,
1991 between the Company and Mahendrajeet Singh.
3. Stock Restriction Agreement dated as of December 31,
1991 between the Company and Joseph T. Chung.
4. Series B Stock Purchase Agreement dated as of
December 23, 1996, between the Company and Softbank
Ventures, Inc.
5. Stockholders Agreement dated December 23, 1996 among
the Company, Softbank Ventures, Inc. and the other
parties named therein. (A) Section 7.2 of such
Agreement requires to Company to have at least one
outside director, and to have a compensation
committee comprised solely of outside directors. The
Company did not comply with this provision until
November 1997. (B) Article II of this Agreement gives
Softbank a right to require the registration of
certain shares of the Company's Common Stock held by
it. (C) Article III of this Agreement gives Softbank
a right of first refusal to purchase shares of the
Company in this transaction to maintain its current
percentage ownership level in the Company.
6. Series C Preferred Stock Purchase Agreement dated
November 12, 1997.
7. Registration Rights Agreement dated November 12,
1997.
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3.8 LITIGATION. The matters disclosed in Sections 3.9 and 3.13.C and D of
this Disclosure Schedule could result in litigation or governmental
action against the Company.
3.9 TAXES. The Company has been in arrears with respect to the payment of
certain payroll withholding taxes, as described under Section 3.15
below.
3.10 PROPERTY AND ASSETS. All the assets of the Company are subject to liens
pursuant to a lending facility with SVB (See Section 3.13A). Additional
liens on certain of the Company's assets are in favor of Sanwa Leasing
Corporation, AT&T Capital Leasing and IBM Credit Corporation.
3.11 INTELLECTUAL PROPERTY.
A. Trademarks
The Company has filed applications to register its trademarks
ATG (Serial No. 75/150643) and DYNAMO (Serial No. 75/722198)
with the U.S. Patent and Trademark Office.
Sybase, Inc. may be using a trademark similar or identical to
the Company's DYNAMO trademark. The Company has not pursued
formal legal action with respect to such use.
B. Patents
The Company filed U.S. Patent Application No. 08/855379
entitled "Method and apparatus for on-the-fly compilation and
execution of content documents with embedded source program"
with the U.S. Patent and Trademark Office on May 13, 1997.
3.13 ABSENCE OF CHANGES.
A. In December 1997, the Company obtained a lending facility from
SVB in the aggregate amount of $1,000,000, comprising a
$500,000 term loan and a $500,000 revolving line of credit,
each bearing annual interest at 1.25% above SVB's prime
lending rate. The term loan is payable in 36 monthly
installments beginning in January 1998. All principal and
interest on the line of credit are due on December 29, 2000.
Under the loan agreement, the Company is obligated to raise at
least $4,000,000 in equity financing before April 15, 1998. A
failure to raise this financing would constitute a default
under the loan agreement. The Company is in discussions with
SVB regarding an extension of this deadline. In connection
with these lending facilities, SVB has obtained a first
priority security interest in all the Company's assets.
B. The Company is in default on payments due under its real
property lease. A default judgment in the amount of $55,287
against the Company was entered in November 1997 in favor of
First Church of Christ Scientist of Boston, the Company's
landlord (for property no longer occupied by the Company), on
a claim for amounts past due.
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C. The Company has delayed payments due to substantially all of
its creditors, including employees, and is currently unable to
meet its obligations as they become due.
D. The Company has continued to incur operating losses.
3.14 COMPLIANCE. See 3.9 above with respect to arrears of withholding taxes
and 3.15 below with respect to failure to pay employees.
3.15 EMPLOYEES. The Company is not currently in arrears with respect to the
payment of payroll withholding taxes or employee payroll, although the
Company has recently been delinquent in making such payments.
Governmental taxing authorities may impose penalties on the Company
with respect to such past delinquency. There can be no assurance that
the Company will not, in the future, again become delinquent in the
payment of payroll withholding taxes and/or employee payroll.
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EXHIBIT 10.14
SERIES D SENIOR PARTICIPATING CONVERTIBLE
REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT
This Series D Senior Participating Convertible Redeemable Preferred
Stock Purchase Agreement (this "AGREEMENT"), dated as of August 18, 1998, is by
and among (i) Art Technology Group, Inc., a Delaware corporation (the
"COMPANY"), and Mahendrahjeet Singh and Joseph Chung (the "FOUNDERS") and (ii)
the Purchasers listed on the PURCHASER SCHEDULE attached hereto (each
individually, a "PURCHASER," and all of them, collectively, the "PURCHASERS").
Capitalized terms used and not otherwise defined upon first usage
herein are defined in Section 9.1 hereof.
1. SALE AND PURCHASE OF PURCHASED SECURITIES.
1.1. AGREEMENT TO SELL AND PURCHASE PURCHASED SECURITIES. The Company
hereby agrees to issue and sell to each Purchaser and, subject to all of the
terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, each Purchaser severally agrees to
purchase the number of shares of Series D Preferred Stock indicated opposite the
name of such Purchaser in the PURCHASER SCHEDULE attached hereto as EXHIBIT A
(collectively, the "PURCHASED SHARES"). In addition, the Company hereby agrees
to issue and sell to each Tudor Entity specified on EXHIBIT A and each Tudor
Entity specified on EXHIBIT A agrees to purchase (i) a warrant in the form
attached hereto as EXHIBIT B (the "NON-VESTING WARRANTS"), immediately
exercisable to purchase the number of shares of Common Stock indicated opposite
the name of each such specified Tudor Entity in the PURCHASER SCHEDULE (the
"NON-VESTING WARRANT SHARES"), and (ii) a warrant in the form attached hereto as
EXHIBIT C (the "VESTING WARRANTS", hereinafter collectively referred to with the
Non-Vesting Warrants as the "WARRANTS"), such warrants to vest over a five (5)
year period and be exercisable to purchase in the aggregate the number of shares
of Common Stock indicated opposite the name of each such specified Tudor Entity
in the PURCHASER SCHEDULE, (the "VESTING WARRANT SHARES", hereinafter
collectively referred to with the Non-Vesting Warrant Shares as the "WARRANT
SHARES"). The Purchased Shares and the Warrants are hereinafter referred to
collectively as the "PURCHASED SECURITIES," which term as used in this Agreement
also includes any securities issued or issuable with respect to the original
Purchased Securities by way of a stock dividend, stock split, combination or
division of shares, recapitalization, reclassification, merger, consolidation,
reorganization, or the like and any securities into which any of the original
Purchased Securities are converted or convertible, directly or indirectly, or
for which any of the original Purchased Securities are exchanged or
exchangeable, directly or indirectly.
1.2. PURCHASE PRICE. The purchase price for the Purchased Securities
will be as follows: $3.20 per share of Series D Preferred Stock, $0.01 for the
Non-Vesting Warrants and $0.01 for the Vesting Warrants.
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1.3. CLOSING. (a) The initial closing of the purchase and sale of the
Purchased Securities (the "CLOSING") will take place on or before August 18,
1998 at the offices of Bingham Dana LLP, 150 Federal Street, Boston,
Massachusetts 02110, simultaneously with the execution and delivery of this
Agreement, or at such other time, date, and place as the Company and the
Purchasers may agree (the date on which the Closing actually occurs, the
"CLOSING DATE").
(b) The Company shall for a period of sixty (60) days following the
Closing Date be obligated to issue and sell and shall issue and sell to one or
more of (x) persons (other than natural persons) who are Affiliates of Bain &
Company ("BAIN") or who are identified to the Company by Bain & Company
(individually, a "BAIN AFFILIATE" and collectively, the "BAIN AFFILIATES"), (y)
persons who are Affiliates of any Tudor Entity or identified to the Company by
any Tudor Entity or (z) persons who are identified by the Company (each of the
foregoing, an "ADDITIONAL PURCHASER"), who choose to purchase and each of whom
is an "accredited investor" as defined in Rule 501(a) promulgated under the
Securities Act, up to an aggregate of 781,250 additional shares of Series D
Preferred Stock (the "ADDITIONAL SHARES") and Vesting Warrants to purchase up to
an aggregate of 476,961 Vesting Warrant Shares (the "ADDITIONAL WARRANTS") on
the same terms and conditions as set forth in this Agreement. Such issuance and
sale of the Additional Shares and the Additional Warrants will be effected by
the execution and delivery by the Company and each Additional Purchaser(s) of a
Supplemental Agreement, in the form of EXHIBIT G hereto, which Supplemental
Agreement will have the effect of (i) amending this Agreement to add such
Additional Purchaser as a "PURCHASER" party hereto and to deem such Additional
Shares and Additional Warrants purchased by the Additional Purchaser as
"PURCHASED SHARES", "VESTING WARRANTS" and "PURCHASED SECURITIES", as
applicable, for all purposes hereunder, (ii) amending the Registration Rights
Agreement to add such Additional Purchaser as a "SERIES D INVESTOR(S)" party
thereto, and such Additional Shares and Common Stock issuable upon the exercise
of the Additional Warrants as "SERIES D INVESTOR REGISTRABLE SECURITIES"
thereunder, and (iii) amending the Stockholders Agreement to add such Additional
Purchaser as an additional "PURCHASER" and "STOCKHOLDER" party thereto, and such
amendments and the issuance and sale of such Additional Shares and Additional
Warrants will for all purposes be deemed to have occurred as of the Closing
Date. Upon the issuance and sale of Additional Shares and Additional Warrants
pursuant to this Section 1.3(b) (each, a "SUBSEQUENT CLOSING"), the Company
shall deliver to each Additional Purchaser a legal opinion substantially in the
form of EXHIBIT D hereto and a certificate of an officer of the Company and of
the Founders certifying that each of the representations and warranties set
forth in Section 2 hereof are true and correct in all material respects at and
as of the date of each Subsequent Closing.
1.4. USE OF PROCEEDS.
(a) The Company agrees that the proceeds from the sale of the Purchased
Securities hereunder will be used as described in the attached USE OF PROCEEDS
SCHEDULE.
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(b) The Company further agrees that it will not use any part of the
proceeds from the sale of the Purchased Securities to purchase or carry any
"margin security" or "margin stock" (as such terms are defined in any
regulation, rule, or interpretation of the Board of Governors of the Federal
Reserve System).
1.5. CLOSING DELIVERIES. The obligation of the Purchasers to purchase
the Purchased Securities at the Closing and of the Company to sell the Purchased
Securities at the Closing, is subject to the fulfillment, or the waiver by the
applicable party, of each of the following conditions on or before the Closing:
(a) The Company will deliver to each Purchaser one or more stock
certificates representing the Purchased Shares to be sold to and purchased by
such Purchaser pursuant to this Agreement, free and clear of all Liens, each of
which shall be registered in such Purchaser's name (or if requested by such
Purchaser, its nominee or designee) in the Company's records.
(b) The Company will deliver to each Tudor Entity specified on EXHIBIT
A (i) a Non-Vesting Warrant to purchase the number of Non-Vesting Warrant Shares
indicated therein, and (ii) a Vesting Warrant to purchase the number of Vesting
Warrant Shares indicated therein, each of which shall be registered in such
specified Tudor Entity's name in the Company's records.
(c) Each Purchaser will pay for the Purchased Securities set forth
opposite such Purchaser's name in the attached PURCHASER SCHEDULE by payment to
the Company of the aggregate purchase price therefor by certified or bank check
or wire transfer.
(d) The Company shall have paid, in accordance with Section 8 hereof,
the fees (not to exceed $50,000) and disbursements of the Purchasers' counsel as
evidenced by a summary invoice provided at the Closing.
(e) The Company will deliver to the Purchasers each of the following
documents:
(1) The Stockholders' Agreement, duly executed by the Company
and each of its stockholders.
(2) The Registration Rights Agreement, duly executed by the
Company and each of its stockholders who is to have any registration rights with
respect to the Company's securities.
(3) (i) With respect to the Company, (A) a copy of its charter
documents, certified as of a date not more than five business days before the
Closing Date, by the Secretary of State of the State of Delaware, (B) a
certificate of the Secretary of State of the State of Delaware, dated as of a
date not more than five business days before the Closing Date, with respect to
the legal existence, charter documents on file with the Secretary of State, and
good standing of the Company in the State of Delaware, and (C) a certificate of
the Secretary of State or equivalent official of each other jurisdiction in
which the
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Company's activities or ownership or leasing of property require it to qualify
to do business as a foreign corporation, dated not more than five business days
before the Closing Date, with respect to such qualification and the good
standing of the Company in such jurisdiction.
(ii) With respect to the Company, evidence that the
Certificate of Designation and any other amendment to any charter document
reasonably requested by the Purchasers has been duly filed with the Secretary of
State of the State of Delaware on or before the Closing Date.
(4) (i) With respect to the Company, a certificate of its
secretary, dated the Closing Date, certifying (A) the absence of any amendments
to its charter documents (or proceedings therefor) since the date of the
certificate referred to in Section 1.5(e)(3)(i)(A) above, (B) an attached copy
of its by-laws, (C) an attached copy of the resolutions of its board of
directors and stockholders, respectively and as applicable, with respect to the
transactions hereby contemplated or otherwise to be effected at the Closing, and
(D) the incumbency of its officers and directors.
(5) Evidence satisfactory to the Purchasers that (i) all of
the Company's employees have executed and delivered to the Company agreements,
in form and substance satisfactory to the Purchasers, with respect to the
confidentiality of the Company's proprietary and confidential information and
the assignment to the Company of any and all rights each employee might have or
acquire with respect to technology, inventions, developments, etc., developed in
connection with their employment with the Company; and (ii) each of
Mahendrahjeet Singh and Joseph Chung have executed and delivered to the Company
a non-competition and non-solicitation agreement, in form and substance
satisfactory to the Purchasers.
(6) Evidence satisfactory to the Purchasers that the Company
has paid for and submitted applications for key-man life insurance with respect
to the lives of Mahendrahjeet Singh and Joseph Chung, each having a death
benefit of at least $2,000,000 payable to the Company and providing that such
insurance may not be canceled without at least thirty (30) days' prior written
notice to the Purchasers delivered in accordance with Section 10.2 of this
Agreement.
(7) Evidence satisfactory to the Purchasers that after the
Closing the holders of the Company's Indebtedness (including without limitation
Silicon Valley Bank) and lessors of the Company's equipment will not, as a
result of the timing of or in connection with the transactions contemplated by
this Agreement, (a) accelerate the payment or amortization of any outstanding
Indebtedness or payments of rent under any outstanding leases pursuant to the
existing schedule therefor or (b) foreclose or otherwise collect on such
Indebtedness.
(8) Evidence that the Company's Board of Directors is
constituted in accordance with Section 1(b) of the Stockholders' Agreement.
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(9) The written legal opinion of Hale & Dorr LLP, addressed to
the Purchasers, and substantially in the form of the attached EXHIBIT D.
(f) The Purchasers will deliver to the Company the Stockholders'
Agreement and the Registration Rights Agreement, duly executed by each of the
Purchasers.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND FOUNDERS.
In order to induce the Purchasers to enter into this Agreement and to
purchase the Purchased Securities, each of the Company, Mahendrahjeet Singh and
Joseph Chung (Mahendrahjeet Singh and Joseph Chung hereinafter referred to,
collectively, as the "FOUNDERS"), jointly and severally, hereby represent and
warrant to each of the Purchasers, as follows, subject in each case to such
exceptions as are set forth in the attached DISCLOSURE SCHEDULE in the section
thereof numbered and captioned to correspond to the specific representation or
warranty to which such exception relates.
2.1. ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to own or
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted. The minute books of the Company have been made
available to the Purchasers for inspection and accurately record therein all
corporate actions taken by the Board of Directors and stockholders of the
Company.
2.2. CORPORATE POWER; BINDING EFFECT. The Company has all requisite
power and full legal right to execute and deliver this Agreement and the
Ancillary Agreements, and to perform all of its obligations hereunder and
thereunder in accordance with the respective terms hereof and thereof. This
Agreement and the Ancillary Agreements and the transactions contemplated hereby
and thereby have been duly approved and authorized by all requisite corporate
action on the part of the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes, and each of the Ancillary Agreements,
when executed and delivered by the Company at the Closing, will constitute, a
legal, valid, and binding obligation of the Company, enforceable against it in
accordance with its respective terms. The execution, delivery, and performance
by the Company of this Agreement and the Ancillary Agreements in accordance with
their respective terms, and the consummation by the Company of the transactions
contemplated hereby or thereby, will not result (with or without the giving of
notice or the lapse of time or both) in any conflict, violation, breach, or
default, or the creation of any Lien, or the termination, acceleration, vesting,
or modification of any right or obligation, under or in respect of (x) the
charter documents or by-laws of the Company, (y) any judgment, decree, order,
statute, rule, or regulation binding on or applicable to the Company, or (z) any
agreement or instrument to which the Company is a party or by which it or any of
its assets is or are bound.
2.3. FOREIGN QUALIFICATION. The Company is duly qualified to do
business and in good standing as a foreign corporation in the Commonwealth of
Massachusetts, which
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jurisdiction(s) is/are the only jurisdiction(s) in which the character of the
properties owned or leased by it or the nature of its activities makes such
qualification necessary, other than any jurisdictions in which the failure so to
qualify or be in good standing would not, either in any case or in the
aggregate, have a Material Adverse Effect.
2.4. SUBSIDIARIES. The Company does not have any Subsidiaries nor does
it own any legal and/or beneficial interests in any other Person.
2.5. CAPITALIZATION.
(a) Immediately after the Closing, giving effect to the sale and
purchase of the Purchased Securities provided for in this Agreement, the
authorized and the outstanding capital stock of the Company will be as set forth
in Section 2.5(a) of the Disclosure Schedule, and all such outstanding shares of
capital stock will be owned (of record and beneficially) by the persons and in
the amounts there indicated. All such outstanding shares of capital stock will
be duly authorized, validly issued, fully paid, and nonassessable, and free and
clear of Liens. No adjustment has previously been made (or should have been
made) nor will any adjustment be required to be made as a result of the
Company's issuance of the Purchased Securities (or the issuance of Common Stock
upon the conversion or exercise thereof) to the rate at which shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and any
other capital stock or Derivative Securities of the Company are convertible into
or exercisable for shares of Common Stock (by reason of any "anti-dilution"
provisions or agreements). Full and irrevocable waivers need not be or have been
obtained from the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, and any other class or series of capital stock or
Derivative Securities of the Company, respectively, in respect of any adjustment
because of the issuance and sale of the Purchased Securities.
(b) Except as set forth in Section 2.5(b) of the Disclosure Schedule,
the Company does not have, is not bound by, and has no obligation to grant or
enter into, any (i) outstanding subscriptions, options, warrants, calls,
commitments, or agreements of any character calling for it to issue, deliver, or
sell, or cause to be issued, delivered, or sold, any shares of its capital
stock, any membership interests or any other equity security, or any securities
described in the following clause, or (ii) securities convertible into,
exchangeable for, or representing the right to subscribe for, purchase, or
otherwise acquire any shares of its capital stock, any membership interests or
any other equity security. No adjustment has previously been made (or should
have been made) nor will any adjustment be required to be made as a result of
the Company's issuance of the Purchase Securities (or the issuance of Common
Stock upon the conversion or exercise thereof) to the number of shares of
capital stock or Derivative Securities of the Company into which any
subscriptions, options, warrants, calls, commitments or agreements are
convertible (by reason of any "anti-dilution" provisions or agreements). Full
and irrevocable waivers need not be or have been obtained from the holders of
any and all subscriptions, options, warrants, calls, commitments or agreements,
respectively, in respect of any adjustment because of the issuance and sale of
the Purchased Securities.
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(c) Except as set forth in Section 2.5(c) of the Disclosure Schedule,
the Company (i) has no outstanding obligations, contractual or otherwise, to
repurchase, redeem, or otherwise acquire any shares of capital stock or other
equity securities of the Company, (ii) is not a party to or bound by, and has no
knowledge of, any agreement or instrument relating to the voting of any of its
securities, and (iii) is not a party to or bound by any agreement or instrument
under which any person has the right to require it to effect, or to include any
securities held by such person in, any registration under the Securities Act.
There are no other agreements, contracts, instruments or documents, except as
set forth in Section 2.5(c), which govern or affect in any way the rights of the
holders of securities, including any class of capital stock, of the Company.
(d) The Company has reserved, solely for the purpose of issuance upon
conversion of shares of Series D Preferred Stock and exercise of the Warrants, a
number of shares of Common Stock sufficient to cover the conversion of all such
shares of Series D Preferred Stock and the exercise of all such Warrants.
2.6. LAWFUL ISSUANCE. All of the outstanding shares of capital stock,
membership interests, and other securities of the Company were offered, issued,
and sold, and the Purchased Securities have been offered and at the Closing will
be issued and sold, in compliance with (i) all applicable preemptive or similar
rights of all persons, and (ii) assuming the truthfulness and accuracy of the
representations made by the Purchasers in Section 3 hereof, all applicable
provisions of the Securities Act and the rules and regulations thereunder, and
all applicable state securities laws and the rules and regulations thereunder.
No person has any valid right to rescind any purchase of any shares of capital
stock or other securities of the Company.
2.7 VALID ISSUANCE OF PURCHASED SECURITIES. The Purchased Shares and
the Warrants being issued and sold by the Company hereunder shall, upon issuance
pursuant to the terms hereof, be duly authorized and validly issued, fully paid
and non-assessable and free and clear of any Lien, security interest, option or
other charge or encumbrance. The Common Stock issuable upon the conversion of
the Purchased Shares and the exercise of the Warrants pursuant to the terms of
the Series D Preferred Stock shall be duly authorized and validly issued, fully
paid and non-assessable and free and clear of any Lien, security interest,
option or other charge or encumbrance. The issuance of the Purchased Shares and
the Warrants and the Common Stock upon the conversion of such Purchased Shares
and the exercise of such Warrants are not and will not be subject to any
pre-emptive rights or similar rights with respect to such Purchased Shares, such
Warrants and such Common Stock.
2.8. FINANCIAL STATEMENTS.
(a) The Company has delivered to the Purchasers copies of (i) the
unaudited balance sheet of the Company as of the most recent fiscal year and the
related statements of income, changes in stockholders' equity, and cash flows
for the twelve month period ended on that date, and (ii) the unaudited balance
sheet of the Company as of June 30, 1998 (the "MOST RECENT BALANCE SHEET"), and
the related unaudited statements of income, changes in
<PAGE>
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stockholders' equity, and cash flows for the period commencing January 1, 1998
and ended on that date. Each of such financial statements was prepared in
accordance with GAAP applied on a basis consistent with prior periods, subject,
in the case of the unaudited financial statements referred to in clause (ii)
above to the absence of footnotes, and subject to adjustments consisting of
normal year-end accruals, the effect of which absence of footnotes and year-end
accruals, both individually and in the aggregate, is not in any case material.
Each of such balance sheets is true and correct in all material respects and
accurately presents the consolidated financial condition of the Company as of
its date; and each of such statements of income, changes in stockholders'
equity, and cash flows accurately presents the results of operations, changes in
stockholders' equity, or cash flows, as the case may be, of the Company for the
period covered thereby.
(b) The Purchasers have been furnished with a complete and correct PRO
FORMA balance sheet of the Company as at the Closing Date, taking into account
all transactions contemplated hereby and by the Ancillary Agreements. Such PRO
FORMA balance sheet has been prepared by management of the Company on a
reasonable basis, taking into consideration the effect of the transactions
contemplated hereby and by the Ancillary Agreements, and the Company is not
aware of any fact which may reasonably be expected to diminish on the accuracy
or completeness thereof. After giving effect to the transactions contemplated
hereby, the Company will not have any material liabilities, contingent or
otherwise, which are not referred to in such balance sheet or in the notes
thereto.
2.9. ABSENCE OF CERTAIN CHANGES. Since June 30, 1998, there has not
been:
(a) any (i) acquisition (by purchase, lease as lessee, license as
licensee, or otherwise) or disposition (by sale, lease as lessor, license as
licensor, or otherwise) by the Company of any material properties or assets, or
(ii) other transaction by, or any agreement or commitment on the part of, the
Company, other than those (y) described in Section 2.17 of the Disclosure
Schedule, or (z) in the ordinary course of business, that have not caused and
will not cause, either in any case or in the aggregate, a Material Adverse
Effect;
(b) any material change in the condition (financial or otherwise),
properties, assets, liabilities, investments, revenues, expenses, income,
operations, business, or prospects of the Company, or in any of its
relationships with any suppliers, customers, or other third parties with whom it
has financial, commercial, or other business relationships, other than changes
in the ordinary course of business that have not caused and are not reasonably
be expected to cause, either in any case or in the aggregate, a Material Adverse
Effect;
(c) any transaction or change in compensation by the Company with any
of its stockholders, directors, officers, or key employees, other than the
payment of compensation and reimbursement of reasonable employee travel and
other business expenses in accordance with existing employment arrangements and
usual past practices;
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(d) any damage, destruction, or loss, whether or not covered by
insurance, that, either in any case or in the aggregate, has caused, or could
reasonably be expected to cause, a Material Adverse Effect;
(e) any declaration, setting aside, or payment of any dividend or any
other distribution (in cash, stock, and/or property or otherwise) in respect of
any shares of the capital stock or other securities of the Company;
(f) any issuance of any shares of the capital stock or other securities
of the Company, or any direct or indirect redemption, purchase, or other
acquisition by the Company of any shares of its capital stock or other
securities;
(g) any change in the officers, directors, key employees, or
independent contractors of the Company;
(h) any labor trouble or claim of unfair labor practices involving the
Company, any increase in the compensation or other benefits payable or to become
payable by the Company to any of its Affiliates, or to any of its officers,
employees, or independent contractors, or any bonus payments or arrangements
made to or with any of such officers, employees, or independent contractors;
(i) any forgiveness or cancellation of any debt or claim by the Company
or any waiver by the Company of any right of material value, other than
compromises of accounts receivable in the ordinary course of business;
(j) any incurrence or any payment, discharge, or satisfaction by the
Company of any material Indebtedness or any material obligations or material
liabilities, whether absolute, accrued, contingent, or otherwise (including
without limitation liabilities, as guarantor or otherwise, with respect to
obligations of others), except at described in Section 2.9(j) of the Disclosure
Schedules.
(k) any incurrence, discharge, or satisfaction of any Lien (i) by the
Company, or (ii) on any of the capital stock, other securities, properties, or
assets owned or leased by the Company;
(l) any change in the financial or tax accounting principles,
practices, or methods of the Company; or
(m) any agreement, understanding, or commitment by or on behalf of the
Company, whether in writing or otherwise, to do or permit any of the things
referred to in this Section 2.9.
2.10. PROPERTIES, LEASES, ETC.
(A) TITLE TO PROPERTIES; CONDITION OF PERSONAL PROPERTIES. The Company
has (i) good and marketable title to all of the assets and properties owned by
it, including
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without limitation all assets and properties reflected in the Most Recent
Balance Sheet (in each case excluding any assets and properties sold or
otherwise disposed of to persons other than Affiliates in the ordinary course of
business since the date of such balance sheet), free and clear of all Liens,
(ii) valid title to the lessee interest in all assets and properties leased by
them as lessee, free and clear of all Liens, and (iii) full right to hold and
use all of its assets and properties used in or necessary to its businesses and
operations, in each case all free and clear of all Liens, and in each case
subject to applicable laws and the terms of any lease under which the Company
leases such assets or properties as lessee. All such assets and properties are
in good condition and repair, reasonable wear and tear excepted, and are
adequate and sufficient to carry on the businesses of the Company as presently
conducted and as proposed to be conducted.
(B) NO OWNED REAL PROPERTIES. The Company does not own any real
property or any interest (other than a leasehold interest) in any real property.
(C) LEASED PROPERTIES. Section 2.10(c) of the Disclosure Schedule sets
forth a complete and correct description of all leases of real or personal
property under which the Company is lessor or lessee. Complete and correct
copies of all such leases and all amendments, supplements, and modifications
thereto, other than any personal property lease with an annual rent of less than
$10,000 and total remaining rental payments of less than $20,000, have been
delivered to the Purchasers. Each such lease is valid and subsisting and no
event or condition exists that constitutes, or after notice or lapse of time or
both would constitute, a default thereunder by the Company or, to the Company's
or the Founders' knowledge, any other party thereto. The Company's leasehold
interests are subject to no Lien, and the Company is in quiet possession of the
properties covered by such leases. The Company has established adequate reserves
which are reflected in the Most Recent Balance Sheet, for the anticipated costs
of any property renovation and repairs to its leased premises required to be
performed or paid for by it upon termination of any of its leases of real
property.
2.11. INDEBTEDNESS. Except to the extent reflected or reserved in the
Most Recent Balance Sheet, the Company has no Indebtedness outstanding.
Immediately after the Closing, the Company will not have any Indebtedness
outstanding. The Company is not in default with respect to any outstanding
Indebtedness or any instrument or agreement relating thereto, and no such
Indebtedness or any instrument or agreement relating thereto purports to limit
the issuance of any securities by the Company or the operation of its business.
Complete and correct copies of all instruments and agreements (including all
amendments, supplements, waivers, and consents) relating to any Indebtedness of
the Company have been furnished to the Purchasers.
2.12. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved in the Most Recent Balance Sheet, or incurred after the
date of such balance sheet in the ordinary course of business (other than in
connection with any transactions with Affiliates), or incurred in connection
with the transactions contemplated by this Agreement and described in Section
2.9(j) of the Disclosure Schedule, the Company does not have any material
liabilities or obligations of any nature, whether accrued, absolute, contingent,
or
<PAGE>
-11-
otherwise (including without limitation liabilities as guarantor or otherwise
with respect to obligations of others) and whether due or to become due.
2.13. TAX MATTERS.
(A) FILING OF TAX RETURNS AND PAYMENT OF TAXES. The Company has timely
filed all Tax Returns required to be filed by it, each such Tax Return has been
prepared in compliance with all applicable laws and regulations, and all such
Tax Returns are true and accurate in all respects. All Taxes due and payable by
the Company have been paid, and the Company will not be liable for any
additional Taxes in respect of any taxable period ending on or before the
Closing Date in an amount that exceeds the corresponding reserve therefor, if
any, reflected in the accounting records of the Company as of the Closing Date.
No claim has ever been made by a taxing authority in a jurisdiction where the
Company does not pay Tax or file Tax Returns that the Company is or may be
subject to Taxes assessed by such jurisdiction. There are no Liens for Taxes
(other than current Taxes not yet due and payable) on the assets of the Company.
(B) AUDIT HISTORY, EXTENSIONS, ETC. There is no action, suit, taxing
authority proceeding, or audit with respect to any Tax now in progress, pending,
or to the best of the Company's and the Founders' knowledge, threatened, against
or with respect to the Company. No deficiency or proposed adjustment in respect
of Taxes that has not been settled or otherwise resolved has been asserted or
assessed by any taxing authority against the Company. The Company has not
consented to extend the time in which any Tax may be assessed or collected by
any taxing authority. The Company has not requested or been granted an extension
of the time for filing any Tax Return to a date on or after the Closing Date.
(C) MEMBERSHIP IN AFFILIATED GROUPS, ETC. The Company has never been a
member of any Affiliated Group, or filed or been included in a combined,
consolidated, or unitary Tax Return. The Company is not a party to or bound by
any tax sharing or allocation agreement or has any current or potential
contractual obligation to indemnify any other person with respect to Taxes.
(D) WITHHOLDING TAXES. The Company has withheld and paid all Taxes
required to have been withheld and paid by it in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other Person.
2.14. LITIGATION, ETC. No litigation, arbitration, action, suit, claim,
demand, proceeding or investigation (whether conducted by or before any judicial
or regulatory body, arbitrator, commission or other person) is pending or, to
the Company's or the Founders' knowledge, threatened, against the Company, nor
is there any basis therefor known to the Company or the Founders.
<PAGE>
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2.15. SAFETY, ZONING, AND ENVIRONMENTAL MATTERS.
(a) The Company is not nor has it been in violation in any material
respect of any applicable statute, law, or regulation relating to occupational
health or safety, and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced against or
received by it alleging any failure by it to comply with any such statute, law,
or regulation, nor is there any reasonable basis therefor known to the Company
or the Founders.
(b) To the best of the Company's and the Founders' knowledge, none of
the real properties presently owned, leased, or operated by the Company, nor any
leasehold improvements thereto, nor any business conducted by the Company
thereon, are in violation of any applicable land use or zoning requirements,
including without limitation any building line or use or occupancy restriction,
any public utility or other easement, any limitation, condition, or covenant of
record, or any zoning or building law, code, or ordinance.
(c) Other than such as would not have a Material Adverse Effect, the
Company is not presently, and has never been, in violation of any judgment,
decree, order, statute, law, permit, license, rule, or regulation pertaining to
environmental matters, including without limitation those arising under any
Environmental Laws, nor has it received any written notice alleging any such
violation.
(d) The Company has not received any notice or request for information
from any third party, including without limitation any federal, state, or local
governmental authority, (i) that it has been identified by the EPA or any state
environmental regulatory authority as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R.
Part 300 Appendix B, or under any equivalent state law; (ii) that any Hazardous
Substances that it has generated, transported, or disposed of have been found at
any site at which a federal, state, or local agency or other third party has
conducted or has ordered it to conduct a remedial investigation, removal or
other response action pursuant to any Environmental Law; or (iii) that it is or
will or may be a named party to any claim, action, cause of action, complaint,
or legal or administrative proceeding arising out of any third party's
incurrence of Damages in connection with the release (within the meaning of
CERCLA) of any Hazardous Substances or any other environmental matters. No
circumstances exist that could reasonably be expected to give rise to any such
notice or request for information or to any Damages.
2.16. LABOR RELATIONS. The Company is in compliance with all applicable
federal and state laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, and nondiscrimination in employment,
and is not engaged in any unfair labor practice. There is no charge pending or,
to the best of the Company's and the Founders' knowledge,
<PAGE>
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threatened, against or with respect to the Company before any court or agency
and alleging unlawful discrimination in employment practices, and there is no
charge of or proceeding with regard to any unfair labor practice against the
Company pending before the National Labor Relations Board. There is no labor
strike, dispute, slow-down, or work stoppage pending or, to the Company's or the
Founders' knowledge, threatened against or involving the Company. None of the
employees of the Company is covered by any collective bargaining agreement, and
no such collective bargaining agreement is currently being negotiated. No one
has petitioned and, to the Company's or the Founders' knowledge, no one is now
petitioning, for union representation of any employees of the Company. The
Company has not experienced any work stoppage or other material labor
difficulty.
2.17. MATERIAL CONTRACTS. Except for the contracts, agreements and
other arrangements listed in Section 2.17 of the Disclosure Schedule and
contracts, agreements, or other arrangements that have been fully performed and
with respect to which the Company has no further obligations or liabilities, the
Company is not a party to or otherwise bound by (i) any agreement, instrument,
or commitment that may affect its ability to consummate the transactions
contemplated hereby or by the Ancillary Agreements, or (ii) any other material
agreement, instrument, or commitment; including without limitation any:
(a) agreement for the purchase, sale, lease, or license by or from it
of services, products, or assets, requiring total payments by or to it in excess
of $10,000 in any instance, or entered into other than in the ordinary course of
business;
(b) agreement requiring it to purchase all or substantially all of its
requirements for a particular product or service from a particular supplier or
suppliers, or requiring it to supply all of a particular customer's or
customers' requirements for a certain service or product;
(c) agreement or other commitment pursuant to which it has agreed to
indemnify or hold harmless any other person;
(d) (i) employment agreement, (ii) consulting agreement, or (iii)
agreement providing for severance payments or other additional rights or
benefits (whether or not optional) in the event of the sale or other change in
control of it;
(e) agreement with any current or former Affiliate, stockholder,
officer, director, employee, or consultant of the Company, or with any person in
which any such Affiliate has an interest;
(f) joint venture, partnership or teaming agreement;
(g) agreement with any domestic or foreign government or agency or
executive office thereof or any subcontract between it and any third party
relating to a contract between such third party and any domestic or foreign
government or agency or executive office thereof;
(h) agreement imposing non-competition or exclusive dealing obligations
on it;
(i) agreement with respect to the confidentiality of the Company's
Proprietary Information (as described in Section 2.20 hereof), and the
assignment to the Company of
<PAGE>
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any and all rights employees of the Company might have to acquire with respect
to technology, inventions, developments, etc., developed in connection with this
employment with the Company; and
(j) agreement the performance of which is reasonably likely to result
in a loss to it.
The Company has delivered or caused to be delivered to the Purchasers
correct and complete copies (or written summaries of the material terms of oral
agreements or understandings) of each agreement, instrument, and commitment
listed in the Disclosure Schedule, each as amended to date. Each such agreement,
instrument, and commitment is a valid, binding and enforceable obligation of the
Company and, to the Company's and the Founders' knowledge, of the other party or
parties thereto, and is in full force and effect. The Company is not nor, to the
Company's or the Founders' knowledge, is any other party thereto, (nor is the
Company, to the best of the Company's and the Founders' knowledge, considered by
any other party thereto to be) in breach of or noncompliance with any term of
any such agreement, instrument, or commitment (nor is there any basis for any of
the foregoing), except for any breaches or noncompliances that singly or in the
aggregate would not have a Material Adverse Effect. No claim, change order,
request for equitable adjustment, or request for contract price or schedule
adjustment, between the Company and any supplier or customer, relating to any
agreement, instrument, or commitment listed in the Disclosure Schedule is
pending or, to the Company's or the Founders' knowledge, threatened, nor is
there any basis for any of the foregoing. No agreement, instrument, or
commitment listed in the Disclosure Schedule includes or incorporates any
provision, the effect of which may be, by reason of the transactions
contemplated by this Agreement, (i) to enlarge or accelerate any of the
obligations of the Company, (ii) to give additional rights to any other party
thereto, or (iii) to cause such agreement, instrument, or commitment to
terminate, lapse, or in any other way be affected.
2.18. EMPLOYEE BENEFIT PLANS.
(A) IDENTIFICATION OF PLANS. Except for the arrangements set forth in
Section 2.18 of the Disclosure Schedule, the Company does not now maintain or
contribute to any pension, profit-sharing, deferred compensation, bonus, stock
option, share appreciation right, severance, group or individual health, dental,
medical, life insurance, survivor benefit, or similar plan, policy or
arrangement, whether formal or informal, for the benefit of any director,
officer, consultant, or employee of any of them, whether active or terminated;
nor has it ever maintained or contributed to any such plan, policy, or
arrangement that was subject to ERISA. Each of the arrangements set forth in
Section 2.18 of the Disclosure Schedule is herein referred to as an "EMPLOYEE
BENEFIT PLAN."
(B) COMPLIANCE WITH TERMS AND LAW. Each Employee Benefit Plan is and
has been maintained and operated in compliance in all material respects with the
terms of such plan and with the requirements prescribed (whether as a matter of
substantive law or as necessary to secure favorable tax treatment) by any and
all statutes, governmental, or court orders, or governmental rules or
regulations in effect from time to time, including but not
<PAGE>
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limited to ERISA and the Code, and applicable to such plan. Each Employee
Benefit Plan that is intended to qualify under Section 401(a) of the Code is so
qualified.
(C) ABSENCE OF CERTAIN EVENTS AND ARRANGEMENTS.
(1) There is no pending or, to the Company's or the Founders'
knowledge, threatened, legal action, proceeding, or investigation, other than
routine claims for benefits, concerning any Employee Benefit Plan, or any
fiduciary or service provider thereof and there is no basis for any such legal
action or proceeding.
(2) No Employee Benefit Plan, nor any party in interest in
respect thereof has engaged in a prohibited transaction that could subject the
Company, directly or indirectly, to liability under Section 409 or 502(i) of
ERISA or Section 4975 of the Code.
(3) No communication, report, or disclosure has been made
that, at the time made, did not accurately reflect the terms and operations of
any Employee Benefit Plan.
(4) No Employee Benefit Plan provides welfare benefits
subsequent to termination of employment to employees or their beneficiaries
(except to the extent required by applicable state insurance laws and Title I,
Part 6 of ERISA).
(5) The Company has not undertaken to maintain any Employee
Benefit Plan for any specific period of time and each such plan is terminable at
the sole discretion of the Company, subject only to such constraints as may
imposed by applicable law.
(6) No Employee Benefit Plan is maintained pursuant to a
collective bargaining agreement or is or has been subject to the minimum funding
requirements of Section 302 of ERISA or Section 412 of the Code.
(D) FUNDING OF CERTAIN PLANS. With respect to each Employee Benefit
Plan for which a separate fund of assets is or is required to be maintained,
full payment has been made of all amounts that, under the terms of each such
plan, it is required to have paid as contributions to that plan as of the end of
such plan's most recently ended year.
2.19. POTENTIAL CONFLICTS OF INTEREST. Neither the Company nor any of
its officers, directors, or employees, (i) owns, directly or indirectly, any
interest (excepting passive holdings for investment purposes of not more than 1%
of the securities of any publicly held and traded company) in, or is an officer,
director, employee, or consultant of, any person that is a competitor, lessor,
lessee, customer, or supplier of the Company; (ii) owns, directly or indirectly,
any interest in any tangible or intangible property used in or necessary to the
business of the Company; (iii) has any cause of action or other claim whatsoever
against the Company, or owes any amount to the Company, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements.
<PAGE>
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2.20. PROPRIETARY INFORMATION.
(a) Section 2.20 of the Disclosure Schedule lists all patents, patent
applications, trademarks, trade names, service marks, logos, copyrights, and
licenses used in or necessary to the Company's business as now being conducted
or as proposed to be conducted (collectively, and together with any technology,
know-how, trade secrets, processes, formulas, and techniques used in or
necessary to the Company's business, "PROPRIETARY INFORMATION"). The Company
owns, or is licensed or otherwise has the full and unrestricted exclusive right
to use, without the payment of royalties or other further consideration, all
Proprietary Information, and no other intellectual property rights, privileges,
licenses, contracts, or other agreements, instruments, or evidences of interests
are necessary to or used in the conduct of its business.
(b) In any instance where the Company's rights to Proprietary
Information arise under a license or similar agreement (other than for software
programs that have not been customized for its use), this is indicated in
Section 2.20 of the Disclosure Schedule and such rights are licensed exclusively
to it except as indicated in Section 2.20 of the Disclosure Schedule. No other
person has an interest in or right or license to use any of the Proprietary
Information. To the best of the Company's and the Founders' knowledge, none of
the Proprietary Information is being infringed by others, or is subject to any
outstanding order, decree, judgment, or stipulation. No litigation (or other
proceedings in or before any court or other governmental, adjudicatory,
arbitral, or administrative body) relating to the Proprietary Information is
pending or, to the Company's or the Founders' knowledge, threatened, nor, to the
best of the Company's and the Founders' knowledge, is there any basis for any
such litigation or proceeding. The Company maintains adequate and sufficient
security measures for the preservation of the secrecy and proprietary nature of
the Proprietary Information.
(c) (i) Neither the Company nor any of its employees has infringed or
made unlawful use of, or is, to the Company's or the Founders' knowledge,
infringing or making unlawful use of, any proprietary or confidential
information of any Person, including without limitation any former employer of
any past or present employee or consultant of the Company; and (ii) the
activities of the Company's employees in connection with their employment do not
violate any agreements or arrangements that any such employees or consultants
have with any former employer or any other Person. No litigation (or other
proceedings in or before any court or other governmental, adjudicatory,
arbitral, or administrative body) charging the Company with infringement or
unlawful use of any patent, trademark, copyright, or other proprietary right is
pending or, to the Company's or the Founders' knowledge, threatened; nor is
there any basis for any such litigation or proceeding.
(d) No officer, director, employee, or consultant of the Company is
presently obligated under or bound by any agreement or instrument, or any
judgment, decree, or order of any court of administrative agency, that (i)
conflicts or may conflict with his or her agreements and obligations to use his
or her best efforts to promote the interests of the Company, (ii) conflicts or
may conflict with the business or operations of the Company as
<PAGE>
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presently conducted or as proposed to be conducted, or (iii) restricts or may
restrict the use or disclosure of any information used in or necessary for the
conduct of the business of the Company.
2.21. INSURANCE. Section 2.21 of the Disclosure Schedule lists the
policies of theft, fire, liability, worker's compensation, life, property and
casualty, directors' and officers', medical malpractice, and other insurance
owned or held by the Company and the basis on which such policies provide
coverage (I.E., an incurrence or claims-made basis). Such policies of insurance
are maintained with financially sound and reputable insurance companies, funds,
or underwriters, are of the kinds and cover such risks, and are in such amounts
and with such deductibles and exclusions, as are consistent with prudent
business practice. All such policies (i) are, and at all times since the
respective dates set forth in Section 2.21 of the Disclosure Schedule, have
been, in full force and effect, are sufficient for compliance in all material
respects by the Company with all requirements of law and of all agreements to
which it is a party, and (ii) provide that they will remain in full force and
effect through the respective dates set forth in Section 2.21 of the Disclosure
Schedule, and (iii) will not terminate or lapse or otherwise be affected in any
way by reason of the transactions contemplated hereby.
2.22. GOVERNMENTAL AND OTHER THIRD-PARTY CONSENTS. No consent,
approval, or authorization of, or registration, designation, declaration, or
filing with, any governmental authority, federal or other, or any other person
is required on the part of the Company in connection with its execution,
delivery, or performance of this Agreement and the Ancillary Agreements and its
consummation of the transactions contemplated hereby and thereby, or the
continued conduct of the present business of the Company after the Closing Date.
2.23. EMPLOYMENT OF OFFICERS, EMPLOYEES. The Company has delivered to
the Purchasers, and attached as Section 2.23 of the Disclosure Schedule is, a
list setting forth the name and current annual salary and other compensation
payable by the Company to each of its five most highly compensated non-hourly
employees.
2.24. BROKERS. No finder, broker, agent, or other intermediary has
acted for or on behalf of the Company in connection with the negotiation or
consummation of the transactions contemplated hereby, and no fee will be payable
by the Company to any such person in connection with such transactions.
2.25. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. The Company has
complied with, and is in compliance with, (i) all laws, statutes, governmental
regulations, judicial or administrative tribunal orders, judgments, writs,
injunctions, decrees, and similar commands applicable to it and its business,
and all unwaived terms and provisions of all agreements, instruments, and
commitments to which it is a party or to which it or any of its assets or
properties is subject, except for any non-compliances that, both individually
and in the aggregate, have not had and could not reasonably be expected to have
a Material Adverse Effect, and (ii) its charter documents and by-laws, each as
amended to date. The Company has not committed, been charged with, or, to the
Company's or the Founders' knowledge, been under investigation with respect to,
nor does there exist, any violation by
<PAGE>
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the Company of any provision of any federal, state, or local law or
administrative regulation, except for any violations that, both singly or in the
aggregate, have not had and could not reasonably be expected to have a Material
Adverse Effect. The Company has and maintains, and Section 2.25 of the
Disclosure Schedule sets forth a complete and correct list of, all such
licenses, permits, and other authorizations from all such governmental
authorities as are legally required for the conduct of its business or in
connection with the ownership or use of its properties, except for any such
licenses, permits, and other authorizations, the failure to obtain or maintain
which in effect, both singly or in the aggregate, has not had and could not
reasonably be expected to have a Material Adverse Effect, and all of which
(except as specifically described in Section 2.25 of the Disclosure Schedule)
are in full force and effect in all material respects, and true and complete
copies of all of which have been delivered to the Purchasers.
2.26. COMPLIANCE WITH SECURITIES LAWS. Assuming the accuracy of the
representations of each Purchaser contained in Section 3 hereof, the offer,
issuance, and delivery of the Purchased Securities as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act,
and are exempt from registration or qualification under applicable states'
securities laws. Neither the Company nor anyone acting on its behalf will
hereafter offer to sell, solicit offers to buy, or sell any securities of the
Company so as to subject the offer, issuance, and sale of the Purchased
Securities to the registration requirements of the Securities Act.
2.27. BUSINESS PLAN. The forecasts and projections of future financial
results contained in the Company's most recent business plan were prepared by
the Company in good faith based upon assumptions that the Company believed, as
of the date of such business plan, and still does believe, as of the date
hereof, to be reasonable (it being acknowledged by the Purchasers that such
forecasts and projections may not be achieved, including without limitation
because such assumptions may prove incorrect and/or because of changes in the
facts and circumstances upon which such forecasts, projections, and assumptions
are based).
2.28. REAL PROPERTY HOLDING CORPORATION. The Company hereby represents
that it is not a "United States real property holding corporation" within the
meaning of Section 897 of the Code, as amended, and Treasury Regulation
ss.1.897-2.
2.29. FOREIGN CORRUPT PRACTICES ACT. The Company has not taken any
action which would cause it to be in violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any rules or regulations thereunder. To the
Company's and the Founders' knowledge, there is not now, and there has never
been, any employment by the Company of, or beneficial ownership in the Company
by, any governmental or political official in any country in the world.
2.30. DISCLOSURE. No representation or warranty by the Company and the
Founders in this Agreement, in the Disclosure Schedule, or in the Ancillary
Agreements, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained
<PAGE>
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herein or therein not false or misleading. There is, to the Company's and the
Founders' knowledge, no fact or circumstance relating specifically to the
business or condition of the Company that could reasonably be expected to result
in a Material Adverse Effect that is not disclosed in the Disclosure Schedule.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser severally represents and warrants, as to himself,
herself, or itself only, as follows: Such Purchaser is an "accredited investor"
as defined in Rule 501(a) promulgated under the Securities Act and has such
knowledge and experience in financial and business matters that he, she, or it
is capable of evaluating the merits and risks of the transactions contemplated
under this Agreement. Such Purchaser's financial condition is such that he, she,
or it is able to bear all economic risks of investment in the Purchased
Securities, including a complete loss of his, her, or its investments therein.
The Company has provided such Purchaser with adequate access to financial and
other information concerning the Company as requested and such Purchaser has had
the opportunity to ask questions of and receive answers from the Company
concerning the transactions contemplated by this Agreement and to obtain
therefrom any additional information necessary to make an informed decision
regarding an investment in the Company. Such Purchaser is acquiring the
Purchased Securities solely for investment purposes, with no present intention
of distributing or reselling any of the Purchased Securities or any interest
therein. Such Purchaser is aware that the Purchased Securities will not be
registered under the Securities Act, and that neither the Purchased Securities
nor any interest therein may be sold, pledged, or otherwise transferred unless
the Purchased Securities are registered under the Securities Act or qualify for
an exemption under the Securities Act. Such Purchaser, if not an individual,
represents that this Agreement has been duly authorized by all necessary
corporate or partnership action on its part. This Agreement has been validly
executed by such Purchaser and is such Purchaser's legal, valid, and binding
obligation, enforceable against such Purchaser in accordance with its terms.
4. INTENTIONALLY OMITTED
5. COVENANTS.
The Company covenants that for so long as any Purchased Securities are
outstanding, the Company will comply and cause each of its Subsidiaries, if any,
to comply with each of the following covenants. Except as required by applicable
law, each Purchaser and each person representing or acting on behalf of such
Purchaser will hold in confidence all confidential information of the Company
provided or made available to such Purchaser or such person pursuant to this
Section 5 until such time as such information has been publicly disclosed other
than as a consequence of any breach by such Purchaser or such person of its
confidentiality obligations hereunder.
Notwithstanding anything contained herein to the contrary, each holder
of shares of Series D Preferred Stock who is a Bain Affiliate (including persons
identified to the Company by Bain) shall NOT be entitled to the rights and
benefits of this Section 5 UNLESS the
<PAGE>
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Bain Affiliates (including persons identified to the Company by Bain) have
purchased in the aggregate not less than 468,750 shares of Series D Preferred
Stock and PROVIDED FURTHER that, to the extent that the Company is required to
deliver or furnish documents or give notice under this Section 5 to any Bain
Affiliate (including persons identified to the Company by Bain) as a holder of
Series D Preferred Stock, the Company shall be deemed to have fulfilled its
obligations hereunder by delivering or furnishing such documents or giving such
notice to the board member of the Company, if any, designated by such Bain
Affiliates pursuant to Section 1(b) of the Stockholders Agreement, or in the
absence of such designated board member, to any other person designated in
writing to the Company as the representative of all Bain Affiliates for the
purpose of receiving documents and notice under this Section 5.
In addition, to the extent that the Company is required to deliver or
furnish documents or give notice under this Section 5 to any Tudor Entity as a
holder of Series D Preferred Stock, the Company shall be deemed to have
fulfilled its obligations hereunder by delivering or furnishing such documents
or giving such notice to the board member of the Company, if any, designated by
Tudor pursuant to Section 1(b) of the Stockholders' Agreement, or in the absence
of such designated board member, to any other person designated in writing to
the Company as the representative of all Tudor Entities for the purpose of
receiving documents or notice under this Section 5.
5.1. BUDGETS. The Company will deliver to each holder of shares of
Series D Preferred Stock, in each case as soon as practical after preparation
thereof, but in no event later than thirty (30) days prior to the beginning of
each fiscal year, preliminary, and in no event later than thirty (30) days after
the beginning of each fiscal year, final, pro forma financial projections and
budgets (which will contain projected balance sheets and statements of income,
retained earnings, and cash flows (including capital expenditures)) for the
Company for the three successive fiscal years beginning with such fiscal year,
including month-by-month projections and budgets for at least the next fiscal
year.
5.2. INVESTMENTS. The Company will not have outstanding, or acquire or
commit itself to acquire or hold, any investment except (a) investments in
marketable direct obligations issued or guaranteed by the United States of
America that mature within one year from the date of acquisition thereof or
which are subject to a repurchase agreement, exercisable within ninety (90) days
from the date of acquisition of such agreement, with any commercial bank or
trust company incorporated under the laws of the United States of America or any
State thereof or the District of Columbia, (b) investments in commercial paper
maturing within one year from the date of acquisition thereof and having, at the
date of acquisition thereof, the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation, (c) investments in
bankers' acceptances eligible for rediscount under Federal Reserve Board
requirements accepted by any commercial bank or trust company referred to in
clause (a) hereof, (d) investments in deposits or certificates of deposit
maturing within one year from the date of acquisition thereof issued by any
commercial bank or trust company referred to in clause (a) hereof and having
capital and
<PAGE>
-21-
surplus of at least $500,000,000, (e) investments in certificates of deposit
issued by banks organized under the laws of any other jurisdiction, each having
combined capital and surplus of not less than $500,000,000, and (f) investments
by the Company in any Subsidiary made with the prior approval of the Board of
Directors.
5.3. ANNUAL STATEMENTS. As soon as available and in any event within
one hundred twenty (120) days after the close of each fiscal year, commencing
with the fiscal year ending on December 31, 1998, the Company will deliver to
each holder of at least 10% of the outstanding shares of Series D Preferred
Stock, a balance sheet and statements of income, retained earnings, and cash
flows, audited by an independent public accounting firm selected by the Company
and reasonably acceptable to the Purchasers, showing the financial condition of
the Company as of the close of such fiscal year and the results of its
operations during such fiscal year. Each of the financial statements delivered
hereunder will be certified by such accounting firm without material
qualification (except any qualifications as the Purchasers, in their discretion,
may approve in writing) to have been prepared in accordance with GAAP
consistently applied (except for changes in the application of such principles
that have been approved by the Company's Board of Directors, including the
affirmative vote or consent of at least one director elected by the separate
class vote of the holders of shares of Series D Preferred Stock).
5.4. QUARTERLY AND MONTHLY STATEMENTS.
(a) As soon as available, and in any event within forty-five (45) days
after the end of each of the first three fiscal quarters of each fiscal year,
commencing with the fiscal quarter ending September 30, 1998 the Company will
deliver to each holder of at least 10% of the outstanding shares of Series D
Preferred Stock an unaudited balance sheet and statements of income, retained
earnings, and cash flows of the Company as of the end of and for such fiscal
quarter, certified by the chief financial officer of the Company to be true and
correct and to have been prepared in accordance with GAAP consistently applied
(except for changes in the application of such principles that have been
approved by the Company's Board of Directors, including the affirmative vote or
consent of at least one director elected by the separate class vote of the
holders of shares of Series D Preferred Stock), subject to the absence of
footnotes and to adjustments consisting of normal year-end accruals, the effect
of which, both individually and in the aggregate, is not material.
(b) As soon as available and in any event within thirty (30) days after
the end of each month, commencing with the month ending July 31, 1998, the
Company will deliver to each holder of at least 10% of the outstanding shares of
Series D Preferred Stock, unaudited balance sheets and statements of income and
cash flows of the Company as of the end of each such month, as well as summary
information as to backlog and bookings as of such month-end, certified by the
treasurer or chief financial officer of the Company to be true and correct and
to have been prepared in accordance with GAAP consistently applied (except for
changes in the application of such principles that have been approved by the
Company's Board of Directors, including the affirmative vote or consent of at
least one director elected by the separate class vote of the holders of shares
of Series D Preferred Stock), subject to the absence of footnotes and to
adjustments consisting of normal year-end accruals, the effect of which, both
individually and in the aggregate, is not material.
<PAGE>
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5.5 OFFICERS' CERTIFICATES. Together with delivery of financial
statements of the Company pursuant to Sections 5.3 and 5.4 above, the Company
will deliver to each holder of shares of Series D Preferred Stock a certificate
of the chief financial officer or Treasurer of the Company (a) stating that such
statements have been prepared in accordance with GAAP consistently applied
(except for changes in the application of such principles that have been
approved by the Company's Board of Directors, including the affirmative vote or
consent of at least one director elected by the separate class vote of the
holders of shares of Series D Preferred Stock) and present fairly the financial
position of the Company as of the dates specified and the results of its
operations and cash flows with respect to the periods specified (in the case of
interim financial statements, subject to the absence of footnotes and to
adjustments consisting of normal year-end accruals, the effect of which, both
individually and in the aggregate, is not material).
5.6. OTHER FINANCIAL INFORMATION. The Company will further deliver to
each holder of shares of Series D Preferred Stock, as soon as practical after
preparation thereof but in no event (in the case of clause (a) below) later than
ten (10) days prior to the beginning of the fiscal period to which such
financial forecast relates, complete and correct copies of (a) all quarterly (if
any) or annual budgetary analyses or forecasts of the Company not referred to in
Section 5.2 hereof and which are distributed or presented to members of the
Board of Directors of the Company, in the form customarily prepared by
management for its own internal use or the use of the Board of Directors of the
Company and (b) all other financial and other reports prepared for or
distributed or presented to the Board of Directors (and not otherwise required
to be delivered under any provision of this Section 5).
5.7. OTHER INFORMATION; INSPECTION RIGHTS. From time to time upon the
request of any holder of shares of Series D Preferred Stock, the Company will
furnish to such holder such information regarding the business, affairs,
finances, and prospects of the Company as is prepared by the Company in the
ordinary course of business or as can be readily prepared from materials
prepared by the Company in the ordinary course of business, and will make
available to such holder such officers, directors, key employees, and
accountants of the Company, as such holder may reasonably request. Each holder
of shares of Series D Preferred Stock will have the right during normal business
hours to examine the books and records of the Company, to make copies, notes,
and abstracts therefrom, to discuss the Company's affairs with the officers,
directors, key employees, and accountants of the Company, and to make or cause
an independent examination and/or audit (at such holder's expense) of the books
and records of the Company.
5.8. RIGHTS TO ATTEND MEETINGS, ETC. The Company will call and hold a
meeting of its Board of Directors at least once each fiscal quarter, and will
reimburse the expenses of each director incurred in connection with such
director's attendance at each meeting of the Company's Board of Directors or any
committee thereof. At any time during which a representative of the Purchasers
is not a member of the Board of Directors of the Company, the Company will give
the Purchasers at least five business days' prior written notice of the time,
place, and subject matter of each quarterly meeting, at least two business days'
prior written notice of any other proposed meeting, and reasonable prior notice
of any action by written consent of the Board of Directors of the Company, such
notice in all cases to include
<PAGE>
-23-
true and complete copies of all documents furnished to any director in
connection with such meeting or consent. One officer or authorized
representative of the Tudor Entities and one officer or authorized
representative of Bain Affiliates (including persons introduced by Bain) will be
entitled to attend as an observer at any such meeting or, if a meeting is held
by telephone conference, to participate therein on a non-voting basis.
5.9. NOTICES OF LITIGATION, ETC. The Company will promptly give notice
to each holder of shares of Series D Preferred Stock of any litigation or any
administrative proceeding to which the Company may hereafter become a party,
excepting only those in which the only relief sought is money damages in an
amount not exceeding $20,000 in any one instance, or $50,000 in the aggregate
with respect to all such litigation or proceedings. The Company will promptly
furnish to each holder of shares of Series D Preferred Stock copies of all
correspondence, notices, pleadings, reports, and other documents in connection
with any litigation or proceeding in which it is currently involved or of which
it is required to give notice hereunder or that may be received from any
governmental agency or other person asserting a claim or potential claim against
the Company. Promptly after the receipt thereof, the Company will provide to
each holder of shares of Series D Preferred Stock copies of any reports
(including management letters and reports and letters with respect to the
adequacy of the Company's internal accounting controls) submitted by independent
accountants with respect to the Company.
5.10. RECORDS AND ACCOUNTS. The Company will keep true and accurate
records and books of account in which full, true, and correct entries will be
made so as to permit the preparation of financial statements in accordance with
GAAP and maintain adequate accounts and reserves in accordance with good
accounting practice for all taxes (including income taxes), all depreciation,
depletion, obsolescence, and amortization of its properties, all contingencies,
and all other reserves.
5.11. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Company will
preserve and keep in full force and effect its corporate existence, rights, and
franchises. The Company will not engage in any business other than as presently
conducted by it and businesses reasonably ancillary thereto and will not take
any course of action which would result in a substantial change in the nature or
character of its business as it is presently conducted, except with the prior
approval of the Board of Directors of the Company. The Company will maintain all
of its properties used or useful in the conduct of its business in good
condition, repair, and working order and cause to be made all necessary repairs,
renewals, replacements, betterments, and improvements thereof, all as in the
judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section 5.11 will prevent the Company
from discontinuing the operation and maintenance of any of such properties if
such discontinuance is, in the judgment of the Company, desirable in the conduct
of its business and does not in the aggregate materially adversely affect the
business of the Company.
5.12. INSURANCE. The Company will maintain key-man life insurance on
the lives of Mahendrahjeet Singh and Joseph Chung referred to in Section
1.5(e)(6) of this
<PAGE>
-24-
Agreement for so long as Mr. Singh and Mr. Chung, each respectively, continues
to be employed by the Company and will maintain with financially sound and
reputable insurance companies, funds, or underwriters such other insurance of
the kinds, covering the risks (including without limitation directors' and
officers' liability) and in the relative proportionate amounts usually carried
by reasonable and prudent companies conducting businesses similar to that of the
Company (such insurance coverage at all times to be at least as protective as
the insurance currently carried by the Company and described in Section 2.21 of
the Disclosure Schedule). The Company shall not cause or permit any assignment
or change in beneficiary and shall not borrow against any such policy.
5.13. TAXES. The Company will pay and discharge, or cause to be paid
and discharged, before they become delinquent, all taxes, assessments, and other
governmental charges imposed upon the Company or any of the properties, sales,
or activities of the Company, or any part thereof, or upon the income or profits
therefrom, as well as all claims for labor, materials, or supplies, which, if
unpaid might by law give rise to a Lien upon any of its properties; PROVIDED,
HOWEVER, that any such tax, assessment, charge, levy, or claim need not be paid
if the validity or amount thereof is currently being contested in good faith by
appropriate proceedings and if the Company has set aside on its books adequate
reserves with respect thereto.
5.14. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The
Company will comply in all material respects with (a) its charter documents and
by-laws, (b) all judgments, decrees, orders, statutes, rules, and regulations
binding on or applicable to the Company or its business or properties, and (c)
any agreement or instrument to which it is a party or by which it or any of its
properties are subject (including, without limitation, the Ancillary
Agreements). If at any time any authorization, consent, approval, permit, or
license from any officer, agency, or instrumentality of any government becomes
necessary or required in order that the Company may fulfill any of its
obligations hereunder, the Company will promptly take or cause to be taken all
necessary steps within its power to obtain such authorization, consent,
approval, permit, or license and will promptly furnish each Purchaser with
evidence thereof.
5.15. EMPLOYEE BENEFIT PLANS. The Company will take all actions
necessary to maintain, fund, and administer its Employee Benefit Plans in
material compliance with applicable federal, state, and local law.
5.16. COMPENSATION OF OFFICERS AND SENIOR MANAGEMENT. The compensation
of all officers and senior management of the Company will be as determined from
time to time by the Compensation Committee of the Board of Directors, which will
include the directors elected by the separate class vote of the holders of
shares of Series D Preferred Stock (PROVIDED, that any bonus or bonus plan will
be subject to approval by the Board of Directors).
5.17. CHIEF OPERATING OFFICER. The Company shall (a) within fourteen
(14) days after the Closing Date retain a national search firm (such firm to be
reasonably acceptable to the board member designated by the Tudor Entities) for
the purpose of searching for and
<PAGE>
-25-
hiring a Chief Executive Officer or a Chief Operating Officer for the Company
and (b) within twelve (12) months after the Closing Date employ a Chief
Operating Officer with the intent to promote such Chief Operating Officer to
Chief Executive Officer, or a Chief Executive Officer, who shall not be
affiliated with the Company prior to such employment.
5.18. RESTRICTIVE AGREEMENTS. The Company will not enter into, become a
party to, become subject to or authorize any agreement or instrument which would
restrict, prohibit or interfere with the Company's performance of its
obligations under the terms of the Company's charter documents, By-Laws, or this
Agreement or any Ancillary Agreement.
5.19. RESERVATION OF SHARES. The Company has and will continue at all
times to reserve, solely for the purpose of issuance upon conversion of shares
of Series D Preferred Stock and exercise of the Warrants, a number of shares of
Common Stock sufficient to cover the conversion of all such shares of Series D
Preferred Stock and the exercise of all such Warrants.
5.20. KEY-MAN LIFE INSURANCE. The Company shall use its best efforts to
obtain, within 30 days after the Closing, key-man life insurance with respect to
the lives of Mahendrahjeet Singh and Joseph Chung, each having a death benefit
of at least $2,000,000 payable to the Company and providing that such insurance
may not be canceled without at least thirty (30) days' prior written notice to
the Purchasers delivered in accordance with Section 10.2 of this Agreement.
5.21. DIRECTORS & OFFICERS INSURANCE. The Company shall use its best
efforts to obtain, with a reputable insurance company and within thirty (30)
days after the Closing, directors and officers insurance, having coverage of at
least $2,000,000 in the aggregate and $2,000,000 per claim and providing that
such insurance may not be canceled without at least thirty (30) days prior
written notice to each member of the Company's Board of Directors. If the
Company fails to obtain such directors and officers insurance within thirty (30)
days after the Closing, then any of the Purchasers shall have the right to
purchase such directors and officers insurance on behalf of the Company and
shall be reimbursed by the Company, on demand, for all costs arising out of
obtaining such directors and officers insurance plus interest at the lowest
applicable federal rate established by the Internal Revenue Services (for
short-term loans) from the date of such demand until all costs (and interest
thereon) have been paid in full.
6. REGISTRATION AND TRANSFER OF SECURITIES.
6.1. TRANSFER AND EXCHANGE OF CAPITAL STOCK. The Company will maintain
at its principal executive office a register in which will be entered the names
and addresses of the holders of the capital stock and the particulars (including
without limitation the class thereof) of the respective capital stock held by
them and of all transfers of shares of capital stock or conversions of shares of
capital stock from one class to another. Upon surrender at such office of any
certificate representing shares of capital stock for registration of conversion,
exchange, or (subject to compliance with the applicable provisions of this
Agreement, including without limitation the conditions set forth in Section 7.2
hereof)
<PAGE>
-26-
transfer, the Company will issue, at its expense, one or more new certificates,
in such denomination or denominations as may be requested, for shares of such
capital stock and registered as such holder may request. Any certificate
representing shares of capital stock surrendered for registration of transfer
will be duly endorsed, or accompanied by a written instrument of transfer duly
executed by the holder of such certificate or his attorney duly authorized in
writing. The Company will pay shipping and insurance charges, from and to each
holder's principal office, upon any transfer, exchange, or conversion provided
for in this Section 6.1.
6.2. REPLACEMENT OF PURCHASED SECURITIES. In the case of any loss,
theft, destruction, or mutilation of the certificate representing any Purchased
Security, upon receipt of evidence thereof reasonably satisfactory to the
Company, and (i) in the case of any such loss, theft, or destruction, upon
delivery of an indemnity bond in such reasonable amount as the Company may
determine, or (ii) in the case of any such mutilation, upon the surrender to the
Company at its principal office of such mutilated certificate for cancellation,
the Company will execute and deliver, in lieu thereof, new certificates of like
tenor. Any old stock certificate in lieu of which any such new stock certificate
has been so executed and delivered by the Company will not be deemed to be
outstanding for any purpose of this Agreement or otherwise.
6.3. RELIANCE ON REGISTER. The Company may rely for all purposes
hereunder on record ownership as shown on the register described in this Section
6 (except to the extent that such register fails to reflect a transfer of which
the Company received due notice in accordance with Section 7.2 of this
Agreement).
7. RESTRICTIONS ON TRANSFER.
7.1. GENERAL RESTRICTION. Subject to Section 10.6, the Purchased
Securities and all securities issued in exchange therefor or upon conversion or
exercise thereof (for purposes of this Section 7, the "RESTRICTED SECURITIES"),
will be transferable only upon the satisfaction of the conditions set forth in
this Section 7. Any transfer or purported transfer in violation of this Section
7 will be void.
7.2. NOTICE OF TRANSFER. Subject to Section 10.6, prior to any transfer
of any Restricted Securities, the holder thereof will give written notice to the
Company describing in reasonable detail the manner and terms of the proposed
transfer and the identity of the proposed transferee, accompanied by the written
agreement of the proposed transferee to be bound by all of the provisions hereof
applicable to holders of such Restricted Securities hereunder or thereunder.
7.3. RESTRICTIVE LEGENDS. For so long as the Purchased Securities
remain subject to the restrictions on transfer set forth in this Section 7, the
certificates representing such Purchased Securities will bear restrictive
legends in substantially the following forms:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and may be transferred
<PAGE>
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only pursuant to an effective registration statement under the
Securities Act or in accordance with an applicable exemption from the
registration requirements of the Securities Act."
"The securities represented by this certificate are subject to certain
restrictions on transfer set forth in a Series D Senior Participating
Convertible Redeemable Preferred Stock Purchase Agreement, dated as of
August 18, 1998, by and among the issuer of such securities and the
registered holder of this certificate (or such holder's
predecessor-in-interest) and certain others. A copy of such agreement
is on file and may be inspected by the registered holder of this
certificate at the principal executive office of the issuer."
7.4. TERMINATION OF RESTRICTIONS. The restrictions imposed by this
Section 7 upon the transferability of Restricted Securities will terminate as to
any particular Restricted Securities when such Restricted Securities have been
sold pursuant to an effective registration statement under the Securities Act,
or pursuant to Rule 144 under the Securities Act or any other exemption from the
registration requirements of the Securities Act pursuant to which the transferee
receives securities that are not "restricted securities" within the meaning of
that term as defined in Rule 144(a)(3). Whenever any of such restrictions
terminates as to any Restricted Securities, the holder thereof will be entitled
to receive from the Company, at the Company's expense, new certificates
representing such Purchased Securities, without restrictive legends.
8. EXPENSES; INDEMNIFICATION. Whether or not the transactions
contemplated by this Agreement are consummated (and whatever the reason or cause
for any such failure to consummate except for an affirmative termination by the
Purchasers or the failure of the Purchasers to negotiate in good faith), the
Company hereby agrees to pay on demand (a) all reasonable out-of-pocket and due
diligence expenses incurred by the Purchasers (i) in connection with the
transactions contemplated by this Agreement (including without limitation the
reasonable fees (not to exceed $50,000) and charges for disbursements of Bingham
Dana LLP, special counsel to the Purchasers and (b) the reasonable travel and
out-of-pocket expenses of the representatives of the Purchasers in connection
with the negotiation on of this Agreement and (ii) in connection with any
amendments or waivers (whether or not the same become effective) hereof from
time to time. In addition, the Company hereby agrees to pay on demand all
reasonable out-of-pocket expenses (including without limitation the reasonable
fees and charges for disbursements of one counsel to the Purchasers) incurred by
the Purchasers or any holder of any of the Purchased Securities issued hereunder
in connection with the enforcement of any rights hereunder, or with respect to
any of the Purchased Securities, including without limitation, (a) the cost and
expenses of preparing and duplicating this Agreement and the Purchased
Securities; (b) the cost of delivering to each Purchaser's principal office,
insured to such Purchaser's satisfaction, the Purchased Securities sold to such
Purchaser hereunder and any Purchased Securities delivered to such Purchaser in
exchange therefor or upon any conversion, exercise, exchange, or substitution
thereof; and (c) all taxes (other than taxes determined with respect to the
income of a Purchaser), including any recording fees and filing fees and
<PAGE>
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documentary stamp and similar taxes at any time payable in respect of this
Agreement or the issuance of any of the Purchased Securities.
(b) All covenants, agreements, representations, and warranties made
herein or in the Ancillary Agreements or any other document referred to herein
or delivered to the Purchasers pursuant hereto will be deemed to have been
relied on by the Purchasers, notwithstanding any investigation made by or on
behalf of the Purchasers, and will survive the Closing. The Company will
indemnify, defend, and hold harmless each Purchaser, and each of such
Purchaser's partners, stockholders, officers, directors, employees, agents, and
representatives (the "INDEMNIFIED PARTIES"), from and against any and all
Damages incurred by any of them in any capacity and resulting from or relating
to the breach by the Company of any of its representations, warranties,
covenants, or agreements contained in this Agreement or in the Ancillary
Agreements or any other document referred to herein or delivered to the
Purchasers pursuant hereto.
(c) The obligations of the Company under this Section 8 will survive
transfer of the Purchased Securities and the termination of this Agreement.
(d) In the event that the basis for a claim for indemnification is an
action, suit or proceeding brought by a third party and such claim is one for
which indemnification may be sought, an Indemnified Party shall give reasonable
written notice to the Company of such action suit or proceeding, PROVIDED that
failure of the Indemnified Parties to give such notice shall not relieve the
Company of its obligations under this Section 8 except to the extent, if at all,
that the Company shall have been prejudiced thereby. Within twenty (20) days
after delivery of such notification, the Company may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such action,
suit or proceeding with counsel reasonably satisfactory to the Indemnified
Party, PROVIDED, that the Company acknowledges in writing to the Indemnified
Party that all damages, fines, costs, fees or other liabilities that may be or
are assessed against the Indemnified Party in connection with such action, suit
or proceeding constitute damages for which the Indemnified Party shall be
indemnified by the Company. If the Company does not so assume control of such
defense, the Indemnified Party shall control such defense. If the Company does
assume control of such defense, the Indemnified Party may participate in such
defense and the action, suit or proceeding at its own expense and with counsel
of its own choosing and, at any point in time thereafter if the Indemnified
Party concludes that the Company and such Indemnified Party have conflicting
interests or different defenses available with respect to such action, suit or
proceeding, the reasonable fees and expenses of counsel to the Indemnified Party
shall constitute "damages" for purposes of this Agreement. The party controlling
such defense shall keep the other party advised of the status of such action,
suit or proceeding and the defense thereof and shall consider in good faith
recommendations made by the other party with respect thereto. Neither party
shall agree to any settlement of such action, suit or proceeding without the
prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed; PROVIDED, that the Indemnified Party shall not
be required to obtain the consent of the Company if the Company has not
acknowledged in writing to the Indemnified Party that all damages, fines, costs
or other liabilities that may be or are assessed against the Indemnified Party
in connection with such action, suit or
<PAGE>
-29-
proceeding constitute Damages for which the Indemnified Party shall be
indemnified by the Company.
9. DEFINITIONS.
9.1. CERTAIN DEFINED TERMS. For all purposes of this Agreement the
following terms will have the meanings set forth or cross-referenced in this
Section 9:
"Affiliate" means, with respect to any person, any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such person and includes without limitation, (a) any person
who is an officer, director, or direct or indirect beneficial holder of at least
5% of the then outstanding capital stock of such person, and in the case of an
Affiliate of the Company (other than the Purchasers) any of the Family Members
of any such person, (b) any person of which such person and/or its Affiliates
(as defined in clause (a) above), directly or indirectly, either beneficially
own(s) at least 5% of the then outstanding equity securities or constitute(s) at
least a 5% equity participant, (c) in the case of a person who is an individual,
Family Members of such person, and (d) in the case of the Purchasers, any
entities for which a Purchaser or any of its Affiliates serve as general partner
and/or investment adviser or in a similar capacity, and all mutual funds or
other pooled investment vehicles or entities under the control or management of
such Purchaser or the general partner or investment adviser thereof, or any
Affiliate of any of them, or any Affiliates of any of the foregoing.
"Affiliated Group" has the meaning given to it in Section 1504 of the
Code, and in addition includes any analogous combined, consolidated, or unitary
group, as defined under any applicable state, local, or foreign income Tax law.
"Ancillary Agreements" means the Certificate of Designation, the
Stockholders' Agreement, the Registration Rights Agreement, the Warrants and any
other agreement or document delivered or executed in connection with this
Agreement.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Certificate of Designation" means the Certificate of Designation of
the Company setting forth the designations, numbers, relative rights,
preferences, limitations and other terms of the Series D Preferred Stock.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, $0.01 par value per share, of
the Company.
"Damages" means all damages, losses, claims, demands, actions, causes
of action, suits, litigations, arbitrations, liabilities, costs, and expenses,
including without limitation court costs and the fees and expenses of counsel
and experts.
<PAGE>
-30-
"Derivative Securities" means (i) all shares of stock and other
securities that are convertible into or exchangeable for shares of Common Stock,
and (ii) all options, warrants, and other rights to acquire shares of Common
Stock or any class of stock or other security or securities convertible into or
exchangeable for shares of Common Stock or any class of stock of other security.
"Environmental Laws" means, collectively, the Resource Conservation and
Recovery Act, CERCLA, the Superfund Amendments and Reauthorization Act of 1986,
the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, and any and all state or local statutes, regulations, ordinances,
orders, and decrees relating to health, safety, or the environment, each, as the
case may be, as amended.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Family Members" means, as applied to any individual, any parent,
spouse, child, spouse of a child, brother or sister of the individual, and each
trust created for the benefit of one or more of such persons and each custodian
of a property of one or more such persons and the estate of any such persons.
"GAAP" means generally accepted accounting principles that are (i)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, (ii) applied on a basis
consistent with prior periods, and (iii) such that, insofar as the use of
accounting principles is pertinent, a certified public accountant could deliver
an unqualified opinion with respect to financial statements in which such
principles have been properly applied.
"Hazardous Substances" means, collectively, any hazardous waste, as
defined by 42 U.S.C. ss. 6903(5), any hazardous substances as defined by 42
U.S.C. ss. 9601(14), any pollutant or contaminant as defined by 42 U.S.C. ss.
9601(33), or any toxic substance, methane gas, oil, or hazardous materials or
other chemicals or substances regulated by any Environmental Laws.
"Indebtedness" means (a) all indebtedness for borrowed money, whether
current or long-term, or secured or unsecured, (b) all indebtedness for the
deferred purchase price of property or services represented by a note or
security agreement, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement (even though the rights and
remedies of the seller or lender under such agreement in the event of default
may be limited to repossession or sale of such property), (d) all indebtedness
secured by a purchase money mortgage or other lien to secure all or part of the
purchase price of property subject to such mortgage or lien, (e) all obligations
under leases that have been or must be, in accordance with GAAP, recorded as
capital leases in respect of which it is liable as lessee, (f) any liability in
respect of banker's acceptances or letters of credit, and (g) all indebtedness
of any person that is directly or indirectly guaranteed by the Company or that
<PAGE>
-31-
it has agreed (contingently or otherwise) to purchase or otherwise acquire or in
respect of which it has otherwise assured a creditor against loss.
"Liens" means any and all liens, claims, mortgages, security interests,
charges, encumbrances, and restrictions on transfer of any kind, except: (i) in
the case of references to securities, any of the same arising under applicable
securities laws solely by reason of the fact that such securities were issued
pursuant to exemptions from registration under such securities laws, (ii) real
estate taxes not yet due and payable, and (iii) any lien in favor of any
landlord for unpaid rent, additional rent, or other charges, which lien is
created by statute or under any lease under which the Company or any of its
Subsidiaries is lessee.
"Material Adverse Effect" means, with reference to the Company, a
material adverse effect on the condition (financial or otherwise), operations,
business, assets, or prospects of the Company, or on its ability to consummate
the transactions hereby contemplated.
"Person" or "person" (regardless of whether capitalized) means any
natural person, entity, or association, including without limitation any
corporation, partnership, limited liability company, government (or agency or
subdivision thereof), trust, joint venture, or proprietorship.
"Preferred Stock" means the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock.
"Qualified Public Offering" shall mean a public offering of shares of
the Company's Common Stock pursuant to an effective registration statement on
Form S-1, or successor form, of the Securities and Exchange Commission, pursuant
to which the per share price to the public is not less than $8.00 (such amount
to be subject to proportionate adjustment in the event of any stock dividend,
stock split, combination of shares, reorganization, recapitalization,
reclassification or other similar event occurring after the date hereof) and the
gross proceeds to the Company are not less than $20,000,000.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement, dated as of the date hereof, among the Company,
the Purchasers, and each of the other stockholders of the Company, in the form
of the attached EXHIBIT E.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same are in effect at the relevant
time of reference.
"Series A Preferred Stock" means the Series A Convertible Preferred
Stock, par value $0.01 per share, of the Company, the terms of which are set
forth in the Certificate of Incorporation, as amended, of the Company.
"Series B Preferred Stock" means the Series B Convertible Preferred
Stock, $0.01 par value per share, of the Company, the terms of which are set
forth in the Certificate of Incorporation, as amended, of the Company.
<PAGE>
-32-
"Series C Preferred Stock" means the Series C Convertible Preferred
Stock, $0.01 par value per share, of the Company, the terms of which are set
forth in the Certificate of Incorporation, as amended, of the Company.
"Series D Preferred Stock" means the Series D Senior Participating
Convertible Redeemable Preferred Stock, par value $0.01 per share, of the
Company, the terms of which are set forth in the Certificate of Designation.
"Stockholders' Agreement" means the Amended and Restated Stockholders'
Agreement, dated as of the Closing Date, among the Company and certain of its
stockholders, in the form of the attached EXHIBIT F.
"Subsidiary" or "Subsidiaries" means, with respect to any person, any
corporation a majority (by number of votes) of the outstanding shares of any
class or classes of which are at the time owned by such person or by a
Subsidiary of such person, if the holders of the shares of such class or classes
(a) are ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, even though the right so to vote has been
suspended by the happening of such a contingency, or (b) are at the time
entitled, as such holders, to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof,
whether or not the right so to vote exists by reason of the happening of a
contingency.
"Tax" or "Taxes" means any federal, state, local, or foreign income,
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, severance, stamp,
occupation, premium, windfall profit, customs, duties, real property, personal
property, capital stock, intangibles, social security, unemployment, disability,
payroll, license, employee, or other tax or levy, of any kind whatsoever,
including any interest, penalties, or additions to tax in respect of the
foregoing.
"Tax Return" means any return, declaration, report, claim for refund,
information return, or other document (including any related or supporting
estimates, elections, schedules, statements, or information) filed or required
to be filed in connection with the determination, assessment, or collection of
any Tax or the administration of any laws, regulations, or administrative
requirements relating to any Tax.
"Tudor Entity" or "Tudor Entities" means each of the following: Tudor
Private Equity Fund, L.P., Tudor Arbitrage Partners, L.P., Tudor BVI Futures,
Ltd., Raptor Global Fund, L.P. and Raptor Global Fund Ltd., their respective
Affiliates, and any mutual funds or other pooled investment vehicles or entities
of which any of the foregoing entities are Affiliates, or of which any Affiliate
or Affiliated Group of Tudor Investment Corporation and/or Tudor Global Trading,
Inc. acts as general partner or investment advisor.
9.2. TERMS DEFINED ELSEWHERE. The following terms are defined herein in
the sections identified below:
<PAGE>
-33-
<TABLE>
<CAPTION>
TERM SECTION TERM SECTION
---- ------- ---- -------
<S> <C> <C> <C>
Agreement Preamble Purchased Securities 1.1
Closing 1.3 Purchased Shares 1.1
Closing Date 1.3 Purchaser(s) Preamble
Company Preamble Restricted Securities 7.1
Employee Benefit Plan 2.18(a) Vesting Warrants 1.1
Most Recent Balance Sheet 2.8(a) Vesting Warrant Shares 1.1
Non-Vesting Warrants 1.1 Warrants 1.1
Non-Vesting Warrant Shares 1.1 Warrant Shares 1.1
Proprietary Information 2.20
</TABLE>
10. MISCELLANEOUS PROVISIONS.
10.1. AMENDMENTS, CONSENTS, WAIVERS, SPECIAL PROVISIONS RELATING TO
TUDOR AND BAIN, ETC.
(a) This Agreement or any provision hereof may be amended or terminated
by the agreement of the Company and a majority of the holders of outstanding
shares of Series D Preferred Stock, and the observance of any provision of this
Agreement that is for the benefit of the Purchasers may be waived (either
generally or in a particular instance, and either retroactively or
prospectively), and any consent, approval, or other action to be given or taken
by the Purchasers pursuant to this Agreement may be given or taken by the
consent of a majority of the holders of outstanding shares of Series D Preferred
Stock; PROVIDED, HOWEVER, that any Purchaser may in writing waive, as to itself
only, the benefits of any provision of this Agreement.
(b) No course of dealing between the Company and any of the Purchasers
will operate as a waiver of any of the Company's or any Purchaser's rights under
this Agreement. No waiver of any breach or default hereunder will be valid
unless in a writing signed by the waiving party. No failure or other delay by
any person in exercising any right, power, or privilege hereunder will be or
operate as a waiver thereof, nor will any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege.
(c) The board member of the Company designated by any Tudor Entity or
Tudor Entities may, in all instances and with respect to all matters, exercise
or waive the rights of any Tudor Entity as a holder of shares of Series D
Preferred Stock. The board member of the Company designated by Bain Affiliates
pursuant to Section 1(b) of the Stockholders Agreement, if any, may, in all
instances and with respect to all matters, exercise or waive the rights of any
Bain Affiliate as a holder of shares of Series D Preferred Stock.
(d) For purposes of determining whether, for any provision hereof, the
number of shares of Common Stock or Purchased Securities held by a Tudor Entity
is sufficient to meet a required threshold, such Tudor Entity shall be deemed to
hold the number of Purchased Securities or shares of Common Stock issued or
issuable upon conversion or
<PAGE>
-34-
exchange, directly or indirectly, of the Purchased Securities, as the case may
be, held by such Tudor Entity and all other Tudor Entities and all of their
respective Affiliates.
10.2. NOTICES. All notices, requests, payments, instructions or other
documents to be given hereunder will be in writing or by written
telecommunication, and will be deemed to have been duly given if (i) delivered
personally (effective upon delivery), (ii) mailed by certified mail, return
receipt requested, postage prepaid (effective five business days after
dispatch), (iii) sent by a reputable, established courier service that
guarantees overnight delivery (effective the next business day) or (iv)
dispatched by telecopier (if the telecopy is in complete, readable form,
effective upon dispatch), addressed as follows (or to such other address as the
recipient party may have furnished to the sending party for the purpose pursuant
to this Section 10.2):
(a) If to the Company:
Art Technology Group Inc.
101 Huntington Avenue, Floor 22
Boston, MA 02199
Attention: Mr. Jeet Singh
Telecopier No. 617-859-1211
with copies sent at the same time and by the same means to:
Hale & Dorr LLP
60 State Street
Boston, MA 02109
Attention: David A. Westenberg, Esq.
Telecopier No. 617-526-5000
(b) If to any Purchaser, to the address of such Purchaser set forth in
the register referred to in Section 6.1 of this Agreement,
with a copy sent at the same time and by the same means to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attention: Victor J. Paci, Esq.
Telecopier No. (617) 951-8736
10.3. COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered will be an
original, but all of which together will constitute one and the same instrument.
In pleading or proving this Agreement, it will not be necessary to produce or
account for more than one such counterpart.
<PAGE>
-35-
10.4. CAPTIONS. The captions of sections or subsections of this
Agreement are for reference only and will not affect the interpretation or
construction of this Agreement.
10.5. BINDING EFFECT AND BENEFITS. This Agreement will bind and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as otherwise provided in this Agreement, the
provisions of this Agreement that are for the Purchasers' benefit will inure to
the benefit of all permitted transferees of Purchased Securities, and the
applicable provisions of this Agreement that bind the Purchasers will bind all
transferees of Purchased Securities. Nothing in this Agreement is intended to or
will confer any rights or remedies on any person other than the parties hereto
and their respective successors and permitted assigns.
10.6. ASSIGNMENT. This Agreement and the rights and obligations
hereunder may not be assigned by the Company without the written consent of a
majority of the holders of outstanding shares Series D Preferred Stock.
Notwithstanding the provisions set forth in Section 7, this Agreement and the
rights and obligations hereunder and the Purchased Securities may be transferred
by each of the Purchasers in its sole discretion at any time, in whole or in
part, including without limitation transfers to Affiliates or Affiliated Groups,
without the consent of any other party hereto.
10.7. CONSTRUCTION. The language used in this Agreement is the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against either party.
10.8. FURTHER ASSURANCES. From time to time on and after the Closing
Date, the Company will promptly execute and deliver all such further instruments
and assurances, and will promptly take all such further actions, as the
Purchasers or any of them may reasonably request in order more effectively to
effect or confirm the transactions contemplated by this Agreement and/or any of
the Ancillary Agreements and to carry out the purposes hereof and thereof.
10.9. SEVERABILITY. No invalidity or unenforceability of any section of
this Agreement or any portion thereof will affect the validity or enforceability
of any other section or the remainder of such section.
10.10. EQUITABLE RELIEF. Each of the parties acknowledges that any
breach by such party of his, her, or its obligations under this Agreement would
cause substantial and irreparable damage to one or more of the other parties and
that money damages would be an inadequate remedy therefor. Accordingly, each
party agrees that the other parties or any of them will be entitled to an
injunction, specific performance, and/or other equitable relief to prevent the
breach of such obligations.
10.11. ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules hereto and the Ancillary Agreements, contains the entire understanding
and agreement among the parties, or between or among any of them, and supersedes
any prior understandings or agreements between or among any of them, with
respect to the subject
<PAGE>
-36-
matter hereof. Notwithstanding the foregoing or any other provision of this
Agreement or the Ancillary Agreements, nothing herein or therein will be deemed
to terminate or supersede any other agreements.
10.12 PUBLICITY. The Purchasers or any of them will have the right to
publicize their investment in the Company as contemplated hereby by means of a
"tombstone" advertisement or other customary advertisement in newspapers and
other media.
10.13. GOVERNING LAW. This Agreement will be governed by and
interpreted and construed in accordance with the internal laws of the
Commonwealth of Massachusetts, as applied to agreements under seal made, and
entirely to be performed, within Massachusetts.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
<PAGE>
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IN WITNESS WHEREOF, the Company and each of the Purchasers have
executed this Agreement as an agreement under seal on and as of the date first
above written.
COMPANY: ART TECHNOLOGY GROUP, INC.
By /s/ MAHENDRAJEET SINGH
------------------------------------------
Name:
Title: President/CEO
FOUNDERS:
/s/ MAHENDRAJEET SINGH
--------------------------------------------
Mahendrahjeet Singh
/s/ JOSEPH CHUNG
--------------------------------------------
Joseph Chung
PURCHASERS: TUDOR PRIVATE EQUITY FUND, L.P.
By /s/ ROBERT P. FORLENZA
-----------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Global Trading LLC as General
Partner
RAPTOR GLOBAL FUND, L.P.
By /s/ ROBERT P. FORLENZA
-----------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Investment Corporation as
General Partner
<PAGE>
-38-
RAPTOR GLOBAL FUND, LTD.
By /s/ ROBERT P. FORLENZA
-----------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Investment Corporation as Investment
Advisor
<PAGE>
DISCLOSURE SCHEDULE
2.5 Capitalization
2.5(a) See Stockholder Lists attached hereto. The number of Common Stock
equivalents corresponding to the share amount for each Derivative
Security reflects all adjustments to date of the rate at which such
Derivative Security is convertible into or exercisable for Common
Stock. No such adjustment will be made in connection with any issuance
of the purchased shares or the warrants.
2.5(b)
A. The Company has reserved a total of 2,674,512 shares of Common Stock
for issuance pursuant to the Company's 1996 Stock Option Plan (the
"Plan"), as amended to date. Options to purchase 1,664,133 shares of
Common Stock are outstanding under the Plan.
B. Immediately prior to the Closing, Softbank Ventures Inc. ("Softbank")
holds a Performance Warrant to purchase of up to 425,592 shares of
Series B Convertible Preferred Stock at an exercise price of $7.05.
Under this warrant as issued, the actual number of shares issuable on
exercise of this warrant is generally based on the volume of Softbank's
business with the Company (if any) at the time of exercise as a
proportion of the Company's other business. As issued, this warrant is
exercisable until February 28, 1999 or the closing of an initial public
offering of the Company's Common Stock, whichever occurs first. At the
Closing, this warrant is expected to be exchanged for and superseded by
an Amended and Restated Warrant dated as of the date hereof, which will
be exercisable in full upon issuance for 425,532 shares of Series B
Convertible Preferred Stock at an exercise price of $.1385 per share
and will expire upon the earlier of five years from the date of grant,
the closing of an initial public offering of the Company's Common Stock
or the closing of a merger, liquidation, sale of all or substantially
all of the Company's assets or other similar event.
C. The Conversion Price of the Company's Series B Convertible Preferred
Stock has been reduced in connection with issuances of shares of Series
C Preferred Stock, increasing the number of shares of Common Stock that
would otherwise be issuable upon conversion of the Series B Convertible
Preferred Stock. The Conversion Price of the Company's Series C
Convertible Preferred Stock was reduced on April 1, 1998 in accordance
with the terms of the Series C Convertible Preferred Stock, increasing
the number of shares of Common Stock that would otherwise be issuable
upon conversion of such Series C Convertible Preferred Stock. See
Section 2.5(a) of this Disclosure Schedule.
D. The Company has an oral agreement with Mr. Thomas Matlack (the "Matlack
Agreement"), a shareholder and director of the Company, pursuant to
which Mr. Matlack is providing strategic and financial consulting
services to the Company for a one-year period ending November 12, 1998
in consideration for the grant of an option to purchase 130,000 shares
of Common Stock at an exercise price of $.75 per share, to be
exercisable in full on November 12, 1998. In addition, the Company has
agreed to use its best efforts to ensure that Mr. Matlack continues to
be elected to the Board of Directors of the Company until an initial
public offering of the Company or his death or resignation. This
agreement terminates on November 12, 1998.
E. [The Company has agreed that, if the Company enters into an exclusive
arrangement with an investment bank or investment advisor, the Company
will ensure that such arrangement does not preclude the Company's
existing shareholders of Series C Stock from making additional equity
investments in the Company as mutually agreed by such stockholders and
the Company.]
<PAGE>
F. The Company has granted a five-year warrant to Silicon Valley Bank
("SVB") in connection with the extension of credit by SVB to the
Company (see below). Such warrant grants SVB the right to purchase up
to 46,296 shares of Series C Preferred Stock of the Company at an
exercise price of $1.62 per share. The Company has granted SVB certain
rights with respect to the registration of the Common Stock issuable
upon conversion of the shares subject to this warrant. Under certain
circumstances, if the Company is acquired and the SVB warrant is not
assumed by the acquirer, the Company may be required to repurchase the
shares under the SVB warrant.
G. The Company has granted a five-year warrant to SVB in connection with
the extension of credit by SVB to the Company (see below). Such warrant
grants SVB the right to purchase up to 10,000 shares of Series C
Preferred Stock of the Company at an exercise price of $.01 per share.
The Company has granted SVB certain rights with respect to the
registration of the Common Stock issuable upon conversion of the
preferred stock subject to this warrant. Under certain circumstances,
if the Company is acquired and the SVB warrant is not assumed by the
acquiror, the Company may be required to repurchase the shares under
the SVB warrant.
2.5(c)
A. Prior to the filing of the Amended and Restated Certificate of
Incorporation, and thereafter, subject to the rights of holders of
Series D Preferred Stock, the Company's Series B Convertible Preferred
Stock may be redeemed for $7.05 per share plus accrued but unpaid
dividends on each December 31 of 2001 (up to 25% of such shares), 2002
(up to 50% of such shares), 2003 (up to 75% of such shares) and 2004
(up to 100% of such shares).
B. Agreements.
1. Stock Purchase Agreement dated as of July 1995, among the
Company, Madanjeet Singh and B.U. Chung.
2. Stock Restriction Agreement dated as of December 31, 1991
between the Company and Mahendrajeet Singh.
3. Stock Restriction Agreement dated as of December 31, 1991
between the Company and Joseph T. Chung.
4. Series B Stock Purchase Agreement dated as of December 23,
1996, between the Company and Softbank Ventures, Inc.
5. Stockholders' Agreement dated as of December 23, 1996 among
the Company, Softbank Ventures, Inc. and the other parties
named therein. This agreement is being superseded by the
Stockholders Agreement dated as of the date hereof among the
Company and the Stockholders (as defined therein).
6. Series C Preferred Stock Purchase Agreement dated as of
November 12, 1997 among the Company and the Purchaser (as
defined therein).
7. Series C Preferred Stock Purchase Agreement dated as of
December 8, 1997 among the Company and the Purchaser (as
defined therein).
8. Amended and Restated Registration Rights agreement dated as of
December 8, 1997, as amended, among the Company and the
Purchaser (as defined therein). This
2
<PAGE>
agreement is being superseded by the Registration Rights
Agreement dated as of the date hereof among the Company and
the Holders (as defined therein).
9. Series C Preferred Stock Purchase Agreement dated as of April
16, 1998 between the Company and Scott A. Jones.
2.9 Absence of Certain Changes
A. Paul Shorthose, a key employee of the Company, has announced that he
will terminate his employment with the Company.
B. The Company entered into a Capital Lease Agreement with IBM for
personal computer equipment totaling $43,491. The term of the agreement
is 36 months with monthly principal and interest payments of $1,554.
This computer equipment was placed in service during July 1998 with
payments beginning August 1, 1998.
C. The Company intends to issue a Company-wide stock option grant to
qualified individuals for prior service. This grant is estimated to
total 179,656 shares and is expected to be voted on by the Board of
Directors in August 1998.
D. The Company has delayed payments due to substantially all of its
creditors, including employees, and is currently unable to meet its
obligations as they become due. See the attached schedule of payables.
E. The Company has continued to incur operating losses.
F. On June 26, 1998, Scott A. Jones, a stockholder and member of the Board
of Directors, advanced the Company $300,000 for temporary working
capital. This amount was subsequently repaid on July 8, 1998.
G. On July 2, 1998, the Company modified its existing credit facility with
SVB to the aggregate amount of $2,450,000 comprised of a $700,000 term
loan and a $1,750,000 revolving line of credit, each bearing interest
at 1.0% and 1.5%, respectively, above SVB's prime lending rate. The
term loan is payable in 36 monthly installments beginning January 1998,
maturing June 29, 2001. All principal and interest on the line of
credit are due on July 1, 1999. The Company has drawn $1,400,000 under
the line of credit.
H. As of July 17, 1998, the Company was in default with respect to its
credit facility with SVB. To date, the Company has received no notices,
correspondence or other written materials regarding SVB's enforcement
of its remedies for such default and is in discussions with SVB
regarding SVB's forbearance on enforcement of its rights under the
credit facility pending the Closing.
I. The Company is in the process of executing a Letter of Credit from SVB
totaling $65,000 for the benefit of Diners Club International, for
coverage in case of default on the Company's corporate credit card.
2.10 Property and Assets
2.10(a) All of the assets of the Company are subject to liens pursuant to a
lending facility with SVB. Additional liens on certain of the Company's
assets are in favor of Sanwa Leasing Corporation, AT&T Capital Leasing,
IBM Credit Corporation, GE Capital and Apple Commercial Credit.
3
<PAGE>
2.10(c)
A. The Company leases its principal offices at 101 Huntington Avenue,
Boston, Massachusetts at $55,757 per month until September 30, 2000.
B. See Attachment I, setting forth a list of equipment leases to which the
Company is a party (collectively, the "Equipment Leases").
2.11 Indebtedness
A. Immediately prior to the Closing, the Company has a credit facility
with SVB totaling $2,450,000, under which $388,889 is outstanding under
a term loan and $1,400,000 is outstanding under a line of credit. After
the Closing, a term loan totaling $388,889 will continue to be
outstanding.
B. After the Closing, the Company will continue to have capital lease
obligations to Sanwa Leasing Corporation, AT&T Capital Leasing and IBM
Credit Corporation, GE Capital, Apple Commercial Credit totaling
$211,578. After the Closing, the Company intends to consolidate these
existing lease obligations into one lease agreement on favorable terms
to the Company and or pay-off the existing balances.
C. As of July 17, 1998, the Company was in default with respect to its
credit facility with SVB. To date, the Company has received no notices,
correspondence or other written materials regarding SVB's enforcement
of its remedies for such default and is in discussions with SVB
regarding SVB's forbearance on enforcement of its rights under the
credit facility pending the Closing.
2.13 Tax Matters
A. The Company has been in arrears with respect to the payment of certain
payroll taxes, as described under Section 2.23 of this Disclosure
Schedule. The Company has reserved $50,000 against any penalties in
connection with such arrearage. No notice of any such penalty has been
received to date.
B. The Company has requested, and has been granted, an extension until
September 15, 1998 to file its federal and Massachusetts corporate tax
returns for the year ended December 31, 1997.
2.14 Litigation, etc.
A. The Company has been named as a defendant in a Statement of Small
Claim. The plaintiff, Skyline Credit Ride, Inc. is seeking $1,183.50
plus $19 in court cost for services rendered in September 1997. The
plaintiff has agreed to settle this claim for $1,000 payable on or
before August 15, 1998.
B. In a letter to the Company dated February 6, 1998, Weblogic, Inc.
("Weblogic") alleged that the Company is in default under the terms of
a license agreement with respect to certain code previously
incorporated in certain of the Company's products. The Company believes
that it is not in default under the license agreement and has
communicated this to Weblogic. No further communication has been
received from Weblogic to date. None of the code covered by the license
from Weblogic is now incorporated in any of the Company's products.
4
<PAGE>
2.16 Labor Relations. The Company is not currently in arrears with respect
to the payment of payroll withholding taxes or employee payroll,
although the Company has recently been delinquent in making such
payments. See Section 2.23 of this Disclosure Schedule.
2.17 Material Contracts
A. The Company has entered a lease with Boston Properties, Inc. to lease
7,818 square feet of office space at 101 Huntington Street, Boston,
Massachusetts at the rate of $40.00 per square foot commencing on
August 1, 1998 and expiring on September 30, 2000.
B. See agreements listed in Part B of Section 2.5(c) of this Disclosure
Schedule.
C. The Company's standard forms of license agreement pursuant to which its
products are distributed to resellers and end-users contain customary
indemnification against third-party infringement claims.
D. The Company's Equipment Leases contain provisions indemnifying the
lessor.
E. The Matlack Agreement.
F. See Attachment II, setting forth a list of the Company's consulting
agreements with third parties.
G. The Company has entered into confidentiality agreements with each of
its employees, copies of which have been made available to the
Purchasers and their counsel for review.
H. The Company is not a party to any noncompetition or
assignment-of-invention agreements with any of its employees other than
as contemplated in Section 1.5(e)(5)(ii) and (iii) of the Agreement.
2.18 Employee Benefits Plan
A. The Company is not currently in arrears with respect to the payment of
401(k) contributions, although the Company has recently been delinquent
in making such remittance. Governmental authorities could impose
penalties on the Company with respect to such past delinquencies. The
Company was delinquent on four occasions with payments ranging from 29
days to 4 days late. This information was reported to the plan
administrator on February 6, 1998 in conjunction with the preparation
of Form 5500. The Company has reserved $25,000 against any penalties in
connection with the late payments. No notice of any such penalty has
been received to date. The trustee under the 401(k) Plan is
Massachusetts Financial Services.
2.20 Proprietary Information
A. See Attachment III, setting forth a list of Proprietary Information.
B. In the ordinary course of its business, the Company grants licenses to
customers pursuant to a standard form of software license agreement.
Also as part of the ordinary course of its business, the Company
negotiates various types of licenses to clients for the use,
modification, resale or other rights with respect to the Company's
software products or technologies. These licenses are negotiated on a
case-by-case basis, and may include provisions for the joint ownership
of intellectual property, exclusive or non-exclusive permanent licenses
or licenses to source code.
5
<PAGE>
C. Sybase, Inc. may be using a trademark similar or identical to the
Company's DYNAMO trademark. The Company has not pursued formal legal
action with respect to such use.
D. See disclosure in Section 2.14 of this Disclosure Schedule regarding
Weblogic.
E. On June 23, 1998, a current employee of the Company, formerly employed
by BroadVision Inc., received a letter from counsel for BroadVision
requesting confirmation that he is acting in compliance and will remain
in compliance with his obligations of confidentiality to BroadVision.
On July 24, 1998, the employee delivered such confirmation to
BroadVision.
F. On July 21, 1998, the Company received a letter from counsel for
Brightware, Inc., claiming that the Company's use of the term ART in
the Company's business infringed on Brightware's trademark rights and
demanding that the Company cease use of that term in its business. The
Company is currently considering its response to Brightware.
2.21 Insurance. See Attachment IV, setting forth information with respect to
insurance policies.
2.23 Employees
A. The Company is not currently in arrears with respect to the payment of
payroll withholding taxes or employee payroll, although the Company was
delinquent in making certain of such payments during the four-month
period ended November 12, 1997. Governmental taxing authorities could
impose penalties on the Company with respect to such past
delinquencies. There can be no assurance that the Company will not, in
the future, again become delinquent in the payment of payroll
withholding taxes and/or employee payroll.
B. See Attachment V setting forth employment information regarding the
Company's five most highly compensated employees.
6
W<PAGE>
EXHIBIT A
PURCHASER SCHEDULE
<TABLE>
<CAPTION>
- ----------------------------------------- ------------------ ---------------- ----------------- --------------------
NUMBER OF NUMBER OF
NUMBER OF NON-VESTING VESTING AGGREGATE PURCHASE
PURCHASER PURCHASED SHARES WARRANT SHARES WARRANT SHARES PRICE
- ----------------------------------------- ------------------ ---------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Tudor Private Equity Fund, L.P. 1,328,125 27,961 810,834 $4,250,000.02
- ----------------------------------------- ------------------ ---------------- ----------------- --------------------
Raptor Global Fund, L.P. 58,594 1,234 35,772 $187,500.82
- ----------------------------------------- ------------------ ---------------- ----------------- --------------------
Raptor Global Fund, Ltd. 175,781 3,700 107,316 $562,499.22
- ----------------------------------------- ------------------ ---------------- ----------------- --------------------
TOTAL: 1,562,500 32,895 953,922 $5,000,000.06
- ----------------------------------------- ------------------ ---------------- ----------------- --------------------
</TABLE>
<PAGE>
Exhibit B to the Purchase Agreement
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED.
No. C-___ Dated: August __, 1998
ART TECHNOLOGY GROUP, INC.
COMMON STOCK
PURCHASE WARRANT
(NON-VESTING)
THIS IS TO CERTIFY THAT, for value received, ____________________ (the
"INITIAL WARRANT Holder"), and its registered successors and permitted assigns
are entitled, subject to the terms and conditions set forth below, to purchase
from ART TECHNOLOGY GROUP, INC., a Delaware corporation (the "CORPORATION"), at
any time or from time to time on and after the date hereof and prior to 5:00
P.M., Boston, Massachusetts time, on the Expiration Date (as defined in Section
1 below), all or any portion of the Warrant Shares (as defined in Section 1), at
a purchase price per share equal to the Exercise Price (as defined in Section 1
below). The number and character of the Warrant Shares and the Exercise Price
are subject to adjustment as provided herein.
This Common Stock Purchase Warrant (this "WARRANT") is one of the
Common Stock Purchase Warrants evidencing the right to purchase shares of the
Common Stock, issued by the Corporation to the Purchasers, as defined in and
pursuant to the terms of that certain Series D Senior Participating Convertible
Preferred Stock Purchase Agreement, dated as of the date hereof (the "SERIES D
PURCHASE AGREEMENT").
1. DEFINITIONS. As used in this Warrant, the following terms shall have
the respective meanings set forth below or elsewhere in this Warrant as referred
to below:
"COMMON STOCK" shall mean shares of the Common Stock of the
Corporation, $.01 par value per share.
<PAGE>
-2-
"CORPORATION" shall mean Art Technology Group, Inc. and/or any Person
that shall succeed to, or assume the obligations hereunder of, Art Technology
Group, Inc.
"DERIVATIVE SECURITIES" shall mean (i) all shares of stock and other
securities that are, directly or indirectly, convertible into or exchangeable
for shares of Common Stock and (ii) all options, warrants and other rights to
acquire, directly or indirectly, shares of Common Stock or securities, directly
or indirectly, convertible into or exchangeable for shares of Common Stock.
"EXERCISE DATE" shall have the meaning set forth in Section 2.2 hereof.
"EXERCISE PRICE" shall mean the Initial Exercise Price, as adjusted
from time to time pursuant to the terms of this Warrant.
"EXPIRATION DATE" shall mean August __, 2008, unless terminated earlier
pursuant to the terms hereof.
"FAIR MARKET VALUE" shall mean (i) the last reported sale price per
share of Stock on the Nasdaq-NMS or any national securities exchange in which
such Stock is quoted or listed, as the case may be, on the date immediately
preceding the Exercise Date or, if no such sale price is reported on such date,
such price on the next preceding business day in which such price was reported,
or (ii) if such Stock is not quoted or listed on the Nasdaq-NMS or any national
securities exchange, the fair market value of a share of such Stock, as
determined in good faith by the Board of Directors of the Corporation and based
upon the fair market value of the Corporation as a whole, on a going concern
basis, using customary and appropriate valuation methods and the most recent
audited financial statements of the Corporation (unless the date of such audited
financial statements is more than six (6) months old, in which case another
audit shall be conducted at the expense of the Corporation and shall be used for
such purpose) and NOT taking into account any discount for minority ownership or
restrictions on transfer of the capital stock of the Corporation.
"HOLDER" shall mean, as applicable, (i) the Initial Warrant Holder,
(ii) any successor of the Initial Warrant Holder, or (iii) any other holder of
record of this Warrant or any portion thereof to whom this Warrant or any
portion thereof shall have been transferred in accordance with the provisions of
Section 9 hereof.
"INITIAL EXERCISE PRICE" shall mean an amount equal to $0.16 per share.
"INITIAL WARRANT HOLDER" shall have the meaning set forth in the first
paragraph of this Warrant.
"INITIAL WARRANT SHARES" shall mean _________ shares of Common Stock.
<PAGE>
-3-
"ISSUE DATE" shall mean August __, 1998.
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"PREFERRED STOCK" shall mean the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
all other capital stock of the Corporation having a preference on dissolution or
liquidation of the Corporation.
"QUALIFIED PUBLIC OFFERING" shall mean a public offering of shares of
Common Stock pursuant to an effective registration statement on Form S-1, or
successor form, of the Securities and Exchange Commission, pursuant to which the
per share price to the public is not less than $8.00 (such amount to be subject
to proportionate adjustment in the event of any stock dividend, stock split,
combination of shares, reorganization, recapitalization, reclassification or
other similar event occurring with respect to the Common Stock after the Issue
Date) and the gross proceeds to the Corporation are not less than $20,000,000.
"REGISTRATION RIGHTS AGREEMENT" shall mean that certain Registration
Rights Agreement, dated as of the date hereof, by and among the Corporation,
Tudor Private Equity Fund, L.P., Raptor Global Fund Ltd., Raptor Global Fund
L.P. and the other persons listed therein.
"REGISTRABLE SECURITIES" shall have the meaning ascribed to it in the
Registration Rights Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES C PREFERRED STOCK" shall mean the Series C Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES D PREFERRED STOCK" shall mean Series D Senior Participating
Convertible Redeemable Preferred Stock of the Corporation, $.01 par value per
share.
"STOCK" shall mean (i) Common Stock, (ii) capital stock of the
Corporation (other than Common Stock) or of any other Person or any other
securities of the Corporation or
<PAGE>
-4-
of any other Person that the Holder is entitled to receive, or receives, upon
exercise of this Warrant, in lieu of or in addition to Common Stock, and/or
(iii) capital stock of the Corporation (other than Common Stock) or of any other
Person or any other securities of the Corporation or of any other Person that
may be issued in replacement of, substitution, exchange or redemption for, or
upon reclassification or conversion of, Common Stock or any other Stock, in each
case whether as a result of a reorganization, reclassification, merger,
consolidation or sale of substantially all of the assets of the Corporation.
"WARRANT" shall have the meaning set forth in the second paragraph of
this Warrant.
"WARRANT SHARES" shall mean, at any time, the Initial Warrant Shares
after giving effect to the number of shares of Stock previously purchased by the
Holder pursuant to any and all exercises of this Warrant prior to such time and
after giving effect to all adjustments with respect to the number of Warrant
Shares purchaseable hereunder as provided for herein, including, without
limitation, those set forth in Section 4 hereof, prior to such time.
2. EXERCISE OF WARRANT.
2.1 METHOD OF EXERCISE. Subject to and upon all of the terms and
conditions set forth in this Warrant, the Holder may exercise this Warrant, in
whole or in part with respect to any Warrant Shares, at any time and from time
to time during the period commencing on the date hereof and ending at 5:00 p.m.,
Boston, Massachusetts time, on the Expiration Date, by presentation and
surrender of this Warrant to the Corporation at its principal office, together
with (a) a properly completed and duly executed subscription form, in the form
attached hereto, which subscription form shall specify the number of Warrant
Shares for which this Warrant is then being exercised, and (b) payment of the
aggregate Exercise Price payable hereunder in respect of the number of Warrant
Shares being purchased upon exercise of this Warrant. Payment of such aggregate
Exercise Price shall be made either (i) in cash or by money order, certified or
bank cashier's check or wire transfer (in each case in lawful currency of the
United States of America), (ii) by cancellation of indebtedness owing from the
Corporation to the Holder, (iii) by the Holder surrendering a number of Warrant
Shares having a Fair Market Value on the date of exercise equal to, greater than
(but only if by a fractional share) or less than (if surrendered pursuant to
(iv) below) the required aggregate Exercise Price, in which case the Holder
would receive the number of Warrant Shares to which it would otherwise be
entitled upon such exercise, less the surrendered shares, or (iv) any
combination of the methods described in the foregoing clauses (i), (ii) or
(iii).
2.2 EFFECTIVENESS OF EXERCISE; OWNERSHIP. Each exercise of this Warrant
by the Holder shall be deemed to have been effected immediately prior to the
close of business on the date upon which all of the requirements of Section 2.1
hereof with
<PAGE>
-5-
respect to such exercise shall have been complied with in full (each
such date, an "EXERCISE DATE"). On the applicable Exercise Date with respect to
any exercise of this Warrant by the Holder, the Corporation shall be deemed to
have issued to the Holder, and the Holder shall be deemed to have become the
holder of record and legal owner of, the number of Warrant Shares being
purchased upon such exercise of this Warrant, notwithstanding that the stock
transfer books of the Corporation shall then be closed or that certificates
representing such number of Warrant Shares being purchased shall not then be
actually delivered to the Holder.
2.3 DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant, and in any event within ten (10) days
thereafter, the Corporation, at its expense and in accordance with applicable
securities laws, will cause to be issued in the name of and delivered to the
Holder, or as the Holder may direct (subject in all cases, to the provisions of
Section 9 hereof), a certificate or certificates for the number of Warrant
Shares purchased by the Holder on such exercise, PLUS, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the Fair Market Value.
2.4 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant Shares
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable, free of all liens, taxes, charges and other encumbrances or
restrictions on sale (other than those set forth herein) and free and clear of
all preemptive rights.
2.5 FRACTIONAL SHARES. No fractional shares of Stock or scrip
representing fractional shares of Stock shall be issued upon the exercise of
this Warrant. With respect to any fraction of a share of Stock called for upon
any exercise hereof, the Corporation shall make a cash payment to the Holder as
set forth in Section 2.3 hereof.
2.6 ISSUANCE OF NEW WARRANTS; CORPORATION ACKNOWLEDGMENT. Upon any
partial exercise of this Warrant, the Corporation, at its expense, will
forthwith and, in any event, within ten (10) days after such partial exercise
issue and deliver to the Holder a new warrant or warrants of like tenor,
registered in the name of the Holder, exercisable, in the aggregate, for the
balance of the Warrant Shares. Moreover, the Corporation shall, at the time of
any exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to the Holder any rights to which
the Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant; PROVIDED, HOWEVER, that if the Holder shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Corporation to afford to the Holder any such rights.
2.7 PAYMENT OF TAXES AND EXPENSES. The Corporation shall pay any
recording, filing, stamp or similar tax which may be payable in respect of any
transfer involved in the issuance of, and the preparation and delivery of
certificates (if applicable) representing, (i) any Warrant Shares purchased upon
exercise of this Warrant and/or (ii)
<PAGE>
-6-
new or replacement warrants in the Holder's name or the name of any transferee
of all or any portion of this Warrant.
3. REGISTRATION AND OTHER RIGHTS.
(A) REGISTRATION RIGHTS AGREEMENT. The Holder of this Warrant
shall have the right to cause the Corporation to register any and all Warrant
Shares under the Securities Act and under any blue sky or securities laws of any
jurisdictions within the United States, at the time and in the manner specified
and as provided for in the Registration Rights Agreement, and any and all
Warrant Shares shall be deemed to be Registrable Securities for all purposes of
the Registration Rights Agreement.
(B) SERIES D PURCHASE AGREEMENT; STOCKHOLDERS AGREEMENT.
Subject to Section 10.4 of this Warrant, for the purposes of the Series D
Purchase Agreement, and the Stockholders Agreement (as such term is defined in
the Series D Purchase Agreement), the shares of Common Stock issuable upon
exercise of this Warrant shall be included for the purposes of determining the
number of shares of Common Stock held by such Holder for all purposes of such
agreements.
(C) REDEMPTION. The Holder of this Warrant shall be entitled
to cause the Corporation to redeem this Warrant upon sixty (60) days written
notice to the Corporation (i) at any time after August __, 2003 or (ii) at any
time that such Holder also requests the Corporation to redeem any of such
Holder's shares of Series D Preferred Stock pursuant to the terms of the Series
D Preferred Stock contained in the Amended and Restated Certificate of
Incorporation (the "CERTIFICATE OF DESIGNATIONS"), upon the same terms and
conditions applicable to redemption of shares of Series D Preferred Stock
pursuant to the Certificate of Designations; PROVIDED, HOWEVER, that the
Corporation shall redeem this Warrant for an amount equal to the product of (a)
the then current number of Warrant Shares, MULTIPLIED BY (b) the excess of (i)
the then current Fair Market Value of a share of Common Stock of the
Corporation, OVER (ii) the then current Exercise Price.
4. ADJUSTMENTS.
4.1 ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
(a) In the event that, at any time and from time to time after
the Issue Date, the Corporation shall (A) issue any additional shares of Stock
as a dividend or distribution on its outstanding stock or options, warrants or
other rights to purchase, directly or indirectly, Stock as a dividend or
distribution on its outstanding stock or securities convertible, directly or
indirectly, into Stock as a dividend or distribution on its outstanding stock
(other than shares of Stock issued upon exchange, exercise or conversion of the
Preferred Stock or Purchased Securities (as defined in the Purchase Agreement)),
(B) subdivide its outstanding shares of Stock into a greater number of shares of
Stock or (C)
<PAGE>
-7-
combine its outstanding shares of Stock into a smaller number of shares of
Stock, then and in each such event, (x) the Exercise Price shall, simultaneously
with the happening of such event, be adjusted by multiplying the then current
Exercise Price by a fraction, (i) the numerator of which shall be the number of
shares of Stock outstanding immediately prior to such event on a fully-diluted
basis, assuming exercise in full of all options, warrants or other rights to
purchase Stock, directly or indirectly, outstanding immediately prior to such
event and conversion into or exchange for Stock, directly or indirectly, of all
securities convertible into or exchangeable for Stock outstanding immediately
prior to such event, each in accordance with their terms, and (ii) the
denominator of which shall be the number of shares of Stock outstanding
immediately after such event on a fully-diluted basis, assuming exercise in full
of all options, warrants or other rights to purchase Stock, directly or
indirectly, outstanding immediately after such event and conversion into or
exchange for Stock, directly or indirectly, of all securities convertible into
or exchangeable for Stock outstanding immediately after such event, each in
accordance with their terms, and the product so obtained shall thereafter be the
Exercise Price then in effect, and (y) the number of Warrant Shares shall be
adjusted by increasing or decreasing, as the case may be, the number of shares
of Stock included within the Warrant Shares by the percentage increase or
decrease in the total number of shares of Stock outstanding immediately after
such event as compared to the total number of shares of Stock outstanding
immediately prior to such event and the result so obtained shall be the number
of Warrant Shares then in effect.
(b) The Exercise Price and the number of Warrant Shares, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4.1
4.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER. In the
event that, at any time or from time to time after the Issue Date, the
Corporation shall (a) effect a reorganization, (b) consolidate with or merge
into any other Person, or (c) sell or transfer all or substantially all of its
properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued, from treasury, or any
combination thereof) to any other Person under any plan or arrangement
contemplating the reorganization, consolidation or merger, sale or transfer, or
dissolution of the Corporation, then, in each such case, the Holder, upon the
exercise of this Warrant as provided in Section 2 hereof at any time or from
time to time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution (subject to the limitation
contained in Section 4.5, if applicable), as the case may be, shall receive, in
lieu of the Warrant Shares issuable on such exercise immediately prior to such
consummation or such effective date, as the case may be, the Stock and property
(including cash) to which the Holder would have been entitled upon the
consummation of such reorganization, consolidation or merger, or sale or
transfer, or in connection with such dissolution, as the case may be, if the
Holder had so exercised this Warrant immediately prior thereto (assuming the
payment by the Holder of the Exercise Price therefor as required hereby in a
form permitted hereby, which payment shall be included in the assets of the
Corporation for the purposes of determining the
<PAGE>
-8-
amount available for distribution), all subject to successive adjustments
thereafter from time to time pursuant to, and in accordance with, the provisions
of this Section 4.
4.3 ADJUSTMENTS FOR DILUTIVE ISSUANCES; PERFORMANCE MILESTONES;
RECLASSIFICATION
The number of Warrant Shares to which the Holder would otherwise be
entitled upon exercise of this Warrant, until and as adjusted from time to time
pursuant to this Section 4.3 or any other provision of this Warrant, shall be
equal to the product obtained by multiplying (y) the number of Warrant Shares
which such Holder is then entitled to purchase hereunder, BY (z) the Applicable
Conversion Rate (determined below).
Notwithstanding the foregoing, if the Corporation fails to employ a
Chief Operating Officer, with the intent to promote such Chief Operating Officer
to Chief Executive Officer, or a Chief Executive Officer, each of whom meet the
employment requirements set forth in the Series D Purchase Agreement, prior to
one (1) year after the Issue Date, then the number of Warrant Shares to which
the holder hereof shall be entitled upon exercise of this Warrant shall be equal
to the product obtained by multiplying (x) the number of Warrant Shares which
such Holder is then entitled to purchase hereunder BY (y) the Applicable
Conversion Rate (as determined below) BY (z) 1.25.
The conversion rate in effect at any time (the "APPLICABLE CONVERSION
RATE") shall equal the quotient obtained by DIVIDING (A) $3.20 (subject to
proportionate adjustment for any stock dividend, stock split, combination of
shares, reorganization, recapitalization, reclassification or other similar
event occurring with respect to the Series D Preferred Stock after the Issue
Date), BY (B) the applicable conversion value then in effect (the "APPLICABLE
CONVERSION VALUE"), calculated as hereinafter provided. The Applicable
Conversion Value in effect as of the Issue Date, and until adjusted in
accordance with the provisions of this Section 4.3, shall be $3.20.
(A) DILUTIVE ISSUANCES.
(i) In the event that the Corporation issues or is deemed to
issue any additional shares of Common Stock at a Net Consideration Per Share (as
hereinafter defined) less than the Applicable Conversion Value in respect of the
Warrant Shares in effect immediately prior to such issuance or deemed issuance,
then and in each such case, such Applicable Conversion Value for the Warrant
Shares shall automatically and without further action be adjusted as follows:
(A) If such issuance and/or deemed issuance occurs on
or before the second anniversary of the Issue Date, then the Applicable
Conversion Value for the Warrant Shares will be adjusted to equal the
Net Consideration Per Share
<PAGE>
-9-
(as hereinafter defined) at which such additional shares of Common
Stock were issued and/or deemed issued.
(B) If such issuance and/or deemed issuance occurs
after the second anniversary of the Issue Date, then the Applicable
Conversion Value for the Warrant Shares will be adjusted to equal the
result of the following formula:
New Applicable Conversion Value = (P1 X Q1) + (P2 X Q2)
---------------------
(Q1 + Q2)
where:
P1 = the Applicable Conversion Value in effect immediately prior to such
issuance or deemed issuance of additional shares of Common Stock;
Q1 = the aggregate number of shares of Common Stock outstanding (including
shares of Common Stock issuable upon conversion of all outstanding shares of
Series D Preferred Stock and conversion, exchange and/or exercise of all
outstanding warrants, options and other convertible securities, each to the
extent then convertible, exchangeable and/or exercisable) immediately prior to
such issuance or deemed issuance of additional shares of Common Stock;
P2 = the Net Consideration Per Share (as hereinafter defined) received by the
Corporation for the shares of Common Stock issued and/or deemed issued in
respect of such issuance of additional shares of Common Stock; and
Q2 = the number of shares of Common Stock issued and/or deemed issued in respect
of such issuance of additional shares of Common Stock.
The following shall not be deemed issuances of additional shares of
Common Stock for the purposes of this Section 4.3(a): the Corporation's (A)
issuance of shares of Common Stock upon conversion of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, (B) granting of stock options to directors, officers,
employees, or consultants of the Corporation pursuant to the Corporation's 1996
Stock Option Plan or pursuant to any other employee benefit plan approved by the
Board of Directors of the Corporation, and the issuance of shares of Common
Stock upon exercise of any of the foregoing options, (c) issuance of Common
Stock upon the exercise of the Warrants (as defined in the Series D Purchase
Agreement), (d) issuance of up to 56,296 shares of Series C Preferred Stock upon
the exercise of warrants issued to Silicon Valley Bank, (e) issuance of up to
425,532 shares of Series B Preferred Stock upon the exercise of the Amended and
Restated Warrant issued to SOFTBANK Ventures, Inc. (the "SOFTBANK WARRANT"), and
(f) warrants to purchase Common Stock issued to commercial institutional senior
lenders solely in
<PAGE>
-10-
connection with the establishment of a working capital line of credit (and the
issuance of Common Stock upon exercise thereof) in an amount not to exceed
200,000 shares.
For purposes of this Section 4.3(a), if a part or all of the
consideration received by the Corporation in connection with the issuance or
deemed issuance of shares of Common Stock or the issuance or deemed issuance of
any of the securities described below in paragraph (ii) of this Section 4.3(a)
consists of property other than cash, such consideration shall be deemed to have
the same value as is recorded on the books of the Corporation with respect to
receipt of such property so long as such recorded value was determined
reasonably and in good faith and with due care by the Board of Directors of the
Corporation, and shall otherwise be deemed to have a value equal to its fair
market value.
(ii) For purposes of this Section 4.3(a), the issuance of any
Derivative Securities shall be deemed an issuance of shares of Common Stock with
respect to Section 4.3(a) if the Net Consideration Per Share (as defined below)
that may be received by the Corporation for such Common Stock is less than the
Applicable Conversion Value in effect immediately prior to the time of such
issuance, and except as hereinafter provided, an adjustment in the Applicable
Conversion Value shall be made upon each such issuance of Derivative Securities
in the manner provided in Section 4.3(a), as appropriate, as if such deemed
Common Stock were issued for such Net Consideration Per Share. No adjustment of
the Applicable Conversion Value shall be made under this Section 4.3(a) upon the
issuance of any additional shares of Common Stock that are issued upon the
exercise, conversion, or exchange of any Derivative Securities if any such
adjustment was previously made upon the issuance of such Derivative Securities.
Any adjustment of the Applicable Conversion Value with respect to this Section
4.3(a) shall be disregarded if, as, and to the extent that the Derivative
Securities that gave rise to such adjustment expire or are canceled without
having been exercised, so that the Applicable Conversion Value effective
immediately upon such cancellation or expiration shall be equal to the
Applicable Conversion Value that otherwise would have been in effect immediately
prior to the time of the issuance of the expired or canceled Derivative
Securities, with such additional adjustments as subsequently would have been
made to that Applicable Conversion Value had the expired or canceled Derivative
Securities not been issued. In the event that the terms of any Derivative
Securities previously issued by the Corporation are changed (whether by their
terms or for any other reason, including without limitation, as a result of the
effects of any anti-dilution adjustments contained therein) so as to lower the
Net Consideration Per Share payable with respect thereto (whether or not the
issuance of such Derivative Securities originally gave rise to an adjustment of
the Applicable Conversion Value), the Applicable Conversion Value shall be
recomputed as of the date of such change, so that the Applicable Conversion
Value effective immediately upon such change shall be equal to the Applicable
Conversion Value in effect at the time of the issuance of the Derivative
Securities subject to such change, adjusted for the issuance thereof in
accordance with the terms thereof after giving effect to such change, and with
such
<PAGE>
-11-
additional adjustments as subsequently would have been made to that Applicable
Conversion Value had the Derivative Securities been issued on such changed
terms. For purposes of this Section 4.3(a)(ii), the Net Consideration Per Share
that may be received by the Corporation shall be determined as follows:
(A) "NET CONSIDERATION PER SHARE" shall mean the
amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Derivative Securities, plus
the minimum amount of additional consideration, if any, payable to the
Corporation upon exercise, conversion, and/or exchange thereof for
shares of Common Stock, divided by the maximum number of shares of
Common Stock that would be issued if all such Derivative Securities
were exercised or converted at such Net Consideration Per Share.
(B) The Net Consideration Per Share that may be
received by the Corporation shall be determined in each instance as of
the date of issuance of Derivative Securities without giving effect to
any possible future price adjustments or rate adjustments that may be
applicable with respect to such Derivative Securities and which are
contingent upon future events; PROVIDED, that in the case of an
adjustment to be made as a result of a change in terms of such
Derivative Securities, including such changes as may result from the
effects of any anti-dilution adjustments contained therein, the Net
Consideration Per Share shall be determined as of the date of such
change.
(B) PERFORMANCE MILESTONES.
(i) END OF SEVEN FISCAL QUARTERS. If, on or as of the end of the seven
(7) fiscal quarters of the Corporation ending December 31, 1999, the
Corporation's (a) total cumulative revenues ("TOTAL REVENUES") are less than
$54,000,000 and/or (b) total cumulative product revenues (which, for this
purpose, shall be deemed to mean only those revenues derived from sales by the
Corporation of non-customized products (as distinct from services) as to which
the Corporation is not a reseller and which the buyer has not purchased for
inventory) ("TOTAL PRODUCT REVENUES") are less than $20,500,000 and/or (c) total
cumulative EBIT (as defined below) is less than $4,500,000, then the Applicable
Conversion Value that would otherwise be in effect with respect to the Warrant
Shares shall automatically and without further action be adjusted to a per share
amount that shall be equal to the quotient obtained by DIVIDING (i) the
applicable Assumed Corporation Value (as determined below) BY (ii) 14,085,848
(i.e., the total number of shares of Common Stock outstanding (on a
fully-diluted basis) as of the date of issuance of the Series D Preferred Stock
pursuant to the Series D Purchase Agreement immediately prior to the issuance of
the shares of Series D Preferred Stock (it being understood that if the quotient
obtained pursuant to the preceding formula is greater than the Applicable
Conversion Value in effect immediately prior to such adjustment, then no such
adjustment shall be made pursuant to this Section 4.3(a), which number shall
automatically and without further action be reduced to 13,525,100 upon the
termination
<PAGE>
-12-
or expiration of the SOFTBANK Warrant by its terms and provided that the holder
thereof has not exercised any portion of such SOFTBANK Warrant.
The "ASSUMED CORPORATION VALUE" shall be equal to the weighted average
of the Pre-Money Values set forth in the far left-hand column of the table below
that correspond to each of the Total Revenues, Total Product Revenues and EBIT
as set forth on the table below, with the Pre-Money Value that corresponds to
Total Revenues being weighted at 50% and the Pre-Money Values that correspond to
each of Total Product Revenues and EBIT being weighted each at 25%.
Notwithstanding the foregoing or anything to the contrary contained herein, the
Assumed Corporation Value shall be not less than $17,000,000 and not greater
than $43,000,000.
Each of the values in the table below are deemed to be further
sub-divided into increments as follows (in order to determine the corresponding
figures in the table below), such that: (a) each incremental one dollar ($1) of
Total Revenues shall equal an incremental one dollar ($1) of Pre-Money Value,
(b) each incremental one dollar ($1) of Total Product Revenues shall equal an
incremental two dollars ($2) of Pre-Money Value, and (c) each incremental one
dollar ($1) of EBIT shall equal an incremental ten dollars ($10) of Pre-Money
Value. For examples, (1) $41,347,628 in Total Revenues shall correspond to a
$30,347,628 Pre-Money Value, (2) $11,928,413 Total Product Revenues shall
correspond to a $25,856,826 Pre-Money Value and (3) $3,869,470 in EBIT shall
correspond to a $36,694,700 Pre-Money Value.
In comparing the Corporation's actual Total Revenues, actual Total
Product Revenues and actual EBIT to the figures in the table below, a
simple-rounding method to the nearest dollar shall be used in order to determine
the Total Revenues, Total Product Revenues and EBIT.
TABLE TO DETERMINE
ASSUMED CORPORATION VALUE
($ IN 000'S AND SUBJECT TO
FURTHER SUB-DIVISION AS DESCRIBED ABOVE)
@@
<TABLE>
<CAPTION>
- ------------------- ----------------------------- ------------------------------- ------------------------------
PRE-MONEY VALUE TOTAL REVENUES TOTAL PRODUCT REVENUES EBIT
(shown in 1,000,000 (shown in 1,000,000 (shown in 100,000 increments (shown in 100,000
increments only) increments only) only) increments only)
- ------------------- ----------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C>
$17,000 less than or equal to $28,000 less than or equal to $7,500 less than or equal to $1,900
- ------------------- ----------------------------- ------------------------------- ------------------------------
$18,000 $29,000 $8,000 $2,000
- ------------------- ----------------------------- ------------------------------- ------------------------------
$19,000 $30,000 $8,500 $2,100
- ------------------- ----------------------------- ------------------------------- ------------------------------
$20,000 $31,000 $9,000 $2,200
- ------------------- ----------------------------- ------------------------------- ------------------------------
$21,000 $32,000 $9,500 $2,300
- ------------------- ----------------------------- ------------------------------- ------------------------------
$22,000 $33,000 $10,000 $2,400
- ------------------- ----------------------------- ------------------------------- ------------------------------
$23,000 $34,000 $10,500 $2,500
- ------------------- ----------------------------- ------------------------------- ------------------------------
</TABLE>
<PAGE>
-13-
<TABLE>
- ------------------ -------------------------------- -------------------------------- -------------------------------
<S> <C> <C> <C>
$24,000 $35,000 $11,000 $2,600
- ------------------ -------------------------------- -------------------------------- -------------------------------
$25,000 $36,000 $11,500 $2,700
- ------------------ -------------------------------- -------------------------------- -------------------------------
$26,000 $37,000 $12,000 $2,800
- ------------------ -------------------------------- -------------------------------- -------------------------------
$27,000 $38,000 $12,500 $2,900
- ------------------ -------------------------------- -------------------------------- -------------------------------
$28,000 $39,000 $13,000 $3,000
- ------------------ -------------------------------- -------------------------------- -------------------------------
$29,000 $40,000 $13,500 $3,100
- ------------------ -------------------------------- -------------------------------- -------------------------------
$30,000 $41,000 $14,000 $3,200
- ------------------ -------------------------------- -------------------------------- -------------------------------
$31,000 $42,000 $14,500 $3,300
- ------------------ -------------------------------- -------------------------------- -------------------------------
$32,000 $43,000 $15,000 $3,400
- ------------------ -------------------------------- -------------------------------- -------------------------------
$33,000 $44,000 $15,500 $3,500
- ------------------ -------------------------------- -------------------------------- -------------------------------
$34,000 $45,000 $16,000 $3,600
- ------------------ -------------------------------- -------------------------------- -------------------------------
$35,000 $46,000 $16,500 $3,700
- ------------------ -------------------------------- -------------------------------- -------------------------------
$36,000 $47,000 $17,000 $3,800
- ------------------ -------------------------------- -------------------------------- -------------------------------
$37,000 $48,000 $17,500 $3,900
- ------------------ -------------------------------- -------------------------------- -------------------------------
$38,000 $49,000 $18,000 $4,000
- ------------------ -------------------------------- -------------------------------- -------------------------------
$39,000 $50,000 $18,500 $4,100
- ------------------ -------------------------------- -------------------------------- -------------------------------
$40,000 $51,000 $19,000 $4,200
- ------------------ -------------------------------- -------------------------------- -------------------------------
$41,000 $52,000 $19,500 $4,300
- ------------------ -------------------------------- -------------------------------- -------------------------------
$42,000 $53,000 $20,000 $4,400
- ------------------ -------------------------------- -------------------------------- -------------------------------
$43,000 greater than or equal to $54,000 greater than or equal to $20,500 greater than or equal to $4,500
- ------------------ -------------------------------- -------------------------------- -------------------------------
</TABLE>
@@
Thus, for example, if as of December 31, 1999, the Corporation has
$47,894,322.38 in actual Total Revenues, $14,025,417.85 in actual Total Product
Revenues and $3,198,439.23 in actual EBIT, then (using simple rounding to the
nearest dollar) the corresponding figures from the table above are $47,894,322
in Total Revenues, $14,025,418 in Total Product Revenues and $3,198,439 in EBIT.
The calculation for the Assumed Corporation Value would be as follows:
EXAMPLE OF CALCULATION OF
ASSUMED CORPORATION VALUE
@@
<TABLE>
<CAPTION>
- --------------------------------------- -------------------- ---------------------- ------------- --------------------
ACTUAL ROUNDED CORRESPONDING ASSUMED
RESULTS PRE-MONEY VALUE WEIGHT CORPORATION VALUE
- --------------------------------------- -------------------- ---------------------- ------------- --------------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $47,894,322 $36,894,322 50% $ 18,447,161
- --------------------------------------- -------------------- ---------------------- ------------- --------------------
TOTAL PRODUCT REVENUES $14,025,418 $30,050,836 25% $ 7,512,709
- --------------------------------------- -------------------- ---------------------- ------------- --------------------
EBIT $3,198,439 $29,984,390 25% $ 7,496,098
- --------------------------------------- -------------------- ---------------------- ------------- --------------------
TOTAL ASSUMED CORPORATION VALUE $33,455,968
- --------------------------------------- -------------------- ---------------------- ------------- --------------------
</TABLE>
@@
(ii) PRIOR TO END OF SEVEN FISCAL QUARTERS. In the event of any public
or private offering or other issuance of the Corporation's Common Stock or
Derivative
<PAGE>
-14-
Securities, the sale of the Corporation (whether by merger, consolidation, sale
of all or substantially all of the Corporation's assets or sale of a majority of
the outstanding voting capital stock, whether newly issued, from treasury or
issued and outstanding, or any combination thereof) or a liquidation,
dissolution or winding-up of the affairs of the Corporation at any time prior to
December 31, 1999, then the Applicable Conversion Value that would otherwise be
in effect with respect to the Warrant Shares shall be adjusted to a per share
amount that shall be equal to the quotient obtained by dividing (i) the
applicable Assumed Adjusted Corporation Value (as determined below) by (ii)
14,085,848, which number shall automatically and without further action be
reduced to 13,525,100 upon the termination or expiration of the SOFTBANK Warrant
by its terms and provided that the holder thereof has not exercised any portion
of such SOFTBANK Warrant.
The "ASSUMED ADJUSTED CORPORATION VALUE" shall be determined as
follows: (i) first, the Corporation's actual Total Revenues, actual Total
Product Revenues and actual EBIT for the fiscal quarters completed prior to such
offering or other issuance, sale or liquidation, dissolution or winding-up,
shall be compared against the applicable cumulative quarterly projections for
Total Revenues, Total Product Revenues and EBIT set forth in the table below and
expressed as a percentage (e.g., if on December 1, 1998 the Corporation is sold
and, at that time, actual Total Revenues equal $8,000,000, then $8,000,000
compared against $6,400,000 (the applicable cumulative quarterly projection)
expressed as a percentage equals 125%); (ii) second, the percentage as
determined pursuant to the foregoing clause (i) for each of Total Revenues,
Total Product Revenues and EBIT shall be applied to the "baseline" valuation as
set forth in the second table below (e.g., with respect to Total Revenues, 125%
of $41,000,000 (the "baseline" for Total Revenue) equals $51,250,000 (each, an
"ADJUSTED BASELINE Result")); and (iii) third, the Adjusted Baseline Results for
each of Total Revenues, Total Product Revenues and EBIT shall be used to
calculate the Assumed Adjusted Corporation Value in accordance with the second,
third and fourth paragraphs and table of Section 4(g)(i)above.
TABLE OF
CUMULATIVE QUARTERLY PROJECTIONS
@@
<TABLE>
<CAPTION>
- ------------------- ---------------------------------------- --------------------------------------------------------
FISCAL YEAR 1998 FISCAL YEAR 1999
- ------------------- ------------ ------------- ------------- ------------- ------------- -------------- -------------
Q2 Q3 Q4 Q1 Q2 Q3 Q4
- ------------------- ------------ ------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL
REVENUES 2,454,000 6,400,000 11,361,000 17,371,000 24,041,000 32,151,000 41,361,000
- ------------------- ------------ ------------- ------------- ------------- ------------- -------------- -------------
PRODUCT
REVENUES 658,000 1,823,000 3,168,000 5,678,000 8,448,000 12,058,000 15,968,000
- ------------------- ------------ ------------- ------------- ------------- ------------- -------------- -------------
EBIT (1,181,800) (2,166,750) (2,125,850) (1,135,850) 89,150 1,634,150 3,554,150
- ------------------- ------------ ------------- ------------- ------------- ------------- -------------- -------------
R&D EXPENSE 508,000 1,197,000 2,089,200 3,141,200 4,275,200 5,647,200 7,189,200
- ------------------- ------------ ------------- ------------- ------------- ------------- -------------- -------------
</TABLE>
"BASELINE" COMPARISON
<PAGE>
-15-
TABLE
<TABLE>
<CAPTION>
- ----------------------------- ---------------------------- ------------------------------ ----------------------------
PRE-MONEY VALUE TOTAL REVENUE TOTAL PRODUCT REVENUE EBIT
- ----------------------------- ---------------------------- ------------------------------ ----------------------------
<S> <C> <C> <C>
$30,000,000 $41,000,000 $14,000,000 $3,200,000
- ----------------------------- ---------------------------- ------------------------------ ----------------------------
</TABLE>
@@
Notwithstanding anything contained herein to the contrary, in no event
shall the Assumed Adjusted Corporation Value be greater than $30,000,000 unless,
and only to the extent that, after any adjustment required by this Section
4(g)(ii), (A) in the event of a sale of the Corporation, the proceeds actually
received (net of any escrows or other holdbacks) by the holders of the Series D
Preferred Stock in respect of shares of Series D Preferred Stock in connection
with such sale or liquidation, dissolution or winding-up equals or exceeds three
(3) times the original purchase price per share of Series D Preferred Stock
(subject to adjustment for stock splits, stock dividends, stock combinations,
capital reorganizations, reclassifications and other similar events), or (B) in
the event of a public or private offering or other issuance, the price per share
to the purchasers in such offering in connection with such offering equals or
exceeds three (3) times the original purchase price per share of Series D
Preferred Stock (subject to adjustment for stock splits, stock dividends, stock
combinations, capital reorganizations, reclassifications and other similar
events).
(iii) "EBIT" shall mean, for the relevant period, the net
income (or loss) of the Corporation, after excluding all extraordinary items of
income or loss from the calculation thereof plus, to the extent deducted in the
computation thereof, the sum of (i) interest expense AND (ii) taxes for such
period, LESS amounts budgeted for research and development as set forth in the
Table of Cumulative Quarterly Projections above that have not been expensed in
research and development during the seven fiscal quarters ending December 31,
1999, PLUS the amounts paid to Bain & Company for consulting services rendered
to the Corporation, if any, up to $100,000.
(C) ADJUSTMENT TO EXERCISE PRICE. In each such instance of an
adjustment to the Applicable Conversion Value pursuant to Section 4.3(a), (b) or
(c), the Exercise Price shall, simultaneously with the happening of each such
event, be adjusted by multiplying the then current Exercise Price by a fraction,
(A) the numerator of which shall be the number of Warrant Shares immediately
prior to such event, and (B) the denominator of which shall be the number of
Warrant Shares immediately after such event.
(D) ADJUSTMENTS FOR RECLASSIFICATIONS. If the Common Stock issuable
upon the conversion of this Warrant shall be changed into the same or a
different number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Section 4.1 or a
merger, consolidation, or sale of assets provided for under Section 4.2), then
and in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, or other change
by holders of the number of shares of Common Stock into which such
<PAGE>
-16-
Warrant Shares would have been convertible immediately prior to such
reclassification, or change, all subject to further adjustment as provided
herein.
4.4 CONTINUATION OF TERMS. Upon any reorganization, reclassification,
sale, consolidation, merger or other transfer (and any liquidation, dissolution
or winding up of the Corporation following any such transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of Stock and property receivable
upon the exercise of this Warrant after the consummation of such reorganization,
reclassification, sale, consolidation, merger or other transfer or the effective
date of liquidation, dissolution or winding up of the Corporation following any
such transfer, as the case may be, and shall be binding upon the issuer of any
such Stock, including, in the case of any such transfer, the Person acquiring
all or substantially all of the properties or assets or more than 50% of the
voting capital stock of the Corporation (whether issued and outstanding, newly
issued or from treasury or any combination thereof), whether or not such Person
shall have expressly assumed the terms of this Warrant.
4.5 DISSOLUTION. Subject to Section 4.4 hereof, in the event of any
dissolution of the Corporation following the transfer of all or substantially
all of its properties or assets at any time after the Issue Date, the
Corporation shall retain for a period of at least ninety (90) days after the
effective date of such dissolution the Stock and property (including cash, where
applicable) receivable by the Holder pursuant to Section 4.2 hereof upon
exercise of this Warrant at any time after the effective date of such
dissolution (assuming the payment by the Holder of the Exercise Price therefor
as required hereby in a form permitted hereby). If the Holder fails to exercise
this Warrant within the sixty (60) day period following the effective date of
such dissolution, then such Stock and property (including cash, where
applicable) shall be distributed PRO RATA to those Persons who were stockholders
of record of the Corporation on the effective date of such dissolution or as
otherwise required by law or the Certificate of Incorporation of the
Corporation.
5. OFFICER'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the number and kind of Warrant Shares, or
Property, issuable hereunder from time to time, or the Exercise Price, the
Corporation, at its expense, will promptly cause an officer of the Corporation
to compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing the facts upon which such adjustment or readjustment is based. The
Corporation will forthwith send a copy of each such certificate to the Holder in
accordance with Section 10.5 below.
<PAGE>
-17-
6. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Corporation of a record of the holders of Stock
for the purpose of determining the holders thereof who are entitled to receive
any shares of Stock as a dividend or other distribution or pursuant to a stock
split, or
(b) any reorganization of the Corporation, or any sale or transfer, in
a single transaction or a series of related transactions, of all or
substantially all the assets of the Corporation to, or the consolidation or
merger of the Corporation with or into, any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Corporation, or
(d) any sale, in a single transaction or a series of related
transactions, of a majority of the Corporation's voting stock (whether newly
issued, or from treasury, or previously issued and then outstanding, or any
combination thereof),
then and in each such event the Corporation will mail or cause to be mailed to
the Holder a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or stock split, and stating
the amount and character of such dividend, distribution or stock split, or (ii)
the date on which any such reorganization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of any one or more classes of
Stock shall be entitled to exchange their shares of Stock for securities or
other property deliverable on such reorganization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, or (iii) the date on which any
such sale of a majority of the Corporation's voting stock is to take place and
the material terms thereof , as the case may be. Such notice shall be mailed at
least fifteen (15) days prior to the date specified in such notice on which any
such action is to be taken.
7. EXCHANGE OF WARRANT. Subject to the provisions of Section 9 hereof
(if and to the extent applicable), this Warrant shall be exchangeable, upon the
surrender hereof by the Holder at the principal office of the Corporation, for
new warrants of like tenor, each registered in the name of the Holder or in the
name of such other Persons as the Holder may direct. Each of such new warrants
shall be exercisable for such number of Warrant Shares as the Holder shall
direct, PROVIDED that all of such new warrants shall represent, in the
aggregate, the right to purchase the same number of Warrant Shares and cash,
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of a customary
<PAGE>
-18-
affidavit of the Holder and an indemnity agreement or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Corporation at
its expense will execute and deliver, in lieu thereof, a new warrant of like
tenor.
9. TRANSFER PROVISIONS, ETC.
9.1 LEGENDS.
(a) Each certificate representing any Warrant Shares issued
upon exercise of this Warrant shall bear the following legend:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED.
(b) Each certificate representing any shares of Stock issued
from time to time upon exercise of this Warrant shall also bear any legend
required under any applicable state securities or blue sky laws.
9.2 MECHANICS OF TRANSFER. Any transfer of all or any portion of this
Warrant, or of any interest therein, that is otherwise in compliance with
applicable law shall be effected by surrendering this Warrant to the Corporation
at its principal office, together with (i) a duly executed form of assignment,
in the form attached hereto, (ii) payment of any applicable transfer taxes, if
any. In the event of any such transfer of this Warrant, in whole, the
Corporation shall issue a new warrant of like tenor to the transferee,
representing the right to purchase the same number of Warrant Shares, and cash,
securities or other property, if any, which were purchasable by the Holder upon
exercise of this Warrant at the time of its transfer. In the event of any such
transfer of any portion of this Warrant, (i) the Corporation shall issue a new
warrant of like tenor to the transferee, representing the right to purchase the
same number of Warrant Shares, and cash, securities or other property, if any,
which were purchasable by the Holder upon exercise of the transferred portion of
this Warrant at the time of such transfer, and (ii) the Corporation shall issue
a new warrant of like tenor to the Holder, representing the right to purchase
the number of Warrant Shares, and cash, securities or other property, if any,
purchasable by the Holder upon exercise of the portion of this Warrant not
transferred to such transferee. Until this Warrant or any portion thereof is
transferred on the books of the Corporation, the Corporation may treat the
Holder as the absolute holder of this Warrant and all right, title and interest
therein for all purposes, notwithstanding any notice to the contrary.
9.3. RESTRICTIONS ON TRANSFER. Subject to compliance with applicable
securities laws, this Warrant, and any portion hereof, and the Warrant Shares
may be transferred
<PAGE>
-19-
by the Holder in its sole discretion at any time and to any Person, including
without limitation transfers to Affiliates or Affiliated Groups (as such terms
are defined in the Series D Purchase Agreement), without the consent of the
Corporation.
10. GENERAL.
10.1 STATEMENT ON WARRANT. Irrespective of any adjustments in the
Exercise Price or the number or kind of Warrant Shares, this Warrant may
continue to express the same kind of Warrant Shares as are stated on the front
page hereof.
10.2 AUTHORIZED SHARES; RESERVATION OF SHARES FOR ISSUANCE. At all
times while this Warrant is outstanding, the Corporation shall maintain its
corporate authority to issue, and shall have authorized and reserved for
issuance upon exercise of this Warrant, such number of shares of Stock as shall
be sufficient to perform its obligations under this Warrant (after giving effect
to any and all adjustments to the number and kind of Warrant Shares purchasable
upon exercise of this Warrant).
10.3 NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of Stock receivable upon the
exercise of this Warrant above the amount payable therefor on such exercise, and
(b) will take all action that may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Stock on the exercise of this Warrant.
10.4 NO RIGHTS AS STOCKHOLDER. The Holder shall not be entitled to vote
or to receive dividends or to be deemed the holder of Stock that may at any time
be issuable upon exercise of this Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Corporation until the Holder shall have exercised
the Warrant and been issued Warrant Shares in accordance with the provisions
hereof.
10.5 NOTICES. All notices, demands, requests, certificates or other
communications under this Warrant shall be in writing and shall be either mailed
by certified mail, postage prepaid, in which case such notice, demand, request,
certificate or other communications shall be deemed to have been given three (3)
days after the date on which it is first deposited in the mails, or hand
delivered or sent by facsimile transmission, by tested or otherwise
authenticated telex or cable or by private expedited
<PAGE>
-20-
courier for overnight delivery with signature required, in each such case, such
notice, demand, request, certificate or other communications being deemed to
have been given upon delivery or receipt, as the case may be:
(i) if to the Corporation, Art Technology Group, Inc., 101 Huntington
Avenue, Boston, MA 02119, Attention: President, or at such other address as the
Corporation may have furnished in writing to the Holder; and
(ii) if to the Holder, at the Holder's address appearing in the books
maintained by the Corporation.
10.6 AMENDMENT AND WAIVER. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Corporation and the Holder.
10.7 GOVERNING LAW. This Warrant shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of Massachusetts.
10.8 COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Corporation shall bind its successors and assigns, whether so expressed
or not.
10.9 SEVERABILITY. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
10.10 CONSTRUCTION. The definitions of this Warrant shall apply equally
to both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
10.11 REMEDIES. The Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance
<PAGE>
-21-
of its rights under this Warrant. The Corporation agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.
In any action or proceeding brought to enforce any provision of this Warrant or
where any provision hereof is validly asserted as a defense, the successful
party to such action or proceeding shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-22-
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed as an instrument under seal in its corporate name by one of its
officers thereunto duly authorized, all as of the day and year first above
written.
ART TECHNOLOGY GROUP, INC.
[Corporate Seal]
By:
--------------------------
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: ART TECHNOLOGY GROUP, INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to exercise thereunder,
_______ shares of Common Stock, $.01 par value per share ("COMMON STOCK"), of
Art Technology Group, Inc., a Delaware corporation, and tenders herewith payment
of $__________, representing the aggregate purchase price for such shares based
on the price per share provided for in such Warrant. Such payment is being made
in accordance with [Section 2.1(i)] [Section 2.1(ii)] [Section 2.1(iii)] of the
attached Warrant.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations and deliver such
certificate or certificates to the person or persons listed below at their
respective addresses set forth below:
Dated:
---------------------------- -------------------------------
--------------------------------------------
(Address)
If said number of shares of Common Stock shall not be all the shares of
Common Stock issuable upon exercise of the attached Warrant, a new Warrant is to
be issued in the name of the undersigned for the balance remaining of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash.
Dated: , 19
------------ -- -----------------------------------
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant or
with the name of the assignee
appearing in the assignment form
below.
<PAGE>
FORM OF ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________________ hereby sells,
assigns and transfers unto _________________ the attached Warrant [__% of the
attached Warrant], together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ attorney
to transfer said Warrant [said percentage of said Warrant] on the books of Art
Technology Group, Inc., a Delaware corporation, with full power of substitution
in the premises.
If not all of the attached Warrant is to be so transferred, a new
Warrant is to be issued in the name of the undersigned for the balance of said
Warrant.
Dated: , 19
------------ -- -----------------------------------
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant.
<PAGE>
Exhibit D
Form of Legal Opinion
<PAGE>
HALE AND DORR LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 o fax 617-526-5000
August 18, 1998
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
Re: Series D Senior Participating Convertible Redeemable Preferred
Stock Financing of Art Technology Group, Inc.
Ladies and Gentlemen:
This opinion is being furnished pursuant to Section 1.5(e)(9) of the
Series D Senior Participating Convertible Redeemable Preferred Stock Purchase
Agreement, dated as of August 18, 1998 (the "Purchase Agreement"), by and among
Art Technology Group, Inc., a Delaware corporation (the "Company"), and each of
you. Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings ascribed to them in the Purchase Agreement.
We have acted as counsel to the Company in connection with the
preparation, execution and delivery of the Purchase Agreement, the Stockholders
Agreement and Registration Rights Agreement, and the transactions contemplated
therein, and in connection with the adoption and filing of the Amended and
Restated Certificate of Incorporation of the Company. As such counsel, we have
examined and are familiar with and have relied upon the following documents:
(a) the Certificate of Incorporation of the Company, as amended to
date, certified by the Secretary of State of the State of
Delaware as of July 9, 1998;
(b) the By-laws of the Company, as amended to date;
(c) the Amended and Restated Certificate of Incorporation of the
Company, to be filed today with the Secretary of State of the
State of Delaware (the "Restated Charter");
(d) a Certificate of the Secretary of State of the State of
Delaware, dated August 12, 1998, attesting to the continued
legal existence and corporate good standing of the Company in
the State of Delaware (the "Domestic Certificate");
<PAGE>
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
August 18, 1998
Page 2
(e) a Certificate of the Secretary of State of the Commonwealth of
Massachusetts, dated August 14, 1998, attesting to the good
standing and due qualification of the Company to transact
business in the Commonwealth of Massachusetts (the "Foreign
Qualification
Certificate");
(f) the Purchase Agreement;
(g) the Stockholders Agreement;
(h) the Registration Rights Agreement (together with the Purchase
Agreement and the Stockholders Agreement, the "Agreements")
(i) a Certificate of Chief Executive Officer from the Company to
Hale and Dorr LLP, dated as of the date hereof (the "Officer's
Certificate"), a copy of which is attached hereto as EXHIBIT
A; and
(j) such other records of meetings, documents, instruments and
certificates (including but not limited to certificates of
public officials and officers of the Company) as we have
considered necessary for purposes of this opinion.
In our examination of the documents described above, we have assumed
the genuineness of all signatures, the legal capacity of all individual
signatories, the completeness of all corporate records provided to us, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as copies, and the
authenticity of the originals of such latter documents.
In rendering this opinion, we have relied, as to all questions of fact
material to this opinion, upon certificates of public officials and officers of
the Company and upon the representations and warranties made by each of the
parties to the Agreements. We have not attempted to verify independently such
facts, although nothing has come to our attention which would lead us to
question the accuracy of such certificates or representations and warranties.
Any reference herein to "our knowledge," or to any matter "known to
us," "coming to our attention" or "of which we are aware," or any variation of
any of the foregoing shall mean the conscious awareness of the attorneys in this
firm who have rendered substantive attention to this transaction (including the
preparation of the Agreements and the transactions contemplated thereby) of the
existence or absence of any facts which would contradict our opinions set forth
below. We have not undertaken any independent investigation to determine the
existence or absence of
<PAGE>
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
August 18, 1998
Page 3
such facts, and no inference as to our knowledge of the existence or absence of
such facts should be drawn from the fact of our representation of the Company.
Without limiting the foregoing, we have not conducted a search of any electronic
databases or the dockets of any court, administrative or regulatory body, agency
or other filing office in any jurisdiction.
For purposes of this opinion, we have assumed that each of the
Agreements has been duly authorized, executed and delivered by all parties
thereto other than the Company, and that all such other parties have all
requisite power and authority to effect the transactions contemplated by the
Agreements. We have assumed that each of the Agreements is the valid, binding
and enforceable obligation of each party thereto other than the Company. We do
not render any opinion as to the application of any federal or state law or
regulation to the power, authority or compliance of any party to the Agreements
other than the Company.
Our opinions set forth below are qualified to the extent that they may
be subject to or affected by (i) applicable bankruptcy, insolvency, usury,
reorganization, moratorium, fraudulent conveyance or similar laws relating to or
affecting the rights of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or
hearing, and (iii) duties and standards imposed on creditors and parties to
contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing. Furthermore, we express no opinion as to the
availability of any equitable or specific remedy upon any breach of any of the
agreements as to which we are opining herein, or any of the agreements,
documents or obligations referred to therein, or to the successful assertion of
any equitable defenses, inasmuch as the availability of such remedies or the
success of any equitable defense may be subject to the discretion of a court. We
are expressing no opinion herein as to the enforceability of (i) Sections 8 and
9 of the Registration Rights Agreement or (ii) any provision of any agreement or
document as to which we are opining herein which purports to indemnify any
person against his, her or its own negligence or intentional misconduct.
Our opinions expressed in paragraph 1 below, insofar as they relate to
the due organization, valid existence, due qualification and good standing of
the Company, are based solely on the Domestic Certificate and the Foreign
Qualification Certificate, and are limited accordingly, and, as to such matters,
our opinions are rendered as of the respective dates of such certificates. We
express no opinion as to the tax good standing of the Company in any
jurisdiction.
Our opinion expressed in paragraph 2 below, insofar as it relates to
the full payment for the outstanding shares of the Company's capital stock, and
insofar as it related to the outstanding options, warrants and other securities
representing the right to purchase capital stock of the Company, is based solely
on the Officer's
<PAGE>
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
August 18, 1998
Page 4
Certificate and rendered as of the date of such certificate. Our opinion
expressed in paragraph 2 below as to the issued and outstanding shares of
capital stock of the Company is based solely on a review of the stock record
books of the Company, which we assume to be complete and accurate in all
material respects. Our opinion expressed in paragraph 2 below as to the due and
valid issuance of all outstanding shares of capital stock of the Company is
based solely on a review of the corporate minute books of the Company, which we
assume to be complete and accurate in all material respects.
For purposes of our opinion in paragraph 6 below, we have relied upon
representations made by you in Section 3 of the Purchase Agreement, and have
assumed (without any independent investigation) the accuracy of such
representations.
Our opinion in paragraph 7 below is based solely on the Officer's
Certificate and rendered as of the date of such certificate.
We are expressing no opinion herein with respect to compliance by the
Company with state securities or "blue sky" laws, other than those of the
Commonwealth of Massachusetts, or with any state or federal securities antifraud
laws.
We are opining herein solely as to the state laws of the Commonwealth
of Massachusetts, the Delaware General Corporation Law statute and the federal
laws of the United States of America. To the extent that any other laws govern
any of the matters as to which we are opining below, we have assumed, with your
permission and without independent investigation, that such laws are identical
to the state laws of the Commonwealth of Massachusetts, and we express no
opinion as to whether such assumption is reasonable or correct.
For purposes of our opinions rendered below, we have assumed that the
facts and law governing the future performance by the Company of its obligations
under each of the Agreements will be identical to the facts and law governing
its performance on the date of this opinion.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to conduct its business as it is, to our
knowledge, currently conducted, to execute, deliver and perform its obligations
under the Agreements, to issue, sell and deliver the Purchased Shares and the
Warrant to be purchased by you on the date hereof pursuant to the Purchase
Agreement (the "Initial Shares" and the
<PAGE>
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
August 18, 1998
Page 5
"Initial Warrant," respectively) and to carry out the transactions contemplated
by the Agreements. The Company is duly qualified to do business and is in good
standing in the Commonwealth of Massachusetts.
2. The authorized capital stock of the Company on the date hereof
consists of (i) 25,000,000 shares of Common Stock, and (ii) 10,000,000 shares of
Preferred Stock, $.01 par value per share, of which 1,300,000 shares have been
designated as Series A Preferred Stock, 851,064 shares have been designated as
Series B Preferred Stock, 2,000,000 shares have been designated as Series C
Preferred Stock and 2,343,750 shares have been designated as Series D Preferred
Stock. As of the date hereof, without giving effect to the transactions
contemplated by the Agreements, there are (i) 5,963,669 shares of Common Stock
issued and outstanding, (ii) 1,300,000 shares of Series A Preferred Stock issued
and outstanding, (iii) 425,532 shares of Series B Preferred Stock issued and
outstanding, (iv) 1,456,789 shares of Series C Preferred Stock issued and
outstanding, and (v) no shares of Series D Preferred Stock issued or
outstanding. The currently outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Section 2.5 of the Disclosure Schedule, to
our knowledge, there are no options, warrants or other securities of the Company
presently outstanding which create the right to purchase any of the authorized
but unissued capital stock of the Company.
3. The Initial Shares and the Initial Warrant, and the shares of Common
Stock issuable upon conversion of the Initial Shares and exercise of the Initial
Warrant, have been duly authorized by all necessary corporate action on the part
of the Company and, when issued, sold and delivered to you against full payment
therefor in accordance with the terms of the Purchase Agreement, or in
accordance with the terms thereof, will be validly issued, fully paid and
non-assessable. The issuance of the Initial Shares and the Initial Warrant, and
the shares of Common Stock issuable upon conversion of the Initial Shares and
exercise of the Initial Warrant, is not subject to any preemptive right, first
refusal right or other right to subscribe for or purchase such securities (other
than such rights as have been waived) pursuant to the Company's Certificate of
Incorporation or Bylaws, applicable Delaware corporation laws or any of the
contracts, agreements or other arrangements listed in Section 2.17 of the
Disclosure Schedule to the Purchase Agreement.
4. The execution and delivery by the Company of the Agreements, and the
consummation by the Company of the transactions contemplated thereby, including,
without limitation, the filing of the Restated Charter with the Secretary of
State of the State of Delaware at the Closing pursuant to the Purchase
Agreement, have been duly authorized by all necessary corporate and stockholder
action on the part of the Company, and the Agreements have been duly executed
and delivered by the Company. The Agreements constitute the valid and binding
obligations of the
<PAGE>
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
August 18, 1998
Page 6
Company, enforceable against the Company in accordance with their respective
terms.
5. The execution and delivery by the Company of the Agreements, and the
consummation by the Company of the transactions contemplated thereby, do not (a)
violate the provisions of any statute, rule or regulation applicable to the
Company; (b) violate the provisions of the Company's Certificate of
Incorporation or By-laws, each as amended to date; (c) violate any judgment,
order or decree of any court or arbitrator specifically naming the Company of
which we are aware; or (d) conflict with or result in the breach or termination
of any term or provision of, or constitute a default under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Company pursuant to, any of the contracts, agreements or other arrangements
listed in Section 2.17 of the Disclosure Schedule to the Purchase Agreement
(other than the Equipment Leases).
6. The Company's issuance to you of the Initial Shares and the Initial
Warrant on the date hereof in accordance with the Purchase Agreement will not
require registration under Section 5 of the Securities Act of 1933, as amended,
or under applicable Massachusetts securities laws.
7, To our knowledge, except as set forth in Section 2.14 of the
Disclosure Schedule to the Purchase Agreement, there is no action, proceeding or
litigation pending or threatened against the Company before any court,
governmental or administrative agency or body.
8. Except pursuant to federal and state securities laws, no consent,
approval or authorization of or by, or any designation, declaration, filing,
registration or qualification with, any governmental authority is required on
the part of the Company in connection with the Company's execution, delivery and
performance of its obligations under the Agreements or the Company's offer,
issuance, sale and delivery to you of the Initial Shares and the Initial Warrant
pursuant to the Purchase Agreement.
This opinion is provided to you as a legal opinion only and not as a
guaranty or warranty of the matters discussed herein. This opinion is based upon
currently existing statutes, rules, regulations and judicial decisions and is
rendered as of the date hereof, and we disclaim any obligation to advise you of
any change in any of the foregoing sources of law or subsequent developments in
law or changes in facts or circumstances which might affect any matters or
opinions set forth herein.
This opinion is rendered only to you and is solely for the benefit of
you in connection with the transactions contemplated by the Purchase Agreement.
This opinion may not be relied upon by you for any other purpose, nor may this
opinion
<PAGE>
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
August 18, 1998
Page 7
be provided to, quoted to or relied upon by any other person or entity for any
purpose without our prior written consent.
Very truly yours,
HALE AND DORR LLP
<PAGE>
EXHIBIT 10.15
SUPPLEMENTAL AGREEMENT
TO
SERIES D SENIOR PARTICIPATING CONVERTIBLE
REDEEMABLE PREFERRED STOCK PURCHASE AGREEMENT
This is a Supplemental Agreement entered into by and between Art
Technology Group, Inc., a Delaware corporation (the "COMPANY") and ____________
(the "ADDITIONAL PURCHASER"), pursuant to Section 1.3(b) of the Series D Senior
Participating Convertible Redeemable Preferred Stock Purchase Agreement (the
"PURCHASE AGREEMENT"), dated as of August 18, 1998, by and among the Company and
the Purchasers referred to therein. Capitalized terms used and not otherwise
defined herein shall have the respective meanings ascribed to them in the
Purchase Agreement.
The Company and the Additional Purchaser who desires to purchase
Additional Shares and Additional Warrants (the amounts of which are specifically
set forth below), hereby agree as follows:
1. The Company will sell and the Additional Purchaser will purchase the
following Additional Shares for a purchase price of $3.20 per share of Series D
Preferred Stock and Additional Warrants for a purchase price of $0.01 per
warrant:
<TABLE>
<S> <C>
No. of Shares of Series D Preferred Stock: __________
No. of Vesting Warrant Shares: __________
Total purchase price: $__________
</TABLE>
The purchase and sale of the Additional Shares and Additional Warrants
referred to above will take place at a time and place agreed upon by the Company
and the Additional Purchaser, but in any event, on or before sixty (60) days
after the date of the Purchase Agreement.
2. The Additional Shares and Additional Warrants referred to above will
be sold and purchased pursuant to the Purchase Agreement, as supplemented
hereby, and (a) such Additional Shares shall and are hereby deemed to be
"PURCHASED SHARES", such Additional Warrants shall and are hereby deemed to be
"VESTING WARRANTS" and such Additional Shares and Additional Warrants are hereby
deemed to be "PURCHASED SECURITIES" for all purposes of the Purchase Agreement,
and (b) such Common Stock issuable upon the conversion of the Additional Shares
and the exercise of the Additional Warrants shall and are hereby deemed to be
"SERIES D INVESTOR REGISTRABLE SECURITIES" for all purposes of the Registration
Rights Agreement. Without limiting the generality of the foregoing, the
Additional
<PAGE>
Purchaser hereby represents and warrants that the representations and warranties
set forth in Section 3 of the Purchase Agreement are (and as of the closing of
the purchase and sale of such Additional Shares and Additional Warrants, will
be) true and correct with respect to the Additional Purchaser.
3. The Additional Purchaser hereby agrees to and does become (a) a
"PURCHASER" party to the Purchase Agreement, (b) a "SERIES D INVESTOR" party to
the Registration Rights Agreement and (c) a "PURCHASER" party, "STOCKHOLDER"
party [and a ["TUDOR PARTY"]/["BAIN PARTY"]](1) to the Stockholders Agreement.
4. The Additional Purchaser is a bona fide resident and domiciliary of
the State of ___________________.
- --------
(1) Choose Tudor Party or Bain Party only if applicable.
<PAGE>
This Supplemental Agreement will be effective and will become a part of
the Purchase Agreement upon due execution and delivery by each of the
undersigned.
[ADDITIONAL PURCHASER]
______________________________ Dated: ____________
Name:
Address:
ART TECHNOLOGY GROUP, INC. Dated: ____________
By: _________________________
Name:
Title:
<PAGE>
Exhibit 10.16
ART TECHNOLOGY GROUP, INC.
AMENDED AND RESTATED WARRANT
This Amended and Restated Warrant, dated as of August 18, 1998,
effective upon the consummation of the transactions contemplated in the Series D
Senior Participating Convertible Redeemable Preferred Stock Purchase Agreement
between Art Technology Group, Inc., a Delaware corporation (the "Company"), and
the Purchasers (as defined therein), amends, restates and supersedes that
certain Performance Warrant, dated as of December 23, 1996 (the "1996 Warrant"),
granted to SOFTBANK Ventures Inc. by Art Technology Group, Inc., a Massachusetts
corporation ("ATG MA"). On October 22, 1997, pursuant to an Agreement and Plan
of Merger dated as of such date, ATG MA merged with and into the Company, and
the Company became the successor to all of the rights and obligations of ATG MA,
including without limitation the rights and obligations of ATG MA under the 1996
Warrant.
In consideration of the surrender and cancellation of the 1996 Warrant
on the date hereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company hereby grants
SOFTBANK Ventures Inc., a Japanese corporation, and to any entity to which this
warrant is duly transferred in compliance with Section 10 (the "Holder"), a
warrant (this "Warrant"), subject to the terms set forth below, to purchase the
Warrant Shares (as hereinafter defined) at a purchase price of $1.385 per share
(the "Purchase Price"), exercisable upon sixty (60) days prior written notice,
at any time on or after the date hereof and prior to the earlier of (i) the
closing of the initial public offering of shares of Common Stock of the Company
("Common Stock") at a price to the public of at least $15.00 per share (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting the Common Stock) and
resulting in gross proceeds to the Company of at least $10,000,000 (the "IPO")
(ii) the closing of a liquidation, merger, sale of all or substantially all
assets or other similar event and (iii) August 18, 2003. The term "Warrant
Shares" shall mean 425,532 shares of the Company's Series B Convertible
Preferred Stock, $.01 par value per share ("Series B Stock"). The Warrant Shares
shall be subject to adjustment as described herein. If the IPO occurs prior to
August 18, 2003, this Warrant may be exercised coincident with the IPO, in which
case the Warrant Shares shall consist of shares of Common Stock of the Company
based on the rate at which Series B Stock is converted into Common Stock of the
Company.
The Company shall not be required upon the exercise of this Warrant to
issue any fractional shares, but shall make an adjustment therefor in cash on
the basis of
<PAGE>
the fair market value per Warrant Share, as determined in good faith by the
Company's Board of Directors.
1. EXERCISE.
(a) This Warrant may be exercised by the Holder, in whole or
in part, by surrendering this Warrant at the principal office of the Company, or
at such other office or agency as the Company may designate, accompanied by
payment in full of the Purchase Price payable in respect of the number of
Warrant Shares purchased upon such exercise in the form of (i) lawful money of
the United States, or (ii) delivery of shares of Series B Stock then owned by
the Holder valued at their fair market value as determined by (or in a manner
approved by) the Board of Directors of the Company in good faith.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Section 1(a)
above. At such time, the Holder shall be deemed to have become the holder of
record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within 10 days thereafter, the Company, at
its expense, will cause to be issued in the name of, and delivered to, the
Holder:
(i) a certificate or certificates for the number of
full Warrant Shares to which the Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which the Holder would otherwise be
entitled, cash in an amount determined as set forth herein; and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased
by the Holder upon such exercise.
2. ADJUSTMENTS.
(a) If outstanding shares of the Series B Stock shall be
subdivided into a greater number of shares or a dividend in Series B Stock shall
be paid in respect of Series B Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such
2
<PAGE>
dividend be proportionately reduced. If outstanding shares of Series B Stock
shall be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) If there shall occur any capital reorganization or
reclassification of the Series B Stock (other than a change in par value or a
subdivision or combination as provided for in Section 2(a) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, then, as part
of any such reorganization, reclassification, consolidation, merger or sale, as
the case may be, lawful provision shall be made so that the Holder shall have
the right thereafter to receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which the Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, the Holder
had held the number of shares of Series B Stock which were then purchasable upon
the exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Company)
shall be made in the application of the provisions set forth herein with respect
to the rights and interests thereafter of the Holder, such that the provisions
set forth in this Section 2 (including provisions with respect to adjustment of
the Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Holder a certificate setting forth
the Purchase Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Such certificate shall also set forth the
kind and amount of stock or other securities or property into which this Warrant
shall be exercisable following the occurrence of any of the events specified in
Section 2(a) or 2(b) above.
3. INVESTMENT REPRESENTATIONS; LEGENDS.
(a) REPRESENTATIONS. The Holder represents, warrants and
covenants that:
3
<PAGE>
(i) The Warrant Shares purchased upon exercise of this
Warrant, and the shares issuable upon conversion of the Warrant Shares,
shall be acquired for the Holder's account for investment only and not
with a view to, or for sale in connection with, any distribution of the
shares in violation of the Securities Act of 1933, as amended (the
"Securities Act"), or any rule or regulation under the Securities Act.
(ii) The Holder has had such opportunity as it has deemed
adequate to obtain from representatives of the Company such information
as is necessary to permit the Holder to evaluate the merits and risks
of its investment in the Company.
(iii) The Holder is able to bear the economic risk of holding
shares acquired pursuant to the exercise of this Warrant for an
indefinite period.
(iv) The Holder understands that (A) the shares acquired
pursuant to the exercise of this Warrant will not be registered under
the Securities Act and are "restricted securities" within the meaning
of Rule 144 under the Securities Act; (B) such shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently
registered under the Securities Act or an exemption from registration
is then available; (C) in any event, an exemption from registration
under Rule 144 or otherwise under the Securities Act may not be
available for at least one year and even then will not be available
unless a public market then exists for the Warrant Shares, adequate
information concerning the Company is then available to the public and
other terms and conditions of Rule 144 are complied with; and (D) there
is now no registration statement on file with the Securities and
Exchange Commission with respect to any stock of the Company and the
Company has no obligation or current intention to register any shares
acquired pursuant to the exercise of this Warrant under the Securities
Act.
(v) The Holder agrees that, if the Company offers for the
first time any of its Common Stock for sale pursuant to a registration
statement under the Securities Act, the Holder will not, without the
prior written consent of the Company, publicly offer, sell, contract to
sell or otherwise dispose of, directly or indirectly, any shares
purchased upon exercise of this Warrant for a period of 90 days after
the effective date of such registration statement.
By making payment upon exercise of this Warrant, the Holder shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 3.
(b) LEGENDS ON STOCK CERTIFICATES. Each certificate
representing Warrant Shares shall bear a legend substantially in the following
form:
4
<PAGE>
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred,
sold or otherwise disposed of in the absence of an effective
registration statement with respect to the shares evidenced by this
certificate, filed and made effective under the Securities Act of 1933,
or an opinion of counsel satisfactory to the Company to the effect that
registration under such Act is not required."
4. RESERVATION OF STOCK. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant or the Common
Stock issuable upon conversion of the Warrant Shares.
5. NOTICES. All notices and other communications from the Company to
the Holder shall be mailed by first-class certified or registered mail, postage
prepaid, to the address furnished to the Company in writing by the Holder. All
notices and other communications from the Holder or in connection herewith to
the Company shall be mailed by first-class certified or registered mail, postage
prepaid, to the Company at its principal office.
6. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Holder shall not have or exercise any rights by virtue hereof as a stockholder
of the Company.
7. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
8. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
9. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without reference
to conflict of laws principles.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
10. TRANSFER RESTRICTIONS. This Warrant, and the rights and obligations
of the Holder hereof, may not be assigned or transferred, except that the Holder
may assign its rights and obligations hereunder to a corporation, partnership or
other entity controlling, controlled by or under common control with the Holder;
provided that the transferor delivers this Warrant to the Company for surrender
together with written instructions authorizing and directing the Company the
issue a new warrant of like tenor to a transferee meeting the foregoing
requirements.
Date of Grant: August ____, 1998
ART TECHNOLOGY GROUP, INC.
By: /s/ Mahendrajeet Singh
-------------------------------
Mahendrajeet Singh
President
HOLDER
SOFTBANK VENTURES INC.
By: /s/ Yoshitaka Kitao
-------------------------------
Yoshitaka Kitao
President and Chief Executive
Officer
6
<PAGE>
EXHIBIT 10.17
Exhibit C to the Purchase Agreement
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED.
No. C-___ Dated: August __, 1998
ART TECHNOLOGY GROUP, INC.
COMMON STOCK
PURCHASE WARRANT
(VESTING)
THIS IS TO CERTIFY THAT, for value received, ____________________ (the
"INITIAL WARRANT HOLDER"), and its registered successors and permitted assigns
are entitled, subject to the terms and conditions set forth below, to purchase
from ART TECHNOLOGY GROUP, INC., a Delaware corporation (the "CORPORATION"), at
any time or from time to time on and after the date hereof and prior to 5:00
P.M., Boston, Massachusetts time, on the Expiration Date (as defined in Section
1 below), all or any portion of the Vested Warrant Shares (as defined in Section
1), at a purchase price per share equal to the Exercise Price (as defined in
Section 1 below). The number and character of the Warrant Shares and the
Exercise Price are subject to adjustment as provided herein.
This Common Stock Purchase Warrant (this "WARRANT") is one of the
Common Stock Purchase Warrants evidencing the right to purchase shares of the
Common Stock, issued by the Corporation to the Purchasers, as defined in and
pursuant to the terms of that certain Series D Senior Participating Convertible
Preferred Stock Purchase Agreement, dated as of the date hereof (the "SERIES D
PURCHASE AGREEMENT").
1. DEFINITIONS. As used in this Warrant, the following terms shall have
the respective meanings set forth below or elsewhere in this Warrant as referred
to below:
"COMMON STOCK" shall mean shares of the Common Stock of the
Corporation, $.01 par value per share.
<PAGE>
-2-
"CORPORATION" shall mean Art Technology Group, Inc. and/or any Person
that shall succeed to, or assume the obligations hereunder of, Art Technology
Group, Inc.
"DERIVATIVE SECURITIES" shall mean (i) all shares of stock and other
securities that are, directly or indirectly, convertible into or exchangeable
for shares of Common Stock and (ii) all options, warrants and other rights to
acquire, directly or indirectly, shares of Common Stock or securities, directly
or indirectly, convertible into or exchangeable for shares of Common Stock.
"EXERCISE DATE" shall have the meaning set forth in Section 2.2 hereof.
"EXERCISE PRICE" shall mean the Initial Exercise Price, as adjusted
from time to time pursuant to the terms of this Warrant.
"EXPIRATION DATE" shall mean August __, 2008, unless terminated earlier
pursuant to the terms hereof.
"FAIR MARKET VALUE" shall mean (i) the last reported sale price per
share of Stock on the Nasdaq-NMS or any national securities exchange in which
such Stock is quoted or listed, as the case may be, on the date immediately
preceding the Exercise Date or, if no such sale price is reported on such date,
such price on the next preceding business day in which such price was reported,
or (ii) if such Stock is not quoted or listed on the Nasdaq-NMS or any national
securities exchange, the fair market value of a share of such Stock, as
determined in good faith by the Board of Directors of the Corporation and based
upon the fair market value of the Corporation as a whole, on a going concern
basis, using customary and appropriate valuation methods and the most recent
audited financial statements of the Corporation (unless the date of such audited
financial statements is more than six (6) months old, in which case another
audit shall be conducted at the expense of the Corporation and shall be used for
such purpose) and NOT taking into account any discount for minority ownership or
restrictions on transfer of the capital stock of the Corporation.
"HOLDER" shall mean, as applicable, (i) the Initial Warrant Holder,
(ii) any successor of the Initial Warrant Holder, or (iii) any other holder of
record of this Warrant or any portion thereof to whom this Warrant or any
portion thereof shall have been transferred in accordance with the provisions of
Section 9 hereof.
"INITIAL EXERCISE PRICE" shall mean an amount equal to $0.16 per share.
"INITIAL WARRANT HOLDER" shall have the meaning set forth in the first
paragraph of this Warrant.
"INITIAL WARRANT SHARES" shall mean _________ shares of Common Stock.
<PAGE>
-3-
"ISSUE DATE" shall mean August __, 1998.
"PERSON" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"PREFERRED STOCK" shall mean the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and
all other capital stock of the Corporation having a preference on dissolution or
liquidation of the Corporation.
"QUALIFIED PUBLIC OFFERING" shall mean a public offering of shares of
Common Stock pursuant to an effective registration statement on Form S-1, or
successor form, of the Securities and Exchange Commission, pursuant to which the
per share price to the public is not less than $8.00 (such amount to be subject
to proportionate adjustment in the event of any stock dividend, stock split,
combination of shares, reorganization, recapitalization, reclassification or
other similar event occurring with respect to the Common Stock after the Issue
Date) and the gross proceeds to the Corporation are not less than $20,000,000.
"REGISTRATION RIGHTS AGREEMENT" shall mean that certain Registration
Rights Agreement, dated as of the date hereof, by and among the Corporation,
Tudor Private Equity Fund, L.P., Raptor Global Fund Ltd., Raptor Global Fund
L.P. and the other persons listed therein.
"REGISTRABLE SECURITIES" shall have the meaning ascribed to it in the
Registration Rights Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES C PREFERRED STOCK" shall mean the Series C Convertible
Preferred Stock of the Corporation, $0.01 par value per share.
"SERIES D PREFERRED STOCK" shall mean Series D Senior Participating
Convertible Redeemable Preferred Stock of the Corporation, $.01 par value per
share.
"STOCK" shall mean (i) Common Stock, (ii) capital stock of the
Corporation (other than Common Stock) or of any other Person or any other
securities of the Corporation or
<PAGE>
-4-
of any other Person that the Holder is entitled to receive, or receives, upon
exercise of this Warrant, in lieu of or in addition to Common Stock, and/or
(iii) capital stock of the Corporation (other than Common Stock) or of any other
Person or any other securities of the Corporation or of any other Person that
may be issued in replacement of, substitution, exchange or redemption for, or
upon reclassification or conversion of, Common Stock or any other Stock, in each
case whether as a result of a reorganization, reclassification, merger,
consolidation or sale of substantially all of the assets of the Corporation.
"VESTED WARRANT SHARES" shall have the meaning set forth in Section 2.1
hereof.
"WARRANT" shall have the meaning set forth in the second paragraph of
this Warrant.
"WARRANT SHARES" shall mean, at any time, the Initial Warrant Shares
after giving effect to the number of shares of Stock previously purchased by the
Holder pursuant to any and all exercises of this Warrant prior to such time and
after giving effect to all adjustments with respect to the number of Warrant
Shares purchaseable hereunder as provided for herein, including, without
limitation, those set forth in Section 4 hereof, prior to such time.
2. EXERCISE OF WARRANT.
2.1 METHOD OF EXERCISE. Subject to and upon all of the terms and
conditions set forth in this Warrant, the Holder may exercise this Warrant, in
whole or in part with respect to any Vested Warrant Shares, at any time and from
time to time during the period commencing on the date hereof and ending at 5:00
p.m., Boston, Massachusetts time, on the Expiration Date, by presentation and
surrender of this Warrant to the Corporation at its principal office, together
with (a) a properly completed and duly executed subscription form, in the form
attached hereto, which subscription form shall specify the number of Warrant
Shares for which this Warrant is then being exercised, and (b) payment of the
aggregate Exercise Price payable hereunder in respect of the number of Warrant
Shares being purchased upon exercise of this Warrant. Payment of such aggregate
Exercise Price shall be made either (i) in cash or by money order, certified or
bank cashier's check or wire transfer (in each case in lawful currency of the
United States of America), (ii) by cancellation of indebtedness owing from the
Corporation to the Holder, (iii) by the Holder surrendering a number of Warrant
Shares having a Fair Market Value on the date of exercise equal to, greater than
(but only if by a fractional share) or less than (if surrendered pursuant to
(iv) below) the required aggregate Exercise Price, in which case the Holder
would receive the number of Warrant Shares to which it would otherwise be
entitled upon such exercise, less the surrendered shares, or (iv) any
combination of the methods described in the foregoing clauses (i), (ii) or
(iii).
<PAGE>
-5-
The Warrant Shares shall vest and, subject to the limitation
contained in the next paragraph, become exerciseable (the "VESTED WARRANT
SHARES") at a rate of five percent (5%) on each March 31, June 30, September 30
and December 31, until fully vested, commencing with September 30, 1998.
Notwithstanding the foregoing, this Warrant may not be
exercised prior to the fifth anniversary of the Issue Date unless (i) the
Corporation sells (whether by merger or consolidation) all or substantially all
of its assets or sells more than 50% of its voting capital stock prior to the
fifth anniversary of the Issue Date and the proceeds of such sale actually
received (net of any escrows or other holdbacks) by the holders of Series D
Preferred Stock in connection with such sale are not, on a per-share basis,
greater than three (3) times the original purchase price per share of Series D
Preferred Stock (subject to adjustment for stock splits, stock dividends, stock
combinations, capital reorganizations, reclassifications and the like), or (ii)
the Company completes a public offering of shares of the Corporation's Common
Stock pursuant to an effective registration statement on Form S-1, or successor
form, of the Securities and Exchange Commission.
2.2 EFFECTIVENESS OF EXERCISE; OWNERSHIP. Each exercise of this Warrant
by the Holder shall be deemed to have been effected immediately prior to the
close of business on the date upon which all of the requirements of Section 2.1
hereof with respect to such exercise shall have been complied with in full (each
such date, an "EXERCISE DATE"). On the applicable Exercise Date with respect to
any exercise of this Warrant by the Holder, the Corporation shall be deemed to
have issued to the Holder, and the Holder shall be deemed to have become the
holder of record and legal owner of, the number of Warrant Shares being
purchased upon such exercise of this Warrant, notwithstanding that the stock
transfer books of the Corporation shall then be closed or that certificates
representing such number of Warrant Shares being purchased shall not then be
actually delivered to the Holder.
2.3 DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant, and in any event within ten (10) days
thereafter, the Corporation, at its expense and in accordance with applicable
securities laws, will cause to be issued in the name of and delivered to the
Holder, or as the Holder may direct (subject in all cases, to the provisions of
Section 9 hereof), a certificate or certificates for the number of Warrant
Shares purchased by the Holder on such exercise, PLUS, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the Fair Market Value.
2.4 SHARES TO BE FULLY PAID AND NONASSESSABLE. All Warrant Shares
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable, free of all liens, taxes, charges and other encumbrances or
restrictions on sale (other than those set forth herein) and free and clear of
all preemptive rights.
<PAGE>
-6-
2.5 FRACTIONAL SHARES. No fractional shares of Stock or scrip
representing fractional shares of Stock shall be issued upon the exercise of
this Warrant. With respect to any fraction of a share of Stock called for upon
any exercise hereof, the Corporation shall make a cash payment to the Holder as
set forth in Section 2.3 hereof.
2.6 ISSUANCE OF NEW WARRANTS; CORPORATION ACKNOWLEDGMENT. Upon any
partial exercise of this Warrant, the Corporation, at its expense, will
forthwith and, in any event, within ten (10) days after such partial exercise
issue and deliver to the Holder a new warrant or warrants of like tenor,
registered in the name of the Holder, exercisable, in the aggregate, for the
balance of the Warrant Shares. Moreover, the Corporation shall, at the time of
any exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to the Holder any rights to which
the Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant; PROVIDED, HOWEVER, that if the Holder shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Corporation to afford to the Holder any such rights.
2.7 PAYMENT OF TAXES AND EXPENSES. The Corporation shall pay any
recording, filing, stamp or similar tax which may be payable in respect of any
transfer involved in the issuance of, and the preparation and delivery of
certificates (if applicable) representing, (i) any Warrant Shares purchased upon
exercise of this Warrant and/or (ii) new or replacement warrants in the Holder's
name or the name of any transferee of all or any portion of this Warrant.
3. REGISTRATION AND OTHER RIGHTS.
(a) REGISTRATION RIGHTS AGREEMENT. The Holder of this Warrant
shall have the right to cause the Corporation to register any and all Warrant
Shares under the Securities Act and under any blue sky or securities laws of any
jurisdictions within the United States, at the time and in the manner specified
and as provided for in the Registration Rights Agreement, and any and all
Warrant Shares shall be deemed to be Registrable Securities for all purposes of
the Registration Rights Agreement.
(b) SERIES D PURCHASE AGREEMENT; STOCKHOLDERS AGREEMENT.
Subject to Section 10.4 of this Warrant, for the purposes of the Series D
Purchase Agreement, and the Stockholders Agreement (as such term is defined in
the Series D Purchase Agreement), the shares of Common Stock issuable upon
exercise of this Warrant shall be included for the purposes of determining the
number of shares of Common Stock held by such Holder for all purposes of such
agreements.
(c) REDEMPTION. The Holder of this Warrant shall be entitled
to cause the Corporation to redeem this Warrant upon sixty (60) days written
notice to the Corporation (i) at any time after August __, 2003 or (ii) at any
time that such Holder also requests the Corporation to redeem any of such
Holder's shares of Series D
<PAGE>
-7-
Preferred Stock pursuant to the terms of the Series D Preferred Stock contained
in the Amended and Restated Certificate of Incorporation (the "CERTIFICATE OF
Designations"), upon the same terms and conditions applicable to redemption of
shares of Series D Preferred Stock pursuant to the Certificate of Designations;
PROVIDED, HOWEVER, that the Corporation shall redeem this Warrant for an amount
equal to the product of (a) the then current number of Warrant Shares,
MULTIPLIED BY (b) the excess of (i) the then current Fair Market Value of a
share of Common Stock of the Corporation, OVER (ii) the then current Exercise
Price.
4. ADJUSTMENTS.
4.1 ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
(a) In the event that, at any time and from time to time after
the Issue Date, the Corporation shall (A) issue any additional shares of Stock
as a dividend or distribution on its outstanding stock or options, warrants or
other rights to purchase, directly or indirectly, Stock as a dividend or
distribution on its outstanding stock or securities convertible, directly or
indirectly, into Stock as a dividend or distribution on its outstanding stock
(other than shares of Stock issued upon exchange, exercise or conversion of the
Preferred Stock or Purchased Securities (as defined in the Purchase Agreement)),
(B) subdivide its outstanding shares of Stock into a greater number of shares of
Stock or (C) combine its outstanding shares of Stock into a smaller number of
shares of Stock, then and in each such event, (x) the Exercise Price shall,
simultaneously with the happening of such event, be adjusted by multiplying the
then current Exercise Price by a fraction, (i) the numerator of which shall be
the number of shares of Stock outstanding immediately prior to such event on a
fully-diluted basis, assuming exercise in full of all options, warrants or other
rights to purchase Stock, directly or indirectly, outstanding immediately prior
to such event and conversion into or exchange for Stock, directly or indirectly,
of all securities convertible into or exchangeable for Stock outstanding
immediately prior to such event, each in accordance with their terms, and (ii)
the denominator of which shall be the number of shares of Stock outstanding
immediately after such event on a fully-diluted basis, assuming exercise in full
of all options, warrants or other rights to purchase Stock, directly or
indirectly, outstanding immediately after such event and conversion into or
exchange for Stock, directly or indirectly, of all securities convertible into
or exchangeable for Stock outstanding immediately after such event, each in
accordance with their terms, and the product so obtained shall thereafter be the
Exercise Price then in effect, and (y) the number of Warrant Shares shall be
adjusted by increasing or decreasing, as the case may be, the number of shares
of Stock included within the Warrant Shares by the percentage increase or
decrease in the total number of shares of Stock outstanding immediately after
such event as compared to the total number of shares of Stock outstanding
immediately prior to such event and the result so obtained shall be the number
of Warrant Shares then in effect.
<PAGE>
-8-
(b) The Exercise Price and the number of Warrant Shares, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4.1
4.2 ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION OR MERGER. In the
event that, at any time or from time to time after the Issue Date, the
Corporation shall (a) effect a reorganization, (b) consolidate with or merge
into any other Person, or (c) sell or transfer all or substantially all of its
properties or assets or more than 50% of the voting capital stock of the
Corporation (whether issued and outstanding, newly issued, from treasury, or any
combination thereof) to any other Person under any plan or arrangement
contemplating the reorganization, consolidation or merger, sale or transfer, or
dissolution of the Corporation, then, in each such case, the Holder, upon the
exercise of this Warrant as provided in Section 2 hereof at any time or from
time to time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution (subject to the limitation
contained in Section 4.5, if applicable), as the case may be, shall receive, in
lieu of the Warrant Shares issuable on such exercise immediately prior to such
consummation or such effective date, as the case may be, the Stock and property
(including cash) to which the Holder would have been entitled upon the
consummation of such reorganization, consolidation or merger, or sale or
transfer, or in connection with such dissolution, as the case may be, if the
Holder had so exercised this Warrant immediately prior thereto (assuming the
payment by the Holder of the Exercise Price therefor as required hereby in a
form permitted hereby, which payment shall be included in the assets of the
Corporation for the purposes of determining the amount available for
distribution), all subject to successive adjustments thereafter from time to
time pursuant to, and in accordance with, the provisions of this Section 4.
4.3 ADJUSTMENTS FOR DILUTIVE ISSUANCES; PERFORMANCE MILESTONES;
RECLASSIFICATION
The number of Warrant Shares to which the Holder would otherwise be
entitled upon exercise of this Warrant, until and as adjusted from time to time
pursuant to this Section 4.3 or any other provision of this Warrant, shall be
equal to the product obtained by multiplying (y) the number of Warrant Shares
which such Holder is then entitled to purchase hereunder, BY (z) the Applicable
Conversion Rate (determined below).
Notwithstanding the foregoing, if the Corporation fails to employ a
Chief Operating Officer, with the intent to promote such Chief Operating Officer
to Chief Executive Officer, or a Chief Executive Officer, each of whom meet the
employment requirements set forth in the Series D Purchase Agreement, prior to
one (1) year after the Issue Date, then the number of Warrant Shares to which
the holder hereof shall be entitled upon exercise of this Warrant shall be equal
to the product obtained by multiplying (x) the number of Warrant Shares which
such Holder is then entitled to purchase hereunder BY (y) the Applicable
Conversion Rate (as determined below) BY (z) 1.25.
<PAGE>
-9-
The conversion rate in effect at any time (the "APPLICABLE CONVERSION
RATE") shall equal the quotient obtained by DIVIDING (A) $3.20 (subject to
proportionate adjustment for any stock dividend, stock split, combination of
shares, reorganization, recapitalization, reclassification or other similar
event occurring with respect to the Series D Preferred Stock after the Issue
Date), BY (B) the applicable conversion value then in effect (the "APPLICABLE
CONVERSION VALUE"), calculated as hereinafter provided. The Applicable
Conversion Value in effect as of the Issue Date, and until adjusted in
accordance with the provisions of this Section 4.3, shall be $3.20.
(a) DILUTIVE ISSUANCES.
(i) In the event that the Corporation issues or is deemed to
issue any additional shares of Common Stock at a Net Consideration Per Share (as
hereinafter defined) less than the Applicable Conversion Value in respect of the
Warrant Shares in effect immediately prior to such issuance or deemed issuance,
then and in each such case, such Applicable Conversion Value for the Warrant
Shares shall automatically and without further action be adjusted as follows:
(A) If such issuance and/or deemed issuance occurs on
or before the second anniversary of the Issue Date, then the Applicable
Conversion Value for the Warrant Shares will be adjusted to equal the
Net Consideration Per Share (as hereinafter defined) at which such
additional shares of Common Stock were issued and/or deemed issued.
(B) If such issuance and/or deemed issuance occurs
after the second anniversary of the Issue Date, then the Applicable
Conversion Value for the Warrant Shares will be adjusted to equal the
result of the following formula:
New Applicable Conversion Value = (P1 X Q1) + (P2 X Q2)
---------------------
(Q1 + Q2)
where:
P1 = the Applicable Conversion Value in effect immediately prior to such
issuance or deemed issuance of additional shares of Common Stock;
Q1 = the aggregate number of shares of Common Stock outstanding (including
shares of Common Stock issuable upon conversion of all outstanding shares of
Series D Preferred Stock and conversion, exchange and/or exercise of all
outstanding warrants, options and other convertible securities, each to the
extent then convertible, exchangeable and/or exercisable) immediately prior to
such issuance or deemed issuance of additional shares of Common Stock;
<PAGE>
-10-
P2 = the Net Consideration Per Share (as hereinafter defined) received by the
Corporation for the shares of Common Stock issued and/or deemed issued in
respect of such issuance of additional shares of Common Stock; and
Q2 = the number of shares of Common Stock issued and/or deemed issued in respect
of such issuance of additional shares of Common Stock.
The following shall not be deemed issuances of additional
shares of Common Stock for the purposes of this Section 4.3(a): the
Corporation's (A) issuance of shares of Common Stock upon conversion of shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, (B) granting of stock options to directors,
officers, employees, or consultants of the Corporation pursuant to the
Corporation's 1996 Stock Option Plan or pursuant to any other employee benefit
plan approved by the Board of Directors of the Corporation, and the issuance of
shares of Common Stock upon exercise of any of the foregoing options, (c)
issuance of Common Stock upon the exercise of the Warrants (as defined in the
Series D Purchase Agreement), (d) issuance of up to 56,296 shares of Series C
Preferred Stock upon the exercise of warrants issued to Silicon Valley Bank, (e)
issuance of up to 425,532 shares of Series B Preferred Stock upon the exercise
of the Amended and Restated Warrant issued to SOFTBANK Ventures, Inc. (the
"SOFTBANK WARRANT"), and (f) warrants to purchase Common Stock issued to
commercial institutional senior lenders solely in connection with the
establishment of a working capital line of credit (and the issuance of Common
Stock upon exercise thereof) in an amount not to exceed 200,000 shares.
For purposes of this Section 4.3(a), if a part or all of the
consideration received by the Corporation in connection with the issuance or
deemed issuance of shares of Common Stock or the issuance or deemed issuance of
any of the securities described below in paragraph (ii) of this Section 4.3(a)
consists of property other than cash, such consideration shall be deemed to have
the same value as is recorded on the books of the Corporation with respect to
receipt of such property so long as such recorded value was determined
reasonably and in good faith and with due care by the Board of Directors of the
Corporation, and shall otherwise be deemed to have a value equal to its fair
market value.
(ii) For purposes of this Section 4.3(a), the issuance of any
Derivative Securities shall be deemed an issuance of shares of Common Stock with
respect to Section 4.3(a) if the Net Consideration Per Share (as defined below)
that may be received by the Corporation for such Common Stock is less than the
Applicable Conversion Value in effect immediately prior to the time of such
issuance, and except as hereinafter provided, an adjustment in the Applicable
Conversion Value shall be made upon each such issuance of Derivative Securities
in the manner provided in Section 4.3(a), as appropriate, as if such deemed
Common Stock were issued for such Net Consideration Per Share. No adjustment of
the Applicable Conversion Value shall be made under this Section 4.3(a) upon the
issuance of any additional shares of Common
<PAGE>
-11-
Stock that are issued upon the exercise, conversion, or exchange of any
Derivative Securities if any such adjustment was previously made upon the
issuance of such Derivative Securities. Any adjustment of the Applicable
Conversion Value with respect to this Section 4.3(a) shall be disregarded if,
as, and to the extent that the Derivative Securities that gave rise to such
adjustment expire or are canceled without having been exercised, so that the
Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Applicable Conversion Value that otherwise
would have been in effect immediately prior to the time of the issuance of the
expired or canceled Derivative Securities, with such additional adjustments as
subsequently would have been made to that Applicable Conversion Value had the
expired or canceled Derivative Securities not been issued. In the event that the
terms of any Derivative Securities previously issued by the Corporation are
changed (whether by their terms or for any other reason, including without
limitation, as a result of the effects of any anti-dilution adjustments
contained therein) so as to lower the Net Consideration Per Share payable with
respect thereto (whether or not the issuance of such Derivative Securities
originally gave rise to an adjustment of the Applicable Conversion Value), the
Applicable Conversion Value shall be recomputed as of the date of such change,
so that the Applicable Conversion Value effective immediately upon such change
shall be equal to the Applicable Conversion Value in effect at the time of the
issuance of the Derivative Securities subject to such change, adjusted for the
issuance thereof in accordance with the terms thereof after giving effect to
such change, and with such additional adjustments as subsequently would have
been made to that Applicable Conversion Value had the Derivative Securities been
issued on such changed terms. For purposes of this Section 4.3(a)(ii), the Net
Consideration Per Share that may be received by the Corporation shall be
determined as follows:
(A) "NET CONSIDERATION PER SHARE" shall mean the
amount equal to the total amount of consideration, if any, received by
the Corporation for the issuance of such Derivative Securities, plus
the minimum amount of additional consideration, if any, payable to the
Corporation upon exercise, conversion, and/or exchange thereof for
shares of Common Stock, divided by the maximum number of shares of
Common Stock that would be issued if all such Derivative Securities
were exercised or converted at such Net Consideration Per Share.
(B) The Net Consideration Per Share that may be
received by the Corporation shall be determined in each instance as of
the date of issuance of Derivative Securities without giving effect to
any possible future price adjustments or rate adjustments that may be
applicable with respect to such Derivative Securities and which are
contingent upon future events; PROVIDED, that in the case of an
adjustment to be made as a result of a change in terms of such
Derivative Securities, including such changes as may result from the
effects of any anti-dilution adjustments contained therein, the Net
Consideration Per Share shall be determined as of the date of such
change.
<PAGE>
-12-
(b) PERFORMANCE MILESTONES.
(i) END OF SEVEN FISCAL QUARTERS. If, on or as of the end of
the seven (7) fiscal quarters of the Corporation ending December 31, 1999, the
Corporation's (a) total cumulative revenues ("TOTAL REVENUES") are less than
$54,000,000 and/or (b) total cumulative product revenues (which, for this
purpose, shall be deemed to mean only those revenues derived from sales by the
Corporation of non-customized products (as distinct from services) as to which
the Corporation is not a reseller and which the buyer has not purchased for
inventory) ("TOTAL PRODUCT REVENUES") are less than $20,500,000 and/or (c) total
cumulative EBIT (as defined below) is less than $4,500,000, then the Applicable
Conversion Value that would otherwise be in effect with respect to the Warrant
Shares shall automatically and without further action be adjusted to a per share
amount that shall be equal to the quotient obtained by DIVIDING (i) the
applicable Assumed Corporation Value (as determined below) BY (ii) 14,085,848
(i.e., the total number of shares of Common Stock outstanding (on a
fully-diluted basis) as of the date of issuance of the Series D Preferred Stock
pursuant to the Series D Purchase Agreement immediately prior to the issuance of
the shares of Series D Preferred Stock (it being understood that if the quotient
obtained pursuant to the preceding formula is greater than the Applicable
Conversion Value in effect immediately prior to such adjustment, then no such
adjustment shall be made pursuant to this Section 4.3(a), which number shall
automatically and without further action be reduced to 13,525,100 upon the
termination or expiration of the SOFTBANK Warrant by its terms and provided that
the holder thereof has not exercised any portion of such SOFTBANK Warrant.
The "ASSUMED CORPORATION VALUE" shall be equal to the weighted
average of the Pre-Money Values set forth in the far left-hand column of the
table below that correspond to each of the Total Revenues, Total Product
Revenues and EBIT as set forth on the table below, with the Pre-Money Value that
corresponds to Total Revenues being weighted at 50% and the Pre-Money Values
that correspond to each of Total Product Revenues and EBIT being weighted each
at 25%. Notwithstanding the foregoing or anything to the contrary contained
herein, the Assumed Corporation Value shall be not less than $17,000,000 and not
greater than $43,000,000.
Each of the values in the table below are deemed to be further
sub-divided into increments as follows (in order to determine the corresponding
figures in the table below), such that: (a) each incremental one dollar ($1) of
Total Revenues shall equal an incremental one dollar ($1) of Pre-Money Value,
(b) each incremental one dollar ($1) of Total Product Revenues shall equal an
incremental two dollars ($2) of Pre-Money Value, and (c) each incremental one
dollar ($1) of EBIT shall equal an incremental ten dollars ($10) of Pre-Money
Value. For examples, (1) $41,347,628 in Total Revenues shall correspond to a
$30,347,628 Pre-Money Value, (2) $11,928,413 Total Product Revenues shall
correspond to a $25,856,826 Pre-Money Value and (3) $3,869,470 in EBIT shall
correspond to a $36,694,700 Pre-Money Value.
<PAGE>
-13-
In comparing the Corporation's actual Total Revenues, actual
Total Product Revenues and actual EBIT to the figures in the table below, a
simple-rounding method to the nearest dollar shall be used in order to determine
the Total Revenues, Total Product Revenues and EBIT.
TABLE TO DETERMINE
ASSUMED CORPORATION VALUE
($ IN 000'S AND SUBJECT TO
FURTHER SUB-DIVISION AS DESCRIBED ABOVE)
<TABLE>
<CAPTION>
PRE-MONEY VALUE TOTAL REVENUES TOTAL PRODUCT REVENUES EBIT
(shown in 1,000,000 (shown in 1,000,000 (shown in 100,000 increments (shown in 100,000
increments only) increments only) only) increments only)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$17,000 LESS THAN OR EQUAL TO $28,000 LESS THAN OR EQUAL TO $7,500 LESS THAN OR EQUAL TO $1,900
$18,000 $29,000 $8,000 $2,000
$19,000 $30,000 $8,500 $2,100
$20,000 $31,000 $9,000 $2,200
$21,000 $32,000 $9,500 $2,300
$22,000 $33,000 $10,000 $2,400
$23,000 $34,000 $10,500 $2,500
$24,000 $35,000 $11,000 $2,600
$25,000 $36,000 $11,500 $2,700
$26,000 $37,000 $12,000 $2,800
$27,000 $38,000 $12,500 $2,900
$28,000 $39,000 $13,000 $3,000
$29,000 $40,000 $13,500 $3,100
$30,000 $41,000 $14,000 $3,200
$31,000 $42,000 $14,500 $3,300
$32,000 $43,000 $15,000 $3,400
$33,000 $44,000 $15,500 $3,500
$34,000 $45,000 $16,000 $3,600
$35,000 $46,000 $16,500 $3,700
$36,000 $47,000 $17,000 $3,800
$37,000 $48,000 $17,500 $3,900
$38,000 $49,000 $18,000 $4,000
$39,000 $50,000 $18,500 $4,100
$40,000 $51,000 $19,000 $4,200
$41,000 $52,000 $19,500 $4,300
$42,000 $53,000 $20,000 $4,400
$43,000 GREATER THAN OR GREATER THAN OR GREATER THAN OR
EQUAL TO $54,000 EQUAL TO $20,500 EQUAL TO $4,500
</TABLE>
<PAGE>
-14-
Thus, for example, if as of December 31, 1999, the Corporation has
$47,894,322.38 in actual Total Revenues, $14,025,417.85 in actual Total Product
Revenues and $3,198,439.23 in actual EBIT, then (using simple rounding to the
nearest dollar) the corresponding figures from the table above are $47,894,322
in Total Revenues, $14,025,418 in Total Product Revenues and $3,198,439 in EBIT.
The calculation for the Assumed Corporation Value would be as follows:
EXAMPLE OF CALCULATION OF
ASSUMED CORPORATION VALUE
<TABLE>
<CAPTION>
ACTUAL ROUNDED CORRESPONDING ASSUMED
RESULTS PRE-MONEY VALUE WEIGHT CORPORATION VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $47,894,322 $36,894,322 50% $18,447,161
- ---------------------------------------------------------------------------------------------------------------------
TOTAL PRODUCT REVENUES $14,025,418 $30,050,836 25% $ 7,512,709
- ---------------------------------------------------------------------------------------------------------------------
EBIT $ 3,198,439 $29,984,390 25% $ 7,496,098
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSUMED
CORPORATION VALUE $33,455,968
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(ii) PRIOR TO END OF SEVEN FISCAL QUARTERS. In the event of
any public or private offering or other issuance of the Corporation's Common
Stock or Derivative Securities, the sale of the Corporation (whether by merger,
consolidation, sale of all or substantially all of the Corporation's assets or
sale of a majority of the outstanding voting capital stock, whether newly
issued, from treasury or issued and outstanding, or any combination thereof) or
a liquidation, dissolution or winding-up of the affairs of the Corporation at
any time prior to December 31, 1999, then the Applicable Conversion Value that
would otherwise be in effect with respect to the Warrant Shares shall be
adjusted to a per share amount that shall be equal to the quotient obtained by
dividing (i) the applicable Assumed Adjusted Corporation Value (as determined
below) by (ii) 14,085,848, which number shall automatically and without further
action be reduced to 13,525,100 upon the termination or expiration of the
SOFTBANK Warrant by its terms and provided that the holder thereof has not
exercised any portion of such SOFTBANK Warrant.
The "ASSUMED ADJUSTED CORPORATION VALUE" shall be determined
as follows: (i) first, the Corporation's actual Total Revenues, actual Total
Product Revenues and actual EBIT for the fiscal quarters completed prior to such
offering or other issuance, sale or liquidation, dissolution or winding-up,
shall be compared against the applicable cumulative quarterly projections for
Total Revenues, Total Product Revenues and EBIT set forth in the table below and
expressed as a percentage (e.g., if on December 1, 1998 the Corporation is sold
and, at that time, actual Total Revenues equal $8,000,000, then $8,000,000
compared against $6,400,000 (the applicable cumulative quarterly projection)
expressed as a percentage equals 125%); (ii) second, the
<PAGE>
-15-
percentage as determined pursuant to the foregoing clause (i) for each of Total
Revenues, Total Product Revenues and EBIT shall be applied to the "baseline"
valuation as set forth in the second table below (e.g., with respect to Total
Revenues, 125% of $41,000,000 (the "baseline" for Total Revenue) equals
$51,250,000 (each, an "ADJUSTED BASELINE RESULT")); and (iii) third, the
Adjusted Baseline Results for each of Total Revenues, Total Product Revenues and
EBIT shall be used to calculate the Assumed Adjusted Corporation Value in
accordance with the second, third and fourth paragraphs and table of Section
4(g)(i)above.
TABLE OF
CUMULATIVE QUARTERLY PROJECTIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 1998 FISCAL YEAR 1999
---------------------------------------- --------------------------------------------------------
Q2 Q3 Q4 Q1 Q2 Q3 Q4
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL
REVENUES 2,454,000 6,400,000 11,361,000 17,371,000 24,041,000 32,151,000 41,361,000
- ---------------------------------------------------------------------------------------------------------------------
PRODUCT
REVENUES 658,000 1,823,000 3,168,000 5,678,000 8,448,000 12,058,000 15,968,000
- ---------------------------------------------------------------------------------------------------------------------
EBIT (1,181,800) (2,166,750) (2,125,850) (1,135,850) 89,150 1,634,150 3,554,150
- ---------------------------------------------------------------------------------------------------------------------
R&D
EXPENSE 508,000 1,197,000 2,089,200 3,141,200 4,275,200 5,647,200 7,189,200
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
"BASELINE" COMPARISON
TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRE-MONEY VALUE TOTAL REVENUE TOTAL PRODUCT REVENUE EBIT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$30,000,000 $41,000,000 $14,000,000 $3,200,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding anything contained herein to the contrary, in
no event shall the Assumed Adjusted Corporation Value be greater than
$30,000,000 unless, and only to the extent that, after any adjustment required
by this Section 4(g)(ii), (A) in the event of a sale of the Corporation, the
proceeds actually received (net of any escrows or other holdbacks) by the
holders of the Series D Preferred Stock in respect of shares of Series D
Preferred Stock in connection with such sale or liquidation, dissolution or
winding-up equals or exceeds three (3) times the original purchase price per
share of Series D Preferred Stock (subject to adjustment for stock splits, stock
dividends, stock combinations, capital reorganizations, reclassifications and
other similar events), or (B) in the event of a public or private offering or
other issuance, the price per share to the purchasers in such offering in
connection with such offering equals or exceeds three (3) times the original
purchase price per share of Series D Preferred Stock (subject to adjustment for
stock splits, stock dividends, stock combinations, capital reorganizations,
reclassifications and other similar events).
(iii) "EBIT" shall mean, for the relevant period, the net
income (or loss) of the Corporation, after excluding all extraordinary items of
income or loss from the
<PAGE>
-16-
calculation thereof plus, to the extent deducted in the computation thereof, the
sum of (i) interest expense AND (ii) taxes for such period, LESS amounts
budgeted for research and development as set forth in the Table of Cumulative
Quarterly Projections above that have not been expensed in research and
development during the seven fiscal quarters ending December 31, 1999, PLUS the
amounts paid to Bain & Company for consulting services rendered to the
Corporation, if any, up to $100,000.
(c) ADJUSTMENT TO EXERCISE PRICE. In each such instance of an
adjustment to the Applicable Conversion Value pursuant to Section 4.3(a), (b) or
(c), the Exercise Price shall, simultaneously with the happening of each such
event, be adjusted by multiplying the then current Exercise Price by a fraction,
(A) the numerator of which shall be the number of Warrant Shares immediately
prior to such event, and (B) the denominator of which shall be the number of
Warrant Shares immediately after such event.
(d) ADJUSTMENTS FOR RECLASSIFICATIONS. If the Common Stock issuable
upon the conversion of this Warrant shall be changed into the same or a
different number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Section 4.1 or a
merger, consolidation, or sale of assets provided for under Section 4.2), then
and in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, or other change
by holders of the number of shares of Common Stock into which such Warrant
Shares would have been convertible immediately prior to such reclassification,
or change, all subject to further adjustment as provided herein.
4.4 CONTINUATION OF TERMS. Upon any reorganization, reclassification,
sale, consolidation, merger or other transfer (and any liquidation, dissolution
or winding up of the Corporation following any such transfer) referred to in
this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of Stock and property receivable
upon the exercise of this Warrant after the consummation of such reorganization,
reclassification, sale, consolidation, merger or other transfer or the effective
date of liquidation, dissolution or winding up of the Corporation following any
such transfer, as the case may be, and shall be binding upon the issuer of any
such Stock, including, in the case of any such transfer, the Person acquiring
all or substantially all of the properties or assets or more than 50% of the
voting capital stock of the Corporation (whether issued and outstanding, newly
issued or from treasury or any combination thereof), whether or not such Person
shall have expressly assumed the terms of this Warrant.
4.5 DISSOLUTION. Subject to Section 4.4 hereof, in the event of any
dissolution of the Corporation following the transfer of all or substantially
all of its properties or assets at any time after the Issue Date, the
Corporation shall retain for a period of at least ninety (90) days after the
effective date of such dissolution the Stock and property
<PAGE>
-17-
(including cash, where applicable) receivable by the Holder pursuant to Section
4.2 hereof upon exercise of this Warrant at any time after the effective date of
such dissolution (assuming the payment by the Holder of the Exercise Price
therefor as required hereby in a form permitted hereby). If the Holder fails to
exercise this Warrant within the sixty (60) day period following the effective
date of such dissolution, then such Stock and property (including cash, where
applicable) shall be distributed PRO RATA to those Persons who were stockholders
of record of the Corporation on the effective date of such dissolution or as
otherwise required by law or the Certificate of Incorporation of the
Corporation.
5. OFFICER'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the number and kind of Warrant Shares, or
Property, issuable hereunder from time to time, or the Exercise Price, the
Corporation, at its expense, will promptly cause an officer of the Corporation
to compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing the facts upon which such adjustment or readjustment is based. The
Corporation will forthwith send a copy of each such certificate to the Holder in
accordance with Section 10.5 below.
6. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Corporation of a record of the holders of Stock
for the purpose of determining the holders thereof who are entitled to receive
any shares of Stock as a dividend or other distribution or pursuant to a stock
split, or
(b) any reorganization of the Corporation, or any sale or transfer, in
a single transaction or a series of related transactions, of all or
substantially all the assets of the Corporation to, or the consolidation or
merger of the Corporation with or into, any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Corporation, or
(d) any sale, in a single transaction or a series of related
transactions, of a majority of the Corporation's voting stock (whether newly
issued, or from treasury, or previously issued and then outstanding, or any
combination thereof),
then and in each such event the Corporation will mail or cause to be mailed to
the Holder a notice specifying (i) the date on which any such record is to be
taken for the purpose of such dividend, distribution or stock split, and stating
the amount and character of such dividend, distribution or stock split, or (ii)
the date on which any such reorganization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of any one or more classes of
Stock shall be entitled to exchange their shares of Stock for
<PAGE>
-18-
securities or other property deliverable on such reorganization, transfer,
consolidation, merger, dissolution, liquidation or winding-up, or (iii) the date
on which any such sale of a majority of the Corporation's voting stock is to
take place and the material terms thereof , as the case may be. Such notice
shall be mailed at least fifteen (15) days prior to the date specified in such
notice on which any such action is to be taken.
7. EXCHANGE OF WARRANT. Subject to the provisions of Section 9 hereof
(if and to the extent applicable), this Warrant shall be exchangeable, upon the
surrender hereof by the Holder at the principal office of the Corporation, for
new warrants of like tenor, each registered in the name of the Holder or in the
name of such other Persons as the Holder may direct. Each of such new warrants
shall be exercisable for such number of Warrant Shares as the Holder shall
direct, PROVIDED that all of such new warrants shall represent, in the
aggregate, the right to purchase the same number of Warrant Shares and cash,
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of a customary affidavit of the Holder and an indemnity
agreement or, in the case of any such mutilation, on surrender and cancellation
of this Warrant, the Corporation at its expense will execute and deliver, in
lieu thereof, a new warrant of like tenor.
9. TRANSFER PROVISIONS, ETC.
9.1 LEGENDS.
(a) Each certificate representing any Warrant Shares issued
upon exercise of this Warrant shall bear the following legend:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY BE TRANSFERRED ONLY PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED.
(b) Each certificate representing any shares of Stock issued
from time to time upon exercise of this Warrant shall also bear any legend
required under any applicable state securities or blue sky laws.
9.2 MECHANICS OF TRANSFER. Any transfer of all or any portion of this
Warrant, or of any interest therein, that is otherwise in compliance with
applicable law shall be effected by surrendering this Warrant to the Corporation
at its principal office, together with (i) a duly executed form of assignment,
in the form attached hereto, (ii) payment of
<PAGE>
-19-
any applicable transfer taxes, if any. In the event of any such transfer of this
Warrant, in whole, the Corporation shall issue a new warrant of like tenor to
the transferee, representing the right to purchase the same number of Warrant
Shares, and cash, securities or other property, if any, which were purchasable
by the Holder upon exercise of this Warrant at the time of its transfer. In the
event of any such transfer of any portion of this Warrant, (i) the Corporation
shall issue a new warrant of like tenor to the transferee, representing the
right to purchase the same number of Warrant Shares, and cash, securities or
other property, if any, which were purchasable by the Holder upon exercise of
the transferred portion of this Warrant at the time of such transfer, and (ii)
the Corporation shall issue a new warrant of like tenor to the Holder,
representing the right to purchase the number of Warrant Shares, and cash,
securities or other property, if any, purchasable by the Holder upon exercise of
the portion of this Warrant not transferred to such transferee. Until this
Warrant or any portion thereof is transferred on the books of the Corporation,
the Corporation may treat the Holder as the absolute holder of this Warrant and
all right, title and interest therein for all purposes, notwithstanding any
notice to the contrary.
9.3. RESTRICTIONS ON TRANSFER. Subject to compliance with applicable
securities laws, this Warrant, and any portion hereof, and the Warrant Shares
may be transferred by the Holder in its sole discretion at any time and to any
Person, including without limitation transfers to Affiliates or Affiliated
Groups (as such terms are defined in the Series D Purchase Agreement), without
the consent of the Corporation.
10. GENERAL.
10.1 STATEMENT ON WARRANT. Irrespective of any adjustments in the
Exercise Price or the number or kind of Warrant Shares, this Warrant may
continue to express the same kind of Warrant Shares as are stated on the front
page hereof.
10.2 AUTHORIZED SHARES; RESERVATION OF SHARES FOR ISSUANCE. At all
times while this Warrant is outstanding, the Corporation shall maintain its
corporate authority to issue, and shall have authorized and reserved for
issuance upon exercise of this Warrant, such number of shares of Stock as shall
be sufficient to perform its obligations under this Warrant (after giving effect
to any and all adjustments to the number and kind of Warrant Shares purchasable
upon exercise of this Warrant).
10.3 NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will
<PAGE>
-20-
not increase the par value of any shares of Stock receivable upon the exercise
of this Warrant above the amount payable therefor on such exercise, and (b) will
take all action that may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Stock on the exercise of this Warrant.
10.4 NO RIGHTS AS STOCKHOLDER. The Holder shall not be entitled to vote
or to receive dividends or to be deemed the holder of Stock that may at any time
be issuable upon exercise of this Warrant for any purpose whatsoever, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Corporation until the Holder shall have exercised
the Warrant and been issued Warrant Shares in accordance with the provisions
hereof.
10.5 NOTICES. All notices, demands, requests, certificates or other
communications under this Warrant shall be in writing and shall be either mailed
by certified mail, postage prepaid, in which case such notice, demand, request,
certificate or other communications shall be deemed to have been given three (3)
days after the date on which it is first deposited in the mails, or hand
delivered or sent by facsimile transmission, by tested or otherwise
authenticated telex or cable or by private expedited courier for overnight
delivery with signature required, in each such case, such notice, demand,
request, certificate or other communications being deemed to have been given
upon delivery or receipt, as the case may be:
(i) if to the Corporation, Art Technology Group, Inc., 101 Huntington
Avenue, Boston, MA 02119, Attention: President, or at such other address as the
Corporation may have furnished in writing to the Holder; and
(ii) if to the Holder, at the Holder's address appearing in the books
maintained by the Corporation.
10.6 AMENDMENT AND WAIVER. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The
provisions of this Warrant may be amended, modified or waived with (and only
with) the written consent of the Corporation and the Holder.
10.7 GOVERNING LAW. This Warrant shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of Massachusetts.
<PAGE>
-21-
10.8 COVENANTS TO BIND SUCCESSOR AND ASSIGNS. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Corporation shall bind its successors and assigns, whether so expressed
or not.
10.9 SEVERABILITY. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
10.10 CONSTRUCTION. The definitions of this Warrant shall apply equally
to both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
10.11 REMEDIES. The Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Corporation agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Warrant and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Warrant or where any provision hereof is validly asserted as a defense,
the successful party to such action or proceeding shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed as an instrument under seal in its corporate name by one of its
officers thereunto duly authorized, all as of the day and year first above
written.
ART TECHNOLOGY GROUP, INC.
[Corporate Seal]
By:__________________________
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be executed upon exercise of Warrant)
To: ART TECHNOLOGY GROUP, INC.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to exercise thereunder,
_______ shares of Common Stock, $.01 par value per share ("COMMON STOCK"), of
Art Technology Group, Inc., a Delaware corporation, and tenders herewith payment
of $__________, representing the aggregate purchase price for such shares based
on the price per share provided for in such Warrant. Such payment is being made
in accordance with [Section 2.1(i)] [Section 2.1(ii)] [Section 2.1(iii)] of the
attached Warrant.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations and deliver such
certificate or certificates to the person or persons listed below at their
respective addresses set forth below:
Dated:_________________________ _________________________________
---------------------------------
(Address)
If said number of shares of Common Stock shall not be all the shares of
Common Stock issuable upon exercise of the attached Warrant, a new Warrant is to
be issued in the name of the undersigned for the balance remaining of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash.
Dated: ____________, 19__ ____________________________________
NOTE: The above signature should
correspond exactly with the name on
the face of the attached Warrant or
with the name of the assignee
appearing in the assignment form
below.
<PAGE>
FORM OF ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, _____________________________________ hereby sells,
assigns and transfers unto _________________ the attached Warrant [__% of the
attached Warrant], together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ attorney
to transfer said Warrant [said percentage of said Warrant] on the books of Art
Technology Group, Inc., a Delaware corporation, with full power of substitution
in the premises.
If not all of the attached Warrant is to be so transferred, a new
Warrant is to be issued in the name of the undersigned for the balance of said
Warrant.
Dated: ____________, 19__ ____________________________________________
NOTE: The above signature should correspond
exactly with the name on the face of the
attached Warrant.
<PAGE>
EXHIBIT 10.18
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "AGREEMENT") dated as of August 18,
1998, is by and among (i) Art Technology Group, Inc., a Delaware corporation
(the "COMPANY"), (ii) Tudor Private Equity Fund, L.P., Raptor Global Fund, L.P.,
Raptor Global Fund, Ltd. and Affiliates of the foregoing who become parties to
this Agreement by executing a Supplemental Agreement (collectively, "TUDOR
PARTIES"), (iii) persons who are Bain Affiliates and who become parties to this
Agreement by executing a Supplemental Agreement (collectively, "BAIN PARTIES")
and persons (other than Tudor Parties and Bain Parties) who become parties to
this Agreement by executing a Supplemental Agreement, (iv) the persons listed on
SCHEDULE 1 hereto (collectively, the "SERIES C STOCKHOLDERS"), (v) SOFTBANK
Ventures, Inc., a Japanese corporation (the "SERIES B STOCKHOLDER"), (vi)
Mandanjeet Singh and B.U. Chung (collectively, the "SERIES A STOCKHOLDERS"),
(vii) Mahendrajeet Singh and Joseph Chung (individually, a "FOUNDER" and
collectively, the "FOUNDERS") and (viii) each other person who becomes a party
to this Agreement by executing an Instrument of Accession in the form of
SCHEDULE 2 hereto. Capitalized terms used and not otherwise defined upon first
usage herein have the respective meanings ascribed to them in the Purchase
Agreement (as defined below).
The Persons listed in clauses (ii)-(iii) of the preceding paragraph
(including their respective successors and permitted assigns) are sometimes
referred to in this Agreement as (individually) a "PURCHASER" or (collectively)
the "PURCHASERS." The Persons referred to in clauses (iv) through (vii) of the
preceding paragraph (including their respective successors and permitted
assigns) are sometimes referred to in this Agreement as (individually) an
"EXISTING STOCKHOLDER" or (collectively) the "EXISTING STOCKHOLDERS." The
Purchasers and the Existing Stockholders are sometimes referred to in this
Agreement as (individually) a "STOCKHOLDER" or (collectively) the
"STOCKHOLDERS." Any person who becomes a party to this Agreement by executing an
Instrument of Accession in the form of SCHEDULE 2 hereto shall be deemed to be a
Stockholder for all purposes hereunder, having the same rights and obligations
of the Stockholder whom such party succeeds.
WHEREAS, the Company and the Purchasers desire to enter into a Series D
Senior Participating Convertible Redeemable Preferred Stock Purchase Agreement
(the "PURCHASE AGREEMENT"), dated as of the date hereof, pursuant to which the
Company will issue and sell certain securities to the Purchasers on the terms
and conditions set forth therein;
WHEREAS, but for the execution and delivery of this Agreement by the
Company and the Existing Stockholders, the Purchasers would not be willing to
enter into the Purchase Agreement or to consummate the transactions thereby
contemplated, which transactions will benefit the Company and the Existing
Stockholders of the Company;
<PAGE>
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WHEREAS, to induce the Purchasers to enter into the Purchase Agreement
and to consummate the transactions contemplated thereby, the Company and the
Existing Stockholders are willing to enter into this Agreement
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
This Agreement replaces and supercedes in its entirety (i) Articles III
and IV and all other provisions related thereto contained in that certain
Stockholders Agreement, dated as of December 23, 1996, as amended, by and among
the Company, the Founders, the Series A Stockholders, the Series B Stockholder
and any other persons listed therein and parties thereto, and (ii) Section 7.2
of the Series B Preferred Stock Purchase Agreement, dated as of December 23,
1996, by and among the Company and the Series B Stockholder, and each of the
Stockholders Agreement and such Section 7.2 of the Series B Preferred Stock
Purchase Agreement hereby are terminated and shall have no further force and
effect.
1. VOTING AGREEMENT.
(a) AGREEMENT WITH RESPECT TO VOTING.
(i) For so long as this Agreement remains in effect and any shares of
Series D Preferred Stock of the Company remain outstanding, each Stockholder
shall vote any and all shares of the Company's capital stock held by him or it
from time to time, and shall use his or its best efforts to cause the several
members of the Company's board of directors (the "BOARD OF DIRECTORS") to vote,
so as to elect members of the Board of Directors, to maintain the membership of
the Board of Directors, and to cause the Company to act or abstain from acting,
in accordance with all of the provisions of this Agreement.
(ii) Each Existing Stockholder hereby grants to the Purchasers (acting
pursuant to the vote or consent of the Purchasers holding at least a majority of
the shares of Common Stock issued or issuable upon conversion of all shares of
Series D Preferred Stock sold and purchased pursuant to the Purchase Agreement)
an irrevocable proxy and power of attorney, coupled with an interest, to vote
all shares of the Company's capital stock held by such Existing Stockholder from
time to time solely to the extent necessary to carry out the provisions of this
Section 1 in the event of any breach by such Existing Stockholder of his or her
obligations under this Section 1.
(b) BOARD OF DIRECTORS. The Board of Directors shall be composed of not
more than seven (7) directors, elected as follows:
(i) Up to two (2) of the directors shall be elected by the holders of a
majority of the outstanding shares of Series D Preferred Stock, voting
separately as a class; one (1) of such directors shall be designated by the
Tudor Parties in their sole discretion, initially such director shall be Robert
P. Forlenza, and one (1) of such directors shall be designated by the
<PAGE>
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Bain Parties in their sole discretion, PROVIDED THAT the Bain Parties purchase
in the aggregate at least 468,750 shares of Series D Preferred Stock; in the
event that the Bain Parties have not purchased at least 468,750 shares of Series
D Preferred Stock in the aggregate and, after the date hereof, either (a) the
Tudor Parties or persons identified to the Company by a Tudor Entity or (b) GMN
Investors II, L.P. (and/or its affiliates) purchase in the aggregate an
additional 312,500 shares of Series D Preferred Stock, then the Tudor Parties or
GMN Investors II, L.P., as the case may be, shall be entitled to designate the
second director in their sole discretion.
(ii) Two (2) of the directors (each of whom must be members of
management of the Company) shall be elected by the holders of a majority of the
outstanding shares of Common Stock, voting separately as a class.
(iii) One (1) of the directors shall be elected by the holders of a
majority of the outstanding shares of Series C Preferred Stock, voting
separately as a class; initially such director shall be Thomas N.
Matlack.
(iv) One (1) of the directors shall be elected by the holders of a
majority of the outstanding shares of Series B Preferred Stock, voting
separately as a class, but only until the first date on which there are less
than 50,000 shares of Series B Preferred Stock outstanding or the outstanding
shares of Series B Preferred Stock represent less than five percent (5%) of the
outstanding shares of Common Stock (on a fully diluted basis assuming conversion
of all shares of Preferred Stock and exercise of all options, warrants and other
rights to acquire capital stock of the Company), in which event such director
shall be elected by a majority of the outstanding shares of Common Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
(assuming conversion of the Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock), voting separately as a class, and which director
shall not be a member of management of the Company.
(v) One (1) of the directors (who shall not be a member of management
of the Company) shall be elected by a majority of the outstanding shares of
Common Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock (assuming conversion of the Series B Preferred Stock, Series C
Preferred Stock and the Series D Preferred Stock), initially, such director
shall be Scott A. Jones.
(vi) Any director elected pursuant to this Section 1(b) may be removed
before the expiration of his term of office, with or without cause, and any
vacancy caused by the death, incapacity, resignation, removal, or other
termination of service of any director, may be filled, by (and only by) the
affirmative vote of the holders of at least a majority of the shares of the
class or series of capital stock by which such director was elected, voting as a
class or series separately from all other classes and series of capital stock.
(vii) Both of the directors elected by the holders of a majority of the
outstanding shares of the Series D Preferred Stock pursuant to Section 1(b)(i)
above shall have the right,
<PAGE>
-4-
at all times, to be a member of any audit, compensation, nominating, executive
or other committee formed by the Board of Directors of the Company.
(viii) In the absence of a designation or election of either or both of
the two (2) directors pursuant to Section 1(b)(i) above, one representative of
each of Tudor Parties and the Bain Parties shall have visitation rights with
respect to all meetings of the Board of Directors.
2. RESTRICTIONS ON TRANSFER OF SECURITIES.
(a) CERTAIN DEFINITIONS. As used in this Agreement:
(i) "PERMITTED TRANSFEREE(S)" means, with respect to (a) Stockholders
who are natural persons ("INDIVIDUAL STOCKHOLDERS"), such Individual
Stockholder's spouse, parents, siblings, children, and grandchildren, and any
trust for the benefit of such Individual Stockholders or such Individual
Stockholder's spouse, parents, children or grandchildren, and (b) Tudor Parties,
any person in Tudor Parties' sole discretion, including, without limitation, its
Affiliates or Affiliated Groups (each, as defined in the Purchase Agreement) or
any mutual funds or other pooled investment vehicles or entities for which Tudor
Parties or its Affiliates or Affiliated Groups serve as a general partner,
managing member, investment advisor or in another similar capacity.
(ii) "TRANSFER" means any sale, pledge, assignment, encumbrance, gift,
or other disposition or transfer of shares of Common Stock or other equity
securities of the Company (as used in this Agreement, the terms "EQUITY
SECURITY" and "EQUITY SECURITIES" include without limitation options, warrants,
and other rights to acquire shares of the Company's capital stock, and
securities and other instruments that are convertible into or exchangeable for
shares of the Company's capital stock, and/or any legal or beneficial interest
in any of the foregoing), or any legal or beneficial interest therein, including
any tender or transfer in connection with any merger, recapitalization,
reclassification, or tender or exchange offer (for all or any part of the
Company's equity securities), whether or not the person proposing to make any
such transfer votes for any transaction involving any such Transfer.
(b) GENERAL. No Existing Stockholder shall make, cause or participate
in any Transfer, or enter into, consent to, or vote in favor of any transaction
that would result in any Transfer by him or her, unless all the provisions of
this Agreement that are applicable to such Transfer have been complied with,
EXCEPT that (i) any Existing Stockholder may Transfer equity securities of the
Company to any Permitted Transferee, if prior to such Transfer to such Permitted
Transferee such Permitted Transferee agrees in writing by delivering an
Instrument of Accession in the form of SCHEDULE 2 hereto to the Company (naming
the Purchasers as intended third-party beneficiaries) to be bound by all of the
terms of this Agreement that are applicable to such appropriate transferring
Existing Stockholder(s) and (ii) an individual Existing Stockholder may Transfer
equity securities of the Company to the Company in accordance with the terms of
any repurchase provisions
<PAGE>
-5-
contained in any employment or other agreement between the Company and such
individual Existing Stockholder (any such Transfer, a "PERMITTED TRANSFER").
(c) PROHIBITED TRANSFERS VOID. Any attempted Transfer in violation of
the terms of this Agreement shall be ineffective to vest in any purported
transferee any right, title, or interest in or to the securities purported to be
Transferred, and the Company shall not recognize any such purported transferee
as the holder or owner of such securities for any purpose, including without
limitation for purposes of exercising voting rights or rights to receive
dividends or other distributions in respect of such securities.
3. CO-SALE RIGHTS AS TO STOCK TRANSFERS (OTHER THAN FOUNDERS
TRANSFERS).
(a) TRANSFER NOTICE. At least 45 days prior to any proposed Transfer
(other than a Permitted Transfer) by an Existing Stockholder (other than a
Founder) of any class or series of capital stock of the Company equal to 15% or
more of the outstanding shares of Common Stock of the Company (on a
fully-diluted basis assuming the conversion or exchange of all outstanding
Derivative Securities), in one transaction or in the aggregate as a result of a
series of transactions, each such Existing Stockholder (the "TRANSFERRING
Stockholder") shall give written notice (the "TRANSFER NOTICE") to the Company
and to each of the Purchasers, in accordance with Section 9.2 hereof, setting
forth (i) the number and class of equity securities proposed to be transferred
or sold by the Transferring Stockholder (the "OFFERED SECURITIES"), (ii) the
anticipated date of the proposed Transfer and the names and addresses of the
proposed transferees, and (iii) the material terms of the proposed Transfer,
including the cash and/or other consideration to be received in respect of such
Transfer. If one or more Existing Stockholders (other than a Founder) propose to
engage in or engages in a series of Transfers involving 15% or more of the
outstanding shares of Common Stock of the Company (on a fully-diluted basis
assuming conversion or exchange of all outstanding Derivative Securities), then
each Existing Stockholder (other than a Founder) proposing to engage or engaging
in each transaction in such series will give the Transfer Notice provided for in
this Section 3(a) with respect to such transaction, and the co-sale rights
provided for in Section 3(b), the Put Rights provided for in Section 3(d) and
other rights provided for herein will apply to each such transaction. If a
transaction is one of a series of transactions to which this Section 3(a)
applies, but one or more transactions in a series have occurred prior to the
date of such proposed transaction, the effect of such prior transactions when
taken together with the proposed transaction, in the aggregate, involving 15% of
the Common Stock of the Company (on a fully-diluted basis assuming conversion or
exchange of all Derivative Securities), then each such earlier Transfer by each
such prior Transferring Stockholder will be deemed to be a Prohibited Transfer
for which the Purchasers shall be entitled to Put Rights as provided for in
Section 3(d). For purposes of complying with this Section 3, the Company will
maintain a record of all transactions to which this Agreement applies.
(b) CO-SALE RIGHTS. Upon the receipt of any Transfer Notice, then
subject to all of the provisions of this Section 3, each of the Purchasers may
elect to participate in the contemplated Transfer by delivering written notice
to the Transferring Stockholder within 30
<PAGE>
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days after the effective date of such Transfer Notice. Each of the Purchasers so
electing will be entitled to sell in the contemplated Transfer, at the same
price and on the same terms as specified in the Transfer Notice, a number of
shares equal to (and not less than) the product obtained by multiplying (i) the
quotient determined by dividing (A) the number of shares of Common Stock held by
such Purchaser (for this purpose, including all shares of Common Stock that were
issued, or are issuable, upon conversion of shares of Preferred Stock and
exercise of Derivative Securities held by such Purchaser), by (B) the aggregate
number of shares of Common Stock held by the Transferring Stockholder (or Common
Stock issued or issuable upon the conversion of the shares of capital stock held
by such Transferring Stockholder) and all Purchasers electing to participate
(for this purpose, including all shares of Common Stock that were issued, or are
issuable, upon conversion of shares of Preferred Stock and exercise of
Derivative Securities held by such Purchasers), by (ii) the aggregate number of
shares to be sold in the contemplated Transfer. The Transferring Stockholder
will be entitled to sell in the contemplated Transfer the balance of the shares
proposed to be so sold. The Transferring Stockholder shall use his or her best
efforts to obtain the agreement of the prospective transferee(s) to the
participation of the Purchasers in any contemplated Transfer and shall not
Transfer any shares to such prospective transferee(s) unless such prospective
transferee(s) allows the participation of the Purchasers on the terms specified
herein. Subject to the foregoing, the Transferring Stockholder may, within 90
days after the expiration of the 30-day period referred to above, transfer the
Offered Securities (reduced by the number of shares of stock with respect to
which any of the Purchasers have elected to participate, if any) to the
transferee(s) identified in the Transfer Notice at a price and on terms no more
favorable to the Transferring Stockholder than specified in the Transfer Notice;
PROVIDED, that such transferee(s) shall first execute and deliver to the Company
a written agreement to be bound by all of the provisions of this Agreement
applicable to the Transferring Stockholder(s) and naming the Purchasers as
intended third-party beneficiaries of such agreement. However, if such Transfer
is not consummated within such 90-day period, the Transferring Stockholder shall
not transfer any of the Offered Securities as have not been purchased within
such period without again complying with all of the provisions of this Section
3.
(c) MULTIPLE SERIES, CLASSES OR TYPES OF STOCK. If the Offered
Securities consist of more than one series, class or type of equity security,
each of the Purchasers will have the right to transfer hereunder such
Purchaser's PRO RATA share of each such series, class or type of equity
security; provided, however, that (i) if such Purchaser does not hold any of
such series, class or type of equity security proposed to be transferred, and
the proposed transferee or transferees are not willing to purchase some other
series, class or type of equity security from such Purchaser as part of such
Purchaser's PRO RATA share, or (b) if the proposed transferee or transferees are
not willing to purchase any equity securities from such Purchaser (the
consummation of a Transfer under each such circumstance being referred to herein
as an "INCOMPLETE CO-SALE"), then such Purchaser shall have the Put Right set
forth in Section 3(d).
(d) REFUSAL TO TRANSFER AND PUT RIGHT. If a Transferring Stockholder
transfers Common Stock or other equity securities in contravention of the
co-sale rights set forth in
<PAGE>
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Section 3(b) (a "PROHIBITED Transfer") or is deemed to have engaged in a
Prohibited Transfer pursuant to Section 3(a) hereof, or if any Incomplete
Co-Sale occurs with respect to a Purchaser, then any Purchaser (but only a
Purchaser) may require such Transferring Stockholder to purchase from such
Purchaser, for cash or such other consideration as the Transferring Stockholder
received in the Prohibited Transfer or Incomplete Co-Sale, that number of shares
of Common Stock or other equity securities having a purchase price equal to the
aggregate purchase price such Purchaser would have received in connection with
such Prohibited Transfer or Incomplete Co-Sale if such Purchaser had exercised
and been able to consummate such co-sale pursuant to Section 3(b) (the "PUT
RIGHT"). Such Put Right may be exercised at any time by delivery of a written
notice to the Transferring Stockholder and the Company (a "PUT NOTICE") within
ten days after such Purchaser becomes aware of the Prohibited Transfer or
Incomplete Co-Sale. The closing of such sale to the Transferring Stockholder
under such Put Right will occur within seven (7) days after the date of such Put
Notice. Notwithstanding the foregoing provisions of this Section 3(d), if the
Prohibited Transfer is one of a series of transactions to which Section 3(a)
applies, but which occurred prior to the provision of any Transfer Notice with
respect thereto, then: (a) the Company will promptly give to each Transferring
Stockholder in such earlier transaction or transactions a notice that such
Transferring Stockholder is required to give, within ten days, to the Company
and the Purchasers (and such Transferring Stockholder will be required to give
such notice within such ten-day period) a written notice signed by the
Transferring Stockholder (the "TRANSFERRING STOCKHOLDER PUT NOTICE") stating,
with respect to such earlier transaction, the information provided for in
Section 3(a); (b) each Purchaser may exercise its Put Right with respect to such
earlier transaction by delivering a Put Notice to the Transferring Stockholder
and the Company within ten (10) days after such Transferring Stockholder Put
Notice is given; and (c) the closing of the sale by the Transferring Stockholder
under such Put Right will occur within seven (7) days after the date of such Put
Notice.
4. FIRST REFUSAL AND CO-SALE RIGHTS AS TO FOUNDERS TRANSFERS
(a) TRANSFER NOTICE. At least 45 days prior to any proposed Transfer
(other than a Permitted Transfer) by a Founder of any shares of any class(es) or
series of capital stock of the Company in one transaction or as a result of a
series of transactions, such Founder (the "TRANSFERRING FOUNDER") shall give
notice (the "FOUNDERS TRANSFER NOTICE") to each other Founder, the Company, the
Series A Stockholders, the Series B Stockholders and each of the Purchasers, in
accordance with Section 9.2 hereof, setting forth (i) the number and class of
equity securities proposed to be transferred or sold by the Transferring Founder
(the "FOUNDERS OFFERED SECURITIES"), (ii) the anticipated date of the proposed
Transfer and the names and addresses of the proposed transferees, and (iii) the
material terms of the proposed Transfer, including the cash and/or other
consideration to be received in respect of such Transfer.
(b) PURCHASERS' OPTIONS AND RIGHTS. Upon the giving of any Founders
Transfer Notice, then subject to all of the provisions of this Section 4, (v)
the Company, (w) each Founder other than the Transferring Founder (the "BUYING
FOUNDER"), (x) each Series A
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Stockholder, (y) each Series B Stockholder and (z) each Purchaser (each of the
persons in clauses (v)-(z), a "PURCHASING PARTY" or collectively, the
"PURCHASING PARTIES") will or may, as applicable, have certain options and
rights as follows.
(i) RIGHTS OF FIRST REFUSAL. Each Purchasing Party will have
the option, but not the obligation, to purchase up to that portion of the
Founders Offered Securities, on the same terms as are specified in the Founders
Transfer Notice, including any deferred payment terms, PROVIDED, that the
Purchasers will have the right to substitute cash in the amount of the fair
market value of any non-cash consideration proposed to be received from the
proposed transferees, as shall equal the product obtained by multiplying (A) the
quotient obtained by dividing (I) the number of shares of Common Stock held by
such Purchasing Party (for this purpose, including all shares of Common Stock
that were issued to or that are issuable upon conversion of shares of stock held
by such Purchasing Party) by (II) the aggregate number of shares of Common Stock
held by all Purchasing Parties electing to purchase (for this purpose, including
all shares of Common Stock issued to or that are issuable upon conversion of
shares of Preferred Stock and exercise of Derivative Securities held by such
Purchasing Parties) by (B) the number of Founders Offered Securities. Within 30
days after the effective date of the Founders Transfer Notice, each of the
Purchasing Parties will give written notice to the Transferring Founder stating
whether it elects to exercise such option, and if so, as to how many of the
Founders Offered Securities it elects to exercise such option. Failure by any
Purchasing Party to give such notice within such time period will be deemed an
election by it not to exercise its option. The closing of the purchase and sale
of the Founders Offered Securities to the Purchasing Parties will take place as
soon as is reasonably practicable at such date, time, and place as the
Purchasing Parties may reasonably determine. As to any Founders Offered
Securities that the Purchasing Parties do not elect to purchase hereunder,
subject to the provisions of Section 4(b)(ii) hereof, the Transferring Founder
will thereafter be free for a period of 90 days after expiration of the 30-day
period referred to above to consummate the Transfer described in the Founders
Transfer Notice to the transferee(s) specified therein, at the price and on the
other terms set forth therein; PROVIDED, that such transferee(s) first
execute(s) and deliver(s) to the Company a written agreement to be bound by all
of the provisions of this Section 4) and naming the Purchasing Parties as
intended third-party beneficiaries of such agreement. However, if such Transfer
is not consummated within such 90-day period, the Transferring Founder will not
Transfer any of the Founders Offered Securities as have not been purchased
within such period without again complying with all of the provisions of this
Section 4.
(ii) CO-SALE RIGHTS. Upon receipt of a Founders Transfer
Notice, each of the Purchasing Parties (other than any Purchasing Party who has
elected to purchase any of the Founders Offered Securities pursuant to Section
4(b)(i) hereof and other than the Company) may elect to participate in the
contemplated Transfer by delivering written notice to the Transferring Founder
within 30 days after the effective date of such Founders Transfer Notice. Each
of the Purchasing Parties so electing (each a "SELLING PARTY" and collectively
the "SELLING PARTIES") will be entitled to sell in the contemplated Transfer, at
the same price and on the same terms as specified in the Founders Transfer
Notice, a number of shares of Common Stock equal to (and not less than) the
product obtained by multiplying (i) the
<PAGE>
-9-
quotient determined by dividing (A) the number of shares of Common Stock held by
each such Selling Party (for this purpose, including all shares of Common Stock
that were issued to or that are issuable upon conversion of shares of stock and
exercise of Derivative Securities held by such Selling Parties), by (B) the
aggregate number of shares of Common Stock held by the Transferring Founder
(including all shares of Common Stock issuable upon conversion of the shares of
Preferred Stock held by such Transferring Founder) and all other Selling Parties
(for this purpose, including all shares of Common Stock that were issued to or
are issuable upon conversion of shares of Preferred Stock and exercise of
Derivative Securities held by such Selling Parties), by (ii) the aggregate
number of shares to be sold in the contemplated Transfer. The Transferring
Founder will be entitled to sell in the contemplated Transfer the balance of the
shares of the shares proposed to be so sold. The Transferring Founder shall use
his or her best efforts to obtain the agreement of the prospective transferee(s)
to the participation of each Selling Party in any contemplated Transfer and
shall not Transfer any shares to such prospective transferee(s) unless such
prospective transferee(s) allows the participation of each Selling Party on the
terms specified herein. Subject to the foregoing and to the provisions of
Section 4(b)(i) above, the Transferring Founder may, within 90 days after the
expiration of the 30-day period referred to above, transfer the Founders Offered
Securities (reduced by the number of shares of stock with respect to which any
of the Selling Parties have elected to participate, if any) to the Purchasing
Parties and/or the transferee(s) identified in the Founders Transfer Notice at a
price and on terms no more favorable to the Transferring Founder than specified
in the Transfer Notice; PROVIDED, that such transferee(s) shall first execute
and deliver to the Company a written agreement to be bound by all of the
provisions of this Agreement applicable to the Transferring Founder(s) and
naming the Purchasing Parties as intended third-party beneficiaries of such
agreement. However, if such Transfer is not consummated within such 90-day
period, the Transferring Founder shall not transfer any of the Founders Offered
Securities as have not been purchased within such period without again complying
with all of the provisions of this Section 4.
(c) MULTIPLE SERIES, CLASSES OR TYPES OF STOCK. If the Founders Offered
Securities consist of more than one series, class or type of equity security,
each of the Purchasers will have the right to transfer hereunder such
Purchaser's PRO RATA share of each such series, class or type of equity
security; provided, however, that (i) if such Purchaser does not hold any of
such series, class or type of equity security proposed to be transferred, and
the proposed transferee or transferees are not willing to purchase some other
series, class or type of equity security from such Purchaser as part of such
Purchaser's PRO RATA share, or (b) if the proposed transferee or transferees are
not willing to purchase any equity securities from such Purchaser (the
consummation of a Transfer under each such circumstance being referred to herein
as an "INCOMPLETE FOUNDERS CO-SALE"), then such Purchaser shall have the Limited
Put Right set forth in Section 4(d).
(d) LIMITED PUT RIGHT. If a Transferring Founder transfers Common Stock
or other equity securities in contravention of the co-sale rights set forth in
Section 4(b)(ii) (a "PROHIBITED FOUNDERS TRANSFER"), or if any Incomplete
Founders Co-Sale occurs with respect to a Purchaser, then any Purchaser (but
only a Purchaser) may require such Transferring
<PAGE>
-10-
Founder to purchase from such Purchaser, for cash or such other consideration as
the Transferring Founder received from the Prohibited Founders Transfer or from
the Incomplete Founders Co-Sale, that number of shares of Common Stock or other
equity securities having a purchase price equal to the aggregate purchase price
such Purchaser would have received in connection with such Prohibited Founders
Transfer or Incomplete Founders Co-Sale if such Purchaser had exercised and been
able to consummate such co-sale pursuant to Section 4(b)(ii) (the "LIMITED PUT
RIGHT"). Such Limited Put Right may be exercised at any time by delivery of a
written notice to the Transferring Founder and the Company (a "LIMITED PUT
NOTICE") within ten days after such Purchaser becomes aware of the Prohibited
Founders Transfer or the Incomplete Founders Co-Sale. The closing of such sale
to the Transferring Founder under such Limited Put Right will occur within seven
days after the date of such Limited Put Notice.
5. PROCEDURES FOR INVOLUNTARY TRANSFERS.
(a) TRANSFER UPON DEATH. This Agreement shall not be construed to
prevent a transfer of any equity securities of the Company by an Individual
Stockholder by will or intestate succession, PROVIDED that the person so
acquiring such securities (a "TRANSFEREE UPON DEATH") immediately notifies the
Company of such acquisition and executes and delivers to the Company an
agreement to be bound by all of the provisions of this Agreement applicable to
such applicable Individual Stockholder and naming the Purchasers as intended
third-party beneficiaries of such agreement, and PROVIDED, FURTHER, that the
Company and the Purchasers shall have the option to purchase from such acquiring
person the securities so acquired as if, and upon the same terms and conditions
as if, at the time of such acquisition such acquiring person had given a
Transfer Notice or Founders Transfer Notice in accordance with the provisions of
Section 3 or 4, as applicable, of this Agreement, stating a price equal to the
Fair Market Value of such securities (as determined in accordance with Section
5(c) below).
(b) TRANSFERS BY OPERATION OF LAW. In the event that any Existing
Stockholder: (i) files a voluntary petition under any bankruptcy or insolvency
law or a petition for the appointment of a receiver or makes an assignment for
the benefit of creditors, (ii) is subjected involuntarily to such a petition or
assignment or to an attachment or other legal or equitable interest with respect
to any equity securities of the Company and such involuntary petition or
assignment or attachment is not discharged within 90 days, or (iii) is subjected
to any other possible transfer of any equity securities of the Company by
operation of law, including without limitation an assignment pursuant to a
divorce decree or other similar proceeding, then such Existing Stockholder shall
notify the Company and each Purchaser of such event and the Company and each
Purchaser shall have an option to purchase from any receiver, petitioner,
assignee, transferee, or other person obtaining an interest in such equity
securities (a "TRANSFEREE BY LAW") all or any portion of such equity securities
and all interests therein as if, and upon the same terms and conditions as if,
at the time of such event such Transferee by Law had given a Transfer Notice or
Founders Transfer Notice in accordance with the provisions of Section 3 or 4, as
applicable, of this Agreement, stating a
<PAGE>
-11-
price equal to the Fair Market Value of such equity securities (as determined in
accordance with Section 5(c) below).
(c) DETERMINATION OF FAIR MARKET VALUE. For the purposes of this
Agreement only, the "FAIR MARKET VALUE" of securities of the Company shall be
determined as follows. The Company and the Transferee Upon Death or Transferee
By Law (as the case may be) (each an "INVOLUNTARY TRANSFEREE") shall in good
faith attempt to agree upon the fair market value of such securities. "Fair
Market Value" shall in all cases be calculated on the assumption of an
arms'-length sale at open market value (taking into account any discount
applicable to a minority interest and/or illiquidity). If such Fair Market Value
has not been agreed upon within 30 days after the date of the deemed Transfer
Notice or Founders Transfer Notice, then within five days after the end of that
30-day period, the Company, the Purchasers, and the Involuntary Transferee shall
in good faith agree upon and appoint an appraiser. Within 60 days after such
appointment, the appraiser shall submit to the Company, the Purchasers, and the
Involuntary Transferee a written appraisal of the Fair Market Value, which shall
be conclusive. Each of the Company and the Involuntary Transferee shall be
responsible for one-half of the fees and expenses of such appraiser.
6. PRE-EMPTIVE RIGHTS.
6.1. PRE-EMPTIVE RIGHTS. Subject to the exclusions set forth in Section
6.3 of this Agreement, and to the provisions of the following sentence in this
Section 6.1, if at any time after the Closing and prior to a Qualified Public
Offering, the Company authorizes the offer, issuance, or sale, or offers, issues
or sells to any Person (the "OFFEREE") any shares of Common Stock, Derivative
Securities or any other securities of the Company (whether as newly issued
shares or other securities or from the Company's treasury), the Company will
first offer to sell, by written notice, to each Purchaser and Series B
Stockholder a portion (such person's "PORTION") of such shares or securities
authorized to be offered, issued or sold, or proposed to be offered, issued or
sold equal to the product obtained by multiplying (i) the number of such shares
or securities authorized to be offered, issued or sold, or proposed to be
offered, issued or sold by the Company, by (ii) the quotient obtained by
dividing (A) the number of shares of Common Stock held by such Purchaser or
Series B Stockholder (for this purpose, including all shares of Common Stock
that were issued to or are issuable upon conversion of shares of Preferred Stock
and exercise of Derivative Securities held by such Purchaser or Series B
Stockholder), by (B) the sum of (I) the aggregate number of shares of Common
Stock issued and outstanding as of such date and (II) the aggregate number of
shares of Common Stock issuable upon conversion of all outstanding shares of
Series B Preferred Stock and Series D Preferred Stock plus the number of shares
of Common Stock issuable upon conversion of all of the Derivative Securities
held by each Purchaser and Series B Stockholder.
6.2. PROCEDURE. Each Purchaser and Series B Stockholder will be
entitled (but not obligated) to purchase all or part of such person's Portion at
the same price and on the same terms as such stock or securities are to be
offered to the Offeree. Each such person may exercise such purchase rights
within 30 days after receipt of written notice from the
<PAGE>
-12-
Company describing in reasonable detail the stock or securities to be offered to
the Offeree, the purchase price thereof, the payment terms, and such person's
percentage allotment. If any person fails in whole or in part to exercise the
purchase rights hereunder within such 30-day period (other than by reason of the
Company's failure to comply with the provisions of this Section 6), then each
(other) Purchaser (but only a Purchaser) shall have the right to acquire such
Portion (which right may be exercised by any such Purchaser by indication in
such Purchaser's notice to the Company of its exercise of purchase rights
hereunder its desire to acquire additional securities, or otherwise). If
oversubscribed for, any such Portion not purchased by the person initially
entitled thereto shall be allocated among the (other) Purchasers desiring to
acquire such Portion PRO RATA in proportion to the numbers of shares of Common
Stock held by each such (other) Purchaser (including shares of Common Stock
issuable upon conversion or exchange or exercise, directly or indirectly, of
Preferred Stock and Derivative Securities held by such (other) Purchaser). The
Company may sell so much, and only so much, of any Portion as to which no
Purchasers, having been offered the right to purchase such Portion in accordance
with all of the provisions of this Section 6, have exercised such purchase
rights, to the Offeree at the same price and on the same terms as those offered
to such holder, PROVIDED, that in the event that the whole of each Purchaser's
Portion of such securities is not sold to the Offeree within 60 days following
the lapse of the 30-day exercise period provided to the Purchasers, such unsold
securities will once again be subject to the purchase rights hereunder. In the
event that shares of Common Stock or Derivative Securities are authorized to be
issued and sold by the Company for services, property, or other non-cash
consideration, each Purchaser will be allowed to participate in such issue and
sale by substituting cash in the amount of the fair market value, per share, of
such non-cash consideration.
6.3. EXCLUDED TRANSACTIONS. The prohibitions and rights provided in
this Section 6 will not apply to (i) shares of Common Stock issued by the
Company pursuant to stock dividends, stock splits, recapitalizations, and
similar transactions; (ii) shares of Common Stock issued upon conversion or
exchange, directly or indirectly, of any shares of Preferred Stock, including
the Series D Preferred Stock, the Series C Preferred Stock, the Series B
Preferred Stock and the Series A Preferred Stock, and upon the exercise of the
Warrants, (iii) options to purchase Common Stock, pursuant to the Company's 1996
Stock Option Plan or pursuant to any employee benefit plan approved by the Board
of Directors, and any shares of Common Stock issued upon the exercise thereof;
(iv) up to 56,296 shares of Series C Preferred Stock issued upon the exercise of
warrants issued to Silicon Valley Bank; (v) up to 425,532 shares of Series B
Preferred Stock issued upon the exercise of warrants issued to SOFTBANK
Ventures, Inc.; and (vi) warrants issued to commercial lenders solely in
connection with the establishment of a working capital line and the issuance of
stock upon the exercise thereof and not to exceed 200,000 shares.
7. RESTRICTIVE LEGENDS. For so long as this Agreement remains in
effect, the Company will use its best efforts to ensure that the certificates
representing any shares of capital stock or other securities of the Company held
by any Stockholder bear restrictive legends in substantially the following form:
<PAGE>
-13-
"The securities represented by this certificate are subject to certain
restrictions with respect to the voting and the transfer of such
securities set forth in a Stockholders Agreement, dated as of August
18, 1998, by and among the issuer of such securities and the registered
holder of this certificate (or such holder's predecessor-in-interest)
and certain others. A copy of such agreement is on file and may be
inspected by the registered holder of this certificate at the principal
executive office of the issuer."
8. TERMINATION OF RESTRICTIONS. This Agreement, and all restrictions on
transfer contained herein, will terminate immediately upon the closing of the
first to occur of (i) a Qualified Public Offering (as defined in the Purchase
Agreement), or (ii) the sale, transfer, or other disposition of all or
substantially all of the Company's assets or more than 50% of the voting equity
securities to one or more Persons (other than any wholly owned subsidiary of the
Company) in a single transaction or series of related transactions, whether
effected through a merger, consolidation, sale of assets or securities, or
otherwise. No such termination shall affect the rights or liabilities of any
Person in respect of any breach of this Agreement prior to such termination.
9. MISCELLANEOUS PROVISIONS.
9.1. AMENDMENTS, CONSENTS, WAIVERS, ETC.
(a) This Agreement or any provision hereof may be amended or terminated
by the agreement of the Company, Purchasers holding at least a majority of the
outstanding shares of Series D Preferred Stock then held by Purchasers, and
Existing Stockholders holding at least a majority of the shares of Common Stock
(on an as-converted basis) then held by Existing Stockholders (except that any
amendments adversely affecting the rights of the Bain Parties, without similarly
affecting the rights of the other Purchasers, must be approved by the Bain
Parties holding at least a majority of the shares of Common Stock (on an
as-converted basis) then held by the Bain Parties and any amendments adversely
affecting the rights of the Tudor Parties, without similarly affecting the
rights of the other Purchasers, must be approved by the Tudor Parties holding at
least a majority of the shares of Common Stock on an as-converted basis) then
held by the Tudor Parties); and the observance of any provision of this
Agreement that is for the benefit of the Purchasers may be waived (either
generally or in a particular instance, and either retroactively or
prospectively), and any consent, approval, or other action to be given or taken
by the Purchasers pursuant to this Agreement may be given or taken by the
consent of the holders of at least a majority of the holders of Series D
Preferred Stock; PROVIDED, HOWEVER, that any Purchaser may in writing waive, as
to itself only, the benefits of any provision of this Agreement.
(b) No course of dealing between or among any of the parties to this
Agreement shall operate as a waiver of any rights under this Agreement. No
waiver of any breach or default hereunder shall be valid unless in a writing
signed by the waiving party. No failure or other delay by any Person in
exercising any right, power, or privilege hereunder shall be or operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege.
<PAGE>
-14-
9.2. NOTICES. All notices, requests, payments, instructions or other
documents to be given hereunder shall be in writing or by written
telecommunication, and shall be deemed to have been duly given, if (i) delivered
personally (effective upon delivery), (ii) by certified mail, return receipt
requested, postage prepaid (effective five business days after dispatch), (iii)
sent by a reputable, established courier service that guarantees overnight
delivery (effective the next business day), or (iv) dispatched by telecopier (if
the telecopy is in complete, readable form, effective upon dispatch), at the
appropriate and applicable address appearing in the books and records of the
Company.
9.3. COUNTERPARTS. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one and the same
instrument. In pleading or proving this Agreement, it shall not be necessary to
produce or account for more than one such counterpart.
9.4. CAPTIONS. The captions of sections or subsections of this
Agreement are for reference only and shall not affect the interpretation or
construction of this Agreement.
9.5. BINDING EFFECT AND BENEFITS; ASSIGNMENT. This Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Except as otherwise provided in this Agreement, the
provisions of this Agreement that are for the Purchasers' benefit as the holders
of any Purchased Securities shall inure to the benefit of all permitted
transferees of Purchased Securities. Except as specifically permitted hereby, no
party hereto may assign its rights or delegate its obligations under this
Agreement without the prior written consent of the Company and the holders of a
majority of the outstanding shares of Series D Preferred Stock (or of Common
Stock, issued or issuable upon conversion thereof), and any attempted assignment
or delegation without such consent shall be void and of no effect. Nothing in
this Agreement shall confer any rights or remedies on any Person other than the
parties hereto and their respective successors and permitted assigns.
9.6. CONSTRUCTION. The language used in this Agreement is the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
9.7. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement among the parties with respect to the matters contained herein, or
between or among any of them, and replaces and supersedes any prior
understandings or agreements between or among any of them, with respect to the
subject matter hereof, including that certain Stockholders Agreement, dated as
of December 23, 1996, as amended, by and among the Company, the Founders, the
Series A Stockholders, the Series B Stockholders and the other persons listed
therein and Section 7.2 of that certain Series B Preferred Stock Purchase
Agreement, dated as of December 23, 1996, by and among the Company and the
Series B Stockholder.
<PAGE>
-15-
9.8. SEVERABILITY. No invalidity or unenforceability of any section of
this Agreement or any portion thereof shall affect the validity or
enforceability of any other section or the remainder of such section.
9.9. EQUITABLE RELIEF. Each of the parties acknowledges that any breach
by such party of his, her, or its obligations under this Agreement would cause
substantial and irreparable damage to one or more of the other parties and that
money damages would be an inadequate remedy therefor. Accordingly, each party
agrees that the other parties or any of them shall be entitled to an injunction,
specific performance, and/or other equitable relief to prevent the breach of
such obligations.
9.10. GOVERNING LAW. This Agreement shall be governed by and
interpreted and construed in accordance with the internal laws of the State of
Delaware (without reference to principles of conflicts or choice of law).
<PAGE>
-16-
IN WITNESS WHEREOF, each of the parties has executed this Stockholders
Agreement as an agreement under seal on and as of the date first above written.
ART TECHNOLOGY GROUP, INC.
By /s/ Jeet Singh
----------------------------------------
Name:
Title: President/CEO
<PAGE>
SERIES D STOCKHOLDERS
TUDOR PRIVATE EQUITY FUND, L.P.
By /s/ Robert P. Forlenza
---------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Global Trading LLC as General Partner
RAPTOR GLOBAL FUND, L.P.
By /s/ Robert P. Forlenza
---------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Investment Corporation as General Partner
RAPTOR GLOBAL FUND, LTD.
By: /s/ Robert P. Forlenza
--------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Investment Corporation as Investment
Advisor
<PAGE>
-18-
SERIES B STOCKHOLDER
SOFTBANK VENTURES, INC.
By: /s/ Yoshitaka Kitao
-------------------------------------
Name: Yoshitaka Kitao
Title: President and CEO
<PAGE>
-19-
AS TO ALL SECTIONS (OTHER THAN
SECTION 6):
SERIES A STOCKHOLDERS
MANDANJEET SINGH
/s/ Mandanjeet Singh
----------------------------------------
B.U. CHUNG
/s/ B.U. Chung
----------------------------------------
<PAGE>
-20-
AS TO ALL SECTIONS (OTHER THAN
SECTIONS 3 AND 6):
FOUNDERS
MAHENDRAJEET SINGH
/s/ Mahendrajeet Singh
--------------------------------------
JOSEPH CHUNG
/s/ Joseph Chung
---------------------------------------
<PAGE>
-21-
AS TO ALL SECTIONS (OTHER THAN
SECTIONS 4 AND 6):
SERIES C STOCKHOLDERS
/s/ Trygve E. Myhven
---------------------------------------
Trygve E. Myhven
/s/ Bradley Lubin
--------------------------------------
Bradley Lubin
/s/ Stephen Hamblett
--------------------------------------
The Hamblett Long Range Partnership
By:
Name: Stephen Hamblett
Title: General Partner
/s/ Jon P. Goodman
---------------------------------------
Jon P. Goodman
/s/ Henry P. Becton, Jr. Trust
---------------------------------------
/s/ Henry P. Becton, Jr. Trustee
---------------------------------------
Henry P. Becton, Jr. Trust
/s/ Clifford Family Limited Partnership
----------------------------------------
Clifford Family Limited Partnership
By: /s/ Patricia A. McCarthy
Name: Patricia A. McCarthy
Title: Trustee
/s/ John C. Textor
---------------------------------------
Wyndcrest ATG Holdings, Ltd.
By:
Name: John C. Textor
Title: General Partner
<PAGE>
/s/ Thomas N. Matlack
----------------------------------------
Thomas N. Matlack
/s/ Hasanain Panju
--------------------------------------
Hasanain Panju
/s/ Michael Margolis
--------------------------------------
Michael Margolis
/s/ Pratap Talwar
--------------------------------------
Pratap Talwar
/s/ Jane Thompson
--------------------------------------
Jane Thompson
/s/ Scott A. Jones
--------------------------------------
Scott A. Jones
/s/ P.R. Wilmerding
---------------------------------------
Osprey Venture Capital Limited Partnership
By:
Name: P.R. Wilmerding
Title: General Partner
---------------------------------------
---------------------------------------
<PAGE>
SCHEDULE 1
LIST OF SERIES C STOCKHOLDERS
Trygve E. Myhren
Bradley Lubin
The Hamblett Long Range Partnership
Jon P. Goodman
Henry P. Becton Jr. Trust
Clifford Family Limited Partnership
Wyndcrest ATG Holdings, Ltd.
Thomas N. Matlack
Hasanain Parju
Michael Margolis
Pratap Talwar
Jane Thompson
Scott A. Jones
Osprey Venture Capital Limited Partnership
<PAGE>
SCHEDULE 2
TO STOCKHOLDERS
AGREEMENT
INSTRUMENT OF ACCESSION
Reference is made to that certain Stockholders Agreement dated as of
August 18, 1998, a copy of which is attached hereto (as amended and in effect
from time to time, the "STOCKHOLDERS AGREEMENT"), among Art Technology Group,
Inc. (the "COMPANY") and the Stockholders (as defined therein).
The undersigned, _____________________, in order to become the owner or
holder of ______ shares of the _________ Stock, $0.01 par value per share (the
"SHARES"), of the Company, hereby agrees that by execution hereof the
undersigned is a [Purchaser]/[Series A Stockholder]/[Series B
Stockholder]/[Series C Stockholder] party to the Stockholders Agreement subject
to all of the restrictions and conditions set forth in such Stockholders
Agreement, and all of the Shares purchased by the undersigned in connection
herewith (and any and all shares of stock of the Company issued in respect
thereof) are subject to all the restrictions and conditions applicable thereto
as set forth in the Stockholders Agreement. This Instrument of Accession shall
take effect and shall become a part of said Stockholders Agreement immediately
upon execution.
Executed as of the date set forth below under the laws of the State of
Delaware.
Signature:
-------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
Date:
-------------------------------
Accepted:
ART TECHNOLOGY GROUP, INC.
By:
------------------------------------
Date:
----------------------------------
<PAGE>
FIRST AMENDMENT TO
STOCKHOLDERS' AGREEMENT
This FIRST AMENDMENT, dated as of September 10, 1998 (the "AMENDMENT"),
is by and among Art Technology Group, Inc., a Delaware corporation (the
"COMPANY") and the shareholders of the Company listed on the signature pages
hereto (the "STOCKHOLDERS"). Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Stockholders Agreement (as
defined below).
WHEREAS, the Company and the Stockholders are party to that certain
Stockholders Agreement, dated as of August 18, 1998 (the "STOCKHOLDERS
AGREEMENT"); and
WHEREAS, the parties have agreed to amend the Stockholders Agreement.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the Company and the Stockholders hereby agree as follows:
1. AMENDMENT TO STOCKHOLDERS AGREEMENT. Each of the parties hereto
hereby agrees that Section 9.1(a) of the Stockholders Agreement is hereby
amended and restated to read in its entirety as follows:
"(a) This Agreement or any provision hereof may be amended or
terminated by the agreement of the Company, Purchasers holding at least a
majority of the outstanding shares of Series D Preferred Stock then held by
Purchasers, and Existing Stockholders holding at least a majority of the shares
of Common Stock (on an as-converted basis) then held by Existing Stockholders
(except that (i) any amendments adversely affecting the rights of the Bain
Parties, without similarly affecting the rights of the other Purchasers, must be
approved by the Bain Parties holding at least a majority of the shares of Common
Stock (on an as-converted basis) then held by the Bain Parties, any amendments
adversely affecting the rights of the Tudor Parties, without similarly affecting
the rights of the other Purchasers, must be approved by the Tudor Parties
holding at least a majority of the shares of Common Stock on an as-converted
basis) then held by the Tudor Parties, and (iii) any amendments adversely
affecting the rights of GMN Investors II, L.P. and its affiliates, without
similarly affecting the rights of the other Purchasers, must be approved by GMN
Investors II, L.P.); and the observance of any provision of this Agreement that
is for the benefit of the Purchasers may be waived (either generally or in a
particular instance, and either retroactively or prospectively), and any
consent, approval, or other action to be given or taken by the Purchasers
pursuant to this Agreement may be given or taken by the consent of the holders
of at least a majority of the holders of Series D Preferred Stock; PROVIDED,
HOWEVER, that any Purchaser may in writing waive, as to itself only, the
benefits of any provision of this Agreement."
2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
upon the execution of this Amendment by each of the Company and the requisite
number of Stockholders as is required by the terms of the Stockholders Agreement
to render this Amendment effective.
<PAGE>
-2-
3. NO OTHER AMENDMENTS. Except as expressly provided in this Amendment,
all of the terms and conditions of the Stockholders Agreement remain unchanged,
and the terms and conditions of the Stockholders Agreement as amended hereby
remain in full force and effect.
4. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. In proving this Amendment, it shall
not be necessary to produce or account for more than one such counterpart signed
by the party against whom enforcement is sought.
5. MISCELLANEOUS. This Amendment shall be deemed to be a contract under
seal under the laws of the State of Delaware and shall for all purposes be
construed in accordance with and governed by the laws of the State of Delaware.
<PAGE>
-3-
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
ART TECHNOLOGY GROUP, INC.
By /s/ Jeet Singh
---------------------------------
Name:
Title:
SERIES D STOCKHOLDERS
TUDOR PRIVATE EQUITY FUND, L.P.
By /s/ Robert P. Forlenza
-----------------------------------
Name: Robert P. Forlenza
Title: Managing Partner
Tudor Global Trading LLC as General Partner
RAPTOR GLOBAL FUND, L.P.
By: /s/ Robert P. Forlenza
----------------------------------
Name: Robert P. Forlenza
Title: Managing Partner
Tudor Investment Corporation as General Partner
RAPTOR GLOBAL FUND, LTD.
By: /s/ Robert P. Forlenza
----------------------------------
Name: Robert P. Forlenza
Title: Managing Partner
Tudor Investment Corporation as Investment Advisor
SERIES B STOCKHOLDER
SOFTBANK VENTURES, INC.
By:
----------------------------------
Name:
Title:
<PAGE>
SERIES A STOCKHOLDERS
MANDANJEET SINGH
-------------------------------------
B.U. CHUNG
-------------------------------------
FOUNDERS
MAHENDRAJEET SINGH
/s/ Mahendrajeet Singh
--------------------------------------
JOSEPH CHUNG
/s/ Joseph T. Chung
--------------------------------------
SERIES C STOCKHOLDERS
-------------------------------------
Trygve E. Myhven
------------------------------------
Bradley Lubin
<PAGE>
-5-
-------------------------------------
The Hamblett Long Range Partnership
By:
Name:
Title:
-------------------------------------
Jon P. Goodman
-------------------------------------
Henry P. Becton, Jr. Trust
-------------------------------------
Clifford Family Limited Partnership
By:
Name:
Title:
-------------------------------------
Wyndcrest ATG Holdings, Ltd.
By:
Name:
Title:
-------------------------------------
Thomas N. Matlack
-------------------------------------
Hasanain Parju
-------------------------------------
Michael Margolis
-------------------------------------
Pratap Talwar
<PAGE>
-6-
-------------------------------------
Jane Thompson
-------------------------------------
Scott A. Jones
-------------------------------------
Osprey Venture Capital Limited Partnership
By:
Name:
Title:
-------------------------------------
-------------------------------------
<PAGE>
EXHIBIT 10.19
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
August 18, 1998, is among (a) Art Technology Group, Inc., a Delaware
corporation, (the "COMPANY"), (b) the persons listed on SCHEDULE 1 hereto and
the persons who execute a Supplemental Agreement (as defined in the Purchase
Agreement) pursuant to the terms of the Purchase Agreement (collectively, the
"SERIES D HOLDERS"), (c) the persons listed on SCHEDULE 2 hereto (collectively,
the "SERIES C HOLDERS"), (d) the person listed on SCHEDULE 3 hereto
(collectively, the "SERIES B HOLDER"), and (e) each other Person who becomes a
party to this Agreement by executing an Instrument of Accession (an "INSTRUMENT
OF ACCESSION") in the form of SCHEDULE 4 hereto (collectively with the Series D
Holders, Series C Holders, and the Series B Holder, the "HOLDERS", and each
individually a "HOLDER").
This Agreement is made in connection with the Series D Senior
Participating Convertible Redeemable Preferred Stock Purchase Agreement dated as
of the date hereof (the "PURCHASE AGREEMENT") between the Company and the Series
D Investors. In order to induce the Series D Investors to enter into the
Purchase Agreement, the Company, the Series C Holders and the Series B Holders
have agreed to provide the registration rights set forth herein and to otherwise
amend and restate the registration rights previously provided to the Series C
Investors and the Series B Investors as set forth in this Agreement.
IN WITNESS WHEREOF, each of the parties to this Agreement hereby agrees
as follows:
This Agreement replaces and supersedes in their entirety each of (1)
the Amended and Restated Registration Rights Agreement, as amended, dated as of
December 8, 1997 (the "PRIOR REGISTRATION RIGHTS AGREEMENT"), among the Company,
and the persons and entities listed therein and (2) all provisions pertaining to
registration rights contained in that certain Stockholder's Agreement, dated as
of December 23, 1996, as amended (the "PRIOR STOCKHOLDERS AGREEMENT"), including
without limitation Article II thereof, among the Company, SOFTBANK Ventures,
Inc., a Japanese corporation, Manhendajeet Singh, Joseph T. Chung, Madanjeet
Singh and B.U. Chung. Each of the Prior Registration Rights Agreement and the
Prior Stockholders Agreement be and hereby is terminated and shall have no
further force and effect.
1. DEFINITIONS. As used herein, the following terms shall have
the following meanings:
"COMMISSION" means the Securities and Exchange Commission.
<PAGE>
"COMMON STOCK" means (a) the Company's Common Stock, $0.01 par value
per share, and (b) any shares of any other class of capital stock of the Company
previously or hereafter issued which are (i) not preferred as to dividends or
assets over any class of stock of the Company, (ii) not subject to redemption
pursuant to the terms thereof or (iii) issued to the holders of shares of Common
Stock upon any reclassification thereof.
"COMPANY" has the meaning specified in the preamble hereto.
"DEMAND REGISTRATION" has the meaning specified in Section 2(a).
"DERIVATIVE SECURITIES means (i) all shares of stock and other
securities that are convertible into or exchangeable for shares of Common Stock,
including without limitation shares of Preferred Stock, and (ii) all options,
warrants and other rights to acquire shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FULLY DILUTED BASIS" means, with respect to any calculation in respect
of outstanding shares of Common Stock, that such calculation is to be made by
treating as outstanding all shares of Common Stock issuable upon the exercise,
exchange, or conversion in full, of all Derivative Securities then outstanding.
"HOLDER" means one of the Holders identified in the introductory
paragraph to this Agreement or such other Person to whom such Holder shall have
assigned or transferred such Holder's Registrable Securities and the rights and
obligations hereunder in accordance with Section 12(g) of this Agreement.
"INDEMNIFIED PARTY" has the meaning specified in Section 8(c) hereof.
"INDEMNIFYING PARTY" has the meaning specified in Section 8(c) hereof.
"INSTRUMENT OF ACCESSION" has the meaning specified in the preamble
hereto.
"NASDAQ" has the meaning specified in Section 5(a)(vi).
"PERSON" means any individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"PIGGYBACK REGISTRATION" has the meaning specified in Section 3(a).
"PREFERRED STOCK" means, collectively, the Series B Preferred Stock,
the Series C Preferred Stock and the Series D Preferred Stock.
<PAGE>
"PROSPECTUS" means the prospectus included in any Registration
Statement, as amended or supplemented by any Prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"PUBLIC SALE" means any sale of Common Stock to the public pursuant to
a public offering registered under the Securities Act, or to the public through
a broker or market-maker pursuant to the provisions of Rule 144 (or any
successor rule) adopted under the Securities Act.
"PURCHASE AGREEMENT" has the meaning specified in the preamble hereto.
"REGISTERED" and "REGISTRATION" means a registration effected by
preparing and filing a Registration Statement in compliance with the Securities
Act and the declaration or ordering by the Commission of effectiveness of such
Registration Statement.
"REGISTRABLE SECURITIES" means all Series D Investor Registrable
Securities, all Series C Investor Registrable Securities and all Series B
Investor Registrable Securities.
"REGISTRATION EXPENSES" has the meaning specified in Section 7(a).
"REGISTRATION STATEMENT" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
"SERIES B HOLDER" has the meaning specified in the preamble hereto.
"SERIES B INVESTOR REGISTRABLE SECURITIES" means, at any time, all of
the then issued and outstanding (a) shares of Common Stock issued or issuable to
the Series B Investors upon conversion of the shares of Series B Preferred Stock
of the Company purchased by the Series B Investors pursuant to the Series B
Preferred Stock Purchase Agreement, or issuable upon the exercise of the
Performance Warrant issued thereunder, each dated December 23, 1996, by and
between the Company and the Series B Holder, and any other securities acquired
by the Series B Investors pursuant to their rights under the Stockholders'
Agreement (as hereinafter defined) and (b) capital stock or other securities
into which or for which any such shares of Common Stock shall have been
converted or exchanged pursuant to any recapitalization, reorganization or
merger of the Company, and (c) shares of capital stock issued with respect to
the foregoing pursuant to a stock split or stock dividend, PROVIDED, that the
foregoing capital stock shall cease to be Series B Investor Registrable
Securities upon
<PAGE>
the sale of such capital stock pursuant to a Public Sale, upon a sale or
transfer of such capital stock in violation of the Stockholders' Agreement or
upon the assignment of rights or obligations hereunder in violation of the terms
of this Agreement.
"SERIES B INVESTORS" means the Series B Holders and their permitted
assigns and transferees.
"SERIES B PREFERRED STOCK" means the Series B Convertible Preferred
Stock, $0.01 par value per share, of the Company.
"SERIES C HOLDERS has the meaning specified in the preamble hereto.
"SERIES C INVESTOR REGISTRABLE SECURITIES" means, at any time, all of
the then issued and outstanding (a) shares of Common Stock issued or issuable to
the Series C Investors upon conversion of the shares of Series C Preferred Stock
of the Company purchased by the Series C Investors pursuant to the Series C
Preferred Stock Purchase Agreement, dated November 12, 1997 and the Series C
Preferred Stock Purchase Agreement, December 8, 1997, by and among the Company
and the Series C Holders, (b) capital stock or other securities into which or
for which any such shares of Common Stock shall have been converted or exchanged
pursuant to any recapitalization, reorganization or merger of the Company, and
(c) shares of capital stock issued with respect to the foregoing pursuant to a
stock split or stock dividend, PROVIDED, that the foregoing capital stock shall
cease to be Series C Investor Registrable Securities upon the sale of such
capital stock pursuant to a Public Sale, upon a sale or transfer of such capital
stock in violation of the Stockholders' Agreement or upon the assignment of
rights or obligations hereunder in violation of the terms of this Agreement.
"SERIES C INVESTORS" means the Series C Holders and their permitted
assigns and transferees.
"SERIES C PREFERRED STOCK" means the Series C Convertible Preferred
Stock, $0.01 par value per share, of the Company.
"SERIES D HOLDER" has the meaning specified in the preamble hereto.
"SERIES D INVESTOR REGISTRABLE SECURITIES" means, at any time, all of
the then issued and outstanding (a) shares of Common Stock issued or issuable to
the Series D Investors upon conversion of the shares of Series D Preferred Stock
of the Company and upon exercise of the Warrants (as defined in the Purchase
Agreement) (b) all other shares of Common Stock issued or issuable to or
purchased by the Series D Investors from time to time, (c) shares of any class
of Common Stock into which shares of Common Stock have been converted, (d)
capital stock or other securities into which or for which any shares of Common
Stock shall have been converted or exchanged pursuant to any recapitalization,
reorganization or merger of the Company, and (e) shares of capital stock issued
with respect to the foregoing pursuant to a stock
<PAGE>
split or stock dividend, PROVIDED, that the foregoing capital stock shall cease
to be Series D Investor Registrable Securities only upon a sale of such Series D
Investor Registrable Securities pursuant to a Public Sale.
"SERIES D INVESTORS" means the Series D Holders and their permitted
assigns and transferees.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement of even
date herewith among the Company and those of its stockholder parties thereto.
"UNDERWRITERS' MAXIMUM NUMBER" means, for any Piggyback Registration,
Demand Registration or other registration which is an underwritten registration,
that number of securities to which such registration should, in the opinion of
the managing underwriters of such registration in the light of marketing
factors, be limited.
2. DEMAND REGISTRATION.
(a) REQUEST FOR DEMAND REGISTRATION ON FORM S-1.
Subject to the limitations contained in the following
paragraphs of this Section 2 (each of clauses (i)-(iii) below being
referred to as a "DEMAND REGISTRATION"):
(i) SERIES D INVESTORS. Holders of not less than 50% of all
Series D Investor Registrable Securities at any time outstanding may,
at any time and from time to time after the earlier to occur of (A) 180
days following the completion of an initial public offering of the
Company's Common Stock, and (B) the third anniversary of the date
hereof, give to the Company a written request for the registration by
the Company under the Securities Act of all or any portion of the
Series D Investor Registrable Securities.
(ii) SERIES C INVESTORS. Holders of not less than 50% of all
Series C Investor Registrable Securities at any time outstanding may,
at any time and from time to time after the first anniversary of the
completion of an initial public offering of the Company's Common Stock,
give to the Company a written request for the registration by the
Company under the Securities Act of Series C Investor Registrable
Securities having an aggregate offering price of not less than
$5,000,000 (based on the then current public market price or fair value
of such Registrable Securities proposed to be registered) (and which
$5,000,000 threshold shall, for purposes of calculating whether such
threshold has been met, include the Series D Investor Registrable
Securities that the Company is required to include in such Demand
Registration under Section 2(a)(v) hereof if any Series D Investors
join in a Demand Registration initiated pursuant to this Section
2(a)(ii)).
<PAGE>
(iii) SERIES B INVESTORS. Holders of not less than all of the
Series B Investor Registrable Securities at any time outstanding may,
at any time and from time to time after [180 days following] the
completion of an initial public offering of the Company's Common Stock,
give to the Company a written request for the registration by the
Company under the Securities Act of Series B Investors Registrable
Securities having an aggregate offering price of not less than
$5,000,000 (based on the then current public market price or fair value
of such Registrable Securities proposed to be registered) (and which
$5,000,000 threshold shall, for purposes of calculating whether such
threshold has been met, include the Series D Investor Registrable
Securities that the Company is required to include in such Demand
Registration under Section 2(a)(v) hereof if any Series D Investors
join in a Demand Registration initiated pursuant to this Section
2(a)(ii)).
(iv) NOTICE; JOIN-INS; REQUESTS TO BE INCLUDED. Within ten
(10) days after the receipt by the Company of any written request
pursuant to Sections 2(a)(i), 2(a)(ii) or 2(a)(iii), the Company will
give written notice of such registration request to all Holders of
Registrable Securities. Holders of Registrable Securities (other than
Series D Investor Registrable Securities) may request that all or a
portion of such Registrable Securities (other than Series D Investor
Registrable Securities) be included in any Demand Registration subject
to the priorities on cut-back as set forth in Section 2(c). The Holders
of not less then 50% of the then outstanding Series D Investor
Registrable Securities may, at their option, join in any Demand
Registration(s) pursuant to Sections 2(a)(ii) or 2(a)(iii) by giving
written notice to the Company specifically stating their intent to
"join-in" such demand, within ten (10) days after the receipt of such
notice given by the Company to all Holders of Registrable Securities
pursuant to the first sentence of this paragraph. In lieu of joining-in
any Demand Registration(s) pursuant to Sections 2(a)(ii) or 2(a)(iii),
any Holders of Series D Registrable Securities may request that all or
a portion of their Series D Investor Registrable Securities be included
in such Demand Registration(s) subject to the priorities on cut-back as
set forth in Section 2(c).
(v) SECURITIES REQUIRED TO BE INCLUDED. Subject to the
limitations contained in the following paragraphs of this Section 2,
after the receipt of a written request for any Demand Registration, the
Company will be obligated and required to include in (A) a Demand
Registration pursuant to Section 2(a)(i), all Series D Investor
Registrable Securities with respect to which the Company shall receive
written requests of Holders of Series D Investor Registrable Securities
for inclusion in such registration within thirty (30) days after the
date on which the Company shall have given to all Holders such written
notice of registration request pursuant to Section 2(a)(iv), (B) a
Demand Registration pursuant to Section 2(a)(ii), all Series C Investor
Registrable Securities and all Series D Investor Registrable Securities
(if Series
<PAGE>
D Investors choose to join in such Demand Registration) with respect
to which the Company shall receive written requests of Holders of
Series C Investor Registrable Securities and Holders of Series D
Investor Registrable Securities (if Series D Investors choose to join
in such Demand Registration) for inclusion in such registration within
thirty (30) days after the date on which the Company shall have given
to all Holders such written notice of registration request pursuant to
Section 2(a)(iv); and (C) a Demand Registration pursuant to Section
2(a)(iii), all Series B Investor Registrable Securities and all Series
D Investor Registrable Securities (if Series D Investors choose to
join in such Demand Registration) with respect to which the Company
shall receive written requests of Holders of Series B Investor
Registrable Securities and Holders of Series D Investor Registrable
Securities (if Series D Investors choose to join in such Demand
Registration) for inclusion in such registration within thirty (30)
days after the date on which the Company shall have given to all
Holders such written notice of registration request pursuant to
Section 2(a)(iv).
(vi) BEST EFFORTS OF COMPANY. The Company will use its best
efforts to effect promptly the registration of all such Registrable
Securities. All written requests made by Holders of Registrable
Securities pursuant to this Section 2(a) will specify the number of
shares of Registrable Securities to be registered and will also specify
the intended method of disposition thereof.
(b) LIMITATIONS ON DEMAND REGISTRATION ON FORM S-1.
(i) SERIES D DEMAND REGISTRATION. The Holders of Series D
Investor Registrable Securities will not be entitled to require the
Company to effect more than two (2) Demand Registrations (other than on
Form S-3) pursuant to Section 2(a)(i) and including any Demand
Registration(s) pursuant to Sections 2(a)(ii) and 2(a)(iii) if Holders
of a majority of then outstanding Series D Investor Registrable
Securities exercise their option, pursuant to Section 2(a)(iv), to join
in such Demand Registration(s). Any registration initiated by Holders
of Series D Investor Registrable Securities or included as a Demand
Registration pursuant to Section 2(a)(iv) shall not count as a Demand
Registration for purposes of this Section 2(b)(i): (A) unless and until
such registration shall have become effective (and remain effective for
the period required by Section 5(a)(ii) hereof) and all Registrable
Securities requested to be included in such registration shall have
been actually sold; or (B) if such Holders withdraw their request for a
Demand Registration pursuant to Section 2(a)(i), 2(a)(ii) or 2(a)(iii)
at any time because such Holders (1) reasonably believe that the
Registration Statement or Prospectus 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 made therein (in the case
of the Prospectus, in the light of the circumstances under which they
were made) not misleading, (2) notified the Company of such fact and
requested that
<PAGE>
the Company correct such alleged misstatement or omission and (3) the
Company has refused to correct such alleged misstatement or omission.
(ii) SERIES C DEMAND REGISTRATION. The Holders of Series C
Investor Registrable Securities will not be entitled to require the
Company to effect (A) more than two (2) Demand Registrations (other
than on Form S-3) pursuant to Section 2(a)(ii), (B) more than one (1)
Demand Registration (other than on Form S-3) pursuant to Section
2(a)(ii) during any twelve (12) consecutive month period and (C) any
registration (other than on Form S-3) within six (6) months after the
effective date of any other Registration Statement.
(iii) SERIES B DEMAND REGISTRATION. The Holders of Series B
Investor Registrable Securities will not be entitled to require the
Company to effect (A) more than two (2) Demand Registrations (other
than on Form S-3) pursuant to Section 2(a)(iii), (B) more than one (1)
Demand Registration (other than on Form S-3) pursuant to Section
2(a)(iii) during any twelve (12) consecutive month period or (C) any
registration (other than on Form S-3) within six (6) months after the
effective date of any other Registration Statement. Any registration
initiated by Holders of Series B Registrable Securities as a Demand
Registration pursuant to Section 2(a)(iii) hereof shall not be counted
as a Demand Registration for purposes of this Section 2(b)(iii) unless
and until such registration shall have become effective and all
Registrable Securities requested or required to be included in such
registration shall have been actually sold.
(iv) Notwithstanding the foregoing, the Company shall not be
obligated to effect any Demand Registrations pursuant to Sections
2(a)(i), 2(a)(ii) or 2(a)(iii) if, in the good faith determination of
the Board of Directors, the filing of any registration statement would
adversely affect a material proposed or pending acquisition, merger or
similar corporate event to which the Company is or expects to be a
party. In the event of such determination by the Board of Directors,
the Company may, at its option, direct (a "DIRECTIVE") in writing
within ten (10) days of receipt of any request for any Demand
Registration(s) that such Demand Registration(s) be delayed (and, if a
majority of the holders of Registrable Securities initiating such
request so elect, withdrawn) for a period not in excess of three (3)
months from the date of such Directive, which right to delay may be
exercised by the Company not more than once in any twelve-month period.
In the event that, following a request for a Demand Registration
pursuant to Sections 2(a)(i), 2(a)(ii) or 2(a)(iii) the Holders of
Series D Investor Registrable Securities, Series C Investor Registrable
Securities or Series B Investor Registrable Securities shall, as the
case may be, at the Company's request pursuant to the foregoing
sentence, agree to withdraw such Demand Registration(s), or if the
Demand Registration(s) is delayed as set forth above, then such Demand
<PAGE>
Registration(s) shall be deemed to have been so withdrawn or delayed,
as the case may be, and if such Demand Registration is withdrawn it
shall not count as a Demand Registration for purposes of Sections
2(b)(i), 2(b)(ii) or 2(b)(iii), as applicable.
(vi) The Company shall not be obligated or required to effect
the Demand Registration of any Registrable Securities: (A) pursuant to
Section 2(a)(i) hereof, during the period commencing on the date
falling thirty (30) days prior to the Company's estimated date of
filing of, and ending on the date 180 days following the effective date
of, any Registration Statement pertaining to any underwritten
registration initiated by the Company, for the account of the Company,
if the written request of Holders for such Demand Registration pursuant
to Section 2(a)(i) hereof shall have been received by the Company after
the Company shall have given to all Holders of Registrable Securities a
written notice stating that the Company is commencing an underwritten
registration initiated by the Company for its own account, or any
registration not permitted by the Securities Act; PROVIDED, HOWEVER,
that the Company will use its reasonable efforts in good faith to cause
any such Registration Statement to be filed and to become effective as
expeditiously as shall be reasonably possible; (B) pursuant to Section
2(a)(ii) hereof, during the period commencing on the date falling
thirty (30) days prior to the Company's estimated date of filing of,
and ending on the date 180 days following the effective date of, any
Registration Statement pertaining to any underwritten registration
initiated by the Company, for the account of the Company; and (C)
pursuant to Section 2(a)(iii) hereof, during the period commencing on
the date falling ninety (90) days prior to the Company's estimated date
of filing of, and ending on the date 180 days following the effective
date of, any Registration Statement pertaining to any underwritten
registration initiated by the Company for the account of the Company.
(c) PRIORITY ON DEMAND REGISTRATIONS ON FORM S-1. If the managing
underwriters in any underwritten Demand Registration, whether pursuant to
Sections 2(a)(i), 2(a)(ii) or 2(a)(iii), shall give written advice to the
Company and the Holders of Registrable Securities that the number of securities
proposed to be included in such registration exceeds the Underwriters' Maximum
Number, then:
(i) the Company will be obligated and required, in the first
instance, to include in such registration, (A) for written requests
pursuant to Section 2(a)(i), that number of Series D Investor
Registrable Securities requested by the Holders thereof to be included
in such registration which does not exceed the Underwriters' Maximum
Number, (B) for written requests pursuant to Section 2(a)(ii), that
number of Series C Investor Registrable Securities and Series D
Investor Registrable Securities (if Series D Investors choose to join
in such Demand Registration) requested by the Holders thereof to be
included in such registration, which does not exceed the Underwriters'
<PAGE>
Maximum Number (such Registrable Securities to be allocated PRO RATA
among the Holders thereof on the basis of the number of Registrable
Securities requested to be included therein by each such Holder), or
(C) for written requests pursuant to Section 2(a)(iii), that number of
Series B Investor Registrable Securities and Series D Investor
Registrable Securities (if Series D Investors choose to join in such
Demand Registration) requested by the Holders thereof to be included in
such registration, which does not exceed the Underwriters' Maximum
(such Registrable Securities to be allocated PRO RATA among the Holders
thereof on the basis of the number of Registrable Securities requested
to be included therein by each such Holder);
(ii) if the Underwriters' Maximum Number exceeds (A) for
written requests pursuant to Section 2(a)(i), the number of Series D
Investor Registrable Securities requested by the Holders thereof to be
included in such registration, (B) for written requests pursuant to
Section 2(a)(ii), the number of Series C Investor Registrable
Securities and Series D Investor Registrable Securities (if Series D
Investors choose to join in such Demand Registration) requested by the
Holders thereof to be included in such registration, or (C) for written
requests pursuant to Section 2(a)(iii), the number of Series B Investor
Registrable Securities and Series D Investor Registrable Securities (if
Series D Investors choose to join in such Demand) requested by the
Holders thereof to be included in such registration, then in each
instance the Company will be obligated and required to include in such
registration that number of Registrable Securities (including any
Series D Investor Registrable Securities requested by the Holders
thereof to be included in such registration as to which Series D
Investors did NOT choose to join in such Demand Registration) requested
by the Holders thereof to be included in such registration (such
Registrable Securities to be allocated PRO RATA among the Holders
thereof on the basis of the number of Registrable Securities requested
to be included therein by each such Holder) and which shall not be
greater than such excess;
(iii) if the Underwriters' Maximum Number exceeds the sum of
the number of Registrable Securities which the Company shall be
required to include in such Demand Registration pursuant to Sections
2(c)(i)-(ii) above, then the Company may include in such registration
that number of other Securities which persons (other than the Holders
as such) shall have requested to be included in such registration and
which shall not be greater than such excess; and
(iv) if the Underwriters' Maximum Number exceeds the sum of
the numbers pursuant to Sections 2(c)(i)-(iii) above, then the Company
will be entitled to include in such registration that number of
securities which shall have been requested by the Company to be
included in such registration for the account of the Company and which
shall not be greater than such excess.
<PAGE>
Neither the Company nor any of its stockholders (other than Holders of
Registrable Securities) shall be entitled to include any securities in
any underwritten Demand Registration unless the Company or such
stockholders (as the case may be) shall have agreed in writing to sell
such securities on the same terms and conditions as shall apply to the
Registrable Securities to be included in such Demand Registration.
(d) ORDER OF DEMANDS. Notwithstanding anything to the contrary
contained in this Section 2, the Demand Registration rights set forth in
Sections 2(a)(i), 2(a)(ii) and 2(a)(iii) shall be exercisable by the Holders
thereof, as the case may be, in the order made, so that if a demand is first
made under Section 2(a)(i), it shall be honored first and shall take precedence
over a demand made thereafter under Sections 2(a)(ii) and 2(a)(iii), if a demand
is first made under Section 2(a)(ii), it shall be honored first and take
precedence over a demand made thereafter under Sections 2(a)(i) or 2(a)(iii),
and so on. In the event that requests for registration are made under any of
Sections 2(a)(i), 2(a)(ii) and 2(a)(iii) simultaneously, the Company shall use
its reasonable efforts to register, in accordance with this Agreement, the
Series D Investor Registrable Securities in accordance with Sections 2(a)(i) and
2(c)(i)(A) hereof.
(e) SELECTION OF UNDERWRITERS. If a written request for a Demand
Registration is made pursuant to Section 2(a)(i), then the Holders of a majority
of the Series D Investor Registrable Securities to be included in any Demand
Registration shall determine whether or not such Demand Registration shall be
underwritten and shall select the investment banker(s) and managing
underwriter(s) to administer such offering. If a written request for a Demand
Registration is made pursuant to Section 2(a)(ii), then the Holders of a
majority of the Series C Investor Registrable Securities and the Series D
Investor Registrable Securities (if Series D Investors choose to join in such
Demand Registration) to be included in any Demand Registration shall determine
whether or not such Demand Registration shall be underwritten and shall select
the investment banker(s) and managing underwriter(s) to administer such
offering. If a written request for a Demand Registration is made pursuant to
Section 2(a)(iii), then the Holders of a majority of the Series B Investor
Registrable Securities and the Series D Investor Registrable Securities (if
Series D Investors choose to join in such Demand Registration) to be included in
any Demand Registration shall determine whether or not such Demand Registration
shall be underwritten and shall select the investment banker(s) and managing
underwriter(s) to administer such offering.
(f) UNLIMITED REGISTRATIONS ON FORM S-3. Subject to the limitations set
forth in this Section 2(f), after its initial underwritten Public Sale, the
Company shall use its best efforts to qualify, as promptly as practicable, for
registration on Form S-3 or any comparable or successor form or forms. After the
Company has qualified for the use of Form S-3, in addition to the rights
contained in the foregoing provisions of this Section 2: Holders of not less
than 30% of the then outstanding Series D
<PAGE>
Investor Registrable Securities, Holders of not less then 30% of the then
outstanding Series B Investor Registrable Securities and Holders of not less
than 30% of the then outstanding Series B Registrable Securities, each shall
have the right at any time and from time to time to request in writing a
registration on Form S-3 (or any successor form) (which request will specify the
number of shares of Registrable Securities to be registered and will also
specify the intended method of disposition thereof), PROVIDED, HOWEVER, that the
Company shall not be obligated to effect (y) more than one such registration on
Form S-3 (or any successor form) for each of the Series D Investors, the Series
C Investors and the Series B Investors, as the case may be, in any twelve (12)
consecutive month period and (z) any such Series B Investor Registrable
Securities having an aggregate offering price of less than $1,000,000 (based on
the then current public market price).
(g) Termination
(i) DEMAND REGISTRATION UNDER SECTION 2(i). The rights and
obligations set forth in Section 2(a)(i) above shall automatically
expire on the tenth (10th) anniversary hereof.
(ii) DEMAND REGISTRATION UNDER SECTION 2(ii). The rights and
obligations set forth in Section 2(a)(ii) above shall automatically
expire on December 8, 2007.
(iii) DEMAND REGISTRATION UNDER SECTION 2(iii). The rights and
obligations set forth in Section 2(a)(iii) above shall automatically
expire on the tenth (10th) anniversary of an initial public offering of
shares of Common Stock pursuant to a Registration Statement at a price
to the public of not less than $15 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination
or other similar recapitalization affecting the Common Stock) and
resulting in gross proceeds to the Company of not less than
$10,000,000.
3. PIGGYBACK REGISTRATIONS.
(a) RIGHTS TO PIGGYBACK.
(i) If (and on each occasion that) the Company proposes to
register any of its equity securities under the Securities Act either
for the Company's own account or for the account of any of its
stockholders (other than for Holders pursuant to Section 2 hereof
entitled to Demand Registrations and other than pursuant to a Form S-4
or S-8) (each such registration not withdrawn or abandoned prior to the
effective date thereof being herein called a "PIGGYBACK REGISTRATION"),
the Company will give written notice to all Holders of Registrable
Securities of such proposal not later than the earlier to occur of (A)
the tenth day following the receipt by the Company of notice of
<PAGE>
exercise of any registration rights by any persons, and (B) the
thirtieth day prior to the anticipated filing date of such Piggyback
Registration.
(ii) Subject to the provisions contained in paragraph (b) of
this Section 3 and in the last sentence of this subparagraph (ii), (A)
the Company will be obligated and required to include in each Piggyback
Registration all Registrable Securities with respect to which the
Company shall receive from Holders of Registrable Securities, within
fifteen (15) days after the date on which the Company shall have given
written notice of such Piggyback Registration to all Holders of
Registrable Securities pursuant to Section 3(a)(i) hereof, the written
requests of such Holders for inclusion in such Piggyback Registration,
and (B) the Company will use its best efforts in good faith to effect
promptly the registration of all such Registrable Securities. The
Holders of Registrable Securities shall be permitted to withdraw all or
any part of the Registrable Securities of such Holders from any
Piggyback Registration at any time prior to the effective date of such
Piggyback Registration unless such Holders of Registrable Securities
shall have entered into a written agreement with the Company's
underwriters establishing the terms and conditions under which such
Holders would be obligated to sell such securities in such Piggyback
Registration. The Company will not be obligated or required to include
any Registrable Securities in any registration effected solely to
implement an employee benefit plan or a transaction to which Rule 145
of the Commission is applicable.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. If a Piggyback Registration is
an underwritten registration, and the managing underwriters shall give written
advice to the Company of an Underwriters' Maximum Number, then: (i) the Company
shall be entitled to include in such registration that number of securities
which the Company proposes to offer and sell for its own account in such
registration and which does not exceed the Underwriters' Maximum Number; (ii) if
the Underwriters' Maximum Number exceeds the number of securities which the
Company proposes to offer and sell for its own account in such registration,
then the Company shall include in such registration that number of Registrable
Securities which the Holders thereof shall have requested be included in such
registration and which shall not be greater than such excess and such
Registrable Securities shall be allocated PRO RATA among the Holders thereof on
the basis of the number of Registrable Securities requested to be included
therein by each such Holder; and (iii) if the Underwriters' Maximum Number
exceeds the sum of the number of Registrable Securities which the Company shall
be required to include in such registration pursuant to clause (ii) and the
number of securities which the Company proposes to offer and sell for its own
account in such registration, then the Company may include in such registration
that number of other securities which other persons shall have requested be
included in such registration and which shall not be greater than such excess.
<PAGE>
(c) SELECTION OF UNDERWRITERS. In any Piggyback Registration, the
Company shall (unless the Company shall otherwise agree) have the right to
select the investment bankers and managing underwriters in such registration.
4. LOCKUP AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS OF REGISTRABLE SECURITIES.
Each Holder of Registrable Securities, if the Company or the managing
underwriters so request in connection with any underwritten registration of the
Company' securities, will not, without the prior written consent of the Company
or such underwriters and provided that the officers, directors and all Holders
of at least 5% of Registrable Securities also agree not to, effect any public
sale or other distribution of any equity securities of the Company, including
any sale pursuant to Rule 144, during the seven (7) days prior to, and during
the one hundred eighty (180) day period commencing on the effective date of such
underwritten registration, except in connection with such underwritten
registration.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees not
to effect any public sale or other distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such equity
securities, during the period commencing on the seventh (7th) day prior to, and
ending on the one hundred eightieth (180th) day following, the effective date of
any underwritten Demand or Piggyback Registration, except in connection with any
such underwritten registration and except for any offering pursuant to an
employee benefit plan approved by the Company's Board of Directors and
registered on Form S-8 (or comparable form adopted by the Commission).
5. REGISTRATION PROCEDURES.
(a) Whenever the Holders of Registrable Securities have requested that
any Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(i) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities and use its best
efforts to cause such Registration Statement to become effective
(PROVIDED, that before filing a Registration Statement or Prospectus or
any amendments or supplements thereto, the Company will furnish to
counsel selected by the holders of Registrable Securities covered by
such Registration Statement, copies of all such documents proposed to
be filed, which documents will be subject to the timely review of such
counsel and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto,
including documents incorporated by reference, to which such counsel
shall
<PAGE>
reasonably object) and remain effective until the Registrable
Securities covered by such Registration Statement have been sold;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective until the earliest to occur of (a) the sale of all
such Registrable Securities, (b) the sale by the underwriter(s) of all
such Registrable Securities purchase by it/them, and (c) 180 days after
the effective date of the Registration Statement and, comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such effective
period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement and cause the
Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act;
(iii) upon request, furnish to each seller of Registrable
Securities such number of copies of such Registration Statement, each
amendment and supplement thereto, the Prospectus included in such
Registration Statement (including each preliminary Prospectus and each
Prospectus filed under Rule 424 of the Securities Act) and such other
documents as each such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by each
such seller (it being understood that the Company consents to the use
of the Prospectus and any amendment or supplement thereto by such
seller in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement
thereto);
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions as any seller reasonably requests, use its best
efforts to keep each such registration or qualification effective,
including through new filings, amendments or renewals, during the
period such Registration Statement is required to be kept effective,
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned
by such seller;
(v) notify each seller of such Registrable Securities, 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 contains
an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, at the request of any
such seller, the Company will
<PAGE>
promptly prepare (and, when completed, give notice to each seller of
Registrable Securities) a supplement or amendment to such Prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such Prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the
statements therein not misleading; PROVIDED that upon such notification
by the Company, each seller of such Registrable Securities will not
offer or sell such Registrable Securities until the Company has
notified such seller that it has prepared a supplement or amendment to
such Prospectus and delivered copies of such supplement or amendment to
such Seller;
(vi) cause all such Registrable Securities to be listed, prior
to the date of the first sale of such Registrable Securities pursuant
to such registration, on each securities exchange on which similar
securities issued by the Company are then listed and, if not so listed,
to be listed with the National Association of Securities Dealers
automated quotation system ("NASDAQ");
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
Registration Statement;
(viii) enter into all such customary agreements (including
underwriting agreements in customary form) and take all such other
actions as counsel for the holders of Registrable Securities being sold
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (including,
without limitation, effecting a stock split or a combination of
shares);
(ix) make available for inspection on a confidential basis by
any seller, any underwriter participating in any disposition pursuant
to such Registration Statement, and any attorney, accountant or other
agent retained by any such seller or underwriter (in each case after
reasonable prior notice), all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
Company's officers, directors, employees and independent accountants to
supply on a confidential basis all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement;
(x) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an
underwriter or a controlling person of the Company within the meaning
of Section 15 of the Securities Act, to participate in the preparation
of such registration or comparable statement and to permit the
insertion therein of material, furnished to the Company in writing,
which in the reasonable judgment of such holder and its counsel should
be included, provided that such material shall be
<PAGE>
furnished under such circumstances as shall cause it to be subject to
the indemnification provisions provided pursuant to Section 8(b)
hereof;
(xi) in the event of the issuance of any stop order suspending
the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related Prospectus or
suspending the qualification of any Registrable Securities included in
such Registration Statement for sale in any jurisdiction, the Company
will use its best efforts promptly to obtain the withdrawal of such
order;
(xii) if requested by the managing underwriter or underwriters
or any holder of Registrable Securities in connection with any sale
pursuant to a Registration Statement, promptly incorporate in a
Prospectus supplement or post-effective amendment such information
relating to such underwriting as the managing underwriter or
underwriters or such holder reasonably requests to be included therein,
and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after being notified of
the matters incorporated in such Prospectus supplement or
post-effective amendment;
(xiii) cooperate with the holders of Registrable Securities
and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be sold
under such registration, and enable such Registrable Securities to be
in such denominations and registered in such names as the managing
underwriter or underwriters, if any, or such holders may request;
(xiv) use its best efforts to cause the Registrable Securities
to be registered with or approved by such other governmental agencies
or authorities within the United States and having jurisdiction over
the Company as may reasonably be necessary to enable the seller or
sellers thereof or the underwriter or underwriters, if any, to
consummate the disposition of such Registrable Securities;
(xv) use its best efforts to obtain:
(A) at the time of effectiveness of each
registration, a "comfort letter" from the Company's
independent certified public accountants covering such matters
of the type customarily covered by "cold comfort letters" as
the Holders of a majority of the Registrable Securities
covered by such registration and the underwriters reasonably
request; and
(B) at the time of any underwritten sale pursuant to
a Registration Statement, a "bring-down comfort letter", dated
as of the
<PAGE>
date of such sale, from the Company's independent certified
public accountants covering such matters of the type
customarily covered by comfort letters as the Holders of a
majority of the Registrable Securities covered by such
Registration Statement and the underwriters reasonably
request;
(xvi) use its best efforts to obtain, at the time of
effectiveness of each Piggyback Registration and at the time of any
sale pursuant to each registration, an opinion or opinions, favorable
in form and scope to the Holders of a majority of the Registrable
Securities covered by such registration, from counsel to the Company in
customary form; and
(xvii) otherwise comply with all applicable rules and
regulations of the Commission, and make generally available to its
security holders (as contemplated by Section 11(a) under the Securities
Act) an earnings statement satisfying the provisions of Rule 158 under
the Securities Act no later than ninety (90) days after the end of the
twelve month period beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of the
Registration Statement, which statement shall cover said twelve month
period.
6. COOPERATION BY PROSPECTIVE SELLERS, ETC.
(a) Each prospective seller of Registrable Securities will furnish to
the Company in writing such information as the Company may reasonably require
from such seller, and otherwise reasonably cooperate with the Company in
connection with any Registration Statement with respect to such Registrable
Securities.
(b) The failure of any prospective seller of Registrable Securities to
furnish any information or documents in accordance with any provision contained
in this Agreement shall not affect the obligations of the Company under this
Agreement to any remaining sellers who furnish such information and documents
unless in the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the viability of the offering or the legality
of the Registration Statement or the underlying offering.
(c) The Holders of Registrable Securities included in any Registration
Statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update such Registration Statement or Prospectus; but the
obligations of the Company with respect to maintaining any Registration
Statement current and effective shall be extended by a period of days equal to
the period such suspension is in effect.
(d) At the end of any period during which the Company is obligated to
keep any Registration Statement current and effective as provided by Section 5
hereof
<PAGE>
(and any extensions thereof required by the preceding paragraph (c) of this
Section 6), the Holders of Registrable Securities included in such Registration
Statement shall discontinue sales of shares pursuant to such Registration
Statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such Registration Statement which remain
unsold, and such Holders shall notify the Company of the number of shares
registered which remain unsold promptly after receipt of such notice from the
Company.
7. REGISTRATION EXPENSES.
(a) All costs and expenses incurred or sustained in connection with or
arising out of each registration pursuant to Sections 2 or 3 hereof, including,
without limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with the blue sky
qualification of Registrable Securities), printing expenses, messenger,
telephone and delivery expenses, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of one counsel representing the
Holders of Registrable Securities, such counsel to be selected by the Holders of
a majority of the Registrable Securities to be included in such registration,
fees and disbursements of all independent certified public accountants
(including the expenses relating to the preparation and delivery of any special
audit or "cold comfort" letters required by or incident to such registration),
and fees and disbursements of underwriters (excluding discounts, commissions and
fees of counsel in excess of $10,000), the reasonable fees and expenses of any
special experts retained by the Company of its own initiative or at the request
of the managing underwriters in connection with such registration, and fees and
expenses of all (if any) other persons retained by the Company are herein
called, collectively, "REGISTRATION EXPENSES". Registration Expenses will be
borne and paid by the Company for all Demand Registrations and Piggyback
Registrations hereunder, PROVIDED, that if a Demand Registration pursuant to
Section 2(a)(ii) is withdrawn by the Holders of Series C Investor Registrable
Securities (for reasons other than attributable to a Directive), then such
Holders of Series C Investor Registrable Securities will bear and pay all such
Registration Expenses.
The Company will pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, and the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities of the
Company are then listed.
(b) The Company will not bear the cost of nor pay for any stock
transfer taxes imposed in respect of the transfer of any Registrable Securities
to any purchaser thereof by any Holder of Registrable Securities in connection
with any registration of Registrable Securities pursuant to this Agreement.
(c) To the extent that Registration Expenses incident to any
registration are, under the terms of this Agreement, not required to be paid by
the Company, each Holder of Registrable Securities included in such registration
will pay all Registration Expenses which are clearly solely attributable to the
registration of such Holder's Registrable Securities so included in such
registration, and all other Registration Expenses not so attributable to one
Holder will be borne and paid by all sellers of securities included in such
registration in proportion to the number of securities so included by each such
seller.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company will indemnify each
Holder requesting or joining in a registration and each underwriter of the
securities so registered, the officers, directors and partners of each such
Person and each Person who controls any thereof (within the meaning of the
Securities Act) against any and all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of any material fact contained in any Prospectus,
offering circular or other document incident to any registration, qualification
or compliance (or in any related Registration Statement, notification or the
like) or any omission (or alleged omission) to state therein any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
any action or inaction required of the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, underwriter, officer, director, partner and controlling person for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company in an instrument duly executed by such Holder, underwriter, officer,
director, partner or controlling person and stated to be specifically for use in
such Prospectus or Registration Statement.
(b) INDEMNIFICATION BY EACH HOLDER. Each Holder requesting or joining
in a registration will indemnify each underwriter of the securities so
registered, the Company and its officers and directors and each person, if any,
who controls any thereof (within the meaning of the Securities Act) and their
respective successors in title and assigns against any and all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of any material fact
contained in any Prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Holder will reimburse each
<PAGE>
underwriter, the Company and each other person indemnified pursuant to this
paragraph (b) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED, HOWEVER, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission was made in reliance
upon written information furnished to such underwriter or the Company in an
instrument duly executed by such Holder and stated to be specifically for use in
such Prospectus, offering circular or other document (or related Registration
Statement, notification or the like) or any amendment or supplement thereto;
and, PROVIDED FURTHER, that each Holder's liability hereunder with respect to
any particular registration shall be limited to an amount equal to the net
proceeds received by such Holder from the Registrable Securities sold by such
Holder in such registration.
(c) INDEMNIFICATION PROCEEDINGS. Each party entitled to indemnification
pursuant to this Section 8 (the "INDEMNIFIED PARTY") shall give notice to the
party required to provide indemnification pursuant to this Section 8 (the
"INDEMNIFYING PARTY") promptly after such Indemnified Party acquires actual
knowledge of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party (at its expense) to assume the defense of any 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
acceptable to the Indemnified Party, and the Indemnified Party may participate
in such defense at such party's expense; and PROVIDED, FURTHER, that the failure
by any Indemnified Party to give notice as provided in this paragraph (C) shall
not relieve the Indemnifying Party of its obligations under this Section 8
except to the extent that the failure results in a failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of the failure to give notice. 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 and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party so long as the Indemnifying Party has, in writing,
acknowledged in writing its obligation to indemnify and is in compliance with
all of its obligations hereunder to indemnify the Indemnified Party for all
amounts in connection with such claim or Litigation and which consent shall not
be unreasonably withheld. The reimbursement required by this Section 8 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
9. CONTRIBUTION IN LIEU OF INDEMNIFICATION. If the indemnification
provided for in Section 8 hereof is unavailable to a party that would have been
an Indemnified Party under any such section in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each party that would have been an Indemnifying Party thereunder shall, in lieu
of indemnifying such
<PAGE>
Indemnified Party, 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
fault of the Indemnifying Party on the one hand and such Indemnified Party on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof). 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 relates to information supplied by the
Indemnifying Party or such Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each Holder of Registrable Securities
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by PRO-RATA allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 9. 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 Section 9 shall include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding any
provision of this Section 9 to the contrary, (a) no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation and (b) each Holder's liability hereunder with
respect to any particular registration shall be limited to an amount equal to
the net proceeds received by such Holder from the Registrable Securities sold by
such Holder in such registration.
10. RULE 144 REQUIREMENTS; FORM S-3. From time to time after the
earlier to occur of (a) the ninetieth day following the date on which there
shall first become effective a Registration Statement filed by the Company under
the Securities Act, or (b) the date on which the Company shall register a class
of securities under Section 12 of the Exchange Act, the Company will make every
effort in good faith to take all steps necessary to ensure that the Company will
be eligible to register securities on Form S-3 (or any comparable form adopted
by the Commission) as soon thereafter as possible and will remain eligible to so
register securities on Form S-3 (including taking all action as is necessary and
filing in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act), and to make publicly
available and available to the Holders of Registrable Securities, pursuant to
Rule 144 or Rule 144A of the Commission under the Securities Act, such
information as shall be necessary to enable the Holders of Registrable
Securities to make sales of Registrable Securities pursuant to such Rules. The
Company will furnish to any Holder of Registrable Securities, upon request made
by such Holder at any time after the undertaking of the Company in the preceding
sentence shall have first become effective, a written statement signed by the
Company, addressed to such Holder, describing briefly the action the Company has
taken or proposes to take to comply with the current public information
requirements of Rule 144 and Rule 144A.
<PAGE>
The Company will, at the request of any Holder of Registrable Securities, upon
receipt from such Holder of a certificate certifying (i) that such Holder has
held such Registrable Securities for a period of not less than two (2)
consecutive years, (ii) that such Holder has not been an affiliate (as defined
in Rule 144) of the Company for a period of at least ninety (90) days, and (iii)
as to such other matters as may be appropriate in accordance with such Rule,
remove from the stock certificates representing such Registrable Securities that
portion of any restrictive legend which relates to the registration provisions
of the Securities Act.
11. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration pursuant to this Agreement unless
such Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled, under the
provisions hereof, to approve such arrangements, and (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required by the terms of such underwriting
arrangements. Any Holder of Registrable Securities to be included in any
underwritten registration shall be entitled at any time to withdraw such
Registrable Securities from such registration prior to its effective date in the
event that such Holder shall disapprove of any of the terms of the related
underwriting agreement.
12. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not previously entered
into any agreement (which has not been replaced and superseded by this
Agreement) with respect to its Common Stock granting any registration rights to
any Person, and will not on or after the date of this Agreement enter into any
agreement with respect to its securities which grants demand registration rights
to anyone or which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless such amendment, modification, supplement, waiver or consent is
approved in writing by the Company and by the Holders of not less than fifty
percent (50%) of the then outstanding Series D Investor Registrable Securities
and, with respect to amendments, modifications, supplements, waivers and
consents affecting (i) Sections 2(a)(ii) and 2(b), approval in writing by the
Holders of not less than 50% of the then outstanding Series C Investor
Registrable Securities shall also be required, and (ii) Sections 2(a)(iii) and
2(b), approval in writing by the Holders of not less than 50% of the Series B
Investor Registrable Securities then outstanding shall also be required.
(c) REGISTRABLE SECURITIES HELD BY THE COMPANY. Whenever the consent or
approval of Holders of Registrable Securities is required pursuant to this
Agreement,
<PAGE>
Registrable Securities held by the Company shall not be counted in determining
whether such consent or approval was duly and properly given by such Holders.
(d) TERM. Subject to Section 2(g), in this Agreement shall continue in
full force and effect so long as any Holder holds any Registrable Securities.
(e) REMEDIES. In the event of a breach by the Company of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(f) NOTICES. Any notice provided for in this Agreement will be in
writing and will be deemed properly delivered if either personally delivered or
sent by overnight courier or telecopier or mailed certified or registered mail,
return receipt requested, postage prepaid, to the recipient at the address
specified below:
(i) if to a Holder, at such Holder's address on the stock
transfer books of the Company; and
(ii) if to the Company, at:
Art Technology Group, Inc.
101 Huntington Avenue - Floor 22
Boston, MA 02199
Attention: Mr. Jeet Singh
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 12(f). Any such notice shall be effective
(A) if delivered personally or by telecopy, when received, (B) if sent by
overnight courier, when receipted for, and (C) if mailed, five (5) days after
being mailed as described above.
(g) SUCCESSORS AND ASSIGNS. This Agreement and the rights of any Holder
hereunder (i) shall not be assigned by any Series B Holder, EXCEPT that a Series
B Holder may assign the rights hereunder to one or more Affiliates, PROVIDED
that the transferee agrees to be bound by all of the terms and conditions of
this Agreement by executing and delivering to the Company an Instrument of
Accession, (ii) may be assigned by any Series C Holder, PROVIDED that the
underlying transfer of shares is made in compliance with the provisions of the
Stockholders' Agreement and the transferee agrees to be bound by all of the
terms and conditions of this Agreement by executing and delivering to the
Company an Instrument of Accession, and (iii) may be assigned by any Series D
Holder, PROVIDED that the transferee agrees to be bound by
<PAGE>
all of the terms and conditions of this Agreement by executing and delivering to
the Company an Instrument of Accession.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.
(i) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
(j) GOVERNING LAW. The validity, performance, construction and effect
of this Agreement shall be governed by and construed in accordance with the
internal laws of the Commonwealth of Massachusetts, without giving effect to
principles of conflicts of law.
(k) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(l) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
any Registrable Securities.
[SIGNATURE PAGES TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as an instrument under seal as of the date first written above.
THE COMPANY:
ART TECHNOLOGY GROUP, INC.
By: /s/ Jeet Singh
-------------------------------------------
Name:
Title: President/CEO
SERIES D HOLDERS:
TUDOR PRIVATE EQUITY FUND, L.P.
By: /s/ Robert P. Forlenza
-------------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Global Trading LLC as General Partner
RAPTOR GLOBAL FUND, L.P.
By: /s/ Robert P. Forlenza
-------------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Investment Corporation as General Partner
RAPTOR GLOBAL FUND, LTD.
By: /s/ Robert P. Forlenza
-------------------------------------------
Name: Robert P. Forlenza
Title: Managing Director
Tudor Investment Corporation as Investment Partner
<PAGE>
SERIES C HOLDERS:
/s/ Trygve E. Myhren
------------------------------------------
Trygve E. Myhren
/s/ Bradley Lubin
------------------------------------------
Bradley Lubin
/s/ Stephen Hamblett
------------------------------------------
The Hamblett Long Range Partnership
By:
Name: Stephen Hamblett
Title: General Partner
/s/ Jon P. Goodman
------------------------------------------
Jon P. Goodman
/s/ Henry P. Becton, Jr. Trust
------------------------------------------
/s/ Henry P. Becton, Jr. Trustee
------------------------------------------
Henry P. Becton Jr. Trust
/s/ Clifford Family Limited Partnership
------------------------------------------
Clifford Family Limited Partnership
By: /s/ Patricia A. McCarthy
Name: Patricia A. McCarthy
Title: Trustee
/s/ John C. Textor
------------------------------------------
Wyndcrest ATG Holdings, Ltd.
By:
Name: John C. Textor
Title: General Partner
/s/ Thomas N. Matlack
------------------------------------------
Thomas N. Matlack
<PAGE>
/s/ Hasanain Panju
------------------------------------------
Hasanain Panju
/s/ Michael Margolis
------------------------------------------
Michael Margolis
/s/ Pratap Talwar
------------------------------------------
Pratap Talwar
/s/ Jane Thompson
------------------------------------------
Jane Thompson
/s/ Scott A. Jones
------------------------------------------
Scott A. Jones
------------------------------------------
Silicon Valley Bank
By:
Name:
Title:
------------------------------------------
Osprey Venture Capital Limited
Partnership
By:
Name:
Title:
<PAGE>
SERIES B HOLDER:
SOFTBANK VENTURES, INC.
By: /s/ Yoshitaka Kitao
-----------------------------------------
Name: Yoshitaka Kitao
Title: President and CEO
<PAGE>
SCHEDULE 1
TO REGISTRATION
RIGHTS AGREEMENT
LIST OF
SERIES D HOLDERS
Tudor Private Equity Fund, L.P.
Raptor Global Fund, L.P.
Raptor Global Fund, Ltd.
<PAGE>
SCHEDULE 2
TO REGISTRATION
RIGHTS AGREEMENT
LIST OF
SERIES C HOLDERS
Trygve E. Myhren
Bradley Lubin
The Hamblett Long Range Partnership
Jon P. Goodman
Henry P. Becton Jr. Trust
Clifford Family Limited Partnership
Wyndcrest ATG Holdings, Ltd.
Thomas N. Matlack
Hasanain Panju
Michael Margolis
Pratap Talwar
Jane Thompson
Scott A. Jones
Osprey Venture Capital Limited Partnership
<PAGE>
SCHEDULE 3
TO REGISTRATION
RIGHTS AGREEMENT
SERIES B HOLDER
SOFTBANK Ventures, Inc.
<PAGE>
SCHEDULE 4
TO REGISTRATION
RIGHTS AGREEMENT
INSTRUMENT OF ACCESSION
Reference is made to that certain Registration Rights Agreement dated
as of August 18, 1998, a copy of which is attached hereto (as amended and in
effect from time to time, the "REGISTRATION RIGHTS AGREEMENT"), among Art
Technology Group, Inc. (the "COMPANY") and the Holders (as defined therein).
The undersigned, _____________________, in order to become the owner or
holder of ______ shares of the Common Stock, $_______ par value per share,
collectively, or Registrable Securities (as defined in the Registration Rights
Agreement) (the "SHARES") of the Company, hereby agrees that by execution hereof
the undersigned is a Holder party to the Registration Rights Agreement subject
to all of the restrictions and conditions applicable to Holders set forth in
such Registration Rights Agreement, and all of the Shares purchased by the
undersigned in connection herewith (and any and all shares of stock of the
Company issued in respect thereof) are subject to all the restrictions and
conditions applicable to Registrable Securities as set forth in the Registration
Rights Agreement. This Instrument of Accession shall take effect and shall
become a part of said Registration Rights Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the State of
Delaware.
Signature:
---------------------------
Address:
---------------------------
---------------------------
---------------------------
Date:
---------------------------
Accepted:
ART TECHNOLOGY GROUP, INC.
By:
----------------------------------
Date:
----------------------------------
<PAGE>
Exhibit 10.20
NON-COMPETE AGREEMENT
This Non-Compete Agreement (this "AGREEMENT") is made this 18th day of
August, 1998, by and between Art Technology Group, Inc., a Delaware corporation
(the "COMPANY") and Mahendrajeet Singh (the "EMPLOYEE"), an individual residing
at ____________________________________________.
WHEREAS, the parties hereto recognize and agree that the services of
the Employee are special and unique and that he has special fiduciary duties to
the Company as an officer, director and/or shareholder;
WHEREAS, for the foregoing reasons, a covenant on the part of the
Employee not to compete during his employment and for a reasonable period after
the termination or expiration of his employment is essential to protect the
business of the Company;
NOW, THEREFORE, it is hereby agreed by the Company and the Employee as
follows:
1. NON-COMPETE. During the period of time that the Employee is employed
by the Company and for a period of two (2) years after the termination or
cessation of such employment for any reason (both periods of time, taken
together, being referred to hereinafter as the "RESTRICTED PERIOD"), the
Employee shall not, anywhere in the United States, directly or indirectly,
whether individually or as an officer, director, employee, consultant, partner,
stockholder (other than as the holder of not more than one percent (1%) of a
publicly held corporation), individual proprietor, joint venturer, investor,
lender, consultant or in any other capacity whatsoever, develop, design,
produce, market, sell or render (or assist any other person in developing,
designing, producing, marketing, selling or rendering) products or services
competitive with those developed, designed, produced, marketed, sold or rendered
by the Company at any time during the Restricted Period.
2. NON-SOLICITATION. During the Restricted Period, the Employee shall
not, directly or indirectly, whether individually or as an officer, director,
employee, consultant, partner, stockholder, individual proprietor, joint
venturer, investor, lender, consultant or any other capacity whatsoever: (a)
solicit, divert or take away, or attempt to solicit, divert or take away, the
business or patronage of any clients, customers or accounts, or prospective
clients, customers or accounts, of the Company or (b) hire, retain (including as
a consultant) or encourage to leave the employment of the Company any employee
of the Company, or hire or retain (including as a consultant) any former
employee of the Company who has left the employment of the Company within one
(1) year prior to such hiring or retention.
<PAGE>
3. ACKNOWLEDGEMENT. The Employee agrees and acknowledges that his
non-competition and non-solicitation obligations hereunder are essential to the
protection of the Company's business as a consequence of the Employee's position
with and as a founder of the Company, are reasonable for such purpose and were
also undertaken by the Employee as an inducement for certain investors to make
an investment in the Company pursuant to the terms of a certain Series D Senior
Participating Convertible Redeemable Preferred Stock Purchase Agreement, dated
as of August 18, 1998, by and among the Company and the investors listed
therein.
4. EQUITABLE REMEDIES. The parties hereto hereby agree that breaches of
covenants and obligations undertaken in this Agreement are likely to cause the
Company substantial and irrevocable damage, which would be difficult, if not
impossible, to prove precisely; therefore, it is agreed that this Agreement
shall be enforceable by specific performance or other injunctive relief. If any
of the restrictions contained herein are deemed to be unenforceable by reason of
the extent, duration or geographical scope or other provisions hereof, then the
parties hereto contemplate and agree that a court shall reduce such extent,
duration, geographical scope or other provision hereof and enforce the terms
hereof in reduced form for all purposes in the manner contemplated hereby.
5. MISCELLANEOUS. The Employee acknowledges that this Agreement does
not constitute a contract of employment and does not imply that the Company will
continue his employment for any period of time. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. The rights and
obligations of the Company shall inure to the benefit of, and shall be binding
upon, its successors and assigns. The Employee acknowledges that the services to
be rendered by him are unique and personal and cannot and shall not be assigned.
This Agreement and the performance hereof shall be construed and governed in
accordance with the laws of the Commonwealth of Massachusetts.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have caused this Non-Competition Agreement to be duly executed as an
instrument under seal as of the date and year first written above.
/s/ Mahendrajeet Singh
---------------------------------------
Mahendrajeet Singh
Address:
ART TECHNOLOGY GROUP, INC.
By: /s/ Joseph Chung
-----------------------------------
Name:
Title:
<PAGE>
Exhibit 10.21
NON-COMPETE AGREEMENT
This Non-Compete Agreement (this "AGREEMENT") is made this 18th day of
August, 1998, by and between Art Technology Group, Inc., a Delaware corporation
(the "COMPANY") and Joseph Chung (the "EMPLOYEE"), an individual residing at
____________________________________________.
WHEREAS, the parties hereto recognize and agree that the services of
the Employee are special and unique and that he has special fiduciary duties to
the Company as an officer, director and/or shareholder;
WHEREAS, for the foregoing reasons, a covenant on the part of the
Employee not to compete during his employment and for a reasonable period after
the termination or expiration of his employment is essential to protect the
business of the Company;
NOW, THEREFORE, it is hereby agreed by the Company and the Employee as
follows:
1. NON-COMPETE. During the period of time that the Employee is employed
by the Company and for a period of two (2) years after the termination or
cessation of such employment for any reason (both periods of time, taken
together, being referred to hereinafter as the "RESTRICTED PERIOD"), the
Employee shall not, anywhere in the United States, directly or indirectly,
whether individually or as an officer, director, employee, consultant, partner,
stockholder (other than as the holder of not more than one percent (1%) of a
publicly held corporation), individual proprietor, joint venturer, investor,
lender, consultant or in any other capacity whatsoever, develop, design,
produce, market, sell or render (or assist any other person in developing,
designing, producing, marketing, selling or rendering) products or services
competitive with those developed, designed, produced, marketed, sold or rendered
by the Company at any time during the Restricted Period.
2. NON-SOLICITATION. During the Restricted Period, the Employee shall
not, directly or indirectly, whether individually or as an officer, director,
employee, consultant, partner, stockholder, individual proprietor, joint
venturer, investor, lender, consultant or any other capacity whatsoever: (a)
solicit, divert or take away, or attempt to solicit, divert or take away, the
business or patronage of any clients, customers or accounts, or prospective
clients, customers or accounts, of the Company or (b) hire, retain (including as
a consultant) or encourage to leave the employment of the Company any employee
of the Company, or hire or retain (including as a consultant) any former
employee of the Company who has left the employment of the Company within one
(1) year prior to such hiring or retention.
<PAGE>
3. ACKNOWLEDGEMENT. The Employee agrees and acknowledges that his
non-competition and non-solicitation obligations hereunder are essential to the
protection of the Company's business as a consequence of the Employee's position
with and as a founder of the Company, are reasonable for such purpose and were
also undertaken by the Employee as an inducement for certain investors to make
an investment in the Company pursuant to the terms of a certain Series D Senior
Participating Convertible Redeemable Preferred Stock Purchase Agreement, dated
as of August 18, 1998, by and among the Company and the investors listed
therein.
4. EQUITABLE REMEDIES. The parties hereto hereby agree that breaches of
covenants and obligations undertaken in this Agreement are likely to cause the
Company substantial and irrevocable damage, which would be difficult, if not
impossible, to prove precisely; therefore, it is agreed that this Agreement
shall be enforceable by specific performance or other injunctive relief. If any
of the restrictions contained herein are deemed to be unenforceable by reason of
the extent, duration or geographical scope or other provisions hereof, then the
parties hereto contemplate and agree that a court shall reduce such extent,
duration, geographical scope or other provision hereof and enforce the terms
hereof in reduced form for all purposes in the manner contemplated hereby.
5. MISCELLANEOUS. The Employee acknowledges that this Agreement does
not constitute a contract of employment and does not imply that the Company will
continue his employment for any period of time. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. The rights and
obligations of the Company shall inure to the benefit of, and shall be binding
upon, its successors and assigns. The Employee acknowledges that the services to
be rendered by him are unique and personal and cannot and shall not be assigned.
This Agreement and the performance hereof shall be construed and governed in
accordance with the laws of the Commonwealth of Massachusetts.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have caused this Non-Competition Agreement to be duly executed as an
instrument under seal as of the date and year first written above.
/s/ Joseph T. Chung
--------------------------------
Joseph Chung
Address:
ART TECHNOLOGY GROUP, INC.
By: /s/ Mahendrajeet Singh
------------------------
Name:
Title:
<PAGE>
Exhibit 10.22
CONSULTING AGREEMENT
CONSULTING AGREEMENT (the "Agreement") entered into this 12th day of
November, 1997 by and between Art Technology Group, Inc., a Delaware corporation
with its principal place of business at 101 Huntington Avenue, 22nd Floor,
Boston, MA 02115 (the "Company") and Thomas N. Matlack, having a place of
business at 362 Commonwealth Avenue, Boston, MA 02115 (the "Consultant").
1. TERM OF ENGAGEMENT. The Company hereby agrees to retain the
Consultant, and the Consultant hereby agrees to be retained by the Company, upon
the terms set forth in this Agreement, for the period commencing on the date
hereof and ending on the first anniversary of the date hereof (the "Consulting
Period").
2. CONSULTING DUTIES. During the Consulting Period, the Consultant
agrees to perform such consulting, advisory and related services to and for the
Company as may be reasonably requested from time to time by the Board of
Directors of the Company (the "Board") in the areas of (i) strategic planning
and (ii) financial advice and planning. The Consultant's services shall be
provided at such times and in such locations as the parties mutually agree. The
Consultant shall devote such time and effort to his services hereunder as the
parties mutually agree.
3. FEES AND EXPENSES.
3.1 FEES. In full compensation for his consulting services rendered
under this Agreement, the Company shall grant to the Consultant a non-statutory
stock option for the purchase of 73,000 shares of the Company's Common Stock,
$0.01 par value per share, for an exercise price of $0.75 per share, which
option will become exercisable in full on the first anniversary of the date
hereof, and having such other terms and conditions as are set forth in the
Company's standard form of non-statutory stock option agreement.
3.2 EXPENSES. The Company shall reimburse the Consultant for all
reasonable travel and other business expenses incurred or paid by the Consultant
in connection with the performance of his duties hereunder, upon presentation by
the Consultant of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, PROVIDED, HOWEVER, that the
nature and amount of such expenses shall be subject to the Company's expense
policies as in effect from time to time.
4. INDEPENDENT CONTRACTOR STATUS. The Consultant shall perform his
consulting services as an "independent contractor" and not as an employee or
agent of the Company. The Consultant shall not be entitled to any benefits made
available to employees of the Company.
<PAGE>
5. CONFIDENTIAL INFORMATION. The Consultant agrees not to disclose,
either during the Consulting Period or at any time thereafter, to any person not
employed by the Company or not engaged to render services to the Company, any
confidential, proprietary or trade secret information ("Confidential
Information") obtained by the Consultant from the Company; PROVIDED, HOWEVER,
that this provision shall not preclude the Consultant from the use or disclosure
of information known generally to the public (other than that which the
Consultant may have disclosed in breach of this Agreement) or of information not
generally considered confidential or from disclosure required by law or court
order or in the proper conduct of the Company's business. The Consultant agrees
that his obligation not to disclose or use Confidential Information also extends
to Confidential Information of customers of the Company or suppliers to the
Company or other third parties who may have disclosed or entrusted the same to
the Company or to the Consultant in the course of the Company's business.
6. NOTICES. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
sending, by registered or certified mail, postage prepaid, addressed to the
other party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 6.
7. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Consultant.
8. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts,
without reference to conflict of laws principles.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns; PROVIDED, HOWEVER, that the obligations of the Consultant are personal
and shall not be assigned by him.
10. MISCELLANEOUS.
10.1 No delay or omission by either the Company or the Consultant in
exercising any right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by either the Company or the
Consultant on any one occasion shall be effective only in that instance and
shall not be construed as a bar or waiver of any right on any other occasion.
10.2 The captions of the sections of this Agreement are for convenience
of reference only and in no way define, limit or affect the scope or substance
of any section of this Agreement.
<PAGE>
10.3 In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
ART TECHNOLOGY GROUP, INC.
By: /s/ Mahendrajeet Singh
--------------------------------
Mahendrajeet Singh, President
CONSULTANT
/s/ Thomas N. Matlack
-----------------------------------
Thomas N. Matlack
<PAGE>
Exhibit 10.23
WARRANT TO PURCHASE STOCK
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 19331 AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
Corporation: ART TECHNOLOGY GROUP, INC.,
a Delaware corporation
Number of Shares: 46,296 shares
Class of Stock: Series C Convertible Preferred Stock, $.01 par
value per share ("Series C Preferred")
Initial Exercise Price: $1.62 per share
Issue Date: November 26, 1997
Expiration Date: November 25, 2002
THIS WARRANT CERTIFIES THAT, for value received, SILICON VALLEY BANK
("Holder") is entitled to purchase the above referenced number of fully paid and
nonassessable shares of the above referenced class of securities (the "Shares")
of the above referenced corporation (the "Company") at the above referenced
initial exercise price per Share, all as adjusted pursuant to Article 2 of this
Warrant (the "Warrant Price"), subject to the provisions and upon the terms and
conditions set forth of this Warrant
ARTICLE 1. TERM AND EXERCISE
1.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 1 at least 30 days
before the Expiration Date. If the notice is not so given, the Expiration Date
shall automatically be extended until 30 days after the date the Company
delivers the notice to Holder.
1.2 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 2 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.3, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.3 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.2, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the
<PAGE>
Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Warrant Price of such Shares by (b) the fair market value of
one Share. The fair market value of the Shares shall be determined pursuant to
Section 1.5.
1.4 ALTERNATIVE STOCK APPRECIATION RIGHT. INTENTIONALLY OMITTED
1.5 FAIR MARKET VALUE. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the last sale price or bid
price reported for the business day immediately before Holder delivers its
Notice of Exercise to the Company. If the Shares are not regularly traded, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment.
1.6 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired having the same terms set forth herein.
1.7 LOST OR DESTROYED WARRANT. If this Warrant is lost, stolen,
destroyed, or mutilated, the Company shall at the request of Holder and upon the
surrender of any remains of this Warrant execute and deliver to Holder a
replacement warrant in form identical to this Warrant. The replacement warrant
shall be an obligation of the Company enforceable by the Holder regardless of
whether the lost, stolen, destroyed, or mutilated warrant is enforceable by
anyone. This Warrant is not a negotiable instrument and is transferable only in
accordance with the provisions of Section 3.3.
1.8 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.8.1 "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of substantially all
of the assets of the Company, or any reorganization, consolidation, or merger of
the Company where the Company is not the surviving corporation and the
securities issued with respect to the Company's securities outstanding
immediately before the transaction represent less than 50% of the beneficial
ownership of the new entity immediately after the transaction.
1.8.2 ASSUMPTION OF WARRANT. If upon the closing of any
Acquisition the successor entity assumes the obligations of this Warrant, then
this Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant
2
<PAGE>
1.8.3 NONASSUMPTION. If upon the closing of any Acquisition
the successor entity does not assume the obligations of this Warrant and Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.3. The Board of Directors of the Company shall then reasonably and in
good faith calculate the pro rata amount of cash, property, and securities the
Holder would be entitled to receive if Holder had exercised the unexercised
portion of this Warrant in full for cash immediately before the record date for
determining the shareholders entitled to participate in the Acquisition (the
"Gross Proceeds"). The Company shall then distribute to Holder the amount of
such cash, property, and securities, in the same proportion as distributed to
the other shareholders of the Company, equal in value to the Gross Proceeds less
the aggregate Warrant Price of the unexercised portion of this Warrant, but not
less than zero.
1.8.4 PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its Series C Preferred, subdivides the Series C Preferred into a
greater amount of Series C Preferred, then upon exercise of this Warrant, for
each Share acquired, Holder shall receive, without cost to Holder, the total
number and kind of securities to which Holder would have been entitled had
Holder owned the Shares of record as of the date the dividend or subdivision
occurred.
2.2 RECLASSIFICATION, REORGANIZATION, CONSOLIDATION, OR MERGER. Subject
to Section 1.8, upon any reorganization, consolidation, merger, or other event
that results in a reclassification of the securities Issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, reorganization,
consolidation, or merger. Such an event shall include any automatic conversion
of the outstanding or issuable securities of the Company of the same class or
series as the Shares to common stock pursuant to the terms of the Company's
Certificate of Incorporation upon the closing of a registered public offering of
the Company's common stock. The Company or its successor shall promptly issue to
Holder a new warrant for such new securities or other property. The new Warrant
shall provide
3
<PAGE>
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provision of this Section 2.11
shall similarly apply to successive reclassifications, reorganizations,
consolidations, and mergers.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 NO IMPAIRMENT. The Company shall not, by amendment of its Charter
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue, or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment If the Company takes any action
affecting the Shares other than as described above that affects Holder's rights
under this Warrant, the Warrant Price and the number of Shares issuable upon
exercise of this Warrant shall be adjusted in such a manner that the rights of
Holder are substantially unchanged.
2.14 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share, if a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.15 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the company at its expense shall promptly compute such adjustment, cause
its independent public accountants to verify such computation, and furnish
Holder with a certificate stetting forth such adjustment and the facts upon
which such adjustment is based. The Company shall, upon written request, furnish
Holder a certificate setting forth the Warrant Price in effect upon the date
thereof and the series of adjustments leading to such Warrant Price.
ARTICLE 3. MISCELLANEOUS.
3.1 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
4
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
3.2 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Share issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
3.3 TRANSFER PROCEDURE. Subject to the provision of Section 3.2, Holder
may transfer all or part of this Warrant or the Shares Issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address, and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
3.4 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve, or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the Company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (i) at least 20 days' prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in
5
<PAGE>
respect of the matters referred to in (c) and (d) above; (ii) in the case of the
matters referred to in (c) and (d) above, at least 20 days' prior written notice
of the date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event); and
(iii) in the case of the matter referred to in (e) above, the same notice as is
given to the holders of such registration rights.
3.5 SUBJECT TO WARRANT PURCHASE AGREEMENT. This Warrant is issued
pursuant to a Warrant Purchase Agreement between the Company and Holder. All of
the terms of Article 8 of the Warrant Purchase Agreement (miscellaneous
provisions) are incorporated in this Warrant by reference.
ART TECHNOLOGY GROUP, INC.
By: /s/ Jeet Singh
-------------------------------
Jeet Singh, President
By: /s/ Joseph Chung
-------------------------------
Joseph Chung, Treasurer
6
<PAGE>
APPENDIX 1
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear:
This is to advise you that the Warrant issued to you as described below
will expire on ________________________, _____
Issuer: _______________________________
Issue Date: ________________________________
Class of Security Issuable: ________________________________
Exercise Price per Share: _______________________________
Number of Shares Issuable: _______________________________
Procedure for Exercise: _______________________________
Please contact [name of person at (phone number)] with any questions
you may have concerning exercise of the Warrant. This is your only notice of
pending expiration.
- -----------------------------------
(Name of Issuer)
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE>
APPENDIX 2
NOTICE OF EXERCISE OF WARRANT
1. The undersigned hereby elects to purchase ________ shares of Common/Series
______ Preferred [strike one] Stock of ___________________________-pursuant to
the terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
or
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ______________________--of the Shares covered by
the Warrant.
[Strike paragraph above that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below:
- ------------------------------------
(Name)
- ------------------------------------
(Address)
- ------------------------------------
3. The undersigned represents that it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
- -----------------------------------
(Holder)
- ------------------------------------
(Signature)
- ------------------------------------
(Date)
<PAGE>
Exhibit 10.24
WARRANT TO PURCHASE STOCK
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 19331 AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
Corporation: ART TECHNOLOGY GROUP, INC.,
Delaware corporation
Number of Shares: 10,000 shares
Class of Stock: Series C Convertible Preferred Stock, $.01 par
value per share ("Series C Preferred")
Initial Exercise Price: $0.01 per share
Issue Date: April 17, 1998
Expiration Date: April 16, 2003
THIS WARRANT CERTIFIES THAT, for value received, SILICON VALLEY BANK
("Holder") is entitled to purchase the above referenced number of fully paid and
nonassessable shares of the above referenced class of securities (the "Shares")
of the above referenced corporation (the "Company") at the above referenced
initial exercise price per Share, all as adjusted pursuant to Article 2 of this
Warrant (the "Warrant Price"), subject to the provisions and upon the terms and
conditions set forth of this Warrant
ARTICLE 1. TERM AND EXERCISE
1.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 1 at least 30 days
before the Expiration Date. If the notice is not so given, the Expiration Date
shall automatically be extended until 30 days after the date the Company
delivers the notice to Holder.
1.2 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering
this Warrant and a duly executed Notice of Exercise in substantially the form
attached as Appendix 2 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.3, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.3 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.2, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the
<PAGE>
Shares or other securities otherwise issuable upon exercise of this Warrant
minus the aggregate Warrant Price of such Shares by (b) the fair market value of
one Share. The fair market value of the Shares shall be determined pursuant to
Section 1.5.
1.4 ALTERNATIVE STOCK APPRECIATION RIGHT. INTENTIONALLY OMITTED
1.5 FAIR MARKET VALUE. If the Shares are traded regularly in a public
market, the fair market value of the Shares shall be the last sale price or bid
price reported for the business day immediately before Holder delivers its
Notice of Exercise to the Company. If the Shares are not regularly traded, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment.
1.6 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired having the same terms set forth herein.
1.7 LOST OR DESTROYED WARRANT. If this Warrant is lost, stolen,
destroyed, or mutilated, the Company shall at the request of Holder and upon the
surrender of any remains of this Warrant execute and deliver to Holder a
replacement warrant in form identical to this Warrant. The replacement warrant
shall be an obligation of the Company enforceable by the Holder regardless of
whether the lost, stolen, destroyed, or mutilated warrant is enforceable by
anyone. This Warrant is not a negotiable instrument and is transferable only in
accordance with the provisions of Section 3.3.
1.8 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.8.1 "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of substantially all of the assets
of the Company, or any reorganization, consolidation, or merger of the Company
where the Company is not the surviving corporation and the securities issued
with respect to the Company's securities outstanding immediately before the
transaction represent less than 50% of the beneficial ownership of the new
entity immediately after the transaction.
1.8.2 ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly. The Company shall use reasonable efforts to cause the surviving
corporation to assume the obligations of this Warrant
2
<PAGE>
1.8.3 NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.3. The Board of Directors of the Company shall then reasonably and in
good faith calculate the pro rata amount of cash, property, and securities the
Holder would be entitled to receive if Holder had exercised the unexercised
portion of this Warrant in full for cash immediately before the record date for
determining the shareholders entitled to participate in the Acquisition (the
"Gross Proceeds"). The Company shall then distribute to Holder the amount of
such cash, property, and securities, in the same proportion as distributed to
the other shareholders of the Company, equal in value to the Gross Proceeds less
the aggregate Warrant Price of the unexercised portion of this Warrant, but not
less than zero.
1.8.4 PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its Series C Preferred, subdivides the Series C Preferred into a
greater amount of Series C Preferred, then upon exercise of this Warrant, for
each Share acquired, Holder shall receive, without cost to Holder, the total
number and kind of securities to which Holder would have been entitled had
Holder owned the Shares of record as of the date the dividend or subdivision
occurred.
2.2 RECLASSIFICATION, REORGANIZATION, CONSOLIDATION, OR MERGER. Subject
to Section 1.8, upon any reorganization, consolidation, merger, or other event
that results in a reclassification of the securities Issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, reorganization,
consolidation, or merger. Such an event shall include any automatic conversion
of the outstanding or issuable securities of the Company of the same class or
series as the Shares to common stock pursuant to the terms of the Company's
Certificate of Incorporation upon the closing of a registered public offering of
the Company's common stock. The Company or its successor shall promptly issue to
Holder a new warrant for such new securities or other property. The new Warrant
shall provide
3
<PAGE>
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provision of this Section 2.11
shall similarly apply to successive reclassifications, reorganizations,
consolidations, and mergers.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 NO IMPAIRMENT. The Company shall not, by amendment of its Charter
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue, or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment If the Company takes any action
affecting the Shares other than as described above that affects Holder's rights
under this Warrant, the Warrant Price and the number of Shares issuable upon
exercise of this Warrant shall be adjusted in such a manner that the rights of
Holder are substantially unchanged.
2.14 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share, if a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.15 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the company at its expense shall promptly compute such adjustment, cause
its independent public accountants to verify such computation, and furnish
Holder with a certificate stetting forth such adjustment and the facts upon
which such adjustment is based. The Company shall, upon written request, furnish
Holder a certificate setting forth the Warrant Price in effect upon the date
thereof and the series of adjustments leading to such Warrant Price.
ARTICLE 3. MISCELLANEOUS.
3.1 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
4
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED.
3.2 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Share issuable upon exercise of this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
3.3 TRANSFER PROCEDURE. Subject to the provision of Section 3.2, Holder
may transfer all or part of this Warrant or the Shares Issuable upon exercise of
this Warrant (or the securities issuable, directly or indirectly, upon
conversion of the Shares, if any) by giving the Company notice of the portion of
the Warrant being transferred setting forth the name, address, and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). Unless
the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
3.4 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve, or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the Company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (i) at least 20 days' prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in
5
<PAGE>
respect of the matters referred to in (c) and (d) above; (ii) in the case of the
matters referred to in (c) and (d) above, at least 20 days' prior written notice
of the date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event); and
(iii) in the case of the matter referred to in (e) above, the same notice as is
given to the holders of such registration rights.
3.5 SUBJECT TO WARRANT PURCHASE AGREEMENT. This Warrant is issued
pursuant to a Warrant Purchase Agreement between the Company and Holder. All of
the terms of Article 8 of the Warrant Purchase Agreement (miscellaneous
provisions) are incorporated in this Warrant by reference.
ART TECHNOLOGY GROUP, INC.
By: /S/ JEET SINGH
--------------------------------
Jeet Singh, President
By: /S/ JOSEPH CHUNG
--------------------------------
Joseph Chung, Treasurer
6
<PAGE>
7
<PAGE>
APPENDIX 1
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear:
This is to advise you that the Warrant issued to you as described
below will expire on ________________________, _____
Issuer:
---------------------------------
Issue Date:
---------------------------------
Class of Security Issuable:
---------------------------------
Exercise Price per Share:
---------------------------------
Number of Shares Issuable:
---------------------------------
Procedure for Exercise:
---------------------------------
Please contact [name of person at (phone number)] with any questions
you may have concerning exercise of the Warrant. This is your only notice of
pending expiration.
- -----------------------------------
(Name of Issuer)
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
APPENDIX 2
NOTICE OF EXERCISE OF WARRANT
1. The undersigned hereby elects to purchase ________ shares of Common/Series
______ Preferred [strike one] Stock of ___________________________-pursuant to
the terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
or
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ______________________--of the Shares covered by
the Warrant.
[Strike paragraph above that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below:
- -----------------------------------
(Name)
- ------------------------------------
(Address)
- ------------------------------------
3. The undersigned represents that it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
- -----------------------------------
(Holder)
- ------------------------------------
(Signature)
- ------------------------------------
(Date)
<PAGE>
Exhibit 23.1
After the three-for-two stock split discussed in Note 6(a) to Art Technology
Group, Inc.'s financial statements are effective, we expect to be in a
position to render the following consent.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 12, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Boston, Massachusetts
