<PAGE>
As filed with the Securities and Exchange Commission on July 22, 1999
Registration No. 333-80549
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
ACTIVE SOFTWARE, INC.
(Exact Name of Registrant as Specified in Its Charter)
----------------
<TABLE>
<S> <C> <C>
Delaware 7372 94-3232772
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
----------------
3333 Octavius Drive
Santa Clara, California 95054
(408) 988-0414
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
----------------
R. James Green
President and Chief Executive Officer
Active Software, Inc.
3333 Octavius Drive
Santa Clara, California 95054
(408) 988-0414
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------
Copies to:
<TABLE>
<S> <C>
Mark A. Medearis Kevin P. Kennedy
Edward Y. Kim SHEARMAN & STERLING
Scott S. Ring 1550 El Camino Real
Gene Yoon Menlo Park, CA 94025
VENTURE LAW GROUP
A Professional Corporation
2775 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated July 22, 1999.
4,000,000 Shares
Active Software, Inc.
Common Stock
[LOGO OF ACTIVE SOFTWARE]
-----------
This is an initial public offering of shares of common stock of Active
Software, Inc. All of the 4,000,000 shares of common stock are being sold by
Active Software.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $10.00 and $12.00. The common stock has been approved for quotation
on the Nasdaq National Market under the symbol "ASWX."
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Initial public offering price...................................... $ $
Underwriting discount.............................................. $ $
Proceeds, before expenses, to Active Software...................... $ $
</TABLE>
To the extent that the underwriters sell more than 4,000,000 shares of common
stock, the underwriters have the option to purchase up to an additional 600,000
shares from Active Software at the initial public offering price less the
underwriting discount.
-----------
The underwriters expect to deliver the shares against payment on ,
1999.
Joint Lead Managers
Goldman, Sachs & Co. Lehman Brothers
-----------
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
-----------
Prospectus dated , 1999
<PAGE>
[Inside Front Cover]
eBusiness
integration at the speed of change
[Stylized graphic of portion of a globe with rings circling the globe at
different angles. The rings are comprised of letters forming World Wide Web
addresses.]
[Active Software logo]
[Different colored blocks containing the words "Integration," "Scalability,"
"Security," "Real time" and "Solution."]
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Active Software and the financial statements and notes
appearing elsewhere in this prospectus. Unless otherwise indicated, this
prospectus assumes:
. our reincorporation in Delaware and a three-for-two stock split to be
completed prior to the completion of the offering,
. the automatic conversion of our outstanding convertible redeemable
preferred stock into common stock upon closing of the offering,
. the filing of our amended and restated certificate of incorporation,
authorizing a class of 5,000,000 shares of undesignated preferred stock,
upon closing of the offering, and
. no exercise by the underwriters of their option to purchase additional
shares of stock in the offering.
Active Software, Inc.
Our Business
We are a leading provider of eBusiness integration software. eBusinesses are
companies that conduct their businesses electronically through the use of
Internet or other networking technologies. Our eBusiness integration software,
the ActiveWorks Integration System, enables the seamless exchange of
information among incompatible software applications used by an enterprise and
its customers, suppliers and partners. As a result, our customers are able to
become eBusinesses and take advantage of their long-term investments in
applications, systems and technologies. Our software has been licensed across
multiple industries to over 100 customers, including Automatic Data Processing,
Boeing, Federal Express, Hewlett-Packard, Level 3 Communications, Starbucks and
the U.S. Department of Defense. We believe that our ActiveWorks Integration
System provides significant business benefits to our customers by allowing them
to bring their products and services to market faster, and respond more quickly
and at a lower cost to the evolving needs of their enterprises.
Our Market Opportunity
Companies today utilize a broad range of often incompatible software
applications for many key business functions. To take full advantage of this
significant investment, companies need to be able to integrate these
applications so that they operate seamlessly with one another. The explosive
emergence of the Internet has added another dimension to this challenge by
providing companies with the ability to conduct their business electronically
as eBusinesses.
Traditional integration and enterprise application integration solutions
fail to fully capitalize on the benefits of Internet technologies and do not
adequately address the challenges of the eBusiness environment. These solutions
are often inflexible and rigid, lack key functionality, such as security and
integration management and monitoring, and are difficult or time-consuming to
implement. To address these problems, we have developed the ActiveWorks
Integration System, which offers the following benefits:
. A comprehensive and highly reliable software solution that fully
integrates the disparate software applications of an eBusiness and
enables these applications to exchange information in real time, both
internally and across the enterprise's network of customers, suppliers
and partners.
3
<PAGE>
. A broad portfolio of dynamic software components, called adapters, which
connect individual software applications to the ActiveWorks Integration
System and are readily configurable to meet constantly changing
application requirements and specifications.
. The flexibility to respond quickly and effectively to changes in the
customer's business with minimal custom programming.
. The ability to expand incrementally to match not only the number of
transactions processed by a customer's computer systems but also the
breadth of its network of customers, suppliers and partners.
. Built-in security features that allow information to be transmitted
securely across the customer's network of customers, suppliers and
partners.
. Efficient, easy-to-use and centralized management and monitoring of the
integration system and its components, resulting in a reduction of the
cost and time required for system-wide maintenance.
Our Strategy
Our mission is to establish the ActiveWorks Integration System as the
leading software solution for eBusiness integration worldwide. Key elements of
this strategy include:
. Facilitating broad acceptance and deployment of the ActiveWorks
Integration System to establish it as the eBusiness integration software
solution of choice across multiple industries.
. Enhancing our technological leadership through ongoing investment and
innovation.
. Expanding the capabilities of our products to provide our customers with
a complete eBusiness integration solution.
. Leveraging our partnerships with system integrators and service,
distribution and marketing partners to provide a wide range of support
and implementation services to our customers.
. Continuing our commitment to customer satisfaction and providing our
customers with the highest quality products and services, directly and
through our partners.
Other Information
Our total revenues were $7.6 million and $8.7 million for 1998 and the six
months ended June 30, 1999, respectively, and our net loss was $9.9 million and
$5.3 million for the same periods. As of December 31, 1998 and June 30, 1999,
our total accumulated deficit was $17.7 million and $23.1 million,
respectively.
We were originally incorporated under the laws of California in September
1995 and intend to reincorporate in Delaware prior to completion of this
offering. Our principal executive offices are located at 3333 Octavius Drive,
Santa Clara, California, 95054, and our telephone number is (408) 988-0414. The
address of our Web site is "www.activesw.com." Information contained on our Web
site is not a part of this prospectus.
The Active Software logo is a registered trademark of Active Software, Inc.,
and "Active Software," "ActiveWorks" and "ActiveWorks Integration System" are
trademarks of Active Software, Inc. This prospectus also contains brand names,
trademarks or service marks of companies other than Active Software, Inc., and
these brand names, trademarks and service marks are the property of their
respective holders.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by Active
Software........................ 4,000,000 shares
Shares to be outstanding after
this offering................... 23,751,372 shares
Use of proceeds.................. To fund anticipated operating losses, working
capital and other general corporate purposes.
Nasdaq National Market symbol.... ASWX
</TABLE>
The above information is based on shares outstanding as of June 30, 1999 and
excludes:
. 3,222,149 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $2.66 per share as of June 30, 1999,
. 215,676 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.31 per share as of June 30, 1999,
and
. a total of 4,231,812 shares available for future issuance under our
various stock plans.
5
<PAGE>
Summary Consolidated Financial Information
(in thousands, except per share data)
The following table sets forth a summary of our consolidated statements of
operations data for the periods presented. The pro forma information in the
following table gives effect to the automatic conversion of all outstanding
shares of our convertible redeemable preferred stock into common stock upon the
closing of this offering.
<TABLE>
<CAPTION>
Six Months
Sept. 19, 1995 Year Ended December 31, Ended June 30,
(Inception) to ------------------------- ----------------
Dec. 31, 1995 1996 1997 1998(1) 1998 1999
-------------- ------- ------- ------- ------- -------
Consolidated Statements of
Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License................. $ -- $ 280 $ 2,625 $ 5,900 $ 1,955 $ 5,922
Service................. 25 5 568 1,699 454 2746
------- ------- ------- ------- ------- -------
Total revenues........ 25 285 3,193 7,599 2,409 8,668
Gross profit.............. 15 114 2,540 4,832 1,856 5,399
Operating expenses........ 142 3,030 7,522 15,045 6,381 10,790
Loss from operations...... (127) (2,916) (4,982) (10,213) (4,525) (5,391)
Net loss.................. (133) (2,814) (4,853) (9,942) (4,433) (5,342)
======= ======= ======= ======= ======= =======
Basic and diluted net loss
per share................ $(10.23) $ (6.59) $ (2.50) $ (3.21) $ (1.34) $ (1.08)
======= ======= ======= ======= ======= =======
Shares used in computing
basic and diluted net
loss per share........... 13 427 1,945 3,096 3,301 4,962
======= ======= ======= ======= ======= =======
Pro forma basic and
diluted net loss per
share.................... $ (0.64) $ (0.29)
=======
Shares used in computing
pro forma basic and
diluted net loss per
share.................... 15,457 18,367
======= =======
</TABLE>
- --------
(1) In connection with this offering, the 1998 consolidated financial
statements have been restated to reflect the revised value of warrants
issued to non-employees for services rendered and deferred compensation
relating to issuance of options to employees. See Note 11 to the 1998
consolidated financial statements.
The following table sets forth a summary of our consolidated balance sheet
at June 30, 1999:
.on an actual basis;
. on a pro forma basis to give effect to the automatic conversion of all
shares outstanding of our convertible redeemable preferred stock into
common stock upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect the conversion of the
convertible redeemable preferred stock and our receipt of the estimated
net proceeds from the sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $11.00 per share.
<TABLE>
<CAPTION>
As of June 30, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- ------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 6,729 $6,729 $46,549
Working capital................................. 2,198 2,198 42,018
Total assets.................................... 13,207 13,207 53,027
Notes payable, less current portion............. 59 59 59
Convertible redeemable preferred stock.......... 25,117 - -
Total stockholders' equity (deficiency)......... (21,096) 4,021 43,841
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making a decision
to buy our common stock. You should also refer to the other information set
forth in this prospectus, including the discussions set forth in "Special Note
Regarding Forward-Looking Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
consolidated financial statements and the related notes.
We only began selling our products in August 1996 and, as a result, you may
have difficulty evaluating our business and operating results.
We have a limited operating history and cannot be certain that our business
strategy will be successful. We were incorporated in September 1995 and
commercially released our first software product in August 1996. An investor in
our common stock must consider the risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets such
as the eBusiness integration market, including:
. our substantial dependence on our ActiveWorks software products, from
which we derive substantially all of our revenues and which have limited
market acceptance to date;
. our need to introduce new software products and services to respond to
technological and competitive developments and customer needs;
. our ability to manage our anticipated growth;
. our need to expand our distribution capability through our direct sales
organization and through third party distributors and system integrators;
. our ability to respond to competitive developments;
. the market's acceptance of eBusiness integration; and
. our dependence on our current executive officers and key employees.
We have a history of losses, we expect future losses, and we may not achieve or
maintain profitability.
We have incurred net losses in each fiscal quarter since our inception and
do not expect to achieve profitability in the foreseeable future. We incurred
net losses of $9.9 million in 1998 and $5.3 million in the six months ended
June 30, 1999, and, as of June 30, 1999, we had an accumulated deficit of
approximately $23.1 million. We cannot assure you that our revenues will grow
or that we will achieve or maintain profitability in the future. In addition,
we intend to significantly increase our future product development, sales and
marketing, and administrative expenses over the next 18 months. Accordingly, we
will need to significantly increase revenue to achieve and maintain
profitability. Our ability to increase revenue and achieve profitability will
be affected by the other risks and uncertainties described in this section and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our operating results are subject to fluctuations and seasonality and, if we
fail to meet the expectations of securities analysts or investors, our stock
price could decline significantly.
Our operating results are difficult to predict, and we believe that period-
to-period comparisons of our operating results will not necessarily be
meaningful. As a result, you should not rely upon them as an indication of
future performance. Our future quarterly operating results may fluctuate and
may not meet the expectations of securities analysts or investors. If this
occurs, the price of our common
7
<PAGE>
stock would likely decline. The factors that may cause fluctuations of our
operating results include the following:
. the size, timing and contractual terms of sales of our products and
services due to the long and unpredictable sales cycle for our products;
. technical difficulties in our software that could delay product shipments
or increase the costs of introducing new products;
. introductions of new products or new versions of existing products by us
or our competitors;
. changes in the pricing of our products and services or those of our
competitors;
. our ability and the ability of our partners to implement eBusiness
solutions for our customers;
. changes in our mix of revenues generated from product sales and services;
. changes in our mix of sales channels through which our products and
services are sold; and
. the fixed nature of our operating expenses, such as base compensation and
rent.
In addition, we expect to experience seasonality in the sales of our
software products. For example, we expect that sales may decline during summer
months, particularly in European markets. We also anticipate that sales may be
lower in our first fiscal quarter due to patterns in the capital budgeting and
purchasing cycles of our current and prospective customers. These seasonal
variations in our sales may lead to fluctuations in our quarterly operating
results. Furthermore, it is difficult for us to evaluate the degree to which
this seasonality may affect our business because our growth may have largely
overshadowed this seasonality in recent periods. In addition, concerns
regarding year 2000 compliance issues may adversely affect the demand for
software products like ours if our customers divert resources to address year
2000 issues.
Because our revenues are dependent on sales of our ActiveWorks software
products, our business could be materially harmed by factors that adversely
affect the pricing and demand for these products.
We currently derive substantially all of our revenues from the sale of our
ActiveWorks Integration System software products and related services. We
expect revenues from this product family to continue to account for
substantially all of our future revenues. As a result, factors adversely
affecting the pricing of or demand for our ActiveWorks software products, such
as competition and technological change, could materially harm our business.
Because a small number of customers account for a substantial portion of our
revenues, our revenues could suffer if we lose a major customer.
We have generated a substantial portion of our annual and quarterly
historical revenues from a limited number of customers. As a result, if we lose
a major customer, our revenues could suffer. In 1997, The Boeing Company
accounted for 33% of our total revenues. In 1998, no customer accounted for
more than 10% of our total revenues. For the six months ended June 30, 1999,
Level 3 Communications and a federal government agency engaged in national
defense activities accounted for 16% and 13% of our total revenues,
respectively. We expect that a small number of customers will continue to
account for a substantial portion of our revenues in any given quarter for the
foreseeable future. See "Business--Customers" for additional information about
our customers and quantitative information relating to our dependence on these
customers.
We need to expand our sales and distribution channels, and, if we fail to do
so, our growth could be limited.
We will need to significantly expand our direct and indirect sales
operations in order to increase market awareness of our ActiveWorks software
products and to generate increased revenue. We
8
<PAGE>
have recently expanded our direct sales force and plan to recruit additional
sales personnel. As of June 30, 1999, we employed approximately 51 individuals
in our sales and marketing organization. Currently, we believe we will need to
expand our sales organization by more than 100% of its present size over the
next 18 months. New sales personnel will require training and take time to
achieve full productivity. There is strong competition for qualified sales
personnel in our business, and we may not be able to attract and retain
sufficient new sales personnel to expand our operations. In addition, we
believe that our future success is dependent upon expansion of our indirect
distribution channel, which consists of our relationships with a variety of
distribution partners such as system integrators, independent software vendors
and value added resellers. To date, we have relationships with only a limited
number of these partners. We cannot be certain that we will be able to
establish relationships with additional distribution partners on a timely
basis, or at all, or that these distribution partners will devote adequate
resources to promoting or selling our products. In addition, we may also face
potential conflicts between our direct sales force and third-party reselling
efforts.
We rely on system integrators and other strategic relationships to implement
and promote our software products and, if these relationships fail, our
business could be harmed.
We have entered into relationships with third-party system integrators, as
well as with hardware platform and software applications developers and service
providers. We have derived, and anticipate that we will continue to derive, a
significant portion of our revenues from customers that purchase products or
services from our partners. In most cases, the partner refers the customer to
us, and we enter into a software license agreement directly with the customer.
Our future growth will be limited if we fail to work effectively with our
partners or fail to grow our base of these types of partners.
Our partners are not required to market or promote our products and
generally are not restricted from working with competing software companies.
Accordingly, our success will depend on their willingness and ability to devote
sufficient resources and efforts to marketing our ActiveWorks software products
rather than the products of others. If these relationships fail, we will have
to devote substantially more resources to the distribution, sales and
marketing, implementation and support of our products than we would otherwise,
and our efforts may not be as effective as those of our partners, which would
harm our business.
The ActiveWorks Integration System must integrate with applications made by
third parties, and, if we lose access to the programming interfaces for these
applications, or if we are unable to modify our products or develop new
products in response to changes in these applications, our business could
suffer.
Our ActiveWorks Integration System uses software components called adapters
to communicate with our customers' enterprise applications. Our ability to
develop these adapters is largely dependent on our ability to gain access to
the application programming interfaces, or APIs, for the applications, and we
may not have access to necessary APIs in the future. APIs are written and
controlled by the application provider. Accordingly, if an application provider
becomes a competitor by entering the eBusiness integration market, it could
restrict our access to its APIs for competitive reasons. Our business could
suffer if we are unable to gain access to these APIs. Furthermore, we may need
to modify our ActiveWorks software products or develop new adapters in the
future as new applications or newer versions of existing applications are
introduced. If we fail to continue to develop adapters or respond to new
applications or newer versions of existing applications, our business could
suffer.
9
<PAGE>
We rely in part on third parties to develop adapters necessary for the
integration of applications using our ActiveWorks Integration System, and we
cannot be certain that these companies will continue to develop these adapters
or that these adapters will be free of defects.
A core element of our strategy is to enable third parties to develop
adapters that operate with our ActiveWorks Integration System. If these third
parties are unable or unwilling to develop these adapters, we may need to
develop them internally, which would require us to divert financial and
technical resources to these efforts. In addition, we cannot be certain that
adapters developed by third parties will not contain undetected errors or
defects, which could harm our reputation, result in product liability or
decrease the market acceptance of our products.
The eBusiness integration market is in an early stage of development, and
eBusiness integration products, including our ActiveWorks software products,
may not achieve market acceptance.
The market for eBusiness integration software is relatively new and rapidly
evolving, and there is a variety of integration methods available. We do not
know if our target markets will widely adopt and deploy eBusiness integration
products such as our ActiveWorks software products. If eBusiness integration
products such as our ActiveWorks software products are not widely adopted by
our target markets, our business will suffer.
Our products are complex and generally involve capital expenditures by our
customers in excess of $200,000. We do not have a long history of selling our
products and will have to devote substantial resources to educate prospective
customers about the benefits of our ActiveWorks software products. Our efforts
to educate potential customers may not result in our products achieving market
acceptance. In addition, many of these prospective customers have made
significant investments in internally-developed or custom systems and would
incur significant costs in switching to third-party products such as ours.
Furthermore, even if our products are effective, our target customers may not
choose them for technical, cost, support or other reasons. If the market for
our products fails to grow or grows more slowly than we anticipate, our
business could suffer.
Because market participants in some markets have adopted industry-specific
technologies, we may need to expend significant resources in order to address
specific markets.
Our strategy is to develop our ActiveWorks eBusiness integration software to
be broadly applicable to many industries. However, in some markets, market
participants have adopted core technologies that are specific to their markets.
For example, many companies in the healthcare and financial services industries
have adopted industry-specific protocols for the interchange of information. In
order to successfully sell our products to companies in these markets, we may
need to expand or enhance our products to adapt to these industry-specific
technologies, which could be costly and require the diversion of engineering
resources.
Competition in the eBusiness integration market is intense, and, if we are
unable to compete effectively, the demand for, or the prices of, our products
may be reduced.
The eBusiness integration market is extremely competitive and subject to
rapid change. We compete with various providers of application integration
solutions, including CrossWorlds, New Era of Networks, Software Technologies
Corporation and Vitria. In addition, a number of other companies are offering
products and services that address specific aspects of application integration,
including IBM, BEA Systems, Inc. and TIBCO Software Inc. We also face
competition for some aspects of our product and service offerings from major
system integrators, both independently and in conjunction with corporate in-
house information technology departments, which have traditionally been the
prevalent resource for application integration. We expect additional
competition from other
10
<PAGE>
established and emerging companies. Furthermore, our competitors may combine
with each other, and other companies may enter our markets by acquiring or
entering into strategic relationships with our competitors.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our business. See
"Business--Competition" for additional information relating to the competitive
disadvantages we face in competing for product sales.
Our recent growth has placed a significant strain on our management, systems
and resources, and we may experience difficulties managing our expected growth.
We have been experiencing a period of rapid growth over recent years. Our
total revenues have grown from approximately $285,000 during 1996 to $7.6
million during 1998. The number of our employees has grown from approximately
48 at the end of 1997 to 120 as of June 30, 1999. This growth has placed, and
we expect that any future growth we experience will continue to place, a
significant strain on our management, systems and resources. To manage the
anticipated growth of our operations, we will be required to:
. improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
. hire, train and manage additional qualified personnel; and
. manage our relationships with our customers, suppliers and partners.
In particular, we expect to implement a new financial and accounting
management information system during the next six months. We may not be able to
install management information and control systems in an efficient and timely
manner, and our current or planned personnel, systems, procedures and controls
may not be adequate to support our future operations.
In the future, we may experience difficulties meeting the demand for our
products and services. The installation and use of our products sometimes
requires implementation services, which are provided to our customers either by
us or by our partners. Our growth could be limited if we or our partners are
unable to provide these implementation services to our customers in a timely
manner. In addition, our management team may not be able to achieve the rapid
execution necessary to fully exploit the market for our products and services.
Any failure to manage growth effectively could materially harm our business.
We rely on the services of our founders and other key personnel, whose
knowledge of our business and technical expertise would be extremely difficult
to replace.
Our future success depends, to a significant degree, on the continued
services of our founders, R. James Green and Rafael Bracho, as well as other
key management, sales and technical personnel. Our officers and key employees
are not bound by employment agreements, and we do not maintain life insurance
policies on any of our employees. The loss of services of any of these
employees for any reason could harm our business. Given our early stage of
development, we are dependent on our ability to attract, retain and motivate
high caliber personnel, and we may not be able to recruit and retain additional
qualified personnel. Competition for qualified personnel in the software
industry and in the San Francisco Bay area, as well as other markets in which
we recruit, is extremely intense and characterized by rapidly increasing
salaries, which may increase our operating expenses or hinder our ability to
recruit qualified candidates.
11
<PAGE>
Rapid technological change in the eBusiness integration market could cause our
products to become obsolete or require us to redesign our products.
The eBusiness integration market is characterized by rapid technological
change, frequent new product introductions, changes in the enterprise software
applications used by our customers and emerging industry standards,
particularly those related to electronic commerce. We also expect that the
rapid evolution of Internet-based applications and standards, as well as
general technology trends such as changes in or introductions of operating
systems, will require us to adapt our software products to remain competitive.
Our products could become obsolete and unmarketable if we are unable to adapt
to new technologies or standards.
To be successful, we will need to develop and introduce new products and
product enhancements that respond to technological changes or evolving industry
standards in a timely manner and on a cost-effective basis. We cannot assure
you that we will successfully develop these types of products and product
enhancements or that our products will achieve broad market acceptance. Our
failure to respond in a timely and cost-effective manner to new and evolving
technologies could adversely impact our business.
Because our products incorporate technology licensed to us from third parties,
the loss of our right to use this licensed technology could harm our business.
We license technology that is incorporated into our products from third
parties, including security software from SPYRUS. Any significant interruption
in the supply or support of any licensed software could adversely affect our
sales, unless and until we can replace the functionality provided by this
licensed software. Because our products incorporate software developed and
maintained by third parties, we depend on these third parties to deliver and
support reliable products, enhance their current products, develop new products
on a timely and cost-effective basis and respond to emerging industry standards
and other technological changes. The failure of these third parties to meet
these criteria could harm our business.
Our sales cycle is lengthy and unpredictable and may cause our operating
results to fluctuate, which could result in volatility in the price of our
stock.
The typical sales cycle of our ActiveWorks Integration System is lengthy and
unpredictable and involves significant capital investment decisions by
prospective customers, as well as our education of potential customers
regarding the benefits of our ActiveWorks software products. Any delay in sales
of our products could cause our operating results to vary significantly from
quarter to quarter, which could result in volatility in our stock price. Many
of our prospective customers have neither set aside money to purchase eBusiness
integration software nor dedicated specific personnel for the procurement and
implementation of these software products. As a result, before purchasing our
products, our customers spend a substantial amount of time performing internal
reviews and obtaining capital expenditure approvals. Currently, the time to
receive an initial order from a customer from the time we first contact the
customer may range from six to nine months, with enterprise-wide deployment
occurring over a longer period of time. This cycle may lengthen in the future.
The emerging and evolving nature of the eBusiness integration market may cause
prospective customers to postpone their purchase decisions. In addition,
general concerns regarding year 2000 compliance may further delay purchase
decisions by prospective customers.
Because our strategy to expand our international operations is subject to
uncertainties, we may not be able to enter new international markets or
generate significant revenues from those markets in which we currently operate.
To date, we have generated less than 5% of our revenues from sales of our
products in international markets and have little experience with international
operations and localization of our products for foreign markets. We intend to
continue to expand our international operations and enter
12
<PAGE>
new international markets, which will require significant management attention
and financial resources. Our international operations are subject to a number
of risks and uncertainties, including:
. the difficulties and costs of staffing and managing foreign operations;
. our ability to establish relationships with system integrators and
service, distribution and marketing partners and the performance of these
partners in selling our products;
. the difficulties and costs of localizing products for foreign markets,
including the development of multilingual capabilities in our products;
. unexpected changes in regulatory requirements;
. legal uncertainties regarding liability, export and import restrictions,
tariffs and other trade barriers;
. reduced protection of intellectual property in other countries;
. increased difficulty in collecting delinquent or unpaid accounts;
. fluctuations in the value of the U.S. dollar relative to other
currencies;
. potentially adverse tax consequences; and
. political and economic instability.
Any of these factors could impair our ability to expand our international
operations into these markets or to generate significant revenues from those
markets in which we operate.
Our software products are complex and may contain unknown defects that could
harm our reputation, result in product liability or decrease market acceptance
of our products.
Our software products are complex and include software that is internally
developed and licensed from third parties. These software products may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. Although we have not experienced any material
software defects to date, these defects could cause our customers to experience
severe system failures. Because our customers depend on our software for their
critical systems and business functions, any interruptions could:
. damage our reputation;
. cause our customers to initiate product liability suits against us;
. increase our product development costs;
. divert our product development resources;
. cause us to lose sales; or
. delay market acceptance of our products.
Although we conduct extensive testing, we may not discover software defects
that affect our current or new products or enhancements until after they are
sold. Furthermore, because our ActiveWorks software products are designed to
work in conjunction with a wide variety of applications, we are unable to test
our products with all of these applications.
13
<PAGE>
Because our products could interfere with the operations of our customers'
other software applications, we may be subject to potential product liability
and warranty claims by these customers, which may be costly and may not be
adequately covered by insurance.
Our ActiveWorks products are integrated with our customers' networks and
software applications. The sale and support of our products may entail the risk
of product liability or warranty claims based on damage to these networks or
applications. In addition, the failure of our products to perform to customer
expectations could give rise to warranty claims. Any of these claims, even if
not meritorious, could result in costly litigation or divert management's
attention and resources. Although we carry general liability insurance, our
current insurance coverage would likely be insufficient to protect us from all
liability that may be imposed under these types of claims.
Our year 2000 compliance efforts could be costly and time-consuming, and our
business could suffer if we or our customers do not adequately address year
2000 risks.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries, including technology, transportation,
utilities, finance and telecommunications, will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly.
Our software products could fail due to processing errors caused by
inaccurate calculations with respect to the year 2000. In addition, third party
hardware and software used with our software products could experience year
2000 compliance problems which are wrongly attributed to us, or our customers,
partners or suppliers could experience year 2000 compliance problems. The
occurrence of any of these events could result in delays or losses of revenues,
diversion of our resources, damage to our reputation, increased service and
warranty costs and litigation costs.
Our year 2000 compliance efforts may also involve significant time and
expense, and uncorrected problems could harm our business. We may also
experience reduced sales of our products as potential customers reduce their
budgets for eBusiness integration products due to increased expenditures on
their own year 2000 compliance efforts. For a further discussion of year 2000
issues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000."
Our intellectual property could be used by others without our consent because
protection of our intellectual property is limited.
We rely primarily on a combination of copyrights, trademarks, trade secret
laws and contractual obligations with employees and third parties to protect
our proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property is limited. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts we have entered into, and we may not be able to enforce
our rights in the event of these breaches. Furthermore, we expect that we will
increase our international operations in the future, and the laws of many
foreign countries do not protect our intellectual property rights to the same
extent as the laws of the United States. For more information regarding our
intellectual property, see "Business--Proprietary Rights."
Our products may infringe the intellectual property rights of others, and
resulting claims against us could be costly and require us to enter into
disadvantageous license or royalty arrangements.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of other intellectual
14
<PAGE>
property rights. Although we attempt to avoid infringing known proprietary
rights of third parties in our product development efforts, we expect that we
may be subject to legal proceedings and claims for alleged infringement by us
or our licensees of third party proprietary rights, such as patents, trademarks
or copyrights, from time to time in the ordinary course of business. Any claims
relating to the infringement of third party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be
able to obtain an injunction, which could prevent us from selling our products
in the United States or abroad. Any of these results could harm our business.
We may increasingly be subject to infringement claims as the number of products
and competitors in our industry grows and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us. For more information concerning the risk of infringement,
see "Business--Proprietary Rights."
Because there has been no prior market for our stock, and the market for stocks
of technology companies has experienced extreme price and volume fluctuations,
our stock price may be volatile, which could adversely affect your investment.
Prior to this offering, there has been no public market for our common
stock. The price of the common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. An active public market
for our common stock may not develop or be sustained after this offering. If
you purchase shares of common stock in this offering, you will pay a price that
was not established in a competitive market. Rather, you will pay the price
that we negotiated with the representatives of the underwriters. Many factors
could cause the market price of our common stock to rise and fall. Some of
these factors are:
. variations in our quarterly results;
. announcements of technological innovations by us or by our competitors;
. introductions of new products or new pricing policies by us or by our
competitors;
. acquisitions or strategic alliances by us or by our competitors;
. recruitment or departure of key personnel;
. the gain or loss of significant orders;
. concerns over Year 2000 issues;
. changes in the estimates of our operating performance or changes in
recommendations by securities analysts; and
. market conditions in the industry and the economy as a whole.
In addition, the market for stocks of technology and Internet-related
companies has experienced extreme price and volume fluctuations that often have
been unrelated to these companies' operating performance. These fluctuations
could lower the market price of our common stock regardless of our actual
operating performance.
In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. 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, which could harm our business.
15
<PAGE>
Our officers, directors and affiliated entities own a large percentage of our
voting stock and could significantly influence the outcome of actions requiring
stockholder approval.
Upon completion of this offering, executive officers and directors, as well
as their respective affiliates, will beneficially own a total of approximately
37% 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 concentration of ownership may delay, deter or prevent
transactions that would result in a change of control, which in turn could
reduce the market price of our common stock.
Our certificate of incorporation, bylaws and Delaware law contain provisions
that could discourage or prevent a takeover, even if an acquisition would be
beneficial to our stockholders.
Provisions of our certificate of incorporation, bylaws and Delaware law may
discourage, delay or prevent a merger or acquisition that some stockholders may
consider favorable. These provisions, which are more fully described in
"Description of Capital Stock--Anti-Takeover Provisions of Charter Documents
and Delaware Law," include:
. authorizing our board of directors to issue additional preferred stock;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder action by written consent;
. establishing advance notice requirements for nominations for election of
our board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings;
. prohibiting cumulative voting in the election of directors; and
. establishing a classified board of directors.
A total of 19,751,372, or 83%, of our total outstanding shares are restricted
from immediate resale but may be sold into the market in the near future. This
could cause the market price of our common stock to drop significantly, even if
our business is doing well.
After this offering, we will have outstanding 23,751,372 shares of common
stock. This includes 4,000,000 shares that we are selling in the offering,
which may be resold immediately in the public market. The remaining 19,751,372
shares will become eligible for resale in the public market as shown in the
table below.
<TABLE>
<CAPTION>
Number of shares/
% of total
outstanding Date of availability for resale into public
after the offering market
------------------ -------------------------------------------
<S> <C>
16,875,848 / 71% 180 days after the date of this prospectus
due to an agreement these stockholders have
with Active Software and the underwriters.
However, the underwriters can waive this
restriction and allow these stockholders to
sell their shares at any time. 11,766,953 of
these shares will be subject to sales volume
limitations under the federal securities
laws.
2,875,524 / 12% Between 180 days and 365 days after the date
of this prospectus due to the requirements of
federal securities laws.
</TABLE>
16
<PAGE>
You will experience immediate and substantial dilution in the net tangible book
value of the shares you purchase.
If you purchase shares of common stock in this offering, you will experience
immediate and substantial dilution of $9.15 per share, based on an assumed
initial public offering price of $11.00 per share. This dilution is in large
part because our earlier investors paid substantially less than the public
offering price when they purchased their shares of common stock. You will
experience additional dilution upon the exercise of outstanding stock options
or warrants to purchase our common stock.
Our management and board of directors have broad discretion to use the offering
proceeds.
We have not designated any specific use for the net proceeds of this
offering. We expect to use the proceeds primarily for working capital and other
general corporate purposes. As a result, our management and board of directors
will have broad discretion in spending the proceeds of this offering.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," contains forward-looking statements.
These statements relate to future events or our future financial performance,
and involve known and unknown risks, uncertainties and other factors that may
cause our or our industry's 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 these forward-
looking statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue" or
the negative of these terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ materially. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined in "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 4,000,000 shares of common stock
being offered by us are estimated to be approximately $39.8 million, or
approximately $46.0 million if the underwriters' over-allotment option is
exercised in full. This estimate is based on an assumed public offering price
of $11.00 per share, after deducting the estimated underwriting discounts and
commissions and the estimated offering expenses.
The principal purposes of this offering are to fund our anticipated
operating losses, increase our working capital, create a public market for our
common stock, facilitate our future access to the public capital markets and
increase our visibility in our markets. We intend to use the net proceeds of
this offering primarily for working capital and other general corporate
purposes. We may also use a portion of the net proceeds to acquire additional
businesses, products and technologies or to establish joint ventures that we
believe will complement our current or future business. However, we have no
specific plans, agreements or commitments to do so and are not currently
engaged in any negotiations for any acquisitions or joint ventures. The amounts
that we actually expend for working capital purposes will vary significantly
depending on a number of factors, including future revenue growth, if any, and
the amount of cash we generate from operations. As a result, we will retain
broad discretion in the allocation of the net proceeds of this offering.
Pending these uses, we will invest the net proceeds in short-term, interest-
bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not currently anticipate paying any
cash dividends in the foreseeable future.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:
. on an actual basis;
. on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of our convertible redeemable preferred stock into
common stock upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect the conversion of the
convertible redeemable preferred stock and our receipt of the estimated
net proceeds from the sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $11.00 per share.
<TABLE>
<CAPTION>
As of June 30, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Current portion of notes payable................ $ 105 $ 105 $ 105
Notes payable, less current portion............. 59 59 59
Convertible redeemable preferred stock,
13,405,500 shares authorized, 13,405,332 shares
issued and outstanding, actual; none
authorized, issued or outstanding, pro forma
and pro forma as adjusted...................... 25,117 -- --
Stockholders' equity (deficiency):
Preferred stock, no shares authorized, issued
and outstanding, actual and pro forma;
5,000,000 shares authorized, none issued or
outstanding, pro forma as adjusted........... -- -- --
Common stock, 30,000,000 shares authorized,
actual and pro forma, 6,346,040 shares issued
and outstanding, actual; 19,751,372 shares
issued and outstanding, pro forma;
100,000,000 shares authorized, 23,751,372
shares issued and outstanding, pro forma as
adjusted..................................... 6,132 31,249 71,069
Deferred stock compensation................... (4,135) (4,135) (4,135)
Notes receivable from stockholders............ (9) (9) (9)
Accumulated deficit........................... (23,084) (23,084) (23,084)
------- ------- -------
Total stockholders' equity (deficiency)..... (21,096) 4,021 43,841
------- ------- -------
Total capitalization........................ $ 4,185 $ 4,185 $44,005
======= ======= =======
</TABLE>
In addition to the shares of common stock to be outstanding after the
offering, we may issue additional shares of common stock under the following
plans and arrangements:
. 3,222,149 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $2.66 per share as of June 30, 1999,
. 215,676 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.31 per share as of June 30 1999,
and
. a total of 4,231,812 shares available for future issuance under our
various stock plans.
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the consolidated financial statements and related notes included elsewhere
in this prospectus.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $4.0 million
or $0.20 per share. Pro forma net tangible book value per share represents the
amount of our total tangible assets reduced by the amount of our total
liabilities and divided by the total number of shares of common stock
outstanding after giving effect to the automatic conversion of our convertible
redeemable preferred stock. Dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the pro forma net tangible book
value per share of common stock immediately after the completion of this
offering. After giving effect to the sale of the 4,000,000 shares of common
stock offered by us at an assumed initial public offering price of $11.00 per
share, and after deducting the underwriting discount and estimated offering
expenses payable by us, our pro forma net tangible book value at June 30, 1999
would have been approximately $43.8 million or $1.85 per share of common stock.
This represents an immediate increase in pro forma net tangible book value of
$1.65 per share to existing stockholders and an immediate dilution of $9.15 per
share to new investors of common stock. The following table illustrates this
dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Pro forma net tangible book value per share as of June 30, 1999. $0.20
Increase per share attributable to new investors................ 1.65
-----
Pro forma net tangible book value per share after this offering... 1.85
------
Dilution per share to new investors............................... $ 9.15
======
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
the offering (based on an assumed initial public offering price of $11.00 per
share), as of June 30, 1999, the differences between the existing stockholders
and new investors with respect to the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ ------------------- Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 19,751,372 83% $25,899,000 37% $1.31
New investors.................... 4,000,000 17 44,000,000 63 11.00
---------- --- ----------- --- -----
Total.......................... 23,751,372 100% $69,899,000 100%
========== === =========== ===
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding on June 30, 1999 and assume no exercise of
options or warrants outstanding as of June 30, 1999. As of that date, there
were:
. 3,222,149 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $2.66 per share as of June 30, 1999,
and
. 215,676 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.31 per share as of June 30, 1999.
To the extent these options and warrants are exercised, there will be
further dilution to new investors.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the Consolidated Financial Statements and Notes thereto and the
other information contained in this prospectus. The consolidated statements of
operations data for the years ended December 31, 1996, 1997 and 1998, and the
consolidated balance sheet data as of December 31, 1997 and 1998, are derived
from the audited financial statements, which have been audited by Deloitte &
Touche LLP and which are included elsewhere in this prospectus. The
consolidated statements of operations data for the period from September 19,
1995 to December 31, 1995 and the consolidated balance sheet data as of
December 31, 1995 and 1996 are derived from audited consolidated financial
statements that are not included in this prospectus. The consolidated
statements of operations data for the six-month periods ended June 30, 1998 and
1999, and the consolidated balance sheet data at June 30, 1999, are derived
from unaudited consolidated financial statements included elsewhere in this
prospectus. The unaudited consolidated financial statements have been prepared
on substantially the same basis as the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for these periods. The historical
results presented below are not necessarily indicative of future results. The
pro forma information in the following table gives effect to the automatic
conversion of all outstanding shares of our convertible redeemable preferred
stock into common stock upon the closing of this offering.
<TABLE>
<CAPTION>
Six Months
Ended
Sept. 19, 1995 Years Ended December 31, June 30,
(inception) ----------------------------------------------
to Dec. 31, 1995 1996 1997 1998(1) 1998 1999
---------------- -------- -------- ----------------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
License................ $ -- $ 280 $ 2,625 $ 5,900 $ 1,955 $ 5,922
Service................ 25 5 568 1,699 454 2,746
------- -------- -------- -------- ------- -------
Total revenues....... 25 285 3,193 7,599 2,409 8,668
Cost of revenues:
License................ -- 6 30 477 47 465
Service................ 10 165 623 2,290 506 2,804
------- -------- -------- -------- ------- -------
Total cost of
revenues............ 10 171 653 2,767 553 3,269
------- -------- -------- -------- ------- -------
Gross profit............ 15 114 2,540 4,832 1,856 5,399
Operating expenses:
Research and
development........... 78 1,182 2,830 3,971 1,613 2,276
Sales and marketing.... 23 685 2,896 8,669 3,795 6,956
General and
administrative........ 41 1,163 1,796 2,069 889 993
Amortization of
deferred stock
compensation.......... -- -- -- 336 84 565
------- -------- -------- -------- ------- -------
Total operating
expenses............ 142 3,030 7,522 15,045 6,381 10,790
------- -------- -------- -------- ------- -------
Loss from operations.... (127) (2,916) (4,982) (10,213) (4,525) (5,391)
Interest income
(expense), net......... (6) 102 129 271 92 49
------- -------- -------- -------- ------- -------
Net loss................ $ (133) $ (2,814) $ (4,853) $ (9,942) $(4,433) $(5,342)
======= ======== ======== ======== ======= =======
Basic and diluted net
loss per share......... $(10.23) $ (6.59) $ (2.50) $ (3.21) $ (1.34) $ (1.08)
======= ======== ======== ======== ======= =======
Shares used in computing
basic and diluted net
loss per share......... 13 427 1,945 3,096 3,301 4,962
======= ======== ======== ======== ======= =======
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (0.64) $ (0.29)
======== =======
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 15,457 18,367
======== =======
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of
--------------------------------- June 30,
1995 1996 1997 1998(1) 1999
----- ------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.......... $ 95 $ 1,393 $ 2,876 $ 7,461 $ 6,729
Working capital (deficit).......... (316) 1,002 2,755 7,493 2,198
Total assets....................... 316 1,901 5,195 12,294 13,207
Notes payable, less current
portion........................... -- 300 216 108 59
Convertible redeemable preferred
stock............................. -- 3,995 11,008 25,117 25,117
Total stockholders' deficiency..... (126) (2,891) (7,743) (16,756) (21,096)
</TABLE>
- --------
(1) In connection with this offering, the 1998 consolidated financial
statements have been restated to reflect the revised value of warrants
issued to non-employees for services rendered and deferred compensation
relating to issuance of options to employees. See Note 11 to the 1998
consolidated financial statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto and the other information contained in
this prospectus.
Overview
We are a leading provider of eBusiness integration software. Our ActiveWorks
Integration System provides a platform for the seamless, real-time integration
of packaged and custom enterprise software applications, both internally and
among an enterprise's network of customers, suppliers and partners. We were
incorporated in September 1995. From inception until August 1996, when we
shipped our first product, our operations consisted primarily of start-up
activities, including research and development, recruiting personnel and
raising capital. Since shipping our first product, we have continued to focus
on these activities, as well as building our sales and marketing presence,
expanding and enhancing our product offerings, building relationships with
third parties to leverage our distribution and services capabilities, and
supporting and maintaining our product deployments within an expanding customer
base. In addition, we established our professional services organization in the
third quarter of 1998 to support our system integrator partners.
We generate revenue principally from licenses of our ActiveWorks software
products and, to a lesser extent, from services such as maintenance and
support, as well as consulting and training. License revenues comprised 78% and
68% of our total revenues in 1998 and in the six months ended June 30, 1999,
respectively, while service revenues comprised 22% and 32% of our total
revenues in the same periods. We recognize license revenues upon shipment of
the software if collection of the resulting receivable is probable, an
agreement has been signed, the fee is fixed or determinable and we have no
significant obligations remaining. Revenues from maintenance and support are
recognized ratably over the period of the contract, which is typically one
year, while revenues from consulting and training services are recognized as
the services are performed. Payments received in advance of services rendered
are recorded as deferred revenues, and these balances were $1.2 million and
$2.0 million at December 31, 1998 and June 30, 1999, respectively.
We promote and sell our ActiveWorks software products through our direct
sales force and through indirect channels. We have derived, and expect to
continue to derive, a significant portion of our sales in both channels from
customers that have significant relationships with third-party system
integrators. In the first quarter of 1999, we expanded our presence in
international markets by opening sales offices in the United Kingdom and in the
Netherlands, and by establishing relationships with system integrators and
resellers in other international markets. Revenues derived from international
sales represented, 4% and 2% of total revenues in 1998 and in the six months
ended June 30, 1999, respectively. We expect that international sales will
account for an increasing portion of our revenues, although the percentage of
our total revenues derived from international sales may vary.
Cost of license revenues consists primarily of third-party license and
support fees and, to a lesser extent, costs of duplicating media and
documentation. Cost of service revenues consists of compensation and related
overhead costs for personnel engaged in consulting, training, maintenance and
support services for our customers.
Since inception, we have incurred substantial research and development costs
and have invested heavily in the expansion of our sales and marketing and
professional services organizations to build an infrastructure to support our
long-term growth strategy. Our full-time employees increased from 48 as of
December 31, 1997 to 120 as of June 30, 1999. As a result of these investments,
we have incurred net losses in each fiscal quarter since inception and, as of
June 30, 1999, had an
23
<PAGE>
accumulated deficit of $23.1 million. We anticipate that our operating expenses
will continue to increase for the foreseeable future, as we expand our product
development and sales and marketing efforts. In addition, we expect to incur
additional expenses associated with being a public company. Accordingly, we
expect to incur net losses for the foreseeable future.
Costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
development costs would be capitalized. Because we believe our current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
We believe that period-to-period comparisons of our historical operating
results are not necessarily meaningful and should not be relied upon as being
indicative of future performance. Our prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
early stages of development, particularly companies in new and rapidly evolving
markets like ours. Although we recently have experienced significant revenue
growth, this trend may not continue. Furthermore, we may not achieve or
maintain profitability in the future.
In October 1998, we issued a warrant to a strategic partner, Intel
Corporation, for the purchase of 36,764 shares of common stock at an exercise
price of $4.08 per share. The warrant is contingently exercisable upon the
achievement by Intel of specified performance improvements to our software
product. The warrant will expire on August 31, 1999, unless Intel achieves
these performance improvements before that date, in which case the warrant will
expire on October 29, 2005. If the performance improvements are achieved before
August 31, 1999, we will record a research and development expense equal to the
fair value of the warrant. For example, if the fair value of the common stock
is $11.00 per share at that time, we would recognize a total charge of
approximately $315,000. If the fair value of our common stock were to increase
substantially from this level, the total charge would also increase
substantially.
Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any tax provision or benefit. As of December
31, 1998, we had net operating loss carryforwards of approximately $15.2
million and $11.3 million for federal and state income tax purposes,
respectively. The federal and state net operating loss carryforwards, if not
utilized, expire through 2013 and 2003, respectively. We also have research and
development credit carryforwards of approximately $313,000 and $178,000 for
federal and state income tax purposes, respectively. The federal research and
development credit carryforward expires, if not utilized, through 2013, while
the state credit has no expiration. Federal and state tax laws impose
significant restrictions on the utilization of net operating loss carryforwards
in the event of a shift in our ownership that constitutes an "ownership
change," as defined in Section 382 of the Internal Revenue Code. See Note 6 of
Notes to Consolidated Financial Statements for additional information on these
carryforwards.
We have placed a valuation allowance against our net deferred tax assets due
to the uncertainty surrounding the realization of these assets. We evaluate on
a quarterly basis the recoverability of the net deferred tax assets and the
level of the valuation allowance. When it is determined that it is more likely
than not the net deferred tax assets are realizable, the valuation allowance
will be reduced.
For 1997 and prior years, we recognized revenues in accordance with the
American Institute of Certified Public Accountants Statement of Position 91-1.
Commencing in 1998, we began recognizing revenues in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
"Software Revenue Recognition," or SOP 97-2, as amended by Statements of
Position 98-4 and 98-9. To date, our adoption of these new standards has not
had any material effect on our revenue recognition. Further implementation
guidelines relating to these standards may
24
<PAGE>
result in unanticipated changes in our revenue recognition practices, and these
changes could affect our future revenues and earnings.
In connection with this offering, subsequent to the issuance of our 1998
consolidated financial statements, our management determined that the fair
value of the common stock used to calculate the value of warrants and deferred
stock compensation relating to options issued to employees should be revised.
As a result, the 1998 consolidated financial statements have been restated to
recognize an additional $280,000 of sales and marketing expense, $3.2 million
of deferred compensation and a corresponding increase in common stock. See Note
11 to the 1998 consolidated financial statements.
25
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the statements of
operations data as a percentage of total revenues.
<TABLE>
<CAPTION>
Six Months
Years Ended Ended June
December 31, 30,
-------------------- -------------
1996 1997 1998 1998 1999
------ ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
License................................. 98 % 82 % 78 % 81 % 68 %
Service................................. 2 18 22 19 32 %
------ ---- ---- ----- ----
Total revenues........................ 100 100 100 100 100
Cost of revenues:
License................................. 2 1 6 2 5
Service................................. 58 19 30 21 32
------ ---- ---- ----- ----
Total cost of revenues................ 60 20 36 23 37
Gross profit............................. 40 80 64 77 63
Operating expenses:
Research and development................ 415 89 52 67 26
Sales and marketing..................... 240 91 114 158 80
General and administrative.............. 408 56 27 37 11
Amortization of deferred stock
compensation........................... -- -- 4 3 7
------ ---- ---- ----- ----
Total operating expenses.............. 1,063 236 197 265 124
------ ---- ---- ----- ----
Loss from operations..................... (1,023) (156) (133) (188) (61)
Interest income, net..................... 36 4 3 4 1
------ ---- ---- ----- ----
Net loss................................. (987)% (152)% (130)% (184)% (60)%
====== ==== ==== ===== ====
</TABLE>
Six Months Ended June 30, 1998 and 1999
Revenues
Total revenues increased from $2.4 million in the six months ended June 30,
1998 to $8.7 million in the six months ended June 30, 1999. License revenues
increased from $2.0 million in the six months ended June 30, 1998 to $5.9
million in the six months ended June 30, 1999. The increase in license revenues
was due primarily to increased sales of additional ActiveWorks products and
features to existing customers and, to a lesser extent, increased sales of our
products to new customers.
Service revenues increased from $454,000 in the six months ended June 30,
1998 to $2.7 million in the six months ended June 30, 1999. The increase in
service revenues was attributable primarily to the establishment of our
professional services organization in the third quarter of 1998 and, to a
lesser extent, to the growth of our customer base.
Cost of Revenues
Total cost of revenues increased from $553,000 in the six months ended June
30, 1998 to $3.3 million in the six months ended June 30, 1999. Cost of license
revenues increased from $47,000 in the six months ended June 30, 1998 to
$465,000 in the six months ended June 30, 1999. As a percentage of license
revenues, cost of license revenues was 2% and was 8% in the six months ended
June 30, 1998 and 1999, respectively. The growth in cost of license revenues as
a percentage of license revenues and on an absolute basis was attributable
primarily to a larger
26
<PAGE>
proportion of our products sold in the six months ended June 30, 1999
incorporating third-party technology for which we pay royalties. We anticipate
that the cost of license revenues will increase in absolute dollars as we
license additional products, although cost of license revenues will vary as a
percentage of license revenues from period to period.
Cost of service revenues increased from $506,000 in the six months ended
June 30, 1998 to $2.8 million in the six months ended June 30, 1999. The growth
in cost of service revenues was attributable primarily to an increase in
personnel dedicated to support a larger number of customers. As a percentage of
service revenues, cost of service revenues was 111% and 102% in the six months
ended June 30, 1998 and 1999, respectively. Cost of service revenues has
exceeded service revenues primarily because the growth rate of personnel
engaged in our service operations has exceeded the rate of growth of our
service revenues as we continue to invest in building the capability to support
our customers. We anticipate that the cost of service revenues will increase in
absolute dollars as we continue to expand our services offerings, although cost
of service revenues may vary as a percentage of service revenues from period to
period.
Because the gross margin on license revenues is higher than the gross margin
on service revenues, gross profit as a percentage of total revenues is affected
by the mix of license and service revenues. We expect that this mix will
fluctuate from quarter to quarter.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of compensation and related costs for research and development
employees and contractors. Research and development expenses increased from
$1.6 million in the six months ended June 30, 1998 to $2.3 million in the six
months ended June 30, 1999. The increase was attributable primarily to the
addition of personnel in our research and development organization associated
with product development. As a percentage of total revenues, research and
development expenses were 67% and 26% in the six months ended June 30, 1998 and
1999, respectively. We expect to continue to make substantial investments in
research and development and anticipate that research and development expenses
will continue to increase in absolute dollars, but may vary as a percentage of
total revenues from period to period. In addition, research and development
expenses in the third quarter of 1999 could be significantly increased if the
performance improvements are achieved by a strategic partner, Intel
Corporation, in connection with a warrant issued to Intel. For further details
regarding this warrant, see "--Overview."
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation and related costs for sales and marketing personnel and
promotional expenditures. Sales and marketing expenses increased from $3.8
million in the six months ended June 30, 1998 to $7.0 million in the six months
ended June 30, 1999. The increase was attributable primarily to the addition of
employees in sales and marketing and increased commissions related to increased
revenues, and, to a lesser extent, costs associated with increased efforts to
develop market awareness of our products and services. As a percentage of total
revenues, sales and marketing expenses were 158% and 80% for the six months
ended June 30, 1998 and 1999, respectively. We expect to continue increasing
our marketing and promotional efforts and to hire additional sales personnel.
Accordingly, we anticipate that sales and marketing expenses will increase in
absolute dollars, but may vary as a percentage of total revenues from period to
period.
General and Administrative. General and administrative expenses consist
primarily of personnel expenses, legal and accounting expenses and other
general corporate expenses. General and administrative expenses increased from
$889,000 in the six months ended June 30, 1998 to $993,000 in the six months
ended June 30, 1999, due primarily to the addition of financial and management
personnel. As a percentage of total revenues, general and administrative
expenses
27
<PAGE>
were 37% and 11% in the six months ended June 30, 1998 and 1999, respectively.
We expect that general and administrative expenses will increase in absolute
dollars as we add personnel and incur additional costs related to the
anticipated growth of our business and operation as a public company.
Amortization of Deferred Stock Compensation. Options granted in 1998 and in
the first quarter of 1999 have been considered to be compensatory as the
estimated fair value for accounting purposes was greater than the exercise
price as determined by the board of directors on the date of grant. The total
deferred stock compensation associated with these options as of December 31,
1998 and June 30, 1999 amounted to $2.9 million and $4.1 million, respectively,
net of amortization. These amounts are being amortized over the respective
vesting periods of these equity arrangements, generally 50 months. Of the total
deferred stock compensation, approximately $84,000 and $565,000 was amortized
in the six months ended June 30, 1998 and 1999, respectively. We expect
amortization of approximately $1,169,000 in 1999, $1,208,000 in 2000,
$1,208,000 in 2001, $993,000 in 2002 and $122,000 in 2003 related to these
options.
Net Interest Income
Net interest income consists primarily of interest earned on cash and cash
equivalents, offset by interest expense related to obligations under capital
leases. In the six months ended June 30, 1998 and 1999, net interest income was
approximately $92,000 and $49,000, respectively. The decrease in net interest
income was due primarily to decreased interest income earned on lower cash and
cash equivalent balances.
Years Ended December 31, 1996, 1997 and 1998
Revenues
Total revenues were $285,000, $3.2 million and $7.6 million in 1996, 1997
and 1998, respectively. License revenues increased from $280,000 in 1996 to
$2.6 million in 1997 and to $5.9 million in 1998. The increases in license
revenues were due primarily to increased sales of our ActiveWorks software
products to new customers in 1997, and to sales to existing customers and to
increased sales of additional ActiveWorks products and features to existing
customers in 1998. As a percentage of total revenues, license revenues were 82%
and 78% for 1997 and 1998, respectively.
Service revenues increased from $5,000 in 1996 to $568,000 in 1997 and to
$1.7 million in 1998. As a percentage of total revenues, service revenues were
18% and 22% for 1997 and 1998, respectively. The increase in 1997 was
attributable primarily to growth in our customer base. The increase in 1998 was
attributable to the establishment of our professional services organization in
the third quarter of 1998 and, to a lesser extent, to the growth of our
customer base.
Cost of Revenues
Cost of license revenues increased from $6,000 in 1996 to $30,000 in 1997
and to $477,000 in 1998. As a percentage of license revenues, cost of license
revenues was 1% and 8% for 1997 and 1998, respectively. The growth in cost of
license revenues as a percentage of license revenues and on an absolute basis
was attributable primarily to a larger proportion of our products sold
incorporating third party technology for which we pay royalties.
Cost of service revenues increased from $165,000 in 1996 to $623,000 in 1997
and to $2.3 million in 1998. The growth in cost of service revenues was
attributable primarily to an increase in personnel dedicated to support a
larger number of customers. As a percentage of service revenues, cost of
service revenues was 110% and 135% for 1997 and 1998, respectively.
28
<PAGE>
Operating Expenses
Research and Development. Research and development expenses increased from
$1.2 million in 1996 to $2.8 million in 1997 and to $4.0 million in 1998. The
increases during these periods were attributable primarily to the addition of
personnel in our research and development organization associated with product
development. As a percentage of total revenues, research and development
expenses were 89% and 52% for 1997 and 1998, respectively.
Sales and Marketing. Sales and marketing expenses increased from $685,000 in
1996 to $2.9 million in 1997 and to $8.7 million in 1998. The increases during
these periods were attributable primarily to the addition of sales and
marketing personnel and increased commissions related to increased revenues
and, to a lesser extent, to costs associated with increased efforts to develop
market awareness of our products and services. As a percentage of total
revenues, sales and marketing expenses were 91% and 114% for 1997 and 1998,
respectively.
General and Administrative. General and administrative expenses increased
from $1.2 million in 1996 to $1.8 million in 1997 and to $2.1 million in 1998.
The increases during these periods were due primarily to the addition of
financial and management personnel. As a percentage of total revenues, general
and administrative expenses were 56% and 27% of total revenues for 1997 and
1998, respectively.
Amortization of Deferred Stock Compensation. Total deferred stock
compensation as of December 31, 1998 amounted to $2.9 million. Amortization of
deferred stock compensation was $336,000 in 1998.
Net Interest Income
Net interest income was $102,000, $129,000 and $271,000 in 1996, 1997 and
1998, respectively. The increases during these periods were due primarily to
increased interest income earned on higher cash and cash equivalent balances as
a result of convertible redeemable preferred stock financings in 1997 and 1998.
29
<PAGE>
Quarterly Results of Operations
The following table sets forth unaudited consolidated statements of
operations data for the six quarters ended June 30, 1999, as well as this
information expressed as a percentage of our total revenues for the periods
indicated. This information has been derived from unaudited consolidated
financial statements that, in the opinion of our management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of this information when read in conjunction with our annual
audited consolidated financial statements and related notes. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
Three Months Ended(1)
----------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June. 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- ---------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues:
License................ $ 1,247 $ 708 $ 1,642 $ 2,303 $ 2,364 $ 3,558
Service................ 196 258 427 818 1,198 1,548
------- ------- ------- ------- ------- -------
Total revenues....... 1,443 966 2,069 3,121 3,562 5,106
Cost of revenues:
License................ 3 44 157 273 152 313
Service................ 236 270 629 1,155 1,227 1,577
------- ------- ------- ------- ------- -------
Total cost of
revenues............ 239 314 786 1,428 1,379 1,890
Gross profit............ 1,204 652 1,283 1,693 2,183 3,216
Operating expenses:
Research and
development........... 619 994 1,208 1,150 1,060 1,216
Sales and marketing.... 1,626 2,169 2,392 2,482 3,146 3,810
General and
administrative........ 406 483 603 577 476 517
Amortization of
deferred stock
compensation.......... 22 62 95 157 263 302
------- ------- ------- ------- ------- -------
Total operating
expenses............ 2,673 3,708 4,298 4,366 4,945 5,845
------- ------- ------- ------- ------- -------
Loss from operations.... (1,469) (3,056) (3,015) (2,673) (2,762) (2,629)
Interest income, net.... 12 80 94 85 21 28
------- ------- ------- ------- ------- -------
Net loss................ $(1,457) $(2,976) $(2,921) $(2,588) $(2,741) (2,601)
======= ======= ======= ======= ======= =======
Percentage of Total
Revenues:
Revenues:
License................ 86 % 73 % 79 % 74 % 66 % 70 %
Service................ 14 27 21 26 34 30
------- ------- ------- ------- ------- -------
Total revenues....... 100 100 100 100 100 100
Cost of revenues:
License................ * 5 8 9 4 6
Service................ 16 28 30 37 34 31
------- ------- ------- ------- ------- -------
Total cost of
revenues............ 16 33 38 46 38 37
Gross profit............ 84 67 62 54 62 63
Operating expenses:
Research and
development........... 43 103 59 37 30 24
Sales and marketing.... 113 225 116 80 88 75
General and
administrative........ 28 50 29 18 13 10
Amortization of
deferred stock
compensation.......... 2 6 5 5 7 6
------- ------- ------- ------- ------- -------
Total operating
expenses............ 186 384 209 140 138 115
------- ------- ------- ------- ------- -------
Loss from operations.... (102) (317) (147) (86) (76) (52)
Interest income, net.... 1 8 5 3 1 1
------- ------- ------- ------- ------- -------
Net loss................ (101)% (309)% (142)% (83)% (75)% (51) %
======= ======= ======= ======= ======= =======
</TABLE>
- --------
* Less than 1%
(1) In connection with this offering, the quarterly amounts have been restated
to reflect the revised value of warrants issued to non-employees for
services rendered and deferred compensation relating to issuance of
options to employees. See Note 11 to the 1998 consolidated financial
statements.
30
<PAGE>
License revenues increased in each of the quarters ended September 30, 1998,
December 31, 1998, March 31, 1999 and June 30, 1999 due to increased sales of
our ActiveWorks software products to new customers and increased sales of
additional ActiveWorks products to existing customers. License revenues
declined from $1.2 million in the quarter ended March 31, 1998 to $708,000 in
the quarter ended June 30, 1998, due primarily to the delay in a significant
purchase by a customer, which was subsequently recognized in the quarter ended
September 30, 1998. Service revenues generally increased in each of the
quarters presented above, due primarily to the increasing size of our customer
base.
Cost of license revenues and cost of service revenues increased in each of
the quarters ended June 30, 1998, September 30, 1998 and December 31, 1998,
both in absolute dollars and as a percentage of related revenues. These
increases were attributable primarily to increases in the number of service
professionals to support ongoing maintenance and support of our growing
customer base and to increased sales of our ActiveWorks software products. The
increases in cost of service revenues in absolute dollars in the quarters ended
September 30, 1998, December 31, 1998, March 31, 1999 and June 30, 1999 were
also attributable to the establishment of our professional services
organization in the third quarter of 1998.
Our operating expenses have increased in absolute dollars in connection with
investment in the growth of our business and operating structure. Total
operating expenses have decreased as a percentage of total revenues in the
quarters ended September 30, 1998, December 31, 1998, March 31, 1999 and June
30, 1999. Sales and marketing expenses increased in absolute dollars in each of
the quarters presented above as a result of increased spending for salaries and
commissions, public relations and promotional expenses. Research and
development expenses decreased in absolute dollars in the quarters ended
December 31, 1998 and March 31, 1999 and decreased as a percentage of total
revenues in the quarters ended September 30, 1998, December 31, 1998, March 31,
1999 and June 30, 1999. This decrease was due primarily to decreasing reliance
on outsourcing for documentation and quality assurance. While we expect that
research and development expenses will increase significantly over the next 18
months, they may vary as we develop new products and enhance existing products.
In addition, research and development expenses in the third quarter of 1999
could be significantly increased if the performance improvements are achieved
by a strategic partner, Intel Corporation, in connection with a warrant issued
to Intel. For further details regarding this warrant, see "--Overview."
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on our level of actual and anticipated business
activities. Our revenues and operating results are difficult to forecast and
will fluctuate, and we believe that period-to-period comparisons of our
operating results will not necessarily be meaningful. As a result, you should
not rely upon them as an indication of future performance. It is likely that
our future quarterly operating results from time to time will not meet the
expectations of security analysts or investors, which would likely cause the
price of the common stock to decline.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of convertible redeemable preferred stock, which totaled $25.1 million in
net proceeds through June 30, 1999. We have also financed our operations
through a line of credit, under which $3.3 million was outstanding as of June
30, 1999. As of June 30, 1999, we had $6.7 million of cash and cash
equivalents.
Net cash used in operating activities was $2.5 million, $4.8 million and
$9.0 million in 1996, 1997 and 1998, respectively, and $3.2 million in the six
months ended June 30, 1999. For 1997, cash used by operating activities was
attributable primarily to a net loss of $4.9 million and an increase in
accounts receivable of $1.5 million, offset in part by an increase in deferred
revenues of $606,000
31
<PAGE>
and an increase in accrued compensation and related benefits of $582,000. For
1998, cash used by operating activities was attributable primarily to a net
loss of $9.9 million and an increase in accounts receivable of $1.8 million,
offset in part by an increase in deferred revenues of $432,000 and increases in
other accrued liabilities and accounts payable. For the six months ended June
30, 1999, cash used by operating activities was attributable primarily to a net
loss of $5.3 million, offset in part by an increase in accounts receivable of
$727,000, an increase in accounts payable of $678,000 and an increase in
deferred revenues of $899,000. Our sales cycle is lengthy and unpredictable,
and could cause our quarterly revenues and operating results to fluctuate. Any
change in our sales cycle could adversely affect the amount of cash provided by
our operating activities.
Net cash used in investing activities was $336,000, $642,000 and $711,000 in
1996, 1997 and 1998, and $1.2 million in the six months ended June 30, 1999.
For each of these periods, cash used in investing activities was attributable
primarily to purchases of property and equipment.
Net cash provided by financing activities was $4.2 million, $6.9 million and
$14.3 million in 1996, 1997 and 1998, and $3.7 million in the six months ended
June 30, 1999. For each of 1996, 1997 and 1998, cash provided by financing
activities was attributable primarily to proceeds from the issuance of
convertible redeemable preferred stock. In addition, we received proceeds of
$401,000 in 1996 from an equipment loan, of which $164,000 in principal amount
was outstanding at June 30, 1999. For the six months ended June 30, 1999, cash
provided by financing activities was attributable primarily to amounts drawn
under a line of credit secured by equipment and receivables.
As of June 30, 1999, our principal commitments consisted of obligations
outstanding under operating leases and equipment loans. Although we have no
material commitments for capital expenditures, we anticipate that capital
expenditures and lease commitments will increase, consistent with our
anticipated growth in operations, infrastructure and personnel. For 1999, we
anticipate that capital expenditures will be at least $1.5 million. We also may
establish additional operations as we expand globally.
We anticipate that our liquidity needs for at least the next eighteen months
will be met by the net proceeds from this offering, together with our current
cash and cash equivalents. After this time, we cannot assure you that cash
generated from operations will be sufficient to satisfy our liquidity
requirements, and we may need to raise additional capital by selling additional
equity or debt securities or by obtaining a credit facility. If additional
funds are raised through the issuance of debt securities, these securities
could have rights, preferences and privileges senior to holders of common
stock, and the terms of these securities could impose restrictions on our
operations. The sale of additional equity or convertible debt securities could
result in additional dilution to our stockholders, and we cannot be certain
that additional financing will be available in amounts or on terms acceptable
to us, if at all. If we are unable to obtain this additional financing, we may
be required to reduce the scope of our planned product development and
marketing efforts, which could harm our business, financial condition and
operating results.
Year 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. This problem may result in software
failures or the creation of erroneous results.
We have conducted a year 2000 readiness review for the current versions of
our products. The review includes assessment, implementation and validation
testing. We have largely completed all phases of this plan for the current
versions of our products. As a result, we believe all current versions of our
products are capable of properly distinguishing between 20th and 21st century
dates,
32
<PAGE>
when configured and used in accordance with the related documentation, and
provided that the underlying operating system of the host machine and any other
software used with our products are also capable of properly distinguishing
between 20th and 21st century dates.
We are testing software obtained from third parties that is incorporated
into our products, and we have requested that our vendors confirm that their
software is capable of properly distinguishing between 20th and 21st century
dates. We have been informed by many of our vendors that their products that we
use are capable of properly distinguishing between 20th and 21st century dates.
Despite testing by us and by current and potential 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 harm our business.
Some commentators have predicted significant litigation regarding year 2000
compliance issues, and we are aware of lawsuits against other software vendors.
Because of the unprecedented nature of this litigation, it is uncertain whether
or to what extent we may be affected by it.
Our internal systems include our information technology systems and non-
information technology systems. We have completed an assessment of our material
internal information technology systems and non-information technology systems.
We expect to complete validation testing of our information technology systems
and related contingency planning by August 31, 1999. To the extent that we are
not able to test the technology provided by third-party vendors, we are seeking
assurances from vendors that their systems are year 2000 compliant. We are not
currently aware of any material operational issues associated with preparing
our internal information technology systems and non-information technology
systems for the year 2000. However, we may experience material unanticipated
problems or additional costs caused by undetected errors or defects in the
technology used in our internal information technology systems and non-
information technology systems.
We do not currently have any information concerning the year 2000 compliance
status of our customers. If our current or future customers fail to achieve
year 2000 compliance or if they divert technology expenditures, especially
technology expenditures that were earmarked for our products, to address year
2000 compliance problems, our business could suffer.
We have funded our year 2000 plan from available cash and have not
separately accounted for these expenses in the past. To date, these expenses
have not been material and have totaled less than $200,000. Most of our
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and year 2000 compliance matters generally. We expect to incur no more
than an additional $300,000 to verify that our products, information technology
systems and non-information technology systems are capable of properly
distinguishing between 20th century and 21st century dates. In addition, we may
experience material problems and expenses associated with year 2000 compliance
that could adversely affect our business, results of operations and financial
condition. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as year 2000 compliance failures by utility
or transportation companies and related service interruptions.
We do not have a formal contingency plan to address any unanticipated year
2000 problems that may occur in our products or our internal systems. If these
problems arise, we expect to make the necessary expenditures to assess and
remedy these problems. We cannot currently estimate the amount or timing of
these potential expenditures. They may be significant and could have an adverse
effect on our business.
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Accounting Standards
In June 1997, the Financial Accounting Standards Board issued accounting
statement No. 130, Reporting Comprehensive Income, which requires an enterprise
to report, by major components and as a single total, the change in its net
assets during the period from nonowner sources. We had no comprehensive income
items to report, other than net loss, for any of the periods presented. The
FASB also issued accounting statement No. 131, Disclosures About Segments of an
Enterprise and Related Information, which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
We currently operate in one reportable segment.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. This standard requires companies to capitalize qualifying
computer software costs, which are incurred during the application development
stage, and amortize them over the software's estimated useful life. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. We are currently
evaluating the impact of SOP 98-1 on our financial statements and related
disclosures.
In June 1998, the Financial Accounting Standards Board issued accounting
statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement requires companies to record derivatives on the
balance sheet as assets or liabilities measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS No. 133 will be effective for us beginning in 2001. We are
currently evaluating the impact of SFAS No. 133 on our financial statements and
related disclosures.
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BUSINESS
Overview
We are a leading provider of eBusiness integration software that enables our
customers to accelerate their time to market for products and services, enhance
their relationships with customers, suppliers and partners and substantially
reduce their operating and information technology costs. Our ActiveWorks
Integration System provides our customers with a platform for the seamless,
real-time integration of packaged and custom software applications, both
internally and across their networks of customers, suppliers and partners. Our
customers use our platform to link their disparate applications without costly
and time-consuming custom programming, enabling them to quickly and cost-
effectively take full advantage of their long-term investments in systems and
technologies to compete in today's rapidly changing eBusiness environment. We
have designed the ActiveWorks Integration System to provide a highly flexible
and adaptable eBusiness integration platform that can be deployed quickly and
changed easily in response to evolving business requirements. In addition, we
partner with a broad range of system integrators and hardware, software and
service providers in order to offer our customers a comprehensive integration
solution.
Industry Background
Over the past decade, enterprise computing environments have undergone a
significant transformation. This transformation has been driven by accelerating
organizational demands for flexibility, efficiency, and speed in order to more
effectively respond to a rapidly changing business environment and increasingly
global marketplace. In parallel, there has been a shift from in-house, custom
development of mission-critical applications to the purchase of these
applications and related services from third-party vendors. Packaged
applications have spread throughout the enterprise to address many highly
strategic business functions, including resource planning, management of supply
and distribution networks, customer relationship management, sales force
automation, business decision support and e-commerce. In this new corporate
environment, a single business process can require access to data and
information from many distinct applications, none of which are designed to
communicate seamlessly and in real time with the others.
Companies have invested an enormous amount of financial and technical
resources in developing and deploying a broad range of packaged and custom
applications. To take full advantage of these investments, it has become
critical for companies to efficiently integrate these applications. META Group
estimates that the average Fortune 1000 company maintains 49 distinct
enterprise applications and spends from one-quarter to one-third of its total
information technology budget on integration-related efforts. The complexity of
this integration challenge has historically required time-consuming, expensive,
custom-developed in-house solutions or third-party specialized consulting and
system integration services. More recently, the market for third-party
enterprise application integration, or EAI, software has emerged to provide
this integration capability as a packaged solution. Driven by the increasingly
business-critical need for integration, the application and data integration
software market is projected by the Yankee Group to reach a total size of $5
billion by 2001. We cannot assure you that this estimate will be achieved.
Against this backdrop, the explosive emergence of the Internet has further
changed the nature and pace of business operations and competition. Companies
are now able to conduct business electronically through an Internet-enabled
real-time network of customers, suppliers and partners. As a result, the
ability to operate as an eBusiness has become a critical strategic objective.
Companies need to integrate all aspects of their enterprises, including back-
office operations and processing, front-office applications, such as sales,
marketing and customer service, and supplier management systems, such as
planning, sourcing, purchasing, fulfillment and inventory control. For example,
a company can now give suppliers and partners real-time electronic access to
its scheduling, billing
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and inventory information, thereby enhancing communication, reducing operating
costs and creating a networked organization that takes advantage of supplier
and partner strengths in ways not previously possible. To compete successfully,
a company needs an eBusiness integration platform that allows it to adapt
quickly to changing market conditions, accelerate time to market, enhance
relationships with customers, suppliers and partners, and reduce operating
costs.
Traditional integration and EAI solutions fail to fully capitalize on the
benefits of Internet technologies and do not adequately address the challenges
of this eBusiness environment. These solutions are often inflexible and rigid,
lack key functionality, such as security and integration management and
monitoring, and do not offer the speed of implementation and time-to-market
benefits required in today's business environment. As a result, we believe that
there is a significant opportunity for a vendor who can provide a platform that
enables seamless, real-time and efficient eBusiness integration across widely
distributed and disparate computing environments. This platform needs to
provide the following key capabilities:
. Comprehensive, Robust Solution: a comprehensive, packaged solution for
eBusiness integration that does not require substantial custom
programming and includes a broad portfolio of integration and management
facilities;
. Dynamic Adaptability: a system designed to adapt quickly and efficiently
to changing business operations, rules and processes, and to accommodate
change without additional programming;
. Scalability: a system that easily accommodates a wide range of
transaction and data flow volumes across locally and globally-distributed
networks;
. Extensibility: flexibility to allow for the efficient incorporation of
and integration with evolving technologies;
. Security: inherent state-of-the-art security and administrative
capabilities designed for an enterprise operating in an eBusiness
environment with its customers, suppliers and partners; and
. Management and Monitoring: efficient, easy-to-use and centralized
management and monitoring of the integration platform and all of its
components.
The Active Software Solution
We develop, market and support a leading eBusiness integration platform that
enables our customers to more quickly expand and capitalize upon greater
business opportunities. The ActiveWorks Integration System connects a wide
range of enterprise applications and systems and provides a comprehensive
software platform for integrating these applications with minimal custom
programming.
We believe the ActiveWorks platform provides the following compelling and
strategic business benefits to our customers:
. Accelerates Time to Market. The ActiveWorks platform enables our
customers to accelerate time to market for new products and services by
integrating and synchronizing the information flow between enterprise
applications in an eBusiness environment. By enabling the close
interaction of customers, suppliers and partners, the ActiveWorks
eBusiness solution provides the integration platform for the seamless
exchange of relevant information internally and across the enterprise's
network of customers, suppliers and partners. In addition, the platform
is readily adaptable to changing business and computing environments,
providing the business flexibility to respond in real time to changes in
either the external market or internal computing environment. The
architecture, dynamic adapter portfolio and management and monitoring
functionality all provide an enhanced level of adaptability to changes in
business processes and rules in an evolutionary manner with minimal
disruption to business operations.
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. Improves Customer and Supplier Interaction. The ActiveWorks platform, by
enabling scalable and secure eBusiness, can enhance our customers'
business relationships with their customers and suppliers. We offer a
comprehensive, robust solution for integration across traditional
business boundaries, providing the information link to customers and
suppliers and greatly enhancing an organization's ability to respond
quickly, accurately and effectively to customer and supplier needs.
. Reduces Operational Costs. The ActiveWorks platform is designed to enable
our customers to operate in a more efficient and streamlined manner,
significantly reducing their operational costs. Our customers are able to
take advantage of the capabilities of the ActiveWorks platform to
interact electronically with customers, suppliers and partners in a cost-
effective manner. In addition, our platform minimizes the need for time-
consuming and expensive custom programming, reducing the number of highly
skilled programmers required to implement and maintain our system. The
ActiveWorks solution is not only designed for rapid initial deployment,
but also can be efficiently altered in response to an upgrade or
replacement of a specific application or an internal or external business
process change. As a result, our solution substantially reduces the
installation and maintenance costs associated with other integration
approaches.
In addition to these business benefits, our platform is differentiated from
other integration solutions through the following core competencies, which we
believe enable us to deliver faster time to integration than the solutions
offered by our competitors:
. Comprehensive and Robust Platform. Our platform, the ActiveWorks
Integration System, provides an integration architecture upon which our
customers can develop strategic eBusiness initiatives. We offer a
comprehensive platform for eBusiness integration, including base
integration functionality, a broad set of dynamic adapters for
integrating a wide variety of applications across multiple operating
systems, and management and monitoring capabilities. In addition, in
order to provide the security capabilities critical to operating an
effective eBusiness, we embed security features throughout our platform,
rather than merely layering them on top. Our platform is designed to
provide the reliability required for mission-critical operations, even
against network, hardware or software failures. We believe that the
comprehensive and robust nature of our platform approach assures our
customers that their eBusiness needs can be met today and in the future.
. Dynamic Adapters. We maintain and continue to expand our portfolio of
dynamic adapters for integrating a wide variety of applications across
multiple operating systems. These adapters, which connect individual
software applications to the ActiveWorks platform, are readily
configurable and easily reconfigurable to meet constantly changing
application requirements and specifications. This broad portfolio of
dynamic adapters substantially reduces the need for the custom
programming often required with other integration solutions. Our
development and production efforts are supported by third parties that
build Active Software-certified adapters, which facilitates the pervasive
adoption of the ActiveWorks Integration System as a standard integration
platform.
. Flexibility and Adaptability to Change. Because our customers' needs are
not static, we have designed our solution to be dynamic. Since little or
no custom programming is required, the ActiveWorks platform provides the
flexibility to respond quickly and effectively to changes in business
operations, rules and processes both inside the company and across its
network of customers, suppliers and partners. In addition, the
ActiveWorks platform is designed to allow the efficient incorporation of,
and integration with, evolving technologies and standards.
. Scalability. We provide global information sharing, guaranteed delivery
and transparent information routing across geographic regions. Our
software is designed to be expandable not only across a customer's
existing organization, but throughout its network of customers, suppliers
and partners. As a result, our architecture not only scales to match the
number of transactions, but also scales across geographies.
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. Embedded Security. Security is a high priority for Internet and eBusiness
needs and will become increasingly important in a global economy. Our
implementation of security mechanisms allows integration to be safely
extended to applications running at customer, supplier or partner sites
and can be selected to fit current needs and then adjusted to fit future
requirements.
. Management and Monitoring Capabilities. Our ActiveWorks solution allows
systems administrators to view business event transmissions, both in real
time and historically. Our graphical management and monitoring
capabilities provide a unified view of the interactions among the
applications, which reduces the cost and time required for system-wide
maintenance.
The Active Software Strategy
Active Software's mission is to establish the ActiveWorks Integration System
as the leading platform for eBusiness integration worldwide. Key elements of
this strategy include:
Facilitate Broad Acceptance and Deployment of Our eBusiness Integration
Platform
Our objective is to establish the ActiveWorks Integration System as the
eBusiness integration platform of choice across multiple industries. To
facilitate this broad acceptance, we have designed our platform to be open,
extensible and broadly applicable to many different markets. For example, we
have licensed the ActiveWorks Integration System to leading enterprises in the
financial services, technology, telecommunications, government, utilities,
retail, manufacturing and transportation industry sectors. We intend to
continue leveraging our existing customers to serve as reference accounts in
order to further penetrate these markets, as well as to expand into other
markets. An important aspect of our strategy has been to develop partnerships
with organizations that extend our market reach and supplement and complement
our capabilities, particularly in providing expertise with respect to specific
large markets. By working together to meet our customers' needs, we can become
an integral part of their eBusiness strategy, which provides significant
additional opportunities for us to grow with our customers going forward.
Enhance Our Technological Leadership through Ongoing Investment and Innovation
We expect to continually add to the depth and breadth of the ActiveWorks
Integration System, always with the ultimate objective of making eBusiness
integration faster and easier for our customers. We believe that ongoing
innovation will be critical to realizing this objective and building
technological barriers to entry. Our key technical personnel have been
recognized as innovators in integration, middleware and networking
technologies. We believe that the recognition by industry analysts and the
media of our technical achievements is important in increasing market awareness
and generating business referral opportunities.
Provide a Complete eBusiness Integration Solution
We recognize that solving the integration challenges facing our customers is
critical to the continued success of their businesses. Our approach is designed
to help them meet those challenges by offering a comprehensive eBusiness
integration solution. We intend to continue to enhance and expand the
capabilities of our products in order to continue to provide our customers with
a comprehensive eBusiness integration platform. The ActiveWorks Integration
System incorporates the Information Broker, dynamic adapters and management
facilities necessary to provide a robust platform for eBusiness integration. In
addition, we have developed a methodology that enables our customers to develop
a focused integration strategy and implementation plan. This methodology is
accompanied by pre-built standard integration processes that can be readily
customized and deployed. Finally, we understand that our customers' success is
paramount and we partner with a variety of third parties whose capabilities
both complement and augment our own in order to assist our customers in rapidly
delivering successful business results.
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Leverage Our Partnerships with System Integrators and Service, Distribution
and Marketing Partners
We intend to expand and strengthen our partnerships with system integrators
and service, distribution and marketing partners in order to provide services
and sales leverage to our software product-based business model. We have
established a series of partnerships and alliances with system integrators,
such as American Management Systems, Inc., Cambridge Technology Partners, Inc.
and Electronic Data Systems, and service, distribution and marketing partners,
such as BroadVision, Inc., Cisco Systems, Inc., Hewlett-Packard Company, Siebel
Systems, Inc. and Sun Microsystems, Inc. These partnerships and alliances
provide an extension of our direct sales force through our joint promotional
and selling efforts and enable us to reach a broader range of customers than
would be possible through our sales force alone. These relationships also
enable us to focus on being the provider of eBusiness integration software,
leveraging our unique capabilities and technologies while providing our
customers with a comprehensive solution and enabling us to scale our business
more quickly, effectively and inexpensively.
Continue Our Commitment to Customer Satisfaction
We understand that in order for us to be successful, our customers must be
successful. We are committed to customer satisfaction throughout our
organization, and we endeavor to provide our customers with the highest quality
products and services, directly and through our partners. We also intend to
continue leveraging our existing customers to serve as reference accounts for
prospective customers. In order to accomplish this, we invest substantial time
and effort in testing our products and working closely with our customers to
quickly address any issues that arise. Our in-house professional services
efforts are focused on providing both our customers and our partners with the
technical assistance and capabilities required to ensure smooth implementation
of our eBusiness integration solution. We carefully select partners who share
our commitment to high quality work and outstanding customer service.
Products and Services
We market the ActiveWorks Integration System and professional services that
support our customers' and partners' use of our products. In addition, our
Active Integration Methodology provides a framework for accelerating
integration projects implemented by our customers and our system integrator
partners.
ActiveWorks Integration System
The ActiveWorks Integration System consists of a number of products that
work together to provide our customers with a comprehensive integration
platform. These products include the ActiveWorks Designer for graphically
designing integration projects; the Information Broker, which provides the
underlying technology for integrating different sources of data in real time;
Dynamic Adapters, which provide connectivity to applications and systems;
Integration Agents, which provide a mechanism for extending integration
projects with specialized code; Graphical Integration Tools, which provide for
the configuration of the system; and Graphical Management and Monitoring Tools,
which make the integration platform easy to deploy, manage and maintain.
. ActiveWorks Designer. The ActiveWorks Designer provides a visual point-
and-click environment for designing and testing an integration project.
The ActiveWorks Designer supports the industry standards for process
modeling and design. Once the design for integration is complete, the
ActiveWorks Designer automatically generates the underlying code and
configuration information. The ActiveWorks Designer also supports
automatic simulation of the integration, testing and project reporting,
thereby decreasing the likelihood of errors during an integration
project. The ActiveWorks Designer implements the Active Integration
Methodology and eliminates much of the custom programming involved in
integrating complex systems.
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. ActiveWorks Information Broker. The Information Broker is the central
component of the ActiveWorks Integration System. The Information Broker
resides on a server and mediates requests to and from applications,
providing essential queuing, filtering, routing and storage of
information in a secure manner. The Information Broker ensures that
events are delivered once, and only once. ActiveWorks' scalable
architecture simplifies systems integration because all collaborating
applications communicate through the Information Broker, rather than in a
more complex point-to-point fashion.
. Information Broker Options. Our customers may choose the following
Information Broker options, which increase functionality and enhance the
ability of ActiveWorks to support mission-critical eBusiness integration
projects:
. The Multi-Broker Option enables an unlimited number of Information
Brokers to be configured to provide information sharing and automatic
information delivery throughout the enterprise, including its network
of customers, suppliers and partners. Multiple Information Brokers
collaborate to provide a single integrated system that efficiently
delivers information among applications.
. The High Availability Option ensures uninterrupted availability
without data loss through server outages.
. The Secure Socket Layer, or SSL, Option enables customers to send
encrypted data with digital signature authentication.
. ActiveWorks Dynamic Adapters. Dynamic adapters connect individual
software applications to the ActiveWorks platform. Active Software and
its partners have developed a large number of dynamic adapters that work
with many enterprise applications and systems, including:
. front office and e-commerce applications, including those from
Clarify, Inc., Siebel Systems, Inc., The Vantive Corporation and
InterWorld Corporation;
. back office enterprise applications, including those from PeopleSoft,
Inc. and SAP;
. relational databases, including those from IBM (DB2), Informix
Corporation, Microsoft Corporation (SQL Server), Oracle Corporation
and Sybase, Inc.;
. mainframe and other data sources, such as IBM 3270, CICS and MQ
Series; and
. custom applications developed using ActiveX, C, C++, CORBA and the
Java language.
Our breadth of dynamic adapters enables easier and faster integration
of additional applications to an eBusiness integration solution or
project. The wide range of dynamic adapters available from Active
Software and its partners give ActiveWorks a scope of integration not
available from other integration solution providers. We believe that our
ActiveWorks dynamic adapters are also more configurable and adaptable
than approaches available from other vendors. ActiveWorks dynamic
adapters enable new functionality in the integrated application to become
immediately and automatically available to the rest of the system.
. ActiveWorks Adapter Development Kit. The ActiveWorks Adapter Development
Kit enables customers, partners and independent software vendors to
create their own custom dynamic adapters for the ActiveWorks platform,
which further extend the capabilities of the ActiveWorks Integration
System. Virtually any application can be integrated through the use of
custom adapters created with the Adapter Development Kit, thereby
ensuring that customers can successfully integrate their current
applications, as well as applications which may be developed or acquired
in the future.
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. ActiveWorks Integration Agents. ActiveWorks Integration Agents provide
additional integration logic and data transformation to meet demanding
integration requirements. The Integration Logic Agent extends the
processing capabilities of the integrated system by providing a framework
for managing and executing custom code written in the Java language. The
Business Rule Agent monitors events and specifies the processing of these
events based on the application of business rules. The Data
Transformation Agent performs complex transformations to enable
incompatible data types to be exchanged across applications using complex
data formats such as Electronic Data Interchange, or EDI, and Extensible
Markup Language, or XML.
. ActiveWorks Graphical Integration Tools. ActiveWorks Graphical
Integration Tools enable the Information Broker and dynamic adapters to
be configured or reconfigured in real time, eliminating the need for
expensive custom programming.
. ActiveWorks Graphical Management and Monitoring Tools. ActiveWorks
Graphical Management and Monitoring Tools facilitate the rapid deployment
of eBusiness integration solutions using the ActiveWorks platform. These
tools have an easy-to-use graphical point-and-click interface that
provides users with insight regarding the activity of a deployed
ActiveWorks system.
The Active Integration Methodology
Designed to rapidly deliver successful business results, the Active
Integration Methodology involves project planning, integration analysis and
design, best practices mentoring and quality assurance testing. The Active
Integration Methodology consists of standard business integration processes and
an integration framework, all of which help customers and partners complete
integration projects more quickly.
. Integration Processes are pre-built standard business integration
solutions that synchronize information and coordinate business processes
across multiple enterprise applications. Integration processes have been
developed for common business requirements, including customer
synchronization, customer support billing, account status, bill of
materials and order/inventory status. All of these pre-built integration
processes can be used as provided, or customized to fit the particular
business requirements.
. The Integration Framework consists of templates for creating custom
integration processes as quickly as possible. With Active Software's
expertise built-in, the Integration Framework enables customers to focus
on developing the content of their business processes, rather than the
underlying technology formats. The Integration Framework is typically
used when there is no pre-built integration process available or when it
is necessary to develop a customer-specific process for the integration
project.
Professional Services
Our professional services include training, consulting, support and
maintenance. Support and maintenance services are provided to our customers
through agreements under which we provide technical support by telephone, fax,
email and the Web during business hours and provide updates and upgrades to our
software products. In addition, customers can elect optional services such as
emergency coverage on a 24 hours per day, seven days per week basis and
dedicated technical account managers. We also provide customer training at our
Santa Clara, California facility and other locations, with coursework related
to various aspects of our eBusiness integration solution.
While we generally partner with system integrators to provide services such
as project implementation and management to our customers, our professional
services organization also directly supports our customers by providing
services related to eBusiness integration mentoring, integration process design
and custom adapter development.
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Strategic Partners
System Integrators. We have a software product-based business model that
leverages system integrator partners who jointly or separately provide a range
of services to our customers, including first-line technical support and
project implementation services. Accordingly, we have established a series of
partnerships with system integrators worldwide. These partnerships allow us to
maintain our focus as a product company while simultaneously obtaining sales,
technical and service leverage through our partners to provide our customers
with a comprehensive eBusiness integration solution. The following is a
representative list of our system integrator partners:
<TABLE>
<S> <C>
. Alodar Systems, Inc. .Inventa Corporation
. American Management Systems, Inc. .Inffinix Software
. Cambridge Technology Partners, Inc. .KPMG
. Catapult Communications Corporation .ObTech, Inc.
. DMR Consulting Group .Primix Solutions, Inc.
. Electronic Data Systems Corporation .Siemens Business Services
. Fort Point Partners
</TABLE>
Solution and Complementary Partners. An important part of our strategy is to
work with solution and complementary partners who have capabilities that can
complement and augment our eBusiness integration solution and extend our market
reach. Many of these partners package or incorporate our products with their
products or solutions, enabling us to create combined offerings that address
specific problems, reach specific markets and provide more complete and
tailored offerings. The following is a representative list of our solution and
complementary partners:
<TABLE>
<S> <C>
. Aspect Telecommunications Corporation .Moss Software, Inc.
. Baan Company, N.V. .Newtonian Software, Inc.
. Blue Lobster Software .PeopleSoft, Inc.
. BroadVision, Inc. .Perot Systems Corporation
. Calico Commerce, Inc. .Pivotal Software Inc.
. Cisco Systems, Inc. .Siebel Systems, Inc.
. Clarify, Inc. .Sun Microsystems, Inc.
. Hewlett-Packard Company .Technology House
. InterWorld Corporation .The Vantive Corporation
. LongView Solutions
</TABLE>
Technology
Our ActiveWorks Integration System is based on an innovative architecture
that enables the integration of disparate enterprise applications, such as
custom and packaged applications, databases and e-commerce applications. As a
result, these applications can exchange information in real time, enabling a
business to operate faster and more efficiently and to use intranets and the
Internet to conduct electronic transactions internally and with customers,
suppliers and partners. This new way of implementing business processes across
applications minimizes the need for expensive custom programming.
Overview of the ActiveWorks Integration System
In the ActiveWorks Integration System, integrated applications exchange
messages called events. An event can announce a business event, such as "order
shipped" or can request a service, such as "retrieve X's current bill." The
software components that connect an integrated application to the ActiveWorks
Integration System are called adapters. An adapter subscribes to events that
are related to its application and translates between the application's
programming interface, or API, and the event. When the adapter receives an
event, it invokes the API to make the application do what
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the event says needs to be done. The adapter may also be invoked by its
application, in which case it publishes an event, typically a notice that
announces to the rest of the system that something has happened in the
application--for example, a notice that an order has been shipped. Adapters do
not communicate directly with each other. Instead they send events to, and
receive events from, an Information Broker, which is the hub of the ActiveWorks
Integration System. In effect, the Information Broker serves as an operating
system for events and handles event queuing, delivery, filtering and security
checking.
Individual customers select the various ActiveWorks components appropriate
to their needs and use them to integrate their existing applications to fulfill
their business requirements. Regardless of the individual variations of unique
installations, all ActiveWorks systems include the necessary attributes for a
robust eBusiness integration platform: scalability, security, adaptability and
extensibility.
Scalability
The ActiveWorks Integration System can be distributed and expanded
incrementally by simply adding multiple Information Brokers between the
integrated applications. An initial hub-and-spoke configuration deployed for
internal use can be incrementally expanded to a multi-hub configuration. The
addition of Information Brokers enables the ActiveWorks Integration System to
support more simultaneous connections to applications and provide faster
response to each connection, while reducing traffic that flows across the
network backbone. In addition, expanding a single-broker system to a multi-
broker system requires no changes to the applications and their adapters, and
administrators can manage a multi-broker system in the same manner as a single-
broker system. Instead of requiring administrators to replicate configuration
changes across multiple brokers, the brokers propagate the changes themselves.
Security
The ActiveWorks Integration System incorporates a wide range of security
features that address critical eBusiness security issues arising from global
operations, business transactions conducted over the Internet and the
integration of applications at partner or vendor sites. These security features
include:
. Territories and territory gateways. Multiple brokers can be employed to
scale and distribute integration both within an eBusiness and among
eBusinesses. Using multi-broker features called territories and territory
gateways, select communications can securely take place with applications
running at partner or vendor sites.
. Encryption. The ActiveWorks Integration System uses the same state-of-
the-art encryption standard (SSL) and encryption technology (public key)
that are widely used to protect e-commerce.
. Digital signatures. A digital signature is an encrypted message digest
that can detect events that have been tampered with or otherwise
corrupted during transmission. A receiver can tell if an event has
arrived intact by computing its own message digest and comparing it with
the digest transmitted with the event.
. Digital certificates. Analogous to a passport, a digital certificate is a
digital document that cannot be forged. The digital certificate attests
that the public key in the certificate really belongs to the subject
named in the certificate. Digital certificates can be used to detect and
authenticate adapters or users.
. Authorization. The ActiveWorks Integration System limits a user's or an
application's ability to perform only those functions for which it has
been specifically authorized. The authorization capability controls
access to and distribution of critical business information.
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Adaptability
We produce many dynamic adapters that enable interfacing with a wide range
of packaged applications (including those from SAP, PeopleSoft and Clarify);
databases (including those from Oracle, Sybase and Informix); custom
applications developed using ActiveX, C, C++, CORBA and the Java language; and
mainframe and other data sources (including CICS and MQ Series). In addition,
ActiveWorks offers an Adapter Development Kit that enables third parties to
develop additional dynamic adapters.
ActiveWorks dynamic adapters are designed to be reusable in a wide variety
of circumstances. They are able to receive instructions and configuration
information that will change their behavior while they are running. This
flexibility allows a single dynamic adapter to support a wide variety of
business processes and to adjust its behavior dynamically without code changes.
The ability to make these types of adjustments at the deployment site without
changing or writing code has been crucial to the achievement of robust systems
in a short time period.
Extensibility
The ActiveWorks Integration System employs software components called agents
to extend its processing functionality. Agents subscribe to a set of event
types and publish or deliver another set of transformed events. Customers can
develop custom agents using language adapters we offer for applications written
using C/C++, CORBA/IDL, the Java language or ActiveX. Examples of processing
that might be performed by agents include error processing, integration
functions such as insert or update processing, complex data transformations or
workflow processing.
The agent architecture enables a more flexible and scalable approach to
providing processing extensions, rather than direct inclusion of processing
within the Information Broker. By separating the processing, agents can be run
either locally on the same system as the Information Broker, or on one or more
remote systems for more configuration flexibility.
Customers
As of June 30, 1999, Active Software has licensed its ActiveWorks
Integration System to over 100 companies. Our typical customers are medium to
large businesses, particularly Global 2000 companies, a term used to describe
the world's largest 2,000 companies in terms of revenues. In the six months
ended June 30, 1999, repeat customers accounted for approximately 62% of total
revenues. In 1997, The Boeing Company accounted for 33% of our total revenues.
In 1998, no customer accounted for more than 10% of our total revenues. For the
six months ended June 30, 1999, Level 3 Communications, Inc. and a federal
government agency engaged in national defense activities accounted for 16% and
13% of our total revenues, respectively. We expect that a small number of
customers will continue to account for a substantial portion of our revenues
for the foreseeable future.
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<PAGE>
The following is a representative list of our customers by industry:
Financial Services Technology Manufacturing and
Automatic Data Calico Technology, Other
Processing, Inc. Inc. The Boeing Company
American Management Comdisco, Inc. Falconbridge
Systems, Inc. Creo Products Inc. Herman Miller, Inc.
Citibank
Daiwa Securities Hewlett-Packard Telecommunications
America Company
InterWorld Level 3
Fidelity Investments Corporation Communications, Inc.
IntraWare, Inc.
MediaOne Group, Inc.
Government and Utilities Intuit, Inc. RCN Corporation
AEP Energy Services Juniper Networks, Telecel
Inc.
City of Toronto
CTX Corporation Motorola, Inc.
Order Trust Other
Houston Associates
Idaho Power Company Technology House C.H. Robinson Company
VeriFone, Inc.
Lockheed Martin
Missiles and Space Xtra Online Federal Express
Company Corporation
Union Energy Inc. Marshall Industries
U.S. Dept. of Defense
U.S. Dept. of Starbucks Corporation
Transportation
The customers listed above accounted for 66% and 75% of total revenues in
1998 and the six months ended June 30, 1999, respectively.
Sales and Marketing
We promote and sell our products through our direct sales organization in
North America and Europe, as well as through system integrators and value added
resellers in countries where we have no direct sales operations. As of June 30,
1999, we had 51 people in our sales and marketing organization, of which 45
were in the United States and six were in Europe. We intend to increase the
size of our direct sales force and to establish additional sales offices
domestically and internationally. Currently, we believe we will need to expand
our sales organization by more than 100% of its present size over the next 18
months.
Our system integrator partners and service, distribution and marketing
partners have capabilities that complement and augment our eBusiness
integration solution and extend our market reach. In particular, our system
integrator partners often contribute industry-specific and application-specific
expertise as well as large scale project management capabilities that enable us
to address a broad range of markets. Many of our service, distribution and
marketing partners package or incorporate our products with their products or
solutions, enabling us to create combined offerings with these partners that
address specific problems, focus on specific markets and provide more complete
and tailored offerings.
Our marketing efforts are focused on developing greater awareness among
target customers for the ActiveWorks Integration System and the benefits it
provides. We market our products and services through targeted events including
tradeshows, conferences and seminars. We also regularly promote our products
through a variety of public relations activities and industry analyst
briefings, and our executives are frequent speakers at industry conferences and
forums in many of the markets we serve. We have developed a wide range of
collateral materials and sales and promotional tools that are used by our
direct sales organization, as well as by our system integrators and value added
reseller partners. These materials include brochures, data sheets, technical
and business white papers, case studies, press releases and our web site.
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Research and Development
We believe that strong product development capabilities are essential to our
strategy of continuing to enhance and expand the capabilities of our products
in order to continue to provide our customers with a comprehensive eBusiness
integration platform. We have invested significant time and resources in
creating a structured process for undertaking all product development. This
process involves several functional groups at all levels within our
organization and is designed to provide a framework for defining and addressing
the activities required to bring product concepts and development projects to
market successfully. In addition, we have recruited key engineers and software
developers with experience in the application integration, networking and
Internet software markets.
Our research and development expenses were $2.8 million in 1997, $4.0
million in 1998 and $2.3 million for the six months ended June 30, 1999. As of
June 30, 1999, approximately 32 employees were engaged in research and
development activities.
Competition
The eBusiness integration market is extremely competitive and subject to
rapid change. We believe that the competitive factors affecting the market for
our products and services include product functionality and features;
availability of global support; incumbency of vendors; ease of product
implementation; quality of customer support services; and vendor and product
reputation. The relative importance of each of these factors depends upon the
specific customer environment. We believe that we have a strong competitive
position with respect to factors such as product features and functionality,
quality of customer support services and the ease of implementation of our
products. Because many of our competitors have longer operating histories and
greater resources, we believe that we do not compete as favorably with respect
to factors that involve the establishment of long-standing relationships, such
as incumbency of vendors and reputation of vendor and products, or extensive
resources, such as the availability of global support.
We compete with various providers of application integration solutions,
including CrossWorlds, New Era of Networks, Software Technologies Corporation
and Vitria. In addition, a number of other companies are offering products and
services that address specific aspects of application integration, including
IBM, BEA Systems, Inc. and TIBCO Software Inc. We also face competition for
some aspects of our product and service offerings from major system
integrators, both independently and in conjunction with in-house corporate
information technology departments, which have traditionally been the prevalent
resource for application integration. We expect additional competition from
other established and emerging companies. Furthermore, our competitors may
combine with each other, or other companies may enter our markets by acquiring
or entering into strategic relationships with our competitors. For more
information regarding our competition, see "Risk Factors--Competition in the
eBusiness integration market is intense, and if we are unable to compete
effectively, the demand for, or the prices of, our products may be reduced."
Proprietary Rights
We rely primarily on a combination of copyrights, trademarks, trade secret
laws and contractual obligations with employees and third parties to protect
our proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property is limited. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts we have entered into, and we may not be able to enforce
our rights in the event of these breaches. Furthermore, we expect that we will
increase our international operations in the future, and the laws of many
foreign countries do not protect our intellectual property rights to the same
extent as the laws of the United States.
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<PAGE>
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of other intellectual property rights. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we expect that we may be subject to legal proceedings and
claims for alleged infringement by us or our licensees of third party
proprietary rights, such as patents, trademarks or copyrights, by us or our
licensees from time to time in the ordinary course of business. Any claims
relating to the infringement of third party proprietary rights, even if not
meritorious, could result in costly litigation, divert management's attention
and resources, or require us to enter into royalty or license agreements which
are not advantageous to us. In addition, parties making these claims may be
able to obtain an injunction, which could prevent us from selling our products
in the United States or abroad. Any of these results could harm our business.
We may increasingly be subject to infringement claims as the number of products
and competitors in our industry grow and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us.
In addition, we license technology that is incorporated into our products
from third parties, including security software from SPYRUS, and any
significant interruption in the supply or support of any licensed software
could adversely affect our sales, unless and until we can replace the
functionality provided by this licensed software. For more information
regarding our dependence on third party technology, see "Risk Factors--Because
our products incorporate technology licensed to us from third parties, the loss
of our right to use this licensed technology could harm our business."
Employees
As of June 30, 1999, we had a total of 120 employees, of which 32 were in
research and development, 51 were in sales and marketing, 26 were in
professional services and product support, and 11 were in finance and
administration. Our future performance depends in significant part upon our
ability to attract new personnel and the continued service of existing
personnel in key areas including engineering, technical support and sales.
Competition for these personnel is intense and there can be no assurance that
we will be successful in attracting or retaining these personnel in the future.
None of our employees are subject to a collective bargaining agreement. We
consider our relations with our employees to be good.
Facilities
We lease approximately 24,000 square feet for our headquarters facility in
Santa Clara, California. The current lease for the Santa Clara facility expires
in December 2003 and does not provide for a right of extension or renewal. We
also lease space at various other locations in the United States and in other
countries. Each of these other offices is generally leased on a month-to-month
basis or under a lease with a remaining term of 12 months or less.
Legal Proceedings
We are not currently subject to any material legal proceedings; however, we
may from time to time become a party to various legal proceedings arising in
the ordinary course of our business.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of May 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
R. James Green.................. 49 Chief Executive Officer, President and
Chairman of the Board of Directors
Rafael Bracho................... 43 Chief Technology Officer, Executive Vice
President and Director
Jon A. Bode..................... 42 Chief Financial Officer and Vice President,
Finance and Administration
Edwin C. Winder................. 50 Senior Vice President, Worldwide Sales
Sydney Springer................. 52 Vice President, Engineering
John M. Dempsey................. 47 Vice President, Professional Services
M. Zack Urlocker................ 36 Vice President, Marketing
Kevin R. Compton................ 40 Director
James P. Gauer.................. 47 Director
Michael J. Odrich............... 35 Director
Todd Rulon-Miller............... 48 Director
Roger S. Siboni................. 44 Director
</TABLE>
R. James Green co-founded Active Software in September 1995, and has served
as President and Chief Executive Officer since October 1997 and as a Director
since November 1995. Mr. Green has also served as Chairman since April 1996 and
served as President from November 1995 to April 1996. Prior to founding Active
Software, Mr. Green established and managed the distributed objects program at
Sun Microsystems, Inc., a provider of network computing products, where he was
Director of Engineering from 1988 to 1995. Mr. Green holds a B.A. degree from
Hanover College, an M.S. degree from North Carolina State University and an
M.S. degree in Computer Science from San Jose State University.
Rafael Bracho co-founded Active Software and has served as Chief Technology
Officer and Executive Vice President since November 1995. Dr. Bracho also has
served as a Director from November 1995 to April 1996 and from March 1997 to
present. Prior to founding Active Software, Dr. Bracho held various positions
at Sun Microsystems, Inc., where he was Senior Staff Engineer from January 1993
to September 1995 and Manager, NeWS Technology Department from April 1990 to
January 1993. Dr. Bracho holds a B.S. degree in Biomedical Engineering from
Universidad Iberoamericana (Mexico), an M.S. degree in Electrical Engineering
from the University of Washington and a Ph.D. degree in Electrical and Computer
Engineering from Carnegie Mellon University.
Jon A. Bode has served as Chief Financial Officer and Vice President,
Finance and Administration since joining Active Software in August 1997. Prior
to joining Active Software, from February 1997 to August 1997, Mr. Bode was
Acting Chief Financial Officer of NVIDIA Corporation, a provider of video
graphics processors, and of PharmaSonics, Inc., a medical device company. From
February 1996 to January 1997, Mr. Bode was Chief Financial Officer at Internet
Profiles Corporation, a provider of Internet traffic analysis and research
services. From October 1992 to November 1995, Mr. Bode held various financial
management positions, including Vice President, Finance and Administration, at
ArcSys Inc., a developer of automation software for physical layout of
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<PAGE>
semiconductors. Mr. Bode holds a B.A. degree from Calvin College and an M.B.A.
degree from the University of Michigan.
Edwin C. Winder has served as Senior Vice President, Worldwide Sales since
joining Active Software in August 1997. Prior to joining Active Software, Mr.
Winder held a variety of sales management positions at Informix Corporation, a
database software company, where he was Senior Vice President, Japan Operations
from January 1996 to March 1997, Senior Vice President, Intercontinental from
April 1994 to December 1995, and Senior Vice President, Americas from January
1991 to March 1994. Mr. Winder holds a B.S. degree in Electrical Engineering
from Southern University and is a graduate of the Stanford University Executive
Program.
Sydney Springer has been Vice President, Engineering of Active Software
since October 1997, and served as Active Software's Director of Engineering
from February 1997 through October 1997. Prior to joining Active Software, Ms.
Springer held a variety of senior engineering and management positions at Sun
Microsystems, Inc. from February 1986 to January 1997, including Senior Staff
Engineer, Manager, NEO Technology Services, Project Lead--Integrated Multimedia
Group, and Manager, NeWS Technology Department. Ms. Springer holds a B.S.
degree in Applied Behavioral Sciences from the University of California at
Davis.
John M. Dempsey has served as Vice President, Professional Services since
joining Active Software in July 1998. Prior to joining Active Software, Mr.
Dempsey held a variety of executive management positions at Computer Sciences
Corporation, a system integrator, including Vice President, Communications
Industry Services from September 1996 to June 1998, and Vice President,
Consulting and Systems Integration from January 1990 to September 1996. Mr.
Dempsey holds a B.S. degree in Computer Science from the University of
Massachusetts and an M.S. degree in Engineering Management from Northeastern
University.
M. Zack Urlocker has served as Vice President, Marketing since joining
Active Software in February 1999. Prior to joining Active Software, Mr.
Urlocker held a variety of management positions with Inprise Corporation
(formerly Borland International), a software company, from August 1990 to
January 1999, including Vice President, Marketing from December 1997 to
February 1999 and Vice President, Product Management from February 1997 to
November 1997. Mr. Urlocker attended the J. L. Kellogg Graduate School of
Management at Northwestern University and holds a B.S. degree in Computer
Science from Concordia University (Montreal, Canada) and an M.Math degree in
Computer Science from University of Waterloo (Canada).
Kevin R. Compton has served as a director of Active Software since January
1996. Since 1990, Mr. Compton has served as a general partner of Kleiner
Perkins Caufield & Byers, a venture capital investment firm. Mr. Compton serves
on the Board of Directors of Citrix Systems, Inc., OneWorld Communications,
Inc., Corsair Communications, Inc., Rhythms NetConnections Inc. and VeriSign,
Inc. and is also a director of several privately-held companies.
James P. Gauer has been a director of Active Software since January 1996.
Since April 1999, he has served as a general partner of Palomar Ventures, a
venture capital investment firm, and from December 1992 to April 1999, he was a
general partner of Enterprise Partners.
Michael J. Odrich has been a director of Active Software since March 1997.
Since 1988, Mr. Odrich has held several positions at Lehman Brothers Inc., an
investment banking firm, and is currently Managing Director and head of Venture
Capital Investing at Lehman Brothers. Mr. Odrich is also a director of several
privately-held companies.
Todd Rulon-Miller has been a director of Active Software since October 1997.
Since 1998, Mr. Rulon-Miller has served as a partner of Apogee Venture Group, a
venture capital investment firm.
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<PAGE>
Mr. Rulon-Miller was Vice President, Worldwide Sales at Netscape Communications
Corporation from 1994 to 1997, President and Chief Executive Officer at
Software Alliance from 1992 to 1994, and Vice President, Sales--North American
Operations at NeXT Computers from 1986 to 1992. Mr. Rulon-Miller is also a
director of several privately-held companies.
Roger S. Siboni has been a director of Active Software since August 1998.
Mr. Siboni has been President and Chief Executive Officer of E.piphany, a
relationship management software company, since August 1998. Prior to joining
E.piphany, Mr. Siboni spent more than twenty years at KPMG Peat Marwick LLP, a
worldwide accounting and consulting organization, most recently as its Deputy
Chairman and Chief Operating Officer. Mr. Siboni serves as a director of
Cadence Design Systems, Inc., FileNET Corporation, Macromedia, Inc. and the
Walter A. Haas School of Business at the University of California at Berkeley.
Board Composition
Our bylaws currently provide for a board of directors consisting of seven
members. All directors hold office until the next annual meeting of our
stockholders and until their successors have been elected and qualified.
Messrs. Compton, Gauer and Odrich were elected to the board of directors under
a voting agreement by and among Active Software and its principal stockholders.
This voting agreement will terminate upon completion of this offering.
In accordance with the terms of our amended and restated certificate of
incorporation to be effective upon completion of this offering, the board of
directors will be divided into three classes, each serving staggered three-year
terms, following the completion of this offering: Class I, whose initial term
will expire at the annual meeting (or special meeting held in lieu of an annual
meeting) of stockholders held in 2000; Class II, whose initial term will expire
at the annual meeting (or special meeting held in lieu of an annual meeting) of
stockholders in 2001; and Class III, whose initial term will expire at the
annual meeting (or special meeting held in lieu of an annual meeting) of
stockholders in 2002. As a result, only one class of directors will be elected
at each annual meeting of stockholders of Active Software, with the other
classes continuing for the remainder of their respective terms. Messrs. Bracho,
Green and Odrich have been designated as Class I directors; Messrs. Compton and
Gauer have been designated as Class II directors; and Messrs. Siboni and Rulon-
Miller have been designated as Class III directors. These provisions in our
amended and restated certificate of incorporation may have the effect of
delaying or preventing changes in control or management of Active Software.
Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are employees of
Active Software are eligible to participate in our 1996 Stock Plan, 1996A Stock
Plan and 1999 Stock Plan and will be eligible to participate in our 1999
Employee Stock Purchase Plan. Directors who are not employees of Active
Software will be eligible to participate in our 1999 Directors' Stock Option
Plan. See "Stock Plans" for more information regarding these plans.
In October 1997, we granted a nonstatutory stock option to Mr. Rulon-Miller
to purchase 60,000 shares of our common stock at an exercise price of $0.18 per
share. Additionally, in May 1999, we granted another nonstatutory stock option
to Mr. Rulon-Miller to purchase an additional 7,500 shares of our common stock
at an exercise price of $10.67 per share. In August 1998, we granted a
nonstatutory stock option to Mr. Siboni to purchase 60,000 shares of our common
stock at an exercise price of $0.77 per share. Each of these options vests over
a fifty-month period.
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<PAGE>
In June 1999, we granted nonstatutory stock options to each of Messrs.
Compton, Gauer and Odrich for the purchase of 5,000 shares of common stock at
an exercise price of $11.00 per share. Each of these options is exercisable for
the full number of shares under the option.
Board Committees
The compensation committee currently consists of Messrs. Odrich and Gauer.
The compensation committee:
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the board of directors regarding these matters.
The audit committee consists of Messrs. Siboni and Compton. The audit
committee:
. makes recommendations to the board of directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided by
our independent auditors; and
. reviews and evaluates our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of Active Software's board of
directors are currently Messrs. Odrich and Gauer, neither of whom has been an
officer or employee of Active Software at any time. Investment entities
affiliated with Messrs. Odrich and Gauer have purchased shares of our
convertible redeemable preferred stock in private placement transactions. These
transactions are described in "Related Party Transactions."
No executive officer of Active Software serves as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving on Active Software's board of directors or
compensation committee.
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<PAGE>
Executive Compensation
Summary Compensation Information
The following table sets forth compensation awarded to, earned by, or paid
to our Chief Executive Officer and the four other most highly compensated
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1998. The amounts in the column titled "All Other
Compensation" consist of life insurance premiums paid by Active Software.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term and Other
Compensation
------------------------
Annual
Compensation
------------------ Securities All Other
Salary Underlying Compensation
Name and Principal Position ($) Bonus ($) Options (#) ($)
--------------------------- -------- --------- ----------- ------------
<S> <C> <C> <C> <C>
R. James Green................... $172,231 $61,967 150,000 $ 874
President and Chief Executive
Officer
Rafael Bracho.................... 151,924 65,376 90,000 441
Executive Vice President and
Chief Technology Officer
Edwin C. Winder.................. 176,538 77,871 -- 893
Senior Vice President, Worldwide
Sales
Jon A. Bode...................... 110,322 20,860 45,000 301
Vice President, Finance and
Administration and
Chief Financial Officer
Sydney Springer.................. 152,387 3,868 -- 1,263
Vice President, Engineering
</TABLE>
Option Grants
The following table shows information regarding stock options granted to the
executive officers named in the Summary Compensation Table during the year
ended December 31, 1998. No stock appreciation rights were granted to these
individuals during the year.
All of the following stock options were granted under the 1996A Stock Plan
and are exercisable for all option shares; however, any shares purchased upon
exercise of these options are subject to repurchase by Active Software at the
original exercise price per share upon the termination of the optionee's
employment with Active Software. This right of repurchase lapses over time,
with the shares issuable upon exercise of each of these options vesting as to
24% of the shares on the first anniversary of the vesting commencement date
specified in the respective option agreement and 2% of the shares each month
thereafter.
The percentages below are based on a total of 1,969,500 shares subject to
options granted by Active Software during the year ended December 31, 1998 to
employees and consultants of Active Software, including the executive officers
named in the Summary Compensation Table.
The exercise price per share of each option was equal to the fair market
value of the common stock as determined by the board of directors on the date
of grant. The potential realizable values assume that the assumed offering
price of $11.00 per share was the fair market value of the common stock on the
date of grant and that the price of the applicable stock increases from the
date of grant until the end of the ten-year option term at the annual rates
specified. There is no assurance provided to any executive officer or any other
holder of our securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level.
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<PAGE>
Option Grants in 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percentage Annual Rates Of Stock
Shares of Total Exercise Price Appreciation
Underlying Options Price for Option Term
Options Granted to per Expiration ---------------------
Name Granted Employees Share Date 5% 10%
---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. James Green.......... 150,000 7.6% $1.33 12/17/2008 $2,488,754 $4,083,029
Rafael Bracho........... 90,000 4.6 1.33 12/17/2008 1,493,252 2,449,817
Edwin C. Winder......... -- -- -- -- -- --
Jon A. Bode............. 45,000 2.3 1.33 12/17/2008 746,626 1,224,909
Sydney Springer......... -- -- -- -- -- --
</TABLE>
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the
executive officers named in the Summary Compensation Table as of December 31,
1998.
The value realized represents the difference between the fair market value
of the shares as of December 31, 1998, based on the assumed fair market value
of $11.00 per share, and the exercise price of the option.
Aggregated Option Exercises in 1998 and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at December 31, 1998 (#) at December 31, 1998 ($)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
R. James Green.......... -- -- 150,000 -- $1,450,000 --
Rafael Bracho........... -- -- 90,000 -- 870,000 --
Edwin C. Winder......... 349,500 $3,781,590 -- -- -- --
Jon A. Bode............. 172,500 1,866,450 45,000 -- 435,000 --
Sydney Springer......... 142,500 1,541,850 -- -- -- --
</TABLE>
In March 1999, we granted to Sydney Springer and Edwin Winder options to
purchase 15,000 shares and 30,000 shares, respectively, of common stock, in
each case at an exercise price of $4.00 per share. In July 1999, we granted to
R. James Green and Rafael Bracho options to purchase 150,000 shares and 45,000
shares, respectively, of common stock at an exercise price of $12.00 per share.
Each of these options vests over a fifty-month period.
Stock Plans
1999 Stock Plan
Our 1999 Stock Plan was adopted by the board of directors in June 1999 and
will be submitted for approval by our stockholders prior to the completion of
this offering. A total of 3,000,000 shares of common stock has been reserved
for issuance under the 1999 Stock Plan, all of which remain available for
future option grants. In addition, the number of shares reserved under the plan
will automatically be increased on July 1 of each of the following years: 2000,
2001, 2002, 2003 and 2004, in an amount equal to the lesser of (a) 1,500,000
shares, or (b) four percent of the shares outstanding on the last day of the
preceding fiscal year. The purposes of the 1999 Stock Plan are to attract and
retain the best available personnel to Active Software, to provide additional
incentives to our employees and consultants and to promote the success of our
business.
The 1999 Stock Plan provides for the grant of incentive stock options to
employees, including officers and directors, and nonstatutory stock options and
stock purchase rights to employees and
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<PAGE>
consultants, including nonemployee directors. If not terminated earlier, the
1999 Stock Plan will terminate in June 2009.
The 1999 Stock Plan may be administered by the board of directors or a
committee of the board. The administrator determines the terms of options and
stock purchase rights granted under the 1999 Stock Plan, including the number
of shares subject to the award, exercise or purchase price, term and
exercisability. In no event, however, may an individual employee receive option
grants or stock purchase rights for more than 1,000,000 shares under the 1999
Stock Plan in any fiscal year.
The exercise price of all incentive stock options granted under the 1999
Stock Plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of any incentive stock option granted
to an optionee who owns stock representing more than 10% of the total combined
voting power of all classes of outstanding capital stock of Active Software or
any parent or subsidiary corporation of Active Software must equal at least
110% of the fair market value of the common stock on the date of grant.
However, the exercise price of a nonstatutory stock option granted to an
individual who, on the last day of our most recently completed fiscal year, is
our chief executive officer, or is acting in this capacity, or is one of our
four most highly compensated officers, other than our chief executive officer,
whose total cash compensation exceeded $100,000 during the fiscal year, will
generally equal at least 100% of the fair market value of the common stock on
the date of grant. The exercise prices of nonstatutory stock options granted to
other persons will be specified by the administrator at the time of grant.
Payment of the exercise price may be made in cash or other consideration as
determined by the administrator.
The administrator determines the term of options, which may not exceed 10
years or 5 years in the case of an incentive stock option granted to a 10%
stockholder. Generally, no option may be transferred by the optionee other than
by will or the laws of descent or distribution. However, the administrator may
in its discretion permit transferability of nonstatutory stock options granted
under the 1999 Stock Plan. The administrator determines when options become
exercisable. Options granted under the 1999 Stock Plan generally become
exercisable at the rate of 24% of the total number of shares subject to the
options on the first anniversary of the vesting commencement date, and 2% of
the total number of shares subject to the options each month thereafter.
In addition to stock options, the administrator may issue to employees,
directors and consultants stock purchase rights under the 1999 Stock Plan. The
administrator determines the number of shares, price, terms, conditions and
restrictions related to a grant of stock purchase rights. Unless the
administrator determines otherwise, the recipient of a stock purchase right
must execute a restricted stock purchase agreement granting Active Software an
option to repurchase the shares at cost upon termination of the recipient's
relationship with us. This repurchase right generally lapses on the same
schedule as options vest.
If we sell all or substantially all of our assets, merge with another
corporation or engage in specified reorganizations, the 1999 Stock Plan
provides for automatic acceleration of vesting with respect to 50% of the
remaining unvested shares under each stock option, effective as of the closing
or completion of the change of control transaction, provided that this partial
vesting acceleration does not preclude "pooling of interests" accounting
treatment for the change of control transaction. In addition, if we sell all or
substantially all of our assets or merge with another corporation, then each
option and stock purchase right may be assumed or an equivalent option or stock
purchase right substituted by the successor corporation. However, if the
successor corporation does not agree to assume or substitute an option or stock
purchase right, then the option will automatically be terminated. The
administrator has the authority to amend or terminate the 1999 Stock Plan as
long as the amendment or termination does not adversely affect any outstanding
option or stock purchase right and provided that stockholder approval will be
obtained to the extent it is required by applicable law.
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<PAGE>
1996 and 1996A Stock Plans
Our 1996 Stock Plan was adopted by the board of directors and approved by
our stockholders in January 1996. Our 1996A Stock Plan was adopted by the board
of directors in August 1996 and approved by our stockholders in March 1997. A
total of 6,846,000 shares of common stock has been reserved for issuance under
the 1996 and 1996A Stock Plans, 181,812 of which remained available for future
option grants as of June 30, 1999. The 1996 and 1996A Stock Plans provide that
any shares repurchased or returned to the 1996 Stock Plan will be automatically
transferred to the 1996A Stock Plan, subject to a maximum of 6,846,000 shares,
and will be available for future issuance under the 1996A Stock Plan.
The purposes of the 1996 and 1996A Stock Plans are to attract and retain the
best available personnel to Active Software, to provide additional incentives
to our employees and consultants and to promote the success of our business.
The 1996 and 1996A Stock Plans provide for the grant of incentive stock options
to employees, including officers and directors, and nonstatutory stock options
and stock purchase rights to employees and consultants, including nonemployee
directors. If not terminated earlier, the 1996 Stock Plan will terminate in
January 2006 and the 1996A Stock Plan will terminate in August 2006.
The terms of options and stock purchase rights issued under the 1996 and
1996A Stock Plans are generally the same as those which may be issued under the
1999 Stock Plan, except with respect to the following features. Nonstatutory
stock options and stock purchase rights granted under the 1996 and 1996A Stock
Plans are nontransferable in all cases and must generally be granted with an
exercise or purchase price equal to at least 85% of the fair market value of
the common stock on the date of grant. In addition, prior to the date of this
offering, optionees have generally been permitted by the board of directors to
enter into amendments to their option agreements that allow for the immediate
exercise of all the shares subject to the options, including shares which are
not yet vested at the time of exercise. These option agreement amendments give
Active Software the right to repurchase the unvested shares at the optionee's
exercise price in the event of termination of the optionee's employment or
consulting relationship with us. Our repurchase right lapses over the same
period as the vesting schedule that applied to the option prior to its
exercise.
No individual employee may receive options or stock purchase rights with
respect to more than 1,000,000 shares of common stock under the 1996 and 1996A
Stock Plans during any fiscal year.
1999 Directors' Stock Option Plan
The 1999 Directors' Stock Option Plan was adopted by the board of directors
in June 1999 and will be submitted for approval by our stockholders before
completion of this offering. A total of 300,000 shares of common stock has been
reserved for issuance under the 1999 Directors' Stock Option Plan, all of which
remain available for future grants.
The 1999 Directors' Stock Option Plan provides for the grant of nonstatutory
stock options to nonemployee directors of Active Software. The 1999 Directors'
Stock Option Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
board of directors. To the extent they arise, it is expected that conflicts of
interest will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which the director has a personal
interest.
The 1999 Directors' Stock Option Plan provides that each person who becomes
a nonemployee director of Active Software after the effective date of this
offering will be granted a nonstatutory stock option to purchase 20,000 shares
of common stock on the date on which the optionee first becomes a nonemployee
director of Active Software. In addition, each existing nonemployee director
who was
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<PAGE>
elected to the board of directors prior to the completion of this offering by
the holders of our convertible redeemable preferred stock will be granted a
nonstatutory stock option to purchase 20,000 shares of common stock on the
first annual stockholders meeting following the effective date of this
offering, provided that he or she remains on the board of directors following
the meeting. Thereafter, on the date of our annual stockholders meeting each
year, each nonemployee director will be granted an additional option to
purchase 5,000 shares of common stock if, on this date, he or she has served on
our board of directors for at least six months. Our directors elected by our
convertible redeemable preferred stockholders prior to the offering who receive
an option to purchase 20,000 shares on the first annual stockholders meeting
following the offering will be eligible to receive additional options to
purchase 5,000 shares beginning on the second annual stockholders meeting
following the offering.
The 1999 Directors' Stock Option Plan sets neither a maximum nor a minimum
number of shares for which options may be granted to any one nonemployee
director, but does specify the number of shares that may be included in any
grant and the method of making a grant. No option granted under the 1999
Directors' Stock Option Plan is transferable by the optionee other than by will
or the laws of descent or distribution or under a qualified domestic relations
order. Each option is exercisable, during the lifetime of the optionee, only by
the optionee or under a qualified domestic relations order.
The 1999 Directors' Stock Option Plan provides that all options granted
under this plan will be fully exercisable as to 100% of the total number of
shares on the date of grant. If a nonemployee director ceases to serve as a
director of Active Software for any reason other than death or disability, he
or she may within 90 days after the date he or she ceases to be a director of
Active Software, exercise options granted under the 1999 Directors' Stock
Option Plan to the extent that he or she was entitled to exercise it at the
date of termination. The exercise price of all stock options granted under the
1999 Directors' Stock Option Plan will be equal to the fair market value of a
share of our common stock on the date of grant of the option. Options granted
under the 1999 Directors' Stock Option Plan have a term of five years.
In the event of the dissolution or liquidation of Active Software, a sale of
all or substantially all of our assets, our merger with or into another
corporation or any other reorganization of Active Software in which more than
50% of the shares of Active Software entitled to vote are exchanged, each
option outstanding under the plan will terminate if not exercised prior to
consummation of the transaction, if the acquiring entity does not assume or
substitute the option. The board of directors may amend or terminate the 1999
Directors' Stock Option Plan at any time as long as their action does not
adversely affect any outstanding option and stockholder approval is obtained
for any amendment as required by applicable law. If not terminated earlier, the
1999 Directors' Stock Option Plan will have a term of ten years.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by the board of directors
in June 1999 and will be submitted for approval by our stockholders before
completion of this offering. A total of 750,000 shares of common stock has been
reserved for issuance under the 1999 Employee Stock Purchase Plan. The number
of shares reserved for issuance under the 1999 Employee Stock Purchase Plan
will automatically increase on July 1 of each of the fiscal years beginning in
2000, 2001, 2002, 2003 and 2004 by an amount equal to the lesser of 350,000
shares or one percent of the total shares outstanding on the last day of the
immediately preceding fiscal year.
The 1999 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Code, will be implemented by a series of overlapping
offering periods of approximately 24 months duration, with new offering periods
(other than the first offering period) commencing on May 1 and
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November 1 of each year. Each offering period will generally consist of four
consecutive purchase periods of six months' duration, at the end of which an
automatic purchase will be made for participants. The initial offering period
is expected to commence on the date of this offering and end on October 31,
2001; the initial purchase period is expected to begin on the date of this
offering and end on April 30, 2000, with subsequent purchase periods ending on
October 31, 2000, April 30, 2000 and October 31, 2001. The 1999 Employee Stock
Purchase Plan will be administered by the board of directors or by a committee
appointed by the board. Our employees (including officers and employee
directors), or employees of any majority-owned subsidiary designated by the
board, are eligible to participate in the 1999 Employee Stock Purchase Plan if
they are employed by us or a subsidiary of ours for at least 20 hours per week
and more than five months per year. The 1999 Employee Stock Purchase Plan
permits eligible employees to purchase common stock through payroll deductions,
which in any event may not exceed 20% of an employee's base salary, commissions
and bonus. The purchase price is equal to the lower of 85% of the fair market
value of the common stock at the beginning of each offering period or at the
end of each purchase period. Employees may end their participation in the 1999
Employee Stock Purchase Plan at any time during an offering period, and
participation ends automatically on termination of employment.
An employee cannot be granted an option under the 1999 Employee Stock
Purchase Plan if immediately after the grant the employee would own stock
and/or hold outstanding options to purchase stock equaling 5% or more of the
total voting power or value of all classes of our stock or stock of our
subsidiaries, or if the option would permit an employee to purchase stock under
the 1999 Employee Stock Purchase Plan at a rate that exceeds $25,000 in fair
market value of stock for each calendar year in which the option is
outstanding. In addition, no employee may purchase more than 1,000 shares of
common stock under the 1999 Employee Stock Purchase Plan in any one purchase
period. If the fair market value of the common stock on a purchase date is less
than the fair market value at the beginning of the offering period, each
participant in that offering period will automatically be withdrawn from the
offering period as of the end of the purchase date and re-enrolled in the new
offering period beginning on the first business day following the purchase
date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 1999
Employee Stock Purchase Plan will be assumed or an equivalent right substituted
by the successor corporation. However, the board of directors will shorten any
ongoing offering period so that employees' rights to purchase stock under the
1999 Employee Stock Purchase Plan are exercised prior to the transaction in the
event that the successor corporation refuses to assume each purchase right or
to substitute an equivalent right of the acquiring corporation. The board of
directors has the power to amend or terminate the 1999 Employee Stock Purchase
Plan and to change or terminate offering periods as long as this action does
not adversely affect any outstanding rights to purchase stock thereunder.
However, the board of directors may amend or terminate the 1999 Employee Stock
Purchase Plan or an offering period even if it would adversely affect
outstanding options in order to avoid our incurring adverse accounting charges.
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the liability
of directors to the maximum extent permitted by Delaware law. Section 145 of
the Delaware General Corporation Law provides that a director of a corporation
will not be personally liable for monetary damages for breach of the
individual's fiduciary duties as a director except for:
. liability for any breach of the director's duty of loyalty to Active
Software or to its stockholders,
. liability for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law,
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. liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law, or
. liability for any transaction from which a director derives an improper
personal benefit.
Our bylaws provide that Active Software will indemnify its directors and
executive officers and may indemnify its officers, employees and other agents
to the full extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of an
indemnified party. Our bylaws also permit us to advance expenses incurred by an
indemnified party in connection with the defense of any action or proceeding
arising out of the party's status or service as a director, officer, employee
or other agent of Active Software upon an undertaking by the indemnified party
to repay these advances if it is ultimately determined that the party is not
entitled to indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to indemnify the director
or officer against expenses, including legal fees, judgments, fines and
settlements paid by the individual in connection with any action, suit or
proceeding arising out of the individual's status or service as a director or
officer of Active Software. We are not required to indemnify the individual
against liabilities arising from willful misconduct or conduct that is
knowingly fraudulent or deliberately dishonest. In addition, the
indemnification agreements require us to advance expenses incurred by the
individual in connection with any proceeding against the individual with
respect to which he or she may be entitled to indemnification by us. We believe
that the indemnification provisions of our amended and restated certificate of
incorporation and bylaws, as well as these indemnification agreements are
necessary to attract and retain qualified persons as directors and officers. We
also maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Active Software where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
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RELATED PARTY TRANSACTIONS
Stock option grants to directors and executive officers of Active Software
are described under the captions "Management--Board Compensation" and "--
Executive Compensation."
Since January 1, 1996, we have issued shares of our convertible redeemable
preferred stock to investors in private placement transactions as follows: a
total of 6,022,500 shares of Series A convertible redeemable preferred stock at
$0.67 per share in February 1996, a total of 3,915,000 shares of Series B
convertible redeemable preferred stock at $1.79 per share in April 1997, and a
total of 3,467,832 shares of Series C convertible redeemable preferred stock at
$4.08 per share between March and October 1998. The following table summarizes
the shares of convertible redeemable preferred stock purchased by our directors
and 5% stockholders and persons and entities associated with them in these
private placement transactions.
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred
Stock Stock Stock
--------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with directors
----------------------------------
Entities affiliated with Kleiner Perkins
Caufield & Byers (Kevin R. Compton).......... 2,250,000 557,619 164,214
Entities affiliated with Lehman Brothers Inc.
(Michael J. Odrich).......................... -- 1,672,863 490,195
Ocean Park Ventures, L.P. (James P. Gauer).... 525,000 126,858 --
5% stockholders
---------------
Sierra Ventures V, L.P. ...................... 750,000 557,620 73,530
Entities affiliated with Enterprise Partners.. 2,475,000 598,048 151,654
Stephen MacDonald............................. -- 278,809 68,628
</TABLE>
In the table above, shares held by affiliated persons and entities have been
aggregated. See "Principal Stockholders" for more information on these
affiliates. In connection with the above transactions, we entered into an
agreement with the investors providing for registration rights with respect to
these shares. For more information regarding this agreement, see "Description
of Capital Stock--Registration Rights of Securityholders."
In February 1996, we issued a total of 600,000 shares of common stock to
investment funds affiliated with Enterprise Partners in connection with a loan
to us by Enterprise Partners in October 1995 in the amount of $250,000 for seed
funding. This indebtedness was canceled in February 1996 as partial
consideration for the shares of Series A convertible redeemable preferred stock
purchased by these investment funds in February 1996.
We have entered into indemnification agreements with our officers and
directors containing provisions which may require us to, among other things,
indemnify our officers and directors against liabilities that may arise by
reason of their status or service as officers or directors (other than
liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. See "Management--Limitation of Liability
and Indemnification Matters" for more information on our indemnification
obligations.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of June 30, 1999, as adjusted to
reflect the sale of the common stock offered hereby, by:
. each stockholder known by us to own beneficially more than 5% of the
common stock,
. our Chief Executive Officer and our four other highest compensated
executive officers,
. each director, and
. all directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Active Software, Inc., 3333 Octavius Drive, Santa Clara, CA 95054.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. To our knowledge, except under applicable community
property laws or as otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares beneficially
owned. The applicable percentage of ownership for each stockholder is based on
19,751,372 shares of common stock outstanding as of June 30, 1999 and an
assumed 23,751,372 shares outstanding after the completion of this offering, in
each case together with applicable options for that stockholder. Shares of
common stock issuable upon exercise of options and other rights beneficially
owned that are exercisable within 60 days of June 30, 1999 are deemed
outstanding for the purpose of computing the percentage ownership of the person
holding those options and other rights but are not deemed outstanding for
computing the percentage ownership of any other person. A portion of the shares
issuable upon exercise of the options in the table below is subject to
repurchase by Active Software at the original exercise price in the event of
termination of the holder's relationship as an employee or director of Active
Software. This repurchase right lapses over time.
<TABLE>
<CAPTION>
Percent Options
Beneficially Owned Exercisable
Total ---------------------- within 60 Days
Number of Before After of June 30,
Name and Address Shares Offering Offering 1999
- ---------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
Entities affiliated with
Enterprise Partners
5000 Birch Street, Suite
6200
Newport Beach, CA
92660(1)................... 3,719,702 18.8% 15.7% --
Entities affiliated with
Kleiner Perkins Caufield &
Byers
2750 Sand Hill Road
Menlo Park, CA 94025(2).... 2,971,836 15.0 12.5 --
Entities affiliated with
Lehman Brothers Inc.
3 World Financial Center
New York, NY 10285(3)...... 2,163,057 11.0 9.1 --
Sierra Ventures V, L.P.
3000 Sand Hill Road
Menlo Park, CA 94025(4).... 1,381,150 7.0 5.8 --
R. James Green(5)........... 1,215,000 6.1 5.1 150,000
Stephen A. MacDonald(6)..... 1,109,935 5.6 4.7 --
Jon A. Bode(7).............. 217,500 1.1 * 45,000
Rafael Bracho(8)............ 715,500 3.6 3.0 135,000
Sydney Springer(9).......... 157,500 * * 15,000
Edwin Winder(10)............ 375,000 1.9 1.6 30,000
Kevin R. Compton(2)......... 2,971,836 15.0 12.5 --
James P. Gauer(11).......... 756,858 3.8 3.2 --
Michael J. Odrich(3)........ 2,163,057 11.0 9.1 --
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percent Options
Beneficially Owned Exercisable
Total --------------------- within 60 Days
Number of Before After of June 30,
Name and Address Shares Offering Offering 1999
- ---------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
Todd Rulon-Miller............. 67,500 * * 67,500
Roger S. Siboni............... 60,000 * * 60,000
All directors and executive
officers as a group
(12 persons)................. 8,897,751 44.2 37.0 834,750
</TABLE>
- --------
* Less than one percent.
(1) Includes 3,422,126 shares held by Enterprise Partners III, L.P. and
297,576 shares held by Enterprise Partners III Associates, L.P. The
general partner of each of these entities is Enterprise Management
Partners III, L.P. The general partners of Enterprise Management Partners
III, L.P. are Charles D. Martin, Andrew E. Senyei, William R. Stensrud and
James H. Berglund.
(2) Includes 889,474 shares held by Kleiner Perkins Caufield & Byers VII,
L.P., 2,047,441 shares held by KPCB Java Fund, L.P. and 34,921 shares held
by KPCB Information Sciences Zaibatsu Fund II, L.P. Kevin R. Compton, a
director of Active Software, is a general partner of KPCB VII Associates,
L.P., the general partner of Kleiner Perkins Caufield & Byers VII, L.P.
and KPCB Information Sciences Zaibatsu Fund II, L.P. The other general
partners of KPCB VII Associates, L.P. are Brook H. Byers, L. John Doerr,
William R. Hearst III, Vinod Khosla, E. Floyd Kvamme, Joseph S. Lacob,
Bernard J. Lacroute, James P. Lally and Douglas J. Mackenzie. Mr. Compton
is also a general partner of KPCB VIII Associates, L.P., which is the
general partner of KPCB Java Associates, L.P., the general partner of KPCB
Java Fund, L.P. The other general partners of KPCB VIII Associates, L.P.
are Brook H. Byers, L. John Doerr, William R. Hearst III, Vinod Khosla,
Joseph S. Lacob and Douglas J. Mackenzie. Mr. Compton disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
in the shares.
(3) Includes 1,993,479 shares held by LB I Group Inc. LB I Group Inc. is a
subsidiary of Lehman Brothers Holdings Inc., a publicly-traded
corporation. 144,837 shares held by Lehman Brothers MBG Venture Capital
Partners 1997 (A), L.P., 21,850 shares held by Lehman Brothers MBG Venture
Capital Partners 1998, (A), L.P., 403 shares held by Lehman Brothers MBG
Venture Capital Partners 1998 (B), L.P., and 2,488 shares held by Lehman
Brothers MBG Venture Capital Partners 1998 (C), L.P. Michael Odrich, a
director of Active Software, is a vice president of LB I Group Inc., which
is the general partner of each of the Lehman Brothers MBG Venture Capital
Partners funds described above. In addition, Mr. Odrich is a limited
partner of Lehman Brothers MBG Venture Capital Partners 1997 (A), L.P. and
Lehman Brothers MBG Venture Capital Partners 1998 (A), L.P. Mr. Odrich
disclaims beneficial ownership of these shares, except to the extent of
his pecuniary interest in the shares.
(4) SV Associates V, L.P. is the general partner of Sierra Ventures V, L.P.
The general partners of SV Associates V, L.P. are Jeffrey M. Drazen, Peter
C. Wendell and Petri T. Vainio.
(5) Includes 1,065,000 shares held by R. James Green and Carol E. Green,
Trustees of the Green Family Trust U/D/T dated August 23, 1996. A portion
of these shares is subject to repurchase by Active Software at the
original exercise price in the event of termination of employment with
Active Software, which repurchase right lapses over time. Does not include
a total of 510,000 shares held in trusts for the benefit of Mr. Green's
children and for which Mr. Green has neither voting nor dispositive power.
(6) Includes 594,312 shares held by the MacDonald Family Trust dated October
27, 1987, and a total of 515,624 shares held in various trusts for the
benefit of Mr. MacDonald's children.
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<PAGE>
(7) Includes 172,500 shares issued upon exercise of stock options. A portion
of these shares is subject to repurchase by Active Software at the
original exercise price in the event of termination of employment with
Active Software, which repurchase right lapses over time.
(8) Includes 580,500 shares held by the Rafael Bracho or Laraine Dietz
Peterson 1999 Inter Vivos Trust. A portion of these shares is subject to
repurchase by Active Software at the original exercise price in the event
of termination of employment with Active Software, which repurchase right
lapses over time. Does not include a total of 225,000 shares held in
trusts for the benefit of Mr. Bracho's children and over which Mr. Bracho
has neither voting nor dispositive power.
(9) Includes 142,500 shares issued upon exercise of stock options. A portion
of these shares is subject to repurchase by Active Software at the
original exercise price in the event of termination of employment with
Active Software, which repurchase right lapses over time.
(10) Includes 345,000 shares issued upon exercise of stock options. A portion
of these shares is subject to repurchase by Active Software at the
original exercise price in the event of termination of employment with
Active Software, which repurchase right lapses over time.
(11) Includes 756,858 shares held by Ocean Park Ventures, L.P. Mr. Gauer is a
general partner of Ocean Park Ventures, L.P. Mr. Gauer is also a limited
partner of Enterprise Partners III, L.P. and Enterprise Partners III
Associates, L.P. and disclaims beneficial ownership of the shares held by
these entities, except to the extent of his pecuniary interest in the
shares.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock,
$0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value.
Common Stock
Effective upon the closing of this offering, but excluding the shares
offered hereby there will be 19,751,372 shares of common stock outstanding,
based on shares outstanding as of June 30, 1999. These shares were held of
record by approximately 121 stockholders. There will be 23,751,372 shares of
common stock outstanding (assuming no exercise or conversion of outstanding
options and warrants after June 30, 1999) after giving effect to the sale of
the shares of common stock offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably any dividends that may be declared from time to
time by the board of directors out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of Active Software, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior rights of preferred stock, if
any, then outstanding. The common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund
provisions available to the common stock. All outstanding shares of common
stock are fully paid and non-assessable, and the shares of common stock to be
issued upon completion of this offering will be fully paid and non-assessable.
Preferred Stock
Effective upon the closing of this offering, Active Software will be
authorized to issue 5,000,000 shares of undesignated preferred stock. The board
of directors will have the authority to issue the undesignated preferred stock
in one or more series and to determine the powers, preferences and rights and
the qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series of undesignated preferred stock and to fix the number of
shares constituting any series and the designation of these series, without any
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of
Active Software without further action by the stockholders and may adversely
affect the voting and other rights of the holders of common stock. At present,
we have no plans to issue any shares of preferred stock.
Warrants
As of June 30, 1999, warrants were outstanding to purchase a total of
215,676 shares of common stock at a weighted average exercise price of $1.31
per share. Of these warrants, warrants to purchase a total of 136,912 shares of
common stock at a weighted average exercise price of $0.77 per share will
terminate upon the completion of this offering if not exercised prior to that
time.
Registration Rights of Securityholders
The holders of 15,724,325 shares of common stock (the "Registrable
Securities"), as well as 78,763 shares issuable upon exercise of warrants, or
their transferees are entitled to rights with respect to the registration of
these shares under the Securities Act. These rights are provided under the
terms of an agreement between Active Software and the holders of Registrable
Securities. Subject to limitations in this agreement, the holders of the
Registrable Securities may require, on two
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<PAGE>
occasions at any time after six months from the effective date of this
offering, that Active Software use its best efforts to register the Registrable
Securities for public resale, provided that the proposed total offering price
is at least $5,000,000. If we register any of our common stock either for our
own account or for the account of other security holders, the holders of
Registrable Securities are entitled to include their shares of common stock in
the registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in this offering. In addition, these holders have the right
to require Active Software to register their shares on Form S-3 under the
Securities Act, if Active Software is eligible to use this form. All fees,
costs and expenses of these registrations must be borne by Active Software and
all selling expenses (including underwriting discounts, selling commissions and
stock transfer taxes) relating to Registrable Securities must be borne by the
holders of the securities being registered.
Anti-Takeover Provisions of Charter Documents and Delaware Law
We are subject to the provisions of Section 203 of the Delaware Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with some exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to
the stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's outstanding voting stock.
Upon completion of this offering, our charter documents also will contain
provisions that may have the effect of delaying or preventing changes in
control or management of Active Software, which could have an adverse effect on
the market price of our common stock. For example, our charter documents will
contain a provision eliminating the ability of stockholders to take actions by
written consent. In addition, our amended and restated certificate of
incorporation to be effective upon completion of this offering also provides
that the board of directors will be divided into three classes, each serving
staggered three-year terms, following the completion of this offering: Class I,
whose initial term will expire at the annual meeting (or special meeting held
in lieu of an annual meeting) of stockholders held in 2000; Class II, whose
initial term will expire at the annual meeting (or special meeting held in lieu
of an annual meeting) of stockholders in 2001; and Class III, whose initial
term will expire at the annual meeting (or special meeting held in lieu of an
annual meeting) of stockholders in 2002. As a result, only one class of
directors will be elected at each annual meeting of stockholders of Active
Software, with the other classes continuing for the remainder of their
respective terms. Messrs. Bracho, Green and Odrich have been designated as
Class I directors; Messrs. Compton and Gauer have been designated as Class II
directors; and Messrs. Siboni and Rulon-Miller have been designated as Class
III directors. In addition, our amended and restated certificate of
incorporation permits our board of directors to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders.
Our stock option and purchase plans generally provide for assumption of
these plans or substitution of an equivalent option of a successor corporation
or, alternatively, at the discretion of the board of directors, exercise of
some or all of the option stock, including non-vested shares, or acceleration
of vesting of shares issued under restricted stock grants, upon a change of
control or similar event.
64
<PAGE>
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
Nasdaq Stock Market Listing
Our common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "ASWX."
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and impair our ability to
raise equity capital in the future.
Upon completion of the offering, we will have 23,751,372 outstanding shares
of common stock, based upon shares outstanding as of June 30, 1999. Of these
shares, the 4,000,000 shares sold in the offering, plus any shares issued upon
exercise of the underwriters' over-allotment option, will be freely tradable
without restriction under the Securities Act, unless purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. In
general, affiliates include officers, directors or 10% stockholders.
The remaining 19,751,372 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of these shares for sale, could adversely affect the market
price of the common stock.
Our directors, officers and stockholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of Goldman, Sachs & Co.
Notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not become
eligible for resale until these agreements expire or are waived by Goldman,
Sachs & Co. Taking into account the lock-up agreements, and assuming Goldman,
Sachs & Co. does not release stockholders from these agreements, the following
shares will be eligible for sale in the public market at the following times:
. beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.
. beginning 180 days after the effective date, approximately 2,533,038
shares will be eligible for sale under Rule 701, approximately 2,575,857
additional shares will be eligible for sale under Rule 144(k), and
approximately 11,766,953 additional shares will be eligible for sale
under Rule 144.
. between 180 days and 365 days after the effective date, approximately
2,875,524 shares will be eligible for sale under Rule 144 at various
times.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately 237,514 shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice, and the availability of current public information about us.
Under Rule 144(k), a person who is not
66
<PAGE>
deemed to have been our affiliate 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 these shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares under a written compensatory plan or
contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell these shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file, immediately after the effectiveness of this
offering, a registration statement on Form S-8 under the Securities Act
covering all shares of common stock reserved for issuance under our 1996 Stock
Plan, 1996A Stock Plan, 1999 Stock Plan, 1999 Directors' Stock Option Plan and
1999 Employee Stock Purchase Plan. Shares registered under this registration
statement would be available for sale in the open market in the future unless
these shares are subject to vesting restrictions with Active Software or the
contractual restrictions described above. For more information on shares
eligible for resale, our stock plans and registration rights, see "Risk
Factors--A total of 19,751,372, or 83%, of our total outstanding shares are
restricted from immediate resale but may be sold into the market in the near
future. This could cause the market price of our common stock to drop
significantly, even if our business is doing well," "Management--Stock Plans"
and "Description of Capital Stock."
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Active Software by Venture Law Group, A Professional Corporation, Menlo Park,
California. Mark A. Medearis, a director of Venture Law Group, is the Secretary
of Active Software. Legal matters specified by the underwriters in connection
with this offering will be passed upon for the underwriters by Shearman &
Sterling, Menlo Park, California. Venture Law Group and its affiliates
beneficially own a total of 34,155 shares of our common stock.
EXPERTS
The consolidated 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 related consolidated financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of this firm given upon their authority as experts in
accounting and auditing.
67
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including the exhibits and schedule filed with the
registration statement, under the Securities Act of 1933 with respect to the
shares to be sold in this offering. This prospectus does not contain all the
information set forth in the registration statement. For further information
with respect to us and the shares to be sold in this offering, we refer you to
the registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document to which we make
reference to, are not necessarily complete, and in each instance we refer you
to the copy of the contract, agreement or other document filed as an exhibit to
the registration statement, each statement being qualified in all respects by
the more complete description of the matter involved. Each statement will be
deemed incorporated by that reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file at the Commission's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the
Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our Commission
filings, including the registration statement, will also be available to you on
the Commission's Internet site, http://www.sec.gov.
68
<PAGE>
ACTIVE SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1997, 1998, June 30, 1999
(unaudited) and Pro Forma at June 30, 1999 (unaudited).................. F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and six months ended June 30, 1998 and 1999
(unaudited)............................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficiency) for the
years ended December 31, 1996, 1997 and 1998 and six months ended June
30, 1999 (unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and six months ended June 30, 1998 and 1999
(unaudited)............................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
"To the Board of Directors and Stockholders of
Active Software, Inc.:
We have audited the accompanying consolidated balance sheets of Active
Software, Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficiency), 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Active Software, Inc. and
subsidiary at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 11, the accompanying 1998 consolidated financial
statements have been restated.
San Jose, California
January 22, 1999
(June 10, 1999 as to the first eight paragraphs of Note 10, June 28, 1999
as to the last paragraph of Note 10 and July 15, 1999 as to Note 11)"
To the Board of Directors and Stockholders of
Active Software, Inc.:
The consolidated financial statements included herein have been adjusted to
give effect to the three-for-two common and convertible redeemable preferred
stock split as described in the sixth paragraph of Note 10 to the consolidated
financial statements. The above report is in the form that will be signed by
Deloitte & Touche LLP upon the effectiveness of such event assuming that from
July 19, 1999 to the effective date of such event, no other events shall have
occurred that would affect the accompanying consolidated financial statements
or notes thereto.
/s/ Deloitte & Touche LLP
___________________________
DELOITTE & TOUCHE LLP
San Jose, California
July 19, 1999
F-2
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
<TABLE>
<CAPTION>
December 31, Pro Forma
---------------------- June 30, June 30,
1997 1998 1999 1999
------- ------------- ----------- -----------
(As restated, (Unaudited) (Note 1)
see Note 11) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 2,876 $ 7,461 $ 6,729
Accounts receivable (net
of allowances of $82,
$200 and $200)........... 1,535 3,362 4,089
Prepaid expenses and
other current assets..... 58 495 507
------- -------- -------
Total current assets.... 4,469 11,318 11,325
Property and equipment,
net....................... 651 796 1,576
Other assets............... 75 180 306
------- -------- -------
Total assets............... $ 5,195 $ 12,294 $13,207
======= ======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Line of credit............ $ -- $ -- $ 3,294
Accounts payable.......... 306 739 1,417
Accrued compensation and
related benefits......... 582 1,115 1,591
Deferred revenues......... 722 1,154 2,053
Accrued royalties......... -- 375 486
Other accrued
liabilities.............. 13 335 181
Current portion of notes
payable.................. 91 107 105
------- -------- -------
Total current
liabilities............ 1,714 3,825 9,127
------- -------- -------
Notes payable, less current
portion................... 216 108 59
------- -------- -------
Commitments (Notes 7 and
10)
Convertible redeemable
preferred stock:
Series A convertible
redeemable preferred
stock; $0.001 par value;
designated and
outstanding--6,022,500
shares; pro forma--none
outstanding; (liquidation
preference of $4,015)....... 3,995 3,995 3,995 $ --
Series B convertible
redeemable preferred
stock; $0.001 par value;
designated and
outstanding--3,915,000
shares; pro forma--none
outstanding; (liquidation
preference of $7,021)....... 7,013 7,013 7,013 --
Series C convertible
redeemable preferred
stock; $0.001 par value;
designated--3,467,832
shares: outstanding--1997,
none; 1998 and 1999,
3,467,832 shares; pro
forma--none outstanding;
(liquidation preference of
$14,149).................... -- 14,109 14,109 --
Stockholders' equity
(deficiency):
Preferred stock, $0.001
par value: pro forma
authorized 5,000,000
shares; none outstanding. -- -- -- --
Common stock, $0.001 par
value; authorized--
30,000,000 shares;
outstanding--1997,
4,145,850 shares; 1998,
5,874,725 shares; 1999
6,346,040 shares; pro
forma--19,751,372 shares
outstanding.............. 106 3,934 6,132 31,249
Deferred stock
compensation.............. -- (2,939) (4,135) (4,135)
Notes receivable from
stockholders.............. (49) (9) (9) (9)
Accumulated deficit........ (7,800) (17,742) (23,084) (23,084)
------- -------- ------- -------
Total stockholders'
equity (deficiency).... (7,743) (16,756) (21,096) $ 4,021
------- -------- ------- =======
Total liabilities and
stockholders' equity
(deficiency).............. $ 5,195 $ 12,294 $13,207
======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------------- -------- --------
(As restated, (Unaudited)
see Note 11)
<S> <C> <C> <C> <C> <C>
Revenues:
License.................. $ 280 $ 2,625 $ 5,900 $ 1,955 $ 5,922
Service.................. 5 568 1,699 454 2,746
------- ------- ------- -------- --------
Total revenues......... 285 3,193 7,599 2,409 8,668
------- ------- ------- -------- --------
Costs of revenues:
License.................. 6 30 477 47 465
Service.................. 165 623 2,290 506 2,804
------- ------- ------- -------- --------
Total cost of revenues. 171 653 2,767 553 3,269
------- ------- ------- -------- --------
Gross profit............... 114 2,540 4,832 1,856 5,399
Operating expenses:
Research and development. 1,182 2,830 3,971 1,613 2,276
Sales and marketing...... 685 2,896 8,669 3,795 6,956
General and
administrative.......... 1,163 1,796 2,069 889 993
Amortization of deferred
stock compensation...... -- -- 336 84 565
------- ------- ------- -------- --------
Total operating
expenses.............. 3,030 7,522 15,045 6,381 10,790
------- ------- ------- -------- --------
Loss from operations....... (2,916) (4,982) (10,213) (4,525) (5,391)
Interest income (expense):
Interest income.......... 102 179 313 130 96
Interest expense......... -- (50) (42) (38) (47)
------- ------- ------- -------- --------
Total interest income
(expense)............. 102 129 271 92 49
------- ------- ------- -------- --------
Net loss................... $(2,814) $(4,853) $(9,942) $ (4,433) $ (5,342)
======= ======= ======= ======== ========
Basic and diluted net loss
per share................. $ (6.59) $ (2.50) $ (3.21) $ (1.34) $ (1.08)
======= ======= ======= ======== ========
Shares used in calculating
basic and diluted net loss
per share................. 427 1,945 3,096 3,301 4,962
======= ======= ======= ======== ========
Pro forma basic and diluted
net loss per share
(Note 1).................. $ (0.64) $ (0.29)
======= ========
Shares used in calculating
pro forma basic and
diluted net loss per share
(Note 1).................. 15,457 18,367
======= ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Notes
Common Stock Deferred Receivable
----------------- Stock from Accumulated
Shares Amount Compensation Stockholders Deficit Total
--------- ------ ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1996................... 2,145,000 $ 14 $ -- $ (7) $ (133) $ (126)
Issuance of common
stock.................. 1,394,250 87 -- (42) -- 45
Issuance of common stock
for note payable
financing.............. 600,000 4 -- -- -- 4
Net loss................ -- -- -- -- (2,814) (2,814)
--------- ------ ------- ---- -------- --------
Balances, December 31,
1996................... 4,139,250 105 -- (49) (2,947) (2,891)
Issuance of common
stock.................. 6,600 1 -- -- -- 1
Net loss................ -- -- -- -- (4,853) (4,853)
--------- ------ ------- ---- -------- --------
Balances, December 31,
1997................... 4,145,850 106 -- (49) (7,800) (7,743)
Issuance of common
stock.................. 2,397,375 297 -- -- -- 297
Repurchase of common
stock.................. (668,500) (45) -- 29 -- (16)
Repayments of note
receivable............. -- -- -- 11 -- 11
Issuance of warrants, as
restated, see Note 11.. -- 301 -- -- -- 301
Deferred stock
compensation, as
restated, see Note 11.. -- 3,275 (3,275) -- -- --
Amortization of deferred
stock compensation, as
restated, see Note 11.. -- -- 336 -- -- 336
Net loss, as restated .. -- -- -- -- (9,942) (9,942)
--------- ------ ------- ---- -------- --------
Balances, December 31,
1998, as restated, see
Note 11................ 5,874,725 3,934 (2,939) (9) (17,742) (16,756)
Issuance of common stock
(unaudited)............ 509,715 440 -- -- -- 440
Repurchase of common
stock (unaudited)...... (38,400) (3) (3)
Deferred stock
compensation
(unaudited)............ -- 1,761 (1,761) -- -- --
Amortization of deferred
stock compensation
(unaudited)............ -- -- 565 -- -- 565
Net loss (unaudited).... -- -- -- -- (5,342) (5,342)
--------- ------ ------- ---- -------- --------
Balances, June 30, 1999
(unaudited)............ 6,346,040 $6,132 $(4,135) $ (9) $(23,084) $(21,096)
========= ====== ======= ==== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ACTIVE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------------- -------- --------
(As restated, (Unaudited)
see Note 11)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $(2,814) $(4,853) $(9,942) $ (4,433) $ (5,342)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............. 124 318 461 214 296
Amortization of deferred
stock compensation....... -- -- 336 84 565
Interest expense recorded
in connection with note
financing................ 4 -- -- -- --
Issuance of warrants...... -- -- 301 97 --
Changes in assets and
liabilities:
Accounts receivable...... (34) (1,475) (1,827) 644 (727)
Prepaid expenses and
other current assets.... (42) (12) (437) 23 (12)
Accounts payable......... 18 75 433 258 678
Accrued compensation and
related benefits........ 92 582 533 (126) 476
Accrued royalties........ -- -- 375 6 111
Other accrued
liabilities............. -- (58) 322 48 (154)
Deferred revenues........ 116 606 432 (289) 899
------- ------- ------- -------- --------
Net cash used in
operating activities... (2,536) (4,817) (9,013) (3,474) (3,210)
------- ------- ------- -------- --------
Cash flows from investing
activities:
Property and equipment
additions................ (322) (588) (606) (284) (1,086)
Proceeds from sale of
fixed assets............. 10
Other assets.............. (14) (54) (105) (61) (126)
------- ------- ------- -------- --------
Net cash used in
investing activities.... (336) (642) (711) (345) (1,202)
------- ------- ------- -------- --------
Cash flows from financing
activities:
Sale of common stock...... 45 1 297 280 440
Repurchase of common
stock.................... -- -- (16) (14) (3)
Sale of convertible
redeemable preferred
stock.................... 3,745 7,013 14,109 10,375 --
Repayment of notes
receivable from
stockholders............. -- -- 11 40 --
Proceeds from line of
credit................... -- -- -- -- 3,294
Proceeds from notes
payable.................. 401 -- -- -- --
Repayment of notes payable
......................... (21) (72) (92) (44) (51)
------- ------- ------- -------- --------
Net cash provided by
financing activities.... 4,170 6,942 14,309 10,637 3,680
------- ------- ------- -------- --------
Net increase (decrease) in
cash and cash equivalents. 1,298 1,483 4,585 6,818 (732)
Cash and cash equivalents--
beginning of period....... 95 1,393 2,876 2,876 7,461
------- ------- ------- -------- --------
Cash and cash equivalents--
end of period............. $ 1,393 $ 2,876 $ 7,461 $ 9,694 $ 6,729
======= ======= ======= ======== ========
Supplemental disclosure of
cash flow information--
Cash paid during the
period for interest....... $ 2 $ 50 $ 42 $ 23 $ 15
======= ======= ======= ======== ========
Noncash financing
activities:
Repurchase of common stock
by cancellation of note
receivable............... $ -- $ -- $ 29 $ -- $ --
======= ======= ======= ======== ========
Common stock issued for
notes receivable......... $ 42 $ -- $ -- $ -- $ --
======= ======= ======= ======== ========
Conversion of note payable
to convertible redeemable
preferred stock.......... $ 250 $ -- $ -- $ -- $ --
======= ======= ======= ======== ========
Deferred stock
compensation............. $ -- $ -- $ 3,275 $ 1,184 $ 1,761
======= ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1997 and 1998 and
Six Months Ended June 30, 1998 and 1999 (Unaudited)
1. Business and Significant Accounting Policies
Business--Active Software, Inc. (the Company), incorporated in California in
September 1995, develops and markets software products for businesses that
allow users to integrate incompatible software applications across their
extended enterprises of customers, suppliers and partners.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. All intercompany
transactions and balances have been eliminated in consolidation.
Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over estimated useful lives of three
years. Leasehold improvements are amortized over the shorter of the lease term
or their useful life.
Long-Lived Assets--The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets or intangibles may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Software Development Costs--Costs for the development of new software
products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established, at
which time any additional development costs would be capitalized in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86, Computer
Software To Be Sold, Leased, or Otherwise Marketed. Because the Company
believes its current process for developing software is essentially completed
concurrently with the establishment of technological feasibility, no costs have
been capitalized to date.
Notes Receivable from Stockholders--The notes receivable from stockholders
were issued in exchange for common stock, bear interest at 5.73% per annum, and
are due from November 30, 1999 through January 15, 2000.
Revenue Recognition--Active Software's revenue recognition policy is
consistent with Statement of Position 97-2, as amended. License revenues are
comprised of fees for the Company's software products. Revenue from license
fees is recognized when an agreement has been signed, delivery of the product
has occurred, no significant Company obligations remain, the fee is fixed or
determinable, collectibility is probable and vendor-specific objective evidence
exists to allocate a portion of the total fee to any undelivered elements of
the arrangement. For electronic delivery, the software is considered to have
been delivered when the Company has provided the customer with the access codes
that allow for immediate possession of the software. If the fee due from the
customer is not fixed or determinable, revenue is recognized as payments become
due from the customer. If collectibility is not considered probable, revenue is
recognized when the fee is collected. Revenue on arrangements with customers
who are not ultimate users (primarily resellers) is not recognized until the
product is delivered to the end user.
F-7
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Service revenues are comprised of revenue from support arrangements,
consulting fees and training. Support arrangements do not provide for specified
upgrade rights and provide technical support and the right to unspecified
upgrades on an if-and-when-available basis. Revenue from support arrangements
is recognized on a straight-line basis as services revenue over the life of the
related agreement, which is typically one year. If support or consulting
services are included in an arrangement that includes a license agreement,
amounts related to support or consulting are allocated based on vendor-specific
objective evidence. Vendor-specific objective evidence for support and
professional services is based on the price when such elements are sold
separately, or, when not sold separately, the price established by management
having the relevant authority. Where discounts are offered on multiple element
arrangements, such discount is allocated to the license agreement. Consulting
and training revenue is recognized when provided to the customer. Customer
advances and billed amounts due from customers in excess of revenue recognized
are recorded as deferred revenue.
Income Taxes--Income taxes are provided for using an asset and liability
approach which requires recognition of deferred tax liabilities and assets, net
of valuation allowances, for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities and net operating loss and tax credit carryforwards.
Foreign Currency Transactions--The functional currency of the Company's
foreign subsidiary is the U.S. dollar. Accordingly, all monetary assets and
liabilities are translated at the current exchange rate at the end of the year,
nonmonetary assets and liabilities are translated at historical rates and
revenues and expenses are translated at average exchange rates in effect during
the period. Transaction gains and losses have not been significant to date.
Stock Compensation--The Company accounts for stock-based awards to employees
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees.
Net Loss per Common Share--Basic net loss per common share excludes dilution
and is computed by dividing net loss by the weighted average number of common
shares outstanding for the period (excluding shares subject to repurchase).
Diluted net loss per common share was the same as basic net loss per common
share for all periods presented since the effect of any potentially dilutive
securities is excluded as they are anti-dilutive because of the Company's net
losses.
Pro Forma Net Loss per Common Share--Pro forma basic and diluted net loss
per common share is computed by dividing net loss by the weighted average
number of common shares outstanding for the period (excluding shares subject to
repurchase) plus the weighted average number of common shares resulting from
the automatic conversion of outstanding shares of convertible redeemable
preferred stock, which will occur upon the closing of the planned initial
public offering.
Unaudited Pro Forma Information--Upon the closing of the planned initial
public offering, each of the outstanding shares of convertible redeemable
preferred stock will automatically convert into one share of common stock. The
pro forma information is presented as if this conversion had occurred at June
30, 1999.
Unaudited Interim Financial Information--The interim financial information
as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 is
unaudited and has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited
F-8
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
financial information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
information. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
Concentration of Credit Risk--Financial instruments that potentially expose
the Company to concentrations of credit risk consist primarily of accounts
receivable. The Company primarily sells its products to companies in North
America. The Company does not require collateral or other security to support
accounts receivable. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses.
Financial Instruments--The Company's financial instruments include cash and
cash equivalents, notes receivable from stockholders and long-term debt. At
December 31, 1997 and 1998, the fair value of these financial instruments
approximated their financial statement carrying amounts.
Significant 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 disclosures 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 these estimates.
Certain Significant Risks and Uncertainties--The Company operates in the
software industry, and accordingly, can be affected by a variety of factors.
For example, management of the Company believes that changes in any of the
following areas could have a significant negative effect on the Company in
terms of its future financial position, results of operations or cash flows;
ability to obtain additional financing; fundamental changes in the technology
underlying software products; market acceptance of the Company's products under
development; development of sales channels; loss of significant customers;
adverse changes in international market conditions; year 2000 compliance
issues; litigation or other claims against the Company; the hiring, training
and retention of key employees; successful and timely completion of product
development efforts; and new product introductions by competitors.
Recently Adopted Accounting Standards--In June 1997, the FASB issued SFAS
No. 130, Reporting Comprehensive Income, which requires an enterprise to
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources; and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
The Company had no comprehensive income items, other than net loss, to report
for any of the periods presented. The Company currently operates in one
reportable segment under SFAS No. 131.
Recently Issued Accounting Standards--In March 1998, the American Institute
of Certified Public Accountants issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This standard
requires companies to capitalize qualifying computer software costs incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1
on its financial statements and related disclosures.
F-9
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for
the Company's fiscal year ending December 31, 2001. The Company is currently
evaluating the
impact of SFAS No. 133 on its financial statements and related disclosures.
Reclassifications--Certain reclassifications have been made to the 1996 and
1997 financial statement presentation to conform to the 1998 presentation.
2. Property and Equipment
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------- June 30,
1997 1998 1999
------ ------ --------
<S> <C> <C> <C>
Equipment ....................................... $ 937 $1,523 $ 2,370
Software......................................... 52 72 186
Leasehold improvements........................... 102 102 81
------ ------ -------
1,091 1,697 2,637
Accumulated depreciation and amortization........ (440) (901) (1,061)
------ ------ -------
$ 651 $ 796 $ 1,576
====== ====== =======
</TABLE>
3. Notes Payable
In 1996, the Company borrowed $401,000 pursuant to a loan agreement with a
third party. The note bears interest at an effective rate of 17%, is payable in
monthly installments through July 2000 and is collateralized by all of the
Company's equipment. As of December 31, 1998, a principal balance of $215,000
was outstanding under these notes and is due as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1999................................................................. $107
2000................................................................. 108
----
$215
====
</TABLE>
4. Convertible Redeemable Preferred Stock and Stockholders' Equity
Convertible Redeemable Preferred Stock
Convertible redeemable preferred stock details are as follows:
. In February 1996, 6,022,500 shares of Series A convertible redeemable
preferred stock were sold at $0.67 per share; in April 1997, 3,915,900
shares of Series B convertible redeemable preferred stock were sold at
$1.79 per share; and in March 1999, June 1999, July 1999 and October
1999, the Company sold 1,928,615 shares, 620,098 shares, 183,825 shares
and 735,294 shares, respectively, of Series C convertible redeemable
preferred stock at $4.08 per share.
. Each share of Series A, B, and C convertible redeemable preferred stock
is convertible into one share of common stock (subject to adjustment for
events of dilution). Each share will automatically convert into common
stock upon the completion of a public offering with aggregate proceeds
greater than $10,000,000 and at a price per share of not less than $6.00.
F-10
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. Each share of Series A, B, and C convertible redeemable preferred stock
has voting rights equivalent to the number of shares of common stock into
which it is convertible.
. When declared by the Board of Directors, the holders of Series A, B, and
C convertible redeemable preferred stock are entitled to receive
noncumulative dividends of $0.04, $0.11, and $0.24 per share per annum,
respectively, prior to the payment of any dividends on common stock.
. In the event the Company is acquired or merges into another company
(unless the Company's stockholders own more than 50% of the surviving
entity) or in the event of liquidation, dissolution or winding up of the
Company, Series A, B, and C convertible redeemable preferred stock
stockholders shall receive $0.67, $1.79, and $4.08 per share,
respectively (aggregating approximately $4,015,000, $7,021,000 and
$14,149,000 at December 31, 1998, respectively), adjusted for certain
events of dilution, as defined. Any remaining assets shall be distributed
ratably to the common and preferred stockholders (on an as converted
basis); except that the Series A, B, and C convertible redeemable
preferred stockholders shall be limited to per share distributions of
$1.33, $3.59, and $8.16 respectively, in addition to the distributions
mentioned in the preceding sentence.
. The Series A, B, and C convertible redeemable preferred stock
stockholders have certain registration rights.
. The Series A, B, and C convertible redeemable preferred stock is
redeemable if the Company receives a written request from the holders of
at least two-thirds of the then outstanding shares of Series A, B, and C
convertible redeemable preferred stock, respectively. The shares are
redeemable at $0.67, $1.79, and $4.08 per share, respectively, plus any
dividends declared, but not paid, on the date of redemption. No dividends
have been declared to date. Upon receipt of such written request, the
Company shall redeem the number of shares in three equal annual
installments beginning the later of March 2002 or ninety days after
receipt of such request.
Stock Plans
At December 31, 1998, the Company has reserved an aggregate of 6,846,000
shares of common stock for issuance, at the discretion of the Board of
Directors, to officers, directors, employees and consultants pursuant to its
1996 and 1996A Stock Plans (the Plans). Options are generally granted at fair
market value at the date of grant as determined by the Board of Directors.
Options granted under the Plans generally vest over 50 months and expire ten
years from the date of grant. In February 1998, the Company amended the stock
option agreements under the Plans to allow employees to exercise their stock
options immediately. All unvested shares are placed in escrow and continue to
vest according to the employee's normal stock option vesting schedule. The
unvested shares are subject to repurchase at the option of the Company at the
original purchase price upon termination of the employee. In 1998, 668,500
shares were repurchased at their original cost of $0.07 per share and returned
to the Plans. At December 31, 1998, 1,282,525 shares are available for future
issuance and 906,188 shares are subject to repurchase.
In addition to shares issued under the Stock Plans, the Company has issued
2,304,000 shares pursuant to individual restricted stock purchase agreements.
The Company has the right of first refusal on the sale of common stock acquired
under such restricted stock purchase agreements. This right expires if the
Company's stock becomes publicly traded in an established market. Upon
termination of employment, the Company has the right to repurchase any unvested
shares at the
F-11
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
original purchase price. This right expires generally over four years. In
addition, upon termination of certain key employees, the Company has the right
to repurchase vested shares at the original purchase price per share. Such
repurchase right expires in 2000 or upon the Company's stock becoming publicly
traded. At December 31, 1998, 540,000 shares are subject to such repurchase
rights.
Additional information with respect to outstanding options under the Plans
is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
---------- --------------
<S> <C> <C>
Outstanding, January 1, 1997 (none exercis-
able)........................................ 1,588,500 $0.07
Granted (weighted average fair value of
$0.03)...................................... 1,681,125 0.17
Exercised.................................... (6,600) 0.07
Cancelled.................................... (99,300) 0.14
---------- -----
Outstanding, December 31, 1997 (1,127,580
exercisable at a weighted average price of
$0.07)....................................... 3,163,725 0.12
Granted (weighted average fair value of
$0.27)...................................... 1,969,500 0.90
Exercised.................................... (2,397,375) 0.13
Cancelled.................................... (143,100) 0.18
---------- -----
Outstanding, December 31, 1998................ 2,592,750 0.70
Granted...................................... 1,210,874 6.13
Exercised.................................... (509,715) 0.90
Cancelled.................................... (71,760) 2.89
---------- -----
Outstanding, June 30, 1999 (unaudited)........ 3,222,149 $2.66
========== =====
</TABLE>
Additional information regarding options outstanding as of December 31, 1998
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
------------------------------------------ ----------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Vested Price
-------- ----------- ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$0.07 446,250 7.25 $0.07 169,422 $0.07
0.18 555,750 8.90 0.18 129,300 0.18
0.27 127,500 9.19 0.27 -- --
0.67 45,000 9.27 0.67 -- --
0.77 502,500 9.56 0.77 -- --
1.33 915,750 9.90 1.33 -- --
--------- -------
$0.07--$1.33 2,592,750 9.13 $0.70 298,722 $0.11
========= =======
</TABLE>
During the year ended December 31, 1998 and the six months ended June 30,
1999, in connection with the grant of certain stock options, the Company
recorded deferred stock compensation of $3,275,000 and $1,761,000,
respectively, representing the difference between the exercise price of the
options and the estimated fair value of the Company's common stock on the date
of grant. Such amount is being amortized over the vesting period of the related
options, generally fifty months. For the year ended December 31, 1998 and six
months ended June 30, 1999, amortization of deferred stock compensation was
$336,000 and 565,000, respectively. At June 30, 1999, $4,135,000 of unamortized
deferred stock compensation remains.
F-12
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net loss and net loss per share had the Company adopted
the fair value method as of the beginning of fiscal 1995. Under SFAS 123, the
fair value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values. The Company's calculations were made using the minimum value
option pricing model with the following weighted average assumptions: expected
life, 24 months following vesting in 1996, 1997 and 1998; risk free interest
rate, 6% in 1996, 1997 and 1998; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1996, 1997 and 1998 awards had been amortized to expense over the vesting
period of the awards, pro forma net loss would have been $2,822,000 ($(6.61)
per share, basic and diluted) in 1996, $4,876,000 ($(2.51) per share, basic and
diluted) in 1997 and $10,004,000 ($(3.23) per share, basic and diluted) in
1998.
Common Stock Warrants
In September 1996, in conjunction with a note payable, the Company issued a
warrant to purchase up to 42,000 shares of common stock at $0.67 per share. The
warrant expires on September 30, 2004. The fair value of the warrant was
insignificant.
In June and July 1998, the Company issued warrants to system integrators in
connection with services rendered to purchase up to 136,912 shares of common
stock at $0.77 per share. The warrants expire at the earliest of: i) 2003, ii)
immediately prior to closing of an acquisition of the Company or sale of all or
substantially all of the assets of the Company, or iii) immediately prior to
the effective date of the Company's initial underwritten public offering. An
expense of $300,600 was recorded in 1998 related to the issuance of such
warrants which was based on the warrants' estimated fair market value at the
date of issuance.
In October 1998, the Company issued a warrant to a strategic partner to
purchase 36,764 shares of common stock at $4.08 per share. The warrant is
contingently exercisable upon the earliest of: i) achievement of certain
performance improvements to the Company's software product or ii) immediately
prior to the closing of an acquisition of the Company. The warrant generally
expires at the earlier of: i) October 29, 2005 or ii) August 31, 1999 in the
event that the strategic partner has not achieved the software performance
improvements. The fair value of the warrant will be recorded as expense in the
period in which the contingency is resolved.
At December 31, 1998, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible redeemable preferred stock.............. 13,405,332
Issuances under the Stock Plans................................... 4,165,465
Exercise of common stock warrants................................. 215,676
----------
17,786,473
==========
</TABLE>
F-13
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Net Loss per Share
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands):
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net loss (numerator), basic and
diluted........................ $(2,814) $(4,853) $(9,942) $ (4,433) $ (5,342)
Shares (denominator):
Weighted average common shares
outstanding.................. 2,914 4,140 5,118 5,763 6,297
Weighted average common shares
outstanding subject to
repurchase................... (2,487) (2,195) (2,022) (2,462) (1,335)
------- ------- ------- -------- --------
Shares used in computation,
basic and diluted............ 427 1,945 3,096 3,301 4,962
======= ======= ======= ======== ========
Net loss per share, basic and
diluted........................ $ (6.59) $ (2.50) $ (3.21) $ (1.34) $ (1.08)
======= ======= ======= ======== ========
</TABLE>
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Convertible redeemable
preferred stock........ 6,022,500 9,937,500 13,405,332 12,486,213 13,405,332
Shares of common stock
subject to repurchase.. 2,829,000 1,823,998 1,446,188 2,359,166 1,229,318
Outstanding options..... 1,588,500 3,163,725 2,592,750 1,594,875 3,222,149
Warrants................ 42,000 42,000 215,676 133,912 215,676
---------- ---------- ---------- ---------- ----------
Total................... 10,482,000 14,967,223 17,659,946 16,574,166 18,072,475
========== ========== ========== ========== ==========
Weighted average
exercise price of
options................ $ 0.07 $ 0.12 $ 0.70 $ 0.25 $ 2.66
========== ========== ========== ========== ==========
Weighted average
exercise price of
warrants............... $ 0.67 $ 0.67 $ 1.31 $ 0.74 $ 1.31
========== ========== ========== ========== ==========
</TABLE>
6. Income Taxes
The Company's net deferred tax assets are comprised of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Net deferred tax assets and liabilities:
Net operating loss carryforwards........................... $2,861 $6,379
General business credits................................... 330 491
Other timing differences................................... (104) 179
------ ------
3,087 7,049
Valuation allowance.......................................... (3,087) (7,049)
------ ------
Net deferred tax assets...................................... $ -- $ --
====== ======
</TABLE>
F-14
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards. Due to the uncertainty surrounding the
realization of its deferred tax assets, as of December 31, 1997 and 1998, the
Company has fully reserved its net deferred tax assets of $3,087,000 and
$7,049,000, respectively.
The Company's effective tax rate differs from the expected benefit at the
federal statutory tax rate at December 31 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax
rate..................... (35.0)% (35.0)% (35.0)%
State taxes, net of
federal benefit.......... (6.0) (6.0) (6.0)
Other..................... 0.6 1.3 1.0
Valuation allowance....... 40.4 39.7 40.0
----- ----- -----
Effective tax rate...... --% --% --%
===== ===== =====
</TABLE>
Substantially all of the Company's loss from operations for all periods
presented is generated from domestic operations.
At December 31, 1998, the Company has net operating loss (NOL) carryforwards
of approximately $15,203,000 and $11,303,000 for federal and state income tax
purposes, respectively. The federal NOL carryforwards expire through 2013,
while the state NOL carryforwards expire through 2003.
At December 31, 1998, the Company also has research and development credit
carryforwards of approximately $313,000 and $178,000 available to offset future
federal and state income taxes, respectively. The federal credit expires
through 2013, and the state credit carryforward has no expiration.
The extent to which the loss and credit carryforwards can be used to offset
future taxable income and tax liabilities, respectively, may be limited,
depending on the extent of ownership changes within any three-year period.
7. Lease Commitments
The Company leases its facilities under noncancelable operating leases
expiring through February 2000. Rent expense was $64,000, $323,000 and $191,000
in 1996, 1997 and 1998, respectively. Future minimum rent payments in 1999 are
$246,000 and in 2000 are $8,000.
8. Segment Information, Operating by Geographic Area and Significant Customers
The Company operates in one reportable segment, the development and
marketing of software products for businesses that allow integration of
incompatible software applications across their extended enterprises of
customers, suppliers and partners. The Company principally operates in the U.S.
with a small European office to support sales and marketing. The following is a
summary of operations within geographic areas (in thousands):
<TABLE>
<CAPTION>
Six Months
Years Ended Ended June
December 31, 30,
------------------ -------------
1996 1997 1998 1998 1999
---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues(1):
United States............................. $285 $3,193 $7,296 $2,229 $8,480
Europe.................................... -- -- 303 180 188
---- ------ ------ ------ ------
Total revenues.......................... $285 $3,193 $7,599 $2,409 $8,668
==== ====== ====== ====== ======
</TABLE>
- --------
(1) Revenues are broken out geographically by the ship-to location of the
customer.
F-15
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has no significant long-lived assets deployed outside of the
U.S.
During 1996, two customers accounted for 53% and 26% of the Company's total
revenues, respectively. During 1997, one customer accounted for 33% of the
Company's total revenues. During 1998, no customers accounted for more than
10% of the Company's total revenues.
At December 31, 1997, two customers accounted for 34% and 22% of accounts
receivable, respectively. At December 31, 1998, two customers accounted for
22% and 21% of accounts receivable, respectively.
9. Employee Benefit Plan
In January 1997, the Company established a 401(k) tax-deferred savings
plan, whereby eligible employees may contribute a percentage of their eligible
compensation (presently from 1% to 15% up to the maximum allowed under IRS
rules). Company contributions are discretionary. No such Company contributions
have been made since inception of this plan.
10. Subsequent Events
In June 1999, the board of directors approved, subject to stockholder
approval, the following:
. Reincorporation of the Company in the state of Delaware.
. The Company's 1999 Stock Plan (the "1999 Plan"). The 1999 Plan becomes
effective upon the closing of the Company's initial public offering. A
total of 3,000,000 shares will be reserved for issuance under the 1999
Plan. In addition, the number of shares reserved under the plan will
automatically be increased on July 1 of each of the following years:
2000, 2001, 2002, 2003 and 2004, in an amount equal to the lesser of (a)
1,500,000 shares, or (b) four percent of the shares outstanding on the
last day of the preceding fiscal year.
. The Company's 1999 Employee Stock Purchase Plan (the "ESPP") and the 1999
Directors' Stock Option Plan (the "Directors' Plan"). The ESPP and
Directors' Plans become effective upon the closing of the Company's
initial public offering. Under the ESPP, eligible employees may purchase
common stock through payroll deductions, which may not exceed 20% of any
employee's compensation, nor more than 1,000 shares in any one purchase
period. A total of 750,000 shares of commons stock will be reserved for
issuance under the ESPP. The number of shares reserved for issuance under
the ESPP will automatically increase on the first day of each fiscal year
beginning in 2000, 2001, 2002, 2003 and 2004 by an amount equal to the
lesser of 350,000 shares or one percent of the total shares outstanding
on the last day of the immediately preceding fiscal year. Under the
Directors' Plan, a total of 300,000 shares of common stock will be
reserved for the grant of nonstatutory stock options to nonemployee
directors of the Company. Options granted under the Directors' Plan shall
be immediately vested and expire in ten years from the date of grant.
. An increase of authorized shares of common stock to 100,000,000 shares
and creation of newly undesignated preferred stock totaling 5,000,000
shares, contingent upon the approval of the reincorporation of the
Company in Delaware and the closing of the Company's initial public
offering.
. A three-for-two stock split of the outstanding shares of common and
convertible redeemable preferred stock. The stock split will occur prior
to the effectiveness of the registration statement relating to the
initial public offering.
F-16
<PAGE>
ACTIVE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All shares and per share amounts in these financial statements have been
adjusted to give effect to the stock split.
In March 1999, the Company entered into a non-cancelable operating lease
expiring in 2003 requiring annual lease payments of approximately $365,000
in 1999, $557,000 in 2000, $571,000 in 2001, $585,000 in 2002 and $550,000
in 2003.
On June 28, 1999, the Company entered into a $3.0 million secured revolving
line of credit agreement expiring in June 1999 and a $2.0 million equipment
line of credit expiring in June 2003. The Company had a total of $3.3 million
outstanding under these lines of credit at June 30, 1999. Borrowings bear
interest at the bank's prime rate ( 7.75% at June 30, 1999) plus 1.0%. The
Company was in compliance with all financial covenants at June 30, 1999.
11. RESTATEMENT
Subsequent to the issuance of the Company's 1998 consolidated financial
statements, the Company's management determined that the fair value of warrants
issued to non-employees for services rendered and deferred stock compensation
relating to issuance of options to employees during 1998 should be revised. The
fair value calculation has been revised to consider the indicated value derived
from preferred stock sales during the same time period. As a result, the 1998
consolidated financial statements have been restated from the amounts
previously reported to recognize an additional $280,000 of sales and marketing
expense, $3.2 million of deferred compensation and a corresponding increase in
common stock. A summary of the significant effects of the restatement is as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
As Previously
Reported As Restated
------------- -----------
<S> <C> <C>
At December 31, 1998:
Common stock........................................ $ 836 $ 3,934
Deferred stock compensation......................... (457) (2,939)
Accumulated deficit................................. (17,126) (17,742)
For year ended December 31, 1998:
Sales and marketing................................. 8,389 8,669
Amortization of deferred stock compensation......... -- 336
Net loss............................................ (9,326) (9,942)
Basic and diluted loss per share.................... (3.01) $ (3.21)
</TABLE>
* * * * *
F-17
<PAGE>
UNDERWRITING
Active Software and the underwriters for the offering named below have
entered into an underwriting agreement with respect to the shares being
offered. Subject to certain conditions, each underwriter has severally agreed
to purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Lehman Brothers Inc. and Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co................................................
Lehman Brothers Inc................................................
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated....
---------
Total............................................................ 4,000,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to 600,000 additional
shares from Active Software to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Active Software. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Active Software
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total............................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all of the shares are not sold at
the initial public offering price, the representatives may change the offering
price and the other selling terms.
Active Software has agreed with the underwriters not to dispose of or hedge
any of its common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of the representatives. This agreement does not
apply to any existing employees benefit plans. See "Shares Available for Future
Sale" for a discussion of transfer restrictions.
In addition, Active Software's officers, directors and substantially all
holders of shares of Active Software's common stock have agreed that, subject
to limited exceptions, they will not offer to sell, sell, contract to sell,
pledge, grant any option to purchase, make any short sale or otherwise dispose
of any shares owned of record or beneficially prior to the offering or any
securities convertible into or exchangeable for shares of common stock for a
period of 180 days from the date of this prospectus without the prior written
consent of the representatives.
U-1
<PAGE>
At Active Software's request, the underwriters have reserved up to 200,000
shares of the common stock offered hereby for sale, at the initial public
offering price, to employees, customers and other friends of Active Software
through a directed share program. The number of shares available for sale to
the general public will be reduced to the extent these persons purchase the
reserved shares. There can be no assurance that any of the reserved shares will
be so purchased. Any reserved shares not so purchased will be offered by the
underwriters to the general public on the same basis as other shares offered
hereby.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Active Software and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Active Software's historical performance, estimates of the
business potential and earnings prospects of Active Software, an assessment of
Active Software's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "ASWX."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be completed on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered. The underwriters have
informed Active Software that no underwriter will confirm sales to accounts
over which it exercises discretionary authority.
Active Software estimates that the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately $1.1
million.
Active Software has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
Affiliates of Lehman Brothers Inc., one of the representatives of the
underwriters, hold shares of convertible redeemable preferred stock of Active
Software that will convert into 2,163,057 shares of common stock upon closing
of the offering. In addition, Michael J. Odrich, a director of Active Software,
is a Managing Director of Lehman Brothers. Because of this relationship between
Lehman
U-2
<PAGE>
Brothers and Active Software, the offering is being conducted in accordance
with Rule 2720 of the NASD. That rule requires that the initial public offering
price can be no higher than that recommended by a "qualified independent
underwriter," as defined by the NASD. Goldman, Sachs & Co. is serving in that
capacity and will perform due diligence investigations and review and
participate in the preparation of the registration statement of which this
prospectus forms a part. Goldman, Sachs & Co. will receive a customary fee from
Active Software as compensation for such role.
U-3
<PAGE>
[Inside Back Cover]
ActiveWorks Integration System
A Comprehensive and highly reliable software solution that fully integrates
the disparate software applications of an eBusiness and enables these
applications to exchange information in real time across the extended
enterprise.
[Graphic consisting of Active Software logo in the center of a hub and spoke
diagram with the following systems connected to the logo: Relational Database,
Mainframes, Custom Applications, Middleware, Internet and Packaged
Applications.]
[Active Software logo]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in juris-
dictions where it is lawful to do so. The information contained in this pro-
spectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 35
Management................................................................ 48
Related Party Transactions................................................ 59
Principal Stockholders.................................................... 60
Description of Capital Stock.............................................. 63
Shares Eligible for Future Sale........................................... 66
Legal Matters............................................................. 67
Experts................................................................... 67
Additional Information.................................................... 68
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when act-
ing as underwriter and with respect to an unsold allotment or subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 Shares
Active Software, Inc.
Common Stock
----------------
[LOGO OF ACTIVE SOFTWARE]
----------------
Goldman, Sachs & Co.
Lehman Brothers
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount to
be Paid
----------
<S> <C>
SEC registration fee............................................. $ 20,850
NASD filing fee.................................................. 8,000
Nasdaq National Market listing fee............................... 95,000
Printing and engraving expenses.................................. 225,000
Legal fees and expenses.......................................... 400,000
Accounting fees and expenses..................................... 300,000
Blue Sky qualification fees and expenses......................... 5,000
Transfer Agent and registrar fees................................ 15,000
Miscellaneous fees and expenses.................................. 31,150
----------
Total.......................................................... $1,100,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
Registrant's Amended and Restated Certificate of Incorporation provides for
indemnification of its directors and officers to the maximum extent permitted
by the Delaware General Corporation Law and the Registrant's Bylaws provides
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by the Delaware General Corporation Law. In
addition, the Registrant has entered into indemnification agreements with its
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require the Company, among
other things, to indemnify its directors against certain liabilities that may
arise by reason of their status or service as directors (other than liabilities
arising from willful misconduct of culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' insurance if available on reasonable
terms. Reference is also made to the Underwriting Agreement contained in
Exhibit 1.1 hereto, indemnifying officers and directors of the Company against
certain liabilities.
Item 15. Recent Sales of Unregistered Securities
(a) Since June 1, 1996, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:
(1) Prior to the completion of this offering, the Registrant intends to
effect a three-for-two split of its outstanding common stock and
convertible redeemable preferred stock in which every
II-1
<PAGE>
two outstanding shares of common stock and convertible redeemable
preferred stock will be split into three shares of common stock or
convertible redeemable preferred stock, respectively.
(2) In September 1996, the Registrant issued a warrant to purchase 42,000
shares of common stock at a purchase price of $0.67 per share to a
lender in connection with a financing transaction. In December 1996,
the Registrant, in connection with such financing transaction, issued
to the lender a promissory note in the amount of $401,217.
(3) In April 1997, the Registrant issued and sold shares of Series B
convertible redeemable preferred stock convertible into an aggregate of
3,915,000 shares of common stock to a total of 12 investors for an
aggregate purchase price of $7,020,000.
(4) In March 1998, June 1998, July 1998 and October 1998, the Registrant
issued and sold shares of Series C convertible redeemable preferred
stock convertible into an aggregate of 3,467,832 shares of common stock
to a total of 21 investors for an aggregate purchase price of $14.1
million.
(5) In June 1998 and July 1998, the Registrant issued warrants to purchase
45,000 shares and 91,912 shares of common stock at a price of $0.77 per
share to two strategic partners.
(6) In October 1998, the Registrant issued a warrant to purchase 36,764
shares of common stock at a price of $4.08 per share to a strategic
partner.
(7) As of May 31, 1999, an aggregate of approximately 4,148,940 shares of
common stock had been issued upon exercise of options or pursuant to
restricted stock purchase agreements and an aggregate of approximately
3,042,150 shares of common stock were issuable upon exercise of
outstanding options under the Registrant's 1996 and 1996A Stock Plans.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
All of the foregoing information gives effect to the three-for-two split of
the Registrant's common stock to be effected prior to completion of the
offering. The issuances described in Item 15(a)(1) were or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transactions did not involve a "sale" of securities. The issuances described
in Items 15(a)(2) through 15(a)(6) were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) thereof as transactions
by an issuer not involving any public offering. The issuances described in
Items 15(a)(7) were deemed to be exempt from registration under the Securities
Act in reliance upon Rule 701 promulgated thereunder in that they were offered
and sold either pursuant to written compensatory benefit plans or pursuant to
a written contract relating to compensation, as provided by Rule 701. In
addition, such issuances were deemed to be exempt from registration under
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends where affixed to the securities issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between the Registrant and Active
Software, Inc., a California Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Certificate of Amendment to Certificate of Incorporation of
the Registrant, to be filed and effective prior to completion of
this offering.
3.3 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this
offering.
3.4*** Bylaws of the Registrant.
4.1 Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1** Form of Indemnification Agreement.
10.2 1996 Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.3 1996A Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.4 1999 Stock Plan and form of stock option agreement and restricted
stock purchase agreement.
10.5 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.6 1999 Directors' Stock Option Plan and form of stock option agreement.
10.7** Amended and Restated Rights Agreement dated March 27, 1998, as
amended.
10.8** Warrant to purchase shares of the Registrant's common stock issued by
the Registrant to Intel Corporation, dated October 29, 1998.
10.9** Warrant to purchase shares of the Registrant's common stock issued by
the Registrant to Venture Lending & Leasing, Inc., dated September
27, 1996.
10.10** Loan Agreement, dated as of September 27, 1996, between the
Registrant and Venture Lending & Leasing, Inc., with exhibits
attached thereto including execution copies of the Security
Agreement, dated as of September 27, 1996, and the Promissory Note,
dated December 20, 1996.
10.11+** SecureWeb Toolkit(TM) Developer & Joint Development Agreement,
effective as of July 23, 1996, between the Registrant and Terisa
Systems, Inc. (SPYRUS).
10.12** SecureWeb Toolkit(TM) Distribution Agreement, effective as of July
23, 1996, between the Registrant and Terisa Systems, Inc. (SPYRUS).
10.13** Sublease Agreement by and between The Vantive Corporation and the
Registrant, dated March 1, 1999.
10.14** 1999 Executive Incentive Plan.
10.15* Loan and Security Agreement between the Registrant and Silicon Valley
Bank.
21.1** Subsidiaries.
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney.
27.1 Financial Data Schedule.
99.1 Consent of META Group.
99.2 Consent of Yankee Group.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
*** Supersedes exhibit previously filed.
+Confidential treatment requested.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1), or (4), or 497(h) under the
Act shall be deemed to be a part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the 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 this
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Santa Clara, State of California, on July 22, 1999.
Active Software, Inc.
/s/ Jon A. Bode
By: _________________________________
Jon A. Bode
Vice President of Finance and
Administration and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President, Chief Executive July 22, 1999
______________________________________ Officer and Director
(R. James Green) (Principal Executive
Officer)
/s/ Jon A. Bode Vice President of Finance July 22, 1999
______________________________________ and Administration and
(Jon A. Bode) Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Executive Vice President, July 22, 1999
______________________________________ Chief Technology Officer
(Rafael Bracho) and Director
* Director July 22, 1999
______________________________________
(Kevin R. Compton)
* Director July 22, 1999
______________________________________
(James P. Gauer)
* Director July 22, 1999
______________________________________
(Michael J. Odrich)
* Director July 22, 1999
______________________________________
(Conway Rulon-Miller, Jr.)
* Director July 22, 1999
______________________________________
(Roger S. Siboni)
</TABLE>
*By: /s/Jon A. Bode
------------------------------
Attorney-in-Fact
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
"To the Board of Directors and Stockholders of Active Software, Inc.:
We have audited the consolidated financial statements of Active Software, Inc.
and subsidiary (the Company) as of December 31, 1996, 1997, and 1998, and for
each of the three years in the period ended December 31, 1998, and have issued
our report thereon dated January 22, 1999 (June 10, 1999 as to the first eight
paragraphs of Note 10, June 28, 1999 as to the last paragraph of Note 10 and
July 15, 1999 as to Note 11) (included elsewhere in this Registration
Statement, which expresses an unqualified opinion and includes an explanatory
paragraph relating to the restatement in Note 11.) Our audits also included the
consolidated financial statement schedule listed in Item 16(b) of this
Registration Statement. The consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
San Jose, California
January 22, 1999"
The consolidated financial statements of Active Software, Inc. included in
the Prospectus have been adjusted to give effect to the three-for-two common
and convertible redeemable preferred stock split as described in the sixth
paragraph of Note 10 to the consolidated financial statements. The above report
is in the form that will be signed by Deloitte & Touche LLP upon the
effectiveness of such event assuming that from July 19, 1999 to the effective
date of such event, no other events shall have occurred that would affect the
accompanying consolidated financial statements or notes thereto.
/s/ Deloitte & Touche LLP
___________________________
DELOITTE & TOUCHE LLP
San Jose, California
July 19, 1999
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to
beginning cost and Deductions/ Balance at
of period expenses write-offs end of period
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful
accounts..................... $ 0 $ 0 $ 0 $ 0
======= ======== ====== ========
Year ended December 31, 1997
Allowance for doubtful
accounts..................... $ 0 $ 82,000 $ 0 $ 82,000
======= ======== ====== ========
Year ended December 31, 1998
Allowance for doubtful
accounts..................... $82,000 $118,000 $ 0 $200,000
======= ======== ====== ========
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between the Registrant and
Active Software, Inc., a California Corporation.
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Certificate of Amendment to Certificate of Incorporation of
the Registrant, to be filed and effective prior to completion of
this offering.
3.3 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this
offering.
3.4*** Bylaws of the Registrant.
4.1 Form of the Registrant's Common Stock Certificate.
5.1* Opinion of Venture Law Group, a Professional Corporation.
10.1** Form of Indemnification Agreement.
10.2 1996 Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.3 1996A Stock Plan, as amended, and form of stock option agreement and
restricted stock purchase agreement.
10.4 1999 Stock Plan and form of stock option agreement and restricted
stock purchase agreement.
10.5 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.6 1999 Directors' Stock Option Plan and form of stock option agreement.
10.7** Amended and Restated Rights Agreement dated March 27, 1998, as
amended.
10.8** Warrant to purchase shares of the Registrant's common stock issued by
the Registrant to Intel Corporation, dated October 29, 1998.
10.9** Warrant to purchase shares of the Registrant's common stock issued by
the Registrant to Venture Lending & Leasing, Inc., dated September
27, 1996.
10.10** Loan Agreement, dated as of September 27, 1996, between the
Registrant and Venture Lending & Leasing, Inc., with exhibits
attached thereto including execution copies of the Security
Agreement, dated as of September 27, 1996, and the Promissory Note,
dated December 20, 1996.
10.11+** SecureWeb Toolkit(TM) Developer & Joint Development Agreement,
effective as of July 23, 1996, between the Registrant and Terisa
Systems, Inc. (SPYRUS).
10.12** SecureWeb Toolkit(TM) Distribution Agreement, effective as of July
23, 1996, between the Registrant and Terisa Systems, Inc. (SPYRUS).
10.13** Sublease Agreement by and between The Vantive Corporation and the
Registrant, dated March 1, 1999.
10.14** 1999 Executive Incentive Plan.
10.15* Loan and Security Agreement between the Registrant and Silicon Valley
Bank.
21.1** Subsidiaries.
23.1 Consent of Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney.
27.1 Financial Data Schedule.
99.1 Consent of META Group.
99.2 Consent of Yankee Group.
</TABLE>
<PAGE>
- --------
* To be filed by amendment.
** Previously filed.
*** Supersedes exhibit previously filed.
+ Confidential treatment requested.
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
OF ACTIVE SOFTWARE, INC.
A DELAWARE CORPORATION,
and
OF ACTIVE SOFTWARE, INC.
A CALIFORNIA CORPORATION
This Agreement and Plan of Merger dated as of July ____, 1999 (the
"Agreement") is between Active Software, Inc., a California corporation ("Active
- ---------- ------
California"), and Active Software, Inc., a Delaware corporation ("Active
- ---------- ------
Delaware"). Active Delaware and Active California are sometimes referred to in
- --------
this Agreement as the "Constituent Corporations."
------------------------
RECITALS
--------
A. Active Delaware is a corporation duly organized and existing under the
laws of the State of Delaware and has an authorized capital of 113,405,400
shares, 100,000,000 of which are designated "Common Stock," $0.001 par value,
------------
and 13,405,400 of which are designated "Preferred Stock," $0.001 par value, of
---------------
which 6,022,500 shares are designated as Series A Preferred Stock, none of which
are issued and outstanding, 3,915,000 of which are designated Series B Preferred
Stock, none of which are issued and outstanding, and 3,468,000 of which are
designated as Series C Preferred Stock, none of which are issued and
outstanding. As of July __, 1999, 100 shares of Active Delaware Common Stock
were issued and outstanding, all of which are held by Active California, and no
shares of Preferred Stock were issued and outstanding.
B. Active California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital of 28,937,000
shares, 20,000,000 of which are designated "Common Stock," $0.001 par value, of
------------
which ________ shares are issued and outstanding, and 8,937,000 of which are
designated "Preferred Stock," $0.001 par value, of which 4,015,000 shares are
---------------
designated as Series A Preferred Stock (the "Series A Preferred Stock"),
------------------------
___________ of which are issued and outstanding, 2,610,000 of which are
designated Series B Preferred Stock (the "Series B Preferred Stock"), ________
------------------------
of which are issued and outstanding, and 2,312,000 of which are designated as
Series C Preferred Stock (the "Series C Preferred Stock"), ___________ of which
------------------------
are issued and outstanding. The number of shares outstanding is as of July __,
1999.
C. The Board of Directors of Active California has determined that, for
the purpose of effecting the reincorporation of Active California in the State
of Delaware, it is advisable and in the best interests of Active California that
Active California merge with and into Active Delaware upon the terms and
conditions provided in this Agreement.
D. The respective Boards of Directors of Active Delaware and Active
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
<PAGE>
AGREEMENT
---------
In consideration of the mutual agreements and covenants set forth herein,
Active Delaware and Active California hereby agree, subject to the terms and
conditions hereinafter set forth, as follows:
1. Merger.
------
1.1 Merger. In accordance with the provisions of this Agreement, the
------
Delaware General Corporation Law and the California General Corporation Law,
Active California shall be merged with and into Active Delaware (the "Merger"),
------
the separate existence of Active California shall cease and Active Delaware
shall be, and is sometimes referred to below as, the "Surviving Corporation,"
---------------------
and the name of the Surviving Corporation shall be Active Software, Inc.
1.2 Filing and Effectiveness. The Merger shall become effective upon
------------------------
completion of the following actions:
(a) Adoption and approval of this Agreement and the Merger by
the stockholders of each Constituent Corporation in accordance with the
applicable requirements of the Delaware General Corporation Law and the
California General Corporation Law;
(b) The satisfaction or waiver of all of the conditions
precedent to the consummation of the Merger as specified in this Agreement; and
(c) The filing with the Secretary of State of Delaware of an
executed Certificate of Merger or an executed counterpart of this Agreement
meeting the requirements of the Delaware General Corporation Law.
The date and time when the Merger becomes effective is referred to in this
Agreement as the "Effective Date of the Merger."
----------------------------
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
--------------------
separate existence of Active California shall cease and Active Delaware, as the
Surviving Corporation, (a) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (b) shall be subject to all actions previously taken by its and
Active California's Board of Directors, (c) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Active California
in the manner more fully set forth in Section 259 of the Delaware General
Corporation Law, (d) shall continue to be subject to all of the debts,
liabilities and obligations of Active Delaware as constituted immediately prior
to the Effective Date of the Merger, and (e) shall succeed, without other
transfer, to all of the debts, liabilities and obligations of Active California
in the same manner as if Active Delaware had itself incurred them, all as more
fully provided under the applicable provisions of the Delaware General
Corporation Law and the California General Corporation Law.
-2-
<PAGE>
2. Charter Documents, Directors and Officers
-----------------------------------------
2.1 Certificate of Incorporation. The Certificate of Incorporation of
----------------------------
Active Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Active Delaware as in effect immediately prior
------
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Active
----------------------
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
3. Manner of Conversion of Stock
-----------------------------
3.1 Active California Common Stock. Upon the Effective Date of the
------------------------------
Merger, each one share of Active California Common Stock issued and outstanding
immediately prior thereto shall, by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such share or any other person,
be converted into and exchanged for one fully paid and nonassessable share of
Common Stock, $0.001 par value, of the Surviving Corporation. No fractional
share interests of the Surviving Corporation shall be issued. Any fractional
share interests to which a holder would otherwise be entitled shall be
aggregated so that no Active California shareholder shall receive cash in an
amount greater than the value of one (1) full share of Active Delaware Common
Stock.
3.2 Active California Preferred Stock. Upon the Effective Date of the
---------------------------------
Merger, each share of Active California Series A Preferred, Series B Preferred,
and Series C Preferred issued and outstanding immediately prior thereto, which
shares are convertible into such number of shares of Active California Common
Stock as set forth in the Active California Articles of Incorporation, as
amended, shall, by virtue of the Merger and without any action by the
Constituent Corporations, the holder of such shares or any other person, be
converted into and exchanged for one fully paid and non-assessable share of
Series A Preferred, Series B Preferred, or Series C Preferred, as the case may
be, of the Surviving Corporation, $0.001 par value, respectively, having such
rights, preferences and privileges as set forth in the Certification of
Incorporation of the Surviving Corporation, which shares of Preferred Stock
shall be convertible into the same number of shares of the Surviving
Corporation's Common Stock, $0.001 par value as such share of Active California
Preferred Stock was convertible into shares of Active California common stock
immediately prior to the Effective Date of the Merger, subject to adjustment
pursuant to the terms of the Certificate of Incorporation of the Surviving
Corporation.
3.3 Active California Options, Stock Purchase Rights and Convertible
----------------------------------------------------------------
Securities.
- ----------
-3-
<PAGE>
(a) Upon the Effective Date of the Merger, the Surviving Corporation
shall assume the obligations of Active California under Active California's
Amended and Restated Rights Agreement, as amended (the "Rights Agreement"), 1996
----------------
Stock Plan, 1996A Stock Plan and all other employee benefit plans of Active
California. Each outstanding and unexercised option, other right to purchase,
or security convertible into, Active California Common Stock or Preferred Stock
(a "Right") shall become, subject to the provisions in paragraph (c) hereof, an
-----
option, right to purchase, or a security convertible into the Surviving
Corporation's Common Stock or Preferred Stock, respectively, on the basis of one
share of the Surviving Corporation's Common Stock or Preferred Stock, as the
case may be, for each one share of Active California Common Stock or Preferred
Stock, issuable pursuant to any such Right, on the same terms and conditions and
at an exercise price equal to the exercise price applicable to any such Active
California Right at the Effective Date of the Merger. This paragraph 3.3(a)
shall not apply to Active California Common Stock or Preferred Stock. Such
Common Stock and Preferred Stock are subject to paragraph 3.1 and 3.2 hereof,
respectively.
(b) A number of shares of the Surviving Corporation's Common Stock
and Preferred Stock shall be reserved for issuance upon the exercise or
conversion of Rights equal to the number of shares of Active California Common
Stock and Preferred Stock so reserved immediately prior to the Effective Date of
the Merger.
(c) The assumed Rights shall not entitle any holder thereof to a
fractional share upon exercise or conversion. In lieu thereof, any fractional
share interests to which a holder of an assumed Right (other than an option
issued pursuant to Active California 1996 Stock Plan and 1996A Stock Plan) would
otherwise be entitled upon exercise or conversion shall be aggregated (but only
with other similar Rights which have the same per share terms). To the extent
that after such aggregation, the holder would still be entitled to a fractional
share with respect thereto upon exercise or conversion, the holder shall be
entitled upon the exercise or conversion of all such assumed Rights pursuant to
their terms (as modified herein), to one full share of Common Stock or Preferred
Stock in lieu of such fractional share. With respect to each class of such
similar Rights, no holder will be entitled to more than one full share in lieu
of a fractional share upon exercise or conversion.
Notwithstanding the foregoing, with respect to options issued under the
Active California 1996 Stock Plan and 1996A Stock Plan that are assumed in the
Merger, the number of shares of Common Stock to which the holder would be
otherwise entitled upon exercise of each such assumed option following the
Merger shall be rounded down to the nearest whole number and the exercise price
shall be rounded up to the nearest whole cent. In addition, no "additional
benefits" (within the meaning of Section 424(a)(2) of the Internal Revenue Code
of 1986, as amended) shall be accorded to the optionees pursuant to the
assumption of their options.
3.4 Active Delaware Common Stock. Upon the Effective Date of the Merger,
----------------------------
each share of Common Stock, $0.001 par value, of Active Delaware issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by Active Delaware, the holder of such shares or any other person, be
canceled and returned to the status of authorized but unissued shares.
-4-
<PAGE>
3.5 Exchange of Certificates. After the Effective Date of the Merger,
------------------------
each holder of an outstanding certificate representing shares of Active
California Common Stock or Preferred Stock may be asked to surrender the same
for cancellation to an exchange agent, whose name will be delivered to holders
prior to any requested exchange (the "Exchange Agent"), and each such holder
--------------
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the appropriate class and series of the
Surviving Corporation's capital stock into which the surrendered shares were
converted as herein provided. Until so surrendered, each outstanding
certificate theretofore representing shares of Active California capital stock
shall be deemed for all purposes to represent the number of whole shares of the
appropriate class and series of the Surviving Corporation's capital stock into
which such shares of Active California capital stock were converted in the
Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of capital stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing capital stock of the Surviving Corporation so
issued in the Merger shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificates of Active California so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws.
If any certificate for shares of Surviving Corporation's stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of the issuance
of such new certificate in a name other than that of the registered holder of
the certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not payable.
4. General
-------
4.1 Covenants of Active Delaware. Active Delaware covenants and agrees
----------------------------
that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and irrevocably appoint an agent for service of process as required
under the provisions of Section 2105 of the California General Corporation Law.
(b) File any and all documents with the California Franchise Tax
Board necessary for the assumption by Active Delaware of all of the franchise
tax liabilities of Active California; and
-5-
<PAGE>
(c) Take such other actions as may be required by the California
General Corporation Law to effect the Merger.
4.2 Further Assurances. From time to time, as and when required by Active
------------------
Delaware or by its successors or assigns, there shall be executed and delivered
on behalf of Active California such deeds and other instruments, and there shall
be taken or caused to be taken by it such further and other actions, as shall be
appropriate or necessary in order to vest or perfect in or conform of record or
otherwise by Active Delaware the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Active California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of Active Delaware are fully
authorized in the name and on behalf of Active California or otherwise to take
any and all such action and to execute and deliver any and all such deeds and
other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger,
-----------
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Active California or Active
Delaware, or both, notwithstanding the approval of this Agreement by the
shareholders of Active California or by the sole stockholder of Active Delaware,
or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations
---------
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholders of either Constituent Corporation shall not: (a)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such Constituent Corporation, (b) alter
or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (c) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class of shares or series of capital stock
of such Constituent Corporation.
4.5 Registered Office. The registered office of the Surviving Corporation
-----------------
in the State of Delaware is located at the Corporation Service Company, 1013
Centre Road, in the city of Wilmington, Delaware, 19801, County of New Castle,
and the Corporation Service Company is the registered agent of the Surviving
Corporation at such address.
4.6 FIRPTA Notification.
-------------------
(a) On the Effective Date of the Merger, Active California shall
deliver to Active Delaware, as agent for the shareholders of Active California,
a properly executed statement (the "Statement") in substantially the form
---------
attached hereto as Exhibit A. Active Delaware shall retain the Statement for a
---------
period of not less than seven years and shall, upon request, provide a copy
thereof to any person that was a shareholder of Active California immediately
prior to the Merger. In consequence of the approval of the Merger by the
shareholders of Active California, (i) such shareholders shall be considered to
have requested
-6-
<PAGE>
that the Statement be delivered to Active Delaware as their agent and (ii)
Active Delaware shall be considered to have received a copy of the Statement at
the request of the Active California shareholders for purposes of satisfying
Active Delaware's obligations under Treasury Regulation Section 1.1445-2(c)(3).
(b) Active California shall deliver to the Internal Revenue Service
a notice regarding the Statement in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2).
4.7 Agreement. Executed copies of this Agreement will be on file at the
---------
principal place of business of the Surviving Corporation at 3333 Octavius Drive,
Santa Clara, CA 95054, and copies thereof will be furnished to any stockholder
of either Constituent Corporation, upon request and without cost.
4.8 Governing Law; Jurisdiction. This Agreement and all acts and
---------------------------
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law. Each of the parties to this Agreement consents to the exclusive
jurisdiction and venue of the courts of the state and federal courts of Santa
Clara County, California.
4.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-7-
<PAGE>
The undersigned authorized representatives of the Constituent Corporations
have executed and acknowledged this Agreement as of the date first set forth
above.
Active Software, Inc., a Delaware
corporation
___________________________________
Jon A. Bode
President and Chief Executive Officer
Active Software, Inc., a California
corporation
___________________________________
Jon A. Bode, Vice President, Finance and
Administration and Chief Financial Officer
-8-
<PAGE>
EXHIBIT A -- FORM OF FIRPTA CERTIFICATE
July ____, 1999
Assistant Commissioner (International)
Director, Office of Compliance
OP:I:C:E:666
950 L'Enfant Plaza South, S.W.
COMSAT Building
Washington, D.C. 20024
NOTICE TO THE INTERNAL REVENUE SERVICE OF ACTIVE SOFTWARE, INC., A
CALIFORNIA CORPORATION, UNITED STATES REAL PROPERTY HOLDING CORPORATION
STATUS UNDER TREASURY REGULATION 1.897-2(H)(2)
Dear Sir:
1. This Notice is being filed by Active Software, Inc., a California
Corporation, ("Target") pursuant to section 1.897-2(h)(2) of the Treasury
Regulations promulgated under the Internal Revenue Code of 1986, as amended (the
"Code").
2. The undersigned, on behalf of Target hereby declares that stock of
Target is not a United States real property interest within the meaning of
section 897 of the Code because Target is not and has not been a United States
real property holding corporation as that term is defined in section 897(c) (2)
of the Code during the applicable period specified in section 897(c) (1) (A)
(ii) of the Code.
3. Target's United States taxpayer identifying number is: 94-3232772
4. Target's address is:
Active Software, Inc.
3333 Octavius Drive
Santa Clara, CA 95054
5. In connection with the acquisition of Target by Active Software,
Inc., a Delaware corporation ("Acquiror"), the undersigned provided the attached
statement to Acquiror declaring that an interest in Target is not a United
States real property interest. The statement was voluntarily provided in
response to a request from the transferee, Acquiror under Regulation 1.1445-
2(c) (3) (i).
Acquiror's United States taxpayer identifying number is: 94-3232772
<PAGE>
Acquiror's address is:
Active Software, Inc.
3333 Octavius Drive
Santa Clara, CA 95054
6. No supplemental statements pursuant to Treasury Regulations section
1.897-2(h)(5) are required to be filed herewith.
7. Under penalties of perjury the undersigned declares that he has
examined this certification, and the attachment hereto, and to the best of his
knowledge and belief they are true, correct and complete. The undersigned
further declares that he is a responsible officer and that he has authority to
sign this document on behalf of Target.
A copy of the statement provided pursuant to Treasury Regulation
(S)(S)1.897-2(h)(2) and 1.1445-2(c)(3)(i) is attached.
________________________________
Jon A. Bode, Vice President Finance
and Administration and Chief
Financial Officer
<PAGE>
ACTIVE SOFTWARE, INC.
A California Corporation
OFFICERS' CERTIFICATE OF APPROVAL OF THE MERGER
Jon A. Bode and Mark A. Medearis certify that:
1. They are the Vice President, Finance and Administration and Chief
Financial Officer and the Secretary, respectively, of Active Software, Inc. a
corporation organized under the laws of the State of California.
2. The corporation has authorized two classes of stock, designated "Common
Stock" and "Preferred Stock," respectively.
3. There were ___________ shares of Common Stock and _________ shares of
Preferred Stock outstanding as of the record date (the "Record Date") and
entitled to vote by written consent of the shareholders the Agreement and Plan
of Merger attached hereto (the "Merger Agreement") was approved.
4. The principal terms of the Merger Agreement were approved by the Board
of Directors and by the vote of a number of shares of each class and series of
stock which equaled or exceeded the vote required.
5. The vote required to approve the Merger was a majority of the
outstanding shares of Common Stock and two-thirds of the outstanding shares of
Preferred Stock, voting as separate classes.
Jon A Bode and Mark Medearis further declare under penalty of perjury under
the laws of the States of California and Delaware that each has read the
foregoing certificate and knows the contents thereof and that the same is true
and correct of his own knowledge.
Executed in Santa Clara, California on July _____, 1999.
______________________________________________
Jon A. Bode, Vice President, Finance
and Administration and Chief Financial Officer
______________________________________________
Mark A. Medearis, Secretary
<PAGE>
ACTIVE SOFTWARE, INC.
A Delaware Corporation
OFFICERS' CERTIFICATE OF APPROVAL OF MERGER
Jon A. Bode and Mark A. Medearis certify that:
1. They are the President and Chief Executive Officer and the Secretary,
respectively, of Active Software, Inc. a corporation organized under the laws of
the State of Delaware.
2. The corporation has authorized two classes of stock, designated "Common
Stock" and "Preferred Stock," respectively.
3. There are 100 shares of Common Stock outstanding and entitled to vote
on the Agreement and Plan of Merger attached hereto (the "Merger Agreement").
There are no shares of Preferred Stock outstanding.
4. The principal terms of the Merger Agreement were approved by the Board
of Directors and by the vote of a number of shares of each class and series of
stock which equaled or exceeded the vote required.
5. The percentage vote required was more than 50% of the votes entitled to
be cast by holders of outstanding shares of Common Stock.
Jon A. Bode and Mark A. Medearis further declare under penalty of perjury
under the laws of the States of Delaware and California that each has read the
foregoing certificate and knows the contents thereof and that the same is true
and correct of each's own knowledge.
Executed in Santa Clara, California on July ____, 1999
________________________________
Jon A. Bode, President and Chief
Executive Officer
________________________________
Mark A. Medearis, Secretary
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ACTIVE SOFTWARE, INC.
THE UNDERSIGNED, JON A. BODE AND MARK A. MEDEARIS, HEREBY CERTIFY THAT:
1. They are the duly elected and acting President and Secretary,
respectively, of Active Software, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on May 19, 1999.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Active Software, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is one hundred-
thirteen million four hundred five thousand four hundred (113,405,400) shares,
of which one hundred million (100,000,000) shares shall be Common Stock and
thirteen million four hundred five thousand four hundred (13,405,400) shares
shall be Preferred Stock, each with a par value of $0.001. There shall be three
series of Preferred Stock, the first of which shall be designated as Series A
Preferred Stock ("Series A Preferred"), which shall consist of six million
twenty-two thousand five hundred (6,022,500) shares, the second of which shall
be designated as Series B Preferred Stock ("Series B Preferred"), which shall
consist of three million nine hundred fifteen thousand (3,915,000) shares, and
the third of which shall be designated as
<PAGE>
Series C Preferred Stock ("Series C Preferred"), which shall consist of three
million four hundred sixty-eight thousand (3,468,000) shares.
ARTICLE V
A. Preferred Stock. The Board of Directors is hereby authorized to fix
---------------
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them.
Subject to compliance with applicable protective voting rights which have been
or may be granted to Preferred Stock or series thereof in Certificates of
Determination or the corporation's Articles of Incorporation ("Protective
Provisions"), but notwithstanding any other rights of any series of Preferred
Stock, the rights, privileges, preferences and restrictions of any such
additional series may be subordinate to, pari passu with, or senior to any of
---- -----
those of any present or future class or series of Preferred Stock or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board
of Directors is also authorized to increase or decrease the number of shares of
any series (other than Series A Preferred, Series B Preferred or Series C
Preferred), prior or subsequent to the issue of that series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
The rights, preferences, privileges and restrictions of Series A Preferred,
Series B Preferred and Series C Preferred are as follows:
(1) Dividends. The holders of outstanding Preferred Stock shall be
---------
entitled to receive, when and as declared by the Board of Directors, out of any
assets at the time legally available therefor, dividends at the rate of (a)
$0.06 per share of Series A Preferred per annum, (b) $0.16 per share of Series B
Preferred per annum and (c) $0.37 per share of Series C Preferred per annum,
before any dividend (payable other than in Common Stock or other securities and
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) is paid on
Common Stock. No dividend shall be declared or paid with respect to the Common
Stock unless an equivalent dividend (which shall be in addition to the dividend
on the Series A Preferred, Series B Preferred and Series C Preferred referred to
in the preceding sentence) is declared and set apart or paid with respect to the
Series A Preferred, Series B Preferred and Series C Preferred. The right to
such dividends on shares of Series A Preferred, Series B Preferred and Series C
Preferred shall not be cumulative and no right shall accrue to holders of shares
of Series A Preferred, Series B Preferred and Series C Preferred by reason of
the fact that dividends on said shares are not declared in any prior year, nor
shall any undeclared or unpaid dividend bear or accrue interest. Any declared
but unpaid dividends on Series A Preferred, Series B Preferred and Series C
Preferred shall be paid upon the conversion of such shares into Common Stock
either (at the option of the corporation) by payment of cash or by the issuance
of additional shares of Common Stock based upon the fair market value of the
Common Stock at the time of such conversion, as determined by the Board of
Directors.
(2) Liquidation Preference.
----------------------
-2-
<PAGE>
(a) In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of the Series A
Preferred, Series B Preferred and Series C Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Common Stock by reason of
their ownership thereof, the amount of (i) $1.00 per share for each share of
Series A Preferred then held by them (as adjusted for any combinations,
consolidations, subdivisions, splits or stock dividends with respect to such
shares of Series A Preferred), and, in addition, an amount equal to all declared
but unpaid dividends on the Series A Preferred, if any, (ii) $2.69 per share for
each share of Series B Preferred then held by them (as adjusted for any
combinations, consolidations, subdivisions, splits or stock dividends with
respect to such shares of Series B Preferred), and, in addition, an amount equal
to all declared but unpaid dividends on the Series B Preferred, if any, and
(iii) $6.12 per share for each share of Series C Preferred then held by them (as
adjusted for any combinations, consolidations, subdivisions, splits or stock
dividends with respect to such shares of Series C Preferred), and, in addition,
an amount equal to all declared but unpaid dividends on the Series C Preferred,
if any. If, upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred, Series B Preferred and
Series C Preferred shall be insufficient to permit the payment to such holders
of the full preferential amounts for the Series A Preferred, Series B Preferred
and Series C Preferred, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred, Series B Preferred and Series C Preferred in
proportion to the preferential amount each such holder would have otherwise been
entitled to receive. After payment has been made to the holders of the Series A
Preferred, Series B Preferred and Series C Preferred of the full amounts to
which they shall be entitled as aforesaid, any remaining assets shall be
distributed ratably to the holders of the corporation's Common Stock and
Preferred Stock (on an as-converted basis), provided that (x) the holders of
Series A Preferred shall only be entitled to receive (in addition to amounts
distributed pursuant to the first sentence of this Subsection A.(2)(a))
distributions up to the aggregate amount of $2.00 per share of Series A
Preferred (as adjusted for any combinations, consolidations, subdivisions,
splits or stock dividends with respect to such shares of Series A Preferred),
(y) the holders of Series B Preferred shall only be entitled to receive (in
addition to amounts distributed pursuant to the first sentence of this
Subsection A.(2)(a)) distributions up to the aggregate amount of $5.38 per share
of Series B Preferred (as adjusted for any combinations, consolidations,
subdivisions, splits or stock dividends with respect to such shares of Series B
Preferred), and (z) the holders of Series C Preferred shall only be entitled to
receive (in addition to amounts distributed pursuant to the first sentence of
this Subsection A.(2)(a)) distributions up to the aggregate amount of $12.24 per
share of Series C Preferred (as adjusted for any combinations, consolidations,
subdivisions, splits or stock dividends with respect to such shares of Series C
Preferred).
(b) A merger or consolidation of the corporation with or into any
other corporation or corporations, unless the shareholders of the corporation
immediately preceding such merger or consolidation own more than 50% of the
surviving entity, or the sale, transfer or lease (other than a pledge or grant
of a security interest to a bona fide lender) of all or substantially all of the
assets of the corporation, shall be treated as a liquidation, dissolution or
winding up for purposes of this Subsection A.(2).
-3-
<PAGE>
(c) Whenever the distribution provided for in this Subsection A.(2)
shall be payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board of Directors.
(d) Each holder of an outstanding share of Series A Preferred, Series
B Preferred and Series C Preferred shall be deemed to have consented, for
purposes of Sections 502, 503 and 506 of the General Corporation Law of
California, to distributions made by the corporation in connection with the
repurchase of shares of Common Stock issued to or held by officers, directors,
employees or consultants upon termination of their employment or services or in
connection with the exercise by the corporation of its contractual right of
first refusal pursuant to agreements providing for the right of said repurchase
between the corporation and such persons, provided that the terms of such
repurchase shall have been approved by the Board of Directors.
(3) Conversion Rights.
-----------------
(a) Conversion of Preferred Stock. Each share Series A Preferred,
------------------------------
Series B Preferred and Series C Preferred shall be convertible, at the option of
the holder thereof, at any time after the issuance of such share into fully paid
and nonassessable shares of Common Stock of the corporation. Each share of
Series A Preferred, Series B Preferred and Series C Preferred shall
automatically be converted into fully paid and nonassessable shares of Common
Stock of the corporation immediately upon the earlier to occur of:
(i) The closing of a sale of the corporation's Common Stock in an
underwritten registered public offering with proceeds to the corporation of at
least Ten Million Dollars ($10,000,000) at an initial offering price of at least
nine dollars ($9.00) per share (as adjusted for any combinations,
consolidations, subdivisions, splits or stock dividends with respect to such
shares of Common Stock) (a "Qualifying IPO"); or
(ii) The date on which the holders of two-thirds (2/3) of the
outstanding shares of Series A Preferred, Series B Preferred and Series C
Preferred, each voting as a separate class, have each voted to convert or
consented in writing to the conversion of such shares into Common Stock.;
provided, however, that, in the case of the Series C Preferred Stock, the
- -------- -------
required approval shall be 75% of the outstanding shares of the Series C
Preferred Stock in the event that fewer than 1,144,000 shares of Series C
Preferred Stock are then outstanding.
(b) Determination of Number of Shares of Common Stock Issuable Upon
---------------------------------------------------------------
Conversion. The number of shares of Common Stock into which each share of
- ----------
Series A Preferred may be converted shall be determined by dividing (i) $1.00 by
(ii) the Conversion Price for the Series A Preferred (determined as hereinafter
provided) in effect at the time of the conversion. The number of shares of
Common Stock into which each share of Series B Preferred may be converted shall
be determined by dividing (i) $2.69 by (ii) the Conversion Price for the Series
B Preferred (determined as hereinafter provided) in effect at the time of the
conversion.
-4-
<PAGE>
The number of shares of Common Stock into which each share of Series C Preferred
may be converted shall be determined by dividing (i) $6.12 by (ii) the
Conversion Price for the Series C Preferred (determined as hereinafter provided)
in effect at the time of the conversion.
(c) Determination of Initial Conversion Price. The conversion price
-----------------------------------------
per share (the "Conversion Price") at which shares of Common Stock shall be
initially issuable upon conversion shall be $1.00 in the case of Series A
Preferred, $2.69 in the case of Series B Preferred and $6.12 in the case of
Series C Preferred (the "Original Issuance Prices"), subject to adjustment as
provided in Subsection A.(4) hereof.
(d) Procedures for Exercise of Conversion Rights. The holders of any
--------------------------------------------
shares of Preferred Stock may exercise their conversion rights as to all such
shares or any part thereof by delivering to the corporation during regular
business hours, at the office of any transfer agent of the corporation for the
Preferred Stock, or at the principal office of the corporation or at such other
place as may be designated by the corporation, the certificate or certificates
for the shares to be converted, duly endorsed for transfer to the corporation
(if required by the corporation), accompanied by written notice stating that the
holder elects to convert such shares (except that no such written notice of
election to the corporation shall be necessary in the event of an automatic
conversion pursuant to Subsection A.(3)(a)). Conversion shall be deemed to have
been effected on the date when such delivery is made (except that in the event
of an automatic conversion pursuant to Subsection A.(3)(a) above, such
conversion shall be deemed to have been made immediately prior to the closing of
the Qualifying IPO referred to therein or the date on which the holders referred
to therein have voted to convert or consented in writing to convert the shares
referred to therein), and such date is referred to herein as the "Conversion
Date." As promptly as practicable after the Conversion Date, the corporation
shall issue and deliver to or upon the written order of such holder, at such
office or other place designated by the corporation, a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check for cash with respect to any fractional interest in a
share of Common Stock as provided in Subsection A.(3)(e) below. The holder
shall be deemed to have become a shareholder of record on the Conversion Date,
and the applicable Conversion Price shall be the Conversion Price in effect on
the Conversion Date. Upon conversion of only a portion of the number of shares
of Preferred Stock represented by a certificate surrendered for conversion, the
corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
corporation, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(e) No Fractional Shares. No fractional shares of Common Stock or
--------------------
scrip shall be issued upon conversion of shares of Preferred Stock. If more
than one share of Preferred Stock shall be surrendered for conversion at any one
time by the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any shares of
Preferred Stock, the corporation shall pay a cash adjustment in respect of such
-5-
<PAGE>
fractional interest equal to the fair market value of such fractional interest
as determined by the corporation's Board of Directors.
(f) Payment of Taxes for Conversions. The corporation shall pay any
--------------------------------
and all issue and other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion pursuant hereto of Preferred
Stock. The corporation shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
corporation the amount of any such tax, or has established, to the satisfaction
of the corporation, that such tax has been paid.
(g) Reservation of Common Stock. The corporation shall at all times
---------------------------
reserve and keep available, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Stock, the
full number of shares of Common Stock deliverable upon the conversion of all
shares of all series of Preferred Stock from time to time outstanding.
(h) Registration or Listing of Shares of Common Stock. If any shares
-------------------------------------------------
of Common Stock to be reserved for the purpose of conversion of shares of
Preferred Stock require registration or listing with, or approval of, any
governmental authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise, before such shares may be
validly issued or delivered upon conversion, the corporation will in good faith
and as expeditiously as possible endeavor to secure such registration, listing
or approval, as the case may be.
(i) Status of Common Stock Issued Upon Conversion. All shares of
---------------------------------------------
Common Stock which may be issued upon conversion of the shares of Preferred
Stock will upon issuance by the corporation be validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(j) Status of Converted Preferred Stock. In case any shares of
-----------------------------------
Preferred Stock shall be converted pursuant to this Subsection A.(3), the shares
so converted shall be canceled and shall not be issuable by the corporation and
the Articles of Incorporation of the corporation, as then in effect, shall be
appropriately amended to reflect the corresponding reduction in the authorized
capital stock of the corporation.
(4) Adjustment of Conversion Price.
------------------------------
(a) General Provisions. The respective Conversion Prices of Series A
------------------
Preferred, Series B Preferred and Series C Preferred shall be subject to
adjustment from time to time as follows:
(i) If, at any time after the issuance of the first share of
Series C Preferred Stock, the corporation shall issue any Additional Stock (as
defined in Subsection A.(4)(a)(iii) below) for a consideration per share less
than the respective Conversion Prices for
-6-
<PAGE>
Series A Preferred, Series B Preferred and Series C Preferred in effect
immediately prior to the issuance of such Additional Stock, the respective
Conversion Prices of the Series A Preferred, Series B Preferred and Series C
Preferred in effect immediately after each such issuance shall thereafter be
reduced, if shares of such Series A Preferred, Series B Preferred or Series C
Preferred (as the case may be) are outstanding, to a price equal to the product
of such Conversion Price in effect immediately prior to such issuance multiplied
by the quotient obtained by dividing:
(A) an amount equal to the sum of (x) the total number of shares of
Common Stock outstanding (assuming for such purpose the conversion of any
outstanding shares of Preferred Stock of the corporation, and excluding only
that series of Preferred Stock subject to adjustment) immediately prior to such
issuance, plus (y) the quotient of the total consideration received by the
corporation upon such issuance divided by such Conversion Price, by
(B) the total number of shares of Common Stock outstanding (assuming
for such purpose the conversion of any outstanding shares of Preferred Stock of
the corporation, and excluding only that series of Preferred Stock subject to
adjustment) immediately prior to such issuance plus the Additional Stock issued
in such issuance (but not including any shares of Additional Stock deemed to be
issued as a result of any adjustment in the Conversion Price of the Series A
Preferred, Series B Preferred or Series C Preferred (as the case may be)
resulting from such issuance).
(ii) For the purposes of any adjustment of a Conversion Price pursuant to
Subsection A.(4)(a)(i) above, the following provisions shall be applicable:
(A) In the case of the issuance of Additional Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts or commissions paid or incurred by the corporation in
connection with the issuance and sale thereof.
(B) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of the corporation.
(C) In the case of the issuance of (i) options, warrants or rights to
purchase, subscribe for or otherwise acquire Common Stock, (ii) evidences of
indebtedness, shares or other securities by their terms convertible into or
exchangeable for Common Stock, or (iii) options, warrants or rights to purchase,
subscribe for or otherwise acquire evidences of indebtedness, shares or other
securities by their terms convertible into or exchangeable for Common Stock:
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were
-7-
<PAGE>
issued and for a consideration equal to the consideration (determined in the
manner provided in Subsections A.(4)(a)(ii)(A) and (B) above), if any, received
by the corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby,
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the corporation for any
such securities and related options or rights (excluding any cash received on
account of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the corporation upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Subsections A.(4)(a)(ii)(A) and (B) above);
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities, the Conversion
Price for such series shall forth with be readjusted to such Conversion Price as
would have obtained had the adjustment made upon (x) the issuance of such
options, rights or securities not exercised, converted or exchanged prior to
such change, as the case may be, been made upon the basis of such change or (y)
the options or rights related to such securities not converted or exchanged
prior to such change, as the case may be, been made upon the basis of such
change; and
(4) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price for such series shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable securities, as the
case may be, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to such
convertible or exchangeable securities, as the case may be;
provided that, in no event shall the Conversion Price be readjusted pursuant to
paragraph (3) or paragraph (4) above to an amount which exceeds the lesser of:
(x) the Conversion Price on the original adjustment date, and (y) the Conversion
Price that would have resulted from any issuance of Additional Stock between the
original adjustment date and such readjustment date.
-8-
<PAGE>
(iii) "Additional Stock" shall mean any shares of Common Stock issued
or deemed to have been issued pursuant to Subsection A.(4)(a)(ii)(C) by the
corporation other than Excluded Stock (as defined below). "Excluded Stock"
shall mean:
(A) all shares of Common Stock and Preferred Stock issued and
outstanding on the date hereof;
(B) all shares of Common Stock into which shares of Preferred
Stock issued and outstanding as of the date hereof are convertible (the effect
of the issuance of such shares of Preferred Stock having been taken into account
pursuant to Subsection A.(4)(a)(i) above, if applicable);
(C) shares of Common Stock issued or deemed to have been
issued to employees, consultants, directors or vendors of this corporation
directly or pursuant to a stock option plan or stock purchase plan or other
incentive stock arrangement unanimously approved by the Board of Directors of
the corporation;
(D) shares of Common Stock issued or deemed to have been
issued in connection with bona fide arm's-length equipment lease financing or
similar transactions unanimously approved by the Board of Directors; and
(E) shares of Common Stock issued or deemed to have been
issued in connection with stock dividends, subdivisions, split-ups, combinations
or dividends which are covered by Subsections A.(4)(a)(iv), (v) and (vi).
(iv) If the number of shares of Common Stock outstanding at any time
after the date hereof is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split-up of shares of Common Stock, then, on
the date such payment is made or such change is effective, the Conversion Price
for the Preferred Stock shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of any shares of the Preferred
Stock shall be increased in proportion to such increase of outstanding shares.
(v) If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, on the effective date of such combination, the Conversion
Price for the Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of shares of the
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.
(vi) In case the corporation shall distribute to holders of its Common
Stock shares of its capital stock (other than Common Stock), stock or other
securities of other persons, evidences of indebtedness issued by the corporation
or other persons, assets (excluding cash dividends), or options or rights
(excluding options to purchase and rights to subscribe for Common Stock or other
securities of the corporation convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record
-9-
<PAGE>
date fixed for the determination of the holders of Common Stock entitled to
receive such distribution, provision shall be made so that the holders of
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of shares of the
corporation's capital stock, stock or other securities of other persons,
evidences of indebtedness, assets, or options or rights which they would have
received had such shares of Preferred Stock been converted into Common Stock
immediately prior to such record date and had thereafter, during the period from
the date of such record date to and including the date of conversion, retained
such capital stock, stock or other securities of other persons, evidences of
indebtedness, assets, or options or rights receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Subsection A.(4).
(vii) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the corporation (other
than a change in par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), or the consolidation or merger of the
corporation with or into another person (other than a transaction in which the
shareholders of the corporation own more than 50% of the surviving entity), or
of the sale or other disposition of all or substantially all the properties and
assets of the corporation as an entirety to any other person, the shares of
Preferred Stock shall, after such reorganization, reclassification,
consolidation, merger, sale or other disposition, be convertible into the kind
and number of shares of stock or other securities or property of the corporation
or of the entity resulting from such consolidation or surviving such merger or
to which such properties and assets shall have been sold or otherwise disposed
to which such holder would have been entitled if immediately prior to such
reorganization, reclassification, consolidation, merger, sale or other
disposition he had converted his shares of Preferred Stock into Common Stock.
The provisions of this Subsection A.(4)(a)(vii) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(viii) All calculations under this Subsection A.(4) shall be made to
the nearest one hundredth (1/100) of a cent or to the nearest one hundredth
(1/100) of a share, as the case may be.
(b) Minimal Adjustments. No adjustment in a Conversion Price need be
-------------------
made if such adjustment would result in a change in a Conversion Price of less
than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(c) No Impairment. The corporation will not, through any
-------------
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Subsection A.(4) and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the
-10-
<PAGE>
corporation from amending its Restated Articles of Incorporation in accordance
with the General Corporation Law of the State of California and the terms
hereof.
(d) Computation of Adjustment. Upon the occurrence of each adjustment
-------------------------
or readjustment of the Conversion Price of any series of Preferred Stock
pursuant to this Subsection A.(4), the corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof, and
prepare and furnish to each holder of Preferred Stock affected thereby a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The corporation
shall, upon the written request at any time of any holder of Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustment or readjustment, (ii) the Conversion Price at the time in
effect for the applicable Series of Preferred Stock, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of such holder's shares.
(5) Voting Rights. Each holder of shares of the Preferred Stock shall
-------------
be entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Preferred Stock could be converted on the record date
for the vote or consent of shareholders and, except as otherwise required by
law, shall have voting rights and powers equal to the voting rights and powers
of the Common Stock. The holder of each share of the Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the corporation and shall vote with holders of the Common Stock upon the
election of directors and upon any other matter submitted to a vote of
shareholders, except as to those matters required by law or these Articles of
Incorporation to be submitted to a class vote. Fractional votes by the holders
of Preferred Stock shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number.
(6) Protective Provisions.
---------------------
(a) Class Votes. So long as any shares of Preferred Stock are
-----------
outstanding, the corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of at
least two-thirds (2/3) of the total number of shares of Preferred Stock
outstanding, voting together as a single class, (i) alter or change any of the
powers, preferences, privileges or rights of any series of Preferred Stock; (ii)
increase the authorized number of shares of any series of Preferred Stock; (iii)
increase the authorized number of shares of Preferred Stock; (iv) increase the
authorized number of shares of Common Stock; (v) create any new class or series
of stock having a preference over any series of Preferred Stock upon liquidation
or in respect of dividend or redemption rights; or (vi) cause the merger or
consolidation of the corporation with or into any other corporation or
corporations, the recapitalization of the corporation, or the sale, transfer or
lease (other than a pledge or grant of a security interest to a bona fide
lender) of all or substantially all of the assets of the corporation.
-11-
<PAGE>
(b) Notwithstanding the foregoing, the corporation shall not: (i)
alter or change any of the powers, preferences, privileges or rights of a series
of Preferred Stock; (ii) increase the authorized number of shares of a series of
Preferred Stock; or (iii) create any new class or series of stock having a
preference over any series of Preferred Stock upon liquidation or in respect of
dividend or redemption rights, without first obtaining the approval by vote or
written consent, in the manner provided by law, of the holders of at least a
majority of the total number of shares of such affected series of Preferred
Stock outstanding.
In addition, notwithstanding the foregoing, the corporation shall not
amend Sections A.(3)(a) or A.(8) or this Subdivision (b) of this Article V
without first obtaining the approval by vote or written consent, in the manner
provided by law, of the holders of at least two-thirds of the outstanding shares
of each series of Preferred Stock, each voting or consenting as a separate
class.
(c) Notices of Record Date. In the event that this corporation
----------------------
shall propose at any time:
(i) to declare any dividend or distribution upon shares of
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
--- ----
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all of its property
or business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this corporation shall send to the
holders of the Preferred Stock:
(A) at least twenty (20) days' prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) in respect of the matters referred to in (i)
and (ii) above or for determining rights to vote in respect of the matters
referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
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<PAGE>
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this corporation.
(7) Board of Directors.
------------------
(a) Three members of the Board of Directors shall be elected by
(and may only be removed by) the holders of the Preferred Stock, voting as a
separate class. Two members shall be elected by (and may only be removed by) the
holders of Common Stock, voting as a separate class. Any remaining members shall
be elected only by (and may only be removed by) the holders of the Preferred
Stock and Common Stock, voting together as a single class.
(b) If the office of any director becomes vacant, such director's
replacement shall be elected by the class (or classes, as applicable) of shares
of which such director is the representative.
(8) Redemption of Preferred Stock.
-----------------------------
(a) At the Option of Holders.
------------------------
(i) Series A Preferred. If the corporation receives a
------------------
written request from the holders of not less than two-thirds (2/3) of the then
outstanding shares of Series A Preferred that all or some of such holders'
shares be redeemed, the corporation shall (i) on the later to occur of March 27,
2002 or ninety days after receipt of such request, redeem at the Redemption
Price (as defined in Subsection A.(8)(b) below) one-third of the shares of
Series A Preferred pro rata based on the number of shares that are requested to
be redeemed by such holders; (ii) one year from the date of the initial
redemption under (i) above, redeem at the Redemption Price an additional one-
third of the shares of Series A Preferred pro rata based on the number of shares
that are requested to be redeemed by such holders; and (iii) two years from the
date of the initial redemption under (i) above, redeem at the Redemption Price
the remaining one-third of the shares of Series A Preferred requested to be
redeemed. The redemption shall be in accordance with the provisions of this
Subsection A.(8).
(ii) Series B Preferred. If the corporation receives a
------------------
written request from the holders of not less than two-thirds (2/3) of the then
outstanding shares of Series B Preferred that all or some of such holders'
shares be redeemed, the corporation shall (i) on the later to occur of March 27,
2002 or ninety days after receipt of such request, redeem at the Redemption
Price (as defined in Subsection A.(8)(b) below) one-third of the shares of
Series B Preferred pro rata based on the number of shares that are requested to
be redeemed by such holders; (ii) one year from the date of the initial
redemption under (i) above, redeem at the Redemption Price an additional one-
third of the shares of Series B Preferred pro rata based on the number of shares
that are requested to be redeemed by such holders; and (iii) two years from the
date of the initial redemption under (i) above, redeem at the Redemption Price
the remaining
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<PAGE>
one-third of the shares of Series B Preferred requested to be
redeemed. The redemption shall be in accordance with the provisions of this
Subsection A.(8).
(iii) Series C Preferred. If the corporation receives a
------------------
written request from the holders of not less than two-thirds (2/3) of the then
outstanding shares of Series C Preferred that all or some of such holders'
shares be redeemed, the corporation shall (i) on the later to occur of March 27,
2002 or ninety days after receipt of such request, redeem at the Redemption
Price (as defined in Subsection A.(8)(b) below) one-third of the shares of
Series C Preferred pro rata based on the number of shares that are requested to
be redeemed by such holders; (ii) one year from the date of the initial
redemption under (i) above, redeem at the Redemption Price an additional one-
third of the shares of Series C Preferred pro rata based on the number of shares
that are requested to be redeemed by such holders; and (iii) two years from the
date of the initial redemption under (i) above, redeem at the Redemption Price
the remaining one-third of the shares of Series C Preferred requested to be
redeemed. The redemption shall be in accordance with the provisions of this
Subsection A.(8).
Notwithstanding the foregoing, in the event that
holders of not less than two-thirds of the then outstanding shares of Series A
Preferred or Series B Preferred have requested the redemption of all or some of
such holders' shares pursuant to Subsections A.(8)(a)(i) and (ii) above, then
each holder of Series C Preferred shall be entitled to redeem (in accordance
with the schedule set forth above and without the requirement of a written
request from the holders of not less than two-thirds of the then outstanding
shares of Series C Preferred) that number of such holder's shares of Series C
Preferred determined by multiplying the total number of shares of Series C
Preferred then held by such holder by the percentage of the total outstanding
shares of Series A Preferred or Series B Preferred, whichever is higher, that
have been requested to be redeemed pursuant to Subsections A.(8)(a)(i) and (ii)
above.
(b) Redemption Price. The "Redemption Price" of the Series A
----------------
Preferred shall be an amount per share equal to the sum of (i) $1.00 (adjusted
proportionately to reflect stock dividends, stock splits, recapitalizations and
the like affecting the Series A Preferred after the date any shares of Series A
Preferred are first issued); and (ii) dividends, if any, declared but not then
paid on such shares of Series A Preferred on the date of redemption. The
"Redemption Price" of the Series B Preferred shall be an amount per share equal
to the sum of (i) $2.69 (adjusted proportionately to reflect stock dividends,
stock splits, recapitalizations and the like affecting the Series B Preferred
after the date any shares of Series B Preferred are first issued); and (ii)
dividends, if any, declared but not then paid on such shares of Series B
Preferred on the date of redemption. The "Redemption Price" of the Series C
Preferred shall be an amount per share equal to the sum of (i) $6.12 (adjusted
proportionately to reflect stock dividends, stock splits, recapitalizations and
the like affecting the Series C Preferred after the date any shares of Series C
Preferred are first issued); and (ii) dividends, if any, declared but not then
paid on such shares of Series C Preferred on the date of redemption.
(c) Notice of Redemption. At least 45 days prior to the date
--------------------
fixed for the redemption of the Series A Preferred, Series B Preferred or Series
C Preferred (the "Redemption Date"), written notice shall be mailed, postage
prepaid, to each holder of record (at
-14-
<PAGE>
the close of business on the business day next preceding the day on which notice
is given) of the Series A Preferred, Series B Preferred or Series C Preferred
(as the case may be) to be redeemed, at the address last shown on the records of
this corporation for such holder (or at the address given by the holder to the
corporation for the purpose of notice or if no such address appears or is given
at the place where the principal executive office of the corporation is
located), notifying such holder of the redemption to be effected, specifying the
Redemption Date, the number of shares to be redeemed, the applicable Redemption
Price and the place at which payment may be obtained. The notice shall call upon
such holder to surrender to the corporation, in the manner and at the place
designated, his certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). Except as provided in Subsection A.(8)(d)
below, on or after the close of business on the Redemption Date, each holder of
Series A Preferred, Series B Preferred or Series C Preferred (as the case may
be) to be redeemed shall surrender to the corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice. Thereupon, the applicable Redemption Price of such
shares shall be paid to the order of the person whose name appears on such
certificate or certificates as the owner thereof, each surrendered certificate
shall be canceled and the remaining shares, if any, shall be reissued to such
person.
(d) Cessation of Rights. From and after the Redemption Date,
-------------------
unless there has been a default in payment of the Redemption Price, all
dividends, if any, on the Series A Preferred, Series B Preferred or Series C
Preferred (as the case may be) to be redeemed thereon shall cease to accrue, all
rights of the holders of such shares as holders of Series A Preferred, Series B
Preferred or Series C Preferred (as the case may be) (except the right to
receive the applicable Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of this corporation or
be deemed to be outstanding for any purpose whatsoever. If the funds of the
corporation legally available for redemption of shares of Series A Preferred,
Series B Preferred or Series C Preferred (as the case may be) on the Redemption
Date are insufficient to redeem the total number of shares of Series A
Preferred, Series B Preferred or Series C Preferred (as the case may be) to be
redeemed on such date, then those funds that are legally available shall be used
to redeem the maximum possible number of the shares ratably among the holders in
proportion to the amount each such holder otherwise would be entitled to receive
(including declared but unpaid dividends, if any) if the funds were not
insufficient. Any shares of Series A Preferred, Series B Preferred or Series C
Preferred not redeemed shall remain outstanding and entitled to all the
privileges, rights and preferences provided herein. At any time thereafter when
additional funds of the corporation are legally available for the redemption of
shares of Series A Preferred, Series B Preferred or Series C Preferred, such
funds shall immediately be set aside for the redemption of the balance of the
shares that the corporation has become obligated to redeem on the Redemption
Date.
(e) If no funds or insufficient funds are legally available at
the time of any redemption date to redeem all of the shares of the Series A
Preferred, Series B Preferred or Series C Preferred (as applicable) then
required to be redeemed, then the corporation shall redeem shares of Series A
Preferred, Series B Preferred or Series C Preferred (as applicable) from holders
thereof who have requested redemption pursuant to subsection (a) above pro rata
-15-
<PAGE>
based upon the aggregate Redemption Price of the shares to be redeemed, and any
such unredeemed shares shall be carried forward and redeemed (together with
other shares of Series A Preferred, Series B Preferred or Series C Preferred (as
applicable) at the next redemption date to the full extent of legally available
funds of the corporation at such time. Shares of Series A Preferred, Series B
Preferred or Series C Preferred which are subject to redemption but which have
not been redeemed due to insufficient legally available funds shall continue to
be entitled to and subject to the dividend, conversion and other rights,
preferences, privileges and restrictions of such Series A Preferred, Series B
Preferred or Series C Preferred (as applicable) until such shares have been
redeemed.
B. Common Stock.
------------
(1) Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
(2) Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Article IV, Section A.(2) hereof.
(3) Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE VI
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE VII
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VIII
A. To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
-16-
<PAGE>
B. The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article VIII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VIII, shall eliminate or reduce the effect of this Article
VIII in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VIII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
* * *
-17-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Santa Clara, California on _____________, 1999
---------------------------------
Jon A. Bode, President
---------------------------------
Mark A. Medearis, Secretary
-18-
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
ACTIVE SOFTWARE, INC.
The undersigned hereby certifies that:
1. He is the duly elected and acting Vice President and Chief Financial
Officer of Active Software, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on May 19, 1999.
3. Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, this Certificate of Amendment of Certificate of Incorporation amends
Article IV, section (a) of this corporation's Certificate of Incorporation to
read in its entirety as follows:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is one
hundred thirteen million four hundred five thousand five hundred
(113,405,500) shares, of which one hundred million (100,000,000) shares
shall be Common Stock and thirteen million four hundred five thousand five
hundred (13,405,500) shares shall be Preferred Stock, each with a par value
of $0.001. There shall be three series of Preferred Stock, the first of
which shall be designated as Series A Preferred Stock ("Series A
Preferred"), which shall consist of six million twenty-two thousand five
hundred (6,022,500) shares, the second of which shall be designated as
Series B Preferred Stock ("Series B Preferred"), which shall consist of
three million nine hundred fifteen thousand (3,915,000) shares, and the
third of which shall be designated as Series C Preferred Stock ("Series C
Preferred"), which shall consist of three million four hundred sixty-eight
thousand (3,468,000) shares.
Upon filing of this Certificate, every two (2) shares of issued and
outstanding Common Stock shall be split into three (3) shares of Common
Stock and every two (2) shares of issued and outstanding Preferred Stock
shall be split into three (3) shares of Preferred Stock."
<PAGE>
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Jon A. Bode, its Vice President and Chief Financial Officer, this ____
day of _______ 1999.
ACTIVE SOFTWARE, INC.
By:___________________________________________
Jon A. Bode,
Vice President and Chief Financial Officer
<PAGE>
Exhibit 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ACTIVE SOFTWARE, INC.
The undersigned, R. James Green and Mark A. Medearis, hereby certify that:
1. They are the duly elected and acting President and and Secretary,
respectively, of Active Software, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on May 19, 1999.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Active Software, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
105,000,000 shares, each with a par value of $0.001 per share. 100,000,000 of
such shares shall be Common Stock, and 5,000,000 of such shares shall be
Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
<PAGE>
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time
by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
"Listing Event" as used in this Amended and Restated Certificate of
-------------
Incorporation shall mean such time as the Corporation meets the criteria set
forth in subdivision (d) of Section 301.5 of the California Corporations Code
as of the record date of such meeting.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, its directors and its stockholders or any class
thereof, as the case may be, it is further provided that, effective upon the
occurrence of the Listing Event:
(i) The number of directors which shall constitute the entire
Board of Directors, and the number of directors in each class, shall be fixed
exclusively by one or more resolutions adopted from time to time by the Board of
Directors. The Board of Directors shall be divided into three classes,
designated as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. Until changed by a resolution of the Board of Directors,
Class I shall consist of three directors, each of whom shall be designated by
the Board of Directors; Class II shall consist of two directors, each of whom
shall be designated by the Board of Directors; and Class III shall consist of
two directors, each of whom shall be designated by the Board of Directors.
At the first annual meeting of stockholders following the
Listing Event, the terms of office of the Class I directors shall expire, and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the Listing Event, the term of
office of the Class II directors shall expire, and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Listing Event, the term of office of the Class III
directors shall expire, and Class III directors shall be elected for a full
term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the
-2-
<PAGE>
holders of a majority of the voting power of the then-outstanding shares of
voting stock of the corporation entitled to vote generally in the election of
directors (the "Voting Stock") voting together as a single class; or (ii) by the
------------
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such newly created directorship
shall be filled by the stockholders, be filled only by the affirmative vote of
the directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.
(ii) There shall be no right with respect to shares of stock of the
Corporation to cumulate votes in the election of directors.
(iii) Any director, or the entire Board of Directors, may be removed
from office at any time (i) with cause by the affirmative vote of the holders of
at least a majority of the voting power of the then-outstanding shares of the
Voting Stock, voting together as a single class; or (ii) without cause by the
affirmative vote of the holders of at least 66-2/3% of the voting power of the
then-outstanding shares of the Voting Stock.
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other than
at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE IX
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision
-3-
<PAGE>
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE XI
The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
If the General Corporation Law of Delaware is hereafter amended to authorize,
with the approval of a corporation's stockholders, further reductions in the
liability of the Corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this
Article XII shall not adversely affect any right or protection of a director of
the Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) such agents (and any other persons to which Delaware law permits the
Corporation to provide indemnification) though bylaw provisions, agreements with
such agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of
this Article XIII shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
-4-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Santa Clara, California, on ____________________, 1999.
____________________________
R. James Green,
President
____________________________
Mark A. Medearis,
Secretary
-5-
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
ACTIVE SOFTWARE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES...................................... 4
1.1 Registered Office......................................... 4
1.2 Other Offices............................................. 4
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................. 4
2.1 Place of Meetings......................................... 4
2.2 Annual Meeting............................................ 1
2.3 Special Meeting........................................... 3
2.4 Notice of Shareholder's Meeting; Affidavit of Notice...... 3
2.5 Advance Notice of Stockholder Nominees.................... 3
2.6 Quorum.................................................... 4
2.7 Adjourned Meeting; Notice................................. 4
2.8 Conduct of Business....................................... 4
2.9 Voting.................................................... 5
2.10 Waiver of Notice......................................... 5
2.11 Record Date for Stockholder Notice; Voting............... 5
2.12 Proxies.................................................. 6
ARTICLE III - DIRECTOR............................................. 6
3.1 Powers.................................................... 6
3.2 Number of Directors....................................... 6
3.3 Election, Qualification and Term of Office of Directors... 6
3.4 Resignation and Vacancies................................. 6
3.5 Place of Meetings; Meetings by Telephone.................. 7
3.6 Regular Meetings.......................................... 8
3.7 Special Meetings; Notice.................................. 8
3.8 Quorum.................................................... 8
3.9 Waiver of Notice.......................................... 8
3.10 Board Action by Written Consent without a Meeting........ 9
3.11 Fees and Compensation of Directors....................... 9
3.12 Approval of Loans to Officers............................ 9
3.13 Removal of Directors..................................... 9
3.14 Chairman of the Board of Directors....................... 10
ARTICLE IV - COMMITTEES............................................ 10
4.1 Committees of Directors................................... 10
4.2 Committee Minutes......................................... 11
4.3 Meetings and Action of Committees......................... 11
ARTICLE V - OFFICERS............................................... 11
5.1 Officers.................................................. 11
5.2 Appointment of Officers................................... 11
5.3 Subordinate Officers...................................... 11
5.4 Removal and Resignation of Officers....................... 12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.5 Vacancies in Offices...................................... 12
5.6 Chief Executive Officer................................... 17
5.7 President................................................. 17
5.8 Vice Presidents........................................... 13
5.9 Secretary................................................. 13
5.10 Chief Financial Officer.................................. 18
5.11 Representation of Shares of Other Corporations........... 18
5.12 Authority And Duties of Officers......................... 19
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS................................................... 19
6.1 Indemnification of Directors and Officers................. 19
6.2 Indemnification of Others................................. 19
6.3 Payment of Expenses in Advance............................ 19
6.4 Indemnity Not Exclusive................................... 20
6.5 Insurance................................................. 20
6.6 Conflicts................................................. 20
ARTICLE VII - RECORDS AND REPORTS.................................. 20
7.1 Maintenance and Inspection of Records..................... 20
7.2 Inspection by Directors................................... 21
7.3 Annual Statement to Stockholders.......................... 21
ARTICLE VIII - GENERAL MATTERS..................................... 21
8.1 Checks.................................................... 21
8.2 Execution of Corporate Contracts and Instruments.......... 21
8.3 Stock Certificates; Partly Paid Shares.................... 22
8.4 Special Designation on Certificates....................... 22
8.5 Lost Certificates......................................... 23
8.6 Construction; Definitions................................. 23
8.7 Dividends................................................. 23
8.8 Fiscal Year............................................... 23
8.9 Seal...................................................... 24
8.10 Transfer of Stock........................................ 24
8.11 Stock Transfer Agreements................................ 24
8.12 Registered Stockholders.................................. 24
ARTICLE IX - AMENDMENTS............................................ 24
</TABLE>
<PAGE>
BYLAWS
OF
ACTIVE SOFTWARE, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Registered Office.
-----------------
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 Place of Meetings.
-----------------
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 Annual Meeting.
--------------
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be transacted by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice with respect to such meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of the notice provided for in this
Section 2.2, who is
<PAGE>
entitled to vote at the meeting and who has complied with the notice procedures
set forth in this Section 2.2.
(c) In addition to the requirements of Section 2.5, for nominations or
other business to be properly brought before an annual meeting by a stockholder
pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder
must have given timely notice thereof in writing to the secretary of the
Corporation and such business must be a proper matter for stockholder action
under the General Corporation Law of Delaware. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 20 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than 30
days prior to or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 20th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (ii) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of such business, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (A)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (B) the class and number of shares of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.2. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
<PAGE>
2.3 Special Meeting.
---------------
(a) A special meeting of the stockholders may be called at any time by the
Board of Directors, or by the chairman of the board, or by the president.
(b) Nominations of persons for election to the Board of Directors may
be made at a special meeting of stockholders at which directors are to be
elected pursuant to such notice of meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in Section
2.5, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in Section 2.5.
2.4 Notice of Stockholder's Meetings; Affidavit of Notice.
-----------------------------------------------------
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting (or such longer or shorter time as
is required by Section 2.5 of these Bylaws, if applicable). The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.5 Advance Notice of Stockholder Nominees.
--------------------------------------
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall 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 60 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 day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal
<PAGE>
occupation or employment of such person, (iii) the class and number of shares of
the Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act (including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (b) 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. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the Corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
2.6 Quorum.
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the Certificate of Incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (a) the chairman of the meeting or (b) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 Adjourned Meeting; Notice.
-------------------------
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 Conduct of Business.
-------------------
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
<PAGE>
2.9 Voting.
------
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.11 Record Date for Stockholder Notice; Voting.
------------------------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which 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. If the Board of Directors does not
so fix a record date:
(a) 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 next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) 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 thereto.
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.
<PAGE>
2.12 Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 Number of Directors.
-------------------
The number of directors of the corporation shall be seven (7) until
changed by a bylaw amending this Section 3.2, duly adopted by the board of
directors or by the shareholders.
3.3 Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
Certificate of Incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies.
-------------------------
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective
<PAGE>
at a future date, a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies. A vacancy created by the removal of a
director by the vote of the stockholders or by court order may be filled only by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the quorum. Each director so elected
shall hold office until the next annual meeting of the stockholders and until a
successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total number of the shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone.
----------------------------------------
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
<PAGE>
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any 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 such participation in a meeting shall constitute presence in
person at the meeting.
3.6 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.7 Special Meetings; Notice.
------------------------
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 Quorum.
------
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
<PAGE>
3.9 Waiver of Notice.
----------------
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
3.10 Board Action by Written Consent without a Meeting.
-------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 Fees and Compensation of Directors.
----------------------------------
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 Approval of Loans to Officers.
-----------------------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 Removal of Directors.
--------------------
<PAGE>
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 Chairman of the Board of Directors.
----------------------------------
The Corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
ARTICLE IV
COMMITTEES
----------
4.1 Committees of Directors.
-----------------------
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, with each committee
to consist of one or more of the directors of the Corporation. The Board of
Directors 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 thereof present at any meeting and not disqualified from
voting, whether or not such member or members 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 or
in the Bylaws of the Corporation, 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 that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series), (b)
adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the sale,
lease or exchange of all or substantially all of
<PAGE>
the Corporation's property and assets, (d) recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or (e) amend
the Bylaws of the Corporation; and, unless the board resolution establishing the
committee, the Bylaws or the Certificate of Incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 Committee Minutes.
-----------------
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 Meetings and Action of Committees.
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 Appointment of Officers.
-----------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
<PAGE>
5.3 Subordinate Officers.
--------------------
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 Removal and Resignation of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 Vacancies in Offices.
--------------------
Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
5.6 Chief Executive Officer.
-----------------------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board (if any) or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the Corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
<PAGE>
5.8 Vice Presidents.
---------------
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 Secretary.
---------
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer.
-----------------------
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He or she shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the president, the chief executive officer, or the
directors, upon request, an
<PAGE>
account of all his or her transactions as chief financial officer and of the
financial condition of the Corporation, and shall have other powers and perform
such other duties as may be prescribed by the Board of Directors or the Bylaws.
5.11 Representation of Shares of Other Corporations.
----------------------------------------------
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this Corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this Corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 Authority and Duties of Officers.
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
-------------------------------------------------------------------
6.1 Indemnification of Directors and Officers.
-----------------------------------------
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 Indemnification of Others.
-------------------------
The Corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any
<PAGE>
proceeding, arising by reason of the fact that such person is or was an agent of
the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the Corporation (other than a director or officer) includes any person (a) who
is or was an employee or agent of the Corporation, (b) who is or was serving at
the request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was an
employee or agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.3 Payment of Expenses in Advance.
------------------------------
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation
6.5 Insurance.
---------
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
<PAGE>
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance and Inspection of Records.
-------------------------------------
The Corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Directors.
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order
the Corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 Annual Statement to Stockholders.
--------------------------------
The Board of Directors shall present at each annual meeting, and at
any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
<PAGE>
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Checks.
------
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments.
------------------------------------------------
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares.
--------------------------------------
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the Corporation. Notwithstanding the adoption of such a resolution by the Board
of Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or vice-
president, and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of the Corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any
<PAGE>
dividend on fully paid shares, the Corporation shall declare a dividend upon
partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
8.4 Special Designation on Certificates.
-----------------------------------
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and canceled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 Dividends.
---------
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
<PAGE>
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 Fiscal Year.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 Seal.
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 Transfer of Stock.
-----------------
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements.
-------------------------
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 Registered Stockholders.
-----------------------
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The Bylaws of the Corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the Corporation may,
in its Certificate of
<PAGE>
Incorporation, confer the power to adopt, amend or repeal Bylaws upon the
directors. The fact that such power has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend or repeal Bylaws.
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
ACTIVE SOFTWARE, INC.
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the certificate of incorporation to act
as the Incorporator of Active Software, Inc. hereby adopts the foregoing bylaws
as the Bylaws of the corporation.
Executed this 19th day of May 1999.
/s/ Edward Y. Kim
---------------------------
Edward Y. Kim, Incorporator
CERTIFICATE BY SECRETARY OF ADOPTION BY INCORPORATOR
----------------------------------------------------
The undersigned hereby certifies that the undersigned is the duly elected,
qualified, and acting Secretary of Active Software, Inc., and that the foregoing
Bylaws were adopted as the Bylaws of the corporation on May 19, 1999, by the
person appointed in the certificate of incorporation to act as the Incorporator
of the corporation.
Executed this 19th day of May 1999.
/s/ Mark A. Medearis
---------------------------
Mark A. Medearis, Secretary
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
[ACTIVE SOFTWARE, INC. LOGO]
CUSIP 00504E 10 0
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR
CERTAIN RESTICTIONS
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE, OF
ACTIVE SOFTWARE, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated _________________________
[ACTIVE SOFTWARE, INC. Corporate Seal]
/s/ MARK A. MEDEARIS /s/ R. JAMES GREEN
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY__________________________
AUTHORIZED SIGNATURE
<PAGE>
ACTIVE SOFTWARE, INC.
The Corporation will furnish without charge to each stockholder who so
requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights to each class of stock or series
thereof, and the qualifications, limitations, or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
------------- ----------
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Trans to Minors Act
---------------------------------
survivorship and not as tenants in (State)
common
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
_______________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books to the within named Corporation with
full power of substitution in the premises.
Dated:__________________________
X ______________________________________
X ______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
_________________________________________
<PAGE>
EXHIBIT 10.2
ACTIVE SOFTWARE, INC.
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1996 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Active Software, Inc., a California corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or their respective
<PAGE>
successors. For purposes of this Plan, a change in status from an Employee to a
Consultant or from a Consultant to an Employee will not constitute an
interruption of Continuous Status as an Employee or Consultant.
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an
--------
Option.
-2-
<PAGE>
(q) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this 1996 Stock Plan.
----
(s) "Reporting Person" means an officer, director, or greater than
----------------
ten percent shareholder of the Company within the meaning of Rule 16a-2 under
the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under
the Exchange Act.
(t) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(v) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(x) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 1,921,100 shares of Common Stock, less any shares transferred
to the Company's 1996A Stock Plan (with the foregoing number of shares
reflecting all such transfers as of June 30, 1999), as set forth below. The
shares may be authorized, but unissued, or reacquired Common Stock. If an Option
should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares that were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan. In addition, any shares of Common Stock which are retained by
the Company upon exercise of an Option in order to satisfy the exercise or
purchase price for such Option or any withholding taxes due with respect to such
exercise shall be treated as not issued and shall continue to be available under
the Plan.
Notwithstanding the foregoing, any shares that are repurchased under or
returned to the 1996 Stock Plan shall be automatically transferred to the
Company's 1996A Stock Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
-3-
<PAGE>
(i) Multiple Administrative Bodies. If permitted by Rule 16b-
------------------------------
3, the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees or Consultants who are not Reporting
Persons.
(ii) Administration With Respect to Reporting Persons. With
------------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
Reporting Persons, the Plan shall be administered by (A) the Board if the Board
may administer the Plan in compliance with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan. No person serving as a member of an Administrator that has
authority with respect to grants to Reporting Persons shall be eligible to
receive any grant under the Plan which would cause such member to cease to be
"disinterested" within the meaning of Rule 16b-3.
(iii) Administration With Respect to Consultants and Other
----------------------------------------------------
Employees. With respect to grants of Options or Stock Purchase Rights to
- ---------
Employees or Consultants who are not Reporting Persons, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy the legal
requirements relating to the administration of incentive stock option plans, if
any, of California corporate and securities laws, of the Code and of any
applicable Stock Exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
-4-
<PAGE>
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options and Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs; and
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights.
(c) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Rights may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares subject to an Incentive Stock Option shall be determined as
of the date of the grant of such Option.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in
-5-
<PAGE>
any way with such Optionee's right or the Company's right to terminate his or
her employment or consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 20 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of the grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
-6-
<PAGE>
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided that such Option shall become exercisable at the rate of
at least twenty percent (20%) per year over five (5) years from the date the
Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
-7-
<PAGE>
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three (3) months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding the provisions of Section 9(b) above, in
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (within the
meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant, or within
thirty (30) days following the termination of the Optionee's Continuous Status
as an Employee or Consultant, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or
-8-
<PAGE>
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death or, if earlier, the date of termination of the
Continuous Status as an Employee or Consultant. To the extent that Optionee was
not entitled to exercise the Option at the date of death or termination, as the
case may be, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. An Option or Stock Purchase
------------------------------
Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cash or cancellation of purchase money indebtedness
of the purchaser to the Company. The repurchase option shall lapse at such rate
as the Committee may determine, but at a minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined
-9-
<PAGE>
by the Administrator in its sole discretion. In addition, the provisions of
Restricted Stock purchase agreements need not be the same with respect to each
purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or less than Optionee's marginal tax rate times
the ordinary income recognized, or (d) by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, if any, or the Shares
to be issued in connection with the Stock Purchase Right, that number of Shares
having a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
Date").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy
tax withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
-10-
<PAGE>
(d) if the Optionee is a Reporting Person, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or
-11-
<PAGE>
Stock Purchase Right or to substitute an equivalent option or right, in which
case such Option or Stock Purchase Right shall terminate upon the consummation
of the merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
14. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee, only by the Optionee.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for
-12-
<PAGE>
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
20. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange. All Options and Stock Purchase Rights issued under
the Plan shall become void in the event such approval is not obtained.
21. Information to Optionees. The Company shall provide financial
------------------------
statements at least annually to each Optionee during the period such Optionee
has one or more Options or Stock Purchase Rights outstanding, and in the case of
an individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options and Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
ACTIVE SOFTWARE, INC.
1996 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
((Optionee))
- ----------------------------
- ----------------------------
You have been granted an option to purchase Common Stock of Active
Software, Inc. (the "Company") as follows:
Date of Grant ((GrantDate))
-13-
<PAGE>
Option Price Per Share $((PricePerShare))
Total Number of Shares Granted ((Shares))
Total Price of Shares Granted $((TotalPrice))
Type of Option: Incentive Stock Option
Term/Expiration Date: ((ExpirationDate))
Vesting Commencement Date: ((VestingStartDate))
Exercise Schedule:
Subject to the terms of the attached Stock Option Agreement, the Option
shall become exercisable cumulatively, to the extent of 24% of the Shares
subject to the Option on the first anniversary of the Vesting Commencement Date,
and 2% of the Shares at the end of each month thereafter.
Termination Period:
The option may be exercised for a period of 60 days after termination of
employment or consulting relationship except as set out in Sections 7 and 8 of
the Stock Option Agreement (but in no event later than the Expiration Date).
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1996 Stock Plan and the Stock Option Agreement, all
of which are attached and made a part of this document.
OPTIONEE: Active Software, Inc.
______________________________ By: _____________________________________
((Optionee)) Chairman of the Board, R. James Green
-14-
<PAGE>
ACTIVE SOFTWARE, INC.
1996 STOCK PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Active Software, Inc., a California corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the Active Software, Inc. 1996 Stock
Plan (the "Plan") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the Exercise Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitation contained in subsection
2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
-15-
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, make the requisite investment representations set forth in the form
attached hereto as Exhibit A, and shall read the applicable rules of the
Commissioner of Corporations attached to such form.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised (i) until
------------------------
such time as the Plan has been approved by the shareholders of the Company, or
(ii) if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of
---------------------------
Optionee's consulting relationship or Continuous Status as an Employee, Optionee
may, to the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Grant. To the extent that Optionee was not entitled to
-16-
<PAGE>
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, the Option shall
terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's consulting relationship or
Continuous Status as an Employee as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), Optionee may, but only within six
(6) months from the date of termination of employment (but in no event later
than the date of expiration of the term of this Option as set forth in Section
10 below), exercise the Option to the extent otherwise so entitled at the date
of such termination. To the extent that Optionee was not entitled to exercise
the Option at the date of termination, or if Optionee does not exercise such
Option (to the extent otherwise so entitled) within the time specified herein,
the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee, the Option
-----------------
may be exercised at any time within six (6) months following the date of death
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 10 below), by Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent the Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
11. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercising a nonstatutory Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the exercise price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the
Optionee is an employee, the Company will be required to withhold from
Optionee's compensation, or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, the Optionee may at some point be required to satisfy tax
withholding obligations with respect to the disqualifying disposition of an
Incentive Stock Option. The Optionee shall satisfy his or her tax withholding
obligation arising upon the exercise of this Option by one or some combination
of the following methods: (i) by cash payment, or (ii) out of Optionee's current
compensation, or (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (a) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the
<PAGE>
date of surrender, and (b) have a fair market value on the date of surrender
equal to or less than Optionee's marginal tax rate times the ordinary income
recognized, (iv) by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option that number of Shares having a fair market
value equal to the amount required to be withheld. For this purpose, the fair
market value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
If the Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3") and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made;
(iii) all elections shall be subject to the consent or disapproval
of the Administrator;
(iv) if the Optionee is an Insider, the election must comply with
the applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
12. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there
---------------
will be no regular federal income tax liability or California income tax
liability upon the exercise of the Option, although the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to the alternative minimum tax in the year
of exercise.
<PAGE>
(ii) Exercise of Nonstatutory Stock Option. If this Option does
-------------------------------------
not qualify as an ISO, there may be a regular federal income tax liability and a
California income tax liability upon the exercise of the Option. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are
---------------------
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal and California income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and are disposed of at least two
years after the Date of Grant, any gain realized on disposition of the Shares
will also be treated as long-term capital gain for federal and California income
tax purposes. If Shares purchased under an ISO are disposed of within such one-
year period or within two years after the Date of Grant, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the fair market value of
the Shares on the date of exercise over the Exercise Price.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee from the early disposition by payment in cash or out
of the current earnings paid to the Optionee.
Active Software, Inc.,
a California corporation
By: _____________________________________
Chairman of the Board, R. James Green
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND
<PAGE>
AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS OR HER RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE HIS OR HER EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: _______________ ____________________________________
((Optionee))
<PAGE>
EXHIBIT A
---------
1996 STOCK PLAN
EXERCISE NOTICE
Active Software, Inc.
3333 Octavius Drive
Santa Clara, CA 94054
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Active Software, Inc.
(the "Company") under and pursuant to the Company's 1996 Stock Plan, as amended
(the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement
dated _____________________ (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Compliance with Securities Laws. Optionee understands and
-------------------------------
acknowledges that the Shares may not have been registered under the Securities
Act of 1933, as amended (the "1933 Act"), and, notwithstanding any other
provision of the Option Agreement to the contrary, the exercise of any rights to
purchase any Shares is expressly conditioned upon compliance with the 1933 Act,
all applicable state securities laws and all applicable requirements of any
stock exchange or over the counter market on which the Company's Common Stock
may be listed or traded at the time of exercise and transfer. Optionee agrees to
cooperate with the Company to ensure compliance with such laws.
4. Federal Restrictions on Transfer. Optionee understands that the
--------------------------------
Shares may not have been registered under the 1933 Act and, in such event,
cannot be resold and must be held indefinitely unless they are registered under
the 1933 Act or unless an exemption from such registration is available and that
the certificate(s) representing the Shares may bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee. Optionee is
familiar with the provisions of Rule 701 and Rule 144, each promulgated under
the 1933 Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof, in a non-
public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the
<PAGE>
issuer qualifies under Rule 701 at the time of the Closing, such issuance will
be exempt from registration under the 1933 Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter the securities exempt under
Rule 701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, and the amount of securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of the Closing, then securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which requires among other things: (1)
the resale occurring not less than two years after the party has purchased, and
made full payment for, within the meaning of Rule 144, the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than three years, (2) the availability of certain public
information about the Company, (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934), and
(4) the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, if applicable.
Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required. Purchaser understands that no assurances can be
given that any such other registration exemption will be available in such
event.
5. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 13 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercises the Right
of First Refusal hereunder. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
<PAGE>
6. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal,
subject to the provisions of Section 6(g) below, to purchase the Shares on the
terms and conditions set forth in this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
-------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding purchase money indebtedness of the Holder to
the Company for the purchase price of the Shares or a portion thereof or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposedin
--------------------------
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
<PAGE>
(f) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate at such time as a public market exists for the Company's
capital stock (or any other stock issued to purchasers in exchange for the
Shares purchased under this Agreement). For the purpose of this Agreement, a
"Public Market" shall be deemed to exist if (i) such stock is listed on a
national securities exchange (as that term is used in the Securities Exchange
Act of 1934) or (ii) such stock is traded on the over-the-counter market and
prices are published daily on business days in a recognized financial journal.
7. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
8. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company
-------
shall cause the legends set forth below or legends substantially equivalent
thereto, to the extent the Company determines such legends to be applicable, to
be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT
OR AN OPINION OF COUNSEL FOR THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE
<PAGE>
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached hereto.
(b) Stop-Transfer Notices. Optionee agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Market Standoff Agreement. Optionee hereby agrees that if so
-------------------------
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first registration
statement of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
10. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
11. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular
<PAGE>
meeting. The resolution of such a dispute by the Board or committee shall be
final and binding on the Company and on Optionee.
12. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
13. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
14. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
15. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
16. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law except for that body of law pertaining to conflict of laws.
Submitted By: Accepted By:
((Optionee)): ACTIVE SOFTWARE, INC.
By: ___________________________________
____________________________________
Signature Title: ________________________________
Address:
- -------
________________________
________________________
<PAGE>
ACTIVE SOFTWARE, INC.
1996 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
---------
______________, 199_, by and between Active Software, Inc., a California
corporation (the "Company"), and ((Purchaser)) ("Purchaser") pursuant to the
------- ---------
Company's 1996 Stock Plan. To the extent any capitalized terms used in this
Agreement are not defined, they shall have the meaning ascribed to them in the
1996 Stock Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, ((NoofShares))
shares of the Company's Common Stock (the "Shares") at a purchase price of
------
$((PriceperShare)) per Share for a total purchase price of $((TotalPurchase
Price)). The per share purchase price of the Shares shall be not less than 85%
of the Fair Market Value of the Shares as of the date of the offer of such
Shares to Purchaser, or, in the case of any person owning stock representing
more than 10% of the total combined voting power of all classes of stock of the
Company (or any affiliated company), the per share purchase price shall be not
less than 100% of the Fair Market Value of the Shares as of such date. The term
"Shares" refers to the purchased Shares and all securities received in
------
replacement of or in connection with the Shares pursuant to stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by cancellation of amounts
due to Purchaser for prior services rendered to the Company (the "Debt"). As of
----
the purchase date, and simultaneously with the issuance of the Shares to
Purchaser, the Debt shall automatically be deemed to be discharged in its
entirety.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its
<PAGE>
assignee(s) shall have a right of first refusal to purchase the Shares on the
terms and conditions set forth in this Section 3(a) (the "Right of First
--------------
Refusal").
- -------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for the
-------------- --------------
Shares purchased by the Company or its assignee(s) under this Section 3(a) shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in
--------------------------
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate
<PAGE>
Family (as defined below) or a trust for the benefit of Purchaser's Immediate
Family shall be exempt from the provisions of this Section 3(a). "Immediate
---------
Family" as used herein shall mean spouse, lineal descendant or antecedent,
- ------
father, mother, brother or sister. In such case, the transferee or other
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section 3, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer.
-----------------------------------------------------
In the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any
------------------------------
stock to be transferred pursuant to Section 3(b)(i), the price per Share shall
be a price set by the Board of Directors of the Company that will reflect the
current value of the stock in terms of present earnings and future prospects of
the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within 30 days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if Purchaser does not agree
with the valuation as determined by the Board of Directors of the Company,
Purchaser shall be entitled to have the valuation determined by an independent
appraiser to be mutually agreed upon by the Company and Purchaser and whose fees
shall be borne equally by the Company and Purchaser.
(c) Assignment. The right of the Company to purchase any part of
----------
the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the Parent or a 100%
owned Subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and Fair
Market Value, if the original purchase price is less than the Fair Market Value
of the Shares subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of
-----------------------------------
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public
<PAGE>
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act").
--------------
(f) Market Standoff Agreement. In connection with the initial
-------------------------
public offering of the Company's securities and upon request of the Company or
the underwriters managing such offering of the Company's securities, Purchaser
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of Purchaser's control,
and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
<PAGE>
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the
-------
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM
SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
BE TRANSFERRED ONLY IN ACCORDANCE WITH THE
TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND
THE SHAREHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
<PAGE>
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this
----------------------
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
<PAGE>
(h) California Corporate Securities Law. THE SALE OF THE
-----------------------------------
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
ACTIVE SOFTWARE, INC.
By: __________________________________
Title:________________________________
Address:
3333 Octavius Drive
Santa Clara, CA 95054
PURCHASER:
((PURCHASER))
_____________________________________
(Signature)
Address:
I, ________________________________, spouse of ((purchaser)), have read and
hereby approve the fore going Agreement.In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the agreement and further
agree that any community property or similar interest that I may have in the
Shares shall be similarly bound by the Agreement. I hereby appoint my spouse as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.
__________________________________
Spouse of ((Purchaser))
<PAGE>
EXHIBIT 10.3
ACTIVE SOFTWARE, INC.
1996A STOCK PLAN
1. Purposes of the Plan. The purposes of this 1996A Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Active Software, Inc., a California corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means the absence
----------------------------------------------
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee to a Consultant or
<PAGE>
from a Consultant to an Employee will not constitute an interruption of
Continuous Status as an Employee or Consultant.
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the last market trading day prior to the time of determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an Option.
--------
(q) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
-2-
<PAGE>
(r) "Plan" means this 1996A Stock Plan.
----
(s) "Reporting Person" means an officer, director, or greater than ten
----------------
percent shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(t) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 11 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
(v) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(x) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 4,924,900 hares of Common Stock (plus any shares transferred
to the Plan from the 1996 Stock Plan as set forth below, with the foregoing
number of shares reflecting all such transfers as of June 30, 1999). The shares
may be authorized, but unissued, or reacquired Common Stock (including shares
repurchased pursuant to the Company's rights of repurchase under the Plan or any
restricted stock purchase agreement or stock option agreement hereunder). If an
Option should expire or become unexercisable for any reason without having been
exercised in full, the unpurchased Shares that were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan. In addition, any shares of Common Stock which are retained by
the Company upon exercise of an Option in order to satisfy the exercise or
purchase price for such Option or any withholding taxes due with respect to such
exercise shall be treated as not issued and shall continue to be available under
the Plan.
Notwithstanding the foregoing, any shares that are repurchased under or
returned to the Company's 1996 Stock Plan shall be automatically transferred to
the Plan and will be authorized for issuance hereunder.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
-3-
<PAGE>
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
------------------------------
Plan may be administered by different bodies with respect to directors, non-
director officers and Employees or Consultants who are not Reporting Persons.
(ii) Administration With Respect to Reporting Persons. With respect
------------------------------------------------
to grants of Options or Stock Purchase Rights to Employees who are Reporting
Persons, the Plan shall be administered by (A) the Board if the Board may
administer the Plan in compliance with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan, or (B) a committee
designated by the Board to administer the Plan, which committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3
with respect to a plan intended to qualify thereunder as a discretionary plan.
Once appointed, such committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan. No person serving as a member of an Administrator that
has authority with respect to grants to Reporting Persons shall be eligible to
receive any grant under the Plan which would cause such member to cease to be
"disinterested" within the meaning of Rule 16b-3.
(iii) Administration With Respect to Consultants and Other Employees.
--------------------------------------------------------------
With respect to grants of Options or Stock Purchase Rights to Employees or
Consultants who are not Reporting Persons, the Plan shall be administered by (A)
the Board or (B) a committee designated by the Board, which committee shall be
constituted in such a manner as to satisfy the legal requirements relating to
the administration of incentive stock option plans, if any, of California
corporate and securities laws, of the Code and of any applicable Stock Exchange
(the "Applicable Laws"). Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board. From time to
time the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
-4-
<PAGE>
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 9(f) instead of Common Stock;
(viii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options and Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs; and
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Rights may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares subject to an Incentive Stock Option shall be determined as
of the date of the grant of such Option.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in
-5-
<PAGE>
any way with such Optionee's right or the Company's right to terminate his or
her employment or consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 20 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any person, the per Share exercise price shall
be no less than 85% of the Fair Market Value per Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
-6-
<PAGE>
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised, (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes, (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than twelve months after the date of delivery of
the subscription agreement, (8) any combination of the foregoing methods of
payment, or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan; provided that such Option shall become exercisable at the rate of
at least twenty percent (20%) per year over five (5) years from the date the
Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
-7-
<PAGE>
(b) Termination of Employment or Consulting Relationship. Subject to
----------------------------------------------------
Section 9(c), in the event of termination of an Optionee's Continuous Status as
an Employee or Consultant with the Company, such Optionee may, but only within
three (3) months (or such other period of time not less than thirty (30) days as
is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three (3) months) after the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option to the extent that the Optionee
was entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if
(i) the Optionee is a Consultant who becomes an Employee; or (ii) the Optionee
is an Employee who becomes a Consultant.
(c) Disability of Optionee.
----------------------
(i) Notwithstanding the provisions of Section 9(b) above, in
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant as a result of his or her total and permanent disability (within the
meaning of Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), Optionee may, but only within six (6) months from
the date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
422 of the Code) within three (3) months of the date of such termination, the
Option will not qualify for ISO treatment under the Code. To the extent that
Optionee was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled within six
months (6) from the date of termination, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant, or within
thirty (30) days following the termination of the Optionee's Continuous Status
as an Employee or Consultant, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or
-8-
<PAGE>
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death or, if earlier, the date of termination of the
Continuous Status as an Employee or Consultant. To the extent that Optionee was
not entitled to exercise the Option at the date of death or termination, as the
case may be, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. An Option or Stock Purchase
------------------------------
Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cash or cancellation of purchase money indebtedness
of the purchaser to the Company. The repurchase option shall lapse at such rate
as the Committee may determine, but at a minimum rate of 20% per year.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined
-9-
<PAGE>
by the Administrator in its sole discretion. In addition, the provisions of
Restricted Stock purchase agreements need not be the same with respect to each
purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of Shares
previously acquired from the Company, have been owned by the Optionee for more
than six months on the date of surrender, and (ii) have a fair market value on
the date of surrender equal to or less than Optionee's marginal tax rate times
the ordinary income recognized, or (d) by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option, if any, or the Shares
to be issued in connection with the Stock Purchase Right, that number of Shares
having a fair market value equal to the amount required to be withheld. For
this purpose, the fair market value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date").
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
-10-
<PAGE>
(d) if the Optionee is a Reporting Person, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization, Merger or Certain Other
-------------------------------------------------------------------
Transactions.
- ------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's shareholders, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or
-11-
<PAGE>
Stock Purchase Right or to substitute an equivalent option or right, in which
case such Option or Stock Purchase Right shall terminate upon the consummation
of the merger or sale of assets.
(d) Certain Distributions. In the event of any distribution to the
---------------------
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
14. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime of
the Optionee, only by the Optionee.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made that would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of any Stock Exchange), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
17. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for
-12-
<PAGE>
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
20. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any Stock Exchange. All Options and Stock Purchase Rights issued under
the Plan shall become void in the event such approval is not obtained.
21. Information to Optionees. The Company shall provide financial
------------------------
statements at least annually to each Optionee during the period such Optionee
has one or more Options or Stock Purchase Rights outstanding, and in the case of
an individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options and Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
-13-
<PAGE>
ACTIVE SOFTWARE, INC.
1996A STOCK PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Active Software, Inc., a California corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the Active Software, Inc. 1996A
Stock Plan (the "Plan") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify
as an Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise of Option. This Option shall be exercisable during its term in
------------------
accordance with the Exercise Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitation contained in subsection
2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable pursuant
--------------------------
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall,
concurrently with the exercise of all or any portion of this Option, make the
requisite investment representations set forth in the form attached hereto as
Exhibit A, and shall read the applicable rules of the Commissioner of
Corporations attached to such form.
4. Method of Payment. Payment of the Exercise Price shall be by any of the
-----------------
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised (i) until
------------------------
such time as the Plan has been approved by the shareholders of the Company, or
(ii) if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of Optionee's
---------------------------
consulting relationship or Continuous Status as an Employee, Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise this Option during the Termination Period set out
in the Notice of Grant. To the extent that Optionee was not entitled to
<PAGE>
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, the Option shall
terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's consulting relationship or
Continuous Status as an Employee as a result of total and permanent disability
(as defined in Section 22(e)(3) of the Code), Optionee may, but only within six
(6) months from the date of termination of employment (but in no event later
than the date of expiration of the term of this Option as set forth in Section
10 below), exercise the Option to the extent otherwise so entitled at the date
of such termination. To the extent that Optionee was not entitled to exercise
the Option at the date of termination, or if Optionee does not exercise such
Option (to the extent otherwise so entitled) within the time specified herein,
the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee, the Option
-----------------
may be exercised at any time within six (6) months following the date of death
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 10 below), by Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent the Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
11. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercising a nonstatutory Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the exercise price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the
Optionee is an employee, the Company will be required to withhold from
Optionee's compensation, or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, the Optionee may at some point be required to satisfy tax
withholding obligations with respect to the disqualifying disposition of an
Incentive Stock Option. The Optionee shall satisfy his or her tax withholding
obligation arising upon the exercise of this Option by one or some combination
of the following methods: (i) by cash payment, or (ii) out of Optionee's current
compensation, or (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (a) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the
<PAGE>
date of surrender, and (b) have a fair market value on the date of surrender
equal to or less than Optionee's marginal tax rate times the ordinary income
recognized, (iv) by electing to have the Company withhold from the Shares to be
issued upon exercise of the Option that number of Shares having a fair market
value equal to the amount required to be withheld. For this purpose, the fair
market value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
If the Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3") and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
(ii) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(iii) all elections shall be subject to the consent or disapproval of the
Administrator;
(iv) if the Optionee is an Insider, the election must comply with the
applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
12. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal and California tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will be no
---------------
regular federal income tax liability or California income tax liability upon the
exercise of the Option, although the excess, if any, of the fair market value of
the Shares on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
<PAGE>
(ii) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an ISO, there may be a regular federal income tax liability and a
California income tax liability upon the exercise of the Option. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and are disposed of at least two
years after the Date of Grant, any gain realized on disposition of the Shares
will also be treated as long-term capital gain for federal and California income
tax purposes. If Shares purchased under an ISO are disposed of within such one-
year period or within two years after the Date of Grant, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the fair market value of
the Shares on the date of exercise over the Exercise Price.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee from the early disposition by payment in cash or out
of the current earnings paid to the Optionee.
Active Software, Inc.,
a California corporation
By:___________________________________
Chairman of the Board, R. James Green
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND
<PAGE>
AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS OR HER RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE HIS OR HER EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: _______________ ______________________________
((Optionee))
<PAGE>
EXHIBIT A
---------
1996A STOCK PLAN
EXERCISE NOTICE
Active Software, Inc.
3333 Octavius Drive
Santa Clara, CA 95054
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Active Software, Inc.
(the "Company") under and pursuant to the Company's 1996A Stock Plan, as amended
(the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement
dated _____________________ (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. Compliance with Securities Laws. Optionee understands and acknowledges
-------------------------------
that the Shares may not have been registered under the Securities Act of 1933,
as amended (the "1933 Act"), and, notwithstanding any other provision of the
Option Agreement to the contrary, the exercise of any rights to purchase any
Shares is expressly conditioned upon compliance with the 1933 Act, all
applicable state securities laws and all applicable requirements of any stock
exchange or over the counter market on which the Company's Common Stock may be
listed or traded at the time of exercise and transfer. Optionee agrees to
cooperate with the Company to ensure compliance with such laws.
4. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
may not have been registered under the 1933 Act and, in such event, cannot be
resold and must be held indefinitely unless they are registered under the 1933
Act or unless an exemption from such registration is available and that the
certificate(s) representing the Shares may bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee. Optionee
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under
the 1933 Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof, in a
<PAGE>
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of the Closing,
such issuance will be exempt from registration under the 1933 Act. In the event
the Company becomes subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, ninety (90) days thereafter the
securities exempt under Rule 701 may be resold, subject to the satisfaction of
certain of the conditions specified by Rule 144, including among other things:
(1) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
and the amount of securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at the time of
the Closing, then securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which requires among other things: (1)
the resale occurring not less than two years after the party has purchased, and
made full payment for, within the meaning of Rule 144, the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than three years, (2) the availability of certain public
information about the Company, (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934), and
(4) the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, if applicable.
Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required. Purchaser understands that no assurances can be
given that any such other registration exemption will be available in such
event.
5. Rights as Shareholder. Until the stock certificate evidencing such Shares
---------------------
is issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly after the Option
is exercised. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the stock certificate is issued,
except as provided in Section 13 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercises the Right
of First Refusal hereunder. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
<PAGE>
6. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal,
subject to the provisions of Section 6(g) below, to purchase the Shares on the
terms and conditions set forth in this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the Shares
--------------
purchased by the Company or its assignee(s) under this Section shall be the
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding purchase money indebtedness of the Holder to the
Company for the purchase price of the Shares or a portion thereof or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
<PAGE>
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate at such time as a public market exists for the Company's capital
stock (or any other stock issued to purchasers in exchange for the Shares
purchased under this Agreement). For the purpose of this Agreement, a "Public
Market" shall be deemed to exist if (i) such stock is listed on a national
securities exchange (as that term is used in the Securities Exchange Act of
1934) or (ii) such stock is traded on the over-the-counter market and prices are
published daily on business days in a recognized financial journal.
7. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
8. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall cause
-------
the legends set forth below or legends substantially equivalent thereto, to the
extent the Company determines such legends to be applicable, to be placed upon
any certificate(s) evidencing ownership of the Shares together with any other
legends that may be required by state or federal securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL FOR THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE
<PAGE>
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by Section
260.141.11 of the Rules of the California Corporations Commissioner, a copy of
which is attached hereto.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
9. Market Standoff Agreement. Optionee hereby agrees that if so requested by
-------------------------
the Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the 1933
Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first registration
statement of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
10. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
11. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular
<PAGE>
meeting. The resolution of such a dispute by the Board or committee shall be
final and binding on the Company and on Optionee.
12. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
13. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
14. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
15. Delivery of Payment. Optionee herewith delivers to the Company the full
-------------------
Exercise Price for the Shares.
16. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law except for that body of law pertaining to conflict of laws.
Submitted By: Accepted By:
((Optionee)): ACTIVE SOFTWARE, INC.
By:_________________________
___________________________
Signature Title:______________________
Address:
- -------
_________________
_________________
<PAGE>
ACTIVE SOFTWARE, INC.
1996A STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
---------
______________, 199_, by and between Active Software, Inc., a California
corporation (the "Company"), and ((Purchaser)) ("Purchaser") pursuant to the
------- ---------
Company's 1996A Stock Plan. To the extent any capitalized terms used in this
Agreement are not defined, they shall have the meaning ascribed to them in the
1996A Stock Plan.
1. Sale of Stock. Subject to the terms and conditions of this Agreement,
-------------
on the Purchase Date (as defined below) the Company will issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company, ((NoofShares))
shares of the Company's Common Stock (the "Shares") at a purchase price of
------
$((PriceperShare)) per Share for a total purchase price of
$((TotalPurchasePrice)). The per share purchase price of the Shares shall be not
less than 85% of the Fair Market Value of the Shares as of the date of the offer
of such Shares to Purchaser, or, in the case of any person owning stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company (or any affiliated company), the per share purchase price
shall be not less than 100% of the Fair Market Value of the Shares as of such
date. The term "Shares" refers to the purchased Shares and all securities
------
received in replacement of or in connection with the Shares pursuant to stock
dividends or splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by cancellation of amounts
due to Purchaser for prior services rendered to the Company (the "Debt"). As of
----
the purchase date, and simultaneously with the issuance of the Shares to
Purchaser, the Debt shall automatically be deemed to be discharged in its
entirety.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) Right of First Refusal. Before any Shares held by Purchaser or any
----------------------
transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its
<PAGE>
assignee(s) shall have a right of first refusal to purchase the Shares on the
terms and conditions set forth in this Section 3(a) (the "Right of First
--------------
Refusal").
- -------
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (A) the
------
Holder's bona fide intention to sell or otherwise transfer such Shares; (B) the
name of each proposed purchaser or other transferee ("Proposed Transferee"); (C)
-------------------
the number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
-------------
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within 30
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(a)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) Payment. Payment of the Purchase Price shall be made, at
-------
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed
--------------------------
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate
<PAGE>
Family (as defined below) or a trust for the benefit of Purchaser's Immediate
Family shall be exempt from the provisions of this Section 3(a). "Immediate
---------
Family" as used herein shall mean spouse, lineal descendant or antecedent,
- ------
father, mother, brother or sister. In such case, the transferee or other
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section 3, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) Involuntary Transfer.
--------------------
(i) Company's Right to Purchase upon Involuntary Transfer. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) Price for Involuntary Transfer. With respect to any stock to
------------------------------
be transferred pursuant to Section 3(b)(i), the price per Share shall be a price
set by the Board of Directors of the Company that will reflect the current value
of the stock in terms of present earnings and future prospects of the Company.
The Company shall notify Purchaser or his or her executor of the price so
determined within 30 days after receipt by it of written notice of the transfer
or proposed transfer of Shares. However, if Purchaser does not agree with the
valuation as determined by the Board of Directors of the Company, Purchaser
shall be entitled to have the valuation determined by an independent appraiser
to be mutually agreed upon by the Company and Purchaser and whose fees shall be
borne equally by the Company and Purchaser.
(c) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the Parent or a 100% owned Subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and Fair Market Value, if
the original purchase price is less than the Fair Market Value of the Shares
subject to the assignment.
(d) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Company's Shares
shall be void unless the provisions of this Agreement are satisfied.
(e) Termination of Rights. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public
<PAGE>
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act").
--------------
(f) Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such offering of the Company's securities, Purchaser
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
4. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of Purchaser's control,
and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
<PAGE>
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF
AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) Removal of Legend. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
<PAGE>
6. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
<PAGE>
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
ACTIVE SOFTWARE, INC.
By:______________________________
Title:___________________________
Address:
3333 Octavius Drive
Santa Clara, CA 95054
PURCHASER:
((PURCHASER))
_________________________________
(Signature)
Address:
I, ________________________________, spouse of ((Purchaser)), have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or similar interest that I may have in the
Shares shall be similarly bound by the Agreement. I hereby appoint my spouse as
my attorney-in-fact with respect to any amendment or exercise of any rights
under the Agreement.
________________________________
Spouse of ((Purchaser))
<PAGE>
EXHIBIT 10.4
ACTIVE SOFTWARE, INC.
1999 STOCK PLAN
---------------
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business. Options
granted under the Plan may be either Incentive Stock Options (as defined under
Section 422 of the Code) or Nonstatutory Stock Options, as determined by the
Administrator at the time of grant of an Option and subject to the applicable
provisions of Section 422 of the Code and the regulations promulgated
thereunder. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or its Committee appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Affiliate" means an entity other than a Subsidiary (as defined
---------
below) in which the Company owns an equity interest or which, together with the
Company, is under common control of a third person or entity.
(c) "Applicable Laws" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(d) "Board" means the Board of Directors of the Company.
-----
(e) "Change of Control" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means one or more committees or subcommittees of the
---------
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
<PAGE>
(h) "Common Stock" means the Common Stock of the Company.
------------
(i) "Company" means Active Software, Inc., a Delaware corporation.
-------
(j) "Consultant" means any person, including an advisor, who renders
----------
services to the Company or any Parent, Subsidiary or Affiliate and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(k) "Continuous Service Status" means the absence of any interruption
-------------------------
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service Status shall not be
considered interrupted in the case of (i) sick leave; (ii) military leave; (iii)
any other leave of absence approved by the Administrator, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Parent(s), Subsidiaries, Affiliates or their respective successors.
Unless otherwise determined by the Administrator or the Company, a change in
status from an Employee to a Consultant or from a Consultant to an Employee will
not constitute a termination of Continuous Service Status.
(l) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(m) "Director" means a member of the Board.
--------
(n) "Employee" means any person (including, if appropriate, any Named
--------
Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported) as quoted
on such system or exchange on the date of determination (or if no trading or
bids occurred on the date of determination, on the last trading day prior to the
date of determination), as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling
-2-
<PAGE>
prices are not reported, its Fair Market Value shall be the mean between the
high bid and low asked prices for the Common Stock for the date of determination
(or if no bids occurred on the date of determination, on the last trading day
prior to the date of determination); or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(q) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(r) "Listed Security" means any security of the Company that is
---------------
listed or approved for listing on a national securities exchange or designated
or approved for designation as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(s) "Named Executive" means any individual who, on the last day of
---------------
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(t) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(u) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
------
(w) "Option Agreement" means a written document, the form(s) of which
----------------
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(x) "Option Exchange Program" means a program approved by the
-----------------------
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(y) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(z) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(aa) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
-3-
<PAGE>
(bb) "Participant" means any holder of one or more Options or Stock
-----------
Purchase Rights, or the Shares issuable or issued upon exercise of such awards,
under the Plan.
(cc) "Plan" means this 1999 Stock Plan.
----
(dd) "Reporting Person" means an Officer, Director or greater than 10%
----------------
stockholder of the Company within the meaning of Rule 16a-2 of the Exchange Act,
who is required to file reports pursuant to Rule 16a-3 of the Exchange Act.
(ee) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(ff) "Restricted Stock Purchase Agreement" means a written document,
-----------------------------------
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as amended from time to time, or any successor provision.
(hh) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(ii) "Stock Exchange" means any stock exchange or consolidated stock
--------------
price reporting system on which prices for the Common Stock are quoted at any
given time.
(jj) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(kk) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
(ll) "Ten Percent Holder" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of shares that may be sold under the Plan
is 3,000,000 Shares of Common Stock, plus an automatic annual increase on July 1
of each of the following years: 2000, 2001, 2002, 2003 and 2004, in an amount
equal to the lesser of (i) 1,500,000 Shares, or (ii) four percent (4%) of the
Shares outstanding on the last day of the immediately preceding fiscal year.
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable for any reason without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
has been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the
-4-
<PAGE>
Company upon exercise of an Option or Stock Purchase Right in order to satisfy
the exercise or purchase price for such Option or Stock Purchase Right or any
withholding taxes due with respect to such exercise or purchase shall be treated
as not issued and shall continue to be available under the Plan. Shares issued
under the Plan and later repurchased by the Company pursuant to any repurchase
right that the Company may have shall not be available for future grant under
the Plan.
4. Administration of the Plan.
--------------------------
(a) General. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants.
(b) Administration with respect to Reporting Persons. With respect to
------------------------------------------------
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) Committee Composition. If a Committee has been appointed pursuant
---------------------
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(q) of the Plan;
(ii) to select the Employees and Consultants to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
-5-
<PAGE>
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted and to
make any other amendments or adjustments to any Option that the Administrator
determines, in its discretion and under the authority granted to it under the
Plan, to be necessary or advisable, provided however that no amendment or
adjustment to an Option that would materially and adversely affect the rights of
any Optionee shall be made without the prior written consent of the Optionee;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(e) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Participants.
5. Eligibility.
-----------
(a) Recipients of Grants. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An
Employee or Consultant who has been granted an Option or Stock Option Right may,
if he or she is otherwise eligible, be granted additional Options or Stock
Purchase Rights.
(b) Type of Option. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However,
-6-
<PAGE>
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of Shares with respect to which Options are exercisable for the first time
by an Optionee during any calendar year (under all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares shall be determined as of the date of grant
of such Option.
(c) No Employment Rights. The Plan shall not confer upon any
--------------------
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 16 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided however that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of such Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
8. Limitation on Grants to Employees. Subject to adjustment as provided
---------------------------------
in Section 13 below, the maximum number of Shares which may be subject to
Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 1,000,000.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator and set forth in the Option Agreement, but shall be subject to
the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
-7-
<PAGE>
(A) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to a person who is at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant if required by the Applicable
Laws and, if not so required, shall be such price as is determined by the
Administrator;
(B) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code; or
(C) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to any person other than a Named Executive or a
Ten Percent Holder, the per Share exercise price shall be no less than 85% of
the Fair Market Value per Share on the date of grant if required by Applicable
Law and, if not so required, shall be such price as is determined by the
Administrator.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) Permissible Consideration. The consideration to be paid for the
-------------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash; (2) check; (3) delivery of Optionee's promissory note with such
recourse, interest, security and redemption provisions as the Administrator
determines to be appropriate (subject to the provisions of Section 153 of the
Delaware General Corporation Law); (4) cancellation of indebtedness; (5) other
Shares that (x) in the case of Shares acquired upon exercise of an Option either
have been owned by the Optionee for more than six months on the date of
surrender (or such other period as may be required to avoid a charge to the
Company's earnings) or were not acquired, directly or indirectly, from the
Company, and (y) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which the Option is exercised; (6)
authorization from the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised; (7) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect exercise of the Option and
prompt delivery to the Company of the sale or loan proceeds required to pay the
exercise price and any applicable withholding taxes; (8) any combination of the
foregoing methods of payment; or (9) such other consideration and method of
payment for the issuance of Shares to the extent permitted under the Applicable
Laws. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company and the Administrator may refuse to
accept a particular form of
-8-
<PAGE>
consideration at the time of any Option exercise if, in its sole discretion,
acceptance of such form of consideration is not in the best interests of the
Company at such time.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, consistent with the terms of the Plan, and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee; provided
however that, if required by the Applicable Laws, any Option granted prior to
the date, if any, upon which the Common Stock becomes a Listed Security shall
become exercisable at a rate of at least 20% per year over five years from the
date the Option is granted. In the event that any of the Shares issued upon
exercise of an Option (which exercise occurs prior to the date, if any, upon
which the Common Stock becomes a Listed Security) should be subject to a right
of repurchase in the Company's favor, such repurchase right shall, if required
by the Applicable Laws, lapse at the rate of at least 20% per year over five
years from the date the Option is granted. Notwithstanding the above, in the
case of an Option granted to an officer (including but not limited to Officers),
Director or Consultant, the Option may become exercisable, or a repurchase
right, if any, in favor of the Company shall lapse, at any time or during any
period established by the Administrator. The Administrator shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided however that in the
absence of such determination, vesting of Options shall be tolled during any
such leave.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 9(b) of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate promptly
upon exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Status as an Employee or Consultant. In the event
--------------------------------------------------
of termination of an Optionee's Continuous Service Status, such Optionee may,
but only within three (3) months (or such other period of time, not less than
thirty (30) days, as is determined by
-9-
<PAGE>
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) after the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that he or she was entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the Optionee does not exercise the
Option to the extent so entitled within the time specified above, the Option
shall terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan. Unless otherwise determined by the
Administrator or the Company, no termination shall be deemed to occur and this
Section 10(b) shall not apply if (i) the Optionee is a Consultant who becomes an
Employee, or (ii) the Optionee is an Employee who becomes a Consultant.
(c) Disability of Optionee. Notwithstanding Section 10(b) above, in
----------------------
the event of termination of an Optionee's Continuous Service Status as a result
of his or her total and permanent disability (as defined in Section 22(e)(3) of
the Code), such Optionee may, but only within twelve (12) months (or such other
period of time as is determined by the Administrator, with such determination in
the case of an Incentive Stock Option made at the time of grant of the Option)
from the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent he or she was entitled to exercise it at the
date of such termination. To the extent that the Optionee was not entitled to
exercise the Option at the date of termination, or if the Optionee does not
exercise the Option to the extent so entitled within the time specified above,
the Option shall terminate and the Optioned Stock underlying the unexercised
portion of the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee
-----------------
during the period of Continuous Service Status since the date of grant of the
Option, or within 30 days following termination of the Optionee's Continuous
Service Status, the Option may be exercised at any time within twelve (12)
months following the date of death (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement) by such
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or, if earlier, the date of termination of the
Optionee's Continuous Service Status. To the extent that the Optionee was not
entitled to exercise the Option at the date of death or termination, as the case
may be, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan.
(e) Extension of Exercise Period. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
Status from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in
the Option Agreement to such greater time as the Administrator shall deem
appropriate, provided that in no event shall such Option be exercisable later
than the date of expiration of the term of such Option as set forth in the
Option Agreement.
-10-
<PAGE>
(f) Buy-Out Provisions. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares an Option previously granted under the
Plan based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed 30 days from the date upon
which the Administrator made the determination to grant the Stock Purchase
Right. In the case of a Stock Purchase Right granted prior to the date, if any,
on which the Common Stock becomes a Listed Security and if required by the
Applicable Laws at such time, the purchase price of Shares subject to such Stock
Purchase Rights shall not be less than 85% of the Fair Market Value of the
Shares as of the date of the offer, or, in the case of a person owning stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the price shall not be less
than 100% of the Fair Market Value of the Shares as of the date of the offer.
If the Applicable Laws do not impose the requirements set forth in the preceding
sentence and with respect to any Stock Purchase Rights granted after the date,
if any, on which the Common Stock becomes a Listed Security, the purchase price
of Shares subject to Stock Purchase Rights shall be as determined by the
Administrator. The offer to purchase Shares subject to Stock Purchase Rights
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided however that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a purchaser who is not an officer (including an
Officer), Director or Consultant of the Company or of any Parent or Subsidiary
of the Company, it shall lapse at a minimum rate of 20% per year if required by
the Applicable Laws.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
-11-
<PAGE>
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Taxes.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of surrender, and (ii)
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
-12-
<PAGE>
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution; provided that, after the date, if any, upon which the
Common Stock becomes a Listed Security, the Administrator may in its discretion
grant transferable Nonstatutory Stock Options pursuant to Option Agreements
specifying (i) the manner in which such Nonstatutory Stock Options are
transferable and (ii) that any such transfer shall be subject to the Applicable
Laws. The designation of a beneficiary by an Optionee will not constitute a
transfer. An Option or Stock Purchase Right may be exercised, during the
lifetime of the holder of Option or Stock Purchase Right, only by such holder or
a transferee permitted by this Section 13.
14. Adjustments Upon Changes in Capitalization, Corporate Transactions and
----------------------------------------------------------------------
Certain Other Transactions.
- --------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, the number of Shares set forth
in Sections 3(a)(i) and 8 above, and the number of shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock (including any change
in the number of Shares of Common Stock effected in connection with a change of
domicile of the Company), or any other increase or decrease in the number of
issued Shares of Common Stock effected without receipt of consideration by the
Company; provided however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares of Common Stock subject to an Option or Stock Purchase
Right.
(b) Dissolution or Liquidation. In the event of the dissolution or
--------------------------
liquidation of the Company, each outstanding Option or Stock Purchase Right
shall terminate immediately prior to the consummation of the transaction, unless
otherwise provided by the Administrator.
-13-
<PAGE>
(c) Corporate Transactions; Change of Control. In the event of a
-----------------------------------------
Corporate Transaction, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right shall be substituted by the successor
corporation or a Parent or Subsidiary of such successor corporation (such
entity, the "Successor Corporation"), unless the Successor Corporation does not
---------------------
agree to such assumption or substitution, in which case such Options and Stock
Purchase Rights shall terminate upon consummation of the transaction. In the
event of a Change of Control (and irrespective of whether awards outstanding
under the Plan are assumed, substituted or terminated pursuant to this Section
14(c)), the vesting of each Option shall accelerate so that such Options shall
become exercisable as to fifty percent (50%) of the number of Shares that would
otherwise be unvested as of the consummation of the Change of Control, and any
repurchase right in favor of the Company with respect to any Shares purchased
upon exercise of an Option or Stock Purchase Right shall lapse as to fifty
percent (50%) of the number of Shares that would otherwise be subject to such
repurchase right as of the consummation of the transaction, prior to such
consummation at such time and on such conditions as the Administrator
determines. To the extent an Option or Stock Purchase Right is being terminated
pursuant to this Section 14(c), the Administrator shall notify the Optionee of
such fact at least five (5) days prior to the date of such termination.
For purposes of this Section 14(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon a Corporate Transaction or a
Change of Control, as the case may be, each holder of an Option or Stock
Purchase Right would be entitled to receive upon exercise of the Option or Stock
Purchase Right the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the Option or the Stock Purchase Right at such time (after giving effect to
any adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 14); provided however that if the
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
Option or Stock Purchase Right to be solely common stock of the Successor
Corporation equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(d) Accounting and Tax Treatment.
----------------------------
(i) Pooling Issues. Notwithstanding Section 14(c) above, no
--------------
vesting acceleration or lapse of a repurchase right pursuant to such section
shall occur if such acceleration or lapse would cause a contemplated Change of
Control transaction that was intended to be accounted for as a "pooling of
interests" transaction to be ineligible for such treatment under generally
accepted accounting principles, as determined by the Company's independent
accountants prior to the Change of Control.
(ii) Limitation on Payments. In the event that the vesting
----------------------
acceleration or lapse of a repurchase right provided for in Section 14(c) above
(x) constitutes
-14-
<PAGE>
"parachute payments" within the meaning of Section 280G of the Code, and (y) but
for this Section 14(d)(ii) would be subject to the excise tax imposed by Section
4999 of the Code (or any corresponding provisions of state income tax law), then
such vesting acceleration or lapse of a repurchase right shall be either
(A) delivered in full, or
(B) delivered as to such lesser extent which would result
in no portion of such severance benefits being subject to excise tax under Code
Section 4999,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Code Section 4999,
results in the receipt by the Participant on an after-tax basis of the greater
amount of acceleration or lapse of repurchase rights benefits, notwithstanding
that all or some portion of such benefits may be taxable under Code Section
4999. Any determination required under this Section 14(d) shall be made in
writing by the Company's independent accountants, whose determination shall be
conclusive and binding for all purposes on the Company and any affected
Participant. In the event that (ii)(A) above applies, then the Participant
shall be responsible for any excise taxes imposed with respect to such benefits.
In the event that (ii)(B) above applies, then each benefit provided hereunder
shall be proportionately reduced to the extent necessary to avoid imposition of
such excise taxes.
(e) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
15. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, discontinue or terminate the Plan, but no amendment, alteration,
suspension, discontinuance or termination (other than an adjustment made
pursuant to Section 14 above) shall be made that would materially and adversely
affect the rights of any Optionee or holder of Stock Purchase Rights under any
outstanding grant, without his or her consent. In addition, to the extent
necessary and desirable to comply with the Applicable Laws, the Company shall
-15-
<PAGE>
obtain stockholder approval of any Plan amendment in such a manner and to such
as degree as required.
(b) Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall materially and adversely affect Options or Stock Purchase
Rights already granted, unless mutually agreed otherwise between the Optionee or
holder of the Stock Purchase Rights and the Administrator, which agreement must
be in writing and signed by such Optionee or holder and the Company.
17. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by law.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
21. Information and Documents to Optionees and Purchasers. Prior to the
-----------------------------------------------------
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
-16-
<PAGE>
((COMPANYNAME))
((PLANYEAR)) Stock Option Plan
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee's Name and Address:
((Optionee))
((OptioneeAddress1))
((OptioneeAddress2))
You have been granted an option to purchase Common Stock of
((CompanyName)), (the "Company") as follows:
Board Approval Date: _______________________
Date of Grant (Later of Board
Approval Date or
Commencement of
Employment/Consulting): ((GrantDate))
Exercise Price Per Share: ((ExercisePrice))
Total Number of Shares Granted: ((SharesGranted))
Total Price of Shares Granted: ((TotalExercisePrice))
Type of Option: ((NoSharesISO)) Shares Incentive Stock
Option
((NoSharesNSO)) Shares Nonstatutory
Stock Option
Term/Expiration Date: ((Term))/((ExpirDate))
Vesting Commencement Date: ((VestingStartDate))
Vesting Schedule: ((VestingSchedule))
Termination Period: Option may be exercised for a period of
30 days after termination of employment
or consulting relationship except as set
out in Sections 7 and 8 of the Stock
Option Agreement (but in no event later
than the Expiration Date).
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the ((CompanyName)) ((PlanYear)) Stock Option Plan and
the Stock Option Agreement, all of which are attached and made a part of this
document.
OPTIONEE: ((COMPANYNAME))
___________________________ By:___________________
Signature
___________________________ Title:________________
Print Name
<PAGE>
ACTIVE SOFTWARE, INC.
---------------------
STOCK OPTION AGREEMENT
----------------------
1. Grant of Option. Active Software, Inc., a Delaware corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
- --------
Grant attached to this Agreement ("Optionee"), an option (the "Option") to
-------- ------
purchase the total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the 1999 Stock Option Plan (the "Plan") adopted by
----
the Company, which is incorporated in this Agreement by reference. In the event
of a conflict between the terms of the Plan and the terms of this Agreement, the
terms of the Plan shall govern. Unless otherwise defined in this Agreement, the
terms used in this Agreement shall have the meanings defined in the Plan.
To the extent designated an Incentive Stock Option in the Notice of
Stock Option Grant, this Option is intended to qualify as an Incentive Stock
Option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and, to the extent not so designated, this Option is
----
intended to be a Nonstatutory Stock Option.
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Sections 9 and 10 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitations contained in paragraphs
(iii) and (iv) below.
(iii) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Stock Option
Grant.
(iv) If designated an Incentive Stock Option in the Notice of
Stock Option Grant, in the event that the Shares subject to this Option (and all
other Incentive Stock Options granted to Optionee by the Company or any Parent
or Subsidiary) that vest in any calendar year have an aggregate fair market
value (determined for each Share as of the Date of Grant of the option covering
such Share) in excess of $100,000, the Shares in excess of $100,000 shall be
treated as subject to a Nonstatutory Stock Option, in accordance with Section 5
of the Plan.
<PAGE>
(b) Method of Exercise.
------------------
(i) This Option shall be exercisable by delivering to the
Company a written notice of exercise (in the form attached as Exhibit A) which
---------
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such Shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
(ii) As a condition to the exercise of this Option, Optionee
agrees to make adequate provision for federal, state or other tax withholding
obligations, if any, which arise upon the exercise of the Option or disposition
of Shares, whether by withholding, direct payment to the Company, or otherwise.
(iii) No Shares will be issued pursuant to the exercise of an
Option unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
--------------
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, deliver to the Company
an investment representation statement in customary form, a copy of which is
available for Optionee's review from the Company upon request.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination of the following, at the election of Optionee:
(a) cash; (b) check; (c) surrender of other Shares of Common Stock of the
Company that (i) either have been owned by Optionee for more than six (6) months
on the date of surrender or were not acquired, directly or indirectly, from the
Company, and (ii) have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option shall be
exercised; (d) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised; or (e) if there is a
public market for the Shares and they are registered under the Securities Act,
delivery of a properly executed exercise notice together with irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares
<PAGE>
upon such exercise or the method of payment of consideration for such shares
would constitute a violation of any applicable federal or state securities or
other law or regulation, including any rule under Part 207 of Title 12 of the
Code of Federal Regulations ("Regulation G") as promulgated by the Federal
------------
Reserve Board. As a condition to the exercise of this Option, the Company may
require Optionee to make any representation and warranty to the Company as may
be required by any applicable law or regulation.
6. Termination of Relationship. In the event of termination of Optionee's
---------------------------
Continuous Status as an Employee or Consultant, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
----------------
exercise this Option during the Termination Period set out in the Notice of
Stock Option Grant. To the extent that Optionee was not entitled to exercise
this Option at the date of such termination, or if Optionee does not exercise
this Option within the time specified in the Notice of Stock Option Grant, the
Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), Optionee may, but only within six (6) months
from the date of termination of employment (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below),
exercise the Option to the extent otherwise so entitled at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified in this
Agreement, the Option shall terminate.
8. Death of Optionee. In the event of the death of Optionee:
-----------------
(a) during the term of this Option and while an Employee of the
Company and having been in Continuous Status as an Employee or Consultant since
the date of grant of the Option, the Option may be exercised, at any time within
six (6) months following the date of death (but in no event later than the date
of expiration of the term of this Option as set forth in Section 10 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had Optionee continued living and remained in Continuous
Status as an Employee or Consultant three (3) months after the date of death,
subject to the limitation contained in Section 2(i)(d) above in the case of an
Incentive Stock Option; or
(b) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 10 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution.
The designation of a
<PAGE>
beneficiary does not constitute a transfer. An Option may be exercised during
the lifetime of Optionee only by Optionee or a transferee permitted by this
section. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. No Additional Employment Rights. Optionee understands and agrees that
-------------------------------
the vesting of Shares pursuant to the Vesting Schedule is earned only by
continuing as an Employee or Consultant at the will of the Company (not through
the act of being hired, being granted this Option or acquiring Shares under this
Agreement). Optionee further acknowledges and agrees that nothing in this
Agreement, nor in the Plan which is incorporated in this Agreement by reference,
shall confer upon Optionee any right with respect to continuation as an Employee
or Consultant with the Company, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
12. Tax Consequences. Optionee acknowledges that he or she has read the
----------------
brief summary set forth below of certain federal tax consequences of exercise of
this Option and disposition of the Shares under the law in effect as of the date
of grant. OPTIONEE UNDERSTANDS THAT THIS SUMMARY IS NECESSARILY INCOMPLETE, AND
THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS
OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of Incentive Stock Option. If this Option is an
----------------------------------
Incentive Stock Option, there will be no regular federal income tax liability
upon the exercise of the Option, although the excess, if any, of the fair market
value of the Shares on the date of exercise over the Exercise Price will be
treated as an item of alternative minimum taxable income for federal tax
purposes and may subject Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of Nonstatutory Stock Option. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, Optionee may incur regular federal income
tax liability upon the exercise of the Option. Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. In addition, if Optionee is an employee of
the Company, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income at the
time of exercise.
(c) Disposition of Shares. If this Option is an Incentive Stock
---------------------
Option and if Shares transferred pursuant to the Option are held for more than
one year after exercise and more than two years after the Date of Grant, any
gain realized on disposition of the Shares will be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of before the end of either of such two holding
periods, then
<PAGE>
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
lesser of (i) the fair market value of the Shares on the date of exercise, or
(ii) the sales proceeds, over the Exercise Price. If this Option is a
Nonstatutory Stock Option, then gain realized on the disposition of Shares will
be treated as long-term or short-term capital gain depending on whether or not
the disposition occurs more than one year after the exercise date. In the case
of either an Incentive Stock Option or a Nonstatutory Stock Option, the long-
term capital gain will be taxed for federal income tax and alternative minimum
tax purposes as a maximum rate of 28% if the Shares are held more than one year
but less than 18 months after exercise and at 20% if the Shares are held more
than 18 months after exercise.
(d) Notice of Disqualifying Disposition. If the Option granted to
-----------------------------------
Optionee in this Agreement is an Incentive Stock Option, and if Optionee sells
or otherwise disposes of any of the Shares acquired pursuant to the Incentive
Stock Option on or before the later of (i) the date two years after the Date of
Grant, or (ii) the date one year after transfer of such Shares to Optionee upon
exercise of the Incentive Stock Option, Optionee shall notify the Company in
writing within thirty (30) days after the date of any such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by Optionee from the early
disposition by payment in cash or out of the current earnings paid to Optionee.
13. Signature. This Stock Option Agreement shall be deemed executed by
---------
the Company and Optionee upon execution by such parties of the Notice of Stock
Option Grant attached to this Stock Option Agreement.
[Remainder of page left intentionally blank]
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: Active Software, Inc.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of Active Software
Common Stock, under and pursuant to the Company's 1999 Stock Option Plan and the
Stock Option Agreement dated ___________, as follows:
Grant Number: ________________________________
Date of Purchase: ________________________________
Number of Shares: ________________________________
Purchase Price: ________________________________
Method of Payment
of Purchase Price: ________________________________
Social Security No.: ________________________________
The shares should be issued as follows:
Name: _________________________
Address: _________________________
_________________________
_________________________
Signed: _________________________
Date: _________________________
<PAGE>
EXHIBIT 10.5
ACTIVE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Active Software, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Active Software, Inc., a Delaware corporation.
-------
(e) "Compensation" means all regular straight time gross earnings,
------------
commissions and bonuses and shall not include payments for overtime, shift
premium, other incentive payments or other compensation.
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation, or any other
transaction or series of related transactions in which the Company's
stockholders immediately prior thereto own less than 50% of the voting stock of
the Company (or its successor or parent) immediately thereafter.
<PAGE>
(i) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Offering Date" means the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months
---------------
commencing on May 1 and November 1 of each year, except for the first Offering
Period as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
----
(p) "Purchase Date" means the last day of each Purchase Period of the
-------------
Plan.
(q) "Purchase Period" means a period of six (6) months within an
---------------
Offering Period, except for the Purchase Periods in the first Offering Period as
set forth in Section 4(b).
(r) "Purchase Price" means with respect to a Purchase Period an amount
--------------
equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any increase in the number of
Shares available for issuance under the Plan (including without limitation an
automatic increase pursuant to Section 13(a) below or as a result of a
stockholder-approved amendment to the Plan), and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
-----------------
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
-------------------------------
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 19 of the Plan.
-2-
<PAGE>
(t) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall generally be implemented by a
----------------
series of Offering Periods of twenty-four (24) months' duration, with new
Offering Periods (other than the first Offering Period) commencing on or about
May 1 and November 1 of each year (or at such other time or times as may be
determined by the Board of Directors). The first Offering Period shall commence
on the beginning of the effective date of the Registration Statement on Form S-1
for the initial public offering of the Company's Common Stock (the "IPO Date")
--------
and continue until October 31, 2001. The Plan shall continue until terminated
in accordance with Section 19 hereof. The Board of Directors of the Company
shall have the power to change the duration and/or the frequency of Offering
Periods with respect to future offerings without stockholder approval if such
change is announced at least five (5) days prior to the scheduled beginning of
the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall generally consist of
----------------
four (4) consecutive purchase periods of six (6) months' duration. The last day
of each Purchase Period shall be the "Purchase Date" for such Purchase Period. A
-------------
Purchase Period commencing on May 1 shall end on the next October 31. A Purchase
Period commencing on November 1 shall end on the next April 30. The first
Purchase Period of the first Offering Period shall commence on the IPO Date and
shall end on April 30, 2000 with subsequent Purchase Periods ending on October
31, 2000, April 30, 2001 and October 31, 2001. The Board of Directors of the
Company shall have the power to change the duration and/or frequency of Purchase
Periods with respect to
-3-
<PAGE>
future purchases without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Purchase
Period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than twenty percent (20%) (or such other percentage as the Board
may establish from time to time before an Offering Date) of such participant's
Compensation on each payday during the Offering Period. All payroll deductions
made by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during each Purchase Period
may either increase or decrease the rate of his or her Contributions with
respect to the Purchase Period by completing and filing with the Company a new
subscription agreement authorizing a change in the payroll deduction rate. The
change in rate shall be effective as of the beginning of the next calendar month
following the date of filing of the new subscription agreement, if the agreement
is filed at least ten (10) business days prior to such date and, if not, as of
the beginning of the next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased by the Company to 0% at any time during a
Purchase Period. Payroll deductions shall re-commence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase
-4-
<PAGE>
Date a number of Shares of the Company's Common Stock determined by dividing
such Employee's Contributions accumulated prior to such Purchase Date and
retained in the participant's account as of the Purchase Date by the applicable
Purchase Price; provided however that the maximum number of Shares an Employee
may purchase during each Purchase Period shall be 1,000 Shares (subject to any
adjustment pursuant to Section 19 below), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
-----------------------
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option. Any payroll deductions accumulated in a participant's
account which are not sufficient to purchase a full Share shall be retained in
the participant's account for the subsequent Purchase Period or Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10
below. Any other amounts left over in a participant's account after a Purchase
Date shall be returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and
-5-
<PAGE>
his or her option for the current period will be automatically terminated, and
no further Contributions for the purchase of Shares will be made during the
Offering Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the Shares on any
--------------------
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period. Participants shall automatically be
withdrawn as of October 31, 1999 from the Offering Period beginning on the IPO
Date and re-enrolled in the Offering Period beginning on November 1, 2000 if the
Fair Market Value of the Shares on the IPO Date is greater than the Fair Market
Value of the Shares on April October 31, 1999, unless a participant notifies the
Administrator prior to October 31, 1999 that he or she does not wish to be
withdrawn and re-enrolled.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
750,000 Shares, plus an automatic annual increase on July 1 of each of the
following years: 2000, 2001, 2002, 2003 and 2004, in an amount equal to the
lesser of (i) 350,000 Shares, or (ii) one percent (1%) of the Shares outstanding
on the last day of the immediately preceding fiscal year. If the Board
determines that, on a given Purchase Date, the number of shares with respect to
which options are to be exercised may exceed (i) the number of shares of Common
Stock that were available for sale under the Plan on the Offering Date of the
applicable Offering Period, or (ii) the number of shares available for sale
under the Plan on such Purchase Date, the Board may in its sole discretion
provide (x) that the Company shall make a pro rata allocation of the Shares of
-6-
<PAGE>
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and continue
all Offering Periods then in effect, or (y) that the Company shall make a pro
rata allocation of the shares available for purchase on such Offering Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and terminate any or all Offering Periods then in effect pursuant to Section 20
below. The Company may make pro rata allocation of the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
-7-
<PAGE>
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
--------
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 13(a)(i) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or substitute for outstanding options, each Purchase Period and
Offering Period then in progress shall be shortened and a new Purchase Date
shall be set (the "New Purchase Date"), as of which
-----------------
-8-
<PAGE>
date any Purchase Period and Offering Period then in progress will terminate.
The New Purchase Date shall be on or before the date of consummation of the
transaction and the Board shall notify each participant in writing, at least ten
(10) days prior to the New Purchase Date, that the Purchase Date for his or her
option has been changed to the New Purchase Date and that his or her option will
be exercised automatically on the New Purchase Date, unless prior to such date
he or she has withdrawn from the Offering Period as provided in Section 10. For
purposes of this Section 19, an option granted under the Plan shall be deemed to
be assumed, without limitation, if, at the time of issuance of the stock or
other consideration upon a Corporate Transaction, each holder of an option under
the Plan would be entitled to receive upon exercise of the option the same
number and kind of shares of stock or the same amount of property, cash or
securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to the
transaction, the holder of the number of Shares of Common Stock covered by the
option at such time (after giving effect to any adjustments in the number of
Shares covered by the option as provided for in this Section 19); provided
however that if the consideration received in the transaction is not solely
common stock of the successor corporation or its parent (as defined in Section
424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in Fair Market Value to the per Share consideration received by holders of
Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
20. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 19 and in this Section 20, no amendment to
the Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code
(or any successor rule or provision or any applicable law or regulation), the
Company shall obtain stockholder approval in such a manner and to such a degree
as so required.
-9-
<PAGE>
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-10-
<PAGE>
ACTIVE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the Active
Software, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the Offering
----
Period ______________, ____ to _______________, ____, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to either an increase or a decrease during any
Purchase Period by completing and filing a new Subscription Agreement with such
increase or decrease taking effect as of the beginning of the calendar month
following the date of filing of the new Subscription Agreement, if filed at
least ten (10) business days prior to the beginning of such month. Further, I
may change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period. In addition, I acknowledge that, unless
I discontinue my participation in the Plan as provided in Section 10 of the
Plan, my election will continue to be effective for each successive Offering
Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Active Software, Inc. 1999 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_____________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the
<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE:_____________________________
SOCIAL SECURITY #:_____________________
DATE:__________________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
_______________________________________
(Signature)
_______________________________________
(Print name)
<PAGE>
ACTIVE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Active Software, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period that began on _________ ___, _____. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ ___________________________________
Signature of Employee
___________________________________
Social Security Number
<PAGE>
EXHIBIT 10.6
ACTIVE SOFTWARE, INC.
1999 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. Purposes of the Plan. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Change of Control" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" means the Common Stock of the Company.
------------
(e) "Company" means Active Software, Inc., a Delaware corporation.
-------
(f) "Continuous Status as a Director" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(g) "Corporate Transaction" means a dissolution or liquidation of the
---------------------
Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "Director" means a member of the Board.
--------
(i) "Employee" means any person, including any officer or Director,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
<PAGE>
(k) "Option" means a stock option granted pursuant to the Plan. All
------
options shall be nonstatutory stock options (i.e., options that are not intended
to qualify as incentive stock options under Section 422 of the Code).
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means an Outside Director who receives an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Directors' Stock Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 300,000 Shares of Common Stock (the "Pool"). The Shares may
----
be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock that are retained by
the Company upon exercise of an Option in order to satisfy the exercise price
for such Option, or any withholding taxes due with respect to such exercise,
shall be treated as not issued and shall continue to be available under the
Plan. If Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
-2-
<PAGE>
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director who becomes an Outside Director after the
effective date of this Plan (a "New Outside Director") shall be automatically
--------------------
granted an Option to purchase 20,000 Shares (the "First Option") on the date on
------------
which such person first becomes an Outside Director, whether through election by
the stockholders of the Company or appointment by the Board to fill a vacancy.
In addition, each Director who was elected to the Board by the holders of the
Company's Preferred Stock pursuant to Section 7(a) of the Company's Amended and
Restated Certificate of Incorporation who continues to be a Director on the
effective date of this Plan (such person, a "VC Director") shall receive a First
-----------
Option on the date of the first Annual Meeting of Company's stockholders
following the effective date of this Plan, provided such VC Director continues
to serve on the Board immediately following the time of such Annual Meeting.
(iii) Each Outside Director shall thereafter be automatically granted
an Option to purchase 5,000 Shares (a "Subsequent Option") on the date of each
-----------------
Annual Meeting of the Company's stockholders immediately following which such
Outside Director is serving on the Board, provided that, on such date, he or she
shall have served on the Board for at least six (6) months prior to the date of
such Annual Meeting and provided further that each VC Director shall not receive
a Subsequent Option on the date of the first Annual Meeting of the Company's
stockholders following the effective date of this Plan.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in accordance with Section 17 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
17 hereof.
(vi) The terms of each option granted hereunder shall be as follows:
(1) each option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 9
below;
-3-
<PAGE>
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of each option, determined in
accordance with Section 8 hereof;
(3) each First Option and each Subsequent Option shall be
exercisable in its entirety immediately upon grant.
(c) Powers of the Board. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8 of the Plan; (iii) to interpret
the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the Chief Executive
-----------------------------------
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, such officer may suspend the Optionee's right to
exercise any option pending a determination by the Board (excluding the Outside
Director accused of such misconduct). If the Board (excluding the Outside
Director accused of such misconduct) determines an Optionee has committed an act
of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Board of Directors (excluding the
Outside Director accused of such misconduct) shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's behalf at a
hearing before the Board or a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
-4-
<PAGE>
6. Term of Plan; Effective Date. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
7. Term of Options. The term of each Option shall be five (5) years from
---------------
the date of grant thereof unless an Option terminates sooner pursuant to Section
9 below.
8. Exercise Price and Consideration.
--------------------------------
(a) Exercise Price. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
-----------------
the Board; provided however that in the event the Common Stock is traded on the
Nasdaq National Market or listed on a stock exchange, the fair market value per
Share shall be the closing sales price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
--------
Street Journal, or if there is a public market for the Common Stock but the
- --------------
Common Stock is not traded on the Nasdaq National Market or listed on a stock
exchange, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System).
(c) Form of Consideration. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) above; provided however that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 below has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the
-5-
<PAGE>
Option is exercised has been received by the Company. Full payment may consist
of any consideration and method of payment allowable under Section 8(c) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as practicable
after exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. If an Outside
----------------------------------------------
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee: (A)
-----------------
during the term of the Option who is, at the time of his or her death, a
Director of the Company and who shall have been in Continuous Status as a
Director since the date of grant of the Option, or (B) three (3) months after
the termination of Continuous Status as a Director, the Option may be exercised,
at any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or the date of termination, as applicable.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that an Optionee was not
entitled to exercise the Option at the date of death or termination or if he or
she does not exercise
-6-
<PAGE>
such Option (to the extent he or she was entitled to exercise) within the time
specified above, the Option shall terminate and the Shares underlying the
unexercised portion of the Option shall revert to the Plan.
10. Nontransferability of Options. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii) and
(iii) above, and the number of Shares of Common Stock which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) Corporate Transactions; Change of Control. In the event of a
-----------------------------------------
Corporate Transaction, each outstanding Option shall be assumed or an equivalent
option shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation, unless the successor corporation does
not agree to assume the outstanding Options or to substitute equivalent options,
in which case the Options shall terminate upon the consummation of the
transaction.
For purposes of this Section 11(b), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon such Corporate Transaction or Change of Control, each
Optionee would be entitled to receive upon exercise of an Option the same number
and kind of shares of stock or the same amount of property, cash or securities
as the Optionee would have been entitled to receive upon the occurrence of such
transaction if the Optionee had been, immediately prior to such transaction,
-7-
<PAGE>
the holder of the number of Shares of Common Stock covered by the Option at such
time (after giving effect to any adjustments in the number of Shares covered by
the Option as provided for in this Section 11); provided however that if such
consideration received in the transaction was not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon
exercise of the Option to be solely common stock of the successor corporation or
its Parent equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(c) Certain Distributions. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction where Options are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time (the "Applicable Laws"). Such compliance shall be determined by the
---------------
Company in consultation with its legal counsel.
-8-
<PAGE>
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Stockholder Approval. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company.
Such stockholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
-9-
<PAGE>
ACTIVE SOFTWARE, INC.
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
((Optionee))
((OptioneeAddress1))
((OptioneeAddress2))
You have been granted an option to purchase Common Stock of Active
Software, Inc. (the "Company") as follows:
-------
Date of Grant ((GrantDate))
Vesting Commencement Date ((VestingStartDate))
Exercise Price per Share ((ExercisePrice))
Total Number of Shares Granted ((SharesGranted))
Total Exercise Price ((TotalExercisePrice))
Expiration Date ((ExpirDate))
Vesting Schedule This Option may be exercised, in
whole or in part, in accordance
with the following schedule:
((VestingSchedule))
Termination Period This Option may be exercised for 90
days after termination of
Optionee's Continuous Status as a
Director, or such longer period as
may be applicable upon death or
Disability of Optionee as provided
in the Plan, but in no event later
than the Expiration Date as
provided above.
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: ACTIVE SOFTWARE, INC.
_________________________ By:__________________________
Signature
Title:_______________________
_________________________
Print Name
<PAGE>
ACTIVE SOFTWARE, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
1. Grant of Option. The Board of Directors of the Company hereby grants
---------------
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
-------- ------
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
--------
Price"'), subject to the terms and conditions of the 1999 Directors' Stock
- -----
Option Plan (the "Plan"), which is incorporated herein by reference.
----
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. In the event of Optionee's death, disability or other termination of
Optionee's employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
--------- ---------------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
----------------
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
<PAGE>
(b) check;
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.
6. Tax Consequences. Set forth below is a brief summary of certain
----------------
federal and California tax consequences relating to this Option under the law in
effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option. Since this Option does not qualify as an
---------------------
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal and California income tax liability upon exercise. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.
(b) Disposition of Shares. If the Optionee holds the Option Shares
---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes. The long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 28% if the Shares are held
more than one year but less than 18 months after exercise and at 20% if the
Shares are held more than 18 months after exercise.
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.
ACTIVE SOFTWARE, INC.
_____________________ By:____________________________
((Optionee))
Title:_________________________
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement. In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock Option Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the Plan
or this Nonstatutory Stock Option Agreement.
_______________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: Active Software, Inc.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of Active Software,
Inc. Common Stock, under and pursuant to the Company's 1999 Directors' Stock
Option Plan and the Nonstatutory Stock Option Agreement dated _______________,
as follows:
Grant Number: __________________________
Date of Purchase: __________________________
Number of Shares: __________________________
Purchase Price: __________________________
Method of Payment of __________________________
Purchase Price: __________________________
Social Security No.: __________________________
The shares should be issued as follows:
Name: __________________________
Address: __________________________
__________________________
__________________________
Signed: __________________________
Date: __________________________
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
"We consent to the use in this Amendment No. 1 to Registration Statement No.
333-80549 of Active Software, Inc. on Form S-1 of our report dated January 22,
1999 (June 10, 1999 as to the first eight paragraphs of Note 10, June 28, 1999
as to the last paragraph of Note 10 and July 15, 1999 as to Note 11) appearing
in the Prospectus, which expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement described in Note 11, which
is part of the Registration Statement and of our report dated January 22, 1999
relating to the financial statement schedule appearing elsewhere in this
Registration Statement. We also consent to the reference to us under the
headings "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
San Jose, California
July 19, 1999"
The consolidated financial statements of Active Software, Inc. included in
the Prospectus have been adjusted to give effect to the three-for-two common
and convertible redeemable preferred stock split as described in the sixth
paragraph of Note 10 to the consolidated financial statements. The above
consent is in the form that will be signed by Deloitte & Touche LLP upon the
effectiveness of such event assuming that from July 19, 1999 to the effective
date of such event, no other events shall have occurred that would affect the
accompanying consolidated financial statements or notes thereto.
/s/ Deloitte & Touche LLP
_______________________________
DELOITTE & TOUCHE LLP
San Jose, California
July 19, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 7,461 6,729
<SECURITIES> 0 0
<RECEIVABLES> 3,562 4,289
<ALLOWANCES> 200 200
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,318 11,325
<PP&E> 1,697 2,637
<DEPRECIATION> 901 1,061
<TOTAL-ASSETS> 12,294 13,207
<CURRENT-LIABILITIES> 3,825 9,127
<BONDS> 0 0
0 0
25,117 25,117
<COMMON> 3,934 6,132
<OTHER-SE> 20,690 27,228
<TOTAL-LIABILITY-AND-EQUITY> 12,294 13,207
<SALES> 7,599 8,668
<TOTAL-REVENUES> 7,599 8,668
<CGS> 2,767 3,269
<TOTAL-COSTS> 2,767 3,269
<OTHER-EXPENSES> 15,045 10,790
<LOSS-PROVISION> 118 0
<INTEREST-EXPENSE> 42 47
<INCOME-PRETAX> (9,942) (5,342)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9,942) (5,342)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,942) (5,342)
<EPS-BASIC> (3.21) (1.08)
<EPS-DILUTED> (3.21) (1.08)
</TABLE>
<PAGE>
EXHIBIT 99.1
July 16, 1999
Sandy McBride
Active Software, Inc.
333 Octavius Drive
Santa Clara, CA 95054
Dear Ms. McBride,
Per our discussion you have approval to use the following statistics as stated
below (in bold) showing META Group's estimate of the number of applications that
the average Fortune 1000 company maintains and the IT budget allocation for
their integration-related efforts.
From Active Software prospectus (page 36, paragraph 2, Industry Background)
"META Group estimates that the average Fortune 1000 company maintains 49
distinct enterprise applications and spends from one-quarter to one-third of its
total IT budget on integration-related efforts."
Sincerely,
/s/ Bernard Denoyer, CFO
in Business Section only
META Group
<PAGE>
EXHIBIT 99.2
July 15, 1999
Sandy McBride
Active Software, Inc.
333 Octavius Drive
Santa Clara, CA 95054
Dear Ms. McBride,
Per our discussion, you have approval to use the following statistics as stated
below (in bold) showing Yankee Group's estimated total application and data
integration software market size and growth rate projected to the end of 2001.
From the Active Software prospectus (page 36, paragraph 2, Industry Background)
"Driven by the increasingly business-critical need for integration, the
application and data integration software market is projected by the Yankee
Group to reach a total size of $5 billion by 2001."
Attached are the Yankee Group estimates.
Sincerely,
/s/ Lisa Williams
Lisa Williams
Senior Analyst, Enterprise Commerce and Applications
Yankee Group
Attachment
