<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1999
REGISTRATION NO. 333-78333
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share........... 5,750,000 shares $12.00 $69,000,000 (3)
</TABLE>
(1) Includes 750,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
(3) A filing fee of $22,380 was paid previously.
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 JUNE 21, 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
5,000,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Art Technology Group,
Inc. We are selling 5,000,000 shares of common stock. We estimate that the
initial public offering price will be between $10.00 and $12.00 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 our stockholders listed on pages 57-59 have granted the underwriters
an option for a period of 30 days to purchase up to 750,000 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
WIT CAPITAL CORPORATION
, 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 "Architecture for
Internet Customer Relationship Management." The diagram depicts the
relationship of our products to other products and interfaces such as
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 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 open
and expandable platform. Integrate Web applications with existing information
systems including content management, sales and marketing, transaction
fulfillment 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
provide customers with professional services including strategy, design and
custom application development based on the Dynamo product suite." Arrows
point from this sentence to the front end systems and our Dynamo products.
"System Integrators provide customers with professional services to our
Dynamo products with existing information systems." Arrows point from this
sentence to Dynamo products and open adapters. "Original Equipment
Manufacturers and Technology Partners co-market or resell our Dynamo products
for sale to their existing clients and new markets." 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.............................................................. 15
Dividend Policy.............................................................. 15
Capitalization............................................................... 16
Dilution..................................................................... 17
Selected Financial Data...................................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 19
Business..................................................................... 30
Management................................................................... 48
Transactions with Related Parties............................................ 56
Principal and Selling Stockholders........................................... 58
Description of Capital Stock................................................. 61
Shares Eligible for Future Sale.............................................. 64
Underwriting................................................................. 66
Legal Matters................................................................ 68
Experts...................................................................... 68
Where You Can Find More Information.......................................... 68
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.
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. AS USED IN THIS
PROSPECTUS, THE TERMS "WE," "US," "OUR" AND SIMILAR TERMS REFER TO ART
TECHNOLOGY GROUP, INC. AND NOT TO ITS MANAGEMENT OR STOCKHOLDERS.
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 market,
sell and support products and services over the Internet more effectively. Our
Dynamo product suite is designed to provide businesses with the core application
platform and software tools required to develop and deploy personalized,
reliable, large-scale Web sites for conducting electronic commerce, also called
e-commerce.
As the growth and acceptance of online marketing and e-commerce have
increased, the 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--an open and expandable platform to enable
Internet customer relationship management and e-commerce applications
- Dynamo Personalization Server--allows businesses to develop, deploy and
manage multiple Web applications that share a common set of business rules
and are personalized based on common user profiles
- Dynamo Commerce--enables the creation of personalized e-commerce
storefronts that can be customized and integrated with existing
information 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
BabyCenter, BellSouth, BMG Direct, Eastman Kodak, Hilton Hotels, Informix,
J.Crew, John Hancock Funds, Inc., Network Solutions, Newbridge Networks, Scudder
Kemper Investments, Sony Online Entertainment, Sun Microsystems and
TheStreet.com. We target Fortune 1000 companies 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 Web site is
located at WWW.ATG.COM. The information contained in our 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.............. 5,000,000 shares
Common stock to be outstanding after this offering........ 30,556,845 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, unless otherwise indicated, is based on the number outstanding on May
31, 1999. It excludes 3,116,610 shares subject to outstanding options at a
weighted-average exercise price of $1.57 per share and 2,307,435 additional
shares available for issuance under our stock plans. It also excludes warrants
to purchase 171,485 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 effected on June 18, 1999
- 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 give 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 5,000,000 shares
of common stock offered by us at an assumed initial public offering price of
$11.00 after deducting the estimated underwriting discounts and offering
expenses and giving effect to the application of our estimated net proceeds,
including our repayment of bank debt and capital lease obligations of
approximately $610,000 at March 31, 1999.
<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 $ 57,175
Working capital.............................................................. 2,876 2,876 52,760
Total assets................................................................. 12,368 12,368 61,908
Long-term obligations, less current portion.................................. 231 231 --
Redeemable convertible preferred stock....................................... 8,556 -- --
Stockholders' equity (deficit)............................................... (4,771) 3,784 53,899
</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 OPERATING RESULTS TO FLUCTUATE AND THE PRICE OF OUR COMMON STOCK
COULD FALL IF QUARTERLY RESULTS ARE LOWER THAN THE EXPECTATIONS OF SECURITIES
ANALYSTS
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
4
<PAGE>
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.
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 AND OUR REVENUES AND OPERATING RESULTS COULD BE LOWER THAN EXPECTED IF
WE ARE UNABLE TO COMPLETE ONE OR MORE SUBSTANTIAL SALES IN ANY GIVEN QUARTER
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. Our sales cycle varies
depending on the size and type of customer contemplating a purchase and whether
we have conducted business with a potential customer in the past. These
potential customers frequently need to obtain approvals from multiple decision
makers prior to making purchase decisions. Our long sales cycle, which can range
from several weeks to several months or more, 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 AND
RAPIDLY EVOLVING AND WE CANNOT BE CERTAIN THAT A VIABLE MARKET FOR OUR
PRODUCTS WILL EMERGE OR BE SUBSTANTIAL
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.
Organizations 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.
THE MARKET FOR INTERNET CUSTOMER RELATIONSHIP MANAGEMENT SOLUTIONS IS
INTENSELY COMPETITIVE AND WE EXPECT COMPETITION TO INTENSIFY IN THE FUTURE
The market for Internet customer relationship management solutions is
intensely competitive and we expect competition to intensify in the future as
revenues generated from Internet commerce increase. Our primary competition
currently 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 application software vendors such
as BroadVision, InterWorld, Open Market and Vignette. We also compete with
platform application server products and vendors
5
<PAGE>
such as BEA Systems, IBM's Websphere products, Microsoft, Netscape, and Sun
Microsystems' NetDynamics products, among others. 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, adopt more aggressive pricing policies and offer more attractive
terms to purchasers than we can. Moreover, 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.
COMPETITION WITH OUR RESELLER PARTNERS COULD LIMIT OUR SALES OPPORTUNITIES AND
JEOPARDIZE THESE RELATIONSHIPS
We sell products through agreements with resellers and original equipment
manufacturers. We target markets that are also served by some of these partners.
This competition may limit our ability to sell our products and services
directly in these markets and may jeopardize, or result in the termination of,
these relationships.
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. We have purchased, and are the beneficiaries of, insurance policies on
the lives of Mr. Singh and Mr. Chung, each in the amount of $1,000,000. 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 Web sites for conducting commerce on the Internet,
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.
6
<PAGE>
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 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 MAY LOSE MONEY ON FIXED-PRICE CONTRACTS
A majority of our revenues from Innovation Solutions services are derived
from fixed-price contracts. We work with complex technologies in compressed time
frames and it can be difficult to judge the time and resources necessary to
complete a project. If we miscalculate the resources or time we need to complete
work under fixed-price contracts, our operating results could be materially
harmed.
WE COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL PROPERTY FROM
INFRINGEMENT OR A CLAIM OF INFRINGEMENT
Our Innovation Solutions services often involve 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
7
<PAGE>
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.
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.
8
<PAGE>
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 OR IF WE WERE
NOT ABLE TO CONTINUE USING JAVA OR JAVA RELATED TECHNOLOGIES
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 or related Java technologies, 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, we could lose revenue
opportunities and our business could be harmed.
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
damage 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
9
<PAGE>
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 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 BE ABLE TO CONTROL ALL MATTERS REQUIRING
STOCKHOLDER APPROVAL AND COULD DELAY OR PREVENT SOMEONE FROM ACQUIRING OR
MERGING WITH US ON TERMS FAVORED BY A MAJORITY OF OUR INDEPENDENT STOCKHOLDERS
On completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately 61% 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. See "Use of Proceeds."
OUR CURRENT STOCKHOLDERS WILL DERIVE SUBSTANTIAL BENEFITS FROM THIS OFFERING
Our current stockholders will derive the following benefits from this
offering:
- This offering will create a public market for our common stock and enable
existing stockholders to sell their shares following expiration of the
180-day lock-up agreements they have signed. See "Risks Related to the
Securities Markets--Substantial sales of our common stock could cause our
stock price to decline."
- If the underwriters exercise their over-allotment option, the stockholders
named in the table under "Principal and Selling Stockholders" will sell a
total of 582,000 shares of common stock in this offering. The acquisition
cost of these shares was substantially less than the estimated initial
public offering price. See "Dilution."
10
<PAGE>
- Following this offering, existing stockholders will hold shares with
substantial unrealized appreciation. Assuming an initial public offering
price of $11.00 per share, and based on shares outstanding as of March 31,
1999, following this offering existing stockholders will hold shares with
total unrealized appreciation of approximately $266 million. See
"Dilution."
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 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
11
<PAGE>
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 user 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.
PROJECTIONS INCLUDED IN THIS PROSPECTUS RELATING TO THE GROWTH OF E-COMMERCE
AND THE INTERNET ARE BASED ON ASSUMPTIONS THAT COULD TURN OUT TO BE INCORRECT
AND ACTUAL RESULTS COULD BE MATERIALLY DIFFERENT FROM THE PROJECTIONS
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 surveys, financial reports and
models used by IDC to measure license revenues and associated maintenance fees
derived from sales to e-commerce sites. These projections include assumptions
regarding U.S. business and home use of the Internet; growth in the number of
non-personal computer Web access devices; the amount of time people will spend
shopping on the Web; the absence of any catastrophic failure of the Internet;
the continued expansion of regional economies; and the continued improvement of
security on the Internet, as well as consumer confidence. 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.
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
12
<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 30,556,845 shares of common stock outstanding and
3,288,095 shares subject to outstanding options and warrants. The 5,000,000
shares sold in this offering 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 25,556,845
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, most of the
restricted securities 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 $9.23 in the book value per share
of the common stock from the price you pay for the common stock.
THE FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS MIGHT PROVE
INACCURATE. AS A RESULT, OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE
OR ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD-LOOKING STATEMENTS.
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this
13
<PAGE>
prospectus constitute forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or other comparable
terminology. These statements involve known and unknown risks and uncertainties
that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. These factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus.
We cannot guarantee any future results, levels of activity, performance or
achievements. Moreover, neither we nor anyone else assumes responsibility for
the accuracy and completeness of these statements. We undertake no obligation to
update any of the forward-looking statements after the date of this prospectus.
14
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of 5,000,000 shares of
common stock, after deducting estimated underwriting discounts and offering
expenses, will be approximately $50,150,000. Our estimated net proceeds will be
$51,868,640 if the underwriters exercise their option to purchase additional
shares in this offering. These estimates assume an initial public offering price
of $11.00 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 a portion of the net proceeds of this offering for
repayment of bank debt and capital lease obligations. These bank debt and
capital lease obligations totaled approximately $610,000 at March 31, 1999. 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 expansion of
sales and marketing or research and development activities, as well as 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 specific uses for a substantial portion of our 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 bank debt prohibit us from paying cash dividends without the
consent of the lender.
15
<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 5,000,000 shares of common stock
in this offering at an assumed initial public offering price of $11.00 per
share after deducting the estimated underwriting discounts and offering
expenses and giving effect to the application of our estimated net
proceeds, including our repayment of bank debt and capital lease
obligations of approximately $610,000 at March 31, 1999
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS 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 no shares 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, 30,407,008 shares issued
and outstanding, pro forma as adjusted........................... 96 254 304
Additional paid-in capital......................................... 8,695 24,057 74,157
Deferred compensation.............................................. (3,968) (3,968) (3,968)
Accumulated deficit................................................ (12,455) (16,559) (16,594)
----------- ----------- -----------
Total stockholders' equity (deficit)............................. (4,771) 3,784 53,899
----------- ----------- -----------
Total capitalization......................................... $ 4,016 $ 4,016 $ 53,899
----------- ----------- -----------
----------- ----------- -----------
</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 2,602,713 additional shares available for issuance
under our stock plans. It also excludes warrants to purchase 171,485 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.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999 was $3,784,000, 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 $11.00 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 $53,899,000
or $1.77 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 $1.62 to existing stockholders
and dilution in pro forma net tangible book value per share of $9.23 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 $11.00 per share. The following table illustrates this
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 11.00
Pro forma net tangible book value per share at March 31, 1999............ $ 0.15
Increase attributable to sale of common stock in this offering........... 1.62
---------
Pro forma net tangible book value per share after this offering.............. 1.77
---------
Dilution of net tangible book value per share to new investors who purchase
shares in this offering.................................................... $ 9.23
---------
---------
</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 $1.82 per share, the increase in net tangible book value per
share to existing stockholders would be $1.67 per share and the dilution to
persons who purchase shares in the offering would be $9.18 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 $11.00 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................... 5,000,000 16% $ 55,000,000 80% $ 11.00
Shares owned by existing stockholders............... 25,407,008 84 13,614,000 20 0.54
------------- ----- ------------- -----
Total......................................... 30,407,008 100% $ 68,614,000 100%
------------- ----- ------------- -----
------------- ----- ------------- -----
</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 171,485 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.
17
<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 reflect 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).............................. 3,784
</TABLE>
18
<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
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. To date, substantially all of our Dynamo
customers have entered into 12-month software maintenance and support agreements
at the time of purchase. Because we only began selling Dynamo in 1996, we have a
limited history upon which to evaluate whether Dynamo customers will renew their
maintenance and support agreements from year to year. We believe that growth in
our product license sales depends on our ability to provide customers with
support, training, consulting and implementation 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.
19
<PAGE>
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>
20
<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 attributable to increases in the number of our customers
and average sales per customer, as we expanded our sales force and introduced a
new release of Dynamo in December 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 increase
product license revenues as a percentage of total 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,
approximately 83% of which was attributable to an increase in salaries and
related benefits and the remainder of which primarily was due to overhead and
related expenses.
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.
21
<PAGE>
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 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 74% from $627,000 for the three
months ended March 31, 1998 to $1.1 million for the three months ended March 31,
1999. Approximately 80% of the increase was due to increases in the number of
engineering personnel and the remainder primarily was due to 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. Approximately 48% of the increase was due to a significant increase in the
number of sales and marketing personnel and related expenses, approximately 17%
of the increase was related to new and increased marketing program expenditures,
and the remainder of the increase primarily was due to travel and entertainment
expenses.
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.
Approximately 55% of the increase related to increases in legal and professional
fees, and approximately 41% of the increase was due to an increase in personnel
and related costs as we increased our general and administrative personnel to
manage the growth of the company.
22
<PAGE>
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 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 attributable
to increases in the number of our customers and average sales per customer
primarily due to the commencement of product license sales in 1996 and a new
release of Dynamo in December 1997. 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, Inc.................................................. -- -- 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.
23
<PAGE>
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. Approximately 94% of
the increase in 1997 and 73% of the increase in 1998 were due to the expansion
of our professional services organization, consisting primarily of payroll and
related benefits. 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
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. Approximately 76% of the increase in 1997 was due to
an increase in the number of engineering personnel, with the remainder
attributable to recruiting fees and overhead costs associated with product
development. Approximately 36% of the decrease in 1998 was due to the temporary
reallocation of research and development personnel to support the professional
services organization and the remainder of the decrease primarily was due to
overhead and related expenses.
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. Approximately 87% of the increase in 1997 and 67% of the increase in 1998
were due to an increase in the number of sales and marketing personnel and
related expenses. The remainder in each year primarily related to increases in
our marketing expenditures.
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. Approximately 69% of the increase in 1997 and 50%
of the increase in 1998 were due to the hiring of additional personnel with the
remainder in each year primarily due to the increase in 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.
24
<PAGE>
QUARTERLY RESULTS
The following tables set forth 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1999
----------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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>
25
<PAGE>
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.
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 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 $13.0 million through March 31, 1999, as well as
commercial credit facilities and capital leases totaling $543,000 at 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
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$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,
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.
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
the lesser of $5.0 million and 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 financial covenants and restrictions, including minimum
liquidity requirements and a prohibition on the payment of dividends. 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
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(e) recognize year 2000 as a leap year.
We have conducted a Year 2000 readiness review for the current versions of
our products. The review includes assessment, validation testing and, where
necessary, remediation, upgrading and replacement of these product versions, as
well as 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.
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
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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 market,
sell and support products and services over the Internet more effectively. Our
Dynamo product suite includes an application server that is specifically
designed to enable and support Web applications, as well as e-commerce and
Internet customer management applications. An application server is a software
program that facilitates the development, deployment and management of other
software programs. Our solution is designed to provide businesses with the core
application platform and software tools required to develop and deploy
personalized, reliable, large-scale Web sites for conducting e-commerce.
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 and retain customers,
conduct e-commerce with those customers, and 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 more than $400 billion worth of goods and services
will be sold over the Internet by 2002, which represents a compounded annual
growth rate of over 100% for the period between 1997 and 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 offer 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
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and retain customers online, businesses must engage visitors with dynamic,
relevant and targeted experiences, which often lead to transactional
opportunities.
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 INFORMATION 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 expandable 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. Scalability refers to the ability of a computer
system to handle greater load by adding additional hardware. 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 vendors offer stand-alone solutions for Web content
management, advertising management, transaction processing, e-commerce
storefront development, personalization and recommendation engines, and
application development tools. By implementing a collection of these stand-alone
solutions, companies can attempt to deliver dynamic, personalized content to Web
site visitors and manage their e-commerce efforts. However, these stand-alone
solutions may not provide a satisfactory solution for many businesses:
- LACK OF INTEGRATED FUNCTIONALITY. Disparate stand-alone applications
generally do not easily integrate and communicate with each other, lack a
common user interface and lack a common platform for integrating with
existing information systems. As a result, a collection of stand-alone
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 stand-alone
solutions from multiple vendors, and these implementations frequently fail
to meet requirements. In addition, businesses often incur higher
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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.
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 stand-alone 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 built with separate software modules and lack the
expandability that an application server-based platform provides. This
limits the ability of businesses to customize their implementations,
integrate their solutions with existing applications and extend their
e-commerce initiatives by building future applications or incorporating
third-party technology.
- POOR SCALABILITY AND RELIABILITY. Most of today's computer systems 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 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 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. 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 Web sites that conduct e-commerce.
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, an application server
specifically designed to enable and support Web applications. Dynamo Application
Server is designed to provide businesses with the core application 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 expandable
personalization platform that enables
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companies to target specific content and data to particular customers or
visitors on the Web. Dynamo Commerce manages and delivers product catalog
content and user-targeted promotional programs and provides transaction
processing capabilities for large-scale e-commerce storefronts. Dynamo Ad
Station is an 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, a
feature that transfers users on a failed server 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.
OPEN AND EXPANDABLE APPLICATION SERVER ARCHITECTURE. Our Dynamo Application
Server provides customers with an expandable platform that allows them to
rapidly integrate our products with their existing systems and to deploy new
applications, both internally developed and from third parties. The ability to
integrate multiple applications and information systems with our common platform
enables businesses to incorporate organization-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 existing
information systems
THE ABILITY TO ACHIEVE RAPID TIME TO MARKET BY:
- deploying our comprehensive suite of integrated applications
- enabling rapid integration with existing information 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 technologies. We were one of the first
companies to market a high-performance dynamic Web page generation engine to
both generate and deliver Web pages on a real-time basis, 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 information 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
GROW AND LEVERAGE PROFESSIONAL SERVICE CAPABILITIES. We have extensive
experience in Web application development and integration services. Through our
Express Services, we provide enabling
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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 AND WEB DEVELOPERS. We sell our products directly to
end-users and through co-selling efforts with systems integrators and Web
developers. 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.
EXPAND TECHNOLOGY PARTNER AND ORIGINAL EQUIPMENT MANUFACTURER RELATIONSHIPS
AS A DISTRIBUTION CHANNEL. We work with technology partners, such as Documentum,
Factpoint and OpenText, to develop modules that enable our software products to
operate with their software products. We also work with original equipment
manufacturers, such as Informix, to enable them to combine our software products
with their products to form a single software application product. Some of our
customers have requirements that can be met by a combination of our products and
those of one or more of our partners. We sell in conjunction with these vendors
in a variety of ways:
- co-marketing with a technology partner to promote the fact that our
products operate together
- co-selling with a partner in an arrangement where sales and service
personnel from both organizations approach a customer in a coordinated
sales process
- selling to reseller partners
- selling to original equipment manufacturers that sell and support the
combined product
Many of our current and potential partners are looking to extend their
current offerings to include Web-enablement, personalization and e-commerce
features. We believe these relationships 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 application server specifically designed to enable and
support Web applications, 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. Each of the applications in our product suite
can be purchased separately; however, the Dynamo Application
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Server is required to run each of our other applications. Dynamo Personalization
Server is required to run 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.
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 An open and expandable $10,000 per CPU
platform to enable Internet
customer relationship
management and e-commerce
applications
Dynamo Personalization Server Allows businesses to develop, $20,000 per CPU; requires
deploy and manage multiple Dynamo Application Server
Web applications that share a
common set of business rules
and are personalized based on
common user profiles
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 existing information
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 application platform and software tools
required to develop, deploy and manage personalized, effective Web sites for
conducting business on the Internet. 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 the distribution of applications across multiple computers and
providing an automatic recovery management system to prevent system
failures
- 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, Factpoint 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 help 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 a variety 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. 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 represent a broad spectrum of enterprises within diverse industry
sectors. The following is a partial list of customers that have purchased
licenses and/or professional services from us:
TECHNOLOGY
Informix
Just in Time Solutions
Newbridge Networks
Sun Microsystems
MANUFACTURING
3M
Eastman Kodak
TRAVEL AND LEISURE
Hilton Hotels
FINANCIAL SERVICES
BancTec
John Hancock Funds, Inc.
KeyBank
Scudder Kemper Investments
MEDIA AND ENTERTAINMENT
Icon MediaLab
MTV/Nickelodeon
Sony Online Entertainment
INTERNET
AltaVista
BabyCenter
GoTo.com
Network Solutions
TechRepublic
TheStreet.com
TELECOMMUNICATIONS
BellSouth
CONSUMER RETAIL
BMG Direct
CareSoft
GetMusic
J.Crew
living.com
Peapod
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. It wanted to transfer its
customer-interaction functions to the Internet to reduce costs and enhance
customer interactions.
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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 its 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. 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 we are a technology leader in providing Internet customer
relationship management solutions. Our technology leadership has been evidenced
by product awards and recognition by industry commentators. For example, in
December 1998 our Dynamo Application Server earned the 1998 CNET Builder.com
Award as "Best Application Server." 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 are helping Java to become the de
facto standard language for enterprise system integration.
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- 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++.
- 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 multiple 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
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integration. This group also assists with pre-sale and customer support
activities referred from the Express Services group and quality assurance tasks
supporting the Innovation Solutions group.
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. The systems we integrate with include
relational databases, content management systems and credit card payment
servers. The industry standards we support include Java Servlets, a standard for
constructing Web pages using the Java programming language; Enterprise Java
Beans, a standard for developing modular Java programs that can be accessed over
a network; and Simple Network Management Protocol, a standard for remotely
monitoring the operation of a system.
SALES AND MARKETING
Our principal target markets are Fortune 1000 companies 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, Web developers,
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 Factpoint, 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.
Our co-marketing relationships are with major systems integrators that serve
the market for information system products and services. The objective of this
co-marketing strategy is to motivate systems integrators to adopt the Dynamo
technology and suite of products on Web-based projects for their clients. We
train and assist our systems integration partners to enable them to deploy,
extend and support our products.
Set forth below is a partial list of organizations with which we have
selling and marketing relationships:
American Management Systems
Cambridge Technology Partners
Computer Sciences Corporation
Context Integration
Fire Engine Red
Fort Point Partners
Free Range Media
Icon Medialab
iXL
Javelin Technology
Modem Media . Poppe Tyson
Organic Online
Planet Access Networks
Phoenix Pop Productions
Quidnunc Group
Strategic Interactive Group
USWeb/CKS
Vision Consulting
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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 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, among others.
We also compete in the platform application server market with the
NetDynamics product of Sun Microsystems, which is also one of our customers and
co-marketing partners.
We believe the primary factors upon which we compete are the functionality
and expandability 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 believe that we have competitive
advantages that differentiate our products and services from those of our
competitors. Our application suite provides improved time-to-market and lower
cost of ownership in comparison to in-house development efforts. We believe the
expandability and scalability of our application server-based platform, as well
as our product features, provide us an advantage over other Internet application
software vendors. We believe the functionality provided by the personalization
and e-commerce components of the Dynamo application suite gives us a competitive
advantage over platform application server vendors.
Despite these advantages, many of our competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do. As a result, they may be able to undertake more extensive
promotional activities, offer more attractive pricing and purchase terms, and
bundle their products in a manner that would put us at a competitive
disadvantage.
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.
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 restrictions on the
licensee's ability to use the software, such as prohibiting reverse engineering
and limiting the use of copies. We also seek to avoid disclosure of our
intellectual property by requiring employees and consultants with access to our
proprietary
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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.
In addition, our software is written in the Java programming language
developed by Sun Microsystems and we incorporate Java Runtime Environment, Java
Naming and Directory Interface, Java Servlet Development Kit, Java Foundation
Classes, JavaMail and JavaBeans Activation Framework into our products under
licenses granted to us by Sun. Currently, Sun makes these technologies available
to the public at no charge. However, if Sun declined to continue to allow us to
use these technologies for any reason, we would be required to (a) license the
equivalent technology from another source, (b) rewrite the technology ourselves,
and/or (c) rewrite portions of our software to accommodate the change or no
longer use the technology.
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 Chicago, Illinois, San Francisco, California and Reading, England. See note 7
to our financial statements.
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
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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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers, other key employees 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(1)........................................ 35 President, Chief Executive Officer and Director
Joseph T. Chung(1)................................... 34 Chief Technology Officer, Treasurer and Chairman of
the Board
Ann C. Brady(1)...................................... 35 Vice President, Finance and Chief Financial Officer
Paul G. Shorthose(1)(2).............................. 41 Chief Operating Officer
William Wittenberg(1)................................ 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(3)................................ 43 Director
Scott A. Jones(4).................................... 38 Director
Charles R. Lax(4).................................... 39 Director
Thomas N. Matlack(3)................................. 34 Director
Jeffrey T. Newton.................................... 41 Director
</TABLE>
- ------------------------
(1) Executive officer.
(2) Mr. Shorthose's employment will begin on June 22, 1999.
(3) Member of the Audit Committee.
(4) 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.
PAUL G. SHORTHOSE will become Chief Operating Officer on June 22, 1999. From
July 1998 to June 1999, he was Vice President of Marketing and Business
Development for Context Integration. From August 1997 to July 1998, Mr.
Shorthose served as our Vice President, Worldwide Services. From April 1992 to
August 1997, Mr. Shorthose was Vice President/General Manager for the Northeast
U.S. and Canada Professional Services Organization of Sybase, Inc.
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,
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<PAGE>
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 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 two Class I directors, three Class II directors and two 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
49
<PAGE>
term of the Class I directors (Messrs. Forlenza and Newton) expires at the
annual meeting of stockholders to be held in 2000. The term of the Class II
directors (Messrs. Jones, Lax and Matlack) expires at the annual meeting of
stockholders to be held in 2001. The term of the Class III directors (Messrs.
Chung and Singh) expires 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 or her successor is elected and qualified or until his or her
earlier resignation or removal.
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.
In November 1997, we entered into a consulting agreement with one of our
directors, Thomas N. Matlack, to provide 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.
Our 1999 Outside Director Stock Option Plan was adopted by our board of
directors in May 1999 and approved by our stockholders in June 1999. Under the
terms of the director plan, directors who are not employees of the company
receive nonstatutory options to purchase shares of our common stock. A total of
150,000 shares of our common stock may be issued upon exercise of options
granted under the plan. Each non-employee director will receive an option to
purchase 5,000 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 non-employee director will receive an option to purchase 2,500
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 5,000 shares of our common
stock on the date of his or her initial election to our board of directors and
an option to purchase 2,500 shares of our common 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.
50
<PAGE>
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 $ 3,038(1) --
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(2) 35,400
Vice President, Sales
Paul Shorthose(3)..................................................... 88,846 60,000(4) --
</TABLE>
- ------------------------
(1) Represents imputed interest on an interest-free loan extended to Mr. Singh.
(2) Includes commission of $46,247 paid in 1999 but earned in 1998.
(3) Mr. Shorthose resigned as our Vice President, Services in August 1998. He
will begin employment as our Chief Operating Officer on June 22, 1999.
(4) Excludes bonus of $20,000 earned in 1997 and paid in 1998.
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<PAGE>
OPTION GRANTS AND EXERCISES DURING 1998
The following table contains information concerning the grant of options to
purchase shares of our common stock to each of the Named Executive Officers
during the fiscal year ended December 31, 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES OR BASE TERM (1)
OPTIONS IN FISCAL PRICE EXPIRATION ------------------------
NAME GRANTED YEAR ($/SH)(1) DATE 5% ($) 10% ($)
- -------------------------------------------- ----------- --------------- ------------- ------------ ---------- ------------
Jeet Singh.................................. -- --% $ -- -- $ -- $ --
Joseph T. Chung............................. -- -- -- -- -- --
Ann C. Brady................................ 42,000 2.6 0.50 3/16/2008 731,549 1,177,309
7,500 0.5 0.50 8/26/2008 130,634 210,234
12,000 0.7 0.50 8/26/2008 209,014 336,374
750 0.0 0.50 8/26/2008 13,063 21,023
William Wittenberg.......................... 30,000 1.8 0.50 3/16/2008 522,535 840,935
30,180 1.8 0.50 8/26/2008 525,670 845,981
750 0.0 0.50 8/26/2008 13,063 21,023
30,000 1.8 0.50 12/18/2008 522,535 840,935
Lauren J. Kelley............................ 33,000 2.0 0.50 8/26/2008 574,789 925,029
1,650 0.1 0.50 8/26/2008 28,739 46,251
750 0.0 0.50 8/26/2008 13,063 21,023
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. This presentation also assumes that the market value
of a share of common stock on each option grant date equaled $11.00, the
mid-point of the estimated price range for the shares offered hereby. These
numbers are calculated based on rules promulgated by the Securities and
Exchange Commission and do not reflect our estimate of future stock price
growth. Actual gains, if any, on stock options exercises and common stock
are dependent on the timing of such exercise and the future performance of
the common stock.
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<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each of the Named Executive
Officers with respect to the value of options outstanding as of December 31,
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END ($) (1)
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- --------- ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jeet Singh............................ -- $ -- -- -- $ -- $ --
Joseph T. Chung....................... -- -- -- -- -- --
Ann C. Brady.......................... 12,750 133,875 28,406 91,595 298,263 961,748
William Wittenberg.................... -- -- 186,345 176,385 1,973,498 1,063,125
Lauren J. Kelley...................... -- -- 10,350 41,550 108,675 436,275
Paul Shorthose........................ -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Assumes a per share fair market value equal to $11.00, the mid-point of the
estimated price range for the shares offered hereby.
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.
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
53
<PAGE>
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 EMPLOYEE STOCK PURCHASE PLAN. Our 1999 Employee Stock Purchase Plan
was adopted by our board of directors in May 1999 and approved by our
stockholders in June 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 (a) the first business day of
the offering period or (b) 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
54
<PAGE>
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. However, each of
Messrs. Jones and Lax and/or their affiliates have been parties to transactions
with us. See "Transactions with Related Parties."
55
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
The following describes 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 performance-based
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, as a condition to obtaining
the series B preferred stockholders' approval of the series D preferred stock
financing, the warrant was cancelled and a new warrant issued for 425,532 shares
of Series B preferred stock at an exercise price of $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 $0.11 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; two directors elected by the
holders of our common stock; and
56
<PAGE>
one director elected by the holders of series B preferred stock, series C
preferred stock, series D preferred stock and our common stock. This agreement
terminates upon completion of this offering.
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.
57
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth 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; (d) each of the selling
stockholders; and (e) 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 outstanding as of March 31, 1999 and 30,575,008 shares of common
stock outstanding after completion of this offering, assuming exercise of the
over-allotment option in full. Any shares to be sold by selling stockholders
will only be sold pursuant to the underwriters' over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
AFTER OFFERING IF
SHARES BENEFICIALLY NUMBER OF OVER-ALLOTMENT
OWNED PRIOR TO SHARES OFFERED OPTION EXERCISED
OFFERING IN IN FULL
---------------------- OVER-ALLOTMENT ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OPTION NUMBER PERCENT
- --------------------------------------- --------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS, DIRECTORS AND NAMED
EXECUTIVE OFFICERS
Tudor Private Equity Fund L.P.(1)...... 4,641,219 18.3% -- 4,641,219 15.2%
40 Rowes Wharf
Boston, MA 02110
Jeet Singh(2).......................... 3,750,000 14.8 150,000 3,600,000 12.3
Joseph T. Chung(3)..................... 3,750,000 14.8 150,000 3,600,000 12.3
GMN Investors II, L.P.(4).............. 2,080,098 8.2 -- 2,080,098 6.8
20 William Street
Wellesley, MA 02481
SOFTBANK Ventures Inc.(5).............. 1,642,953 6.5 -- 1,642,953 5.4
24-1 Nihonbashi--Hakozakicho
Chu-ku, Tokyo 103
Japan
Robert P. Forlenza(6).................. 5,460,258 21.5 -- 5,460,258 17.9
Jeffrey T. Newton(7)................... 2,080,098 8.2 -- 2,080,098 6.8
Charles R. Lax(8)...................... 1,642,953 6.5 -- 1,642,953 5.4
Scott A. Jones......................... 1,222,216 4.8 40,740 1,181,476 4.0
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
AFTER OFFERING IF
SHARES BENEFICIALLY NUMBER OF OVER-ALLOTMENT
OWNED PRIOR TO SHARES OFFERED OPTION EXERCISED
OFFERING IN IN FULL
---------------------- OVER-ALLOTMENT ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OPTION NUMBER PERCENT
- --------------------------------------- --------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Thomas N. Matlack...................... 337,917 1.3% 30,000 307,917 1.1%
William Wittenberg..................... 257,685 1.0 22,636 235,049 *
Ann C. Brady........................... 59,343 * 12,000 47,343 *
Paul Shorthose......................... -- -- -- -- --
All directors and executive officers as
a group (10 persons)................. 18,560,468 72.6 582,000 18,177,718 59.1
OTHER SELLING STOCKHOLDERS
Madanjeet Singh........................ 975,000 3.8 30,000 945,000 3.2
B.U. Chung............................. 975,000 3.8 30,000 945,000 3.2
Jane Thompson.......................... 291,451 1.1 5,000 286,451 1.0
Trygve Myhren.......................... 282,051 1.1 18,224 263,827 *
Nathan Abramson........................ 268,980 1.1 17,000 251,980 *
Fumiaki Matsumoto...................... 232,373 * 13,000 219,373 *
Andrew Hong............................ 225,000 * 11,250 213,750 *
Robert Mason........................... 182,219 * 10,000 172,219 *
Grace Colby(9)......................... 168,000 * 8,400 159,600 *
Brenda Sullivan........................ 161,498 * 11,000 150,498 *
Michael Margolis....................... 141,024 * 5,000 136,024 *
Christopher Edwards.................... 125,030 * 3,000 122,030 *
Henry P. Becton Jr. Trust.............. 94,007 * 7,000 87,007 *
Tinsley Galyean........................ 75,000 * 3,750 71,250 *
Ina Sipser(10)......................... 49,278 * 4,000 45,278 *
</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.
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<PAGE>
(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. Mr. Newton disclaims such beneficial ownership.
(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. Mr. Lax disclaims such beneficial ownership.
(9) Ms. Colby was an employee of the Company from July 1994 to November 1998,
most recently as Vice President, Design.
(10) Ms. Sipser is our Vice President, Software Operations.
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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 May 31, 1999, we had
outstanding:
- 9,725,957 shares of common stock held by 112 stockholders of record
- 5,526,071 shares of preferred stock held by 25 stockholders of record
- options to purchase 3,116,610 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 171,485
shares of common stock. The options will remain outstanding.
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 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.
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<PAGE>
DELAWARE LAW AND OUR 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 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 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 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.
REGISTRATION RIGHTS
After this offering, the holders of approximately 13,596,000 shares of
common stock will be entitled to 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
62
<PAGE>
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 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 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 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.
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<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
May 31, 1999, there will be 30,556,845 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 5,000,000 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 25,556,845 shares of common stock 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.
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 305,568 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 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 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. However, we
intend to register shares issued and issuable under our stock plans on the date
of this prospectus. All of these shares are subject to lock-up agreements,
however, the underwriters have agreed to exempt 500 shares per employee from the
lock-up provisions.
Of our restricted securities, approximately 25,450,000 shares are subject to
lock-up agreements with 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.
Except as noted above, 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.
- 9,412 shares may be sold immediately after completion of this offering
pursuant to Rule 144(k)
- approximately 100,000 shares may be sold by our employees under the
lock-up exemptions granted by the underwriters
- the remainder of the restricted shares may be sold, subject to the
requirements of Rule 144, upon the expiration of the lock-up agreements
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<PAGE>
STOCK OPTIONS
Shares of common stock may also be issued and sold upon the exercise of
options. On the effective date of this prospectus, we intend to register an
aggregate of 6,148,552 shares of common stock, issued or issuable under our
stock plans. Shares issued pursuant to our stock plans which have been
registered will be eligible for resale in the public market without
restrictions, subject to Rule 144 limitations applicable to affiliates and the
lock-up agreements noted above, if applicable. Upon the expiration of the
lock-up agreements, approximately 1,462,500 shares may be sold as a result of
the exercise of vested options.
WARRANTS
Upon the closing of this offering, there will be warrants outstanding to
purchase 171,485 shares of common stock at a weighted average exercise price of
$0.44 per share. Upon the completion of this offering, any shares purchased
pursuant to the "cashless exercise" feature of the outstanding warrants may be
sold immediately in the open market.
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.
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<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., Thomas Weisel Partners LLC and Wit Capital
Corporation, 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.......................................................
Wit Capital Corporation..........................................................
----------
Total.......................................................................... 5,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the underwriters
are subject to conditions precedent, including the absence of any material
adverse change in our business and the receipt of 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 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 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 750,000 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 liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect
thereof.
Stockholders, including all of the selling stockholders and all of our
executive officers and directors, who will own in the aggregate 25,450,000
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
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<PAGE>
the 180-day period following the date of this prospectus. We have agreed that we
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 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.
The underwriters have reserved for sale, at the initial public offering
price, shares of common stock for distribution by Wit Capital Corporation to its
customers through the Internet. A prospectus in electronic format is being made
available on a Web site maintained by Wit Capital Corporation. In addition, each
of the dealers purchasing shares from Wit Capital Corporation in this offering
has agreed to make a prospectus in electronic format available on a Web site
maintained by the dealer. Other than the prospectus in electronic format, the
information on Wit Capital Corporation's Web site and any information contained
on any other Web site maintained by Wit Capital Corporation or any dealer
purchasing shares from it is not to be part of this prospectus or the
registration statement of which this prospectus forms a part has not been
approved or endorsed by us or any underwriter in its capacity as underwriter,
and should not be relied upon by investors.
The underwriters also have reserved for sale, at the initial public offering
price, shares of the common stock for some of our directors, officers,
employees, friends and family who have expressed an interest in purchasing
shares in the offering. These persons are expected to purchase, in the
aggregate, not more than 5% of the common stock offered in the offering. The
number of shares available for sale to the general public in the offering will
be reduced to the extent those persons purchase the reserved shares. Any
reserved shares not so purchased will be offered to the general public on the
same basis as other shares offered hereby.
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 41 filed public
offerings of equity securities, of which 18 have been completed, and has acted
as a syndicate manager in an additional 17 public offerings of equity
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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.
Wit Capital Corporation also will participate in the offering as one of the
representatives. The National Association of Securities Dealers, Inc. approved
the membership of Wit Capital Corporation on September 4, 1997. Since that time,
Wit Capital Corporation has acted as an underwriter, e-manager or selected
dealer in over 70 public offerings, including 55 initial public offerings. As an
e-manager for an offering, Wit Capital Corporation had primary responsibility
for distribution of shares through the Internet for that offering. Wit Capital
Corporation 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.
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. 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.
68
<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>
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.
Arthur Andersen LLP
Boston, Massachusetts
March 4, 1999 (except with respect
to the matter discussed in Note 6(a),
as to which the date is June 18, 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 24,056,693
Deferred compensation............................................ -- (1,692,301) (3,967,755) (3,967,755)
Accumulated deficit.............................................. (6,889,649) (11,334,184) (12,454,935) (16,558,528)
---------- ---------- ----------- -----------
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)......................... 13,544,192 -- 2,284,840 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)................................. $ 24,056,693 $ (3,967,755) $(16,558,528) $ 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.............. -- -- -- -- (1,006,634)
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
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)
development services. ATG generally has separate agreements with its customers,
which govern the terms and conditions of its software license, consulting and
support and maintenance services. These separate agreements, along with ATG's
price list, provide the basis for establishing vendor specific objective
evidence of fair value. This allows ATG to appropriately allocate fair value
among the multiple elements in an arrangement, as well as, allocate discounts
ratably over all elements in an arrangement, except for upgrade rights.
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. ATG does not grant its
resellers the right to return or price protection. 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 1,095,150, 2,140,182,
5,085,782, 2,450,380 and 5,117,494 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 and warrants 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 ATG's common stock prior to ATG'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
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)
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) 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.
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)
Property and equipment at December 31, 1997 and 1998 and March 31, 1999
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ESTIMATED -------------------------- ------------
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>
(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).
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)
(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.
(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.
F-11
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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>
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION in the fiscal year ended December 31, 1998.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The Company's chief operating decision-makers,
as defined under SFAS No. 131, are the Chief Executive Officer and the Chief
Financial Officer. To date, the Company has viewed its operations and manages
its business as principally one operating segment with two product offerings:
software licenses and services. ATG evaluates these product offerings based upon
their respective gross margins. As a result,
F-12
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the financial information disclosed herein, represents all of the material
financial information related to the Company's principal operating segment
(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.
(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 56,296 shares Series C convertible preferred stock
to the bank. One warrant provided for the purchase of 46,296 shares at an
exercise price of $1.62 per share and the other warrant provided for the
purchase of 10,000 shares at an exercise price of $0.01 per share. These
warrants vest immediately and expire five years after issuance. ATG valued the
warrants at $58,249, using the Black-Scholes option pricing model and the
following assumptions: fair market value of $1.62; risk free interest rate of
4.74%; an expected volatility factor of 70%; an expected life of four years; and
an expected dividend yield of zero. 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.
F-13
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) LONG-TERM OBLIGATIONS (CONTINUED)
(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.
(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
F-14
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) INCOME TAXES (CONTINUED)
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>
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.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision at federal statutory rate..................... (34.0)% (34.0)% (34.0)%
Increase (decrease) in tax resulting from--
State tax provision, net of federal benefit...................... (6.0) (6.0) (6.0)
Increase in valuation allowance.................................. 40.0 40.0 40.0
--------- --------- ---------
Effective tax rate................................................. --% --% --%
--------- --------- ---------
</TABLE>
(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
F-15
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
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 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.
F-16
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
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 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 in exchange for the issuance of 121,250 shares
of common stock.
F-17
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
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 operating
criteria, including the following cumulative total revenues, product revenues
and earnings before interest and taxes for the seven quarters ended December 31,
1999, 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 ATG'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 ATG not meeting the criteria
specified in the Series D Preferred Stock agreement. The conversion ratio to be
effected at the time of ATG'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.
F-18
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
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
performance-based warrant to purchase up to 425,532 shares of Series B Preferred
Stock at $7.05 per share. The performance criteria was based upon sales
generated by ATG from the affiliates of the Series B Stockholder. The Company
generated negligible revenues from the affiliates of the Series B stockholder,
therefore; the warrant was not measured or recorded. As a condition for
obtaining the Series B Stockholder's approval of the terms of the Series D
Preferred Stock financing, the warrant was canceled and ATG granted to the
Series B Preferred Stockholder, a new 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 the following
assumptions: a fair market value of $3.20 per share, a risk free interest rate
of 5.0%, an expected volatility of 70%, an expected life of five years, and an
expected dividend yield of zero. ATG has recorded the value of 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 valued these warrants using the
Black-Scholes option pricing model and the following assumptions: a fair market
value of $3.20 per share, a risk free interest rate of 4.74%, an expected
volatility of 70%, an expected life of five years, and an expected dividend
yield of zero. ATG allocated the consideration received from the sale of the
Series D preferred stock of $7,500,000 between the Series D preferred stock and
warrants on the basis of the fair value of the individual component at the date
of issuance and determined that the warrants were valued at $2,775,000. 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.
F-19
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) PREFERRED STOCK (CONTINUED)
In conjunction with ATG'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.
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 was effective on June 18, 1999. 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.
F-20
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCKHOLDER'S EQUITY (DEFICIT) (CONTINUED)
(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 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
3,082,488 and 2,602,713 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 150,000
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 5,000 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 5,000 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 2,500 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.
F-21
<PAGE>
ART TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(6) STOCKHOLDER'S EQUITY (DEFICIT) (CONTINUED)
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 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
261,600 and 48,375 shares of common stock at exercise prices of $8.00 and $10.00
per share, respectively.
F-22
<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. ATG valued the 1996 and 1997 options issued in exchange for
services based upon the fair value of the services received. The services were
more readily measurable as ATG had entered into similar transactions in exchange
for cash consideration. ATG valued the 1998 options issued in exchange for
services based upon the black scholes option pricing model and the following
assumptions: a fair market value of $1.62; risk free interest at 4.74%; an
expected volatility factor of 70%; an expected life of four years; and an
expected dividend yield of zero. 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-23
<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-24
<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-25
<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-26
<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: "Art Technology Group's
Innovation and Express Services provide market and advanced technology
insight to drive new product development. Art Technology Group has three
primary distribution channels: Systems Integrators and Web Developers Art
Technology Groups Direct Sales, and Original Equipment Manufacturers
Technology Partners.
The bottom of this page has a box listing our Selected Customers above
and three customer Web site screen shots.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
-------------
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
THOMAS WEISEL PARTNERS LLC
WIT CAPITAL CORPORATION
--------------
, 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. 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............................. 100,000
Blue Sky fees and expenses..................................... 15,000
Transfer Agent and Registrar fees.............................. 15,000
Accounting fees and expenses................................... 175,000
Legal fees and expenses........................................ 350,000
Printing and mailing expenses.................................. 125,000
Miscellaneous.................................................. 189,070
----------
Total...................................................... $1,000,000
----------
----------
</TABLE>
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.
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
II-1
<PAGE>
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 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 circumstances, to indemnify directors and officers of the
Registrant against 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 $7.05 per share. In August 1998, as a condition to obtaining the Series
B preferred stockholders' approval of the Series D preferred stock financing,
the warrant was cancelled and a new warrant issued for 425,532 shares of Series
B preferred stock at an exercise 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 $0.11 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 Amended and Restated By-Laws of the Registrant.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
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.
10.25 Fourth Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated May 12, 1999.
23.1 Independent Auditor's Consent.
23.2** Consent of Hale and Dorr LLP (included in Exhibit 5).
24* Power of Attorney.
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment 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
II-4
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes 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 Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts, on this 21st day of June 1999.
ART TECHNOLOGY GROUP, INC.
BY: /S/ JEET SINGH
-----------------------------------------
Jeet Singh
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief June 21, 1999
/s/ JEET SINGH Executive Officer
- ------------------------------ (Principal Executive
Jeet Singh Officer)
* Chief Technology Officer June 21, 1999
- ------------------------------ and Chairman of the Board
Joseph T. Chung
Vice President, Finance and June 21, 1999
* Chief Financial Officer
- ------------------------------ (Principal Financial and
Ann C. Brady Accounting Officer)
* Director June 21, 1999
- ------------------------------
Robert P. Forlenza
* Director June 21, 1999
- ------------------------------
Scott A. Jones
* Director June 21, 1999
- ------------------------------
Charles R. Lax
* Director June 21, 1999
- ------------------------------
Jeffrey T. Newton
* Director June 21, 1999
- ------------------------------
Thomas N. Matlack
*By: /s/ JEET SINGH
- ------------------------------
Jeet Singh
Attorney-in-Fact
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 Amended and Restated By-Laws of the Registrant.
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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
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.
10.25 Fourth Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated May 12, 1999.
23.1 Independent Auditor's Consent.
23.2** Consent of Hale and Dorr LLP (included in Exhibit 5).
24* Power of Attorney.
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
Exhibit 1
DRAFT OF 6/21/99
ART TECHNOLOGY GROUP, INC.
5,000,000 SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
, 1999
HAMBRECHT & QUIST LLC
U.S. BANCORP PIPER JAFFRAY INC.
THOMAS WEISEL PARTNERS LLC
WIT CAPITAL CORPORATION
As Representatives of the several Underwriters
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, California 94104
Ladies and Gentlemen:
Art Technology Group, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 5,000,000 shares (said 5,000,000 shares of
Common Stock being herein called the Underwritten Stock) of its authorized but
unissued Common Stock, $.01 par value (herein called Common Stock). The Company
and the stockholders of the Company named in Schedule II hereto (herein
collectively called the Selling Stockholders) propose to grant to the
Underwriters (as hereinafter defined) an option to purchase up to 750,000
additional shares of Common Stock (herein called the Option Stock and with the
Underwritten Stock herein collectively called the Stock). The Common Stock is
more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company and the Selling Stockholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent and
warrant that you have been authorized by each of the other Underwriters to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-78333), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act), of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus
- --------
(1) Plus an option to purchase from the Company and the Selling Stockholders up
to 750,000 additional shares to cover over-allotments.
<PAGE>
as used in this Agreement shall mean the prospectus relating to the Stock first
filed with the Commission pursuant to Rule 424(b) and Rule 430A (or if no such
filing is required, as included in the Registration Statement) and, in the event
of any supplement or amendment to such prospectus after the Effective Date,
shall also mean (from and after the filing with the Commission of such
supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
full corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement and the
Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary, except where the failure to
be so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company
(herein called a Material Adverse Effect). The Company has no subsidiaries
and owns no capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust or other
entity.
(ii) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the business, properties, financial condition or
results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in
the Registration Statement and the Prospectus. Since such dates, the
Company has not entered into any material transaction other than in the
ordinary course of business or as described in the Prospectus.
(iii) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder. On the Effective Date, the
Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. On the Effective Date the Prospectus did not and, on the
Closing Date and any later date on which Option Stock is to be purchased,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, none of the representations and warranties
in this subparagraph (iii) shall apply to statements in, or omissions from,
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(iv) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or Prospectus relating to the
proposed offering of the Stock and has not instituted or threatened
instituting proceedings for that purpose.
(v) The Stock is duly and validly authorized, is (or, in the case of
shares of the Stock to be sold by the Company, will be, when issued and
sold to the Underwriters as provided herein) duly and validly issued, fully
paid and nonassessable. The information set forth under the caption
"Capitalization" in the Prospectus is true and correct in all material
respects, and the capital stock of the Company conforms in all material
respects to the
2
<PAGE>
description thereof contained in the Prospectus. No further approval or
authority of the stockholders or the Board of Directors of the Company will
be required for the issuance and sale of the Stock by the Company as
contemplated herein or, to the knowledge of the Company, for the transfer
and sale of the Option Stock to be sold by the Selling Stockholders. The
shares of capital stock of the Company outstanding prior to the issuance of
the Underwritten Stock and the Option Stock, if any, have been duly
authorized and are validly issued, fully paid and nonassessable. No
preemptive rights of, or rights of refusal in favor of, stockholders exist
with respect to the Stock, or the issue and sale thereof, pursuant to the
Certificate of Incorporation or Bylaws of the Company and, to the knowledge
of the Company, there are no contractual preemptive rights that have not
been waived, rights of first refusal or rights of co-sale which exist with
respect to the Option Stock being sold by the Selling Stockholders. Neither
the filing of the Registration Statement nor the offering or sale of the
Stock as contemplated by this Agreement gives rise to any rights, other
than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock. Except as described in the
Prospectus, there are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Securities Act. Except as described in the
Prospectus, there are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities or commitments of sale entitling any
person to purchase or otherwise to acquire from the Company any shares of
the capital stock of, or other ownership interest in, the Company.
(vi) The Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance.
(vii) The financial statements of the Company, together with the
related notes and schedules as set forth in the Registration Statement,
present fairly in all material respects the financial position and the
results of operations of the Company at the indicated dates and for the
indicated periods. Such financial statements and related notes and
schedules have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results for such
periods have been made. The summary and selected financial data contained
in the Registration Statement present fairly the information shown therein
and have been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company.
(viii) Arthur Andersen LLP, who have certified certain of the financial
statements filed with the Commission as part of the Registration Statement,
are independent public accountants as required by the Securities Act and
the rules and regulations of the Commission thereunder.
(ix) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (a) transactions are
executed in accordance with management's general or specific
authorizations; and (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability.
(x) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its
officers or properties before any court, government agency or body, or
otherwise, that (a) reasonably would be expected to have a Material Adverse
Effect, (b) reasonably would be expected to prevent consummation of the
transactions contemplated hereby or (c) is required to be disclosed in the
Registration Statement and not otherwise disclosed. There are no contracts
or documents of the Company that are required to be described in the
Prospectus that have not been fairly and accurately described in all
material respects in the Prospectus. There are no contracts or documents of
the Company that are required to be filed as exhibits to the Registration
Statement that have not been so filed. The contracts described in the
Prospectus are in full force and effect on the date hereof, and neither the
Company nor, to the Company's knowledge, any other party is in material
breach of or default under any of such contracts.
3
<PAGE>
(xi) The Company has filed all tax returns required to be filed by it
and has paid or is contesting in good faith all taxes shown thereon as due.
All tax liabilities (including those being contested in good faith) for the
periods covered by the financial statements of the Company that are
included in the Registration Statement have been adequately provided for in
such financial statements.
(xii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions
herein contemplated has been obtained or made and is in full force and
effect, except for any additional steps as may be necessary (a) for the
Underwriters to obtain the approval of the National Association of
Securities Dealers, Inc. (herein called the NASD) or (b) to qualify the
Stock for public offering by the Underwriters under state securities or
blue sky laws.
(xiii) The Company is not, and with the giving of notice or lapse of
time or both will not be, in violation of or in default under its
Certificate of Incorporation or Bylaws or under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a
party or by which it, or any of its properties, is bound and which default
would have a Material Adverse Effect. The execution and performance of this
Agreement and the consummation of the transactions herein contemplated,
including, but not limited to, the issuance and sale of Stock by the
Company and the sale of Option Stock by the Selling Stockholders, do not
and will not: (a) conflict with, or result in a breach or violation of, any
of the terms or provisions of, or constitute, either by itself or upon
notice or the passage of time or both, a default under, any agreement,
lease, contract, indenture or other instrument or obligation to which the
Company is a party or by which the Company or any of its properties is
bound or may be affected, except where such breach, violation or default
would not have a Material Adverse Effect, (b) violate any of the provisions
of the Certificate of Incorporation or Bylaws of the Company in effect as
of the Closing Date and any later date upon which the Option Stock is
purchased, (c) violate any statute, law, regulation, ordinance or court
decree applicable to the Company or of any regulatory, administrative or
governmental body or agency having jurisdiction over the Company or any of
its properties or assets, or (d) result in the creation or imposition of
any lien, charge or encumbrance upon any assets or properties of the
Company.
(xiv) The Company is operating in compliance with all statutes, laws,
regulations, ordinances and court decrees applicable to its business and
operations, except where any such non-compliance would not have a Material
Adverse Effect. The Company has not violated any law or regulation relating
to the protection of human health and safety, the environment, or hazardous
or toxic substances or wastes, pollutants or contaminants, or relating to
discrimination in the hiring, promotion or pay of, or to the wages and
hours of, employees, except for such violations as in the aggregate would
not result in a Material Adverse Effect.
(xv) The Company owns or possesses adequate rights to use all
inventions, designs, computer programs, computer code, communications
protocols, security devices, trade secrets, know-how, trademarks, service
marks, trade names, copyright works or other information (herein
collectively called Intellectual Property) that are necessary to conduct
its business as described in the Registration Statement and the Prospectus.
Except as described in the Prospectus, the Company has not received any
notice of, and has no knowledge of, any infringement of or conflict with
any rights of the Company by others, or any rights of others by the
Company, with respect to any Intellectual Property, that singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect. To the Company's knowledge, none of
the Intellectual Property licensed to or by the Company is unenforceable or
invalid. Except as described in the Prospectus, the Company is not aware of
the granting of any patent rights to third parties or the filing of any
patent applications by third parties or any other rights of third parties
to any Intellectual Property owned by the Company.
(xvi) Except as described in the Prospectus: (a) all of the Company's
products (including products currently under development) will record,
store, process, calculate and present calendar dates falling on and after
(and if applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the
same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, Year 2000 Compliant);
(b) all of the Company's products (1) will lose no functionality with
respect to the introduction of records containing dates
4
<PAGE>
falling on or after January 1, 2000 and (2) will be interoperable with
other products used and distributed by the Company that may deliver records
to the Company's products or receive records from the Company's products,
or interact with the Company's products, including but not limited to
back-up and archived data; and (c) all of the Company's internal computer
and technology products and systems are Year 2000 Compliant.
(xvii) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnity and
contribution hereunder may be limited by applicable laws and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally, or by general equitable principles.
(xviii) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Stock.
(b) Each of the Selling Stockholders hereby represents and warrants as
follows:
(i) Such Selling Stockholder has good and marketable title to all the
shares of Option Stock to be sold by such Selling Stockholder hereunder,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever, with full right and authority to deliver the same
hereunder, subject, in the case of each Selling Stockholder, to the rights
of the Company, as Custodian (herein called the Custodian), and that upon
the delivery of and payment for such shares of the Option Stock hereunder,
the several Underwriters will receive good and marketable title thereto,
free and clear of all liens, encumbrances, equities, security interests and
claims whatsoever.
(ii) Certificates in negotiable form for the shares of the Option Stock
to be sold by such Selling Stockholder have been placed in custody under a
Custody Agreement for delivery under this Agreement with the Custodian;
such Selling Stockholder specifically agrees that the shares of the Option
Stock represented by the certificates so held in custody for such Selling
Stockholder are subject to the interests of the several Underwriters and
the Company, that the arrangements made by such Selling Stockholder for
such custody, including the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Stockholder shall not be terminated by any act of such Selling
Stockholder or by operation of law, whether by the death or incapacity of
such Selling Stockholder (or, in the case of a Selling Stockholder that is
not an individual, the dissolution or liquidation of such Selling
Stockholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Option Stock hereunder,
certificates for such shares of the Option Stock shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as
if such death, incapacity, dissolution, liquidation or other event had not
occurred, regardless of whether the Custodian shall have received notice of
such death, incapacity, dissolution, liquidation or other event.
(iii) Such Selling Stockholder has reviewed the Registration Statement
and Prospectus and, although such Selling Stockholder has not independently
verified the accuracy or completeness of all the information contained
therein, nothing has come to the attention of such Selling Stockholder that
would lead such Selling Stockholder to believe that on the Effective Date,
the Registration Statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on
the Effective Date the Prospectus contained and, on the Closing Date and
any later date on which Option Stock is to be purchased, contains any
untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
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(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
5,000,000 shares of the Underwritten Stock to the several Underwriters, and each
of the Underwriters agrees to purchase from the Company the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and purchased by the several Underwriters shall be $ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
PROVIDED, HOWEVER, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock that all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock that the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without further
act or deed and without any liability on the part of the Company or the Selling
Stockholders to any non-defaulting Underwriter and without any liability on the
part of any non-defaulting Underwriter to the Company or the Selling
Stockholders. Nothing in this paragraph (b), and no action taken hereunder,
shall relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
and the Selling Stockholders grant an option to the several Underwriters to
purchase, severally and not jointly, up to 750,000 shares in the aggregate of
the Option Stock from the Company and the Selling Stockholders at the same price
per share as the Underwriters shall pay for the Underwritten Stock. Said option
may be exercised only to cover over-allotments in the sale of the Underwritten
Stock by the Underwriters and may be exercised in whole or in part at any time
(but not more than once) on or before the thirtieth day after the date of this
Agreement upon written or telegraphic notice by you to the Company setting forth
the aggregate number of shares of Option Stock as to which the several
Underwriters are exercising the option. Delivery of certificates for the shares
of Option Stock, and payment therefor, shall be made as provided in Section 5
hereof. The number of shares of Option Stock to be purchased by each Underwriter
shall be the same percentage of the total number of shares of Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
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(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 10 A.M., Eastern Daylight Savings time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts
02109, at 10 A.M., Eastern Daylight Savings time, on the fourth business day
after the date of this Agreement, or at such time on such other day, not later
than seven full business days after such fourth business day, as shall be agreed
upon in writing by the Company, the Selling Stockholders and you. The date and
hour of such delivery and payment (which may be postponed as provided in Section
3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
10 A.M., Eastern Daylight Savings time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, at 10 A.M., Eastern Daylight Savings time,
on the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order, and payment for the Stock purchased from the Selling
Stockholders shall be made to the Custodian, for the account of the Selling
Stockholders, in each case by one or more certified or official bank check or
checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock or by electronic delivery through the facilities of
the Depository Trust Company to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. If certificates for the
Stock are to be delivered to you, they shall be registered in such name or names
and shall be in such denominations as you may request at least one business day
before the Closing Date, in the case of Underwritten Stock, and at least one
business day prior to the purchase thereof, in the case of the Option Stock.
Such certificates will be made available to the Underwriters for inspection,
checking and packaging at the offices of Lewco Securities Corporation, 2
Broadway, New York, New York 10004 on the business day prior to the Closing Date
or, in the case of the Option Stock, by 3 P.M., Eastern Daylight Savings time,
on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Stockholders for shares to be purchased by any Underwriter whose
check shall not have been received by you on the Closing Date or any later date
on which Option Stock is purchased for the account of such Underwriter. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. Each of
the Company and the Selling Stockholders respectively covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at
the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
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objected in writing or which is not in compliance with the Securities Act
or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding
for that purpose, (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company and the Selling
Stockholders will make every reasonable effort to prevent the issuance of
such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of
the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time during the period in which
a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of
any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement
or amend the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser of the Stock, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended prospectus so
that the Prospectus as so supplemented or amended will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the
Stock by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in
general market conditions or otherwise, you will advise the Company in
writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The
Company authorizes the Underwriters and all dealers to whom any of the
Stock may be sold by the several Underwriters to use the Prospectus, as
from time to time amended or supplemented, in connection with the sale of
the Stock in accordance with the applicable provisions of the Securities
Act and the applicable rules and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment
to the Registration Statement and any supplement to the Prospectus or any
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter
or dealer, in keeping such qualifications in good standing under said
securities or blue sky laws; PROVIDED, HOWEVER, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any
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jurisdiction in which it is not so qualified. The Company will, from time
to time, prepare and file such statements, reports, and other documents as
are or may be required to continue such qualifications in effect for so
long a period as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports
filed with the Commission.
(h) Not later than the forty-fifth day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date,
the Company will make generally available to its stockholders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule
158 thereunder.
(i) The Company and the Selling Stockholders jointly and severally
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement, including all costs and expenses incident
to (i) the preparation, printing and filing with the Commission and the
NASD of the Registration Statement, any Preliminary Prospectus and the
Prospectus, (ii) the furnishing to the Underwriters of copies of any
Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 6 to be so furnished, (iii) the printing of this
Agreement and related documents delivered to the Underwriters, (iv) the
preparation, printing and filing of all supplements and amendments to the
Prospectus referred to in paragraph (d) of this Section 6, (v) the
furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees. The
Selling Stockholders will pay any transfer taxes incident to the transfer
to the Underwriters of the shares the Stock being sold by the Selling
Stockholders.
(j) The Company and the Selling Stockholders jointly and severally
agree to reimburse you, for the account of the several Underwriters, for
blue sky fees and related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by
or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and in the review of the
offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs that the Company and the Selling Stockholders hereby agree to pay and
shall not affect any agreement that the Company and the Selling
Stockholders may make, or may have made, for the sharing of any such
expenses and costs.
(l) The Company hereby agrees that, without the prior written consent
of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will
not, for a period of 180 days following the date of the Prospectus,
directly or indirectly, (i) sell, offer, contract to sell, make any short
sale, pledge, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Option Stock to be sold to the
Underwriters pursuant to this Agreement, (B) shares of Common Stock issued
by the Company upon the exercise of options granted under the stock option
plans of the Company (herein called the Option Plans) or upon the exercise
of warrants outstanding as of the date hereof, all as described in the
Prospectus, and (C) options to purchase Common Stock granted under the
Option Plans.
(m) If at any time during the 25-day period after the date of the
Prospectus any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price
for the Stock has been or is likely to be materially adversely affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above
and subject to advice of its counsel, forthwith prepare,
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consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you,
responding to or commenting on such rumor, publication or event.
(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Stockholders jointly and severally agree to indemnify
and hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Securities Exchange Act of
1934, as amended (herein called the Exchange Act), or the common law or
otherwise, and the Company and the Selling Stockholders jointly and severally
agree to reimburse each such Underwriter and controlling person for any legal or
other expenses (including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case to the extent the same arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that (1) the indemnity agreements of the Company and the Selling Stockholders
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto, (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Stockholder shall only be liable under this paragraph with respect to (A)
information pertaining to such Selling Stockholder furnished by or on behalf of
such Selling Stockholder expressly for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto or (B) facts that would constitute a breach of any
representation or warranty of such Selling Stockholder set forth in Section 2(b)
hereof. The indemnity agreements of the Company and the Selling Stockholders
contained in this paragraph (a) and the representations and warranties of the
Company and the Selling Stockholders contained in Section 2 hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Stockholders from and against
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any and all losses, claims, damages or liabilities, joint or several, to which
such indemnified parties or any of them may become subject under the Securities
Act, the Exchange Act, or the common law or otherwise and to reimburse each of
them for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; PROVIDED, HOWEVER,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other
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expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering of the Stock received by the Company and the Selling Stockholders
and the total underwriting discount received by the Underwriters, as set forth
in the table on the cover page of the Prospectus, bear to the aggregate public
offering price of the Stock. 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 each indemnifying party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. 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. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) No indemnifying party will, without the prior written consent of each
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such indemnified
party or any person who controls such indemnified party within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of such indemnified party and each
such controlling person from all liability arising out of such claim, action,
suit or proceeding.
(f) The liability of each Selling Stockholder under such Selling
Stockholder's representations and warranties contained in paragraph (b) of
Section 2 hereof and under the indemnity and reimbursement agreements contained
in the provisions of this Section 7 and Section 11 hereof shall be limited to an
amount equal to the initial public offering price of the stock sold by such
Selling Stockholder to the Underwriters. The Company and the Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
12
<PAGE>
8. TERMINATION. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company and the Selling
Stockholders if after the date of this Agreement trading in the Common Stock
shall have been suspended, or if there shall have occurred (a) the engagement in
hostilities or an escalation of major hostilities by the United States or the
declaration of war or a national emergency by the United States on or after the
date hereof, (b) any outbreak of hostilities or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, calamity, crisis or change in economic or political conditions
in the financial markets of the United States would, in the Underwriters'
reasonable judgment, make the offering or delivery of the Stock impracticable,
(c) suspension of trading in securities generally or a material adverse decline
in value of securities generally on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (d) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority that in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (e) declaration of a banking
moratorium by either federal or New York State authorities or (f) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company or the Selling Stockholders to the Underwriters and no
liability of the Underwriters to the Company or the Selling Stockholders;
PROVIDED, HOWEVER, that in the event of any such termination the Company and the
Selling Stockholders agree to indemnify and hold harmless the Underwriters from
all costs or expenses incident to the performance of the obligations of the
Company and the Selling Stockholders under this Agreement, including all costs
and expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Stockholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Foley, Hoag & Eliot LLP, counsel for the
Underwriters.
(c) You shall have received from Hale and Dorr LLP, counsel for the
Company and the Selling Stockholders, an opinion, addressed to the
Underwriters and dated the Closing Date and any later date on which Option
Stock is purchased, covering the matters set forth in paragraphs (i)
through (xi) of Annex A hereto. In addition, if Option Stock is to be
purchased on the Closing Date or such later date, you shall have received
from Hale and Dorr LLP and/or such other counsel as are reasonably
acceptable to you an additional opinion or opinions, addressed to the
Underwriters and dated such date, covering the matters set forth in
paragraphs (xii) through (xiv) of Annex A hereto.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business,
13
<PAGE>
properties, financial condition or results of operations of the Company,
whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
the Company has not entered into any material transaction not referred to
in the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein, (iv) the Company does not
have any material contingent obligations that are not disclosed in the
Registration Statement and the Prospectus, (v) there are not any pending or
known threatened legal proceedings to which the Company is a party or of
which property of the Company or any of its subsidiaries is the subject
that are material and that are not disclosed in the Registration Statement
and the Prospectus, (vi) there are not any franchises, contracts, leases or
other documents that are required to be filed as exhibits to the
Registration Statement that have not been filed as required, (vii) the
representations and warranties of the Company herein are true and correct
in all material respects as of the Closing Date or any later date on which
Option Stock is to be purchased, as the case may be, and (viii) there has
not been any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to
make a public offering of the Stock, or a material adverse change in market
levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and Chief
Executive Officer, the Chief Technology Officer and Chairman of the Board
and the Vice President, Finance and Chief Financial Officer of the
Company, stating that the respective signers of said certificate have
carefully examined the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein and any
supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from Arthur Andersen LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change,
or any development involving a prospective change, in or affecting the
business or properties of the Company that, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the Stock
or the purchase of the Option Stock as contemplated by the Prospectus.
(g) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(h) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly approved for quotation on the Nasdaq National
Market, subject to official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
directors, officers, and stockholders agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior
written consent of Hambrecht & Quist LLC, such person or entity will not,
for a period of 180 days following the commencement of the public offering
of the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for or any rights to purchase or acquire Common Stock or (ii)
enter into any swap or other agreement that transfers, in whole or in part,
any of
14
<PAGE>
the economic consequences or ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Foley, Hoag & Eliot LLP, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Stockholders. Any such termination shall be without
liability of the Company or the Selling Stockholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholders; PROVIDED, HOWEVER, that (i) in the event of such termination, the
Company and the Selling Stockholders agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Stockholders under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein, to fulfill any of the conditions
herein, or to comply with any provision hereof other than by reason of a default
by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The obligation of the Company and the Selling Stockholders to
deliver the Stock shall be subject to the conditions that (a) the Registration
Statement shall have become effective and (b) no stop order suspending the
effectiveness thereof shall be in effect and no proceedings therefor shall be
pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Stockholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Stockholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholders; PROVIDED, HOWEVER, that in the event of any such termination the
Company and the Selling Stockholders jointly and severally agree to indemnify
and hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Stockholders under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Stockholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Stockholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; PROVIDED, HOWEVER, that (a) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them, (b) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due, and (c) no Selling Stockholder shall have any obligation under this
Section 11 for matters with respect to which such Selling Stockholder has no
indemnification obligation under Section 7.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company, the Selling Stockholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Stockholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
15
<PAGE>
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office,, Attention: President and Chief
Executive Officer; and if to the Selling Stockholders, shall be mailed,
telegraphed or delivered to the Selling Stockholders in care of Jeet Singh at
Art Technology Group, Inc., 101 Huntington Avenue, Boston, Massachusetts 02199.
All notices given by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Stockholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
PROVIDED, HOWEVER, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Please sign and return to the Company and to the Selling Stockholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters in accordance with its terms.
Very truly yours,
ART TECHNOLOGY GROUP, INC.
By
-----------------------------------------------
Jeet Singh
President and Chief Executive Officer
SELLING STOCKHOLDERS named on Schedule II:
By
-----------------------------------------------
Jeet Singh
Attorney-in-Fact
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
U.S. BANCORP PIPER JAFFRAY INC.
THOMAS WEISEL PARTNERS LLC
WIT CAPITAL CORPORATION
As Representatives of the several Underwriters
By: Hambrecht & Quist LLC
By
-----------------------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
16
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- --------------- ------------
<S> <C>
Hambrecht & Quist LLC ........................................
U.S. Bancorp Piper Jaffray Inc. ..............................
Thomas Weisel Partners LLC ...................................
Wit Capital Corporation ......................................
------------
Total.......................................................... 5,000,000
------------
------------
</TABLE>
17
<PAGE>
SCHEDULE II
SELLERS OF OPTION STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAMES TO BE SOLD
- -------------------------------- -----------
<S> <C>
Art Technology Group, Inc. ......................................
Selling Stockholders:
-----------
Total............................................................ 750,000
-----------
-----------
</TABLE>
18
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION(S) OF
COUNSEL FOR THE COMPANY AND THE SELLING STOCKHOLDERS
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is
duly qualified as a foreign corporation and in good standing in each state
specified in such opinion, and has full corporate power and authority to
own or lease its properties and conduct its business as described in the
Registration Statement;
(ii) the authorized capital stock of the Company consists of 10,000,000
shares of Preferred Stock, $.01 par value, of which no shares are
outstanding, and 100,000,000 shares of Common Stock, $.01 par value, of
which there are outstanding shares (including the Underwritten Stock plus
the number of shares of Option Stock issued on the date hereof); proper
corporate proceedings have been taken validly to authorize such authorized
capital stock; all of the outstanding shares of such capital stock
(including the Underwritten Stock and the shares of Option Stock issued, if
any) have been duly and validly issued and are fully paid and
nonassessable; any Option Stock purchased after the Closing Date, when
issued and delivered to and paid for by the Underwriters as provided in the
Underwriting Agreement, will have been duly and validly issued and be fully
paid and nonassessable; and no preemptive rights of, or rights of refusal
in favor of, stockholders exist with respect to the Stock, or the issue and
sale thereof, pursuant to the Certificate of Incorporation or Bylaws of the
Company and, to the knowledge of such counsel, there are no contractual
preemptive rights that have not been waived, rights of first refusal or
rights of co-sale which exist with respect to the Option Stock being sold
by the Selling Stockholders;
(iii) the Registration Statement has become effective under the
Securities Act and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for
that purpose have been instituted or are pending or contemplated by the
Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act
and with the rules and regulations of the Commission thereunder;
(v) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel)
and 11(c) of Form S-1 is, to the knowledge of such counsel, accurately and
adequately set forth therein in all material respects or no response is
required with respect to such Items, and the description of the Company's
stock option plans, the options granted and which may be granted
thereunder, and its employee stock purchase plan in the Prospectus
accurately and fairly presents the information required to be shown with
respect to said plans and options to the extent required by the Securities
Act and the rules and regulations of the Commission thereunder;
(vi) the statements in the Registration Statement and the Prospectus
under the captions "Risk Factors--Broadvision has claimed that we infringe
its intellectual property" and "Business--Legal Proceedings," to the
knowledge of such counsel, are accurate summaries of the matters therein
set forth;
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, that in the opinion
of such counsel are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
19
<PAGE>
(ix) the issue and sale by the Company of the shares of Stock sold by
the Company as contemplated by the Underwriting Agreement will not conflict
with, or result in a breach of, the Certificate of Incorporation or Bylaws
of the Company or any agreement or instrument known to such counsel to
which the Company is a party or any applicable law or regulation, or so far
as is known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(x) to the knowledge of such counsel, all holders of securities of the
Company having rights to the registration of shares of Common Stock, or
other securities, because of the filing of the Registration Statement by
the Company have waived such rights or such rights have expired by reason
of lapse of time following notification of the Company's intent to file the
Registration Statement;
(xi) the Stock has been duly approved for quotation on the Nasdaq
National Market, subject to official notice of issuance;
(xii) the Underwriting Agreement has been duly executed and delivered
by or on behalf of the Selling Stockholders and the Custody Agreement
between the Selling Stockholders and the Company, as Custodian, and the
Power of Attorney referred to in such Custody Agreement have been duly
executed and delivered by the several Selling Stockholders;
(xiii) good and marketable title to the shares of Stock sold by the
Selling Stockholders under the Underwriting Agreement, free and clear of
all liens, encumbrances, equities, security interests and claims, has been
transferred to the Underwriters who have severally purchased such shares of
Stock under the Underwriting Agreement, assuming for the purpose of this
opinion that the Underwriters purchased the same in good faith without
notice of any adverse claims; and
(xiv) based insofar as factual matters with respect to the stock to be
sold by the Selling Stockholders are concerned solely upon certificates of
the Selling Stockholders, the accuracy of which such counsel have no reason
to question, no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase and
distribution of the Stock by the Underwriters.
-------------------
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or of the General Corporate Laws of the
State of Delaware or the laws of the Commonwealth of Massachusetts, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel that leads them to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial data contained therein, as to which such counsel need not express any
opinion or belief) at the Effective Date contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, that the Prospectus
(except as to the financial statements and schedules and other financial data
contained therein, as to which such counsel need not express any opinion or
belief) as of its date or at the Closing Date (or any later date on which Option
Stock is purchased), contained or contains any untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
20
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ART TECHNOLOGY GROUP, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
--------------------------------------------
Art Technology Group, Inc., a Delaware corporation (the "Corporation"),
does hereby certify that:
The Board of Directors of the Corporation pursuant to an Action by
Written Consent dated June 2, 1999, duly adopted resolutions, pursuant to
Sections 141(f) and 242 of the General Corporation Law of the State of Delaware,
setting forth amendments of the Amended and Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation") and
declaring said amendments to be advisable. The stockholders of the Corporation
duly approved said proposed amendments by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendments. The resolutions setting forth the
amendments are as follows:
RESOLVED:
That the first paragraph of Article FOURTH of the
Certificate of Incorporation be and hereby is deleted
in its entirety and the following two paragraphs are
inserted in lieu thereof:
"FOURTH. That upon the filing of this Certificate of
Amendment of Certificate of Incorporation, (the
"Effective Time") a three-for-two split of the
Corporation's Common Stock (the "Stock Split")
<PAGE>
shall become effective, pursuant to which each two
shares of Common Stock, $0.01 par value per share,
outstanding and held of record by each stockholder of
the Corporation (including treasury shares)
immediately prior to the Effective Time shall be
reclassified into three shares of Common Stock, $0.01
par value per share, automatically and without any
action by the holder thereof upon the Effective Time
and shall represent three shares of Common Stock,
$0.01 par value per share, from and after the
Effective Time.
The total number and classes of shares of
capital stock that the Corporation shall have
authority to issue are as follows: (i) 100,000,000
shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 10,000,000 shares of
Preferred Stock, $.01 par value per share ("Preferred
Stock")"
RESOLVED: That Section 4(a) of Part D of Article FOURTH of the
Certificate of Incorporation be and hereby is deleted
and the following paragraph is inserted in lieu
thereof:
"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 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, after giving effect to the Stock
Split, shall be $1.82599. Such 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."
RESOLVED: That Section 4(a) of Part E of Article FOURTH of the
Certificate of Incorporation be and hereby is deleted
and the following paragraph is inserted in lieu
thereof:
"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
2
<PAGE>
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, after giving effect to the
Stock Split, shall be $0.531827. Such 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."
RESOLVED: That Section 4(d) of Part F of Article FOURTH of the
Certificate of Incorporation be and hereby is deleted
and the following paragraph is inserted in lieu
thereof:
"APPLICABLE CONVERSION VALUE. The Applicable
Conversion Value, after giving effect to the Stock
Split, shall be $0.96148068."
RESOLVED: That Section 2(e) of Part F of Article FOURTH of the
Certificate of Incorporation be and hereby is deleted
in its entirety.
RESOLVED: That Section 4(g) of Part F of Article FOURTH of the
Certificate of Incorporation be and hereby is deleted
in its entirety.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment of Certificate of Incorporation
to be signed by its President and Chief Executive Officer this 18th day of June,
1999.
ART TECHNOLOGY GROUP, INC.
By: /s/ Jeet Singh
-----------------------------------
Mahendrajeet Singh
President and
Chief Executive Officer
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Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ART TECHNOLOGY GROUP, INC.
Art Technology Group, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on October 22, 1997.
2. At a duly called meeting of the Board of Directors of the
Corporation at which a quorum was present at all times, a resolution was duly
adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth an Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation duly
approved said proposed Amended and Restated Certificate of Incorporation by
written consent in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, and written notice of such consent is
being promptly given to all stockholders who have not consented in writing to
said Amended and Restated Certificate of Incorporation. The resolution setting
forth the Amended and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be
and hereby is amended and restated in its entirety so that
the same shall read 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 as follows:
<PAGE>
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 of shares of all classes of stock which the
Corporation shall have authority to issue is 110,000,000 shares, consisting of
(i) 100,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation (and
written actions in lieu of meetings).
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. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
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
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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 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, 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 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 Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or 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.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. 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, except
as and to the extent provided in the By-Laws of the Corporation.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation, except as and to the extent
provided in the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any
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<PAGE>
receiver or receivers appointed for this corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
EIGHTH. 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.
NINTH. 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.
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<PAGE>
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 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
5
<PAGE>
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 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
6
<PAGE>
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.
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
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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, 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
8
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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.
TENTH. Except as otherwise provided herein, the Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
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.
ELEVENTH. This Article is inserted for the management of the business
and for the conduct of the affairs of the Corporation.
1. NUMBER OF DIRECTORS. The number of directors of the Corporation
shall not be less than three. The exact number of directors within the
limitations specified in the preceding sentence shall be fixed from time to time
by, or in the manner provided in, the Corporation's By-laws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
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3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the By-laws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2001; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in the year 2002; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. 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 director so
disqualified, provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section 1 above constitute a quorum. If at any
meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the Bylaws of the
Corporation or by this Certificate of Incorporation.
7. REMOVAL. Directors of the Corporation may be removed only for cause
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote.
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8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the size of the Board of
Directors, shall be filled only by a 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 to hold office until the next
election of the class for which such director shall have been chosen, subject to
the election and qualification of his successor and to his earlier death,
resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-laws of the Corporation.
10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time
by only the Chairman of the Board of Directors, the Chief Executive Officer,
President or 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. Notwithstanding any other provision of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article THIRTEENTH.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its President and Chief Executive Officer this _____ day of ________,
1999.
ART TECHNOLOGY GROUP, INC.
By:
------------------------------------
Jeet Singh
President & Chief Executive Officer
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Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
ART TECHNOLOGY GROUP, INC.
(A DELAWARE CORPORATION)
<PAGE>
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <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.....................................................................................2
1.6 Quorum..........................................................................................2
1.7 Adjournments....................................................................................2
1.8 Voting and Proxies..............................................................................2
1.9 Action at Meeting...............................................................................2
1.10 Nomination of Directors.........................................................................3
1.11 Notice of Business at Annual Meetings...........................................................4
1.12 Action without Meeting..........................................................................4
1.13 Organization....................................................................................5
ARTICLE 2 - Directors.............................................................................................5
2.1 General Powers..................................................................................5
2.2 Number; Election and Qualification..............................................................5
2.3 Classes of Directors............................................................................5
2.4 Terms of Office.................................................................................6
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors............................................................6
2.6 Vacancies.......................................................................................6
2.7 Resignation.....................................................................................7
2.8 Regular Meetings................................................................................7
2.9 Special Meetings................................................................................7
2.10 Notice of Special Meetings......................................................................7
2.11 Meetings by Telephone Conference Calls..........................................................7
2.12 Quorum..........................................................................................7
2.13 Action at Meeting...............................................................................8
2.14 Action by Consent...............................................................................8
2.15 Removal.........................................................................................8
2.16 Committees......................................................................................8
2.17 Compensation of Directors.......................................................................9
ARTICLE 3 - Officers..............................................................................................9
3.1 Enumeration.....................................................................................9
3.2 Election........................................................................................9
3.3 Qualification...................................................................................9
</TABLE>
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<TABLE>
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Page
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3.4 Tenure..........................................................................................9
3.5 Resignation and Removal.........................................................................9
3.6 Vacancies......................................................................................10
3.7 Chairman of the Board and Vice Chairman of the Board...........................................10
3.8 President......................................................................................10
3.9 Vice Presidents................................................................................10
3.10 Secretary and Assistant Secretaries............................................................10
3.11 Treasurer and Assistant Treasurers.............................................................11
3.12 Salaries.......................................................................................11
ARTICLE 4 - Capital Stock........................................................................................11
4.1 Issuance of Stock..............................................................................11
4.2 Certificates of Stock..........................................................................12
4.3 Transfers......................................................................................12
4.4 Lost, Stolen or Destroyed Certificates.........................................................12
4.5 Record Date....................................................................................12
ARTICLE 5 - General Provisions...................................................................................13
5.1 Fiscal Year....................................................................................13
5.2 Corporate Seal.................................................................................13
5.3 Waiver of Notice...............................................................................13
5.4 Voting of Securities...........................................................................13
5.5 Evidence of Authority..........................................................................13
5.6 Certificate of Incorporation...................................................................14
5.7 Transactions with Interested Parties...........................................................14
5.8 Severability...................................................................................14
5.9 Pronouns.......................................................................................14
ARTICLE 6 - Amendments...........................................................................................15
6.1 By the Board of Directors......................................................................15
6.2 By the Stockholders............................................................................15
6.3 Certain Provisions.............................................................................15
</TABLE>
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AMENDED AND RESTATED BY-LAWS
OF
ART TECHNOLOGY GROUP, INC.
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 Chairman of the Board of Directors, the President
or 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 the
stockholder's address as it appears on the records of the corporation.
<PAGE>
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 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 by the General Corporation Law of the State of Delaware, the
Certificate of Incorporation or these By-laws. 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 a majority of the stock present or represented and voting 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 a
majority of the stock of that class present or represented and
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voting 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. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
1.10 NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors:
(a) Prior to the closing of the corporation's initial public
offering of securities of the corporation pursuant to a registration statement
which has been filed with and declared effective by the Securities and Exchange
Commission (the "IPO"), nomination for election to the Board of Directors of the
corporation at a meeting of stockholders may be made by the Board of Directors
or by any stockholder of the corporation entitled to vote for the election of
directors at such meeting.
(b) From and after the closing of an IPO, nomination for
election to the Board of Directors of the corporation at a meeting of
stockholders may be made by the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at such meeting who
complies with the notice procedures set forth in this Section 1.10(b). Such
nominations, other than those made by or on behalf of the Board of Directors,
shall be made by notice in writing delivered or mailed by first class United
States mail, postage prepaid, to the Secretary, and received not less than 60
days nor more than 90 days prior to such meeting; provided, however, that if
less than 70 days' notice or prior public disclosure of the date of the meeting
is given to stockholders, such nomination shall have been mailed or delivered to
the Secretary not later than the close of business on the 10th day following the
date on which the notice of the meeting was mailed or such public disclosure was
made, whichever occurs first. Such notice shall set forth (1) as to each
proposed nominee (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of stock of the corporation which
are beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed as to nominees in proxy
solicitations pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to be named as a
nominee and to serve as a director if elected); and (2) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation. The chairman of the
meeting may, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the foregoing procedure, and if he
should
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so determine, he shall so declare to the meeting and the defective nomination
shall be disregarded.
1.11 NOTICE OF BUSINESS AT ANNUAL MEETINGS. From and after the
closing of an IPO, at an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before an annual meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, if such business relates to the
election of directors of the corporation, the procedures in Section 1.10(b) must
be complied with. If such business relates to any other matter, the stockholder
must have given timely notice thereof in writing to the Secretary. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business shall be
conducted at any annual meeting which occurs after the closing of an IPO except
in accordance with the procedures set forth in this Section 1.11 and except that
any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or
any successor provision) promulgated under the Securities Exchange Act of 1934,
as amended, and is to be included in the corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 ACTION WITHOUT MEETING. From and after the closing of an IPO,
stockholders may not take any action by written consent in lieu of a meeting.
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1.13 ORGANIZATION. The Chairman of the Board, or in his absence the
Vice Chairman of the Board designated by the Chairman of the Board, or the
President shall call meetings of the stockholders to order. The Secretary of the
corporation shall act as secretary at all meetings of the stockholders; but in
the absence of the Secretary at any meeting of the stockholders, the presiding
officer may appoint any person to act as secretary of the meeting.
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, the Certificate of Incorporation or these By-laws. 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.
(a) Prior to an IPO, 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.
(b) From and after the closing of an IPO, the number of
directors which shall constitute the whole Board of Directors shall be
determined by resolution of the Board of Directors, but in no event shall be
less than three. The number of directors may be decreased at any time and from
time to time 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 CLASSES OF DIRECTORS. From and after the closing of an IPO, the
Board of Directors shall be divided into three classes: Class I, Class II and
Class III. No one class shall have more than one director more than any other
class. If a fraction is contained in the quotient arrived at by dividing the
designated number of directors by three, then, if such fraction is one-third,
the extra director shall be a member of Class I, and if such
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<PAGE>
fraction is two-thirds, one of the extra directors shall be a member of Class I
and one of the extra directors shall be a member of Class II, unless otherwise
provided from time to time by resolution adopted by the Board of Directors.
2.4 TERMS OF OFFICE. From and after the closing of an IPO, each
director shall serve for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected; provided, that
each initial director in Class I shall serve for a term ending on the date of
the annual meeting of stockholders in 2000; each initial director in Class II
shall serve for a term ending on the date of the annual meeting of stockholders
in 2001; and each initial director in Class III shall serve for a term ending on
the date of the annual meeting of stockholders in 2002; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF
INCREASES OR DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase
or decrease in the authorized number of directors after the closing of an IPO,
(i) each director then serving as such shall nevertheless continue as a director
of the class of which he is a member and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of offices are to expire at
the earliest dates following such allocation, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
2.6 VACANCIES.
(a) Prior to an IPO, 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
a 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.
(b) From and after the closing of an IPO, any vacancy in the
Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the size of the Board, shall be filled only 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
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director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen, subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
2.7 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 be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 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.
2.9 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.
2.10 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 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail message, or delivering written notice by hand, to his
last known business or home address at least 24 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.
2.11 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.
2.12 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
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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.
2.13 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.
2.14 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.
2.15 REMOVAL.
(a) Except as otherwise provided by the General Corporation
Law of Delaware, prior to the closing of an IPO, any one or more of the
directors of the corporation 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.
(b) After the closing of the corporation's IPO, directors of
the corporation may be removed only for cause by the affirmative vote of the
holders of two-thirds of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote.
2.16 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
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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.
2.17 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 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
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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. 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 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, 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
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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 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 the 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
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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
stockholders 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.
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 entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange
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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 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 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,
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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 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.
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ARTICLE 6 - AMENDMENTS
6.1 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.
6.2 BY THE STOCKHOLDERS. Except as otherwise provided in Section
6.3, these Bylaws 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 or 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 regular or special meeting.
6.3 CERTAIN PROVISIONS. Notwithstanding any other provision of
law, the Certificate of Incorporation or these By-laws, and notwithstanding the
fact that a lesser percentage may be specified by law, after the closing of an
IPO, the affirmative vote of the holders of at least seventy-five percent (75%)
of the shares of the capital stock of the corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with Section 1.3, Section 1.10, Section 1.11, Section 1.12, Section
1.13, Article 2 or Article 6 of these By-laws.
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Exhibit 10.2
ART TECHNOLOGY GROUP, INC.
1999 OUTSIDE DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1999 Outside Director Stock Option Plan (the
"Plan") of Art Technology Group, Inc., a Delaware corporation (the "Company"),
is to advance the interests of the Company's stockholders by enhancing the
Company's ability to attract, retain and motivate outside directors of the
Company by providing such directors with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders.
2. ELIGIBILITY
Each director of the Company who is not an employee of the Company (an
"Eligible Director") is eligible to be granted options (an "Option") under the
Plan. Any person who has been granted an Option under the Plan shall be deemed a
"Participant."
3. ADMINISTRATION, DELEGATION
The Plan will be administered by the Board of Directors of the Company
(the "Board"). The Board shall have authority to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option 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. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Option. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
4. STOCK AVAILABLE FOR OPTIONS
a. NUMBER OF SHARES. Subject to adjustment under Section 4(b),
Options may be made under the Plan for up to 150,000 shares of common stock,
$.01 par value per share, of the Company (the "Common Stock"). If any Option
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock not
being issued, the
<PAGE>
unused Common Stock covered by such Option shall again be available for the
grant of Options under the Plan. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.
b. ADJUSTMENT TO COMMON STOCK. In the event of any stock split,
stock dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar change
in capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of securities and exercise price per
share subject to each outstanding Option, and (iii) the number and class of
securities available for automatic grants shall be appropriately adjusted by the
Company (or substituted Options may be made, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 4(b) applies and Section 6(c) also
applies to any event, Section 6(c) shall be applicable to such event, and this
Section 4(b) shall not be applicable.
5. STOCK OPTIONS
a. AUTOMATIC GRANTS.
(i) Each Eligible Director who is serving on the Board on
the effective date (the "Effective Date") of the
initial public offering (the "IPO") of the Common
Stock and who continues to serve after the closing of
the IPO (each, an "IPO Director") shall be granted an
Option to purchase 5,000 shares of Common Stock as of
the Effective Date.
(ii) Each Eligible Director who is not an IPO Director
shall be granted an Option to purchase 5,000 shares
of Common Stock at the close of business on the date
such Eligible Director is first elected to serve on
the Board.
(iii) Each Eligible Director who is serving on the
Board at the adjournment of any annual
meeting which begins after the date of his
or her election shall be granted an Option
to purchase 2,500 shares of Common Stock at
the close of business on the date of each
such adjournment.
b. OPTION EXERCISE PRICE. The option exercise price per share for
each Option granted under the Plan shall equal (i) the last reported sales price
per share of the Company's Common Stock as listed on a nationally recognized
securities exchange or the Nasdaq National Market, as the case may be, on the
date of grant (or, if no such price is reported on such date, such price as
reported on the nearest
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preceding day); or (ii) the fair market value of the stock on the date of grant,
as determined by the Board of Directors, if the Common Stock is not publicly
traded. Notwithstanding the preceding sentence, the option exercise price per
share for each Option granted on the Effective Date shall be the price per share
for which the Common Stock was offered to the public.
c. EXERCISE PERIOD. Each Option shall immediately vest and be
exercisable. In addition, no Option may be exercised more than one year after
the Participant ceases to serve as a director of the Company. No Option shall be
exercisable after the expiration of ten (10) years from the date of grant or
prior to approval of the Plan by the stockholders of the Company.
d. PAYMENT UPON EXERCISE. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:
i. in cash or by check, payable to the order of the Company;
ii. except as the Board may otherwise provide in an Option
Agreement, by delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or by delivery by the Participant to the Company of a copy
of irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company cash or a check sufficient to pay the exercise
price;
iii. to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
iv. by any combination of the above permitted forms of
payment.
6. GENERAL PROVISIONS APPLICABLE TO OPTIONS
a. TRANSFERABILITY OF OPTIONS. Except as the Board may otherwise
determine or provide in an Option, Options shall not be sold, assigned,
transferred, pledged or otherwise encumbered 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 Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
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b. DOCUMENTATION. Each Option under the Plan shall be evidenced
by a written instrument in such form as the Board shall determine. Each Option
may contain terms and conditions in addition to those set forth in the Plan.
c. ACQUISITION EVENTS. The Company shall give the Participant ten
(10) days notice of an Acquisition Event (as defined below), and the Option
shall expire upon the Acquisition Event. An "Acquisition Event" shall mean: (a)
any merger or consolidation which results in the voting securities of the
Company outstanding immediately prior thereto representing immediately
thereafter (either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than 50% of the combined
voting power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such merger or consolidation; (b)
any sale of all or substantially all of the assets of the Company; or (c) the
complete liquidation of the Company.
d. CONDITIONS ON DELIVERY OF STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan until (i)
all conditions of the Option have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
7. MISCELLANEOUS
a. NO RIGHT TO BOARD MEMBERSHIP OR OTHER STATUS. Neither the Plan
nor the granting of an Option shall be construed as giving a Participant the
right to continue as a director of the Company.
b. NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Options, no Participant or beneficiary designated by the Participant
shall have any rights as a stockholder with respect to any shares of Common
Stock to be distributed with respect to an Option until becoming the record
holder of such shares.
c. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become
effective on the date on which it is adopted by the Board. No Options shall be
granted under the Plan after the completion of ten years from the date on which
the Plan was adopted by the Board, but Options previously granted may extend
beyond that date.
d. AMENDMENT OF PLAN. The Board may amend, suspend or terminate
the Plan or any portion thereof at any time.
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e. GOVERNING LAW. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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<PAGE>
ART TECHNOLOGY GROUP, INC.
Nonstatutory Stock Option Agreement
GRANTED UNDER 1999 OUTSIDE DIRECTOR STOCK OPTION PLAN
1. GRANT OF OPTION.
This agreement evidences the grant by Art Technology Group, Inc., a
Delaware corporation (the "Company"), on [______,_____] (the "Grant Date") to
[__________], a director of the Company (the "Participant"), of an option to
purchase, in whole or in part, on the terms provided herein and in the
Company's 1999 Outside Director Stock Option Plan (the "Plan"), a total of
[_________] shares of common stock, $.01 par value per share, of the Company
("Common Stock") (the "Shares") at $[__________] per Share. Unless earlier
terminated, this option shall expire on the tenth anniversary of the Grant
Date (the "Final Exercise Date").
It is intended that the option evidenced by this agreement shall not be
an incentive stock option as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant," as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. VESTING SCHEDULE.
This option will become exercisable ("vest") as to 100% of the original
number of Shares on the Grant Date. This option shall expire upon, and will not
be exercisable after, the Final Exercise Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. EXERCISE OF OPTION.
a. FORM OF EXERCISE. Each election to exercise this option shall
be in writing, signed by the Participant, and received by the Company at its
principal office, accompanied by this agreement, and payment in full in the
manner provided in the Plan. The Participant may purchase less than the number
of shares covered hereby, provided that no partial exercise of this option may
be for any fractional share.
<PAGE>
b. EXERCISE PERIOD. Each Option shall immediately vest and be
exercisable. In addition, no Option may be exercised more than one year after
the Participant ceases to serve as a director of the Company. No Option shall be
exercisable after the expiration of ten (10) years from the date of grant or
prior to approval of the Plan by the stockholders of the Company.
4. NONTRANSFERABILITY OF OPTION.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
5. PROVISIONS OF THE PLAN.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
ART TECHNOLOGY GROUP, INC.
Dated: By:
----------------------
Name:
----------------------------
Title:
---------------------------
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PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Art Technology Group, Inc. 1999 Outside Director Stock Option Plan.
PARTICIPANT:
----------------------------------
Name:
-------------------------
Address:
-------------------------
-------------------------
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Exhibit 10.3
ART TECHNOLOGY GROUP, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 Employee Stock Purchase Plan provides eligible employees of
Art Technology Group, Inc., or ATG, and certain of our subsidiaries with
opportunities to purchase shares of ATG's common stock. A total of 500,000
shares of common stock may be issued under the plan.
1. ADMINISTRATION. The plan will be administered by ATG's Board of
Directors or by a committee appointed by the Board (all following references to
the Board include any committee appointed to administer the plan). The Board
will make rules and regulations for the administration of the plan, and its
decisions regarding the plan are final. The Board will also designate which
subsidiaries may participate in the plan (all following references to ATG
include any applicable subsidiaries).
2. ELIGIBILITY. Section 423 of the Internal Revenue Code of 1986, as
amended, and related regulations will govern participation in the plan. Any ATG
employee, including any Board member who is an employee, is eligible to
participate in the plan, so long as you meet the following requirements:
(a) you are customarily employed by ATG for more than 20 hours
a week and for more than five months in a calendar year; and
(b) you are an employee of ATG on the first day of the
applicable offering period.
No employee may be granted an option under the plan if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of ATG or any subsidiary. To determine
whether you are ineligible under this requirement, we are required to apply the
attribution rules of Section 424(d) of the Internal Revenue Code to determine
your stock ownership, and all stock which you have a contractual right to
purchase, including the stock which you could purchase under the plan, will be
treated as stock owned by you.
3. PARTICIPATION. If you are eligible to participate in an offering,
you may participate by completing and forwarding a payroll deduction
authorization form to our payroll office at least 14 days before the first date
for that offering. By signing this form, you will authorize ATG to make a
regular payroll deduction from the compensation you receive during the offering
period. Compensation means the amount of money reportable on your Federal Income
Tax Withholding Statement,
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also called a W-2 form, excluding overtime, shift premium, incentive or bonus
awards, allowances and reimbursements for expenses such as relocation allowances
or travel expenses, income or gains on the exercise of ATG stock options or
stock appreciation rights, and similar items, whether or not shown on your W-2.
If you are a salesperson, compensation includes your sales commissions. Unless
you file a new form or withdraw from the plan, your deductions and purchases
will continue at the same rate for future offerings as long as the plan remains
in effect.
4. DEDUCTIONS. We will maintain a payroll deduction account for each
participating employee. For any offering, you may authorize a payroll deduction
from the compensation you receive during the offering period of between 1% and
10%, in increments of 1%.
5. DEDUCTION CHANGES. You may DECREASE or DISCONTINUE your payroll
deduction once during any offering period by filing a new payroll deduction
authorization form. However, you may not INCREASE your payroll deduction during
an offering period. If you elect to discontinue your payroll deductions during
an offering period, you are not required to withdraw your funds; in that case,
funds deducted prior to discontinuing your participation will be applied to the
purchase of common stock on the last business day of the offering period.
6. INTEREST. Interest will not be paid on the amounts held in payroll
deduction accounts.
7. WITHDRAWAL OF FUNDS. You may, for any reason and at any time prior
to the close of business on the last business day in an offering period,
permanently withdraw the balance accumulated in your account and thereby
terminate your participation in an offering. Partial withdrawals are not
permitted. You may not participate again during the remainder of the offering
period, but you may participate in any subsequent offering.
8. OFFERINGS. ATG will make one or more offerings to employees to
purchase stock under the plan. The Board will determine the start date of each
offering. The first offering will begin on the day on which trading of our
common stock begins on the Nasdaq National Market. Each offering period will
last for six months. During each offering period, payroll deductions will be
made, and the deducted money will be held for you to buy common stock at the end
of the offering period.
On the first day of each offering period, you will receive an option to
buy up to, but no more than, the number of shares of common stock calculated by
dividing the closing market price of our common stock on the first day of the
offering period into $12,500. This figure is derived from the restriction
imposed by the Internal Revenue Code which provides that no employee may be
granted an option which
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permits his rights to purchase stock under this plan and any other employee
stock purchase plan (as defined in Section 423(b) of the Internal Revenue Code)
of the Company and its subsidiaries, to accrue at a rate which exceeds $25,000
of the fair market value of the common stock (determined as of the first day of
the offering) for each calendar year in which the option is outstanding at any
time. The actual number of shares which you will be able to purchase will depend
on the amount of money in your payroll deduction account on the last business
day of the offering period.
9. PURCHASE OF SHARES. On the last business day of the offering period,
your option will be automatically exercised and your account will be used to buy
shares of our common stock 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. If no common stock was sold on the first
business day or the last business day of the offering period, the price of the
common stock for that day will be the reported market price for the next
preceding day on which sales were made. Note, however, that the closing price of
the common stock on the first business day of the FIRST offering period will
equal the initial public offering price.
We will refund to you any balance remaining in your account at the end
of an offering period, except that we will carry forward into your account for
the following offering any balance which is less than the purchase price of one
share of common stock. However, if you elect not to participate in the following
offering, we will refund to you the balance in your account.
10. EVIDENCE OF STOCK OWNERSHIP. Promptly after the end of each
offering period, we will deposit the number of shares of common stock which you
have purchased into an account established in your name at a stock brokerage or
other financial services firm which we designate. You may ask us to establish
this brokerage account either in your name, in your name and the name of another
person of legal age as joint tenants with rights of survivorship.
You are free to sell or otherwise dispose of the shares in this
brokerage account at any time. However, for tax purposes, we need to know if you
dispose of your shares within the following time periods. Therefore, until you
dispose of your shares, you agree to hold your shares in the brokerage account
until (a) two years after the beginning of the offering period in which you
purchased the shares or (b) one year after the applicable exercise date,
whichever comes later. Once these time periods have elapsed, you may move your
shares to another stock brokerage or other financial services firm, or you may
request that we issue you a stock certificate.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. Your
participation in the plan will terminate if:
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o your employment terminates;
o you retire;
o you die;
o the subsidiary which you work for is no longer an ATG
subsidiary; or
o you are transferred to an ATG subsidiary which does not
participate in the plan.
If your participation in the plan terminates, we will not make a
payroll deduction from any pay due and owing to you at the time of termination
and we will refund the balance in your account to you. In the event of your
death, we will refund the balance in your account:
(a) to a beneficiary previously designated in a revocable
notice signed by you (with any spousal consent required under state
law),
(b) if you have not designated a beneficiary, to the
executor or administrator of your estate, or
(c) if, to our knowledge, no executor or administrator
has been appointed, to such other person(s) as we may designate.
12. PARTICIPANTS ARE NOT STOCKHOLDERS. Neither participation in the
plan nor making deductions from your pay make you a stockholder. You are not a
stockholder of any shares under the plan until those shares have been bought by
you and added to your brokerage account.
13. RIGHTS ARE NOT TRANSFERABLE. You cannot transfer your rights under
the plan except through a will or the laws of descent and distribution. During
your lifetime, only you may exercise your rights under the plan.
14. APPLICATION OF FUNDS. We are allowed to combine the funds received
from you or held by ATG under the plan with other corporate funds, and we may
use the funds for any corporate purpose while we hold the funds.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. If there is a
stock split, stock dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares, liquidation, spin-off or other
similar event or change in ATG's capitalization, or if any distribution, other
than a normal cash dividend, is made to holders of common stock, we will
proportionately adjust all share and purchase price numbers under the plan, and
we may make any other adjustment that the Board determines is fair. If any other
change occurs which affects the common stock, the Board will determine a fair
adjustment.
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16. MERGER. ATG could merge or consolidate with another corporation.
Continuity of control would be deemed to occur if the holders of ATG stock
immediately prior to the merger or consolidation continue to hold at least 80%
by voting power of the stock of the surviving corporation. If there is
continuity of control and you are participating in the plan, at the next
exercise date you will be entitled to receive, for each share of ATG stock for
which your option was exercised, the securities or property which a holder of
one share of common stock was entitled to receive in the merger or
consolidation.
If there is no continuity of control, or if there is a sale of all or
substantially all of ATG's assets, the Board will terminate the plan as of the
effective date of such a transaction, as long as notice of the cancellation is
given to each participating employee. You will then have the right to receive
shares of our common stock based on the payroll deductions credited to your
account as of a date determined by the Board, which will not be less than ten
(10) days preceding the effective date of the transaction.
17. AMENDING THE PLAN. The Board may amend the plan at any time in any
way, except that (a) if Section 423 of the Internal Revenue Code requires that
the stockholders approve the amendment, the amendment will not be effective
until the stockholders approve it, and (b) the Board may not make an amendment
which would cause the plan to fail to comply with Section 423 of the Internal
Revenue Code.
18. INSUFFICIENT SHARES. If the total number of shares which all
participating employees elect to purchase under an offering, plus the number of
shares purchased under previous offerings, exceeds the maximum number of shares
issuable under the plan, the Board will allot the shares available on a pro rata
basis.
19. TERMINATION OF THE PLAN. The Board may terminate the plan at any
time. If the plan is terminated, we will promptly refund the amount in your
account.
20. GOVERNMENTAL REGULATIONS. Our obligation to sell and deliver common
stock under the plan is subject to listing on a national stock exchange or
quotation on the Nasdaq National Market and the approval of all government
authorities required in connection with the authorization, issuance or sale of
this stock.
21. GOVERNING LAW. The plan is governed by Delaware law, except to the
extent that federal law preempts Delaware law.
22. ISSUANCE OF SHARES. We may issue the shares from authorized but
unissued common stock, from shares held in ATG's treasury, or from any other
proper source.
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23. EFFECTIVE DATE. The plan will take effect when the initial public
offering becomes effective.
Adopted by the Board of Directors
on May 10, 1999
Approved by the stockholders
on June 18, 1999
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Exhibit 10.7
ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
This OEM Agreement (the "Agreement") is made and entered into between Art
Technology Group, Inc., a Delaware corporation ("ATG"), and the original
equipment manufacturer named below (the "OEM") as of the Effective Date set
forth below:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
OEM Name: INFORMIX SOFTWARE, INC. Contact Person: Gregg Medaglia
- --------------------------------------------------------------------------------
Billing/Notice Address: Telephone/Fax: Tel: 650-926-6300
4100 Bohannon Drive Fax: 650-926-6560
Menlo Park, CA 94025
Notices Attn.: General Counsel
- --------------------------------------------------------------------------------
Territory: WORLDWIDE State of Incorporation: Delaware
- --------------------------------------------------------------------------------
Initial Term: TWO (2) YEARS Effective Date: DECEMBER 31, 1998
- --------------------------------------------------------------------------------
OEM Offerings:
INFORMIX (I) DATABASE AND/OR OTHER PRODUCTS THAT INCLUDE SUBSTANTIAL
FUNCTIONALITY AND/OR (II) SUBSTANTIAL ENHANCEMENTS, CUSTOMIZATION, OR
IMPLEMENTATION SERVICES OFFERED WITH THE ATG PRODUCTS (OR IN THE CASE OF
INFORMIX DATABASE AND/OR OTHER PRODUCTS, ALTERNATIVELY ALREADY LICENSED BY THE
END USER) IN ADDITION TO THAT OFFERED BY THE ATG PRODUCTS, AND/OR (III)
SUBSTANTIAL SERVICES INTEGRATING ATG PRODUCTS INTO INFORMIX PRODUCTS, AND/OR
(IV) THE ATG PRODUCTS OFFERED WITHOUT ANY INFORMIX PRODUCTS OR SERVICES TO END
USERS, PROVIDED THAT THE FULL DEVELOPMENT VERSION OF ANY ATG PRODUCTS AND
SUPPORT FOR SUCH FULL DEVELOPMENT VERSION ARE OFFERED TO THE END USER.
- --------------------------------------------------------------------------------
ATG Contact Persons: Jeet Singh and Joe Chung
- --------------------------------------------------------------------------------
</TABLE>
This Cover Page, the attached OEM Terms and Conditions and related schedules and
any duly executed addenda are incorporated into and made a part of this
Agreement as of the Effective Date set forth above. Additional documents,
schedules, exhibits, addenda and amendments may be incorporated into and made a
part of this Agreement upon the written consent of the parties.
The parties hereby acknowledge that they have read and understand this Agreement
and all schedules and addenda hereto, and agree to all terms and conditions
stated herein and attached hereto.
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
ATG: ART TECHNOLOGY GROUP, INC. OEM: INFORMIX SOFTWARE, INC.
- --------------------------------------------------------------------------------
By: /s/ Jeet Singh By: /s/ Wes Raffel
- --------------------------------------------------------------------------------
Name: Jeet Singh Name: Wes Raffel
- --------------------------------------------------------------------------------
Title: President Title: VP & GM
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
OEM TERMS AND CONDITIONS
1. DEFINITIONS
a. "Addendum" shall mean any addendum to this Agreement duly executed by both
parties hereto that either amends any of the terms hereto or identifies
additional ATG Products to be covered by this Agreement.
b. "API" shall mean Application Programming Interface; APIs for each ATG
Product, to the extent they exist, shall be available under the Development
License to OEM and any Development- Enabled Subdistributor.
c. "ATG Products" shall mean the ATG software products identified on Schedule
1 attached hereto or any Addendum, together with, for any particular ATG
software product, such Maintenance Releases and Major Releases, if any, as
are listed on Schedule 1, and any follow-on and/or replacement products
made generally available by ATG only if the OEM is entitled to receive
Major Releases for the replaced product, as specified on Schedule 1.
d. "ATG SLA" shall mean the schedule of Support Services to be provided to OEM
by ATG, as documented in the ATG Service Level Agreement attached as
Schedule 8.
e. "Effective List Price" shall mean, for the first Revenue Year, the List
Price in effect as of the Effective Date and attached hereto as Schedule 6.
For each subsequent Revenue Year, the Effective List Price shall mean the
lower of (i) the then effective List Price at the start of such Revenue
Year or (ii) 110% of the Effective List Price in the previous Revenue Year.
f. "End User" shall mean a person or entity acquiring OEM Offerings for his or
its own internal use and not for resale or distribution to others, which
persons or entities have properly executed and are bound by the terms of a
Software License Agreement.
g. "End User Documentation" shall mean the manuals, handbooks and other
written or electronic material typically accompanying the ATG Products,
other than the Programmer Documentation.
h. "Intellectual Property" shall mean all patent, copyright, trademark, trade
secret and other intellectual and intangible property rights, including all
registrations and applications therefor, and all continuations,
continuations in part, divisional applications, and renewals of any of the
foregoing.
i. "License Generator" shall mean the software provided by ATG to OEM
hereunder in order for OEM to generate Use Authorization Keys for the ATG
Products, each such use authorization key being generated exclusively for a
particular Internet Protocol ("IP") address.
j. "Licensed Marks" shall mean the ATG names, logos and trademarks listed on
Schedule 4 hereto, and such others as may be agreed in writing by the
parties.
k. "List Price" shall mean, with respect to an ATG Product, ATG's standard
list price for the ATG Product in the Territory (based on number of CPUs
and/or developers), as it may be revised by ATG from time to time. A
revised List Price shall become effective for purposes of this Agreement
thirty (30) days after ATG publishes such List Price or otherwise provides
such revised List Price to OEM.
l. "Maintenance and Support Fee" shall mean those fees that are payable to ATG
in accordance with Section 4(f) hereof in exchange for the provision of
Support Services to OEM, and for the provision
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<PAGE>
of such Major Releases and Maintenance Releases to OEM as are specified in
Section 3 of Schedule 1.
m. "Maintenance Release" shall mean the updates to the ATG Products provided
by ATG that may incorporate (i) corrections of any substantial defects;
(ii) fixes of any minor bugs; (iii) multi- language and localization
support, if and as they become available; and (ii) at the sole discretion
of ATG, minor enhancements to the ATG Products; provided, however, that
Maintenance Releases shall not include major new releases of the ATG
Products that incorporate substantial changes or additions that (i) provide
additional value and utility; (ii) may be priced and offered separately as
optional additions to the ATG Products; and (iii) are not made generally
available to ATG's customers without a separate charge. Maintenance
Releases are generally identified by ATG by a change to the version number
to the right of the decimal point (i.e. version 4.1 to 4.2).
n. "Major Release" shall mean, for a particular ATG Product, those updates,
upgrades and new releases of the ATG Products, other than Maintenance
Releases, to be provided by ATG to OEM as specified on Schedule 1. Major
Releases are generally identified by ATG by a change to the version number
to the left of the decimal point (i.e., version 4.2 to 5.0).
o. "Object Code Form" shall mean a form of executable software code resulting
from the translation or processing of software in Source Code Form by a
computer into machine language or intermediate code, which thus is in a
form that would not be convenient to human understanding of the program.
p. "OEM Discount" shall mean the applicable discount percentage set forth on
Schedule 2 hereto.
q. "OEM Offerings" shall mean the products and/or services that OEM is
authorized hereunder to offer in connection with the ATG Products, as set
forth on the Cover Page and on Schedule 1 hereto.
r. "Programmer Documentation" shall mean shall mean the Dynamo Programmer's
Guide and the Dynamo Application Server and Personalization Station APIs
documentation.
s. "Proprietary Information" shall mean (i) all confidential, proprietary or
secret information, including without limitation components, drawings,
data, programs, specifications, techniques, processes, algorithms,
inventions and other information or material relating to a party's
business, personnel, customers, finances or plans, which is owned,
possessed or used by a party, which is marked as confidential if in written
or graphical form, indicated as confidential orally at time of disclosure
and/or which is of a nature that it would ordinarily be considered
confidential in the industry and (ii) all ATG Products in Source Code Form.
t. "Revenue Year" shall mean a 12-month period under this Agreement. The first
Revenue Year shall begin on April 30, 1999. The next Revenue Year shall
begin on the anniversary of the beginning of the first Revenue Year, and so
on.
u. "Service Level Guidelines" shall mean OEM's standard documented End User
service level policy in effect from time to time, the current form of which
is attached hereto as Schedule 8.
v. "Software License Agreement" shall mean an End User license agreement
entered between OEM and End Users that shall, at a minimum, comply with the
provisions of Section 2(f) hereof; the current form of such Software
License Agreement is attached hereto as Schedule 5.
w. "Source Code Form" shall mean a form in which a computer program's logic is
easily deduced by a human being with skill in the art, such as a printed
listing of the program or a form from which a printed listing can be easily
generated or an electronic form capable of being compiled by a
3
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
computer. When Source Code Modules are provided by one party to the other,
such Source Code Modules shall be provided in electronic form capable of
being compiled by computer.
x. "Source Code Modules" shall mean those ATG Products listed in Section 4 of
Schedule 1 as being provided to OEM in Source Code Form. The Source Code
Modules shall constitute the Proprietary Information of ATG hereunder.
y. "Subdistributor" shall mean a third party which distributes the OEM
Offerings in accordance with the provisions of Section 2(i) below.
z. "Support Services" shall mean [**] services provided by ATG as described in
Section 6(c) below.
aa. "Territory" shall mean the geographic or other market coverage areas
identified on the Cover Page hereto.
bb. "Third Party Software" shall mean that software, if any, provided by ATG
under this Agreement which is not owned by ATG; such Third Party Software
is listed on Schedule 7.
cc. "Use Authorization Key" shall mean an encrypted sequence of characters
generated by the License Generator which checks the IP address and enables
a licensed End User to use the ATG Products as part of the OEM Offerings.
2. APPOINTMENT AND LICENSE
a. APPOINTMENT. Subject to the OEM's compliance with the terms and conditions
set forth in this Agreement, ATG hereby appoints OEM, and OEM hereby
accepts appointment, as a non-exclusive original equipment manufacturer for
the ATG Products in the Territory during the Term.
B. DEVELOPMENT LICENSE. Subject to OEM's compliance with the terms and
conditions set forth in this Agreement, ATG grants to OEM, and OEM accepts,
under all Intellectual Property in the ATG Products, a nonexclusive,
nontransferable (except as set forth in Section 14(d)) right and license in
the Territory ("Development License"), with the right to sublicense only as
set forth in Sections 2(f)(iii) and 2(i)(b), to use, reproduce, modify and
have modified, and process the Full Development Version of the ATG Products
internally in Object Code Form (including all JavaBean components) for the
sole purposes of incorporating or bundling the ATG Products into the OEM
Offerings, enhancing the OEM Offerings for distribution pursuant to Section
2(e) and/or providing implementation, localization, enhancement and/or
other customization services to End Users.
c. [**]License. Subject to OEM's compliance with the terms and conditions set
forth in this Agreement, [**].
d. LICENSE GENERATOR LICENSE. Subject to OEM's compliance with the terms and
conditions set forth in this Agreement, ATG grants to OEM, and OEM accepts,
under all Intellectual Property in the License Generator, a nonexclusive,
nontransferable (except as set forth in Section 14(d)) right and license,
with the right to sublicense as set forth in Section 2(i)(D), to use,
reproduce and process the License Generator, in Object Code Form, for the
sole purpose of generating Use Authorization Keys for the ATG Products.
e. DISTRIBUTION LICENSE. Subject to OEM's compliance with the terms and
conditions set forth in this Agreement, ATG grants to OEM, and OEM accepts,
under all Intellectual Property in the relevant ATG Products, a
nonexclusive, nontransferable (except as set forth in Section 14(d)),
royalty-bearing right
4
<PAGE>
and license in the Territory, with the right to sublicense only as set
forth in Section 2(i)(A), (A) to demonstrate, promote, reproduce,
distribute and market the ATG Products in Object Code Form only (as may be
modified and enhanced by OEM pursuant to Sections 2(b) and 2(c) or by
Subdistributor pursuant to Section 2(i)(b)) and the End User Documentation
related thereto, and, in the case where the Subdistributor or End User has
purchased a Full Development Version of the ATG Products, the Programmer
Documentation related thereto, as incorporated into or bundled with the OEM
Offerings, to Subdistributors or End Users who have been provided with a
Use Authorization Key by the License Generator and with respect to whom OEM
has paid, or is obligated to pay, to ATG the appropriate Royalty described
in Section 4(a); (B) to maintain, install, configure, test and operate the
ATG Products (in Object Code Form only), and the End User Documentation
related thereto, and, in the case where the Subdistributor or End User has
purchased a Full Development Version of the ATG Products, the Programmer
Documentation related thereto, for Subdistributors or End Users in the
Territory as incorporated into, or bundled with or used with the OEM
Offerings and (c) to sublicense the rights granted under clauses (A) and
(B), subject to compliance with Section 2(i)(A) below, to one or more
Subdistributors solely for the purpose of distributing (and not further
sublicensing) the ATG Products as incorporated into or bundled with the OEM
Offerings in the Territory.
f. END USER SUBLICENSE.
(i) OEM shall have the right to sublicense the use of the ATG Products
("End User License") to Subdistributors and to End Users to whom OEM
or its Subdistributors have validly distributed such ATG Products,
pursuant to the terms of this Section 2(f). OEM shall ensure that all
Subdistributors or End Users acquiring such an End User License
execute the then-current version of the Software License Agreement,
or, for existing Subdistributors or End Users of OEM's products,
execute an appropriate addendum to the existing Software License
Agreement setting forth the ATG Products and any proprietary rights
restrictions not otherwise set forth in such Software License
Agreement which are necessary in order to comply with this Agreement.
Such Software License Agreements shall not limit the rights of
Subdistributors to distribute the ATG Products as provided in the
applicable Subdistributor Agreement (which may be combined with the
Software License Agreement in a single agreement).
(ii) Each Software License Agreement for a Non-Development Version or
Staging Server Version of the ATG Products shall provide that the
Subdistributor or End User
(A) shall use the ATG Products in Object Code Form only,
(A) in the case of Subdistributors, solely for the purposes of
incorporating or bundling the ATG Products into the OEM
Offerings, enhancing the OEM Offerings for End Users and/or
providing implementation, localization, enhancement and/or
customization services to End Users, and
(B) in the case of End Users, solely for its internal business
purposes,
and in accordance with the accompanying End User Documentation, and
may modify and enhance the ATG Products subject to the restrictions
listed for Non-Development Versions in Section 2 of Schedule 1,
(B) shall not distribute (except in the case of Subdistributors as set
forth in Section 2(i)(a)), reproduce (except for back-up), transfer
(except to an affiliate or as the result of a merger, acquisition or
substantial change in control), reverse engineer, decompile or
disassemble the ATG Products, (C) shall not export the ATG Products in
violation of any applicable export regulation or restriction of any
jurisdiction, (D) shall protect the proprietary and confidential
information of ATG to at least the extent that OEM is required to do
so herein, and (E) shall comply with the
5
<PAGE>
obligations regarding the Intellectual Property of ATG to at least the
extent that OEM is required to do so herein.
(iii) Each Software License Agreement for a Full Development Version of the
ATG Products shall provide that the Subdistributor or End User
(A) shall use the ATG Products in Object Code Form only,
(A) in the case of Subdistributors, solely for the purposes of
incorporating or bundling the ATG Products into the OEM
Offerings, enhancing the OEM Offerings for End Users and/or
providing implementation, localization, enhancement and/or
customization services to End Users, and
(B) in the case of End Users, solely for its internal business
purposes,
and in accordance with the accompanying End User Documentation
and Programmer Documentation, and may modify and enhance the ATG
Products solely for the purpose set forth in this clause (a)
above;
(b) shall not distribute (except in the case of Subdistributors as
set forth in Section 2(i)(a)), reproduce (except for back-up),
transfer (except to an affiliate or as the result of a merger,
acquisition or substantial change in control), reverse engineer,
decompile or disassemble the ATG Products, (C) shall not export
the ATG Products in violation of any applicable export regulation
or restriction of any jurisdiction, (D) shall protect the
proprietary and confidential information of ATG to at least the
extent that OEM is required to do so herein, and (E) shall comply
with the obligations regarding the Intellectual Property of ATG
to at least the extent that OEM is required to do so herein.
(iv) Each Software License Agreement shall provide at least the same level
of protection for the ATG Products as for all other software included
in the OEM Offering.
g. COPIES.
(i) ATG will provide OEM with one copy of the License Generator following
the Effective Date, solely for OEM's use in generating Authorized Use
Keys pursuant to this Agreement.
(ii) ATG will provide OEM with one copy of each ATG Product before or upon
execution of this Agreement, the Source Code Form of the Source Code
Modules as specified in Section 4 of Schedule 1, and, subject to OEM's
payment of Maintenance and Support Fees, all Maintenance Releases and
Major Releases, all solely for OEM's use in performance of its
obligations and/or as expressly permitted in rights granted to OEM
pursuant to this Agreement.
(iii) OEM will use the License Generator, and/or will cause its
Subdistributors to use the License Generator, as the exclusive method
by which it, or its Subdistributors, generate(s) Use Authorization
Keys to be associated with the copies it, or its Subdistributors,
make(s) of the ATG Products, whether any such ATG Product is to be
distributed to an End User or used internally by OEM or a
Development-Enabled Subdistributor as part of its development
activities.
(iv) OEM or its Subdistributors with a license to the Full Development
Version of the ATG Products may generate any number of Use
Authorization Keys reasonably necessary for use by OEM and such
Subdistributor employees and OEM's and such Subdistributor's third
party consultants acting on OEM's or such Subdistributor's behalf who
have a need to use the ATG Products for the sole purposes of
incorporating or bundling the ATG Products into the OEM
6
<PAGE>
Offerings or using the ATG Products with the OEM Offerings and who are
bound in writing to protect the Proprietary Information of OEM or such
Subdistributor, as the case may be.
(v) OEM and its Subdistributors must also generate one and only one Use
Authorization Key for every IP address on which an ATG Product will be
authorized for use by an End User; provided however that OEM and its
Subdistributors may generate such Use Authorization Keys for developer
seats for pools of "wildcard" IP addresses as OEM and/or its
Subdistributors deem reasonably necessary for any End User (and
provided that OEM pays the applicable Royalty for all such seats).
h. NO REVERSE ENGINEERING. OEM shall not, and shall require that its
Subdistributors shall not, reverse engineer, decompile or disassemble any
software that may be embodied in the ATG Products.
i. SUBDISTRIBUTORS.
(A) DISTRIBUTION OF OBJECT CODE. OEM may sublicense one or more
Subdistributors in all or portions of the Territory to distribute ATG
Products, in Object Code Form only, as incorporated into, bundled with
or for use with OEM Offerings that include ATG Products pursuant to
the licenses granted in Sections 2(e)(A) and (B) above, and the End
User Documentation related thereto. Subdistributors who have bought a
Full Development Version of the ATG Products shall be entitled to
distribute to their End Users the modified versions of the ATG
Products that they develop using the Full-Development Versions of the
ATG Products pursuant to the licenses granted in Sections 2(e)(A) and
(B) above.
(B) SUBDISTRIBUTOR AGREEMENTS. OEM shall require that each Subdistributor
execute a written agreement with OEM (a "Subdistributor Agreement")
which shall, at a minimum, impose upon the Subdistributor restrictions
and obligations with respect to proprietary rights of ATG in the ATG
Products that require the Subdistributor to use the ATG Products in
accordance with the appropriate Software License Agreement(s) set
forth in Section 2(f)(ii), (iii) and/or (iv), to make copies of the
ATG Products and/or to generate Use Authorization Keys in accordance
with Section 2(g), to distribute the ATG Products in accordance with
the distribution license set forth in Section 2(e)(A) and (B), and to
protect ATG's proprietary information and Intellectual Property rights
in accordance with Sections 11 and 12 respectively.
(C) LICENSE GENERATOR DISTRIBUTION. OEM may sublicense one or more
Subdistributors to use, reproduce and process the License Generator in
Object Code Form for the sole purpose of generating Use Authorization
Keys for the ATG Products in accordance with the terms hereof.
(D) If OEM becomes aware of any violations of a Subdistributor Agreement,
OEM shall take commercially reasonable actions to enforce such
agreements, including termination of the Subdistributor's rights
thereunder, and shall notify ATG and allow and reasonably assist ATG
to enforce such agreements. Upon ATG's request, OEM shall provide a
copy of the standard form of Subdistributor Agreement to ATG. In
addition, if a Subdistributor breaches any obligation relating to the
ATG Products, ATG shall have the right to cause OEM to terminate such
Subdistributor's rights with respect to the ATG Products and to take
the actions described in Section 13(d)(ii) below. It is OEM's
intention to require that all new Subdistributors acknowledge that
there are third party beneficiaries entitled to enforce the terms of
the relevant Subdistributor Agreement against the Subdistributor.
j. DOCUMENTATION.
(i) Subject to OEM's compliance with the terms and conditions set
forth in this Agreement, ATG grants to OEM, and OEM accepts,
under all Intellectual Property in the End User
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<PAGE>
Documentation, a nonexclusive, nontransferable (subject to
Section 14(d)), right and license, with right to sublicense as
set forth in Section 2(i)(A), to use, reproduce, process, modify
and have modified the End User Documentation for the sole
purposes of incorporating or bundling the End User Documentation
into the OEM Offerings (and the accompanying ATG Products), and
using the End User Documentation with the OEM Offerings.
(ii) Subject to OEM's compliance with the terms and conditions set
forth in this Agreement, ATG grants to OEM, and OEM accepts,
under all Intellectual Property in the Programmer Documentation,
a nonexclusive, nontransferable (subject to Section 14(d)), right
and license, with the right to sublicense to Subdistributors and
to End Users who have purchased a Full Development Version of the
ATG Products in accordance with Sections 2(f)(i) and (iii), (i)
to make a reasonable number of copies, and (ii) to use such
number of copies, of the Programmer Documentation reasonably
necessary for use by OEM, Subdistributor or End User employees
and OEM's, Subdistributor's or End User's third party consultants
acting on OEM's, Subdistributor's or End User's behalf who have a
need to use the Programmer Documentation for the sole purposes
of, in the case of use on behalf of OEM or Subdistributor,
incorporating or bundling the ATG Products into the OEM Offerings
or, in the case of use on behalf of End User, using the ATG
Products with the OEM Offerings, and who are bound in writing to
protect the Proprietary Information of OEM, Subdistributor or End
User, as the case may be.
k. NO OTHER RIGHTS. Except as stated in this Section 2, OEM shall make no
other utilization of the ATG Products, or use the ATG Products for the
benefit of any other person or entity, or permit any third party to
make such utilization, and OEM shall have no other rights or licenses
with respect to the ATG Products (including rights under any patents
or other Intellectual Property of ATG).
3. TRADEMARKS
a. LICENSE. Subject to OEM's compliance with the terms and conditions set
forth in this Agreement, ATG grants to OEM, and OEM accepts, a
nonexclusive, nontransferable (except as set forth in Section 14(d))
right and license (the "Trademark License") in the Territory to
display, copy and use the Licensed Marks in conjunction with the
advertising, promotion and distribution of the ATG Products and OEM
Offerings. OEM shall not have the right to sublicense the rights
granted under this Section 3 except to Subdistributors in conjunction
with Subdistributors' advertising, promotion and distribution of the
ATG Products and OEM Offerings in accordance with the ATG Trademark
Guidelines, as amended from time to time, the current form of which is
attached as Schedule 4. OEM and its Subdistributors must use and
display the applicable Licensed Marks or approved Combined Marks on
all documentation, labeling and packaging relating to OEM Offerings
that include the ATG Products , technical product data sheets specific
to OEM's electronic commerce ("e-commerce") offerings, and specific
references to ATG Products on OEM's Website(s), as specified on
Schedule 4.
b. PROMOTIONAL MATERIALS. OEM may use and display the applicable Licensed
Marks or Combined Marks (as set forth below) on all documentation,
labeling, packaging and marketing, advertising and promotional
materials relating to OEM Offerings that include the ATG Products, as
specified on Schedule 4. All uses by OEM of the Licensed Marks shall
be in accordance with ATG's Trademark Guidelines, which are attached
hereto as part of Schedule 4. OEM shall not make any claims or
representations relating to the ATG Products in any promotional
materials, unless such claims are based on written materials provided
by ATG. OEM shall accompany each occurrence of a Licensed Mark in any
promotional materials by the appropriate proprietary marking ((TM) or
(R), as applicable), and. Upon request of ATG from time to time, OEM
shall submit copies of all written promotional materials of OEM or its
Subdistributors which bear the Licensed Marks and submit or provide
on-line access to any electronic copies of such materials to ATG. To
protect the value of its Licensed Marks, if ATG determines that any
particular promotional material of OEM bearing ATG's Licensed Marks is
likely to impair the validity or distinctiveness of the Licensed Mark,
ATG shall
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have the right to require OEM to stop its use and distribution of such
promotional material within five (5) days of OEM's receipt of ATG's
written notice thereof.
C. COMBINED MARKS. Subject to Section 12(b) below, the Trademark Licenses
shall include the right to distribute the ATG Products incorporated in
the OEM Offerings under one or more product brands that combine the
Licensed Marks with marks owned by OEM ("Combined Marks"). Such
permitted Combined Marks are described on Schedule 4 hereto, as may be
modified from time to time by OEM, subject to ATG's prior approval,
which approval shall not be unreasonably withheld or delayed. ATG
agrees to provide any ATG Product Source Code Modules as may be
necessary in order for OEM to modify the ATG Products to display the
Combined Marks in place of the Licensed Marks displayed by the
original versions of such ATG Products and comply with the terms and
conditions of this Agreement with respect to the use of the Combined
Marks with the ATG Products. Upon request, ATG shall provide technical
support for such modifications and/or perform such modifications in
accordance with a schedule to be agreed upon by the Parties.
d. QUALITY CONTROL. OEM acknowledges and agrees that the quality and
reliability of the OEM Offerings bearing and otherwise associated with
the Licensed Marks (including Combined Marks) will affect the
goodwill, public perception and reputation in the marketplace of ATG
and the Licensed Marks. Therefore, OEM agrees that all OEM Offerings
bearing the Licensed Marks shall be of a quality and reliability
consistent with the standards established by ATG for its own products.
In the event that any OEM Offering does not comply with such quality
standards, then ATG may notify OEM thereof and shall provide a thirty
(30) day period within which OEM can cure such noncompliance, and an
additional sixty (60) day period if such non-compliance is not
reasonably capable of being cured within such initial thirty (30) day
period. Notwithstanding the first sentence of Section 3(b) above, if
such noncompliance remains uncured after the applicable cure period
above, ATG shall have the unilateral right (i) to terminate the
Trademark License with respect to the nonconforming OEM Offering(s) or
(ii) to deem OEM to be in material breach of this Agreement and,
notwithstanding anything to the contrary in Section 4, to eliminate
the Discount Percentage and to require OEM to pay List Price for each
copy of an ATG Product (or applicable upgrade) sold, licensed,
distributed or upgraded by OEM or OEM's Subdistributors following
notice thereof.
4. PAYMENT
a. ROYALTIES. OEM shall pay to ATG an amount for each copy of an ATG
Product sold, licensed, or distributed by OEM or OEM's
Subdistributors, for installation on a CPU or, in the case of a Full
Development Version of an ATG Product, for use by a specified number
of developers for a particular End User or Subdistributor, as the case
may be, equal to the Effective List Price of each such ATG Product (or
applicable upgrade) and/or developer seat, less the applicable
Discount Percentage as determined in accordance with Schedule 2 (the
"Royalty"). Royalty payments shall be made in quarterly installments
in arrears, each installment to be payable no later than the earlier
of the thirtieth (30th) day following the delivery of the OEM Report
for such quarter or the sixtieth (60th) day following the end of each
calendar quarter in which an ATG Product is sold, licensed, or
distributed.
b. PREPAID ROYALTY.
(i) OEM agrees to pay to ATG non-refundable, prepaid Royalties for the
first Revenue Year of five million dollars ($5,000,000), which shall
be paid in full within thirty (30) days after execution of this
Agreement, and no penalties shall be incurred by OEM for late payment
until sixty (60) days after execution of this Agreement.
(ii) There shall be no pre-paid Royalties for the second and each
succeeding Revenue Year.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
(iii) Royalties due during the first Revenue Year shall be credited in full
against pre-paid Royalties for the first Revenue Year. Royalties due
in excess of the pre-paid Royalties in the first Revenue Year shall be
paid in accordance with this Section 4. In the event that the total
Royalties due in the first Revenue Year is greater than $5,000,000,
the Discount Percentage as set forth in Schedule 2 will be applied to
the incremental amount of total Royalties over $5,000,000. In the
event that the amount of Royalties credited against the pre-paid
Royalties during the first Revenue Year is less than $5,000,000, then
OEM may credit up to [**] of the Royalties in the second Revenue Year
against the pre-paid Royalties for the first Revenue Year. Under no
circumstances shall ATG be required to refund any portion of the first
Revenue Year's pre-paid Royalties.
C. DISCOUNT PERCENTAGE. As set forth in Schedule 2, the Discount
Percentage for the second and each subsequent Revenue Year shall be
set by calculating [**] the total Royalties that became due to ATG
[**]. The Discount Percentage shall be applied to the Effective List
Price of the applicable ATG Product.
d. CPU UPGRADE DISCOUNT. An additional CPU Upgrade Discount will be
applied to the Royalty otherwise payable by OEM for each ATG Product
sold, licensed or distributed by OEM or its Subdistributors in a
multi-CPU configuration, as specified on Schedule 2. The CPU Upgrade
Discount will be applied to the discounted Effective List Price of
each such ATG Product, after application of the Discount Percentage.
e. END USER PRICING. OEM shall be free, in its absolute discretion, to
determine the price, if any, that OEM charges to End Users or
Subdistributors for the OEM Offerings and embedded ATG Products
F. MAINTENANCE AND SUPPORT FEES. On the Effective Date, OEM shall pay to
ATG a fixed Maintenance and Support Fee of [**] to cover the provision
of Support Services, Major Releases and Maintenance Releases during
1999. Beginning on April 30, 2000, and on the first day of the second
month of each subsequent calendar quarter during the Term thereafter,
OEM shall pay to ATG a further Maintenance and Support Fee to cover
Support Services, Major Releases and Maintenance Releases during the
calendar quarter in an amount equal to [**] of:
(A) the cumulative Effective List Prices of the ATG Products sold,
licensed or distributed by OEM or its Subdistributors for which
support or maintenance services are being provided by OEM or as
to which the End User has paid or is obligated to pay OEM for
support or maintenance services; and
(B) the Effective List Price, at the time of original sale, licensing
or distribution to the End User, of each ATG Product sole,
licensed or distributed by OEM or its Subdistributors to any End
User in a previous calendar quarter, for which OEM received
support revenues,
during the immediately preceding calendar quarter (provided that in no
event shall the annual Maintenance and Support Fees for any Revenue
Year fall below [**], with any make-up adjustments to be paid in the
last quarter of the Revenue Year). The parties contemplate that the
level of Support Services required by OEM will decrease significantly
after the first Revenue Year, and acknowledge that the level of
Maintenance and Support Fees in this Section 4(f) have been set based
on this assumption. If the level of Support Services required by OEM
does not significantly decrease after the first Revenue Year, the
parties agree to adjust the Maintenance and Support Fees for later
Revenue Years in an equitable manner.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
G. THIRD PARTY SOFTWARE.
(i) During the first Revenue Year, ATG will supply OEM with the Third
Party Software listed in Schedule 7 [**]. For each subsequent Revenue
Year, ATG will supply OEM with only such Third Party Software as it
ships to other customers of ATG, and OEM will be subject to the same
terms and fees as ATG's other customers.
(ii) ATG will negotiate with the suppliers of the ICE Browser and Quest
Agent Third Party Software and, if necessary, pay for, a license to
distribute such Third Party Software to OEM and a license for OEM to
redistribute such Third Party Software to End Users, Subdistributors,
and End Users of Subdistributors for the duration of OEM's license to
distribute the ATG Products into which such Third Party Software is
incorporated.
(iii) In the event that ATG plans to stop shipping to OEM a previously
shipped piece of Third Party Software, ATG will give ninety (90) days
prior notice to OEM before it stops shipping such Third Party
Software, or, if ATG receives less than ninety (90) days notice from
the supplier of the Third Party Software of the unavailability of such
Third Party Software, ATG will give OEM such prior notice as ATG
itself receives.
h. PAYMENTS NET. All payments, fees and other charges payable by OEM to ATG
under this Agreement are exclusive of all federal, state, local and foreign
taxes, levies and assessments. OEM agrees to bear and be responsible for
the payment of all such taxes, levies and assessments imposed on OEM or ATG
arising out of this Agreement, excluding any tax based on ATG's net income.
Such amounts shall be grossed-up for any non-refundable withholding tax
imposed by a foreign governmental entity on amounts payable hereunder. OEM
shall obtain and provide to ATG any certificate of exemption or similar
document required to exempt any transaction (for which an exemption is
available by law) under this Agreement from sales tax, use tax or other tax
liability.
i. PAYMENT TERMS. All payments shall be made in U.S. Dollars. In addition to
any other remedies available to ATG hereunder, if OEM fails to pay any
amounts when due (except as set forth in Section 4(b)(i) above), OEM shall
pay ATG a late payment charge equal to 1.5% per month (or the highest rate
permitted by law, if lower).
5. REPORTS; AUDIT RIGHTS
a. OEM REPORTS. No later than thirty (30) days following the end of each
calendar quarter in which ATG Products are sold, licensed or distributed,
OEM shall provide to ATG a report, certified by an executive finance or
marketing officer of OEM, including the following information with respect
to such quarter: (i) the number and type of ATG Products and CPU Upgrades
licensed or distributed by OEM and Subdistributors during the quarter and
(ii) the number and type of ATG Products licensed by End Users in any
previous quarter and the effective date(s) of such licenses, for which OEM
receives support revenues. ATG shall have the right to use such information
for purposes of monitoring OEM's compliance with its obligations under this
Agreement, the provision of any necessary support and maintenance and any
other reasonable business purpose. ATG reserves the right to create and to
require OEM and its Subdistributors to use a License Generator which would
directly track Royalties due to ATG.
b. RECORDS. OEM shall maintain during the term of this Agreement and for a
period of three years thereafter complete and accurate records and books of
account, properly backed-up, of all information required in the
administration of this Agreement (the "Records"). In particular, but
without limiting the foregoing, the Records shall include the names and
addresses, telephone and
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
fax numbers of all Subdistributors and End Users and copies of any
correspondence and agreements with each Subdistributor and End User.
c. AUDIT RIGHTS. ATG shall have the right upon reasonable notice and during
regular business hours, through a nationally recognized accounting or
technical auditor which has entered into a confidentiality agreement with
OEM reasonably acceptable to OEM, to inspect the computers of OEM which
host the ATG Products and the License Generator and the Records of OEM to
verify the accuracy of the OEM Reports, the proper payment of Royalties,
compliance with the restrictions of the licenses, and for no other reason.
Such auditor shall only be permitted to report to ATG the accuracy or
inaccuracy of the OEM Report and the resultant payment discrepancy, and/or
the violation of any license restrictions, and nothing further. OEM shall
comply with all reasonable requests made in such inspection, including by
making its personnel available to answer questions and providing copies of
the relevant Records. The expense of such audit shall be borne by ATG
unless such audit reveals an underpayment of Royalties by more than 5%
during any Revenue Year or a violation of any license restrictions, in
which case, in addition to all other remedies that may be available to ATG
hereunder, OEM shall pay all reasonable costs and expenses of such third
party auditors. Payment of any amount determined to be due as a result of
such audit shall be made within thirty (30) days of receipt of ATG' s
invoice therefore, together with interest at the rate of 1.5% per month (or
the highest rate permitted by law, if lower) from the date payment was due
until the date paid. OEM shall secure rights analogous to the foregoing for
ATG with respect to Subdistributors which generate Use Authorization Keys.
Any information learned by ATG during such inspection shall be considered
Proprietary Information of OEM or Subdistributor, as the case may be, under
the terms of Sections 11(a) through 11(c).
6. MAINTENANCE, SUPPORT, TRAINING
a. GENERAL. In exchange for OEM's payment of the Maintenance and Support Fees
described in Section 4(f) above, ATG agrees to provide the support and
training services described in this Section 6 to OEM.
b. OEM [**] SUPPORT. OEM agrees as follows:
(i) OEM shall offer to all End Users and Subdistributors in the Territory
[**] support services no less responsive than OEM's support for
similarly situated OEM products. Such [**] support will include, at a
minimum, [**]
(ii) OEM shall promptly inform ATG of all problems or errors with any of
the ATG Products which are reported by End Users or discovered by OEM,
as well as any workarounds or solutions developed by OEM or its End
Users (to the extent OEM is aware of the same). OEM shall provide ATG
with reasonably sufficient documentation, data and assistance,
including information about and access to the hardware platform and
software environment, with respect to any reported problems so as to
enable ATG to reproduce and verify the same.
c. SUPPORT SERVICES.
(i) ATG [**] SUPPORT. ATG will provide [**] assistance to OEM in
accordance with the ATG SLA.
(ii) ERROR CORRECTION. ATG shall provide error corrections to OEM in
accordance with the ATG SLA.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
(iii) ATG [**] SUPPORT FOR OEM DEVELOPERS. ATG will provide [**] for the
ATG Products to OEM's software development personnel involved with the
use, enhancement or bundling of the ATG Products with OEM Offerings in
accordance with the provisions of the ATG SLA.
d. LIMITATIONS ON SUPPORT.
(i) ATG shall only be obligated to perform the support and error
correction services described in Section 6(c) for the OEM with respect
to questions and issues that are properly directed to ATG by way of a
Contact Person. Nothing in this Agreement shall require ATG to provide
[**] Support Services for the current release and the prior Major
Release of each ATG Product, only if OEM is entitled to receive such
Major Release if so specified on Schedule 1, but in any event for any
Major Release being shipped by ATG during the prior twelve (12) months
if the OEM is entitled to receive Major Releases, as specified on
Schedule 1. ATG shall have no obligation to provide Support Services
in connection with any problem or error for which OEM has not provided
ATG, if potentially implicated by the problem or error, with
information about, and access to, the hardware platform and software
environment in which the problem or error occurred. ATG shall have no
obligation to provide Support Services in connection with any
questions or problems that arise from (A) any modification to an ATG
Product not made by ATG, (B) use of an ATG Product in a manner, or in
conjunction with software or equipment, not described in the End User
Documentation, or in any way not permitted under this Agreement or in
the applicable Software License Agreement, (C) use of a version of an
ATG Product more than one Major Release behind the current release
which was not shipped in the prior twelve (12) months, or (D) as a
result of the negligence or intentional misconduct of any user of an
ATG Product.
(ii) OEM acknowledges that the Third Party Software is not manufactured,
serviced, supported or maintained by ATG. OEM will be responsible for
entering into an appropriate maintenance arrangement with the
applicable manufacturer(s) of the Third Party Software at OEM's
expense. ATG STRONGLY RECOMMENDS THAT OEM ENTER INTO APPROPRIATE
MAINTENANCE AND SUPPORT ARRANGEMENTS WITH SUCH MANUFACTURERS TO HELP
ENSURE THE RELIABLE OPERATION OF THE ATG PRODUCTS.
HOWEVER, ATG SHALL NOT BE RESPONSIBLE FOR THE MAINTENANCE, SERVICING,
REPAIR, SUPPORT OR OPERATION OF THE THIRD PARTY SOFTWARE AND ALL
MAINTENANCE, SERVICING, REPAIR AND SUPPORT WITH RESPECT TO SUCH THIRD
PARTY SOFTWARE, IF ANY, SHALL BE PROVIDED BY THE MANUFACTURER(S)
THEREOF OR OTHER PERSONS(S) CONTRACTED BY OEM, AND NOT BY ATG.
e. REVISIONS AND UPDATES.
(i) ATG shall make available to OEM during the Term such Maintenance
Releases and Major Releases as are described in Section 3 of Schedule
1 and any follow on or replacement products for the ATG Products, if
the OEM is entitled to Major Releases for such ATG Product as
specified in Section 3 of Schedule 1, when and if such releases and/or
products become available.
(ii) OEM agrees to distribute or make available all Maintenance Releases to
all existing End Users, and to cease distributing and licensing any
release of the ATG Products superseded
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
by a Maintenance Release upon OEM's testing and acceptance of such
Maintenance Release; such testing and acceptance or rejection to occur
no later than ninety (90) days following ATG's notification to OEM of
the Maintenance Release.
(iii) ATG will notify OEM of the pending availability of Major Releases as
soon as practicable, but no later than ninety (90) days prior to
planned availability. ATG shall make pre-release or beta versions of
Maintenance Releases or Major Releases available to OEM for evaluation
and/or beta testing.
(iv) Other than the error correction described in Section 6(c)(ii) above,
ATG shall be under no obligation to revise or update the ATG Products
at any time.
F. TRAINING. ATG will make available up to three (3) sessions of sales and
project management training, of two (2) days each, for between ten (10) and
twenty (20) qualified OEM business personnel per session, during 1999 and
will make available up to five (5) sessions of technical training, of five
(5) days each, for between ten (10) and twelve (12) qualified OEM technical
personnel per session, during 1999. Such training will be offered at ATG's
facilities in Boston, Massachusetts 1999, or upon OEM's request, at
Informix facilities provided that OEM shall reimburse ATG for reasonable
expenses (including travel, lodging and per diem) and shall provide
adequate training facilities and equipment. OEM shall be responsible for
the expenses (including travel, meals, lodging and per diem) of its
personnel attending training classes. ATG reserves the right to reschedule
or cancel any scheduled class upon ten (10) business days notice to
confirmed registrants. Whenever possible, students will be rescheduled into
other classes.
g. ADDITIONAL SUPPORT SERVICES. ATG shall use all reasonable efforts to
provide resources, upon request of OEM, to perform any additional
development within the scope of ATG's expertise with respect to the ATG
Products which is not otherwise expressed in the ATG SLA, including special
assistance for specific customer installations, source code modifications,
and services relating to the matters listed in Section 6(d)(I) above. Such
additional services shall not be covered by the Maintenance and Support
Fees, and shall be paid for by OEM at ATG's then current consulting rates
(including charges for time, materials and expenses). The schedule and
amount of such additional services shall be mutually agreed upon by the
parties in writing before ATG becomes obligated to perform any such
services.
h. SOLE REMEDY. ATG's sole obligation and liability, and OEM's sole and
exclusive remedy, for errors in the ATG Products shall be ATG's performance
of the error correction Support Services described in Section 6(c)(ii).
7. GENERAL CONTACTS.
a. CONTACT PERSONS. OEM and ATG shall each designate one employee in each of
the areas of Marketing, Engineering and Documentation, who shall be the
contact persons (any of which is a "Contact Person") between OEM and ATG
for non-support matters related to the ATG Products. The initial Contact
Persons are set forth on the Cover Page hereto. Either party may designate
replacements for that party's Contact Persons by providing written notice
to the other party.
b. INFORMATION SHARING. [**] during the term of the Agreement, ATG will
discuss with OEM the product architectures of, features of and schedules
for, and, if appropriate, provide early-access code for, the ATG Products
listed in Section 3 of Schedule 1. At such quarterly meetings, OEM will
discuss with ATG OEM's planned and completed integrations, ports and other
extensions to the ATG Products.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
8. OTHER OEM OBLIGATIONS
a. ACCURACY. OEM shall use reasonable efforts to at all times represent
ATG Products accurately and fairly and both parties shall at all times
avoid misleading or unethical business practices. OEM shall also
distribute the following materials to all of its applicable sales and
support locations in the Territory: (i) all marketing and technical
brochures provided by ATG; and (ii) educational material, whether
provided by ATG or developed by OEM, for training OEM's sales and
support personnel with respect to the ATG Products.
b. NON-SOLICITATION. During the Term, neither party shall, directly or
indirectly, solicit for employment any employee of the other party.
The foregoing restriction shall not prevent a party from placing
advertising and general employment solicitations addressed to the
general public.
c. OEM INTERNAL TRAINING. OEM shall sufficiently train its technical and
support personnel so that they are sufficiently familiar with the
features of the ATG Products to provide the [**] support required.
Additionally, OEM shall train a sufficient number of sales and
customer support personnel in the features and functions of the ATG
Products as may be required for OEM to satisfy its obligations under
this Agreement in a professional and competent manner.
d. CONNECTION MODULES. If OEM modifies the Source Code Module for a
Connection Module supplied to OEM as listed in Section 4 of Schedule
1, OEM will deliver such modifications to ATG (in Source Code Form and
Object Code Form) promptly upon ATG's request, and hereby grants to
ATG a non-exclusive, nontransferable (except as set forth in Section
14(d)), fully paid up license to such modifications to the Source Code
Module, with right of sublicense to customers and subdistributors of
ATG Products, for use solely with the ATG Products. Such modifications
shall be provided to ATG by OEM "as is" with no warranties, express or
implied.
9. WARRANTIES AND LIMITATIONS OF LIABILITY
a. WARRANTIES. ATG represents and warrants that:
(i) Each ATG Product, in the form delivered by ATG, will conform
substantially to the End User Documentation for a period of ninety
(90) days after delivery of such ATG Product to OEM, provided that (A)
the ATG Product is not used in conjunction with any data, equipment or
software except as contemplated by this Agreement, (B) the ATG Product
is not used in a manner not described in the End User Documentation,
(C) the ATG Product has not been modified in a manner not authorized
by this Agreement, and (D) the ATG Product is not used in any unlawful
manner. OEM's sole remedy, and ATG's sole liability for a failure of
the ATG Products to comply with this warranty, shall be (A) for ATG to
perform the support and error-correction services described above or
(B) if such services do not result in the correction of a "critical"
(as defined in Schedule 8) non-conformity within sixty (60) days after
being identified, for OEM to terminate this Agreement and receive a
refund of the prepaid Royalties (less any Royalties actually earned by
ATG prior to the effective date of termination).
(ii) The ATG Products, in the form delivered by ATG, do not include any
undocumented instructions, algorithms or code that would cause the ATG
Products (standing alone or as embedded in the OEM Offerings)
(including any component, routine or subroutine thereof or other
ATG-supplied data relating thereto) to maliciously and of their own
accord: (A) be damaged, (B) damage or delete themselves or cause other
software,
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programs, routines or subroutines or data to be damaged or deleted or
to damage or delete themselves, (C) replicate and propagate themselves
throughout other software, programs, routines or subroutines or data
in a destructive manner unassociated with their intended manner of
operation, (D) search for and consume memory in computers or transmit
data in a destructive manner unassociated with their intended manner
of operation, or (E) usurp the normal operation of computer
facilities. The foregoing warranty does not pertain to errors, bugs or
other similar unintended problems with the operation or functioning of
the ATG Products.
(iii) All ATG Products adhere to the following specifications, provided
that the ATG Products receive correct date inputs from all software
and hardware that exchange data with or provide data to the ATG
Products:
(a) APPLICATION INTEGRITY. The ATG Products will maintain normal
operation regardless of the current date and will correctly
create, store, process and output information related to date
data, including dates on or after January 1, 2000.
(b) DATE INTEGRITY. Arithmetic operations on dates spanning century
marks return correct results. Leap year is calculated correctly.
(c) EXPLICIT STORAGE OF DATES. All date values stored in the ATG
Products use explicit century values; i.e., no truncation of year
values occurs.
The foregoing warranties will expire upon termination of this Agreement.
b. THIRD PARTY WARRANTIES.
(i) ATG hereby warrants that it has the unencumbered right to grant to OEM
the licenses to the Third Party Software granted hereunder, subject to
the provisions and restrictions in ATG's license agreements with the
manufacturers of such Third Party Software, as specified in
Schedule 7.
(ii) The Third Party Software may include warranties from the manufacturers
of such Third Party Software. To the extent that ATG has the right to
"pass through" such warranties to OEM, it hereby does so. ATG ITSELF
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN RELATION TO THE THIRD
PARTY SOFTWARE OTHER THAN THOSE CONTAINED IN THIS SECTION 9(b), IF
ANY.
c. DISCLAIMER OF OTHER WARRANTIES. EXCEPT AS STATED IN SECTIONS 9(a) AND 9(b)
ABOVE, ATG DISCLAIMS ALL WARRANTIES AND CONDITIONS, EITHER EXPRESS OR
IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE ATG PRODUCTS, INCLUDING ALL
IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, NONINFRINGEMENT AND
FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING,
USAGE OR TRADE PRACTICE.
d. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY DAMAGES
RESULTING FROM LOSS OF DATA, LOST PROFITS, LOSS OF USE OF EQUIPMENT OR LOST
CONTRACTS OR FOR ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES IN ANY WAY ARISING OUT OF OR IN CONNECTION WITH THE
USE OR PERFORMANCE OF THE ATG PRODUCTS OR DOCUMENTATION OR RELATING TO THIS
AGREEMENT, HOWEVER CAUSED, EVEN IF SUCH PARTY HAS BEEN MADE AWARE OF THE
POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION DOES NOT APPLY TO DAMAGES
ARISING FROM EITHER PARTY'S BREACH OF SECTION 11 OR OEM'S BREACH OF
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
SECTIONS 2, 3 OR 12, OR ATG'S INDEMNIFICATION OBLIGATIONS UNDER SECTION 10
BELOW.
e. ATG'S ENTIRE LIABILITY TO OEM, REGARDLESS OF THE FORM OF ANY CLAIM OR
ACTION OR THEORY OF LIABILITY (INCLUDING CONTRACT, TORT, OR WARRANTY),
SHALL BE LIMITED TO THE TOTAL AMOUNTS ACTUALLY PAID BY OEM TO ATG DURING
THE PRECEDING 12-MONTH PERIOD, EXCLUDING ANY LIABILITY ARISING OUT OF ATG'S
INDEMNIFICATION OBLIGATIONS UNDER SECTION 11 BELOW.
f. ACKNOWLEDGMENT. OEM acknowledges and agrees that the Discount Percentage
and other amounts hereunder [**] payable by OEM would be significantly
higher.
10. INDEMNIFICATION
a. ATG INDEMNITY. ATG, at its own expense, shall indemnify and hold harmless
OEM, its Subdistributors and End Users against any damages, settlements,
costs and expenses (including reasonable attorneys' fees) and shall defend
them in any suit, claim, or proceeding arising from a claim that the ATG
Products or OEM's exercise of the rights granted pursuant to the licenses
granted in Sections 2 and 3 above infringes or violates any now existing
patent, copyright, trademark or trade secret or any other proprietary right
of any third party; provided, that OEM (i) promptly notifies ATG in writing
of such suit, claim, or proceeding, (ii) gives ATG reasonable information,
assistance and cooperation required to defend such suit, claim, or
proceeding, and (iii) allows ATG to control the defense of any such action
and all negotiations for its settlement or compromise. OEM may be
represented in the defense of any such claim, at OEM's expense, by counsel
of OEM's selection.
b. INJUNCTIVE RELIEF. In the event that an injunction is obtained against
OEM's exercise of the rights granted pursuant to the licenses granted in
Sections 2 and 3 above by reason of infringement or violation of any
patent, copyright, trade secret, trademark or any other proprietary right,
or if in ATG's reasonable and good faith opinion ATG Products are likely to
become the subject of such an injunction, ATG shall have the obligation to
do one of the following, with the choice to be left to ATG's sole
discretion: (i) procure for OEM the right to continue to exercise the
rights granted pursuant to the licenses granted in Sections 2 and 3 above,
(ii) replace or modify the ATG Products so that they become non-infringing
(so long as the functionality of the ATG Products is essentially
unchanged), or (iii) if the preceding clauses (i) or (ii) are not
reasonably practicable with respect to any infringing ATG Products,
terminate this Agreement with respect to such infringing ATG Products and
refund to OEM the Royalties paid by OEM to ATG for those infringing ATG
Products for which OEM actually refunds to its End Users the payments made
by such End Users to OEM for such ATG Products.
c. EXCEPTIONS. The provisions of Sections 10(a) and 9(b) notwithstanding, ATG
shall not have any liability to OEM to the extent that any claim is based
upon (i) use of the ATG Products in conjunction with any data, equipment or
software not provided by ATG, where the ATG Products would not themselves
be infringing or otherwise the subject of the claim, (ii) use of the ATG
Products in a manner not described in the End User Documentation, (iii) any
modification to the ATG Products not made or authorized by ATG, (iv) use of
the ATG Products in any unlawful, improper or inappropriate manner or for
any unlawful purpose, or (v) any claim of infringement of any patent or
copyright or misappropriation of any trade secret in which OEM or any
affiliate of OEM has a pecuniary or other material interest.
17
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
d. EXCLUSIVE REMEDY. The indemnification remedies set forth in this Section 10
shall constitute the exclusive remedies of OEM and the exclusive liability
of ATG with respect to the claims described in this Section 10.
e. OEM INDEMNITY. OEM, at its own expense, shall indemnify and hold harmless
ATG against any damages, settlements, costs and expenses (including
reasonable attorneys' fees) and shall defend ATG in any suit, claim, or
proceeding arising from a claim, including claims made by End Users, that
any modification made to the ATG Products by OEM or OEM's sublicensees
infringes or violates any now existing United States patent, copyright,
trademark or trade secret or any other proprietary right of any third
party; provided, that ATG (i) promptly notifies OEM in writing of such
suit, claim, or proceeding, (ii) gives OEM reasonable information,
assistance and cooperation required to defend such suit, claim, or
proceeding, and (iii) allows OEM to control the defense of any such action
and all negotiations for its settlement or compromise. ATG may be
represented in the defense of any such claim, at ATG's expense, by counsel
of ATG's selection.
f. BROADVISION, INC. CLAIM. ATG acknowledges that ATG is the defendant in a
patent infringement action brought by Broadvision, Inc. ("Broadvision"), on
or about December 11, 1998, concerning the Intellectual Property underlying
the ATG Products (the "Broadvision Claim"). ATG agrees that in the event
Broadvision brings any claim against OEM for patent or other intellectual
property infringement of Broadvision's products by the ATG Products or the
OEM Offerings (unless ATG can conclusively show that such claim does not
involve the ATG Products), ATG shall indemnify, defend and hold OEM
harmless in accordance with the terms of Section 10.a. above.
Notwithstanding the foregoing, in the event of such claim, under no
circumstances shall the exclusions set forth in Section 10.c. apply to such
claim. [**]. The terms of this Section 10.f. shall survive the termination
of this Agreement.
11. PROPRIETARY INFORMATION
a. GENERALLY. Each party shall hold the Proprietary Information of the other
party secret, and shall protect and preserve the confidential nature and
secrecy of such Proprietary Information. All Proprietary Information shall
be held in confidence by the party receiving such Proprietary Information
(the "Receiving Party") following the date of disclosure and shall be used
only as necessary in connection with the performance of its obligations
under this Agreement. Employees of the Receiving Party shall be bound in
writing to maintain the confidentiality of such Proprietary Information to
at least the extent provided in this Section 11. All Proprietary
Information shall be maintained in secure premises by the Receiving Party,
and the Receiving Party shall take all appropriate measures to prevent the
unauthorized disclosure thereof, including, if such Proprietary Information
is in Source Code Form, (i) making and retaining only a single
non-transient copy of such source code (including modifications thereof),
(ii) storing such copy in an electronic location to which is assigned an
access control list mechanism so that only those employees or consultants
with the applicable group authorization will be able to access such copy
(or providing similar password protection on an individual basis), (iii)
permitting access to such source code solely from physical terminals in
secure areas that are accessible only to authorized personnel of OEM, (iv)
permitting only a limited number of transient copies of the source code to
be made by authorized personnel during their performance of permitted
activities hereunder, and (v) permitting only a limited number of source
code listings to be printed or otherwise reduce to tangible form, causing
such listings to be stored in secured, locked drawers at all times they are
not in use, and causing superseded or unnecessary copies of listings to be
shredded or otherwise destroyed prior to disposal. Neither party shall at
any time during or after the term of this Agreement, without the other
party's prior written consent:
18
<PAGE>
(a) disclose or communicate to any third party all or any of the other
party's Proprietary Information except as permitted by this Agreement;
(b) make, or assist any person to make, any use of the other party's
Proprietary Information not authorized by this Agreement, and shall
use commercially reasonable efforts, but in no event less than the
efforts used for its own Proprietary Information, to ensure that any
employee or other person who acquires the other party's Proprietary
Information shall not make any unauthorized use thereof.
b. EXCEPTIONS. Proprietary Information shall not include any information to
the extent it (i) is or becomes a part of the public domain through no act
or omission on the part of the receiving party, (ii) is disclosed to the
receiving party by a third party having no obligation of confidentiality
with respect thereto, (iii) is released from confidential treatment by
written consent of the disclosing party, (iv) is independently developed by
the receiving party without reference to Proprietary Information of the
disclosing party or (v) is required to be disclosed by law or order of a
court or governmental agency (such disclosure to be made only after
consultation with the party disclosing such Proprietary Information).
c. OWNERSHIP. All Proprietary Information of a party shall remain the property
of such party, and no right, title or interest in such information shall be
conveyed to the other party by release of such information to it. Each
party receiving such information agrees to return or destroy all such
information upon the written request of the other party, or upon the
reasonable determination by the other party that the receiving party no
longer has a need for such information. Each party agrees to notify the
other party if it becomes aware of any use of the information that is not
authorized by this Agreement.
d. PUBLICITY. Except as specifically provided herein, this Agreement does not
grant either party the right to use any trademark, trade name or logo of
the other party in any advertising or promotional material, except that ATG
may disclose that OEM is a distributor of the ATG Products. The parties
shall agree upon a joint press release to announce the execution of this
Agreement no later than five (5) business days following the date hereof.
Thereafter, the parties will agree upon joint press releases to announce
the release of significant OEM Offerings including the ATG Products.
12. INTELLECTUAL PROPERTY RIGHTS
a. OWNERSHIP. OEM agrees and acknowledges that ATG and its suppliers are the
owners of all right, title and interest in and to the ATG Products and all
Intellectual Property therein, and that OEM shall not obtain or claim any
ownership interest in the ATG Products, or any portion thereof, or any
Intellectual Property therein. ATG agrees and acknowledges that OEM is the
owner of all right, title and interest in and to all modifications and
enhancements made to the ATG Products by OEM and all Intellectual Property
therein, subject to ATG's rights in the underlying ATG Products.
b. NOTIFICATIONS. OEM shall not alter, remove or obscure any marking or
notification contained on or in the ATG Products which make reference to
ATG's or its suppliers' patents, copyrights, trademarks or other
proprietary rights. OEM shall include an acknowledgment of ATG's ownership
of the ATG Products (i) on the first page of all printed documentation for
the OEM Offerings, (ii) in an "About" box for the OEM Offerings, and (iii)
on any "splash" screens for the OEM Offerings.
c. PROHIBITIONS. OEM shall not register any of ATG's trademarks, logos, domain
names or brands, or substantially or confusingly similar trademarks, logos,
domain names or brands, anywhere in the world.
19
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
13. TERM AND TERMINATION
a. TERM. Subject to earlier termination as described in Section 13(c), and
unless otherwise agreed in writing by the parties, this Agreement shall
have an initial term set forth on the Cover Page (the "Initial Term")
commencing on the Effective Date. Thereafter, this Agreement shall
automatically renew for successive renewal terms of one (1) year each
(each, a "Renewal Term", and together with the Initial Term, a "Term"),
unless either party notifies the other party of its desire not to renew at
least thirty (30) days prior to the expiration of the Term then in effect.
b. TERM EXTENSION. If during the Term ATG is acquired by or merged with one of
the companies listed on Schedule 3 hereof, and if ATG or its successor
thereafter [**] upon the payment to ATG, prior to the expiration of the
Term then in effect,[**], all of which [**]. Notwithstanding the foregoing,
OEM shall have the right to maintain in effect the Agreement [**] the
expiration of the then current Renewal Term [**].
c. EARLY TERMINATION. This Agreement may be terminated prior to the expiration
of a Term as follows:
(i) By ATG, immediately upon notice to OEM, if OEM has materially breached
Section 11 of this Agreement or materially breached any other
provision of this Agreement in a manner which cannot be cured; or
(ii) By either (A) OEM if ATG, or (B) ATG if OEM, has materially breached
any provision of this Agreement other than Section 11 and such breach
has remained uncured for at least thirty (30) days following notice
thereof; or
(iii) By either party in the event that the other party is adjudicated
insolvent or bankrupt, becomes subject to a liquidation proceeding, or
has a receiver appointed to administer its assets;
(iv) By ATG in the event of an injunction described in Section 10(b);
(v) By OEM in the event of ATG's failure to correct a "critical"
non-conformity described in Section 9(a)(i)(B) or
(vi) By OEM upon notice to ATG at any time prior to the sixtieth (60th) day
following the Effective Date if, by such date, OEM has, in its sole
discretion, not satisfied itself, through a legal opinion or
otherwise, concerning the Broadvision Claim. Upon such termination,
notwithstanding anything to the contrary in this Agreement, ATG shall
promptly refund to OEM any amounts paid hereunder, and OEM shall have
no obligation to pay any amounts otherwise due hereunder.
d. EFFECTS OF TERMINATION.
(i) Except as otherwise expressly provided herein, upon any expiration or
termination of this Agreement, all rights, licenses and obligations of
the parties shall immediately cease and terminate. Except as set forth
in Section 13.(c)(vi) above, termination or expiration of this
Agreement will not relieve or release either party from making
payments which may be owing to the other party under the terms of this
Agreement.
(ii) Upon any expiration or termination of this Agreement, OEM shall
immediately (A) return to ATG (or, at ATG's option, destroy and
certify in writing to ATG that it has destroyed)
20
<PAGE>
the original and all copies of the ATG Products, including
compilations, translations, partial copies, archival copies, upgrades,
updates, release notes and training materials relating to the ATG
Products, in OEM's or its Subdistributors' control or possession, (B)
remove all ATG Products from OEM Offerings, (C) erase or destroy all
such materials that are contained in computer memory or data storage
apparatus of OEM or its Subdistributors or under the control of OEM or
its Subdistributors, (D) return to ATG any advertising and other
materials furnished to it by ATG, (E) remove and not thereafter use
any signs containing the name or trademarks of ATG, and (F) destroy
all of its advertising matter and other preprinted matter remaining in
its possession or under its control containing ATG trade names or
trademarks. Notwithstanding the foregoing, upon any expiration or
termination of this Agreement, OEM shall have the right to retain one
copy of and to continue to use the ATG Products in Object Code Form
internally at no additional charge in order to support End User
customers who have valid Software License Agreements in effect on the
effective date of the termination or expiration of the Agreement.
(iii) Following any termination or expiration of this Agreement, each
Software License Agreement between OEM and any End User shall survive
in accordance with its terms, provided that the End User remains in
compliance with the terms thereof.
(iv) In the event that this Agreement expires or is terminated by ATG prior
to the end of any Revenue Year with respect to which prepaid Royalties
have been paid, OEM shall have the right to extend the Distribution
License granted under Section 2(e) to enable OEM to continue to sell,
license or distribute, in accordance with the provisions of this
Agreement, any combination and quantity of ATG Products whose
Royalties are sufficient to cover any uncredited prepaid Royalties;
provided, however, that (a) such extension shall terminate on the
earliest to occur of six (6) months following ATG's notice of
termination or the date on which the entire amount of the prepaid
Royalties has been credited, and (b) if the termination of this
Agreement is the result of a material uncured breach by OEM of
Sections 2, 4, 5, 11 or 12 which causes substantial damage to ATG (a
"Substantial Breach"), no such extension shall occur and ATG shall
have no obligation to refund any portion of such prepaid Royalties and
(c) if the termination is the result of a breach by OEM other than a
Substantial Breach, then OEM shall have the option, exercisable in
writing on or prior to the effective date of termination, not to
extend the Agreement and to cause ATG to refund to OEM any uncredited
portion of such prepaid Royalties. Except as stated in clauses
13(d)(iv)(c) and 13(c)(vi) above, and in Sections 9(a)(i) and 10(b),
ATG shall have no obligation to refund any portion of the prepaid
Royalties to OEM.
(v) Notwithstanding anything to the contrary in the foregoing, the
provisions of Sections 5, 8(a), 9(c), 9(d), 9(e), 9(f), 10, 11, 13(d)
and 14(h) shall survive the termination or expiration of this
Agreement in accordance with their terms.
(vi) Termination shall be in addition to, and shall not prejudice, any of
the parties' remedies at law or in equity.
e. SOURCE CODE ESCROW. No later than thirty (30) days following the date
hereof, ATG shall place the source code of the ATG Products in escrow with
DSI Technology Escrow Services (the "Escrow Agent") for the benefit of OEM
and OEM's customers. Upon any termination of this Agreement as a result of
the material breach by ATG of its obligation to correct errors in the ATG
Products which breach remains uncured for ninety (90) days, ATG shall
instruct the Escrow Agent to release the source code for the ATG Products
to OEM. In the event ATG fails to so instruct the Escrow Agent, OEM can
demand such release. Thereupon, OEM shall have a limited, nonexclusive,
internal license to use and modify such source code for the sole purpose of
maintaining, correcting and supporting the ATG Products incorporated in the
OEM Offerings, but not for developing enhancements or new versions of the
ATG Products, or for use in any other products. Such source
21
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
code shall constitute the Proprietary Information of ATG. The fees of such
Escrow Agent shall be paid by ATG.
f. DIRECT SUPPORT TO END USERS. Upon any termination of this Agreement as a
result of the bankruptcy or insolvency of OEM, ATG agrees to offer ATG's
then-current first-line support on ATG Products directly to OEM's
Subdistributors and End Users at ATG's then-current prices.
g. NO SEVERANCE COMPENSATION. OEM agrees that neither it nor its
Subdistributors, nor any of their employees, shall be entitled to any
compensation or severance payment resulting from the fact of the
termination of this Agreement or relating to any goodwill created by them,
and whether relating to loss of prospective sales, investment, compensation
or goodwill. OEM, for itself and on behalf of its Subdistributors and each
of their employees, hereby waives any right it may have under any
applicable laws with respect to such payments, including but not limited to
applicable termination, labor, social security or other similar laws or
regulations.
h. There will be [**] per Revenue Year.
14. GENERAL PROVISIONS
a. ENTIRE AGREEMENT. This Agreement (including its schedules and addenda)
constitutes the entire agreement between ATG and OEM with respect to the
obligations of the parties with respect to the ATG Products, and hereby
supersedes and terminates any prior agreements or understandings relating
to such subject matter. No addendum, waiver, consent, modification,
amendment or change of the terms of this Agreement shall bind either party
unless in writing and signed by duly authorized officers of ATG and OEM.
b. RELATIONSHIP OF PARTIES. In the performance of its obligations hereunder,
OEM is and at all times will be completely independent from ATG, and this
Agreement shall not constitute, or be deemed to constitute, either party as
an employee, agent, partner, franchisee or joint venturer of the other.
c. SEVERABILITY. In the event that any provision of this Agreement is held by
a court of competent jurisdiction to be unenforceable because it is invalid
or in conflict with any law of any relevant jurisdiction, the validity of
the remaining provisions shall not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular provisions held to be
unenforceable, unless such construction would materially alter the meaning
of this Agreement.
d. ASSIGNMENTS. Neither this Agreement nor any rights, obligations or licenses
granted hereunder may be assigned, delegated or subcontracted by any party
without the prior written consent of the other party, which consent will
not be unreasonably withheld or delayed, provided however that either party
may assign all the rights and obligations under this Agreement and the
licenses granted hereunder without the consent of the other party to any
affiliate of such party or to a person or entity which acquires all or
substantially all of the assets or business of such party, whether by sale,
merger or otherwise, provided that (i) if the acquired party is ATG, the
acquiring person or entity is not a direct competitor of OEM listed in
Schedule 3, and if the acquired party is OEM, the acquiring party or entity
is not a direct competitor of ATG, (ii) the assigning party gives notice of
the assignment at least ten (10) business days before the assignment and
(iii) the non- assigning party may terminate the Agreement on notice prior
to the assignment.
e. NOTICES. Any notice by a party under this Agreement shall be in writing and
either personally delivered, delivered by facsimile or sent via reputable
overnight courier (such as Federal Express)
22
<PAGE>
or certified mail, postage prepaid and return receipt requested. Notices
shall be sent (i) if to OEM, to the address specified on the Cover Page or
(ii) if to ATG, to Art Technology Group, Inc., 101 Huntington Avenue,
Boston, MA 02199, Attn: President, with a copy to Hale and Dorr LLP, 60
State Street, Boston, MA 02109, Attn.: David A. Westenberg, Esq., or in any
case to such other address of which either party may from time to time
notify the other in accordance with this Section 14(e). All notices shall
be in English and shall be deemed effective on the date of personal
delivery, upon confirmation of a facsimile transmission, one day after
deposit with an overnight courier, or five days after deposit in the mail.
f. EXPORT COMPLIANCE. OEM shall not export or reexport, directly or
indirectly, or otherwise agree to allow the use of, any of the ATG Products
or any part thereof, to or in any country outside the United States without
first obtaining the required written approval or export license from the
United States Department of Commerce, pursuant to its Export Administration
Regulations, or any other appropriate agency of the United States
Government or any other government having jurisdiction over such export,
reexport or use, pursuant to any applicable statute, regulation or
governmental order. OEM acknowledges that it is familiar with United States
Government export policy and regulations and undertakes to be and remain in
full compliance with such policy and regulations.
g. COMMERCIAL SOFTWARE. If any ATG Products or End User Documentation are
distributed to a unit or agency of the United States government, the
government shall agree that such ATG Products or End User Documentation is
"commercial computer software" or "commercial computer software
documentation" and that, absent a written agreement to the contrary, the
government's rights with respect to such ATG Products or End User
Documentation are limited by the terms of this License Agreement, pursuant
to FAR ss. 12.212(a) and/or DFARS ss. 227.7202-1(a), as applicable.
h. GOVERNING LAW AND JURISDICTION. The validity, construction and
interpretation of this Agreement, and the rights and duties of the parties,
shall be governed by and construed in accordance with the laws of the State
of New York, U.S.A., without giving effect to the conflict of law
provisions thereof, and excluding any application of the United Nations
Convention on Contracts for the International Sale of Goods. The parties
hereto consent to the jurisdiction of the state and federal courts of the
United States located in the State of New York in connection with any
controversy arising out of the operation of this Agreement and agree not to
bring any action in any other jurisdiction.
i. NO WAIVER. The waiver by either party of a breach of a default of any
provision of this Agreement by the other party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor
shall any delay or omission on the part of either party to exercise or
avail itself of any right, power or privilege that it has, or may have
thereunder, operate as a waiver of any right, power or privilege by such
party.
j. SECTION HEADINGS. Captions and section headings hereof are for reference
purposes only and shall not control or alter the meaning of this Agreement
as set forth in the text.
k. CERTIFICATION. ATG shall give OEM written notice if ATG reasonably deems
itself insecure with respect to OEM's compliance with the provisions of
Sections 2, 3, 11 or 12. OEM shall then, within ten (10) days of the
notice, certify in writing by a senior executive of OEM that it has
complied with the terms of those Sections.
23
<PAGE>
l. FORCE MAJEURE. Neither party shall be liable in any respect for failures to
perform hereunder due wholly or substantially to the elements, acts of God,
labor disputes, acts of terrorism, acts of civil or military authority,
fires, floods, epidemics, quarantine restrictions, armed hostilities, riots
and other unavoidable natural disasters beyond the control of the parties,
and the time for performance of obligations hereunder by the party subject
to such event shall be extended for the duration of such event.
[Remainder of Page Blank]
24
<PAGE>
LIST OF SCHEDULES
Schedule 1: ATG Products
Schedule 2: Discount Schedule
Schedule 3: Informix Competitors
Schedule 4: Trademarks
Schedule 5: Form of Software License Agreement
Schedule 6: Current ATG Price List
Schedule 7: Third Party Software
Schedule 8: Support Service Levels
25
<PAGE>
ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
SCHEDULE 1
ATG PRODUCT DESCRIPTION
1. GENERAL. The ATG Products will comprise:
(a) special OEM versions of the following ATG retail products:
Dynamo Application Server version 4.0 OEM
Dynamo Personalization Station version 4.0 OEM
Dynamo Retail Station version 3.0.2 OEM
and
(b) Dynamo Ad Station version 3.0.1, which is not a special OEM version
and
(c) the QA, performance and test suites that are shipped with the retail
version of the products listed in (a) and such QA, performance and
test suites, if any, that ATG ships to its other customers for the
product(s) listed in (b).
2. LIMITED FUNCTIONALITY.
The ATG Products may include both Full Development Versions and
Non-Development Versions. Full Development Versions will enable the user to
have access to the full developer capabilities and the Programmer
Documentation, with a maximum of ten (10) simultaneous connections to the
Dynamo Application Server. Non-Development Versions offer limited
capabilities to the user which will enable the user to make modifications
and additions to the OEM Offerings allowing them to only do the following:
author new web page templates (i.e., insert and edit droplets in JHTML
files); edit configurations to manage their site and staging environments;
edit personalization rules, tag content, etc., to manage and extend their
solution; access any programming APIs to Dynamo Retail Station and Ad
Station to modify Java classes associated with those APIs. Non-Development
Versions do not give the user the Programmer Documentation. Pricing for the
Full Development Versions and Non- Development Versions of the ATG Products
are set forth on the ATG Price List.
In addition to the foregoing, ATG will offer to OEM "Staging Server"
Versions of the ATG Products. These Staging Server Versions shall be
considered "Non-Development Versions", except that no modifications or
enhancements whatsoever shall be permitted.
3. REVISIONS AND UPGRADES. ATG will make the following Maintenance Releases
and Major Releases of the ATG Products, and only such new platform ports
and internationalized versions of the ATG Products as are released
generally as part of a Maintenance Release or Major Release of the ATG
Products, available to OEM when and if ATG develops such releases and makes
them generally available to its customers:
26
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
BINARY PRODUCT VERSION MAJOR MAINTENANCE COMMENTS
(OBJECT CODE RELEASES RELEASES
FORM ONLY)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dynamo [**] [**] [**] [**]
Application
Server
- ----------------------------------------------------------------------------------------------
Dynamo [**] [**] [**] [**]
Personalization
Station
- ----------------------------------------------------------------------------------------------
Dynamo Retail [**] [**] [**] [**]
Station
- ----------------------------------------------------------------------------------------------
Dynamo Ad [**] [**] [**] [**]
Station
- ----------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
4. SOURCE CODE. Source Code Modules are provided by ATG to OEM only as specified
in the following table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
ADDITIONAL MODULES VERSION* SOURCE CODE COMMENTS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
[**] [**] [**]
- -------------------------------------------------------------------------------------------------
</TABLE>
* The listed version is the initial version to be provided to OEM. OEM shall
also be entitled to receive subsequent versions as provided under this
Agreement.
Maintenance Releases and Major Releases do not constitute new ATG Products for
purposes of this Agreement.
28
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
Schedule 2
Discount Schedule
<TABLE>
<CAPTION>
ANNUAL REVENUE DISCOUNT FROM ATG EFFECTIVE LIST PRICE
[**] [**]
<S> <C>
CPU UPGRADES* CPU UPGRADE DISCOUNT
[**] [**]
</TABLE>
* May only be sold in increments of two. May include initial purchase of 2 CPUs
sold with OEM Offerings.
29
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
Schedule 3
INFORMIX COMPETITORS
[**]
30
<PAGE>
ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
Schedule 4
COMBINED MARKS
[ADD HERE AS THEY ARE MUTUALLY AGREED UPON]
ATG TRADEMARK GUIDELINES
Licensed Marks:
The following describes the branding requirements associated with the
redistribution of ATG products.
SOFTWARE AND INTERFACES:
In all locations in the product Start-up, Install, Help, About, Product User
Interfaces, or Online Documentation (listed below), where branding is modified
by OEM to include OEM marks, the following guidelines must be followed.
When "Informix" or other OEM Logos or Product Names appear, the "Driven by
Dynamo" (or, if approved as a Combined Mark, the "Driven by Informix/Dynamo")
logo must also appear, in a minimum size of 50% smaller than the OEM logo, as
calculated by area of the image.
In addition, on all Start-Up and Installation screens, the following text must
appear: "Dynamo is a registered trademark of Art Technology Group, Inc." (or the
name of the applicable product: e.g., "[Product Name] is a [registered]
trademark of Art Technology Group, Inc.".)
Start Up Screens*:
----------------------
Dynamo Developer Workbench startup
Serverina startup page
Personalization Control Center startup
Retail Station startup page
Ad Station startup page
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Install Screens*:
---------------------
Dynamo Application Server
Dynamo Personalization Server
Personalization Control Center
Retail Station
Ad Station
Product User Interfaces*:
---------------------------
Dynamo Developer Workbench
Dynamo System Console
Personalization Control Center
Dynamo Application Server HTML administration tool Dynamo Personalization
Server HTML administration tool Personalization Control Center HTML
administration tool Retail Station Store HTML administration tool Retail
Station Boutique HTML administration tool Ad Station HTML administration tool
Serverina HTML administration tool
About Screens*
---------------------
PCC about screen
Workbench about screen
* and successor products and offerings.
DOCUMENTATION, LABELING, AND PACKAGING
In all instances where "Informix" or other OEM Logos or Product Names directly
refer to the functionality provided by ATG Products in documentation, labeling,
packaging, technical data sheets specific to e-commerce products, whether in
tangible or electronic form, and specific references to ATG Products on OEM's
Website(s) (but not in marketing or advertising materials) the "Driven by
Dynamo" logo or, if approved as a Combined Mark, the "Driven by Informix Dynamo"
logo, must also appear, in a minimum size of 50% smaller than the OEM logo, as
calculated by area of the image.
In addition, in all locations, as appropriate to material relating to offerings
that contain ATG products, where Informix lists their trademarks or copyrights,
ATG trademarks and copyrights must also be listed for example:
Copyright (C) 1998 Art Technology Group, Inc.
ALL RIGHTS RESERVED
Dynamo, Dynamo Ad Station, Dynamo Profile Station, Dynamo Retail Station, and
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SQLina are [registered] trademarks of Art Technology Group, Inc.
LOGO ARTWORK:
ATG requires that OEM obtain only original digital or camera-ready art directly
from ATG. No resampling, or other attempted duplication is allowed and no
alterations, modifications, cropping or additions to the logo are permitted,
except that the original logo art supplied by ATG can be enlarged or reduced in
size, in the exact proportion to the original height and width supplied.
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ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
Schedule 5
FORM OF SOFTWARE LICENSE AGREEMENT
Contract #: ______________-________
SOFTWARE LICENSE AGREEMENT
Informix Software, Inc. ("Informix"), and the person or entity listed
in the signature block below ("Licensee") hereby agree that, after execution of
this agreement (this "Agreement") by Licensee and acceptance by Informix, the
terms and conditions of the following sections A through G and those of any
Informix Schedules shall apply to the use of the Products. All capitalized terms
used herein and not otherwise defined are defined in section G.
A. LICENSEE'S RIGHTS, REPRESENTATIONS AND OBLIGATIONS. 1. Informix hereby grants
and Licensee hereby accepts the nonexclusive, nontransferable, royalty bearing
right and license within the United States ("Territory"), in accordance with the
User Documentation and this Agreement and only in conjunction with the Computer
System(s), to:
(a) use the Products for internal business purposes;
(b) copy object code of a Product into any computer readable form for back-up
purposes in support of Licensee's use of the Products;
(c) distribute the Products to Affiliates who have agreed to be bound by
provisions substantially similar to those contained in this Agreement for their
internal business purposes on the Computer Systems.
2. Use of the Products is restricted to the number of users, and the Computer
Systems which correspond to the machine class, if applicable, for which license
fees have been paid.
3. Except as specifically permitted by this Agreement, Licensee shall not
directly or indirectly (a) use any Confidential Information of Informix to
create any computer software program or user documentation which is
substantially similar to any Product; (b) reverse engineer, disassemble or
decompile, or otherwise attempt to derive the source code for, any Product; (c)
encumber, time-share, rent, or lease the rights granted by this Agreement; (d)
copy, manufacture, adapt, create derivative works of, translate, localize, port
or otherwise modify any Products or other Confidential Information of Informix
or grant anyone a license to engage in similar conduct. Results of any benchmark
or other performance tests run on the Products may not be disclosed to any third
party without Informix's prior written consent.
4. Licensee does not have, and shall not claim that it has, any right in or to
any of the Products or the Confidential Information received from Informix other
than as specifically granted by this Agreement. Licensee shall promptly notify
Informix of any actual or suspected unauthorized use of the Products or use or
disclosure of the Confidential Information received from Informix, and shall
provide reasonable assistance to Informix (at Informix's expense) in the
investigation and prosecution of such unauthorized use or disclosure.
5. Licensee shall comply with the Export Laws. Licensee hereby assures Informix
that it will not export or re-export directly or indirectly (including via
remote access) any part of the Product(s) or any Confidential Information to any
country for which a validated license is required under the Export Laws without
first obtaining a validated license. If at any time Informix determines the laws
of any country in the Territory are or become insufficient to protect Informix's
intellectual or proprietary rights in the Products, both parties will in good
faith work with each other to protect Informix's intellectual or proprietary
rights in that country.
6. Products acquired with United States Federal Government funds or intended for
use within or for any United States federal agency are provided with "Restricted
Rights" as defined in DFARS 252.227-7013(c)(1)(ii) or FAR 52.227-19.
B. CONFIDENTIALITY. 1. Except for the specific rights granted by this Agreement,
neither party shall use or disclose any Confidential Information of the other
party. A party receiving Confidential Information from the other shall use the
highest commercially reasonable degree of care to protect that Confidential
Information, including ensuring that its employees with access to such
Confidential Information have agreed in writing not to disclose the Confidential
Information. Within 15 days of the request of the disclosing party, and in its
sole discretion, the receiving party shall either return to the disclosing party
originals and copies of any Confidential Information and all information,
records and materials developed from them by the receiving party, or destroy the
same. Either party may only disclose the general nature, but not the specific
financial terms, of this Agreement without the prior consent of the other party,
provided Informix may provide a copy of this Agreement to any financial
institution in conjunction with a receivables financing transaction if such
financial institution agrees to keep this Agreement confidential.
2. Notwithstanding the foregoing, nothing herein shall prevent a receiving party
from disclosing all or part of the Confidential Information which is
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necessary to disclose pursuant to the lawful requirement of a governmental
agency or when disclosure is required by operation of law, provided, however,
that prior to any such disclosure, the receiving party shall use reasonable
efforts to (a) promptly notify the disclosing party in writing of such
requirement to disclose, and (b) cooperate fully with the disclosing party in
protecting against any such disclosure and/or obtaining a protective order.
3. Money or damages will not be an adequate remedy if this section B is breached
and therefore, either party may, in addition to any other legal or equitable
remedies, seek an injunction or similar equitable relief against such breach.
C. LIMITED WARRANTIES AND REMEDIES. 1. Informix warrants that: (a) the use of
unmodified Products, will not violate the intellectual property rights of any
third party under copyright, trademark or trade secret law of the United States;
(b) it has full power and right to enter into this Agreement; and (c) during the
first 90 days from the date Licensee receives an unmodified Product ("Warranty
Period") manufactured by Informix, the media for those Products will, under
normal use, be free of defects in materials and workmanship and the Development
Products will substantially conform to the User Documentation.
2. EXCEPT FOR THESE EXPRESS LIMITED WARRANTIES, LICENSEE ACCEPTS THE PRODUCTS
"AS IS," WITH NO OTHER EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS OF ANY KIND,
INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. INFORMIX MAKES NO WARRANTIES REGARDING THE APPLICATION(S) OR
THE MEDIA OF THE PRODUCTS MANUFACTURED BY LICENSEE. Some jurisdictions do not
allow limitations on how long an implied warranty lasts, so the above limitation
may not apply to Licensee.
3. In the case of an alleged breach of sections C.1.(a) or (b), Informix shall,
at its expense, indemnify, defend, save and hold harmless Licensee from and
against any claim, loss, expense or judgment (including reasonable attorney
fees) provided (a) Licensee promptly gives Informix written notice of the claim;
(b) Licensee provides all reasonable assistance to defend against the claim; and
(c) Informix has the right to control the defense or settlement of the claim.
4. Licensee's sole remedy for Informix's breach of section C.1.(c) shall be that
during the Warranty Period, Informix shall, in its sole discretion, provide
modifications to keep the Products in substantial conformance with the User
Documentation, replace the Products, or refund the license fees paid to Informix
for the defective Products.
5.(A) INFORMIX'S LIABILITY TO LICENSEE OR ANY THIRD PARTY FOR A CLAIM OF ANY
KIND RELATED TO THIS AGREEMENT, ANY PRODUCT OR ANY PRODUCT SERVICE, WHETHER FOR
BREACH OF CONTRACT OR WARRANTY, STRICT LIABILITY, NEGLIGENCE OR OTHERWISE, SHALL
NOT EXCEED THE AGGREGATE OF FEES PAID TO INFORMIX FOR THE PRODUCT OR SERVICE
INVOLVED IN THE CLAIM. (B) IN NO EVENT WILL INFORMIX BE LIABLE FOR INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOST REVENUES
OR PROFITS, LOST DATA, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION), EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Some jurisdictions do not allow the
exclusion or limitation of incidental or consequential damages, so the above
limitation or exclusion may not apply to Licensee. NO ACTION, REGARDLESS OF
FORM, ARISING OUT OF THE TRANSACTIONS UNDER THIS AGREEMENT MAY BE BROUGHT BY
LICENSEE MORE THAN 1 YEAR AFTER THE EVENTS WHICH GAVE RISE TO THE CAUSE OF
ACTION OCCURRED.
6. Licensee shall, at its expense, indemnify, defend, save and hold harmless
Informix from any claim brought or filed by a third party against Informix due
to any failure by Licensee, its employees or agents to act in accordance with
the terms of this Agreement.
D. RECORDS, AUDITS AND PAYMENTS. 1. Licensee shall maintain complete and
accurate records indicating where each Product has been installed and the number
of users for each Product and if applicable, the machine class ("Copy Records").
If Licensee has been granted manufacturing rights or Licensee's Territory
extends beyond the United States and Canada, then within 10 business days of the
end of every other month, Licensee shall deliver to Informix the Copy Records
applicable to the prior two-month period, accompanied by any payment due to
Informix relating to such Copy Records.
2. No more than once each year, at Informix's expense and with 5 days' prior
written notice, Informix may audit all records of Licensee relating to this
Agreement during Licensee's normal business hours. If an audit reveals that the
amount which should have been paid to Informix is 5% or more greater than the
amount reported by Licensee, Licensee shall pay the cost of the audit to
Informix. Any shortfall uncovered as a result of an audit, as well as the cost
of the audit, if required by the preceding sentence, shall be paid by Licensee
to Informix within 30 days of the date Informix notifies Licensee that an amount
is due.
3. Notwithstanding section D.2. above, if Informix reasonably suspects that
Licensee has breached sections A.3., B.1. or D.1., Informix may audit Licensee's
Product related activities upon 24 hours' notice.
4. Unless otherwise specified, Licensee shall pay to Informix a license fee for
Products ("License Fee") and fees for maintenance and support services at the
price set forth in the Price List.
5. Licensee shall have the right to finance its payment obligations hereunder
through financing arranged through a financing company reasonably satisfactory
to Informix. Licensee's failure to obtain such financing, however, shall not
defer or otherwise relieve Licensee of such payment obligations.
6. Licensee shall pay any amounts owed to Informix on the date specified in and
according to the terms of this Agreement and any applicable Informix Schedule.
If a due date is not specified, the related payment shall be made by Licensee in
accordance with Informix's invoice. If Informix determines that Licensee's
credit rating does not support "net-30" terms, Licensee shall prepay all fees.
Each party is solely responsible for its own expenses incurred in the
performance of this Agreement. If Licensee fails to make any payment when due,
Informix may suspend delivery of Products or services until the past due payment
is made. Any payment which falls due on a weekend or public holiday shall be due
on the business day immediately preceding the weekend day or public holiday.
7. If a receiver or other liquidating officer is appointed for substantially all
of the assets or business of Licensee, if Licensee makes an assignment for the
benefit of creditors, if Licensee becomes insolvent or bankrupt or the rights or
interests of Licensee under this Agreement become an asset under any bankruptcy,
insolvency or reorganization proceeding, then Licensee must prepay all fees, and
this Agreement and any Informix Schedules shall be governed by the then current,
applicable bankruptcy and insolvency laws.
8. Payments shall be in United States dollars. Any overdue amount shall bear
interest at the maximum rate allowed by law. Costs of conversion, outside
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collection and related bank charges shall be paid by Licensee. Licensee shall be
responsible for all taxes, tariffs and transportation costs related to this
Agreement (including any value added or sales taxes) other than taxes on
Informix's income. All shipments by Informix shall be F.O.B. origin.
E. TERMINATION. 1. This Agreement shall be effective until terminated. This
Agreement shall terminate: (a) for cause or for failure to pay any amount when
due, upon 30 days prior written notice by either party to the other, unless the
cause is susceptible of being and is cured within the 30 day notice period; or
(b) immediately upon written notice to Licensee in the event Licensee breaches
section A.3. The date termination becomes effective is called the "Termination
Date." Termination of this Agreement terminates all Informix Schedules.
2. (a) If this Agreement is terminated because of a breach of section A.3., all
rights granted under this Agreement will terminate. (b) If this Agreement is
terminated for any other reason, all rights granted under this Agreement will
terminate, except for Licensee's continued right to use Products for which the
license fees have been paid to Informix. Use after the Termination Date shall be
subject to those provisions of this Agreement which survive termination.
3. Subject to section E.2.(b), within 30 days of the Termination Date, all
Products, related materials and Confidential Information in Licensee's
possession or control shall be returned to Informix or, upon Informix's written
request, destroyed by Licensee.
4. If Licensee's breach is the cause of termination, no additional Product shall
be provided to Licensee on account of any remaining balance of any prepayment
and such amount shall be retained by Informix.
5. Sections A.3., 4., and 5.; B.; C., D., E.; and F.5. and 7. will survive any
termination of this Agreement.
F. GENERAL PROVISIONS. 1. Informix and Licensee are independent contractors and
will so represent themselves in all regards. Neither party may bind the other in
any way.
2. Licensee may not assign this Agreement without the prior written consent of
Informix, which consent will not be unreasonably withheld. Any purported
assignment in contravention of this section is null and void. A transfer of a
controlling interest in the equity of Licensee shall be deemed an assignment for
purposes of this subsection. Subject to the foregoing, this Agreement will bind
and inure to the benefit of any successors or assigns.
3. Neither party will be responsible for failure of performance, other than for
an obligation to pay money, due to causes beyond its control, including, without
limitation, acts of God or nature; labor disputes; sovereign acts of any
federal, state or foreign government; or shortage of materials.
4. Notices will be delivered to a party's address stated in the signature block
of this Agreement, or to another address which a party properly notified the
other that notices should be sent.
5. This Agreement is the complete and exclusive statement of the parties to this
Agreement on these subjects, and supersedes all prior written or oral proposals
and understandings relating thereto, including the End User Agreement enclosed
with the "shrink-wrap" version of a Product. This Agreement may only be modified
by a writing signed by an officer of Informix and an authorized representative
of Licensee. This Agreement takes precedence over any purchase order issued by
Licensee, which is accepted by Informix for administrative convenience only. If
any court of competent jurisdiction determines that any provision of this
Agreement is invalid, the remainder of the Agreement will continue in full force
and effect. The offending provision shall be interpreted to whatever extent
possible to give effect to its stated intent.
6. Failure to require performance of any provision or waiver of a breach of a
provision does not waive a party's right to subsequently require full and proper
performance of that provision. Singular terms will be construed as plural, and
vice versa. Section headings are for convenience only and will not be considered
part of this Agreement.
7. This Agreement is governed by the laws of the State of California, without
giving effect to its conflict of law provisions. The United Nations Convention
on Contracts for the International Sale of Goods will not apply to this
Agreement. Each party submits to the jurisdiction of the appropriate state or
federal courts in California. Informix may seek to specifically enforce or
prevent a breach of any term of this Agreement in the appropriate courts of any
state or country in which the Products are deployed by Licensee or in which
Licensee maintains an office. The prevailing party in any suit under this
Agreement shall recover all costs, expenses and reasonable attorney fees
incurred in such action. Nothing in this Agreement will be deemed a waiver by
either party of any and all available legal or equitable remedies.
G. DEFINITIONS. "Affiliate" means any person, corporation or other entity which,
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with another person, corporation or
entity.
"Computer Systems" means the computer systems on which Informix has made the
Products generally commercially available.
"Confidential Information" means Informix pricing or information concerning new
Informix products, trade secrets and other proprietary rights; and any business,
marketing or technical information disclosed by Informix or Licensee in relation
to this Agreement, and identified in writing as confidential by, or proprietary
to, the disclosing party. Confidential Information does not include information
(a) already in the possession of the receiving party without an obligation of
confidentiality, (b) hereafter rightfully furnished to the receiving party by a
third party without a breach of any separate nondisclosure obligation, (c)
publicly available without breach of this Agreement (i.e., information in the
public domain), (d) furnished by the disclosing party to a third party without
restriction on subsequent disclosure, or (e) independently developed by the
receiving party without reliance on the Confidential Information.
"Development Product" means the standard proprietary Informix computer software
packages made generally commercially available by Informix within the Territory,
which include the object code form of the computer programs on magnetic media,
User Documentation and an End User Agreement.
"Effective Date" means the date reflected in the signature block of this
Agreement.
"End User" means, as appropriate, either Licensee or any third party individual,
business or governmental entity which acquires one or more copies of the
Products for personal or internal business use, and not for transfer to others.
"End User Agreement" means the standard Informix agreement accompanying each
copy of the Products which specifies the terms and conditions by which
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an End User may use the Products.
"Export Laws" means all laws, administrative regulations, and executive orders
of any applicable jurisdiction relating to the control of imports and exports of
commodities and technical data, including, without limitation, the Export
Administration Regulations of the U.S. Department of Commerce, the International
Traffic in Arms Regulations of the U.S. Department of State, and the Enhanced
Proliferation Control Initiative.
"Informix Schedule" means a form containing additional terms and conditions of
this Agreement which is (i) attached to this Agreement or, (ii) when placed
after the Effective Date, refers to this Agreement and initialed by Licensee.
"New Product" means a release and any associated User Documentation which
Informix in its sole discretion designates as a New Product; is made generally
commercially available by Informix; and is marketed by Informix as a New Product
even if it is capable of being integrated with a Product.
"Price List" means the Informix price list for the United States and Canada, in
effect at the time Licensee orders Products from Informix. The price for
Products deployed within the United States and Canada shall be as set forth in
the Price List. The price for Products deployed outside the United States and
Canada shall be 1.25 times the price set forth in the Price List.
"Product" means, as applicable, the Development Products, the Runtime Products
or all such products as Informix makes generally commercially available.
"Runtime Product" means a portion of the Development Product which is composed
of various modules and libraries made generally commercially available by
Informix within the Territory as either runtime files or files which are
included only in a linked form. Runtime Products include an End User Agreement
but do not include User Documentation.
"Schedule Effective Date" means the date reflected on the front of an Informix
Schedule.
"User Documentation" means the Informix user manual(s) and other written
materials on proper installation and use of, and which are normally distributed
with, the software portion of the Products.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
SCHEDULE 6
ATG LIST PRICE IN EFFECT AS OF THE EFFECTIVE DATE
Dynamo Application Server $10,000 per CPU
Dynamo Personalization Station $20,000 per CPU
Dynamo Retail Station $20,000 per CPU
Dynamo Ad Station $15,000 flat fee per End User
Full Development Version of any ATG Products [**] flat fee per End User (i.e.,
no per- CPU charge) to receive the Full Development Version of Dynamo
Application Server, plus $1,000 per application (Dynamo Personalization Station,
Dynamo Personalization Station, or Dynamo Ad Station) per seat
Dynamo Application Server Staging Server Version [**] per CPU
Dynamo Personalization Station Staging Server Version [**] per CPU
Dynamo Retail Station Staging Server Version [**] per CPU
Dynamo Ad Station Staging Server Version [**] flat fee per End
User
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
ART TECHNOLOGY GROUP, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
OEM AGREEMENT
SCHEDULE 7
THIRD PARTY SOFTWARE
<TABLE>
<CAPTION>
PRODUCT PROVIDER COMMENTS LICENSE PROVISIONS
<S> <C> <C> <C>
[**] [**] [**] [**]
</TABLE>
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ART TECHNOLOGY GROUP, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199
OEM AGREEMENT
SCHEDULE 8
SUPPORT SERVICE LEVELS
This Schedule 8 sets forth the support interface and support response objectives
of ATG and Informix regarding the resolution of problems with the ATG Products.
This Schedule 8 further specifies the support 'rules of cooperation' between the
parties, and is intended to be incorporated into Section 6 of the Agreement. In
the event of any conflict or inconsistency between the terms of the Agreement
and this Schedule, the terms of the Agreement shall control and prevail.
The term "Informix" is used throughout this Schedule to refer to "OEM", as
defined in the Agreement.
DEFINITIONS
"ATG PRODUCT ERROR" means a failure of an ATG Product to operate in accordance
with its published ATG documentation.
"DAY" means, unless otherwise specified, a business day, excluding weekends and
holidays observed by ATG and/or Informix.
"ESCALATION" is an act which expedites the Problem Resolution Request process
through requesting assistance of ATG to add resources or raise management
awareness to a specific customer problem.
"FIRST-LEVEL" is defined as call receipt, call screening, installation
assistance, problem identification and diagnosis, efforts to create a repeatable
demonstration of the Program Error (bug) and, if applicable, the distribution of
any patches or minor updates.
"INTERIM SOLUTION" or "INTERIM RELEASE" means an interim solution
(workaround/patch) or release for ATG's Product on a specific platform which
contains critical bug fixes on top of the current released version, including
any previously released patches and which, if they will benefit all customers,
will be contained in a future 'permanent solution'. Customer specific solutions,
even if provided by ATG, are not included in major product releases.
"NON-TECHNICAL RESPONSE" is defined as a phone call, voice or electronic mail
message left with a person or answering service that can acknowledge and log the
call.
"PERMANENT SOLUTION" means, in the case of an ATG Product Error, a maintenance
release, or minor or major release of the ATG Product in which the problem has
been resolved to conform to ATG Product specification. In the case of a customer
specific problem, a permanent solution can also mean a Product patch which fixes
the problem the customer reported.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
"SECOND-LEVEL" is defined as efforts to identify defective source code and to
provide corrections, workarounds and/or patches to correct ATG Product Errors
[**].
"SUPPORT RESPONSE" is direct, real-time contact with a technical support or
development engineer via electronic mail, web response or telephone call.
ATG's PRIORITIZATION METHOD is based on the following criteria: Impact on our
customer's business (priority); Number of customers who have seen the problem
(frequency); and how long the problem has been open (age). Most important is the
way the customers describe the impact on their business.
"PROBLEM PRIORITY" means the criticality of an ATG Product Error.
EMERGENCY (S0) product problems are crises: a system is down, a major
operational function is unavailable, or a critical interface has
failed. A system recovery or Work Around is required immediately. ATG
will address the correction of these ATG Product Errors in accordance
with the corresponding Service Level Objectives set forth below.
CRITICAL (S1) product problems are critical to the customer's success
and require immediate resolution. ATG will provide a Work Around when
appropriate. If the problem is a product defect as determined through
the standard escalation process, ATG will provide an interim solution
by an agreed-upon date, and a permanent solution in the next
maintenance release.
HIGH (S2) product problems are problems that need to be resolved as
soon as reasonably practicable. Most of these problems have acceptable
Work Around, or the software recovers by itself. If the problem is a
product defect, the Work Around may be replaced by a permanent solution
in a subsequent maintenance release.
NORMAL (S3) situations are minor or cosmetic problems. If the problem
is a product defect, a permanent solution may be provided in a future
release.
The Problem Priority will be described by the customer and verified by
Informix upon analyzing the customer call. If Informix refers the
problem to ATG because it relates to an ATG Product Error, ATG will
evaluate the Problem Priority based on the customer's and Informix's
input.
"PROBLEM RESOLUTION REQUEST" is the communication vehicle used to communicate
customer cases that require involvement of the other party to this agreement for
resolution. There are four types of Problem Resolution Requests:
REQUEST FOR ATG PRODUCT ERROR FIX:
Correction of an ATG Product Error, as determined through the standard
escalation process for which there is a normally Reproducible Test Case
that demonstrates the problem(s). These corrections are covered by the
Maintenance Fees paid by Informix under the Agreement.
REQUEST TO SUPPORT A DEPENDENT CODE CHANGE:
A change to ATG's Product is necessary because a correction to an ATG
Product rendered inoperable the OEM Offering into which the ATG Product
is incorporated. Informix will pay ATG at ATG's then-current rates for
making such changes.
REQUEST FOR TECHNICAL ASSISTANCE:
Assistance diagnosing ATG Product Errors that do not have Reproducible
Test Cases but have otherwise reasonably sufficient diagnostic
information available. The foregoing excludes assistance
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
with usability issues (such as performance tuning or configuration),
for which Informix will pay ATG at ATG's then-current rates.
FEATURE REQUEST:
Informix may request that ATG enhance or otherwise modify an ATG
Product in any manner not the direct result of an ATG Product Error.
ATG shall have no obligation to perform such enhancements or
modifications, and will do so only upon mutual agreement of the parties
as to schedule and pricing for such work.
"REPRODUCIBLE TEST CASE" means a test case that demonstrates in a small code
sample, usually less than 100 lines, the specific syntax or scenario that causes
the problem. The code sample must demonstrate the inconsistencies with the ATG
Product documentation. ATG will not be required to correct any ATG Product Error
as to which Informix does not provide a normally Reproducible Test Case.
"REQUEST ACKNOWLEDGMENT" means confirmation that a problem resolution request
has been received by the non-originating party.
"REQUEST STATUS" communicates to the other party the steps in the Problem
Resolution Request Action Plan that have been completed, the results of those
steps, and the next steps to be taken.
"REQUEST RESOLUTION" is the delivery of a correction or Work Around for a
problem according to the Objectives stated below.
"WORK AROUND" means a temporary solution to an ATG Product Error. A Work Around
will be replaced with a Permanent Solution in ATG's reasonable discretion in a
future release of the relevant ATG Product.
SUPPORT AGREEMENT
In accordance with the Agreement, Informix will be providing [**] to Informix
Technical Support Engineers who have been trained by ATG on the ATG Products.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
[**] [**] [**] [**] [**]
- -------------------------------------------------------------------------------------
[**] [**] [**] [**] [**]
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
ATG and Informix agree to handle incoming calls in a timely manner and to use
reasonable efforts to minimize phone queue hold times. If queue time becomes a
problem, either party may escalate to the other party's CS VP.
SUPPORT PROCESS
ATG can provide separate documentation on the Support Processes for Standard and
Escalated support issues upon request.
Informix agrees to use the customer problem prioritization system (described
above in Definitions) for classifying problems that result in Problem Resolution
Requests to ATG, and for responding to and resolving individual Problem
Resolution Requests according to the Service Level Objectives (response,
42
<PAGE>
status, resolution times) described below. Both parties agree that the customer
sets the problem priority using the definitions in this Schedule.
Informix and ATG will cooperate in the resolution of generic problems occurring
across all platforms that ATG's Products are officially supported on.
If a problem occurs on an ATG Product and it cannot be reproduced on the
Informix reference platform, ATG will attempt to reproduce it on at least one of
the other platforms supported by Informix, provided it is an ATG supported
platform.
If Informix's support personnel identify an ATG Product Error, they will contact
the ATG support staff promptly to report the ATG Product Error and provide the
ATG support staff with all available information relating to the conditions
under which the ATG Product Error is believed to have occurred, as well as the
results of all diagnostics and other tests run to analyze the ATG Product Error.
ATG will have no obligation to begin to work on a correction for any ATG Product
Error until it has received the foregoing information from Informix.
Informix will designate a technical support manager for escalations and two
technical support engineers that will coordinate general customer case
operations and training, be the interface for training and operations questions,
and become the 'resident expert' on support of the ATG Products. This person,
and his or her backup, will be the only Informix personnel authorized to access
the ATG support organization.
PROBLEM RESOLUTION REQUEST
Informix can initiate a request for assistance (Problem Resolution Request) from
ATG providing that reasonable efforts have been taken by Informix to ensure that
the problem is not in an Informix product or a result of the integration or
bundling of the ATG Product with an Informix product. ATG will establish an
action plan that outlines the steps to resolving the each Problem Resolution
Request that cannot be resolved in the initial call. Problem Resolution Request
Action Plans will be tracked by the case owner.
RESOLUTION TO PROBLEM RESOLUTION REQUEST
Resolutions to a Problem Resolution Request will consist of either a Work
Around, an Interim Solution, or a Permanent Solution that is reasonably
acceptable to ATG, Informix and/or the End User. Problems that require an
Interim Solution will be considered resolved when the test used to demonstrate
the problem demonstrates that the nonconforming behavior is corrected, or that
once the Interim Solution is integrated into the ATG Product, the problem
experienced in the ATG Product or Informix Offering will be corrected [to the
reasonable satisfaction of Informix. Problem resolutions that require an Interim
Solution may be permanently resolved in the next scheduled release of the ATG
Product or Informix Product provided the problem affects more than an individual
customer.
SERVICE LEVEL OBJECTIVES
The following Service Level Objectives outline the time frame expectations for
response times to acknowledge requests for problem resolution, status of
problems that are under diagnosis and repair, and the time to achieve problem
resolution given a problem's severity.
PROBLEM RESOLUTION REQUEST ACKNOWLEDGMENT OBJECTIVES:
Request Acknowledgment Objectives can be met by either Non-technical or
Engineering contacts.
43
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
PROBLEM RESOLUTION REQUEST STATUS OBJECTIVES
Request Status Objectives are met by the technical support engineer
working on the case (case owner).
PROBLEM RESOLUTION REQUEST RESOLUTION OBJECTIVES
Request Resolution Objectives are met by the technical support engineer
and/or the development engineer working on the case.
Table 1 - Diagnostic Problem Resolution Request Response Objectives
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Request Request Workaround
Severity Acknowledgement Status Resolution
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
0 [**] [**] [**]
- ---------------------------------------------------------------------------------
1 [**] [**] [**]
- ---------------------------------------------------------------------------------
2 [**] [**] [**]
- ---------------------------------------------------------------------------------
3 [**] [**] [**]
- ---------------------------------------------------------------------------------
</TABLE>
*[**]
Table 2 - ATG Product Error Response Objectives
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Request Resolution
Acknowledgment Request Resolution - -Interim Resolution - Permanent Solution
Status Work Around Solution
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0 [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------------------
1 [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------------------
2 [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------------------
3 [**] [**] [**] [**] [**]
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Tables 1 and 2:
(1) Status Objectives listed may differ on a case by case basis only if ATG and
Informix mutually agree upon a different frequency of Status Objectives.
ESCALATION
ATG and Informix agree that escalation to the other party will be done only when
all reasonable internal efforts to resolve the problem have been exhausted
within the initiating company, and when reasonable efforts have been made to
follow the normal Problem Resolution Request process without satisfactory
results. Both parties agree that escalation occurs only between the respective
company's Escalation Managers.
ATG and Informix agree that Escalations can occur for the following reasons:
1. A customer expresses concern that a case is not being handled quickly
enough or is being handled by what they believe to be inappropriate
skill level.
44
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
2. The Informix/ ATG Technical Support manager feels the case has not
received the proper attention needed to resolve the problem.
3. Any situation, such as elapsed time, which would prevent meeting
Service Level Objectives on a case.
4. The customer has a strong business relationship with the reporting
party that warrants expediting (e.g., VIP status) sooner than the
stated service level objectives.
5. The customer has several concurrently open Priority S0 and S1 cases.
6. Major business impact for customer requiring Project Management (i.e.:
multiple hot issues for same customer) or coordination of resources
between companies.
7. Executive level intervention needed to manage customer expectations or
to execute 'damage control.'
ESCALATION RESPONSE TIMES
For verified ATG Product Errors escalated to ATG and substantiated by ATG, the
recipient of the escalated ATG Product Error will use reasonable efforts to meet
the same objectives for status and resolution as stated above AND use reasonable
efforts to meet the following escalation response objectives:
Table 3 - Escalation Response Times
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Escalate To CS/PMD Mgmt. Escalate To CS/PMD VP
- ---------------------------------------------------------------------------------
<S> <C> <C>
1 [**] [**]
- ---------------------------------------------------------------------------------
2 [**] [**]
- ---------------------------------------------------------------------------------
3 [**] [**]
- ---------------------------------------------------------------------------------
4 [**] [**]
- ---------------------------------------------------------------------------------
</TABLE>
ADDITIONAL REQUIREMENTS
ATG and Informix will provide to each other relevant technical support
documentation (tech alerts, technical information, bug lists, patch lists, etc.)
to facilitate customer problem diagnosis.
Informix Technical Support Engineers will attend appropriate ATG Training
Courses to learn basic Dynamo programming, usage and administration, and ATG's
Relationship Commerce applications. Specific classes to be agreed upon following
execution of the Agreement.
Informix will conduct technical knowledge and skills transfer to ATG Technical
Support Engineers at least 30 days prior to product beta start (if conducted),
or at least 30 days prior to product first customer ship date.
ATG and Informix will provide access to electronic communications (messaging,
bulletin boards, ftp servers, email, etc.) to facilitate customer problem
diagnosis and resolution without the assistance of the other party, wherever
possible.
All timeframes set forth in this Schedule are objectives and targets, and a
party's failure to meet any particular timeframe shall not result in a breach of
this Schedule or the Agreement. However, each party agrees to use commercially
reasonable efforts to comply with all such timeframes.
45
<PAGE>
SCHEDULE 8 - ATTACHMENT 1
TECHNICAL CONSULTATIVE/SUSTAINING SUPPORT PROCESS
This Attachment 1 to Schedule 8 sets forth the support process and interface(s)
between Informix and ATG regarding the resolution of problems with the ATG
Product(s) or problems with Informix products used in conjunction with the ATG
Product(s).
This document specifies the process by which Informix will contact ATG for both
consultative and sustaining support, and the process by which ATG will contact
Informix for both consultative and sustaining support.
The term "Informix" is used throughout this Schedule to refer to "OEM", as
defined in the Agreement.
SUPPORT PROCESS
The support process (see flowchart on next page) defines how to provide:
Informix assistance in resolving a problem(s) in ATG's Product(s) that
result in a problem in Informix's Product(s);
The Call Flow Process (below) is verified by both companies 10 business days
prior to product ship.
SUPPORT INFORMATION REQUIREMENTS
Both parties agree to use the customer problem prioritization system (listed in
Definitions) for classifying customer reported problems that result in Problem
Resolution Requests to the other party, and for responding to and resolving
individual Problem Resolution Requests according to the Service Level Objectives
(response, status, resolution times) described below. Both parties agree that
the customer sets the problem priority using the definitions in this agreement.
Figure 1 - Call Flow Process
[Flow chart of Call Flow Process showing, among other things, "Informix customer
with ATG Product" who contacts "Informix local Front-line TS engineer (LX,
Hub)", who contacts "Informix Back-line TS Engineer (MP, Hub)", who interacts
with "ATG TS eng. (primary contact)" and with "Informix Escalation Manager".
"ATG TS eng. (primary contact)" interacts with "ATG's Development" and "ATG's
Escalation Manager". "ATG's Development" interacts with "Informix Business
Unit," which interacts with "Informix Development".]
PROBLEM RESOLUTION PROCESS
Initiate a Problem Resolution Request by calling the Primary Contact of the
other party after making reasonable efforts to isolate and diagnose the customer
problem to the other party's product. See Call Flow Process Diagram above and
phone numbers and names in Contact List below.
If a Problem Resolution Request does not meet the Service Level Objectives as
described in the Service Level Agreement, either company may use the Escalation
Process to expedite resolution. See Escalation Process below for details.
46
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
ESCALATION PROCESS
If the primary and backup contacts are unavailable, the named Technical Support
Escalation Managers can call the other company's Technical Support Escalation
Manager for assistance. In addition, if the case is a Priority S0 or S1, the
Technical Support Engineer can call the in-company Escalation Manager to
escalate the case to the other company's Escalation Manager.
For Informix:
1. Informix Back-line Technical Support Engineer calls ATG Primary (Back-line)
contact (phone during business hours (9 a.m. to 7 p.m. Eastern Time) via
ATG Customer Support Line).
2. If Primary ATG Contact is unavailable, call the ATG Backup contact (phone
during business hours (9 a.m. to 7 p.m. Eastern Time), pager access for
24x7 support for Priority S0 situations only)
3. If the case is a Priority S0 or S1 and both the ATG Primary and Backup
Contacts are unavailable, the Informix Back-line Technical Support Engineer
will contact the Informix Escalation Manager.
4. The Informix Escalation Manager will contact the ATG Escalation Manager.
SUPPORT HOURS AND PHONE NUMBERS
INFORMIX
Informix provides First Level support on OEM Offerings to customers with
appropriate Informix technical support contracts during the following times:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Informix Informix Regency Support
Assurance OpenLine (w/w customer service
(w/w customer (w/w customer service program)
service program) program)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mon. - Fri. not applicable 7AM to 7PM CST Local Business
/ Local Time (Int'l Hours
time zones)
- -------------------------------------------------------------------------------------------
24 X 7 TechInfo Center w/valid extended w/valid extended
AVAILABLE only; No phone support contract support contract
support
- -------------------------------------------------------------------------------------------
PHONE Phone support US and Canada: US and Canada:
NUMBERS only for 1 (800) 274 8184 1 (800) 274 8184
installation Outside the US Outside the US
problems. and Canada: and Canada:
1 (888) 876-9797 1 (888) 876-9797
- -------------------------------------------------------------------------------------------
</TABLE>
ATG
ATG provides [**] ATG Products to Informix Technical Support during the
following times:
<TABLE>
<CAPTION>
----------------------------------
to Informix Back-line
<S> <C>
- ----------------------------------------------------------
Mon. - Fri. [**]
- ----------------------------------------------------------
24 X 7 AVAILABLE [**]
- ----------------------------------------------------------
</TABLE>
47
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
- -----------------------------------------------------------
PHONE NUMBERS [**]
- -----------------------------------------------------------
If Informix cases need to be passed to ATG for resolution outside of these hours
and the primary & backup contacts are not available, follow the Escalation Path
outlined below.
TECHNICAL SUPPORT CONTACTS
The INFORMIX points of contact for ATG Technical Support will be provided by
Informix to ATG as soon as reasonably practical.
The initial ATG points of contact to Informix Technical Support are:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Primary (back-line) Secondary (back-line)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Name [**] [**]
- -----------------------------------------------------------------------------------------
EMAIL [**] [**]
- -----------------------------------------------------------------------------------------
PHONE [**] [**]
- -----------------------------------------------------------------------------------------
PAGER [**] [**]
- -----------------------------------------------------------------------------------------
LANGUAGE English English
- -----------------------------------------------------------------------------------------
</TABLE>
Technical support contacts may be changed by either party upon written notice to
the other party.
ESCALATION CONTACTS
The following people can be contacted if a customer issue is classified as an
emergency (Priority S0) and/or the response to the normal problem resolution
request is inadequate.
INFORMIX ESCALATION CONTACTS for the ATG Escalation Manager will be provided by
Informix to ATG as soon as reasonably practical.
ATG ESCALATION CONTACTS for the Informix Escalation Manager:
<TABLE>
<CAPTION>
--------------------------------------------------
Escalation Manger
<S> <C>
- ---------------------------------------------------------------------------------
CONTACT NAME [**]
- ---------------------------------------------------------------------------------
PHONE [**]
- ---------------------------------------------------------------------------------
PAGER [**]
- ---------------------------------------------------------------------------------
EMAIL [**]
- ---------------------------------------------------------------------------------
</TABLE>
Technical support contacts may be changed by either party upon written notice to
the other party.
48
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote omissions.
ADDITIONAL SUPPORT INFORMATION
ATG
email alias: [email protected]
web pages : www.atg.com
As ATG makes new support systems become available to its other oem partners, it
will make such systems available to Informix on comparable terms.
49
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Exhibit 10.8
SOFTWARE LICENSE AGREEMENT
BETWEEN SUN MICROSYSTEMS INC.
AND
ATG, INC.
No. 99-2006
This Agreement, is made and entered into on and as of the 27th day of March,
1998 ("Effective Date"), by and between Art Technology Group Inc. ("ATG"), a
Massachusetts corporation, having its principal offices at 101 Huntington
Avenue, 22nd Floor, Boston Massachusetts 02199 and Sun Microsystems, Inc., a
Delaware corporation, ("Sun"), which has its principal place of business at 901
San Antonio Road, Palo Alto, California 94303.
WITNESSETH:
WHEREAS, ATG desires to grant to Sun and Sun desires to acquire from ATG a
non-exclusive right and license to use certain computer software as hereinafter
defined, in accordance with the terms and conditions set forth in this
Agreement; and
NOW THEREFORE, in consideration of the premises, as well as the obligations
herein made and undertaken, the parties do hereby covenant and agree as follows:
1. DEFINITIONS
As used herein, the terms listed below shall have the following meanings:
1.1 "User or User(s)." An individual employed by Sun (whether as
an employee, contractor, consultant) or third party with whom
Sun has contracted to transact substantial business who is
selected by Sun as being entitled to have access to and use
the Licensed Program(s) and Licensed Documentation solely for
the purposes of transacting Sun's business, provided, however,
no party may be a "User" hereunder if Sun charges such User a
fee or royalty for such use.
1.2 "Confidential Information" or "Proprietary Information." Any
and all information disclosed by a party hereunder
("Discloser") to the other ("Recipient") in a written or other
tangible form and which is clearly marked as being
confidential or proprietary. Oral information shall not be
deemed Confidential Information unless it is (a) designated as
Confidential Information by the Discloser at the time of
disclosure, and (b) summarized and identified as being
Confidential Information in a writing, which is received by
Recipient within thirty (30) days after disclosure.
-1-
<PAGE>
1.3 "Enhancements." Changes and additions, other than Maintenance
Modifications, to Licensed Program(s) or Licensed
Documentation that adds significant new functions or
substantially improved performance thereto by changes in or
additions to the system design or coding. Enhancements
includes those features and functions that enhance and improve
the capabilities of the existing Licensed Programs. These
include all updates, bug fixes, performance improvements,
screen navigation enhancements, new and expanded functionality
which are consistent with the Licensed Products current and
intended capabilities. In addition they include functionality
which is now part of a product or module specifically
unbundled or marketed separately from the Licensed Programs
where such functionality previously existed in the Licensed
Program(s) and whether or not such functionalities and or
products are marketed under different names or trademarks.
Also included are functionalities and or products that may be
marketed under different names or trademarks or marketed under
new revision release numbers, but which perform or are
intended to perform the same or enhanced functions which a
reasonable person would anticipate to exist in the Licensed
Programs, as well any products which are intended to function
as replacement products to the Licensed Programs, even if such
products include new and or additional functionality so long
as such functionality is not easily separable from the
Licensed Programs.
1.4 "Errors." Problems caused by operation of the computer code of
the Licensed Program(s) or an incorrect statement or diagram
in Licensed Documentation that produces incorrect results or
causes incorrect or unanticipated actions to occur.
1.5 "Licensed Documentation" or "Documentation." The system
documentation and the user manuals currently available from
ATG for the Licensed Program(s).
1.6 "Licensed Program(s)." The computer applications or programs
for which Sun is granted a license to use pursuant to this
Agreement and as described more fully in Exhibit "C",
including all Licensed Documentation currently available and
as updated from time to time hereafter.
1.7 "Licensed Product(s)." All Licensed Program(s), Licensed
Documentation, Enhancements, and Maintenance Modifications.
1.8 "Maintenance Modifications." Modifications or revisions to the
Licensed Program(s) or Licensed Documentation that correct
Errors therein.
-2-
<PAGE>
1.9 "Notice." The formal notification required to be given in
specified circumstances by one party to another.
1.10 "Solaris." Sun's UNIX operating system used by Sun for its
internal use purposes.
1.11 "Specifications." The functional performance parameters of
the Licensed Program(s) as further described in Exhibit "A."
1.12 "Sun's Hardware Platform." The then current hardware
platform(s) on which Sun runs the Licensed Program(s)
(including, but not limited to Sun's Unix and Sun's Java
hardware platforms).
1.13 "Support Services." Services in support of the Licensed
Program(s) provided by ATG to Sun after installation, as more
particularly described in Exhibit "B."
2. GRANT OF LICENSE
2.1 Scope of License. ATG grants to Sun for each Licensed
Program(s) for which Sun has paid to ATG the applicable
license fees a NONTRANSFERABLE and NONEXCLUSIVE, worldwide,
fully paid-up, perpetual right and license to:
a. install, display, use and execute the Licensed Program(s)
in machine readable form in support of the business
activities of Sun in the quantities specified in Exhibit
"C."
b. use the Licensed Documentation but only in conjunction
with installation, use and support of the Licensed
Program(s).
c. use all human language versions (including, but not
limited to all double-byte enabled language versions),
should ATG produce commercial non-English language
versions of the Licensed Program(s) now or in the future,
on all operating systems, on any hardware platform
(including, but not limited to, Intel, Solaris x86,) of
the Licensed Program(s), as permitted by section 2.1(a)
above if and when ATG makes such language versions and or
operating systems for the Licensed Program(s) available to
the general marketplace. If the applicable license fees in
Exhibit C have been paid, this right entitles Sun to
choose single or multiple language and operating system
versions of the Licensed Program(s) at the time of initial
purchase and includes the right to substitute or exchange,
in quantities and mix to be determined by Sun, previously
purchased language and or operating
-3-
<PAGE>
system versions of the Licensed Program(s) for another
language and or operating system version of the Licensed
Program(s) at any time after initial purchase. In such
event, ATG shall credit Sun with the full purchase price
Sun paid for a version of the Licensed Program that Sun
exchanges against the then-applicable license fees for the
new version of the Licensed Programs that Sun elects to
receive.
d. use the Licensed Program(s) as permitted by 2.1(a) above
by Sun's wholly owned or majority owned subsidiaries and
any joint venture entity in which Sun Microsystems, Inc.
or its Subsidiary holds an interest equal to or greater
than fifty one percent (51%) of the total capital of such
entity provided, however, that Sun shall cause each of
the parties described herein to adhere to the obligations
of Sun in protecting and observing the rights of ATG as
set out in this Agreement.
2.2 Rights to Copy.
a. Upon Sun's payment of the applicable one-time fee for
Documentation and Training Materials as described in
Section 6.0 of Exhibit C, ATG grants to Sun the right and
license to copy (subject to the terms of Article 7 herein)
of all such Documentation and Training Materials.
Two copies of Documentation shall be supplied by ATG in
photo ready form (on 8.5" by 11" sized paper), or other
mutually agreed form for each of the Licensed Program(s)
licensed to Sun hereunder. From time to time ATG may
create updated Training Material related to the Licensed
Program(s) covered by this Agreement. Sun shall be
entitled to two copies of the Training Material in photo
ready form or electronic form at no additional cost to
Sun. Sun shall reproduce ATG's copyright notice, where it
appears on originals supplied by ATG, on all reproduced
pages on all such Documentation copied by Sun. ATG
further agrees to grant Sun the right to customize such
Documentation and or Training Material as necessary for
Sun to train its Users.
b. Sun's rights to use and copy Documentation and training
material are concurrent with Sun's rights to use the
Licensed Program(s), if the applicable license fees have
been paid.
2.3 Backup and Distribution Copies.
a. Sun is granted the right to make backup copies of the
Licensed Programs and to copy the Licensed Programs on to
servers as deemed necessary by Sun to facilitate access to
the Licensed Programs by its Users so long as the total
number of servers and CPU's on which the
-4-
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Licensed Programs run doesn't exceed the number for which Sun
has purchased licenses. Such copies shall not be considered a
use of the Licensed Programs and shall not be included in
counts used to determining the number of the Licensed Programs
in use at Sun. Sun shall not use such copies to circumvent in
any way the limitation on the number of copies of the Licensed
Program(s) licensed by ATG for use by Sun hereunder.
2.4 Tracking of Licensed Programs.
a. The number of Licensed Programs shall be determined by
counting the number of servers and CPU's on which the
Licensed Programs run. Sun shall use reasonable efforts to
track usage. It is agreed that Sun will provide reasonable
access to ATG, in accordance with Sun's security
regulations, within 30 days after receipt of a written
request from ATG, but in no event shall such request be
made by ATG more than twice in a calendar year.
b. In the event that it is determined that Sun has exceeded
the number of authorized servers and CPU's on which the
Licensed Programs are installed, Sun shall have the right
to either immediately terminate such usage, at no cost to
Sun, or to purchase additional Licensed Programs for such
usage in accordance with the terms of this Agreement.
2.5 Solaris Commitment.
a. ATG shall and hereby agrees to use its best efforts to
maintain binary compatibility with Sun's Solaris operating
system, Sun's Hardware Platform(s) and the current release
of Java, for a minimum period of [**] from the Effective
Date of this Agreement. ATG shall use its commercially
best efforts to maintain such compatibility within [**]
after Sun releases updates, upgrades, or such new
operating system and Sun Hardware platform(s) to the
general marketplace.
b. ATG agrees to use reasonable efforts to maintain the
compatibility of its Licensed Product(s) running on
Solaris with the Licensed Products running on other
operating systems and shall use reasonable efforts to
release all Enhancements on Solaris within [**] after
release of such Enhancements on other operating systems
for a minimum period of [**] from the Effective Date of
this Agreement.
-5-
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
2.6 Source Code in Escrow.
a. No rights are granted or licensed hereunder with respect
to the Source Code for the Licensed Program(s), except
that ATG shall, at Sun's Notice, place one copy of the
Source Code for the Licensed Program(s) and Source
Documentation with an escrow agent chosen by ATG and
deemed acceptable by Sun, who shall be directed to
release a copy of the Source Code and Documentation to
the Licensed Program(s) to Sun, at Sun's expense, upon
the occurrence of any of the events described in section
2.6(b), below. Upon occurrence of an event described in
section 2.6(b), below, Sun shall have a nonexclusive
right to use, modify and make working copies of the
Source Code and Documentation solely for the purposes of
supporting and maintaining the Licensed Program(s) and
subject to the restrictions set forth in this Agreement.
b. Access to such escrowed Source Code and Documentation
shall, however, not be available to Sun until such time as
ATG shall (i) fail to supply Support Services for a period
of three (3) consecutive months (ii) voluntarily terminate
its business operations; (iii) file a voluntary petition
for bankruptcy.
2.7 Contractors and 3rd Party Business Partners. The right and
licenses granted to Sun herein to use the Licensed Program(s)
shall permit the use of the Licensed Program(s) by
contractors, subcontractors and third party business partners
of Sun, provided that such Licensed Program(s) are used solely
for business services to be provided exclusively to Sun by
such contractors, subcontractors and third party business
partners of Sun.
3. SUPPORT AND MAINTENANCE
3.1 For as long as ATG continues to offer Support Services to its
other customers in general and Sun remains current in its
payment obligations hereunder, ATG shall offer Support
Services to Sun pursuant to provisions of Exhibit B.
3.2 As long as Sun pays the applicable annual Support Services
fees, ATG shall support the current and at least one prior
release of the Licensed Program(s). ATG's responsibility to
support the prior release of the Licensed Programs shall end
[**] following delivery to Sun of the current release version
of the Licensed Program(s). Such Support Services shall, at a
minimum, be in accordance with the Support Services described
in
-6-
<PAGE>
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Exhibit B hereof, including porting of all major and minor bug
fixes, Maintenance Modifications as well as all major and
minor releases of Enhancements or updates. Sun shall, under no
circumstances, be denied the right to purchase Support
Services in accordance with Exhibit B, as long as ATG
continues to offer any kind of Support Services to its other
customers for the type of Licensed Program(s) licensed under
this Agreement.
3.3 ATG agrees to continue to offer Support Services for the
Licensed Program(s), running on the operating systems and
platforms as described in Section 2.5 and all of Section 5
herein, for a minimum of [**] from the Effective Date of this
Agreement.
3.4 In the event that ATG materially fails for a period of [**] to
provide Support Services where there is a continuing agreement
between the parties for ATG to provide Support Services for
the Licensed Programs(s) and upon written Notice to ATG that
such condition exist, Sun shall have the right to receive a
copy of the source code in escrow and any other tools,
technical documentation or additional source code, whether
partially or fully complete, then in the possession of ATG or
its escrow agent which may be necessary for Sun to fully
maintain and support the Licensed Program(s). In the event ATG
corrects the conditions described in Section 2.6(b) above, Sun
shall return the Source Code to ATG and shall have no further
rights to utilize the Source Code.
3.5 For a period of [**] from delivery of any modification work
performed by ATG on behalf of Sun, if ATG releases a new
version or release of the Licensed Program(s) which renders
any such modification work inoperable or unusable, including
any significant reduction in performance levels, (collectively
"Errors") then, in such an event, ATG commits to correct such
Errors in accordance with the commitment level prescribed in
Sections 2A, 2B and 2C of the Professional Service Agreement
No. 99-0013, dated March 27, 1998, attached hereto as Exhibit
D and incorporated herein by this reference.
3.6 In the event that Sun determines that category "X" or "A"
Errors, as defined in Section 1.8 of Exhibit B, exist in the
Licensed Program and where ATG cannot duplicate and or resolve
such Errors remotely from ATG's support center, ATG commits to
deliver support personnel on-site at Sun, upon requested by
Sun. ATG shall be reimbursed only for its reasonable
out-of-pocket costs in providing such support on-site at Sun.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
3.7 ATG agrees to supply Sun with beta versions of new releases of
the Licensed Program(s) as they become available on an "as-is"
(no warranty) basis and to keep Sun informed of ATG's JAVA
developments. In addition, ATG agrees to give Sun updates and,
where requested by Sun, presentations on ATG's development
plans[**] starting with the Effective Date of this Agreement.
3.8 Availability of ATG Enhancements. If there is not an ongoing
agreement between the parties for Support Services, ATG agrees
to offer to Sun a license for Enhancements that ATG develops
and offers generally to its other users of the Licensed
Program(s) at the Support Service fees set forth in Exhibit C
hereto or such other terms as may be agreed upon between the
parties, for such Enhancements. ATG shall advise Sun of the
availability of any such Enhancements and of the license terms
available for such Enhancements at such time as ATG makes
Enhancements generally available to its other customers or the
marketplace in general.
3.9 ATG agrees and acknowledges that Sun's ongoing ability to
obtain Support Services for the Licensed Program(s) from ATG
in accordance with this Article 3 is a major inducement to Sun
entering into this Agreement.
4. DISABLING CODE
4.1 ATG warrants that no disabling code currently exists in the
Licensed Programs which would enable ATG to prevent Sun from
enjoying the full benefit of the Licensed Programs permitted
herein. To the extent any ATG Licensed Program(s) delivered to
Sun in the future may contain such disabling ability, ATG is
authorized to use such code solely to limit access to the
Licensed Program(s) to the authorized number of ATG servers
purchased by Sun. ATG shall not use such disabling code to
enforce compliance with a term or condition of this Agreement
absent a court order authorizing such action. ATG, at its sole
discretion, may include software code to limit the users of
the Licensed Programs to a particular servers, subject only to
any necessary restrictions required by Sun to meet its network
security requirements.
Any improper use of the disabling code shall entitle Sun to
obtain direct damages beyond the limitations of Article 10
herein.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
5. JAVA COMMITMENT
5.1 For a period of [**] from the Effective Date of this Agreement
and provided that Sun has not defaulted on payment of Support
Services and further provided that Java remains competitive in
the marketplace, ATG shall use best efforts to ensure that all
Licensed Product(s) support Java such that ATG's server-based
portions are written in Java code.
5.2 ATG acknowledges Sun's right to develop and build applications
that will reside on top of the Licensed Program(s). ATG
acknowledges Sun's right to use and exploit such applications
including the right to market such applications to 3rd party
customers, at no cost to Sun. Nothing in the foregoing
statement shall be construed as giving Sun the rights to
exploit or market for resale any of the underlying Licensed
Program(s) except as specifically described elsewhere in this
Agreement.
5.3 Upon delivery of a Java based version of the Licensed
Program(s), ATG agrees to use best efforts to maintain binary
compatibility with the then current release of Sun's Java
Virtual Machine and to offer Support Services for the Java
based version, for a minimum of [**] from the Effective Date
of this Agreement.
6. LICENSE FEES AND PAYMENTS
6.1 License Fee. In consideration of the licenses granted and
Support Services provided hereunder, Sun shall pay to ATG the
fees and charges specified in Exhibit C hereto.
6.2 Ordering Procedure.
a. Sun may from time to time issue individual purchase orders
to ATG to obtain licenses (upon payment of the applicable
fees) for the Licensed Program(s), Support Services,
Training, and Consulting Service. Such purchase(s) order
shall set out the applicable fees, payment terms, and
other pertinent information and shall incorporate the
terms of this Agreement by reference. Sun's purchase
orders are subject to acceptance by ATG.
b. ATG agrees to tender a prompt, formal acknowledgement to
each purchase order awarded by Sun and accepted by ATG
pursuant to this Agreement. Any additional or different
terms or conditions contained
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in such acknowledgement form shall not become a part of
this Agreement.
6.3 Taxes. Unless indicated in Exhibit C or in an applicable
purchase order, fees and charges are exclusive of any federal,
state, or local excise, sales, or use taxes. Sun shall be
responsible for such taxes when they are properly itemized on
ATG's invoice and are submitted to Sun at the time of original
purchase only. Sun shall not be responsible for any taxes
based on ATG's net income.
6.4 Payment terms are net 30 days from the date of invoice
referencing a Sun issues purchase order number, or in
accordance with such other terms as may be listed in Exhibit
C. Sun shall pay interest at a rate equal to the lesser of one
percent (1%) over the then current prime rate quoted by
Citibank, or the maximum rate allowed by law, which ever is
less, on overdue payments not made by Sun on correct invoices.
Interest shall not be due unless Sun fails to cure the default
condition within thirty (30) days after receipt of Notice that
such condition exist. ATG shall be required to deliver one (1)
Notice to cure, which shall be deemed sufficient notice for
the current and any subsequent overdue payments.
6.5 Sun shall not be required to pay the disputed portion of any
invoice, pending resolution of such dispute, provided that
Notice of the dispute has been sent to ATG.
6.6 All invoices shall reference a valid Sun purchase order and
shall be sent to the following address:
Sun Microsystems, Inc.
Accounts Payable Department
P.O. Box 7550
Mountain View, California 94039
7. DELIVERY AND INSTALLATION
7.1 The Licensed Product(s) shall be deemed "delivered" for
purposes of this Agreement upon delivery of the Licensed
Program(s).
7.2 ATG shall deliver the Licensed Program(s) and Documentation
listed in Sec. 1 of Exhibit C promptly upon execution of this
Agreement or on such other dates listed in Exhibit C.
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7.3 All Licensed Program(s) and related documentation shall be
shipped to the following address or to such other address as
Sun may designate in writing to ATG.
Sun Microsystems Inc.
901 San Antonio Road
Palo Alto, California 94303
Attn:
Mail Stop:
8. ACCEPTANCE
Acceptance shall be effected upon delivery of the Licensed Program(s)
to Sun at the address shown in Section 7.3 above.
9. CONFIDENTIALITY & PROTECTION OF PROPRIETARY MATERIALS
9.1 Acknowledgment of Proprietary Rights.
a. Sun acknowledges ATG's claim that ATG holds all right,
title, and interest in and to the Licensed Program(s) and
Documentation, including any patents, trade secrets,
trademarks and copyrights pertaining thereto.
9.2 Restrictions on Use, Copying and Disclosure.
a. The recipient of Confidential Information shall neither
disclose Discloser's Confidential Information to any third
party, nor use the same for any purpose other than as set
forth in this Agreement. Recipient shall use the same
degree of care as it uses to protect its own confidential
information, but no less than reasonable care, to prevent
the unauthorized use, dissemination or publication of the
Confidential Information.
b. In addition to Recipient's right to disclose Confidential
Information to its employees, Recipient shall have the
right to disclose Confidential Information to any
contractor or agent of Recipient or any employees,
contractors, or agent of any majority-owned subsidiary of
Recipient who have executed and delivered to recipient a
confidentiality agreement containing terms and conditions
substantially similar to those stated herein. Recipient
will promptly advise Discloser of any unauthorized
disclosure or use of Discloser's Confidential Information
by any person.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
c. This Agreement imposes no obligation upon Recipient with
respect to Confidential Information which: (a) was in the
possession of, or was known by Recipient without an
obligation to maintain its confidentiality prior to its
receipt from Discloser, (b) is or becomes generally known
to the public without violation of this Agreement by
Recipient, (c) is obtained by Recipient from a third
party, without an obligation to keep such information
confidential, or (d) is independently developed by
Recipient without use of the Confidential Information.
d. Disclosure of Confidential Information will not be
prohibited, if Recipient gives Discloser prior Notice and
such Disclosure is: (a) compelled pursuant to a legal,
judicial, or administrative proceeding, or (b) otherwise
required by law.
9.3 Proprietary Legends. Sun may reproduce for internal
distribution and internal use only and include on all copies
of the Documentation all proprietary and copyright notices or
legends of ATG as they now appear or as ATG may in the future
furnish to Sun on the Documentation and on the media, manuals,
and packaging containing the Documentation.
9.4 Survival of Obligation. Recipient's duty to protect
Confidential Information received under this Agreement shall
expire [**] from the date of termination of this Agreement.
10. LIMITED WARRANTY, LIMITATION OF LIABILITY AND INDEMNITY
10.1 PATENTS & COPYRIGHTS. ATG warrants that ATG has the right and
title to the Licensed Program(s) & Licensed Documentation, and
ATG has the legal right to sell licenses or sublicense the
Licensed Program(s) & Licensed Documentation, and the licenses
sold hereunder do not infringe upon or violate any published
U.S. patents, copyrights, knowingly violate any trade secrets
or other proprietary right of any third party. In the event of
any breach of the foregoing warranties:
ATG shall defend, indemnify and hold harmless Sun against any
such claim of direct or contributory infringement or
violation, and ATG shall pay resulting costs, damages and
attorney's fees finally awarded, provided that:
(i) Sun promptly notifies ATG in writing of the
claim; and
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(ii) ATG has control of the defense and all related
settlement negotiations, provided however that Sun must
approve in writing any settlements before they are
executed, and
(iii) Sun fully cooperates with ATG, at ATG's cost,
in the defense or settlement of such actions.
ATG's obligation under this Article is conditioned on Sun's
agreement that if the Licensed Program(s), or the use or
operation thereof, becomes, or in ATG's opinion is likely to
become, the subject of such a claim, Sun will permit ATG at
ATG's option and expense, either to procure the right for Sun
to continue using the Licensed Program(s) or to replace or
modify the same so that it becomes non-infringing. If neither
of the foregoing alternatives is available on terms which are
reasonable in ATG's reasonable judgment, Sun will return or
destroy the Licensed Program(s) on written request of the ATG.
ATG shall pay to Sun for the returned Licensed Program(s) an
amount equal to the License Fee paid for the Licensed
Program(s) less an amount equal to depreciation on such
Licensed Program(s) determined on a straight line three (3)
year basis commencing on the Effective Date of this Agreement.
THE FOREGOING STATES THE ENTIRE OBLIGATION OF ATG WITH RESPECT
TO INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADE SECRETS AND
OTHER PROPRIETARY RIGHTS.
10.2 LIMITED WARRANTY ON CONFORMITY TO ATG'S PUBLISHED
SPECIFICATIONS. ATG warrants that for a period of ninety (90)
days from the date of Acceptance of the Licensed Program(s) as
described in Article 8 herein, (1) the Licensed Program(s)
will be free of material defects in materials and workmanship
under normal use; and (2) the Licensed Program(s) contains the
features described in the Specifications documentation
described in Exhibit A hereto. Otherwise the Licensed
Program(s) are provided "As is." This warranty extends only to
Sun as the original Licensee of the Licensed Program(s).
10.3 EXCLUSIVE REMEDY OF NONCONFORMITY TO ATG'S PUBLISHED
SPECIFICATIONS. As the exclusive remedy of Sun for any
nonconformity to ATG's published specifications or defect
constituting an Error in the Licensed Program(s). ATG shall
use reasonable commercial efforts to provide Maintenance
Modifications to correct such Error. If ATG cannot cure such
Errors within ninety (90) days of Notice, ATG agrees to refund
to Sun the total of all dollars paid by Sun to ATG on or after
the Effective Date of this Agreement. However, ATG shall not
be obligated to correct, cure, or otherwise remedy any Error
in the Licensed Program(s) resulting
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from any (i) modifications to, misuse of or damage to the
Licensed Program(s) other than by authorized users of Sun, or
(ii) failure of Sun to provide Notice to ATG of the existence
and nature of such nonconformity or defect within ninety (90)
days from its discovery.
10.4 WARRANTY OF NO VIRUSES. ATG warrants and represents that it
used its best efforts in the development of proprietary
elements of Licensed Program(s) ("Proprietary Software") to
ensure that no viruses were coded into or introduced during
the development. Should a virus be found to have emanated from
the Licensed Program(s), ATG shall, at its own expense, use
best efforts to cure the virus. In the event the virus causes
actual loss of operational efficiency or loss of data, and
provided that Sun has taken reasonable efforts to test the
Licensed Program(s) for viruses prior to its distribution to
Sun's end users, ATG shall use best efforts to assist Sun and
to restore Sun to its original operating efficiency.
10.5 YEAR 2000 COMPLIANCE. ATG warrants that the Licensed
Program(S) are fully Year 2000 Compliant and that the internal
data handling will have no problems with the year 2000 or
beyond. For the purposes of this article "Year 2000 Compliant"
shall mean: "The capability for the Licensed Program(s), when
used in accordance with the Product Documentation, to
correctly process, provide and/or receive date data within and
between the twentieth and twenty-first centuries. Within the
limits of Java, year 2000 Compliance includes, but is not
limited to, date and century recognition before and after
January 1, 2000, calculations to accommodate same century and
multi-century formulas and date values, and date data
interface values that reflect the century. In addition, leap
year calculations must be accommodated and must not result in
erroneous results or system failures."
10.6 DISCLAIMER. ALL EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS
AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
DISCLAIMED, EXCEPT AS SPECIFIED IN THIS AGREEMENT OR WHERE
SUCH DISCLAIMERS ARE HELD TO BE LEGALLY INVALID.
10.7 Limitation on Liability. Except with respect to the liability
of ATG under Articles 4 and 10, ATG shall not be liable to Sun
under any claim, demand, or action arising out of or relating
to ATG's performance or lack thereof under this Agreement for
any special, indirect, incidental, exemplary, or consequential
damages, whether or not ATG has been advised of the
possibility of such claim, demand, or action.
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11. TERM AND TERMINATION/SURVIVAL CLAUSE
11.1 This Agreement will come into force on the Effective Date and
will remain in effect until terminated in accordance with the
provisions of Article 11.2 below.
11.2 Termination by ATG. ATG may terminate this Agreement upon
thirty (30) days written Notice to Sun for failure to pay the
applicable License Fees, provided Sun fails to cure such
condition within thirty (30) days of receipt of Notice that
such condition exists for the first time ATG notifies Sun of
this condition.
11.3 Termination by Sun. Sun may terminate this Agreement for
convenience upon written Notice to ATG.
11.4 Rights and obligations under this Agreement which by their
nature should survive, including, but not limited to any and
all payment obligations invoiced prior to the termination or
expiration hereof, will remain in effect after termination or
expiration hereof.
12. NOTICES
Any provision of this Agreement that requires Notice from one party to
the other will be satisfied if, without exception, the Notice is given in
writing and delivered to the following address by a means evidenced by a signed
delivery receipt of which a legible copy is furnished to the receiving party.
Such notice will be effective upon receipt:
ATG: Sun:
101 Huntington Avenue, 22nd Fl. Sun Microsystems, Inc.
Boston, MA 02199 2550 Garcia Avenue
Attn: Vice President, Finance Mountain View, CA 94043
Fax No.: (650) 655-2032 Attn: Software Commodities Mgr.
Each party shall inform the other in writing of any change in the
foregoing address information.
13. ASSIGNMENT
No assignment, delegation or other use of any right or duty under this
Agreement may be made by either party without the prior written consent of the
other party, other than by a purchaser of all or substantially all of the stock
or assets of the assigning party or to a third party pursuant to a merger, or
other corporate reorganization, provided that the assignee is capable of
fulfilling and indicates in writing its intent to fulfill the obligations of the
assigning party under this Agreement. Any other such assignment or
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delegation, or other transfer of interest attempted to be made without such
written consent shall be void for all purposes.
14. INVALID PROVISIONS
If any provision of this Agreement is declared to be invalid under any
applicable statute or rule of law, the parties agree that such invalidity shall
not affect the remaining portions of this Agreement.
15. ATTORNEY'S FEES
In the event that suit is brought under this Agreement, reasonable
attorney's fees and expert witness fees, as fixed by a court of competent
jurisdiction or duly appointed Arbitrator, shall be awarded to the prevailing
party.
16. TIMELY CLAIMS
No action for breach of this Agreement or any other action to enforce
any claim arising out of or in connection with the subject matter of this
Agreement shall be brought by either Party more than two (2) years after the
cause of action has occurred.
17. WAIVER
Any waiver of any provision of this Agreement, or a delay by either
party in the enforcement of any right hereunder, shall neither be construed as a
continuing waiver nor create an expectation of non-enforcement of that or any
other provision or right.
18. COMPLIANCE WITH U.S. EXPORT LAWS
Sun acknowledges that the laws and regulations of the United States
restrict the export and re-export of commodities and technical data of United
States origin, including the Licensed Program(s) and related Documentation. Sun
agrees that it will not export or re-export the Licensed Program(s), or related
Documentation in any form without the appropriate United States and foreign
government licenses. Sun agrees that its obligations pursuant to this Article
shall survive and continue after the termination or expiration of this
Agreement.
19. AMENDMENTS
No waiver, alteration or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by a duly authorized
representative of the party to be bound thereby.
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20. CHOICE OF LAW
The rights and obligations of the parties hereto shall be construed
under and be governed in all respects by the laws of the State of California
without giving effect to principles of conflict of law.
21. PUBLICITY
Neither party shall publish or make known to others the subject matter
of this Agreement or any information obtained in connection therewith which is
proprietary and confidential to the other party without first obtaining the
prior written approval of the affected party, which shall not be unreasonably
withheld. No advertising or publicity containing any reference to either party
or any of its employees, either directly or by implication, shall be made use of
by the other party without first obtaining prior written approval of the
affected party. Such approvals shall be obtained in accordance with the
provisions of Article 12 ("Notices").
22. HEADINGS NOT CONTROLLING
Headings used in this contract are for reference purposes only and
shall not be deemed a part of this Agreement.
23. FORCE MAJEURE
Excepting provisions of this Agreement relating to payment of invoices,
neither party shall be in default of the terms hereof if such action is due to a
natural calamity, act of government, or similar causes beyond the control of
such party.
24. OVERALL LIMIT OF LIABILITY
ATG's overall limit of liability to Sun related to the use of the
Licensed Software, shall not exceed the amounts paid to ATG, by Sun, for
Licensed Program(s).
25. ENTIRE AGREEMENT
The provisions herein constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior
agreements, oral or written, and all other communications relating to the
subject matter hereof. No amendment or modification of any provision of this
Agreement will be effective unless set forth in a document that purports to
amend this Agreement and that is executed by both parties hereto.
The following documents and the terms contained therein are
incorporated herein by this reference:
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Exhibit A, "Product Specifications"
Exhibit B, "Support Services"
Exhibit C, "Fees and Charges"
Exhibit D, "Professional Service Agreement No.
99-0013"
In the event of a conflict between the terms contained in the above
listed Exhibits and the terms contained in this Agreement, the terms contained
in the Exhibit shall supersede the conflicting terms of this Agreement.
The parties acknowledge they have read this Agreement and understand
and agree to be bound by its terms and conditions.
IN WITNESS WHEREOF, the parties to this Agreement execute it through
their duly authorized representatives.
Sun Microsystems, Inc. Art Technology Group, Inc.
By: /s/ Frank Haran By: /s/ Lauren J. Kelley
----------------------------- ----------------------------------
Frank Haran Lauren J. Kelley
----------------------------- ----------------------------------
(Print Name) (Print Name)
Title: GLOBAL COMMODITY MANAGER Title: DIRECTOR OF WORLDWIDE SALES
------------------------- ------------------------------
Date: 3/27/97 Date: 4/2/98
--------------------------- -------------------------------
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Exhibit A
PRODUCT SPECIFICATIONS
The specifications for the Licensed Program(s) shall be those contained in ATG's
published technical documentation supplied with the Licensed Programs and as
contained in such updated documentation as published by ATG from time to time
hereafter.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Exhibit B
SUPPORT SERVICES
1.0 Responsibilities of ATG:
ATG shall deliver the following items and provide the following Support
Services, subject to Sun's payment of the annual Support Services fees set forth
Exhibit C
1.1 ATG shall provide known problem solutions to Sun relating to
the Licensed Program(s) as such problems are reported by Sun
to ATG.
1.2 ATG shall provide to Sun all updates, bug fixes, changes,
Maintenance Modifications and Enhancements to the Licensed
Programs(s) which are released by ATG to its other customers
or the general marketplace.
1.3 ATG shall continue to support the Licensed Program(s) on
Solaris for a minimum period of [**] from the Effective Date
of this Agreement. ATG shall continue to supply Support
Services for Solaris after[**] ATG will use its best efforts
to initiate Support Services for major new versions of
Licensed Program(s) on Solaris within [**] of the general
availability release of Sun's new versions of Solaris.
1.4 Except as limited by 1.3 above, ATG shall provide to Sun at
least [**] written notice prior to the discontinuance of
support services for any Licensed Program(s) licensed to Sun
hereunder. IN THE EVENT ATG DISCONTINUES SUPPORT SERVICES FOR
THE LICENSED PROGRAM(S) RUNNING ON ANY SUN HARDWARE PLATFORM
OR SUN OPERATING SYSTEM WITHIN THE [**] FROM THE EFFECTIVE
DATE OF THIS AGREEMENT, [**].
1.6 ATG shall use reasonable efforts to release all bug fixes,
Maintenance Modifications and all Enhancements for use on
Solaris within [**] of ATG's release to the general
marketplace or to any of its other customers of such bug
fixes, Maintenance Modifications and Enhancements on operating
systems other than Solaris.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
1.8 ATG will use reasonable efforts to respond to problems/queries
in accordance with the response times listed herein. ATG shall
make available a reasonable number of technical consultants so
as to ensure that the response times listed below are be
maintained.
RESPONSE TIME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASSIFICATION FIRST LEVEL SECOND LEVEL FINAL LEVEL
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severity Critical [**] [**] [**]
Severity High [**] [**] [**]
Severity Medium [**] [**] [**]
Severity Low [**] [**] [**]
</TABLE>
The response times listed above shall not include the time spent by ATG in
determining whether the reported problem is a result of a bug or error in the
Licensed Program(s) or a site specific implementation problem.
CLASSIFICATION
- --------------------------------------------------------------------------------
The Errors are classified by Sun as follows:
Critical = Fatal: Production server down. Production data loss or corruption.
High = Severe performance/load issues in production. Repeated reboots of the
system in production. Major functionality failure. Install problems for
evaluation customers.
Medium = Critical or high severity problem for which a workaround has been
found, which workaround is shown NOT to impact functionality or performance of
the product. Loss of a function that affects customers schedule.
Low = All other problems or "how to" questions.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
The remedies for each Error classification at each level specified above are:
REMEDY LEVEL
- --------------------------------------------------------------------------------
First Level: Verbal acknowledgement of a problem query shall include problem
report number and the remedy, if available, therefor shall be delivered to Sun
within [**].
Second Level: Patch or work around, temporary fix, or update or major release,
including applicable documentation.
Final Level: Official fix, update or major release, including applicable
documentation changes.
* If received on a business day during the hours at ATG's local support offices
or in the case of ATG's California Support office if any, Monday through Friday,
from 9:00 a.m. to 7:00 p.m. Eastern Standard Time, excluding observed holidays;
otherwise, times commence on the next business day. NOTE: It is understood by
Sun that ATG does not have a worldwide localized support organization. ATG
commits that as, and if, this organization is expanded worldwide, Sun shall be
entitled to access all new support centers as they are opened at no additional
cost to Sun beyond the payments of Sun's standard Support Service payments as
described in Section 4.0 of Exhibit C herein.
Note: A day is defined as a 24-hour period, regardless of whether work is
scheduled during that period.
1.9 ATG commits that ATG or ATG's authorized distributors and or partners
shall supply the Support Services described in Articles 1.1 through 1.8
above to all Sun locations worldwide when requested by Sun authorized
named service contacts (the number of named service contacts are
defined in Exhibit C attached hereto).
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Exhibit C
FEES AND CHARGES
1.0 Sun's initial purchase shall consist of the following:
<TABLE>
<CAPTION>
SOFTWARE PRODUCT QUANTITY SUN PRICE TOTAL COST
- ---------------- -------- --------- ----------
(Per Server)
<S> <C> <C> <C>
1) Profile Station [**] [**] [**]
2) Additional 4 CPU/server [**] [**] [**]
Sub Total [**]
3) ID Address:
[**] [**] [**] [**]
[**] [**] [**] [**]
[**] [**]
[**] [**]
Total Production Server Cost [**]
4) Staging Server
Profile Station [**] [**] [**]
ID Address:
[**]
[**] [**]
Total Staging Server Cost [**]
5) Development Server
Dynamo Application Server [**] [**] [**]
Profile Station [**] [**] [**]
Total Software Costs, initial purchase [**]
</TABLE>
* [**] to Sun.
** Note: Sun is granted a right to an unlimited number of user accesses
to any and all servers purchase by Sun.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
2.0 Additional Product Purchases:
Sun is granted the right to purchase additional quantities of the
Licensed Products listed in Section 1.0 above as well as the following
additional products:
COST/SERVER
Dynamo Application Server [**]
Profile Station [**]
Additional CPU's for above products [**]
Retail Station [**]
'Ad Station [**]
Affiliate Kit [**]
o For the first [**] of Sun purchases the discount shall be [**] off
the Cost/Server prices shown above and in Section 2.0 above. (Note: Dynamo and
Profile come with [**] included in above pricing). Thereafter the discount shall
be [**] off of the pricing shown above. The calculation of total dollars spent
shall be based upon the total spending for any ATG license product and
additional servers. The [**] threshold is based upon the cumulative spending of
Sun and all its subsidiaries from the Effective Date of this Agreement through
December 31, 1999. The above pricing is fixed through December 31, 1999 and is
available for Sun's use worldwide.
o Once Sun has purchased [**], Sun shall have the right to [**]. Sun is
granted a right to an unlimited number of user accesses to any and all servers
purchased by Sun.
3.0 Development and Production Servers:
Sun is granted the right to [**].
Sun is granted the right to purchase "Staging Servers" (as used herein
Staging Servers are defined as "a dedicated server used to test software prior
to the software being placed into live production") at a discounted price of
[**] off the pricing shown for the Dynamo Server in Section 1.0 above, provided
however that Sun maintains the CPU limit for such servers at one (1) CPU.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
4.0 Support Services:
a) Normal Business Hours (6:00 a.m. to 5:00 p.m. PST Monday through
Friday, excluding holidays). Cost of annual Support Services for the
Licensed Program(s), including all Enhancements, and Maintenance
Modifications shall be fixed at an annual rate of [**] of Sun's cost of
licenses purchased. SUPPORT SERVICE FEES SHALL NOT BE DUE AND PAYABLE
BY SUN UNTIL SUCH TIME AS ATG DELIVERS THE LICENSED PROGRAM(S) TO SUN.
This rate also includes Sun's right to unlimited worldwide support
contacts, who shall be authorized to directly contact any ATG
authorized support centers, worldwide, during normal business hours,
excluding holidays. This rate shall be fixed for a period of [**] from
the Effective Date, and for each year thereafter the rate may be
adjusted [**].
b) After Hours, Weekend and Holiday Support. For the [**] from the
Effective Date of this Agreement, ATG agrees to transfer [**] from cost
related to the first Statement of Work supplied with the Professional
Service Agreement No. 99-0013, dated March 27, 1998, to cover the [**]
annual fee for twenty four hour, seven day support coverage. In
addition, Sun agrees to pay [**] per hour, chargeable in half hour
increments per call made. For years [**], Sun shall have the option of
contracting for After Hours support on a yearly basis at the above
rates. These rates and this option shall be available to Sun to use at
anytime during the [**] from the Effective Date of this Agreement.
Should Sun decided to renew this Support Service option for After Hours
support, the annual fee of [**] is due ATG at the anniversary date of a
new year from the Effective Date of this Agreement.
5.0. Consulting Services:
ATG agrees to supply any mutually agreed to consulting services, when
requested by Sun at rates shown below. These rates shall be available to Sun,
worldwide during the first three years from the Effective Date of this
Agreement. Note: These rates are only available to Sun on time and materials
engagement (not fixed fee proposals). Fixed Price engagement cost shall be
negotiated by Sun and ATG on a case by case basis.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
Fixed Rates for ATG Consultants:
CONSULTING LEVEL DAILY RATE
- ---------------- ----------
Principal [**]
Senior Manager [**]
Project Manager [**]
DesignLead-visual-conceptual [**]
Technical Lead [**]
Senior Engineer [**]
Production Designer [**]
Engineer/Developer [**]
QA Engineer [**]
CUMULATIVE SUN CONSULTING SPEND DISCOUNT OFF ABOVE RATES
- ------------------------------- ------------------------
[**] [**]
[**] [**]
[**] [**]
[**] [**]
The calculation of total consulting dollars spend shall be based upon
the total cumulative spend for any ATG consulting services provided to Sun
worldwide, excluding fixed fee consulting engagements, during the [**] from the
Effective Date of this Agreement.
6.0 Documentation & Training Materials:
ATG grants to Sun the option to purchase all training material produced
by ATG for the Licensed Program(s) and grants Sun the right to modify and
customize such training material for the Licensed Program(s) for an annual fee
of [**] for each of the products listed in Section 2.0 of this Exhibit C.
Thereafter, ATG agrees, upon Sun's request, to supply Sun with all updates and
or revisions of such documentation for all
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
such product purchases as they become available and for as long as Sun remains
current in its Support Service payments. Sun is herein granted the right to
modify such training material for the purpose of conducting Sun's own internal
training classes.
7.0 Training Rates:
From the Effective Date of this Agreement through December 31, 1999 ATG
agrees to supply Sun with end-user training, at Sun designated sites, worldwide,
at a fee of [**] per day per class. Class sizes is limited to ten (10) students
(plus the reasonable cost of travel and related expenses for travel outside the
Boston, Massachusetts area and further provided that ATG obtains the written
approval of Sun for such cost, or estimated cost, prior to their incursion).
Training at ATG designated facilities shall be at the rate of four
hundred and ninety five dollars per student per day.
ATG further commits that all trainers supplied by ATG shall have
competent knowledge of Sun's Unix/Solaris operating systems.
ATG grants Sun the option to purchase ATG's Dynamo Mentor Package
("Jump Start") which includes [**] . Sun can purchase as many such packages as
Sun requires at any time during the [**] from the Effective Date of this
Agreement.
ATG grants Sun the option to purchase ATG's Dynamo Mentor Package
("Standard package") which includes [**] . Sun can purchase as many such
packages as Sun requires at any time during the [**] from the Effective Date of
this Agreement.
8.0 Mentor Packages:
ATG grants Sun the option to purchase ATG's Dynamo Mentor Package
("Jump Start") which includes [**] . Sun can purchase as many such packages as
Sun requires at any time during the [**] from the Effective Date of this
Agreement.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
ATG grants Sun the option to purchase ATG's Dynamo Mentor Package
("Standard Package") which includes [**] . Sun can purchase as many such
packages as Sun requires at any time during the [**] from the Effective Date of
this Agreement.
ATG grants Sun the option to purchase ATG's Dynamo Mentor Package
("Extended Package") which includes [**] . Sun can purchase as many such
packages as Sun requires at any time during the [**] from the Effective Date of
this Agreement
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EXHIBIT D TO THE SOFTWARE LICENSE AGREEMENT
NO. 99-2006
PROFESSIONAL SERVICES AGREEMENT
BETWEEN SUN MICROSYSTEMS INC. AND ART TECHNOLOGY
GROUP INC.
AGREEMENT NO. 99-0013
This Professional Service PSA ("PSA"), is made and entered into on and as of the
27th day of March, 1998 ("Effective Date"), by and between Art Technology Group
Inc. ("ATG"), a Massachusetts corporation, having its principal offices at 101
Huntington Avenue, 22nd Floor, Boston, Massachusetts 02199 and Sun Microsystems,
Inc., ("Sun") a Delaware corporation, which has its principal place of business
at 2550 Garcia Avenue, Mountain View, California 94043. In consideration of the
mutual promises contained herein, Sun and ATG agree as follows:
1. Scope - ATG and Sun agree that this PSA shall cover all consulting work
performed by ATG on behalf of Sun for any ATG software product implementation.
Hereinafter such work shall be referred to as "Services." All deliverables
resulting from ATG's performance of Services hereunder shall hereinafter be
referred to as "Work Product."
2. Services
A. ATG shall perform, in a workmanlike manner, the Services and/or
create and provide the deliverables, in accordance with Statement of Work(s)
which shall be set for each engagement and which shall reference this PSA No.
99-0013 and be signed-off by both Sun and ATG prior to the performance of such
Services. The first Statement of Work is attached hereto as Exhibit A. ATG
agrees to work with Sun to fix price, where ever possible, each of the
requirements and deliverables of each Statement of Work.
B. In the event Sun requests consulting services which would result in
modification to any ATG standard software product, ATG agrees to notify Sun as
part of the Statement of Work, whether such modification(s) will be supported
under ATG's standard support service policies. In the event such modifications
are not covered under ATG standard support, then ATG agrees to include in the
Statement of Work, the yearly support cost required to support such
modifications. In the event ATG fails to comply with this requirement, then ATG
agrees to support such modifications AT NO ADDITIONAL COST TO SUN. In the event
that ATG incorporates any Sun requested modification(s) into its commercially
released product then ATG agrees such modifications will be covered under its
standard support policies.
C. For work performed by ATG that results in "Sun specific
modifications" to
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ATG software, herein defined as modifications that will not be incorporated in
ATG's commercially released product, then, for such modifications, ATG agrees to
include in the Statement of Work, a "not to exceed" costing model for
maintaining such modifications for future releases and versions of the
underlying software products.
3. Payment for Services
A. As full compensation and consideration for the Services and other
obligations of ATG set out in Exhibit A, Sun will pay ATG in accordance with the
payment schedule set forth in the Statement of Work(s). ATG shall invoice Sun
for all consulting services at the rates stipulated in the applicable Statement
of Work(s) which shall be set for each engagement and which shall reference this
PSA No 99-0013. Sun agrees to pay the reasonable out-of-pocket cost associated
with performance of the Statement of Work, provided however that ATG notifies
Sun of such cost in writing prior to the incursion of any such cost that exceeds
$500.
B. At the end of each month, ATG shall submit, in duplicate, an invoice
to Sun for the Services performed, and any allowed expenses incurred, in the
immediately preceding month. ATG shall include with each invoice the following:
1) A project log summarizing the overall progress of the project to date, along
with a statement of any problems that ATG requires Sun's assistance to resolve.
2) Such ATG material as is necessary to provide Sun with visibility of project
progress with respect to schedule and budget. 3.) Receipts or other
documentation supporting reimbursable expenses approved by Sun.
C. ATG agrees promptly to pay its employees for all work performed. If
ATG does not pay its employees on a current basis for work performed on behalf
of Sun, such nonpayment shall be a material breach of this PSA and shall entitle
Sun, in addition to all other remedies, to contract directly with such employee
on a consulting basis.
D. Payment terms are Net, 30 days from date of invoice, with the
exception of payment schedule set forth in Statement of Work(s).
4. Interim Review
A. At each milestone in the Statement of Work, Sun will review the
progress of the project, provide written direction for any revisions that may be
desired by Sun to the Statement of Work, any such revisions being subject to
Contractor's reasonable approval, and, if appropriate, authorize Contractor, in
writing, to proceed to the next stage of the project. If changes in the work are
required due to the errors or omissions of ATG, ATG shall, at its expense, make
any revisions requested by Sun which are necessary to make the Services conform
to the Statement of Work.
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B. Sun reserves the right to reject the Services anytime, if the
Services were not delivered in a timely manner in material conformance with the
Statement of Work. If Sun determines that the Services do not conform to the
Statement of Work, Sun shall notify the ATG in writing, and ATG shall have
thirty (30) working days to submit new deliverables and perform new Services
conforming to the Statement of Work.
5. Changes - Sun may, from time to time, request in writing, changes in the
Statement of Work. Thereafter, ATG shall, as soon as practical, submit a
proposal of changes in cost and schedule. Such changes may be authorized by a
change order form ("Change Order") signed by the Sun Project Manager and ATG
shall promptly effect such changes.
If Sun elects to change the functionality as described in the Statement
of Work, the following procedures shall apply:
(i) Sun will provide ATG in written form, the general nature
of the changes required.
(ii) ATG will provide a written fixed and firm price (unless
Sun and ATG agree in writing to a different basis for pricing)
to investigate the effect of the change upon the existing
Statement of Work.
(iii) Sun will then have the option to authorize the
investigation.
(iv) Upon authorization, ATG shall investigate the change(s)
and provide Sun with a written fixed and firm price (unless
Sun and ATG agree in writing to a different basis for
pricing), and specification, to change the Statement of Work
to meet the Change Order specification(s).
(v) Sun will then have the option to authorize ATG to
implement the change.
(vi) Upon authorization, ATG commits to implement such
change(s) and to support such changes as part of ATG's
standard support service policy unless ATG has elected out of
such support in accordance with Section 2B herein.
(vii) ATG may propose changes to the Statement of Work,
however, such proposed changes must be in writing and Sun must
acknowledge, in writing, Sun's acceptance of such proposed
changes before they will become part of the Statement of Work.
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6. Documentation - ATG agrees to supply Sun, at no additional cost to Sun, all
documentation necessary to Sun to understand and utilize all Work Product
produced under this PSA.
7. Term - This PSA shall commence with the Effective Date and shall end on
December 31, 2000.
8. Relationship of Parties - ATG shall perform the Services under the general
direction of Sun, but ATG shall determine, in ATG's sole discretion, the manner
and means by which the Services are accomplished. ATG shall at all times comply
with all applicable law in the performance of the Services. It is expressly
agreed that ATG is an independent contractor, and neither ATG nor ATG's
employees, agents, or consultants are employees or agents of Sun and have no
authority to bind Sun by contract or otherwise.
9. Personnel - ATG represents that ATG has or will secure all personnel required
to perform the Services under this PSA. Such personnel shall not be employees of
Sun. ATG's employees and agents shall, except as otherwise authorized by Sun,
observe the working hours, working rules and holiday schedule of Sun while
working on Sun's premises. Sun reserves the right to direct the replacement of
any personnel assigned by ATG to perform the Services in that if Sun reasonably
determines that the presence of such person is detrimental to the progress of
the work, ATG shall replace such personnel with properly qualified personnel as
soon as is reasonably practical. It is understood by both parties that such a
change in personnel may necessitate a change in the Statement of Work and that
any such changes shall be governed by the terms of this PSA.
10. Employment Taxes and Benefits - ATG shall be responsible for the payment of
any and all taxes due as a result of the performance of the Services hereunder
by any of its employees. ATG acknowledges and agrees that it is solely the
responsibility of ATG to report as income all compensation received hereunder
and ATG shall indemnify and hold harmless Sun from any obligation to pay
employment related charges or taxes, including any interest or penalties
thereon, in connection with any payments made to ATG hereunder.
11. Ownership of Work Product
A. If in the course of providing the Services, ATG creates for Sun any
software ("Developed Software") as specified on a Statement of Work signed by
both parties, the Services shall be considered a Work for Hire and Sun shall
have all rights of ownership in the Developed Software, except to the extent any
ATG software and any ATG enhancements to the ATG software is embedded in the
Developed Software. ATG software and any ATG enhancements to the ATG software
shall remain the exclusive property of ATG and Sun shall have no ownership
interest therein. Sun shall have a nonexclusive right to use the ATG Software to
the extent embedded in the Developed
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Software. ATG shall have no rights in the Developed Software except as otherwise
mutually agreed to in writing by the parties.
B. Any ideas, know-how, or techniques which may be developed by ATG as
a result of providing the Services, including any enhancements made to ATG's
supplied software source code (collectively "Developments"), shall be the
property of ATG. ATG grants to Sun a nonexclusive, perpetual, non-transferable
royalty free license to use the Developments as required for internal use. No
title shall pass to Sun with respect to any Developments or related
documentation.
12. Indemnity
A. NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST
DATA OR LOST PROFITS, HOWEVER, ARISING, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. EXCEPT AS PROVIDED IN SECTION 13A AND 13B
HEREOF, ATG'S LIABILITY FOR DIRECT DAMAGES UNDER THIS PSA, OR ANY STATEMENT OF
WORK ATTACHED HERETO OR REFERENCING THIS PSA, SHALL IN NO EVENT EXCEED THE
AMOUNT PAID BY SUN TO ATG WITH RESPECT TO THE SERVICES WHICH GAVE RISE TO THE
CLAIM. THE PARTIES AGREE TO THE ALLOCATION OF LIABILITY RISK WHICH IS SET FORTH
IN THIS SECTION 12A. THE FOREGOING LIMITATION SHALL NOT APPLY TO TANGIBLE
PROPERTY DAMAGE OR FOR DAMAGES DUE TO BODILY INJURY OR DEATH, TO THE EXTENT THAT
ALL SUCH DAMAGES HAVE BEEN DIRECTLY CAUSED BY ATG OR ANY OF ITS EMPLOYEES IN THE
PERFORMANCE OF SERVICES HEREUNDER.
B. ATG shall indemnity and hold harmless Sun, its officers, directors,
employees, agents and attorneys from and against any claims or actions brought
by third parties and from damages, losses, expenses, including reasonable
attorney's fees and costs of litigation directly resulting from the performance
of the Services by ATG, its agents, employees, or contractors.
13. Intellectual Property Warranty and Indemnification
A. ATG represents and warrants that, to the best of ATG's knowledge,
any Developed Software produced hereunder does not violate any patent, mask work
rights, copyright, trade secret, trademark, or other proprietary right of any
third party, and that ATG has the right to make disclosure and use of all such
information used by ATG in the performance of the Services.
B. If any claim of infringement is made by any third party against Sun,
exclusively due to Sun's use of any Work Product provided by ATG hereunder, Sun
shall promptly notify ATG and ATG shall defend, indemnify and hold Sun harmless
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against any and all liability, losses, claims, expenses (including reasonable
attorney's fees), demand or damages of any kind arising out of or related to any
such claim, whether or not that claim is successful, provided that:
(i) Sun promptly notifies ATG in writing of the claim;
and
(ii) ATG has control of the defense and all related
settlements negotiations, provided that, ATG agrees to submit
to Sun the terms of any settlement litigation ("Proposed
Settlement") covered by this Section 13 in which Sun is named
as a party. If within five (5) business days of Sun's receipt
of the Proposed Settlement, ATG does not receive in writing a
disapproval of the Proposed Settlement, the Proposed
Settlement shall be deemed approved by Sun. If within five (5)
business days of Sun's receipt of the Proposed Settlement, ATG
receives from Sun a disapproval of the Proposed Settlement,
ATG shall not enter into the settlement in Sun's name (but may
enter into the settlement as it applies to ATG or any other
third parties), and in such event ATG shall not be required to
indemnify Sun for any final judgment thereafter entered
against Sun in excess of the dollar amount of the Proposed
Settlement. Notwithstanding the above, if the Proposed
Settlement imposes any obligation other than (a) to cease
using the infringing Work Product, (b) to destroy or return
the infringing Work Product, and/or (c) to pay a third party
or parties monies, then if Sun rejects the Proposed Settlement
within the time period specified above, ATG shall still be
required to defend Sun in the dispute and to indemnify Sun for
any final judgment in such suit.
(iii) Sun fully cooperates with ATG, at ATG's cost, in the
defense or settlement of such actions.
C. If Sun is enjoined, or likely to be enjoined, from using any of the
Work Product because of a claim of infringement of proprietary rights of any
third party, ATG shall, at its own expense:
(i) obtain for Sun the right to continue using such Work
Product;
(ii) replace or modify the Work Product to make it
non-infringing, so long as the replacement or modification conforms to the
Statement of Work and does not adversely impact functionality or performance of
the Work Product running in Sun's production environment; or
(iii) terminate this PSA and refund all payments made by Sun
herein.
14. Acceptance and Warranty - Acceptance shall be accomplished by using the
applicable test procedures or programs established by ATG and Sun as described
in the
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applicable Statement of Work. In the absence of any such acceptance test
procedures or programs, the Services provided by ATG hereunder shall be
deemed accepted upon completion. For a period of ninety (90) days from
Acceptance, ATG warrants that any deliverables provided pursuant to the
applicable Statement of Work will perform substantially in accordance with
the specifications set out in the Statement of Work. ATG's obligation
hereunder will be promptly to:
(i) bring such deliverables into substantial compliance
with the specifications, at ATG's sole expense, or
(ii) grant Sun a full refund of the compensation paid by Sun
relating to any such non conforming deliverables.
If ATG receives written notice of such defects during the warranty period, ATG
shall repair, fix or make workable, that portion of its work products which are
determined by Sun to be defective.
The warranty period begins either on the date of delivery of each element of the
Services or, where the purchase price includes installation by ATG, on the final
date of installation, whichever period is later. If Sun schedules or delays
installation more than thirty (30) days after Acceptance, the warranty period
begins on the thirty-first (31st) day from the date of delivery.
Warranty repairs will be made at no cost to Sun. ATG will pay all cost of
consulting services related to such repairs and all cost of travel, lodging and
related out-of-pocket cost for visits to Sun sites which are necessary to effect
such repairs.
The foregoing warranty shall not apply to defects resulting from: (1) Improper
or inadequate training or maintenance by Sun; (2) Sun-supplied software or
interfaces (except in the case of software approved by ATG for use with the
Services provided, and in the case of interface code written by ATG for Sun
under this PSA); (3) unauthorized modification or misuse, (where such
modifications or misuse is determined to be the underlying material cause of
such defects); (4) Operation of the code delivered outside of the specifications
for the product as contained in Exhibit A of the PSA; or, (5) Improper site
maintenance (where such site preparation and maintenance is determined to be the
underlying material cause of such defects).
The warranty set forth above is exclusive and no other warranty, whether written
or oral, is expressed or implied. ATG specifically disclaims the implied
warranties of merchantability and fitness for a particular purpose.
15. Insurance - During the performance of Services, and until termination of
this PSA, ATG at its sole cost and expense, shall carry and maintain policies or
insurance of the kinds and in the amounts set out below.
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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.
A. Workers Compensation Insurance as required under the laws of the
States in which the work is performed with Employers Liability Coverage with a
limit of not less than [**].
B. Commercial General liability insurance covering all operations of
the ATG including products/completed operations and contractual liability
against claims for personal bodily injury and property damage with a combined
single limit of [**].
C. Automobile Liability insurance covering bodily injury and property
damage liability arising out of the use by or on behalf of the ATG, its agents
and employees of any owned, non-owned or hired automobile with combined single
limits not less than [**].
ATG shall provide Sun with a Certificate of Insurance stating that the
foregoing insurance policies are in full force and effect. ATG shall ensure its
insurer(s) endeavors to provide Sun with thirty (30) days written notice of any
cancellation of such policies.
16. Preexisting Obligations - ATG represents and warrants that ATG, its
employees and agents, if any, are under no preexisting obligation or obligations
inconsistent with the provisions of this PSA. ATG warrants that it has the right
to disclose or use all idea, processes, designs, data, and other information
which ATG has gained from third parties, and which ATG discloses or uses in the
performance of this PSA.
17. Financial Interest - ATG shall promptly disclose in writing to Sun all
actual or potential financial relationships ATG may have with respect to, or
resulting from, any recommendations or advice given by ATG to Sun.
18. Confidentiality - Work Product and information disclosed by either Sun or
ATG which the disclosing party deems to be Proprietary information including,
but not limited to, documents, observations and discussion of technology,
strategy, operations, internal corporate information, customers, sources of
supply, personnel and methods and procedures (herein "Proprietary Information")
shall be treated by the recipient in accordance with Paragraph 17A below.
A. Both Sun and ATG agree: (i) not to copy (except in the case of
copying documentation necessary for ATG personnel to accomplish their Service
task under this PSA), sell, disclose, make public or authorize any disclosure or
publication of any Proprietary Information; (ii) to take all reasonable and
necessary steps to assure that all principals, officers, agents, employees,
representatives, or any other persons affiliated in any manner with the
recipient of such information are given Proprietary Information on
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a need-to-know basis only, and they in turn do not disclose, or make public, or
authorize any disclosure or publication of any Proprietary Information; (iii)
not to use the Proprietary Information for any purpose other than in the
performance of the Services; (iv) to return all such information to the
disclosing party no later than fifteen (15) days after the date of termination
or expiration of this PSA or completion of the applicable Statement of Work,
whichever period is shorter, unless otherwise specified in writing by the
disclosing party, and (v) to require each individual directly involved in the
performance or receipt of Services hereunder to have on file with its company an
agreement containing nondisclosure obligations as least as protective of
confidential information as those contained herein.
B. Sun and ATG agrees that all Work Product and communications and
materials received by the other party will be deemed Proprietary Information
from disclosing party, unless and until such time as: (i) Such information is
generally available to the public, through no fault of the receiving party and
without breach of this PSA; (ii) Such information is already in the possession
of the receiving party without restriction and prior to any disclosure by
disclosing party hereunder; (iii) Such information is or has been lawfully
disclosed to the receiving party by a third party without an obligation of
confidentiality upon receiving party; (iv) recipient of such Proprietary
Information can demonstrate that such information was developed independently by
recipient without reference to the information disclosed by disclosing party.
C. Sun and ATG admit that monetary damages for any breach or threatened
breach of this Article are inadequate and that any breach or threatened breach
may constitute an irreparable injury to the disclosing party. In addition to all
other rights provided by law to which Sun and ATG shall hereby be entitled,
either party shall have the right to seek an injunction issued against the other
party to prevent any further breach. In the event that Sun or ATG seeks an
injunction hereunder, Sun and ATG hereby waives any requirement for the posting
of a bond or any other security.
19. Non Solicitation - Sun and ATG agree that while this PSA remains in effect
between Sun and ATG and for a period of one (1) year after the termination of
the agreement, neither party will directly solicit for hire, or endeavor to
directly entice away any employee of the other party's company or any of its
affiliates.
20. Termination - This PSA shall terminate upon the occurrence of any of the
following:
A. The liquidation or dissolution of Sun or ATG.
B. Termination by Sun for ATG's material breach of this PSA, which
breach continues incurred for a period of fifteen (15) days following ATG's
receipt of written notice thereof from Sun;
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C. Termination for convenience by Sun upon thirty (30) days written
notice. At Sun's request, ATG shall continue to perform the Services during that
thirty (30) day period and Sun agrees to pay ATG the cost of any such work
performed at the request of Sun at the consulting rates set forth in the related
Statement of Work.
21. Effect of Termination
A. Upon early termination of this PSA for any reason, Sun shall pay ATG
for all work completed in accordance with the then applicable Statement of Work.
B. Upon termination, ATG shall deliver to Sun within fifteen (15) days
after the date of termination of this PSA: (i) Any property of Sun in the
possession or control of ATG in good condition reasonable wear and tear
excepted; and (ii) All Work Product, whether finished or unfinished, prepared or
produced by ATG for Sun under this PSA, including all related documentation
necessary for Sun to understand and utilize the Work Product.
C. In no event shall Sun be responsible for payment for Services
performed or expenses incurred after the effective date of termination.
D. The termination of this PSA for any reason shall not relieve ATG of
its obligations under Paragraphs 9, 10, 11, 12 and 17 hereof, nor shall any such
termination relieve ATG or Sun from any liability arising of any breach of this
PSA.
22. Assignment - Neither party may assign this PSA (by operation of law or
otherwise) without the prior written consent of the other party, and any
prohibited assignment or sublicense shall be null and void. The foregoing
notwithstanding, with party may assign, or otherwise transfer this PSA to the
surviving entity as a result of a merger, acquisition or reorganization of all
of substantially all a party's assets or stock, provided that such entity is not
a direct competitor of the other party and agrees in writing it will be bound by
the terms and conditions of this PSA.
23. Discrimination - ATG shall not discriminate in any manner against any
individual because of race, color, religion, national origin, age, sex or
handicap. ATG, in performing Services under this PSA, shall comply with all
applicable laws, rules and regulations concerning the prohibition of
discrimination in employment.
24. Permits - ATG shall acquire and maintain in good standing, and at its sole
expense, all permits, licenses and other entitlement required of it in the
performance of Services under this PSA.
25. Attorneys' Fees - In the event that any dispute arises between the parties
hereto with regard to any of the provisions of this PSA or the performance of
any of the terms and conditions hereof, the prevailing party in any such dispute
shall be entitled to
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recover costs and expenses associated with resolving such dispute, including
reasonable attorneys' fees.
26 Miscellaneous
A. Exclusive PSA - This PSA, together with its Exhibits, is the
exclusive agreement between the parties with respect to its subject matter, and
supersedes all prior agreements, negotiations, representations, and proposals,
written or oral, related to its subject matter. Its terms cannot be modified,
supplemented or rescinded except by an agreement in writing signed by both
parties. Neither party shall be bound by nor liable to the other party for any
representation, promise, or inducement made by any of such party's agents or
employees which is not embodied in this PSA. In the event of any discrepancy or
inconsistency between this PSA and any other form used by either party in
connection herewith, the terms of this PSA shall govern.
B. Severability - If any provision of this PSA is held invalid,
illegal, or unenforceable, the validity, legality or enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
C. Waiver - No waiver of any breach of this PSA shall constitute a
waiver of any other breach, whether of the same or any other covenant, term or
condition. The subsequent performance of any other terms, covenants, conditions
of the PSA shall not constitute a waiver of any preceding breach regardless of
the other party's knowledge of the preceding breach at the time of subsequent
performance, nor shall any delay or omissions of either party's exercise of any
right arising from any such default affect or impair the parties' rights as to
the same or future default.
D. California Law - This PSA shall be governed by and construed in
accordance with the laws of the state of California.
E. All notices given pursuant to this PSA shall be in writing and
either delivered by certified mail, or overnight delivery service, return
receipt requested, to parties at the addresses specified hereto, or to such
other address as either party may direct by similar notice to the other. All
notices given pursuant to this PSA shall be deemed to have been given on the
date of mailing; if correctly addressed and postage prepaid.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties to this PSA execute it through their duly
authorized representatives.
Sun Microsystems, Inc. Art Technology Group, Inc.
By: /s/ Frank Haran By: /s/ Lauren J. Kelley
------------------------------- ----------------------------
Frank Haran Director of Worldwide Sales
------------------------------- ----------------------------
(Print Name) (Print Name)
Title: Global Commodity Manager Title: Lauren J. Kelley
--------------------------- -------------------------
Date: 3/27/98 Date: 4/2/98
---------------------------- -------------------------
-12-
<PAGE>
Exhibit 10.25
FOURTH LOAN MODIFICATION AGREEMENT
This Fourth Loan Modification is entered into as of May 12, 1999, by
and between ART TECHNOLOGY GROUP, INC., a Delaware corporation with its
principal place of business at 101 Huntington Avenue, Boston, Massachusetts
02199 ("Borrower") and SILICON VALLEY BANK, a California-chartered bank
("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 02481, doing business under
the name "Silicon Valley East."
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a
loan arrangement dated as of November 26, 1997, evidenced by, among other
documents, a certain Loan and Security Agreement dated as of November 26, 1997
between Borrower and Bank, as amended by certain Loan Modification Agreements
dated as of March 31, 1998, July 2, 1998 and September 8, 1998 (as amended, the
"Loan Agreement"). Capitalized terms used but not otherwise defined herein shall
have the same meaning as in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Banks shall be referred to as
the "Indebtedness".
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by
the Collateral as described in the Loan Agreement and a certain Intellectual
Property Security Agreement dated as of November 26, 1997 between Borrower and
Bank (together with any other collateral security granted to Bank, the "Security
Documents").
Hereinafter, the Security Documents, together with all other documents
evidencing or security 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 Loan Agreement shall be amended by deleting the
definition of "Cash Management Services" appearing in
Section 1.1 thereof.
2. The Loan Agreement shall be amended by deleting the
definition of "Committed Revolving Line" appearing in
Section 1.1 and inserting in lieu thereof the
following:
<PAGE>
"Committed Revolving Line" means a credit
extension of up to Five Million Dollars
($5,000,000.00).
3. All references to "Committed Equipment Line" in the
Loan Agreement shall mean and refer to the "1998
Committed Equipment Line".
4. The Loan Agreement shall be amended by deleting
paragraph (c) in the definition of "Eligible
Accounts" appearing in Section 1.1 and inserting in
lieu thereof the following:
"(c) Accounts with respect to an account
debtor, including Affiliates, whose total
obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, to the extent
such obligations exceed the aforementioned
percentage, except as approved in writing by
Bank."
5. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Equipment Advance" has the meaning set
forth in Section 2.1.3."
and inserting in lieu thereof the following:
""Equipment Advance" or "Equipment Advances"
shall mean any advance made hereunder
pursuant to Sections 2.1.3.A or 2.1.3.B."
6. The Loan Agreement shall be amended by deleting the
definition of "Letter of Credit" appearing in Section
1.1 and inserting in lieu thereof the following:
""Letter of Credit" means a letter of credit
or similar undertaking issued by Bank
pursuant to Section 2.1.4."
7. The Loan Agreement shall be amended by deleting the
definition of "Maturity Date" appearing in Section
1.1 and inserting in lieu thereof the following:
2
<PAGE>
""Maturity Date" means, as applicable, (i)
the Revolving Maturity Date for Advances
made pursuant to Section 2.1.1; (ii) the
Term Loan Maturity Date for Term Loan
advances made pursuant to Section 2.1.2;
(iii) the Equipment Line Maturity Date for
Equipment Advances made pursuant to Section
2.1.3.A; and (iv) the 1999 Equipment
Maturity Date for Equipment Advances made
pursuant to Section 2.1.3.B."
8. The Loan Agreement shall be amended by deleting the
definition of "New Equity" appearing in Section 1.1
and inserting in lieu thereof the following new
definition:
""Capitalization Event" means the issuance
by the Borrower of equity resulting in the
receipt by Borrower of at least Two Million
Five Hundred Thousand Dollars
($2,500,000.00)."
9. The Loan Agreement shall be amended by inserting
immediately after the definition of "Negotiable
Collateral" appearing in Section 1.1 thereof the
following definitions:
""1999 Committed Equipment Line" means a
credit extension of up to Two Hundred
Thousand Dollars ($200,000.00).
"1999 Equipment Availability End Date" has
the meaning set forth in Section 2.1.3.B.
""1999 Equipment Maturity Date" means thirty
(30) months after the 1999 Equipment
Availability End Date."
10. The Loan Agreement shall be amended by deleting the
following definition appearing in Section 1.1
thereof:
""Revolving Maturity Date" means July 1,
1999."
and inserting in lieu thereof the following:
""Revolving Maturity Date" means May 12,
2000."
3
<PAGE>
11. The Loan Agreement shall be amended by inserting
immediately after the definition of "Term Loan"
appearing in Section 1.1 thereof the following
definition:
""Term Loan Maturity Date" means December
29, 2000."
12. The Loan Agreement shall be amended by deleting
Section 2.1.1 entitled "Revolving Advances" and
inserting in lieu thereof the following:
"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 in exceed (i) the
Committed Revolving Line or the Borrowing
Base, whichever is less, minus (ii) the face
amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of
Credit) and minus (iii) any other amounts
outstanding to the Bank (excluding advances
made pursuant to Sections 2.1.2, 2.1.3.A and
2.1.3.B). 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. Eastern time, on the Business Day that
the Advances 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
4
<PAGE>
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."
13. All references to "Maturity Date" in Section 2.1.2 of
the Loan Agreement shall mean and refer to the "Term
Loan Maturity Date."
14. All Term Loan advances currently amortizing under
Section 2.1.1 shall continue to be repaid as provided
in Section 2.1.2. The outstanding principal balance
of all Term Loan advances made pursuant to Section
2.1.2 as of April 21, 1999, is Two Hundred
Seventy-Seven Thousand Seven Hundred Seventy-Seven
and 92/100 Dollars ($277,777.92).
15. Section 2.1.3 of the Loan Agreement entitled
"Equipment Advances" shall be renumbered as Section
2.1.3.A and retitled as "1998 Equipment Advances."
16. All Equipment Advances currently amortizing under
Section 2.1.3.A shall continue to be repaid as
provided in Section 2.1.3.A. The outstanding
principal balance of all Equipment Advances made
pursuant to Section 2.1.3.A as of April 21, 1999 is
One Hundred Seventy-Nine Thousand Nine Hundred
Twenty-Three and 86/100 Dollars ($179,923.86).
17. The Loan Agreement shall be amended by inserting
after Section 2.1.3.A thereof the following new
section entitled "1998 Equipment Advances":
"2.1.3.B 1999 EQUIPMENT ADVANCES.
(a) Subject to and upon the terms and
conditions of this Agreement, at any time
through November 12, 1999 (the "1999
Equipment Availability End
5
<PAGE>
Date"). Bank agrees to make Equipment
Advances (each an "Equipment Advance" and
collectively, the "Equipment Advances") to
Borrower under this Section 2.1.3.B in an
aggregate outstanding amount not to exceed
the 1999 Committed Equipment Line. To
evidence the Equipment Advances, Borrower
shall deliver to Bank, at the time of each
Equipment Advance request, an invoice for
the equipment to be purchased. The Equipment
Advances shall be used only to purchase or
refinance Equipment purchased after December
1, 1998 and shall not exceed One Hundred
Percent (100%) of the invoice amount of such
equipment approved from time to time by
Bank, excluding taxes, shipping, warranty
charges, freight discounts and installation
expense. Software may only constitute up to
twenty-five percent (25%) of aggregate
Equipment Advances under this Section
2.1.3.B.
(b) Interest shall accrue from the date of
each Equipment Advance made pursuant to this
Section 2.1.3.B at a per annum rate equal to
the aggregate of the Prime Rate, PLUS three
quarters of one percent (0.75%), and shall
be payable monthly on the Payment Date of
each month through the month in which the
1999 Equipment Availability End Date falls.
Any Equipment Advances made pursuant to this
Section 2.1.3.B that are outstanding on the
1999 Equipment Availability End Date will be
payable in thirty (30) equal monthly
installments of principal, plus all accrued
interest, beginning on the Payment Date of
each month following the 1999 Equipment
Availability End Date and ending on the 1999
Equipment 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. Eastern time one (1)
Business Date 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
6
<PAGE>
or its designee and include a copy of the
invoice for the Equipment to be financed."
18. Section 2.1.3 of the Loan Agreement entitled "Letters
of Credit" shall be renumbered as Section 2.1.4.
19. The Loan Agreement shall be amended by deleting the
following text appearing as the first sentence of the
redesignated Section 2.1.4 entitled "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 Dollars ($100,000.00)."
and inserting in lieu thereof the following:
"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, minus (ii) the then outstanding
principal balance of the Advances, and minus
(iii) any other amounts outstanding to the
bank (excluding advances made pursuant to
Sections 2.1.2, 2.1.3.A and 2.1.3.B);
PROVIDED that the face amount of outstanding
Letters of Credit (including drawn but
unreimbursed Letters of Credit and any
Letter of Credit reserve as described in
this Section 2.1.4) shall not in any case
exceed Four Million Seven Hundred Sixty-Two
Thousand Five Hundred Dollars
($4,762,500.00)."
20. The Loan Agreement shall be amended by deleting in
its entirety Section 2.1.4 of the Loan Agreement
entitled "Cash Management Sublimit."
7
<PAGE>
21. The Loan Agreement shall be amended by deleting
Section 2.2. entitled "Overadvances" and inserting in
lieu thereof the following:
"2.2 OVERADVANCES. If, at any time or for
any reason, the amount of Obligations owed
by Borrower to Bank pursuant to Sections
2.1.1 and 2.1.4 of this Agreement is greater
than: (a) the lesser of (i) the Committed
Revolving Line or (ii) the Borrowing Base,
minus (b) the face amount of all outstanding
Letters of Credit (including drawn but
unreimbursed letters of credit), and minus
(c) any other amounts outstanding to the
Bank (excluding advances made pursuant to
Sections 2.1.2, 2.1.3.A and 2.1.3.B),
Borrower shall immediately pay to Bank, in
cash, the amount of such excess."
22. The Loan Agreement shall be amended by deleting
Section 2.3(a) entitled "Interest Rate" and inserting
in lieu thereof the following:
"(a) INTEREST RATE. Except as set forth in
Section 2.3(b), any Advances made pursuant
to Section 2.1.1 shall bear interest,
effective July 2, 1998, on the average daily
balance thereof, at a per annum rate equal
to the aggregate of the Prime Rate, PLUS One
Quarter of One Percent (0.25)."
23. Notwithstanding anything in the Loan Agreement to the
contrary, the audited consolidated financial
statements of the Borrower for Fiscal Year 1998 must
be received by the Bank on or before May 31, 1999.
24. The Loan Agreement shall be amended by deleting
Section 6.3(ii) and inserting in lieu thereof the
following:
"(ii) Bank shall have a right from time to
time hereafter to audit Borrower's Accounts
at Borrower's expense, 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. The
Borrower shall provide the Bank with access
to all of its records and financial
information during regular business hours in
order to permit the Bank to complete an
audit of
8
<PAGE>
Borrower's Accounts on or before December
31, 1999."
25. The Loan Agreement shall be amended by deleting
Section 6.B entitled "Quick Ratio" and inserting in
lieu thereof the following:
"6.8 QUICK RATIO. Borrower shall maintain,
as of the last day of each calendar month, a
ratio of Quick Assets to Current Liabilities
(excluding deferred revenues) of at least:
(i) 1.50 to 1.0 for each month through the
month ending June 30, 1999, and (ii) 1.25 to
1.0 for the month ending July 31, 1999 and
each month thereafter. For purposes hereof,
the definition of "Current Liabilities shall
include all outstanding Credit Extensions
under this Agreement, including, without
limitation, any Letters of Credit issued by
the Bank, and any other amounts outstanding
to the Bank."
26. The Loan Agreement shall be amended by deleting
Section 6.9 entitled "Tangible Net Worth" and
inserting in lieu thereof the following:
"6.9 ADJUSTED QUICK RATIO. Borrower shall
maintain, as of the last day of each
calendar month, a ratio of Quick Assets to
Current Liabilities (excluding deferred
revenues) of at least 1.75 to 1.0. For
purposes hereof, the definition of "Current
Liabilities" shall include all current and
long term portions of direct borrowings by
Borrower owed to Bank, but shall exclude any
issued but undrawn Letters of Credit and any
amounts owing under Bank's cash management
services, including business credit card
services."
27. The Loan Agreement shall be amended by deleting
Section 6.11 entitled "New Equity" and inserting in
lieu thereof the following:
"6.11 CAPITALIZATION EVENT. A Capitalization
Event shall occur on or before October 31,
1999."
28. No security instrument or other promissory note is
necessary in order to evidence the indebtedness of
Borrower to Bank described in the Loan Agreement, as
amended hereby.
9
<PAGE>
29. The Borrowing Base Certificate appearing as EXHIBIT C
to the Loan Agreement is hereby replaced with the
Borrowing Base Certificate attached as EXHIBIT A
hereto.
30. The Compliance Certificate appearing as EXHIBIT D to
the Loan Agreement is hereby replaced with the
Compliance Certificate attached as EXHIBIT B hereto.
4. FEE. Borrower shall pay to Bank a modification fee equal to the Four
Thousand Five Hundred Dollars ($4,500.00), which fee shall be due on the date
hereof and shall be deemed fully earned as of the date hereof. The Borrower
shall also reimburse Bank for all legal fees and expenses incurred in connection
with this amendment to the Existing Loan Documents.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms,
and reaffirms all terms and conditions of all security or other collateral
granted to the Bank, and confirms that the indebtedness secured thereby
includes, without limitation, the Indebtedness.
7. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has
no defense against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower 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 of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.
9. JURISDICTION/VENUE. 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 Loan Modification Agreement; provided, however, that if for any
reason Bank cannot
10
<PAGE>
avail itself of the courts of the Commonwealth of Massachusetts, then venue
shall lie in Santa Clara County, California.
10. COUNTERSIGNATURE. This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Bank (provided,
however, in no event shall this Loan Modification Agreement become effective
until signed by an officer of Bank in California).
This Loan Modification Agreement is executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the date first written
above.
BORROWER: BANK:
ART TECHNOLOGY GROUP, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ Jeet Singh By: /s/ Pamela Aldsworth
---------------------------------- ------------------------------------
Name: Jeet Singh Name: Pamela Aldsworth
-------------------------------- ----------------------------------
Title: President Title: Senior Vice President
------------------------------- ---------------------------------
SILICON VALLEY BANK
By: /s/ Michael Jordan
------------------------------------
Name: Michael Jordan
----------------------------------
Title: Assistant Vice President
---------------------------------
(signed in Santa Clara County,
California)
11
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
Borrower: ART TECHNOLOGY GROUP, INC. Bank: Silicon Valley Bank
Commitment Amount: $5,000,000.00
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S> <C>
1) Accounts Receivable Book Value as of ______ $____________
2) Additions (please explain on reverse) $____________
3) TOTAL ACCOUNTS RECEIVABLE $____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
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 or reverse) $____________
13) TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
14) Eligible Accounts (#3 minus #13) $____________
15) LOAN VALUE OF ACCOUNTS (80.0% of #14) $____________
BALANCES
16) Maximum Loan Amount $____________
17) Total Funds Available [Lesser of #16 or #15] $____________
18) Present balance owing on Line of Credit $____________
19) Outstanding under Sublimits (Letters of Credit and cash
management services) $____________
20) RESERVE POSITION (#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 BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK.
COMMENTS:
ART TECHNOLOGY GROUP, INC.
By:_______________________________
Authorized Signer
12
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: ART TECHNOLOGY GROUP, INC.
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 between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ________________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct 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 Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower 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>
Monthly financial statements & CC Monthly within 25 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
Monthly BBC & A/R Agings Monthly within 25 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.50:1.0 thru 6/30/99 _____:1.0 Yes No
1.25:1.0 thereafter _____:1.0 Yes No
Minimum Adjusted Quick Ratio 1.75:1.0 _____:1.0 Yes No
Capitalization Event by 10/31/99 $2,500,000 $_______ Yes No
</TABLE>
Comments Regarding Exceptions:
Sincerely,
- ------------------- Date:
Signature ------------------
- -------------------
Title
13
<PAGE>
SILICON VALLEY BANK
INVOICE FOR LOAN CHARGES
BORROWER: ART TECHNOLOGY GROUP, INC.
LOAN OFFICER: Pamela J. Aldsworth, Senior Vice President
DATE: ________________, 1999
Working Capital Line Commitment Fee $4,500.00
TOTAL FEES DUE $4,500.00
Please indicate the method of payment:
( ) A check for the total amount is attached.
( ) Debit DDA _______ for the total amount.
( ) Loan proceeds
ART TECHNOLOGY GROUP, INC.
- ----------------------------------
Authorized Signer
- ----------------------------------
Silicon Valley Bank (Date)
Account Officer's Signature
14
<PAGE>
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.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 18, 1999
